Snap-On Incorporated

call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Sarah Verbsky, Vice President of Investor Relations. Please go ahead, ma

'am. Thank you, Nick, and good morning, everyone. We appreciate you joining us today as we review Snap-on's first quarter results, which are detailed in our press release issued earlier this morning. We have on the call Nick Pinchuk, Snap-on's Chief Executive Officer, and Aldo Pagliari, Snap-on's Chief Financial Officer. Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions. As usual, we've provided slides to supplement our discussion. These slides can be accessed under the Downloads tab in the webcast viewer, as well as on our website, -on.com, under the Investor section. These slides will be archived on our website, along with a transcript of today's call. Any statements made during this call relative to management's expectations, estimates, or beliefs, or that otherwise discuss management's or the company's outlook, plans, or projections are forward-looking statements, and actual results may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in the forward-looking statements are contained in our SEC filings. Finally, this presentation includes non-GAAP measures of financial performance, which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding these measures is included in our earnings release issue today, which can be found on our website. With that said, I'd now like to turn the call over to Nick Pinchuk. Nick?

Thanks, Sarah. Good morning, everybody. As usual, I'll start by covering the first quarter, and along the way, I'll give you my perspective on our results, our markets, the current environment, our position in the turbulence, how we're engaging the situation, and what we think it all means going forward. Then, I'll move on to a more detailed review of the financials. Well, you know, these are interesting times. I don't think we've seen an interlude so packed with economic news. Government shakeups, tariff bursts, the administration declaring that there's likely to be pain before the Renaissance emerges. I mean, the hits just keep on coming. You can see that uncertainty, though, in a more formal way in the consumer sentiment index. It dropped precipitously, decreasing by 30% just since December, the second lowest rating ever. It particularly impacted the perspective of our grassroots economy, like our technician customers. It prompted an avoidance of longer payback finance items that outran the tools we're pivoting to quicker payback products. It created the pause in our upward trajectory that's visible in the quarter's numbers. Our sales of ,100,000, as reported, represented a .5% decline, including $13.9 million on unfavorable foreign currency translation and organic sales that were down low single digits, 2.3%, on mixed results across the operating groups. Operating income for the quarter was $243.1 million, and that compared to $270.9 million in 2024. OI margin was 21.3%, and that was versus last year's 22.9%, which I remind you included 90 basis points associated with a benefit from the 2024 legal win. Now, notably, the gross margin was 50.7%, up 20 basis points despite the reduced volume. In effect, our OI margin gap reflected the fact that we kept spending on maintaining and strengthening our advances in product and branding and people, believing, as we did in the pandemic, that it's best to emerge from turbulence at full strength, and we plan to do just that. For financial services, operating earnings of $70.3 million were up .9% from last year, still from last year's 68.3 million. So as reported, OI margins in the quarter, including both financial services and OPCO, were .2% versus the .5% recorded last year. Quarterly EPS was $4.51, was down 40 cents, which reflected the lower volume, and 16% from last year's legal payment, and 9 cents in higher pension amortization costs included in the 2025 number. So now, let's talk about the markets. We believe auto repair is quite critical. It remains strong. It continues to be a great place to operate, and the industry metrics agree. Now, some people have pointed out that hours worked are down over the last couple of months, and that's true, but there's positive news almost everywhere else. The U.S. car park, on average, is 12.6 years old, and it's getting old. It's old now, and it's getting older. Household spending on car repairs are up substantially, both year over year and over the trailing 12 months, and tech wages continue to rise nicely, you know, mid-single digits. Now, having said that, the technicians are among those who are daunted by the current turbulence. You know, many of them believe we're going to a more positive place, but they fear the economy will careen off the rails before we get there. Those people who work are part of the broad group driving the drop in consumer sentiment, but even though they're now cash rich, they fear they don't have the financial cushion for an -the-rails event as such, and as such, they're reluctant to embrace finance products. Items like tool storage boxes are -the-line diagnostics. We can see it clearly in the double-digit drop in our credit company originations.

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the other hand, we do believe that the techs, though confidence-poor, still have an interest in quicker payback items that makes their work easier. You know, they want to make more money. So our tools group will keep pivoting to match the current preferences, working with perseverance, with focus, and with confidence to restore that group's advance in closing its sales graph, just like it had established last year. So that's the techs sector. But also on vehicle repair, we have independent shops and OEM dealerships, approximate but distinct segments from the techs. That's the market of RS&I. The garages, those people there continue to tool up with the latest equipment and diagnostic systems, meeting the needs of their customers, getting them back on the road quickly. They know they have to invest. They know they need innovative new products, hardware and software that improve efficiency, repair efficiency and accuracy. It's imperative to match the repair complexities of these sophisticated and technically advanced vehicles. It's table stakes for them in the world today, and the repair shop owners and managers will keep moving in that direction. Another opportunity in the market we've seen and we've focused on is critical industries. We've termed the market critical industries. Sectors like natural resources, the military, aviation, heavy duty fleets, where the penalty for failure is high. This is where CNI makes its money. We're offering custom solutions to reach new operations and make their critical work easier. Of course, like everything, we see periods of period challenges and variations across geographies and across segments, particularly in this time. In the first quarter, we did see the usual pause in military business that almost always temporarily accompanies a new sheriff in the Defense Department. After a period of dysfunction, however, the war fighters win out and the process gets back on track. In general, this is a robust arena. We believe the critical industries are in a place of abundant opportunity, and we believe we're growing stronger in that arena every day, connecting with more customers, using the insight to expand our product line and extend our presence wider and deeper. So overall, I describe our markets as continuing to offer opportunities. Of course, this is an environment where challenges do exist and there is turbulence, but we are confident that with our advantages and our strengthening product lines that solve critical challenges and our extraordinary brand that literally defines a professional and our very experienced team that's so enabled, we believe will prevail against these challenges. Now, now, let's briefly address the issue of the day. Tariffs. We have a lot of people who are in the streets. A word that was mentioned last Friday in the Wall Street Journal 254 times. Yesterday it was down to a mere 163 mentions. Paraphrasing Klauswicz, the world is in a fog of tariffs, a time in which there are so many changing variables that it's difficult to see the way forward. It's an environment that will require urgent action to adjust, to optimize, and to take advantage, and we're confident in that fog. We are, of course, not immune to the challenge of tariffs, but we believe Snap-on is greatly advantaged by our manufacturing strategy to make in the markets where we sell and enable quick adjustment to changing production landscapes that are likely to happen. You know, we already have the facilities. 36 factories around the world, 15 right here in the USA, many of which we've just expanded. We're positioned well with American products. Our major product lines are already made in America using American steel, and our US plants already produce some version of almost all our product lines. What that means is no extended ramp-ups for relocated products. We already have the resident know-how right here in the USA. And for the select rates placed in America, where we use some high tariff components, we have 21 factories outside the US sourcing activities in several locations, and that gives us access to a myriad of alternative sources. Finally, skilled American workers, you know, one of the barriers to reshoring or reacting to tariffs is skilled American workers are in short supply. The National Association of Manufacturers, after all, says there are 500,000 openings in US manufacturing right now. But we haven't had difficult filling positions, and we believe we can continue to do just that in the future. So we're in the flag of tariffs, but we are confident and we believe we can engage and manage the turbulence. We're not immune to the impact, but we believe we are very advantaged. Now let's move to the segments. In the CNI group, organic sales decreased by 2.9 percent, all single digits. CNI's operating income was $53.2 million below the 2024 levels by $2.2 million, but operating margins were 15.5 percent, a new first quarter record, up 10 basis points from last year. First quarter, remember, is always seasonally kind of weaker for CNI. In effect, though, if you think about the, this is the key point, gross margin for CNI, gross margin in CNI in the period were 42.6 percent, up 180 basis points. Yes, 180 basis points. In effect, we continued OE investments to expand our advantages despite the lower volume, and it was a well-considered offset to gross margin gains, but we believe it was worth it. We're confident in and committed to extending in critical industries, and we'll keep strengthening our position with CNI as we move forward, observing the task and using those insights to design products that make work easier all across critical industries. You can see that in our torque lineup where precision and accuracy are essential. The aviation market, where penalties are failed, where the penalties vary is high, continues to adapt our control tech wrenches, or what we call a C-Tech, made in the USA, built in our plant located in the city of California. It's an expanding presence in aviation, covering a wide range of sizes, each specifically matched to a unique task. Aerospace makers and fixers love this product for its quality and accuracy, but the big kahuna is its ability to document the force applied to the fastener, wirelessly creating a record that a sensitive task has been completed just as specified. Now, as we recently learned, this is pretty important where aircraft are involved. It's one of the reasons why it's still strong a product. Our Carroll Stream facility in Illinois produces an elite lineup of preset torque wrenches and wireless controllers, devices that excel on any production operation where our proofing, reducing rework, decreasing warranty needs, and just raising customer satisfaction are vital. Actually, it's pretty much everywhere the operation is critical. So our SR controls link with the manufacturer's internal system and they relay engineering protocols directly to the shop floor operator, identifying the right tool, confirming the task is complete and correct, storing the record, all to ensure that the right specs were applied, and make sure nothing leaves the line without being fully correct. And our newly expanded Kenosha facility, another one of our expansions in the United States, the CNI custom tool department makes the very difficult possible. A recent example is the aviation maintenance operation, an aviation maintenance operation that required a -a-kind, abnormally long, three-inch spline socket to effectively access a very complex machine. Now this is not an easy tool to make or to come by, but our customer product team in Kenosha designed it, tested it, and put it in the customer's hands all in quick time, making that critical task easier with insight and speed that's only enabled by an operation close to the customer. That only such an operation close to the customer can achieve. In Murphy, North Carolina, our power tool plant launched a new combination set that was quite well received. The star of the set was our PH3050B series air hammer that really packs a punch, hitting with unwavering force, tackling heavy duty repairs with power and speed, 2,500 blows per minute, our specially hardened piston strikes the chisel with enough force and kinetic energy to dislodge even the most stubborn components. But the coolest part of the design is the special Kevlar disc inside the hammer's body, absorbing the shock, dramatically softening the vibration, making it more ergonomic, much easier and more comfortable for the operator, no more jackhammer joints. Now in our new set, that beast hammer is paired with our most popular air chisels, hot forage for durability in our Elizabethan Tennessee plant and kitted into a foam pallet for easy storage. It's a great package and the techs know it. So that's C&I, a high and first quarter profit margin, delivering solutions that make work easier, make work safer and easier and more productive, all enabled by American plants. Now onto the tools group. Organic sales were down 6.8 percent, with a high single digit decline in the US, partially offset by low single digit gain internationally. There's a difference between those markets, you notice. Opportunity income of 92.4 million compared with the 117.3 million of 2024, with an operating margin of 20 percent. The tools group continued to see challenges with the technicians' sliding confidence, with greater hesitancy to purchase long payback items like large tool storage buckets or big ticket items in general. The pivot to faster payback items was gaining traction against the worry brought on by the ongoing wars, the border crisis and the consistent inflation. But we believe the events of the first quarter drove down confidence at an accelerated rate, outrunning the continuing progress of the group's pivot. Our shift is powered by altered capacities and refocused marketing and promotion campaigns and probably most importantly by the introduction of innovative new products that make immediate impact with the short-term payback. Products like Maiden's Snap-on factories like our recently expanded Milwaukee, Wisconsin plant, bringing raw American steel into the back door, forging it into near-net shape, applying skill and know-how to harden and finish the steel into a final product. One example is our low-profile flank drive socket, capacity, recently expanded, purposely built to navigate tight quarters, enabling the tech to beat the clock, beat the flat rate and expedite the repair by maneuvering around instead of removing obstacles to reach the fastener. It gets to get right around, doesn't have to spend the time removing the obstacle. Once engaged, the patented design grips the bolt on flat and not on the corners, quickly removing the part with ease without debilitating damage to the points of the fastener. Quick payback items like our other quick payback items like our Synergy 100-tooth ratchet, Maynard Elizabethan Tennessee Forge, a design that's unprecedented for strong and easy operation in tight spaces. It's now been introduced for our entire range, including our challenging to make long-handled versions. This quarter we put the Synergy together with an array of those low-profile sockets, a combination that offers increasing accessibility, versatility and reliability. A powerful match, the shops love those quick payback sets and they're right in the current preferences for the techs. And when technicians are bouncing from bay to bay or job to job, they need versatility to make speedy adjustments and remove hardware. So another quick payback hit product is our lineup of adjustable wrenches made in our Elkmont, Alabama facility. It's the only America-made adjustable wrench on the market. It's a demonstration of US-made flexibility, handling a wide range of different sized fasteners with just one tool. And you know, the kind of the cool part about this is the smaller models are easy to fit in your pocket, so they're always as ready as you move from bay to bay. And for customers needing to secure their tool investments, we released our latest additions to the roll-cart lineup, our KHP-46. Now this is at the bottom end of the bigger ticket items. It rolls out of our Algona, Iowa facility and it provides a rugged and secured storage that's only 40 inches wide, making it easy to position right in the work area. But it's equipped with slides providing drawer capacity up to 240 pounds. That means it's a solid chassis that can hold everything necessary for positioning essential tools close to the workplace. In addition, the unit's top compartment can be configured in multiple layouts for managing power tools. And it's got an installed 120 volt outlet and USB port that allow all of Tech's electronic accessories and cordless batteries to be charged and be at the ready. The KHP-46, a roll-cart that is solid, mobile with powerful features, a sturdy storage solution with a quicker payback. It matches the needs of, you know, confidence poor tech that require a storage upgrade now and it is popular. Well, that's the tools group, armed with U.S. factories, vertically integrated with the ability to speed designs and flexibility for pivoting to short payback items determined to prevail in the turbulence. Now let's move to our arsenal. Sales in the first quarter, 475.9 million with an organic gain of 3.7 percent, advancements in our diagnostics and Mitchell 1 operations and strong double-digit improvements in our OEM markets. Operating earnings for our arsenal were 122.1 million, up 9.2 million or 8.1 percent from last year. And the operating margin was 25.7 percent, representing an all-time high for the first quarter and that was up 140 basis points better than 2024. You know, reflecting continuing software expansion and the benefits of RCI. RCI shined through the turbulence this quarter with a gang busters performance and it was enabled by product. So let's talk about that product in a minute. We continue to enhance our software coverage, leveraging our proprietary databases with over 500 billion data points and 3 billion repair records, numbers that are unrivaled in the industry and unrivaled in helping techs navigate and diagnose cars faster. It's a lasting advantage. And keeping current with the techs preference, keeping consistent or current with the techs now preferences, we celebrated the 20th anniversary of our Solace diagnostic unit. This version, the latest version, called the Solace Plus. It's aimed at simplifying the complex and making techs faster at diagnosing the true failures of modern vehicles. It's our fastest handheld with a two second boot up and it's our fastest payback way to powerful vehicle diagnostics. And the techs responded to the campaign, recognizing the power and the speed of the handhelds all at a quick payback. The program was actually one of the highlights of the quarter. Later in the quarter, our Rochester Hills, Michigan facility released our all new ProLink thoughts platform. The handheld diagnostic platform focused on heavy duty commercial trucks, new hardware, a faster processor and an improved touch speed. But the major advancement is integration with our repair databases of Mitchell 1, putting repair procedures, vehicle specifications and step by step routines for fixing the truck directly into the techs hands. The new Michigan based ProLink put Snap-on in the clear lead for multi-model heavy duty diagnostics. And Louisville, Kentucky is home to our vehicle lift plant, all types and sizes of lifts. And among the biggest hits is our Challenger CV10AV3, the two post lift with the unique ability to adjust in width on the fly. It's flexible enough to be installed in any facility, in any bay and powerful enough to handle a wide range of vehicles. You know, lifting vehicles is essential for accessing suspension system and for making transmission setups and for EV repairs. And for a range of shop tasks, with this lift the techs can adjust the suspended height, allowing for the best ergonomic approach to the work and bringing them closer to the work piece to execute the repair. The Challenger 334B is a great product and everybody knows that it's from Louisville, Kentucky. We know this is a turbulent time, but Ars and I had a strong quarter and we are striving to expand that group's position with repair shop owners and managers, offer more new products, develop our value creation process and we believe it is a winning formula. Well, that's our first quarter, quarters of both, challenge and advancement, gross margin 50.7%, up 20 basis points despite the volume low, the lower volumes. The tools group continues to pivot toward shorter payback items, matching techs preferences, CNI penetrating critical industries, recording Q1 operating margin of .5% driven by precision torque and custom solution. Ars and I also recorded an operating margin record in the first quarter, .7% driven by software and unmatched database. The environment is interesting. We are on alert, but we are confident, confident in our product, in our brand, and in our people and confident in our ability to confront the fog with clear advantage. Now I'll turn the call over to

Aldo.

Aldo?

Thanks, Nick. Our consolidated operating results for the first quarter are summarized on slide six. Net sales of ,100,000 in the quarter compared to ,300,000 in the quarter. ,300,000 last year reflecting a .3% organic sales decline and $13.9 million of unfavorable foreign currency translation. Activity in our automotive repair markets was mixed. Gains in sales to OEM and independent shop owners and managers were more than offset by lower sales to technicians through our franchise van channel. Within the industrial sector or our CNI group, as compared to last year, declines in sales to the military and our European-based hand tools business more than offset increases with other critical industry customers. Consolidated gross margin improved 20 basis points to .7% from .5% last year primarily reflecting benefits from the company's RCI initiatives. Operating expenses as a percentage of net sales rose 180 basis points to .4% from .6% in 2024, mostly due to a non-recurring benefit of $11.3 million from legal payments received last year and the effects of lower sales volumes, partially offset by savings from RCI initiatives. Operating earnings before financial services of $243.1 million in the quarter compared to $270.9 million in 2024 as a percentage of net sales operating margin before financial services of .3% compared to .9% reported last year, which included a benefit of 90 basis points from the legal payments. Financial services revenue of 102.1 million in the first quarter compared to 99.6 million last year while operating earnings of $70.3 million compared to $68.3 million in 2024. Consolidated operating earnings of $313.4 million compared to $339.2 million last year as a percentage of revenues, the operating earnings margin of .2% compared to .5% in 2024 again including the benefit from the legal payments. Our first quarter effective income tax rate was .2% in both years. Net earnings of $240.5 million compared to $263.5 million in 2024 and net earnings per diluted share of $4.51 in the quarter compared to $4.91 per diluted share last year. When comparing the quarter's EPS with the first quarter of the prior year, there is a 25 cent of headwinds on a -over-year basis. In the first quarter of 2025, diluted earnings per share included approximately 9 cents per share of increased -over-year non-service net periodic pension expenses primarily from higher amortization of actuarial losses while the first quarter of 2024 included a 16 cent per share benefit from the legal payments. Now let's turn to our segment results for the quarter. Starting with the CNI group on slide 7, sales of $343.9 million compared to $359.9 million last year reflecting a .9% organic sales decline and $5.6 million of unfavorable foreign currency translation. The organic reduction includes low single-digit decreases in activity with customers in critical industries and in the European-based hand tools business. With respect to critical industries, a double-digit reduction in sales to the military mostly as a result of contract delays more than offset higher sales of our specialty torque products and in other critical industry sectors. Gross margin improved 180 basis points to .6% in the first quarter from .8% in 2024. This is primarily due to lower material and other costs, increased volumes in the higher gross margin sectors of critical industries and savings from RCI initiatives. Operating expenses as a percentage of sales of .1% in the quarter compared to .4% largely reflecting the impact of reduced sales volumes. Operating earnings for the CNI segment of 53.2 million compared to 55.4 million last year, the operating margin improved 10 basis points to .5% from .4% in 2024. Turning now to slide 8, sales in the Snap-on Tools group of 462.9 million compared to 500.1 million a year ago reflecting a .8% organic sales decline at 3.6 million of unfavorable foreign currency translation. The organic decrease reflects a high single-digit decline in the U.S. business, partially offset by a low single-digit gain in our international operations. During the quarter, we believe the heightened economic uncertainty continued to weaken confidence and technician sentiment which impacted their willingness to increase their purchases in the current environment. Gross margin declined 190 basis points to .3% in the quarter from .2% last year, mostly due to a -over-year shift in product mix and from the decreased volumes. Operating expenses as a percentage of sales of .3% in the quarter compared to .7% in 2024 largely reflecting the lower sales volumes. Operating earnings for the Snap-on Tools group of 92.4 million compared to 117.3 million last year, the operating margin of 20% compared to .5% in 2024. Turning to the RS&I group, short on slide 9. Sales of 475.9 million dollars compared to 463.8 million dollars in 2024 reflecting a .7% organic sales increase, partially offset by $4.9 million of unfavorable foreign currency translation. The organic gain includes a double-digit increase in activity with OEM dealerships and a low single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers. These gains more than offset a -single-digit decline in sales of undercar equipment. Gross margin improved 70 basis points to .7% from 45% last year, primarily reflecting increased sales of higher gross margin products and benefits from RCI initiatives partially offset by higher material and other costs. Operating expenses as a percentage of sales improved 70 basis points to 20% from .7% in 2024 largely due to the higher sales volumes and savings from RCI initiatives. Operating earnings for the RS&I group of 122.1 million compared to $112.9 million last year. The operating margin improved 140 basis points to .7% from the .3% reported last year. Now turning to slide 10, revenue from financial services of 102.1 million reflected an increase of $2.5 million or .5% from $99.6 million last year. Financial services operating earnings of 70.3 million compared to $68.3 million in 2024. Financial services expenses of 31.8 million compared to $31.3 million last year. Provisions for credit losses of 19.1 million compared to $18.8 million in 2024. As a percentage of the average financial services portfolio, expenses were .3% in the first quarters of 20 years. In the first quarters of 2025 and 2024, the respective average yields on finance receivables were .6% and 17.7%, while the average yields on contract receivables were .1% and 9% respectively. Total loan originations of $268.7 million in the first quarter represented a decrease of $33 million or .9% from 2024 levels, including an .7% decline in extended credit originations. The decrease in extended credit origination mostly reflects lower sales of big ticket, longer payback items such as tool storage units. Moving to slide 11, our quarter end balance sheet includes approximately $2.5 billion of gross financing receivables with $2.2 billion from our U.S. operation. For extended credit or finance receivables, the U.S. 60-day plus delinquency rate of 2% is up 20 basis points from the first quarter of 2024, but unchanged from the last reported, the number reported last quarter. Trailing 12-month net losses for the overall extended credit portfolio of $67.8 million represented .41% of outstandings at quarter end, while the last quarter loss delinquencies and net losses have been trending upward, we believe that these portfolio performance metrics remain relatively balanced considering the current environment. Now turning to slide 12, cash provided by operating activities of $298.5 million in the quarter represented 121% of net earnings than compared to $348.7 million last year. The decline as compared to the first quarter of 2024 largely reflects the lower net earnings and higher -over-year increases in working investment. Net cash used by investing activities of $32 million mostly reflected capital expenditures of $22.9 million and net additions to finance receivables of $8.2 million. Net cash used by financing activities of $193.6 million included cash dividends of $112.2 million and the repurchase of 260,000 shares of common stock for $87.2 million under our existing share repurchase program. As of quarter end, we had remaining availability to repurchase up to an additional $398.4 million of common stock under our existing authorizations. Turning to slide 13, trade and other accounts receivable increased $37.1 million from 2024 year end. Day sales outstanding of 66 days compared to 62 days at year end 2024. Inventories increased $17.8 million from 2024 year end including some investment to mitigate supply chain uncertainties. On a trailing 12-month basis, inventory turns of 2.4 were the same as year end 2024. Our quarter end cash position of ,434.9 million compared to ,360.5 million at the end of 2024. In addition to that, we have more than $900 million available under our credit facilities. There were no amounts borrowed or outstanding under the credit facility during the year nor was any commercial paper issued or outstanding in the year. That concludes my remarks on our first quarter performance. I'll now review a few outlook items for the balance of the year. With respect to corporate costs, we currently believe that expenses for the remainder of 2025 will approximate $27 million per quarter. Additionally, during 2025, as previously shared, we have and expect to incur approximately $6 million pre-tax per quarter of increased non-service pension costs largely due to higher amortization of actuarial losses. These non-cash costs are recorded below operating earnings as part of other income and expense net on our statement of earnings. We'll have about a nine cent per diluted share quarterly negative effect on EPS for the balance of 2025. We expect that capital expenditures will approximate $100 million and we currently anticipate that our full year 2025 effective income tax rate will be in a range of 22 to 23%. Finally, in 2025, our fiscal year will contain 53 weeks of operating results with the additional week occurring in the end of the fourth quarter. This occurs every five or six years and historically has not had a significant effect on our full year or fourth quarter total revenues or net earnings. I'll now turn the call back to Nick for his closing thoughts.

Nick? Nick Seldum. Well, that's our quarter. It's a period marked by particular and acute uncertainty piling on our already competent poor technicians and abrupt development that set us back for the quarter. Overall sales were down a little singly, just .4% organically. The OI margin was .3% down but still relatively strong, authored by a gross margin of 50.7%, up 20 basis points despite the lower volume. Again, a gain attenuated by our considered decision to keep investing despite the lower volume. The tools group impacted by the continuous air bursts of commercial change. Sales and OI margin both afflicted but CNI and Arseneye had bulwark performances. They were pillars of continuing strength supporting the enterprise. CNI successful in critical industries with torque and custom solutions. Sales down but more than explained by the settling in of the new military leadership and overall registering an OI margin of .5% up 10 basis points for a first quarter record. Arseneye, another strong performance, sales up .7% organically with OI margin of .7% up 140 basis points for another first quarter record driven by progress in software, the power of its databases and the benefits of RCI. Gains across that group. And of course, the fog of tariffs, a challenge that dominates the commercial landscape and Snap-on is not immune to the effects but we believe we are advantaged with newly expanded facilities. 15 factories all across America with deep know-how in America to make our major products. With a global sourcing network, 21 plants all across the globe to be agile and optimizing against whatever tariff array emerges and with an ability to track and hold manufacturing associates. So these are interesting times. Action packed with news every day. We are on alert. But we're also confident. Confident in our ability to navigate through the turbulence. Confident in the opportunities available in our central markets and of our position in the fog of tariffs. Not immune but advantaged. And most of all, confident in our product that truly does make work easier. Confident in our brand that really does mark the serious professionals and confident in our people. Battle tested and committed that led us through, that led Snap-on through the great financial recession and the pandemic and came out roaring. And we believe that powerful combination will overcome the turbulence and extend our long-term positive trajectory as it has done so many times in the past. Now before I turn the call over to the operator, I'll speak to our associates and franchisees in these turbulent days. I'll simply say for your contributions made every day, for your deep dedication to our team and for your unshakable confidence in our future held fast even in the turbulence, I thank you all. Now I'll turn the call over to the operator. Operator.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. And your first question today will come from Scott Stember with Roth MKM. Please go ahead.

Good morning and thanks for taking my questions. Sure, Scott. Nick, yeah, you were talking about obviously it sounds like the shops are still relatively strong but the confidence for the technicians is falling even further than before. So what's the game plan here? Do we see opportunities to further pivot to lower price items or is there something else that needs to be done here?

Look, I think there's a couple of factors there. One is the pivot worked in the first quarter. It's just I don't think we've seen a place where the hits just kept coming so much. I mean when the administration itself says there will be pain, this is kind of unprecedented and you can see it in the consumer sentiment. If you look at those numbers, you see the drop from December is precipitous. And so we didn't know about that when we were talking to people. We talked to franchisees all over the country and we heard that in the shops and really what it is is our pivots worked. I talked to some of them that did pretty well. Some of those sets I talked about sold well. Some of the products in like the carts sold well. What we learned in the period I think that's a little bit different is we were pivoting to what you would call standard short quicker payback items but what we found if we tailored things at the bottom end of the bigger ticket items like carts that simulated a box like the solace which is at the bottom of the diagnostics, we could make hay with those as well. Now you can't say you made great hay when you're down .8% organically, you know, but that's really what we saw in that situation. So we're going to keep pivoting because we saw it continued traction. It just got overrun. This was an unusual period. I think anybody who says this is an unusual period isn't reading the Wall Street Journal and seeing tariffs in 254 times. And so the thing is that's what we saw. So we think the pivot, we learned some things on how to make the pivot better so we're going to continue to do that and we'll learn from those things as we adjust. We're pretty confident that this works. You know, and if you don't believe it's America, look at the outside the United States. Outside the United States, less affected by all this turbulence in recent days, all those businesses went okay.

Got it. And then if you're looking at RS&I and CNI, RS&I in particular, if you were to back out the intercompany declines, which I assume had a pretty big impact there, what would the organic rates, sales rates in RS&I have been?

It's about the same. It's a little bit better. I think it's, the organic rate was about .7% and if you backed out the inner companies, you're probably in the four range, something like that, maybe a little bit better in that situation. RS&I, the big thing about RS&I is it's software packed these days. Software is up more than the increase in that. And the cool thing about it, Scott, is if you look at the RS&I division, almost all of them are up nicely profitability. So they're hitting on all cylinders. They really did have a strong quarter. And if you look back, it's been strong quarter after strong quarter after strong quarter. Now, I realize some people may have thought it would have been done better. They might have sold more. You could have argued that. Maybe a percentage point more. You could have thought that. But 25.7%, up 140 basis points, this is a pretty good quarter. And it's driven on the strength of their product and the increasing ability to affect the database. AI is part of that. Part of the reason why the databases are getting better and more effective is we can now translate what the, we can use natural language processing that will translate what the technicians say about the repairs much more efficaciously into a database without as much time. So we're able to move forward in building that database much more effectively. And that's helped us in this situation. But you can see there that even in diagnostics, we're making them, we're pretty well positioned against the terrorists. I'm not saying we're immune. I've said this many times. We're not immune. But we like

where we are. Got it. And then the last question before I go back in the queue, it sounds like the military had a pretty profound impact on critical industries. Was that having anything to do with these Doge movements? Or is there something that we should expect to see in the quarters ahead on the military?

I don't know. I don't know if it had anything to do with the Doge. I think it more had to do with people trying to, you know, you've got budget cycles in there. But I will tell you, Scott, we saw it in the Biden administration. Anytime the administration changes, there's a new sheriff in town and he won't be pushed around. And so the thing is, they change the, you know, they start talking about the procurement processes and so on, slows everything down. And then after a while, the war fighters kind of say, you know, the 50 caliber bullets, when they go overhead, I'd like to have better tools. You know, I don't want to have, I don't want to have somebody else's tools or some tools that are missing. And everybody caves and it goes back to normal. So I think that's really what you're seeing mostly in the situation. I don't think it was associated with Doge, except for maybe, Scott, the psychology of the Doge sword waving overhead of all government employees. But I don't know how to evaluate that. It was, it was significant, you know, without, let's put it this way, without the military downturn, C&I would have been up.

Gotcha.

All right. That's all I have. That one sector was enough. Everything else was good. You know,

Awesome. Thank you so much.

And your next question today will come from David McGregor with Longbow Research. Please go ahead.

Good morning, everybody. Morning, David. Good morning, Nick. I wanted to start off by just asking about truck level sales cops. What do you think those look like this quarter in the US?

They say that you said truck, you mean the van?

Yeah, the van sales cops. Yeah, sales cops off the van.

They're about the same as, you know, we saw to the van, you know, about that same level. It was pretty much matched up, you know, in this quarter. It isn't always matched up in a quarter, but this particular quarter was kind of dead on, you know, pretty much the same. So they, we sold to them about what they sold off the van. So I don't know what to make of that because it always rolls up and down, as you know, because you followed us for years, you know, it kind of, it usually varies from period to period, but this was one of those that matched up.

You didn't see any de-stocking at the truck level?

No, we didn't. We didn't see that. Now, there could have been some, you know, but I don't think so because the numbers matched. Of course, it's an imperfect situation. And I will tell you that the franchisees start to get daunted when they technicians talk about these things, but the franchisees have a lot more, I would say, cushion to deal with what I said would be an off the walls thing, off the rails thing. I mean, really what happened is reflected in a customer sentiment and maybe some of the franchisees got some of that thing, but there wasn't much de-stocking.

And then you talked about negative mix in the tool segment. I'm just trying to reconcile that with the narrative.

Diagnostics. The low end diagnostics sold. Remember I said that's why I brought, that's actually why I put the Solus thing in there. One, we learned something about it that we could chip away at the bottom end of the big ticket items and have success if we positioned them and programmed them correctly. And diagnostics driven by that low end, the Solus, you know, the speedy one and cheaper, was up in the quarter. And anytime diagnostics is up in a quarter, it's a weight on tools groups, margins, because as you know, they share the margin with the RS&I group.

Right. So what would hand tools have looked like, Nick? Just to isolate that category.

Hand tools were not up, but they were certainly not down the way tool storage was. Tool storage was a killer. And if you look at the originations, if you look at the originations in the quarter, you can see it, huh? You know, coming out of last year, the originations were down 5.8%, where they were down almost double in this quarter, 11.7%. And I think that's it all.

Okay. How do you respond promotionally to the weaker demand?

Well, you know, our margins, our gross margins in the tools group were down some, but some of that has to do with the mix I just talked to you about, you know, and we tend not to change prices that much. I mean, certainly across the corporation, I would say the .7% gross margin is ample evidence that, you know, up 20 basis points when your volume is down like this, is ample evidence that you aren't giving it away in pricing. So while we do get more active in promotions and we try to make it more attractive to the customer, we're not out there begging for volume. You know, I don't like that. And so we don't, we don't really do that.

And Nick, can you talk about the regional kickoff? Can you talk about the regional kickoffs and just were orders up or down this year and by how much?

The regional kickoffs were down this year. And I'm not going to give you how much because it was distorted, David. It's hard for us to evaluate because, you know, not so great is that several of them were affected by snow. And so what happened was some of these regions, some of these regions, I was at one, you know, some of these regions, I'm feeling some of these regions are pretty big, you know, and so snow storms were bearing down so people left early. And so we didn't quite have the full participation that we like to have in those situations. So it was hard for us to evaluate. It was one of the things that was difficult to evaluate what was happening in a quarter in the beginning because we looked at those and a lot of them were subject to these kinds of one off type weather situations. And so we weren't sure what to make of that. But, you know, when you talk to the techs themselves, you can hear that it's certainly starting to break through, especially as we started to get later in January when you started here after the after the inauguration. Everybody loves the archives, love the administration. But like I said, I think I said last quarter, it feels like they're on Space Mountain. They're afraid they're going to go off the rails.

Right. Last question for me is just on manufacturing capacity. And, you know, you've done a lot there recently, but I'm also guessing that backlogs are directionally lower now as a consequence of this demand situation. Can you say about how much your backlogs are down and in what product categories you may be seeing the greatest backlog depletion?

Tool storage. Remember, we used to have, remember about a year and a half ago, we were up to our Algonquin facility and the demand has dropped off for the big ticket boxes. Now we shifted more capacity to lockers and carts and so on, which is, I think, one of the things we have confidence in going forward. So we think we're in good shape. I mean, we don't have a lot of backlog everywhere. Now certain products are backlogged. Swivel sockets, for example, have a little bit of backlog. You always have some kinds of things. But generally, the expanded capacity has put us in the right position. That's why we think we're at one of the reasons why we think we're at an advantage for the tariffs. We are available for American production.

Got it. Thanks very much.

Okay.

Your next question today will come from Gary Presapino with Barrington Research. Please go ahead.

Good morning, everyone. Good morning, Gary. Nick, you mentioned in your opening comments about the fact that hours worked were down. Yeah. And technicians as well in the quarter. I mean, vehicle repair is generally kind of mission critical. So could we assume that that was less elective maintenance kind of services? Or what do you attribute that to? You know,

Gary, I put that in because it's a fact. Hours down, hours worked, and the rolling 12 was up. Low single digits, but it was up. In the last couple of months, it was down. I want to say .3% or something like that. I'm not sure what that means over a couple of months. It does mean, I suppose, that some of the garages aren't relatively white hot in the last couple of months. But in wintertime, that could mean a lot of things. So in normal times, you know, and lately, all the metrics in vehicle repair have been monotonically improving, improving, improving, improving, improving. And so I suppose we're kind of sensitized to the idea for a couple of months that there was a drop off, and it got my attention and some other people's attention. But I'm not sure what to make of it as a long-term trend. You would believe if hours are down, it probably is elective things because you've got to have your car. You know, so you would think that would be the case, and maybe some people are worried about the -the-rail scenario. I think one of the things you do see is you see consumer sentiment is down. You see our numbers down. But you see other people say, well, consumer activity is strong, but I think they're dealing with a different FICO zip code, FICA zip code, you know, better credits. The better-healed people than maybe the mechanics in the garage or the people of work. And I think that's part of what we see. Ourselves, Aldo, I think, said in his presentation that our own yield dropped from .7% to 17.6%. And that really is the people who are originating loans for us are better credit than they were before. And so it just means that the people at the bottom end are too reticent. They're too afflicted by the uncertainty. So maybe you see some of that in the garages too. I don't know. Because I think people got to repair the cars. You know, sooner or later, you got to go in.

Right. All right. Thank you. And then just lastly, could you maybe comment on, you made a lot of reference to the fact that, you know, this whole issue with tariffs coming up could have impacted technician confidence. As you went through your quarter, did things really accelerate on the downside starting in March? You know, one could take away from what you were saying that a lot of the impact in the tools group in particular was due to these, the uncertainty regarding tariffs, and that kind of cropped up in March.

So maybe give

us a... Go ahead. I

would say, Gary, for the guys I talked to, it wasn't only tariffs. You know, you come out and you're saying, okay, we're going to reduce the government. But then they start, you know, I have no political, there's no political commentary, but they are laying off people, seems like willy-nilly, you know. In other words, no one knows what... And so I think the people at work, even though they truly believe in the trajectory and the goals of the current administration, they're saying, I don't know how the hell they can change all the government this much and not come out with some screw-ups. And then you start hearing stuff like Greenland and Panama and Gaza. You hear that stuff. And so even before they started talking about the tariffs, people are saying, geez, I don't know. You know, what's really happening here? I'm worried that the world's going to come off the rails, and the tariffs came over the top. So that's a long way of saying, I don't think things changed so much. I wouldn't say it got worse. I think it just in general, this was a continual statement that people said, I don't know, our people, after all, aren't really affected by tariffs. But they're kind of saying, the broad view, I don't know if some administration can do this many things, you know, coming up with new ideas every day and not strike out a few times that might screw us up badly. That's the general view. Now tariffs, tariffs is a different thing. It more affects the companies. You know, when I say the fog of tariffs, I'm talking about, you know, the staff on level or the company level, that's dominating everybody. Everybody wants, by the way, everybody wants to talk about tariffs. Anybody you can talk to wants to talk about tariffs. And so it is a fog that does affect technicians, and it affects a lot of different things. We just say, in that fog, as we look forward, we think we're advantaged.

Okay,

thank

you.

Thanks.

And your next question today will come from Sharif El-Sabahi with Bank of America. Please go ahead.

Hi, good morning. Good morning, Sharif. Just within the tools group, are you able to give us a sense of how the demand drop looked throughout the quarter, maybe a bit of cadence, if there's anything? There wasn't

much to say. You know, Sharif, it's hard to say. You know, usually things are different from week to week. This quarter was more uniform. You know, it wasn't, it wasn't, just like I tried to explain to Gary a minute ago, you know, it started out, we thought, and there was really bad weather. So sometimes you can say, oh, okay, it's bad weather. And that happens often in the beginning of the year, because volumes are always light. And so you're like that legend, the princess and the pea, any little change will affect you. And, but it kept, kept being weak. And, you know, when you talk to people, once the administration got in place, they started listening and they're saying, geez, our guys are getting a little over, overactive, let's say. And then that's when they started to worry about the world. You know, it's interesting when you talk to the people at work, you know, the technicians and the guys in the factory, they're pretty savvy on this stuff. And I think it's because they don't have that much vision. And so they're very sensitive to this. We found this all through, you know, a lot of different situations. And in some ways, through the canary in the coal mines, because that's what I've been talking about uncertainty for some time.

Understood. And, you know, we've talked about this dynamic of a shift to quicker payback items for quite a while. Have you seen any shift in the quarter just with regards to the volume? Is that purely just a harder shift towards this trend? Or are you seeing lower demand for even some of the quicker payback items as well?

Well, yeah, we did see some, but, but we, you know, look, I'm just telling you what I think happened from a lot of interviews, you know, windshield surveys and fortified by the metrics of the customers' consumer sentiment numbers. But if you look at it, we had our, the things I put on the, on the, in the event, like, you know, in the, in the, in the script and the discussions, you know, like solace, big hit, synergy paired with the time-throttle pockets, low-probe, big hit, you know, the idea. So those are low payback items that are big hit. The, the, the tool, the sturdy tool storage cart, unprecedentedly holding 240 foot-pounds, big hit. So you had hits in the lower payback items. We had almost no hits in the big payback items. So you can see the progress. I just think, like I said, my assessment, and I think this is played out as some, some both quantitative and qualitative, and, and support from, from interviews and, and from the consumer sentiment numbers is that the, the effects of the last quarter on the general populace with, topped off by the tariffs were so pervasive that they outran our progress in those things. So I think we've made progress in our performance. It's just everything else kind of, the level of everything else kind of dropped. But the stuff we focused on seems to work. It's just the things, you can't focus on everything.

Understood. Thank you for the call. And your next question today will come from Luke Young with Barrett. Please go ahead. Good morning. Thanks for taking questions.

Nick wanted to start in terms of how you can play offense in this environment, and maybe just a finer point, thinking mostly about the tools group in terms of marketing, kind of the balance of engaging franchisees versus engaging with technicians directly, and in terms of investments, the steady pace of investment, just where we might see you look incrementally in terms of allocating dollars this year.

Well, I think I said it. I think we're kind of encouraged by the idea that we can chip away at the lower end of what you might call our traditional big ticket items. After you've run the programs after a while, on say like hand tools and power tools and the other stuff, you kind of got to recycle some. And so now we've found a new and pretty successful area at the lower end of that, like Solace, which is way cheaper than, say, you know, or a cart, which is way cheaper. I mean, it may be a factor four cheaper than a big epic unit. And so you feel as though that's the kind of thing you can focus on. So we're kind of encouraged in that position. And then, of course, you double down, you try to make sure that more of your new product introductions are in the area where you can have effect. You don't want to spend a lot of time worrying about. So you shift resources from the top of the line diagnostics from things like, some of those are already in a pipeline sometimes, or things like epic tool storage boxes or anything that's very expensive. And you try to hit that sweet spot and put most of your development and promotion sources in those areas. So we continue to do that. And particularly when we see this, because what happened in the quarter was the program seemed to work. The other stuff didn't. So the general level dropped because of uncertainty. So we think we can hit. It's just a matter. That's why I say that stuff overran us. You know, you can think about this, that program's successful, the other products, sort of the underlying base dropped in this quarter beyond where it had been before. And so what we'll try to do going forward is focus on those in terms of product. Then in terms of, we've got some ideas around getting to the customers. We're constantly evolving the idea of social media and putting out a little shorter videos, kind of a version of TikTok, only a snap-on network. We're trying to do that. That tends to work for us. But we might have done that anyway. I'm not sure, Luke, but I mean, that's where we'd allocate some resources.

Got it. You know, we've talked a lot about the technician side in terms of sentiment and just how they're reacting to the environment. What about franchisees and the folks that you're spending time on? I guess I'm thinking especially, you know, things like cushion and how they might be thinking about working capital in their businesses, be it inventory, their payables, extended credit, those sorts of things.

Yeah. Look, I think, well, it's down. But it's not bad compared to pre-pandemic levels.

You know?

And they're the same franchisees. So I don't think we quite have, you know, even though this is not something we are cheering about or something like that, it's hardly threatening. It's not enterprise threatening for Snap-on. You can look at the cash flows. I mean, the cash flows is down, but we aren't wringing our hands over. We're trying to figure out where to get cash. We're not going to step back from anything. And most franchisees are in that situation. Now, there are some in which the idea is, like always, down at the bottom end, they may be threatened in this situation. We try to work with them to make sure they can survive this situation. That's another place where we'd spend time to try to make sure that the terminations, you know, the exiting and the franchisees stay right in the same place. And more or less, for government work, it has stayed in the same place. It's just in this environment, it's a little harder to get people to move because everyone who might be a franchisee is, in fact, somewhat confidence impaired in this situation.

Got it. Thanks, Nick. Appreciate the comments. And your final question today will come from Patrick Buckley with Jeffreys. Please go ahead.

Hey, good morning, guys. Could you talk a little bit more about recent dealer sentiment? I guess Liberation Day and all the auto tariffs for more of a Q2 event. So anything notable to call it there to start the quarter?

What do you mean by dealers? You mean automotive dealers?

Yeah, and just demand for higher spend. You mean like

Chevy dealers?

No, the auto dealers.

Yeah, like Chevrolet dealer or BMW dealer? Yeah, exactly. Look, I don't think we saw any particular move in that situation. Here's the thing. You know, in our orb, it doesn't really for sure make any difference what happens with new cars. Not for sure. In fact, the dealerships make, you're probably very familiar with this because I think you look at dealers all the time, they make a lot of money on repair and spare parts and use cars. They don't make so much money on new cars. So if the new cars, if you have tariff problems in the new cars or the auto companies are spitting up blood all over the ID, they got tariffs going back and forth and can't, and it doesn't make that much difference, I think, for the dealerships. Now the dealerships moan about not having new cars, but I do remember during the pandemic when they didn't have new cars, their margins were at an all-time high, I think. So I don't think being in the back shop, it doesn't affect us so much. And so when I talk to dealerships, they will moan about the worry that, boy, if they can't get cars, they are going to lose some, and if asymmetrically they have less cars and say their competition in the area, they may lose the customer bases that they worked so hard to build up. There's that kind of thing. But I don't think for the near term that makes much difference for our business with them. I don't think they pull back. They might. Some of them do, but some of them actually think in those environments that they want to invest in repair more because, you know, they're not going to get new cars, they've got to get the cash flow out of repair. So sometimes they want to do that in that situation. So it's unknowable in that situation. I suppose the one caveat to that is, Patrick, is that to the extent we are commissioned by programs with the OEMs, that could be affected by turbulence with new cars and all this noise with the tariffs. We haven't seen it so far,

though. Got it. And then I guess, you know, looking at the tools group, it seems like international sentiment was a bit higher than US. Can you talk about maybe some of the drivers there in the outlook for the international segment there?

Sure. The international segment isn't worried about any of this stuff. They're not worried that Donald Trump's talking about Greenland and Gaza and the Panama Canal. They're not worried that, you know, they're really not worried about, at the grassroots level, I don't think they're worried about the idea that they're going to tariff China 170% or whatever they're going to do, 245%. I'm not sure what the number is these days, but I don't think they're so worried about that. You know, and it's kind of proportional to where they sit. So Canada's probably more worried because the tit for tat with Trudeau and so on, I think, impacted them some. But if you look at Australia and the UK, they're kind of offshore, you know, and so I don't think we see much of an effect in those places. And I think that's simply because the whole cash rich, confidence poor phenomena has always been, from the beginning when we started to see it, a U.S. phenomena.

Great. That's all from us. Thanks, guys. Okay.

This concludes our question and answer session. I would like to turn the conference back over to Sarah Verbski for any closing remarks.

Thank you all for joining us today. A replay of this call will be available shortly on -on.com. As always, we appreciate your interest in Snap-on. Good day.

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