Snap-On Incorporated

Good day and welcome to the Snap-on Incorporated 2026 Second Quarter Results Conference 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 remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your 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 call over to Sara Verbsky, Vice President, Investor Relations. Please go ahead.

Thank you, Cole, and good morning, everyone. We appreciate you joining us today as we review Snap-on's second quarter results, which are details 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 the 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, snap-on.com, under the Investors section. The slides will be archived on our website along with the 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 issued 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, Sara. Good morning, everyone. This was some quarter. That's when we got that snap on execute, even in a blizzard, and our operations represent a clear and credible beacon showing a continuing path for a positive trajectory as we go forward. Quarter, I'd say, was marked with ongoing momentum and more green shoots. Progress against the whirlwind. I mean, this is a turbulent time. You know, I don't know. I'm not sure I've seen more elements of uncertainty packed into a single quarter. Ukraine, inflation, fluctuating tariffs, restructured supply chains, and now piling on the impasse with Iran. Really something. The Snap-on shook it all off, punching right through the difficulties or the fog with emphasis. Fortified by the inherent, and that was because we were fortified by the inherent and enduring positives of our markets. The rising complexity of vehicles, the aging car park, the growing demand for precision and customization in critical industries, and the rise of technology software that makes the special and the proprietary more powerful. And you put all of that together with our decisive advantages in product and brands and people, amplify it with our snap-on value creating processes, driving improvements, it makes for a powerful combination that creates an encouraging quarter and a very promising future. And so it was. Now, I'll take you through all that. and hitting some of the highlights and giving you my perspectives on what it all means. And Aldo will give you a detailed review of the financials. Let's start with the results. I believe they testify to all that I just said. Second quarter as reported sales were $1,235,000,000 of $55.7 million or 4.7% including $11.5 million from the recent additions of high force and diesel laptops. 8.7 million in favorable foreign currency translation and an organic gain of 3%. The operating income or OI, we'll call it from now on, was 268 million. And the operating margin for the quarter was 21.8% compared to the 22% last year. Down, down slightly, but still strong, especially in this environment. The gross margin, was an attention-getting 51.4%, 90 basis points higher than last year. So the overall story of the period was an encouraging performance, overcoming the cost pressures and funding the investments for the future. For Finco, the OI was 67.5 million versus the 68.7 million in 2025. and when you combine that with our OPCO OI, it resulted in a consolidated operating margin of 25.2%. And EPS was $4.96, up 24 cents or 5.1%, another positive. So those are the numbers. Now let's turn to the markets. Vehicle repair is still a great place to be. Cars and trucks are essential parts of our lives. But keeping them out of the road is more and more of a challenge. The park is getting older every day. The models are getting more complex with each new launch. And so I would say, I've said it before, I think this is the golden age of vehicle repair. And the numbers tell the story. Spending on repair, technician hours at work, and mechanic wages are all up. So the garages are pumping and the techs remain cast rich. You know, in this environment, they still remain confidence poor. The uncertainty hasn't gone away.

A single scan on a morning news will tell you that.

For our customers, the technicians remain reluctant to take on longer term obligations on pick ticket purchases. Full storage volume and the associated originations are still down. But the mechanics need to meet the rising complexity So our pivot to quicker payback items is working. Overall volumes are up. You see, the technicians really are a great segment. Resilient and period by period, that's what's playing out in the tools group. Recently, I had the opportunity to visit franchisees in the field, speak with some shop owners and technicians, and I'll tell you, I came away more convinced than ever that this is a great place to be. The franchisees were pumped and excited about their current prospects and very optimistic about their future. The independent shop owners, they can only talk about how to get more technicians. They wanted as many as they could find. And our techs said they were slammed, telling me that repairs are getting way more difficult, especially troubleshooting and accessing and accessing and repairing, troubleshooting, accessing and repairing newer systems. Getting better, that means complexity is only going to get worse from a repairability level. Getting better access and tight borders to speed their work was high on their list. And we're putting them right on target. One tech said, I have my new, we brought out this new Power Tool, the Nano Access. You can fit it in your pocket. He says, I have my new Nano Access Power Tool. The other day it helped me shave 90 minutes off a repair. We need more tools like that. Snap-on speeds the work and shows everyone I'm a serious professional. This is music to my ears, huh? You know, because this is who we are and what we do. We go to where the work is happening, we observe the techs, we identify the toughest and most complex tasks, and we develop customized solutions that make the work easier, faster, and more productive. And the techs line up to gain that advantage. One of the reasons why the pivots work. The other side of auto repair is where the Repair System Information Group, or RS&I, operates. It's where we're expanding our presence with repair shop owners and managers. increasing and enabling our broad array of products, all to help the garages meet the broader challenges of today's vehicles. The acquisition of diesel laptops, giving our team more to sell in the heavy-duty arena is a great example of that effort. We like RS&I's potential to move forward. The repair shop footprint is changing. and upgrading both at dealerships and independent shops. And RSI is making the most of that trend with proprietary data-driven solutions that are the engines behind our intelligent diagnostic software and our Mitchell One software offerings. Right now, independent shops are continuing to invest in adopting products that expand their capabilities. For example, this quarter, our new ACV cycling machine aligned with the refrigerants used in modern vehicles and at the same time offer new autonomous features that boost shop productivity. New design helps garages drive more repair orders and was quite popular with the independents. Now for our OEM dealers, there's some hesitancy for capital expenditures. Owners and managers know they need upgrades to match the to match the new model, but a lot of them are keeping their powder dry, waiting to take their lead from the manufacturers. And the automakers have slowed their program launches. So the dealer side of the business is in a low spot. Having said that, Arsene understands the market and it has an unrivaled product portfolio that is unique in positions to take full advantage of the segment as it evolves. Now let's speak to the world

outside the garage in critical industries.

This is where commercial and industrial operates. The commercial industrial C&I group operates. This is our business with the largest international presence, serving the critical and the essential where the penalty for failure is high, and that world is advancing, adopting new technologies and creating systems that are more and more sophisticated. It's an environment where the appetite for precision and customization is growing every day. and CNI is right on that trend. Sales were up big across a number of sectors and geographies at CNI. The critical industries are booming and our custom-built kits aimed at specific challenges are in strong demand. This is also the time for, and it's also a time for our specialty torque division because the rising of automated systems requires tighter tolerance And so our expanding torque operation can fill that bill exactly. Exactly. From large hydraulic and tensioning systems to lighter force applications where speed and control are challenging, like in our mount acquisition, which we acquired a couple years ago, and essential, challenging and essential. Snap-on increasingly has the product lines to cover the waterfront and meet the growing trend for precision. With the international landscape outside the garage, the Asia-Pacific and European operations rebounded nicely and stabilized against the backdrop of a still ever-changing supply chain. And that ore snapped on its advantage by making it in the markets where we sell and by our 36 factories around the world, giving us considerable flexibility. Those strengths were clearly in play in this quarter, and the CNI results are a dramatic confirmation. So overall, in both vehicle repair and the critical industries, the quarter demonstrates the The strong resilience of our markets and our significant ability to take advantage. The period also shows the power of snap-on value creation processes, safety, quality, customer connection, innovation, and rapid continuous improvement, RCI. And it all came together, creating popular new products and continuing improvements. I mean, gross margins are up 90 basis points. Well, that's the macro overview. Now let's move to the segment. I think we'll start with CNI. Sales were 394.8 million, an increase of 48 million or 13.8%. Now that includes 6.8 million from our high force acquisition, 2.5 million of favorable foreign currency, and organic gain of 11%. 11%.

Now, hearing that, there's only one reasonable thing to say. Boom shakalaka!

Tony, we love it. I'll tell you, there are gains and improvements all across the business. Double-digit increases in Asia Pacific, in the European hand tools business, and specialty torque and power tools. Wowza. The demand for custom kits and precision torque and innovative power tools is strong. What we always said would happen. Finally, the industrial business was up mid-single digits, but that includes continued weakness in the military sector. sector, which somewhat attenuated this demonstration, a demonstration of considerable strength, and I mean considerable strength in heavy-duty natural resources and in both the U.S. and international aviation. From an earnings perspective, C&I operating income was $66.5 million, improved $19.6 million or 41.8%. Yes, 41.8%. And the operating margin, it was a new record, 16.8%. 330 basis points above last year. And the gross margin in the midst of material cost inflation and inflation, it was 42.6%. That's up 260 basis points over last year. We said Snap-on could extend out of the garage and it's doing just that. And it's doing it profitably. Innovative new products from North Carolina were a major driver of that. One example, was our all-new CTR829. That's a quarter-inch drive, 14.4-volt ratchet with an extra-long wrench stretching out 11 inches to reach into those isolated spaces. It's the little brother of the previously launched 3H model, but that doesn't mean it's weak. I mean, this baby produces 40 foot-pounds of torque and operates at 400 RPMs, all out of a small, compact frame that houses a A bright LED ring illuminating the workspace. Now techs can reach further under the dash and between fenders and gauging bolts with ease. And when they hit the paddle trigger, boom, the 829 makes quick work of the task. Reach, power, and speed. It's a winning tool, and I'll tell you that techs say it's so. In 2014, we also released the new 3-inch digital torque wrench. Remember I said precision is important. The ATEC 135, it's the latest entry on our already popular ATEC product line. And it's loaded with popular features that make a difference. Easy navigation, a durable housing, compact head design, and incredible precision. It was designed in our city ministry facility in California, and it offers a new color display, a brilliant screen that provides better viewing from any angle, and makes a crystal clear image. This is important, even in direct sunlight. and the unit boasts 135 foot pounds of torque and it's the biggest in the ratchet industry. But 135 is another tool that makes torque tasks much easier. Precision torque is on the rise and Snap-on is leading the way. Well, that's CNI. Significant growth across the global footprint. Sales up 13.8%, 11% organically. The second straight quarter of big increases in sales. and operating income of 16.8% of 330 basis points improvement. A CNI all-time record. The Snap-on brand is extending out of the garage to serve the critical and CNI is the rocket ship that's making it so. So now let's turn to the tools group. Group sales were $508.8 million, up organically 3%. The grain shoots continue. Increases in both the U.S. and international operations, pivoting to quicker payback items. The power tools and the torque wrenches in their lineup. Operating income was $115.1 million compared to $116.7 last year. The operating margin was a respectable, but still down 22.6%. Volumes were strong, but they were driven from products made by the other Snap-on divisions. Like the aforementioned power tools and torque were strong corporate margins for those tools as a whole. are shared across the operations, making the tools group margins thinner. The group's stronger sales this quarter were part of the pivot to match customers' changing preferences. I guess it's not changing now. They've been there for a little while. And launching products that simplify some of the nonstandard solutions that challenge repair on modern cars. Actually, when I was talking to the techs, they talked about this. Quite effusively, they said, oh, we love your product that attacks some of the special and more difficult tasks we have. For instance, something as simple as removing lug nuts can evolve into a thorny procedure. Several OEMs put chrome covers on the wheel nuts for appearance. These taps often swell and deform from exposure to moisture, or if you're sitting around here in Kenosha, harsh winters. When that happens, traditional sockets won't fit. and valuable garage time is wasted cutting that material away. All for a very routine procedure. So seeing the problem, we developed a seven piece drive socket set that has in between metric sizes from 16.5 millimeters to 22.5 millimeters, providing just enough change, change in size to provide, to fit the task. providing solid engagement, enabling rapid improvement, and driving a quick repair. I know it seems trivial, but it's a manufacturing challenge to make these special sockets that was accommodated by the unique flexibility of a Milwaukee plant, and it was a tremendous hit with the techs. It's quickly become one of our million-dollar hit products. We also recently introduced a seven-piece swivel torx impact flex socket set. It's ideal for difficult jobs where techs have to access high-strength torx fasteners in tight and obstructed areas. That's a combination that's quite common in European high-performance vehicles. Places like... Volkswagen, Ali Steering Columns, BMW Caliber Brackets, Mercedes Front Brake Calibers, and Jaguar Drive Shafts. And the design is equipped with a laser-welded swivel joint offering up to 30 degrees of flex, enabling a power tool to operate quite effectively in combined spaces by offsetting its position and still getting to the fastener. That makes the repair, all this makes the repair possible without Time-consuming disassembly. The set was just introduced and it's clear the techs are big fans once again. So that's the tools group. Growing against the winds of uncertainty. Pivoting to faster payback items. Observing work and developing solutions that solve the complex. But now let's turn to RS&I. Sales in the quarter were $480.3 million. of 2.5%, including 4.7 million from the diesel laptops acquisition, and 3.8 million in favorable foreign currency translation. Organic sales were up slight over last year. Momentum in our diagnostic and undercare equipment for independent garages was attenuated by lower volumes in the OAM dealership segment. Operating earnings in the quarter were 115.1 million compared to 119.8 last year. The group's operating income An OI margin was 24% versus a 25.6% last year, down, but still strong. And, you know, what that decrease represents the effect of higher sales and lower margin equipment products and ongoing investments in our proprietary database, advancing with our large language model. The Apollo has features. That has a number of great features. The full power of our industry leading proprietary information. Expansive manufacturer and model coverage. Fast track intelligence diagnostics for guided workflow. And our SureTrack database powered by 660 billion vehicle events and 3.4 billion repair records. You know, it's whip smart, but it's also easy with improved display visibility and extended battery life and wireless connection to the vehicle so text can roam freely in the bay without being tethered in the driver's compartment. And the increased storage makes it clearly faster. So the new Apollo is the winning combination, smarter, easier, and faster. Sales of the van were strong and a momentous important thing. After the launch of Momentum, remains robust. Well, that's RS&I, powerful hardware and software, differentiated by proprietary data with more speed and more accuracy than ever before, wielding new products to conquer the complex repairs of today's cars. So that's SNAP on second quarter. Overall sales, $1 billion, $235.1 million, an all-time record for the second quarter. Organic sales up 3%. Gross margin, 51.4%. Up 90 basis points. Powerful. CNI Group, organic sales up 11%, gross margin up about 260 basis points, and the operating margin up 320 basis points. Up, up, up.

Gangbusters.

It's a great quarter, CNI. The tools group, organic sales up 3%. The pivot working against the uncertainty. Gross margin strong. RS&I, organic sales up slightly. but the as reported numbers setting a new record for overall sales in the second quarter, profits down, but still quite strong. And the overall corporation, VPS of 4,096 cents, up 24 cents versus last year. So Snap-on was rolling down our runways for growth, enhancing the band channel to pivot the work, expanding repair shop owners and managers, strengthening our proprietary advantages and extending to critical industries taking Snap-on out of the garage with emphasis and profitability. It was another encouraging quarter. Now I'll turn the call over to Aldo. Aldo? Thanks, Nick.

Our consolidated operating results for the second quarter are summarized on slide six. Net sales of $1,235,000,000 in the quarter represented an increase of 4.7% from 2025 levels, reflecting a 3% organic gain, $11.5 million of sales for the acquisitions of high-force hydraulic tools, and diesel laptops that occurred during that period, and $8.7 million of favorable foreign currency translation. Sales in our commercial and industrial sector, or the C&I group, were up double digits versus last year, with progress made across North America, Asia, and the Europe. In our automotive repair market, sales gains were achieved through our franchise van channel in the United States as well as internationally. Consolidated gross margin of 51.4% compared to 50.5% in the second quarter last year. The improvement of 90 basis points primarily reflected the benefit of increased volume and savings from the company's RCI initiatives. Operating expenses as a percentage of net sales of 29.6% rose from 28.5% in 2025, primarily due to increased personnel and other costs as we continue to invest in support of our brand and our business opportunities. Operating earnings before financial services of $268.9 million in the quarter compared to $259.1 million last year. as a percentage of net sales operating market before financial services of 21.8% compared to 22% reported in 2025. Financial services revenue of $99.7 million in the second quarter compared to $101.7 million last year while operating earnings of $67.5 million compared to $68.2 million in 2025. Consolidated operating earnings of $336.4 million compared to $327.3 million last year as a percentage of revenues, the operating earnings margin of 25.2% compared to 25.5% in 2025. Our second quarter effective income tax rate was 21.9% in 2026 and 22.5% last year. Net earnings of $260.6 billion or $4.96 per diluted share compared to $250.3 million or $4.72 for diluted share in 2025, reflecting a 5.1% increase in earnings per share. Now let's turn to our second results for the court. Starting with the CNI group on slide seven, sales of $395.8 million rose $48 million compared to 2025 levels, reflecting an 11% organic gain, $6.8 million of acquisition-related sales, and $2.5 million of favorable foreign currency translation. The organic volume improvement includes advancements in our Asia-Pacific and European-based hand tools businesses, which have better tailored their cross-border supply chain activities in response to the current trade environment. The group also benefited from double-digit gains in our specialty torque and power tools operations. Sales to customers in critical industries rose mid-single digits in the period, led by robust activity in international and U.S. aviation, and including gains in heavy duty fleets and technical education. Shipments serving military applications remain attenuated both in the quarter and year to date. Gross margin improved 260 basis points to 42.6% in the quarter from 40% last year, mostly due to the increased sales and savings from the segments RCI initiatives. Operating expenses as a percentage of sales of 25.8% in the quarter improved 70 basis points from last year, primarily reflecting the higher sales volumes. Operating earnings for the CNI group of $66.5 million compared to $46.9 million in 2025, and the operating margin of 16.8% improved 330 basis points from last year. Turning down to slide eight. Sales of the Snap-on Tools group of $508.8 million compared to $491 million last year, reflecting a 3% organic sales gain and $2.9 million of favorable foreign currency translation. The organic increase was due to low single-digit gains both in the United States and in the segment's international operations. Activity in the quarter included higher sales of featured new items, including those in the power tools, air conditioning service, and diagnostics product lines. As a reminder, the tools group serves as a distributor for these products, which are made by our CNI and RSNI groups. Gross margin of 48% in the quarter compared to 48.3% last year. The 30 basis point decline primarily reflected a year-over-year shift in product mix, partially offset by savings from the segment's RCI initiatives. Operating expenses as a percentage of sales of 25.4% compared to 24.5% in 2025. The increase was due to higher personnel, Freight, and other costs. Operating earnings for the Snap-on Tools Group of $115.1 million compared to $116.7 million in 2025. The operating margin of 22.6% compared to 23.8% last year. Turning to the RS&I Group shown on slide 9. Sales of $480.3 million compared to $468.6 million a year ago, reflecting a $3.2 million organic gain. $4.7 million of acquisition-related sales and $3.8 million of favorable foreign currency translation. On an organic basis, low single-digit increases in undercar equipment and in sales of diagnostics and repair information products, the independent repair shop owners and managers were mostly offset by decreased activity with OEM dealerships. Gross margin for the RSI group of 46.3%, decreased 50 basis points from last year, primarily reflecting higher sales, lower gross margin products. Operating expenses as a percentage of sales of 22.3% compared to 21.2% in 2025. The increase was due to higher personnel and other costs, expanded technology investments, as well as 20 basis points from the recently completed acquisition of diesel laptops. Operating earnings of $115.1 million compared to $119.8 million last year. The operating margin of 24% compared to 25.6% reported in 2025. Now, turning to slide 10. Revenue from financial services of $99.7 million decreased $2 million from last year. primarily due to lower interest income resulting from a year-over-year decrease in the size of the average finance receivable portfolio in the period. Financial service expenses of $32.2 million decreased from $33.5 million in 2025, mostly due to $1 million of lower provisions for credit losses. As a result, financial services operating earnings were $67.5 million compared to $68.2 million last year. In the second quarter, The respective average yields on finance receivables were 17.6% and 17.5% in 2026 and 2025, while the average yields on contract receivables were 9% in 2026 and 9.1% in 2025. Total loan originations of $281 million in the second quarter represented a decrease of $12 million or 4.1% from 2025 levels. Originations of extended credit loans were $237.6 million in the period, reflecting a decrease of $5.9 million, or 2.4%, from last year. Moving to slide 11, our quarter-end balance sheet includes approximately $2.5 billion of gross financing receivables, with $2.1 billion from our U.S. operation. For extended credit or finance receivables, the U.S. 60-day plus delinquency rate of 1.7%, is down 10 basis points from the second quarter of 2025. Additionally, the rate is down 20 basis points from last quarter. Trailing 12-month net losses for the overall extended credit portfolio of $71.9 million represented 3.7% of outstandings at quarter end, down sequentially from 3.75% in the first quarter of this year. We believe that these portfolio performance metrics are encouraging considering the current environment. Now, turning to slide 12. cash provided by operating activities of $271.5 million in the quarter compared to $237.2 million last year. Net cash used by investing activities of $195.1 million mostly reflected business acquisitions during the quarter of $154 million net of cash acquired consisting of $99.1 million for diesel laptops and $54.9 million for high force. Additionally, The company incurred $23.1 million in capital expenditures. SNCC cash used by financing activities of $185.8 million included cash dividends of $126.4 million and the repurchase of 241,000 shares of common stock for $91.4 million under our existing share repurchase programs. As of quarter end, we had remaining availability to repurchase up to an additional $185.5 million of common stock under existing authorizations. Turning to slide 13, trade and other accounts receivable of $942.2 million represented an increase of $60.8 million of 2025 year-end levels, mostly due to higher sales, and $12.2 million from acquisitions. Days sales outstanding were 70 days at the end of the second quarter and 67 days at 2025 year-end. Inventories, including $17.6 million from acquisitions, increased by $20.1 million from 2025 year-end. On a trailing 12-month basis, inventory returns of 2.4 were the same in both periods. Our quarter-end cash position of $1,644.7 million compared to $1,624.5 million at the end of 2025. That concludes my remarks on our second quarter performance. I'll now Review a few outlook items for the remainder of 2026. With respect to corporate costs, we currently believe that expenses will approximate $28 million for each of the remaining two quarters of 2026. As a reminder, in the third quarter of 2025, our diluted earnings per share of $5.02 included a $0.31 non-recurring one-time benefit from an RS&I group legal settlement. We expect that capital expenditures for the year will be approximately $100 million, and we currently anticipate that our full-year 2026 effective income tax rate will approximate 22%. I'll now turn the call back to Nick for his closing thoughts. Nick?

Thanks, Aldo. Well, that's the second quarter. Continuing momentum in the midst of extreme turbulence. To you, To use an ancient reference, now suddenly contemporary, it feels like we're moving between the scylla of international conflicts and the charybdis of supply chain revisions. And although it's challenging, we are making headway.

And so it is.

BNI coming into its own. Sales up organically, 11%, gross margins 42.6%, up 260 basis points, OI 16.8%, an all-time high. CNI on a trend, demonstrating that opportunities and rolling the Snap-on brand out of the garage are substantial, as we always said they were. Post-Groove, sales up 3% organically. The momentum continues and the green shoots grow. And RS&I, sales up 2.5%, as reported, up 0.7% organically, robust with independence, impacted by the OEM doldrums. OI Marge is 24%. down but still strong, all while managing the turbulence and funding increased investments. And it all came together for the corporation. Sales up 4.7% as reported, 3% organically, gross margins 51.4%, and OI margin 21.8%. Both robust. The results taken individually or collectively are marked by momentum, strength, and continuing green shoots. was an encouraging quarter. And we believe it speaks volumes about the possibilities of our path. These are exceedingly turbulent and interesting times, yet our markets remained quite resilient, both vehicle repair and critical industries, anchored in the essential nature of the task, activities that are needed come what may. And the quarter showed we can produce it. We can participate fully in that resilience, wielding our decisive advantages in product, brand, and in people. Product. We really do make critical tasks easier.

You heard that echoed in the great new offerings we just discussed.

Brand. Snap-on really does define the professional like no other brand. You can hear it in the voices of the techs we visited. And people. The Snap-on team. really is uniquely capable, deeply experienced, and relentlessly committed to achieve. You can see the engagement day after day. And with the opportunities of our resilient markets and the power of our advantage, we are confident. Confident in our belief that we will extend our progress, maintain it even in turbulence, and drive a positive trajectory on through the year and well beyond. Before I turn the call over to the operator, I'll speak directly to our franchisees and associates. You are those who really do make a difference. That Bond story past, exciting now, and promising future is rooted in your commitment. For the enthusiasm you bring to our enterprise every day, you have my admiration. For the success you've achieved this encouraging quarter, you have my congratulations. And for the unfailing dedication you hold to our team, and the firm conviction you have in our days and decades ahead for an upright, you have my thanks. 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 speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. And at this time, we'll pause momentarily for the first question. And our first question today will come from David McGregor with Longbow Research. Please go ahead.

Yes, good morning, everyone. Good morning, Nick.

Good morning. I wanted to start off. Good morning. I want to start off by just asking about the gross profit upside in CNI, 220 basis points. How much of that do you think was mixed driven versus maybe other factors? 260 basis points, by the way.

But anyway, why quibble over it?

260. It is 260.

I think I know my numbers. But anyway, yeah, 260. Ah, you know, not so much. Not so much. I mean, the thing is, The highest profitability business, which is the critical industry, the industrial business, was the business that grew mid-single digits. So it grew below the average, and so that's far and away the most profitable. What happened then, you had movements upwards in a lot of those businesses because a couple of them brought out great new products, particularly power tools and torque. Torque's day has come, so they're making hay while the sun shines here. and then you had recovery in Asia Pacific and S&A Europe where you got good absorption in that situation. So I think that was the factors.

Okay. Seems like there was probably a pretty good pull through to the Snap-on Tools segment on some of these bigger ticket items like diagnostics and maybe specialty torque. But the originations were down 4%. Do you think the franchisees are just restocking in these items? Which would be a little surprising ahead of the SFC but What's your perspective? No, I don't know.

You know, look, I think this, if you step back and you look at what happened, there was pull-through. I think you have to parse between torque and diagnostics because torque isn't that big an origination product. So you kind of have to take that. I would diminish that in the mix. So you're talking about diagnostics versus tool storage. Diagnostics was up nicely. But the tool storage was down. And tool storage is a bigger piece of the pie. So when it's down, there's more volume flowing through there. So that's what happens in origination. Now, originations, you know, what were they down? A couple, three points, something like that. You know, small, low single digits. So it was slightly more, less originations year over year than last time, but not so big a change. I don't think we're surprised by it too much. I'm not sure. And to answer your question directly, I'm not sure you can read too much into that. in terms of stocking.

Okay. And then I think we've talked in the past about you increasing your insourcing since the whole tariff sort of situation developed. Can you talk about the extent to which that may have helped you on the margin side of this core?

Well, yeah, I can't give you any direct numbers, but one of the things I did, well, you heard the 14.4 volt ratchet and, you know, that we launched that and our whole 14.4 volt had been made in Kunshan and was eating for a period of time a lot of margins and a lot of tariffs. So, you know, we don't have that many tariffs. We have some of them. And so we brought that whole line home and we were able to start sourcing again with more volume in Murphy, which is the power tools plant. And that started to help us. Same kind of things happening in TORC. We're doing that in TORC. So it's really up and down diagnostics. was ahead of the curve on that. They were already bringing stuff home. So they had the thing established. So they didn't get much out of this in terms of even though they did a great job of avoiding any kind of tariff entanglements. So I think you saw good news in both power tools and torque. And the numbers show it. Their profitability is up a considerable number of basis points.

Okay, last question for me is just on You know, gross margins in RS&I and in Snap-on Tools were down year over year, and I realize there's some mixed discussion there as well. I'm just wondering, you know, Aldo had characterized the gross margins as having benefited from RCI. I'm just wondering at what point you need to lean more aggressively into the market on pricing in order to protect these margins.

Yeah, I don't know. Look, yeah, I could do that. I'm not so anxious to do that. The gross margin, look, The gross margin in the tools group is down 30 basis points. So 90 of those basis points was an OE margin deterioration, how much they were down in the quarter. The 22.6% was down 120 basis points. So we didn't think gross margins were that much out of whack in the tools group. Now, you always have more pricing you want to do books. I don't like that. I like to beat it with RCI and sourcing changes, especially in this environment. Plus, actually, I like to hammer it with good new tools. The big thing about the margin deterioration of the tools group was it was principally tieable to the fact that all the big hits this quarter were made by somebody else. So they had to share the margin. That's really the cadence of the tools group. Actually, I'll tell you, we haven't seen a quarter quite this dominant for the other products. They all came out with hits. I didn't mention Polartec, the air conditioning, but that's made by the RS&I business, and that was shared through the tools group. So that's really it. Tools group margins aren't much of a concern for us.

Got it. Thanks a lot, Nick. Good luck.

and our next question will come from Christopher Glynne Oppenheimer. Please go ahead.

Yeah, thanks. Good morning, everyone. Just wanted to take a look at it. Good morning. Just want to use kind of storage as kind of a barometer for discussing the market for SOT. So storage had a really nice quarter. Last quarter seemed to be some optimism it would hold. Maybe the first quarter was just a little bit of isolated success that sort of defied the characterization of the market as fast payback. Do I have that right, would you say?

Yeah, sort of. I mean, I think it's in the first quarter we launched that special, you know, semi-quincentennial boxes that gave some oomph.

to full storage.

So I really believe, you know, we only made like 1,776 of them. They were numbered. People were crawling all over each other to get them. And so I think that overcame the reticence. You know, people saw it as a once in a lifetime opportunity to get them. So they kind of overcame the reticence. So you saw some of that. I think, look, I think this quarter, I think this uncertainty is about the same. I don't know if you want to play the uncertainty game. It could have said in the first quarter, things were rolling along. Maybe you saw, you know, uncertainty was a little weaker and then you poured the oil of Iran on top of it. So maybe you saw some, a little bit more reinforcement of the uncertainty. Although we didn't think we saw it in our numbers. We think it's about the same. So the first quarter we chalked up, Chris, to, you know, some incandescent new product that you can only get once in a lifetime.

Got it, great. Semi-Quincentennial. I like that turn of phrase there. I do, in fact. On the CNI, APAC in Europe, really pretty encouraging there and the volume leverage definitely notable. So appreciate your comments that that business is on a trend that's about as far as you go in terms of forecasting. So appreciate that. Anything interesting to say about market share in APAC in Europe?

No, I think, look, I think it's a little, we certainly, if you were in ordinary times, I think we had a, we don't like to talk about market share. It's pretty squishy for us, actually.

I'm asking anyway.

I know you are. Look, I think the rebound in Europe, though, for the Our hand tools business, our hand tool based business was large enough so you would start thinking you must have made some gains in ordinary times. And these times, I don't know. You don't know. I mean, I think as Europe is up and down, the markets are positive one quarter. Certain markets are positive one quarter and then it shifts. So I think it's very difficult to predict. What we do know is we seem to be getting more efficacious. So that's good. Same thing happened in Asia, actually.

Okay. What do you mean by more efficacious?

Well, you know, I think our product lines are getting stronger. I think our product lines are getting stronger, and I think we are having more direct customization in Europe and other places, same in Asia. So that's working pretty well. In Asia, we're selling more of what we call premium tools, which are Snap-on tools, which are pretty good. and we have some of the intelligent boxes moving around there.

Okay, great. Appreciate that color. Last one, RS&I margin, you know, first half run rate is a step down from what I'd call the normal 25, 26% range and you've called out the investments in technology. So, you know, just curious if we should think of these maybe sub-normalized run rates as kind of the, The near-term picture continuing, or do you see some, you know, lift into the second half? Look, I don't know.

It's hard for me to say. I think we've had three quarters of about the same sales growth in RS&I, actually. For government work, you could say that. And so, in that situation, the OE... with the investments in people and our technology and so on starts to rain pretty well. To put it in perspective, our time is down 160 basis points, but 50 of it was in gross margin, 110 was in OE. So if you want to talk about going forward improvement, I think you concentrate on the 50 basis points in gross margin, not so much the OE. Thank you.

Sure. And our next question will come from Scott Stember with Ross. Please go ahead.

Good morning, and thanks for taking my questions. Good morning, Scott. Good morning, yeah. So questions on some of the green shoots that you've talked about last quarter heading into this quarter. Seems like there's some higher ticket items related to new products that are doing well in tools. Yeah, tool storage is still soft. Just net-net, just trying to get a sense of, How much of the growth that we're seeing right now in tools is pivot driven? And how much of it is a potential thawing in demand for some of these higher ticket items outside of tool storage?

You know, I don't know. Look, I think that's hard to say. You know, I do believe that the products are helping the pivot. So you've got power tools. and you've got certainly TORC. And so part of the pivot, Scott, is to enhance those product lines. And you are seeing the fruits of that enhancement play out in the market. And that's the biggest piece of the increase. The other piece of the increase is you had a good order for Apollo. It was very appealing. So it had Apollo traditionally, if you really have expertise, Apollo traditionally, doesn't launch as well as the other diagnostics because at a lower price point, still it's expensive. You know, it's at an entry level for intelligent diagnostics, but this one did. So we're encouraged by the big launch and that wouldn't have been the pivot. That would have come out come hell or high water whether we were pivoting or not. But the growth in tools, in power tools and torque are clearly pivot items. And so you would have, I would say you could say two-thirds of the growth or more was the pivot.

Got it. And then moving over to CNI, obviously a lot of good stuff going on, but there's been, you know, some noise made about your guys' opportunity within the current AI data center build-out. Can we talk about that a little? Have you seen anything? And if not, just maybe talk about some of the green shoots that you see there.

You know, Scott, I told myself I wasn't going to mention the word data center on this call because I thought it was shameless. But we did have a pretty good order serving some of the data centers which we expect to drive going forward and expand because the data centers, I think we'll get more business there, but one business that seems to be heating up now is low precision torque. This is the mounts product line, which we acquired it for. And that's selling the data centers in quite big proportion. So part of the increase in CNI was that particular business. When I said appetite for precision, I meant big equipment in a lot of different places, you know, aircraft and so on. But I also meant data centers. I just didn't want to mention it because it would be too humiliating to say it again.

Got it. And then just last, you guys called out increased personnel expense across the board, or at least in a couple of the segments. Is that more driven to growing the business, or is there anything else there?

No, we're looking to grow the business. Sometimes when you look at these things, you say, geez, maybe if I could put a little more energy at the point of attack in certain places it's going to break through some of the bonds and we just we did some of that in the tools group and then in the rsi group so that's why you see some of their uh their oh we uh the personnel costs there got it that's all i have thanks guys all right sure and our next question will come from gary prestapino with barrington research please go ahead Hi, good morning, all. Good morning, Gary. Most of the questions have been answered, but I wanted to ask about diesel laptops. Was this acquisition, does this give you your first foray into the Class A truck business with a database like that? It gives us our first database in that area, you know, in terms of it provides database. But we have positions. in some of the bigger products in places like Mexic and some of our other, but this one greatly enhances it. It's got a, you're talking about distribution and data that's in both of the situations. So we liked it from that perspective. Really what we're talking about here is we think that these are laptops that are a big, I don't know, a good opportunity for us and we haven't mined it as comprehensively as other places. So this was a, This was a way to bulk up our offerings. Diesel Laptops has a lot of good relationships with the diesel customers, with those big truck customers. And it does have a database which provides you the beginnings of trying to do just what we did for cars only in trucks.

Okay.

And you mentioned it added about $2.7 million of sales this quarter, I think, in your narrative. I don't know if anybody said that. I don't think we said how much it would add, but it's 4.7 million. I knew that number. I wasn't sure that I was authorized to say it, Gary. You know what I mean?

I'm sorry. There's a lot of people talking about it. Somebody said 4.7 million.

4.7 million.

Gary, just remember it was only a partial month. It was only in our results for a partial month in the month of June.

Yeah, that's what I'm kind of getting at, what kind of contribution it would make to the top line. And I would assume it's somewhat margin accretive. Yeah. Now, well, it's EPS accretive. It's EPR. Not margin accretive. Not margin accretive.

Okay. All right. Thank you. And our next question will come from Brett Jordan with Jefferies. Please go ahead.

Hey, good morning, guys. Hey, Nick, on your... On your shop tours, I think you talked about the golden age of vehicle repair. Do you have any color as to what the contribution of car count versus price is in sort of the underlying industry growth? Are these shop owners you talk to saying they're seeing more traffic, or is it a lot of pricing benefit?

Well, I think, look, you know, Brett, it seems like it's, you know, of course it's a windshield survey, you know, but the technicians I talk to, said that word they used was slammed. So they acted like they were busy.

I'm not sure the car count is the operative thing.

I don't even know if you can tie it to pricing because there's one other factor. How complicated is each repair? See, repairs per vehicle are getting more complicated. So I don't think, I don't know if you can say that's pricey. I'm sure there's pricing, But I think what we're hearing is everything these days has alternate ideas. I mean, I think the whole idea, I saw something the other day, like one of the car lines has a brake system where without a special tool that we provide, you have to dismantle the brakes to get to the bolts to make the repair. And so that adds a lot of time. And so I think this kind of inconvenience, is spread throughout the vehicles. And the OEMs are not doing a good job of repairability. And so I think that's adding cost. So I'm not sure which it is.

Similar question on the OEM side, since you called out the dealers as a weaker section. Is that driven by individual dealer sentiment, or is there sort of direction from the OEMs as far as, you know, is it driven by their creation of demand for more complex tools and diagnostics. So is it OE-driven softness or is it dealer, you know, rooftop-driven softness?

You know, I think it's hard to pinpoint, but I think it's like this. The OEMs have stopped launching programs, have reduced, and I don't want to say stop, but it's substantially reduced. They were launching a lot of them. They were, you know, catapulting them into the market around electric vehicles, and then I think if you write off $53 billion, it kind of daunts you on this kind of thing. And so I think they took a pause on this because my view is the regrouping to have a future product line that adjusts for that difficulty or the hole that electric vehicles might have made. And therefore, you see those. You're not getting as many programs. And that affects us because we enable the program. So that drives some of our volume down. and then the other places I do believe when we talk to the dealerships, this is a time for them that's a little uncertain. What are the cars? What are the new cars they're going to get? I'm not sure they know. And so I think that creates a little bit of uncertainty psychologically. They know they want to, so I think they're kind of waiting a little bit. Now, what I've said I think is that our idea about about weakness in OEMs doesn't mean that the dealers are so bad. It's that the dealers in combination with the OEMs back and down on programs have created, I would call, a flat spot in our sales. Great. Thank you. Sure.

And this will conclude our question and answer session. I'd like to turn the conference back over to Sara Verbsky for any closing remarks.

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

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.