Snap-On Incorporated

Good day and welcome to the Snap-on Incorporated 2026 Third Quarter Results Conference Call. All participants will be in 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 touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Sara Verbsky, Head of Investor Relations. Please go ahead.

Thank you, Chloe, and good morning, everyone. We appreciate you joining us today as we review Snap-on's third 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, Snap-on.com, under the Investor 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 discussed, 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. As usual, I'll give you my thoughts on our markets, our results, and on the way forward. Then Aldo will provide a detailed review of the financials. Well, these really are interesting times. I mean, you don't have to look any further for confirmation of that than the Snap-on quarter. It takes some understanding, but our quarter is primarily marked by three major themes. The impact of diesel bike prices, despite what is fundamentally a a stable technician market. The continued rise in the critical industries reaching new heights and Snap-on's capability to absorb substantial turbulence and despite the difficulties, keep margins strong. The result of it all is that our numbers were mixed, marked by the turbulence, but with rays of light from the underlying strength of our enterprise shining through. Now for the results. For the third quarter, our sales were $1,183.7 million, as reported, representing a 0.6% increase. Adjusting for currency and acquisitions, organic sales were short by 2.8%, with mixed results across the corporation. We'll talk about that later. Opco Operating Income, or OI, for the quarter was $248.1 million, down from the $278.5 million of last year, which is important to note. included $22 million from a 2025 non-recurring legal settlement. The OI margin was 21%, lower by 240 basis points versus last year, but that included 190 basis points from the legal gain. Adjusting for the one-time legal item, the OI margin was down by 50 basis points. Now, the gross margin. improved 10 basis points to what I consider a very robust 51%, strong despite the environment. It's a real demonstration of Snap-on's resilience. In effect, our margin combines strong gross margins and a belief in our way forward, impelling continued spending on maintaining and strengthening our advantages in products, in brands, and in people, even in a wave of turbulence. executing on our belief that the future holds considerable opportunity and our conviction that we want to attack that potential at full strength. The financial services operating income of $68.3 million was down slightly from last year, $68.9 million. And the overall as reported OI margin in the quarter, including both financial and opco, was 24.7%. quarterly EPS was 464, below last year's level of 502, which again included a legal item from the prior year, and that was worth a 31-cent boost in the 2025 numbers. Those are results. Now let's talk to the markets. Vehicle repair is a varying picture with subsectors of players having different perspectives, but the underlying market remains strong. When we visit the shops, as we have during the quarter, the garages are constantly crowded and full, and the owners and managers are always looking for more techs. It's the first thing they mention when you see them. And the technicians themselves, they're busy and prosperous and seek continued stability in both work and income. So at its core, at the grassroots level, repair is strong, and you can see the numbers. Household spending on fixing cars up mid-single digits, and technician wages continuing to rise. It's still a great time. to work in a garage. So in this environment, technicians remain cash strong. They can buy what they want or need. But at the same time, there's still confidence poor. Actually, based on a number of articles and I think respective publications, papers and magazines, the loss in confidence in the near future is a perspective that appears now to be more commonly present across the economy. For the techs, This continues to play out as the reluctance for committing to the extended financial obligations that are associated with big ticket items. Now loan originations are down again this quarter, reflecting that sentiment. So the focus is on quicker payback items like power tools and hand tools. In effect, it's a story you've been telling me for some time. It's a stable story. So vehicle repair itself remains strong, as it has been. But Snap-on's path to our tech customers are the franchisees. And up to this point, they've been relatively unaffected by the environment. But now, the precipitous and unprecedented acceleration in diesel fuel prices has grabbed their attention. The result is that franchisees have built cash to manage the rising fuel costs without stress by reducing inventory.