Snap On Incorporated : Q1 2022 Transcript

Company: Snap-on Incorporated

Conference Title: Snap-on Incorporated 2022 First Quarter Results Conference Call Moderator: Sara Verbsky

Date: Thursday, 21st April 2022 Conference Time: 09:00 CT

Operator: Good day and welcome to the Snap-on Incorporated First Quarter 2022 Results

Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Sara Verbsky, Vice President of Investor Relations. Please go ahead, ma'am.

Sara Verbsky: Thank you, Operator. And good morning, everyone. Thank you for joining us today to

review Snap-on's first quarter results, which are detailed in our press release issued earlier this morning. We have on the call today, 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 have provided slides to supplement our discussion. These slides can be accessed under the download tab in the webcast viewer, as well as on our website, snapon.com, under the

Investors section. These 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 otherwise state 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 those 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.

Nick Pinchuk: Thanks Sara. Good morning, everybody. As usual, I'll start the call by covering the

highlights of our first quarter and along the way I'll give you my perspective on our results, they are encouraging, on our markets, they're looking positive, and on our progress, we believe we're stronger than ever. We also speak about what it all means. We believe it means that we're positioned for more, much more. Then Aldo will move into a more detailed review of the financials.

These are interesting times filled with multiple axes of turbulence, but you know, this isn't our first rodeo. We know it's always something and it's our job to confront and to overcome, with the resilience of our markets, the strength of our strategic and tactical advantages, and the insight and energy of our consistent and capable team. And we've done just that. Here are the numbers that support that view.

Our reported sales in the quarter of $1,097.8 million were up 7.1%, including $8.5 million in acquisition-related activity, and $15.7 million of unfavorable foreign exchange. Organic sales growth was 8%, with gains in every group. And compared to the pre-pandemic levels of 2019, our clear upward drive shines were right through. Versus 2019, sales in this past quarter rose 19.1% as reported and 16.9% organically. In fact, it's our seventh straight quarter being above the pre-virus levels. We believe we're continuing an ongoing trend of accelerating expansion, momentum, increasing higher and higher, demonstrating that we're only getting stronger every day. And contributions from our Snap-on value creation processes, safety, quality, customerconnection, innovation, and Rapid Continuous Improvement or RCI, all combined to drive that progress, and progress there was.

OpCo operating income of $223.1 million increased $22.2 million from last year. The operating margin, it was 20.3%, up 70 basis points from last year and 120 basis points from 2019, as adjusted for the favorable legal settlement in that period. For Financial Services, operating income of $70.4 million increased 7.8%, and credit losses were down, continuing the positive trends, despite the lingering effects of the pandemic. And that result combined with OpCo for a consolidated operating margin of 24.8%, a 90-basis improvement from last year and 120 basis points from the as adjusted 2019 result.

First quarter EPS, it was $4.00, up 14.3% from last year's $3.50, and 32.9% above the as adjusted $3.01 recorded in 2019. To risk repeating myself, we believe Snap-on is stronger now than when we entered this great withering and our first quarter results are solid testimony.

Now let's talk about our markets. Auto repair remains quite resilient, I think we'd say. Spending on vehicle maintenance and repair is up and technicians are earning more than ever. They've been working, performing essential tasks, making a nice living. They're undaunted by the turbulence and they are optimistic about the future of their profession, about the outlook of individual transportation, and about the greater need for their skills as the vehicle parc changes with new technology. And all of that, all of that has led to an expansion in the ranks with the automotive repair technician count moving upward, at its highest point for, I think at least three decades. And as shop owners and managers will tell you, there's a need for many more. Vehicle repair is a strong and resilient market. You can hear it in our franchisees' voices. You can feel it in the technician's wallets, and you can see it written across our numbers.

Also in Auto Repair, standing right next to the techs, there are shop owners and managers where repair systems - where our Repair Systems and Information Group, RS&I, plies its trade.

Demand for new and used cars is high, despite the limited supply, despite the limited supply.

Dealership repair, maintenance and warranty is rebounding, and dealers are starting to invest again. New vehicles are being released with a greater variety of drive trains, with a greater variety of drive trains than ever, from internal combustion engines - from internal combustion to hybrid, to plug-in electric to full electric. And the range of options is growing. More driver assists, more vehicle automation, increasing vehicle complexity. I tell you, it's all music to our ears. And we've been able to take advantage with our lineup of intelligent diagnostic products, including the

Zeus, the Triton, and the Apollo handheld units, with our celebrated Mitchell 1 ProDemand repair information, our award-winning Tru-Point Advanced Driver-Assistance Calibration System, and our 3D alignment systems like the new Hofmann geoliner, all representing new technologies and big data deployed to make work easier right in the shop. Vehicle repair looks more promising than ever, and Snap-on is poised to capitalize.

Finally, let's talk about critical industries, where Snap-on rolls out of the garage, solving tasks of consequence. This is where C&I operates, the most international of our operations. And these are the customers that continue to be impacted hardest by the lingering virus, but they've been recovering. And in the quarter, our results showed that trend, despite some significant headwinds like supply chain disruption, commodity cost increases, some challenged business sectors like the military and international aviation or aerospace, and troubled geographies, conflict-impacted countries, and those more prone to business interruptions as a means to control the virus. Well,

C&I had it all. Despite the variation though, we did see growth, improvement in a number of geographies, Asia and Europe, and in a range of sectors like general industry, education and natural resources. They all combined to author organic growth against the continuing turbulence.

So, overall I'd describe our C&I markets as challenged, but improving, and looking forward we believe they represent clear opportunity. Viewing the overall picture, we believe there's been substantial progress along our runways for growth, enhancing the van network, expanding with repair shop owners and managers, extending to critical industries, and building in emergingmarkets, leveraging our broadening product lines, wielding our strong brand and deploying the increasing understanding of the work that is the hallmark of Snap-on people, even in the throes of the pandemic shock. Two years ago, as we entered the virus, you all remember this, two years ago, when we entered the virus, we recognized the resilience of our market and the strength of our model and projected a V-shape recovery. And that's how it played out. You can see it in the trends.

Now, let's turn to the segments. In the C&I group, first quarter sales, were $340.1 million, down $5.6 million due to $9.2 million of unfavorable currency and $3.6 million, or 1.1% - and a $3.6 million or 1.1% organic growth. As we said, across C&I results were mixed, but the period did see gains in Asia, with Japan, India, South Korea, Thailand, Indonesia rising. And Europe was also up with Sweden, Belgium, Poland and France leading the way. C&I's operating income was $45.7 million, down $5 million, reflecting $2.2 million of unfavorable foreign currency with the organic volume gains more than offset by supply chain inefficiencies.

And when compared with the pre-pandemic levels of 2019, sales were up 5.5%, including a 3.6% organic gain. And the OI margin of 13.4% was down 100 basis points, but against 150 basis points impact of acquisitions and unfavorable currency. C&I has simply been more affected by the difficulties - macroeconomic challenges, geopolitical uncertainty, varying COVID conditions.

It makes sense. The operation has spread over more countries and more industries. It's challenging, but we are making some headway and we're enthusiastic about the possibilities going forward. As part of that view, we remain committed to extending in critical industries and we'll keep strengthening our positions to capture opportunities as they arise. And enabling that intent is our expanding line of innovative new products, designed to match the demands of the industries that we serve and to make critical work easier.

One example is our family of micro-electronic torque wrenches. I've been talking about Snap-on electronic torque products for some time, but these smaller versions of our flagship offerings are