Q3 2021 Transcript

Company:	Snap-on Incorporated
Conference Title:	Snap-on Incorporated Third Quarter 2021 Results Conference Call
Conference ID:	272151
Moderator:	Sara M. Verbsky
Date:	October 21, 2021

Operator: Good day, and welcome to the Snap-on Incorporated Third Quarter 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sara Verbsky, Vice President, Investor Relations. Please go ahead.

Sara Verbsky: Thank you, Olivia, and good morning, everyone. Thank you for joining us today to review Snap-on's third 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 Downloads tab in the webcast viewer as well as on our Web site, snapon.com, under the Investors section. These slides will be archived on our Web site along with a 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 these measures is included in our earnings release issued today, which can be found on our Web site.

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 third quarter and along the way of I'll give you my perspective on our results… they are encouraging…on our markets…they are positive and more than resilient…and I'll speak about our progress. It's been considerable, each period demonstrating increasing strength even when in the midst of seldom seen headwinds. And we'll also speak about what it all means for our future. It's incredibly promising. And then Aldo will move into a more detailed review of the financials.

Our reported sales in the quarter were $1,037.7 million. They were up 10.2%, including $9.6 million of favorable foreign currency and $19.5 million of acquisition-related sales. Our organic sales growth was up 7%, was 7%, gains in every group. It was our fifth straight quarter of above pre-pandemic performance and Snap-on value creation processes, safety, quality, customer connection, innovation and rapid continuous improvement, or RCI, as we call it, all combined to drive that progress.

And progress it was. Opco operating income of $201.3 million was up $15.6 million from last year. The OI margin was 19.4%, down 30 basis points, impacted negatively by acquisitions, but still very strong, at a strong level.

For Financial Services, operating income of $70.6 million increased 7.6% and the delinquencies were down, even below the 2019 pre-pandemic levels, a continued testimony to our unique business model and its ability to navigate the most threatening of environments.

First quarter EPS was $2.57, up $0.29 or 8.8% from last year. And as I said before, we believe Snap-on is stronger now than when we entered this great withering and our third quarter results testifies to just that. Compared with 2019, before we ever heard of the virus, our sales - our sales grew $135.9 million or 15.1%, which includes $21.0 million from acquisition-related sales, $13.6 million of favorable foreign currency and $101.3 million - and a $101.3 million or 11.1% organic gain. And that 2021 Opco operating margin of 19.4% was up 80 basis points from the pre- pandemic levels, even while absorbing the impact of new acquisitions and while meeting what we can call the considerable disruption of these days.

Now let's talk about the markets. Auto repair remains quite resilient. The technicians are prospering. They know they've weathered the depths of the COVID shock, learned to accommodate the virus environment and are well along to psychological recovery. Techs are resilient. They've been at their post for the last 18 months undaunted and they won't be shocked again, 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. Vehicle repair is strong - is a strong and resilient market. You can hear it in the franchisee's voices and you can see it written clearly across our numbers every quarter.

Also in auto repair, there are our shop owners and managers, different from the tech. That's where our Repair Systems & Information Group, RS&I, plys its trade. Demand for new and used cars is high despite limited supply and dealership repair and maintenance and warranty is rebounding, and dealers are starting to invest again.

And we've been able to make - we've been able to take advantage with groundbreaking products like our award-winningTru-Point Advanced Driver-Assistance Calibration System, our new diagnostic, our new diagnostic TRITON-D10 intelligent diagnostic unit and our acclaimed Mitchell1 ProDemand Repair Estimating Guide, all representing new technologies and data

deployed to make work easier in the shop. Vehicle repair looks more promising than ever, and Snap-on is poised to capitalize.

Now let's talk about critical industries where Snap-on rolls out of the garage, solving tasks of consequence. This is where Commercial and Industrial or C&I operates. The virus had a much longer impact on these customers. They were slower to accommodate, but they are recovering. And in the quarter, our results showed that trend, gains in North America, Europe and in Asia, all over the globe. So overall, I describe our C&I markets as improving. And coupled with the strength of the auto repair sectors, our markets are beyond resilient, and we're ready and well positioned to make progress along those runways for growth.

At the same time - at the same time, it's clear that we have ongoing potential on our runways for improvement, the Snap-on Value Creation Processes. They've never been more important, helping to counter the turbulence of the day. Especially important was customer connection, understanding the work of professional technicians, and innovation, matching that insight with technology, driving new products. And just this quarter, Snap-on was prominently represented with nine Professional Tool & Equipment News, we call it PTEN People's Choice Awards where the actual users, the technicians make the selection.

We were also recognized with two PTEN Innovation Awards, and we were honored with two Motor Magazine Top Tool awards. An essential driver of Snap-on growth is innovative product that makes work easier and the awards, hard won. They're a testimony that great Snap-on products just keep coming, matching the growing complexity of the task, becoming more essential to technicians and driving our forward progress.

That's the environment, pretty positive. Now we'll move to the operating groups. In C&I, volume in the quarter rose 13.9% or $43.0 million versus 2020 on significant growth across all divisions, reflecting - it reflected a $32.9 million or 10.6% organic uplift and $7.5 million from our AutoCrib

acquisition. And double-digit growth in our European hand tool businesses and a high single-digit rise in critical industries led the way. C&I operating income of $53.6 million was up $10.5 million or 24.4%, and the operating margin was 15.3%. That's an increase of 130 basis points versus last year. I'd say that's an intention getting rise against the wind.

Now compared to the pre-pandemic 2019 results, sales were up 4.8%, including a 0.9% organic gain. And that OI margin of 15.3% was up 90 basis points against the 70-point impact of acquisitions and unfavorable currency. Once again, SNA Europe delivered double-digit growth beyond pre - double-digit growth beyond pre-virus levels against a complex and varied marketing environment, propelled by the customization power of their Bahco Ergo Tool Management System. And our Industrial division rose in critical industries, recording nice gains in general industry, heavy-duty, education and U.S. aviation, a number of positive sectors overcoming weakness and continuing weakness in the military and natural resources. C&I is rising, and we're enthusiastic about the possibilities. We'll keep strengthening our position to capture those opportunities and enabling that intent is our expanding lineup of innovative new products.

And the third quarter, did see some great new offerings. Like our 14.4-volt3/8-inch drive Brushless Ratchet, the CTR861. It's already popular. And it's no wonder. It's a powerful combination of strength and speed, high torque, 60-foot pounds to bust loose very suborn bolts, and rapid operations, 275 RPM for getting those fasteners off in quick time. Made our - made in our Murphy, North Carolina plant, and it features a full frame brushless motor for longer run time and durability. It includes a safety switch that shuts, and it includes a safety switch that shuts down - shuts down the tool after 2 minutes of continuous use that's eliminating the chance of overheating. It also has a super bright 18 lumen, front-facing light that stays illuminated after the trigger is released, allowing easy and immediate inspection of the work. This ratchet also features a built-in break that stops the tool from throwing fasteners, which is - it seems like not much, but it's an important safety feature for technicians. And it also offers a great cushion grip that makes for more comfortable tool control even during extended use. The CTR861, power, speed, and