Snap On Integrated : This autumn 2022 Transcript

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PRESENTATION

Operator

Good day, and welcome to the Snap-on Integrated 2022 Fourth Quarter and Full Yr Outcomes Convention Name. All members might be in a listen-only mode. Must you want help, please sign a convention specialist by urgent the star key adopted by zero. After in the present day’s presentation, there might be a chance to ask questions. To ask a query, you might press star then one. Please word that this occasion is being recorded.

I’d now like to show the convention over to Sara Verbsky, Vice President of Investor Relations. Please go forward.

Sara Verbsky

Thanks, Cole, and good morning, everybody. Thanks for becoming a member of us in the present day to evaluate Snap-on’s fourth quarter outcomes, that are detailed in our press launch issued earlier this morning. We now have on the decision in the present day, Nick Pinchuk, Snap-on’s Chief Govt Officer; and Aldo Pagliari, Snap-on’s Chief Monetary Officer. Nick will kick off our name this morning along with his perspective on our efficiency. Aldo will then present a extra detailed evaluate of our monetary outcomes. After Nick supplies some closing ideas, we’ll take your questions.

As ordinary, we’ve got supplied slides to complement our dialogue. These slides might be accessed below the Downloads tab within the webcast viewer in addition to on our web site, snapon.com, below the Traders part. These slides might be archived on our web site together with the transcript of in the present day’s name.

Any statements made throughout this name relative to administration’s expectations, estimates or beliefs or that in any other case talk about administration’s or the corporate’s outlook, plans or projections are forward- wanting statements, and precise outcomes might differ materially from these made in such statements. Further info and the components that would trigger our outcomes to vary materially from these within the forward-looking statements are contained in our SEC filings. Lastly, this presentation consists of non- GAAP measures of monetary efficiency, which aren’t meant to be thought of in isolation or as an alternative choice to their GAAP counterparts. Further info relating to these measures is included in our earnings launch issued in the present day, which might be discovered on our web site.

With that mentioned, I might now like to show the decision over to Nick Pinchuk. Nick?

Nick Pinchuk

Thanks, Sara. Good morning, all people. Properly, it has been some yr and fairly 1 / 4. China knee- jerking from zero COVID and strict lockdowns to residing with COVID in an unprecedented virus explosion, diminished however nonetheless persevering with spikes within the provide chain, the continuing Ukraine struggle, the reemergence of Brexit and now the rising shadow of a recession, echoing in nearly every day public pronouncements. And via all of it, Snap-on delivered one other in an extended line of encouraging performances.

We’ll undergo it. Beginning with the highlights of the quarter and the yr, I am going to provide you with my perspective on the outcomes, the market setting, and our progress. And after that, as ordinary, Aldo will transfer right into a extra detailed evaluate of the financials.

The fourth quarter was encouraging. We consider it emphatically demonstrated the persevering with resilience of our markets and the potential of our operations to realize within the face of problem, wielding the ability of our product, our model, our individuals, and our strategic place. All of it mixed to function clear proof of what we already know: Snap-on is a singular and extraordinary operation. The outcomes for the fourth quarter function extra testimony to that reality, and they’re an unmistakable demonstration of our

Snap-on Integrated February 2, 2023, at 10:00 a.m. Jap

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persevering with momentum. After all, we did witness variations from group to group and inside the operations, however we consider the general outcomes are compelling. Fourth quarter gross sales of $1 billion, $155.9 million as reported, up 4.3% from 2021 included a considerable impression from unfavorable international foreign money of $37.7 million, a 370 foundation level headwind, and an natural gross sales improve of 8% over final yr, and that represented a 22.7% rise over 2019. This now represents the company’s tenth consecutive quarter above pre-pandemic ranges. It is a pattern of, I believe, some significance in unsure occasions like these.

From an earnings perspective, our opco working revenue for the quarter, together with the impression from unfavorable international foreign money, was $248 million, up 6.8% in comparison with 2021 and 44.7% above the 2019 pre-pandemic degree. The OI margin for the quarter, it was 21.5%, bettering by 50 foundation factors over final yr and 360 foundation factors over 2019. It is the identical resiliency that is been demonstrated through the years as we paid dividends each quarter since 1939 with no single interruption or discount. Actually, in November, our dividend was raised by 14.1%, marking the thirteenth straight yr of will increase. It is extra testimony of Snap-on’s constant efficiency by various environments. That is simply one other one in all them.

For Monetary Companies, working revenue of $63.9 million was down from the $67.2 million in 2021. That lower mirrored our forecasted return to extra historic provision ranges, however all whereas holding delinquencies flat to final yr. And our general quarterly EPS reached $4.42, $0.32 or 7.8% above 2021 and up 43.5% in contrast with 2019. Properly, these are the numbers.

Now to the markets. We consider that automotive restore stays very favorable. It is smart. The typical age of automobiles continues to extend. The complexity of repairs is rising steeply as new platforms enter the car PARC, and enter they’ve, beginning in dealerships. And we’ve got seen a resurgence in dealership initiatives regardless of a nonetheless recovering provide chain. Modifications in inner combustion, the rise of electrical automobiles, and the enlargement of auto autonomy have made dealerships keen for brand new tools to assist advanced restore duties of the evolving car PARC, and we see it.

Tasks and powertrains apart, dealerships proceed to see wholesome demand in restore, in upkeep and in guarantee, driving the necessity for store enlargement and extra technicians. You’ll be able to see it within the macros: restore spending, technician numbers, technician wages, all up. Our dealership section is increasing. And for our impartial restore retailers, confidence stays sky excessive throughout the board. Store house owners and managers affirm that demand for repairs, for technicians, and for advanced expertise are all rising, and our gross sales progress in that sector mirrors that enthusiasm. We consider we’re shifting into what might be known as the golden age of auto restore, and our Instruments Group and RS&I group are uniquely positioned with the product, the model, and the individuals to take full benefit, even within the midst of turbulence. You’ll be able to see it.

Now for the crucial industries, the place our Industrial & Industrial Group, or C&I operates. We proceed to see progress however the group spans vast jurisdictions. And as such, numerous headwinds throughout the geographies and the industries have attenuated a few of these positive factors. For geographies, Europe with the struggle and the reemergence of Brexit and China impacted by the COVID chaos have been a stark distinction to comparatively robust North American markets, quite a lot of variation. And the vary in variability amongst sectors additionally proceed to be a problem. Pure assets, heavy-duty fleets, normal industries and worldwide aviation have been sturdy, however the navy space stay challenged. Total, nonetheless, order demand for many of the crucial industries has been robust, and we consider that is an important sign for C&I’s future. So C&I does have challenges throughout the geographies and the segments, however we’ve got made developments, and we see alternatives for tomorrow.

Snap-on Integrated February 2, 2023, at 10:00 a.m. Jap

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Going ahead, we consider we’ll preserve shifting down our runways for progress, our vast runways for progress. And as we proceed, we’re additionally fortified, as all of you will have heard earlier than, by our Snap-on Worth Creation processes, security, high quality, buyer connection, innovation and fast steady enchancment, or RCI. They’re the core processes that drive our ongoing progress, particularly buyer connection and innovation, rising our product line. You see, our franchisees and our direct gross sales pressure possesses a strategic benefit, standing face-to-face with skilled techs, understanding their particular person challenges, showcasing the options created by our highly effective merchandise and demonstrating their use.

Our resilient markets do characterize a major alternative, and we’re there to take benefit, up shut and private, like nobody else, proper the place the roles are completed. And it is working. 2022 was a yr of considerable headwinds, however our crew prevailed, with the yr reaching new heights. Gross sales up $4 billion, $492.8 million, up 5.7%, reflecting an natural acquire of 8.7% in comparison with 2021 and a 20.2% natural improve versus 2019. The opco OI margin for the yr was 20.9%, up 90 foundation factors from ’21 and exceeding the pre-pandemic margins by 170 foundation factors. As reported, earnings per share for the yr have been $16.82, up 12.7% from ’21 and represented an increase of 35.5% from 2019. It is all proof of the decisive and ongoing momentum that marked the yr and the quarter.

Now the working teams. Let’s begin with C&I. Fourth quarter gross sales of $343.2 million for the group have been down $15.5 million versus final yr, together with $21.2 million in unfavorable foreign money and a 1.7% natural acquire. Our Specialty Instruments division was a transparent constructive with double-digit positive factors. Precision is turning into important day by day, and our torque merchandise are placing us proper in the course of that rise. Our crucial industries additionally confirmed power, particularly in North America, propelled by progress in pure assets, normal industries, and heavy responsibility, partially attenuated by decrease navy exercise.

Outdoors North America, it was a unique story. SNA Europe was down, and China was diminished. OI for C&I used to be $47.9 million, down $2.2 million primarily from the $2.3 million in unfavorable international foreign money. The group’s working margin was 14%. It was flat to final yr, however nonetheless represented an advance of 120 foundation factors over the pre-pandemic degree of 2019, and that was in opposition to 50 foundation factors of adverse foreign money and acquisition dilution.

The specialty torque enterprise inside C&I actually is making vital strides. Torque is scorching, and Snap-on has a widening array of latest choices to prominently take part in that pattern, merchandise like our new sequence of digital torque checkers. It is from our Norbar engineering crew. You would possibly bear in mind we acquired Norbar a couple of years in the past, our Norbar engineering crew in England, extra compact and simpler to make use of, it helps technicians validate the accuracy of torque devices near the office, saving quite a lot of time. Our new checkers accommodate torque measurements from 5-inch kilos to 1,500-foot kilos and wrenches from 1 / 4 inch to 1-inch, overlaying jobs from precision fasteners in a jet cockpit to a heavy-duty bolt on a large oil rig, a variety of functions. And its compact metal housing simply mounts in a wide range of handy places on the level of issuing or within the pathway of the workflow, like instrument cribs, aviation hangars and manufacturing cells, making torque checking a straightforward train.

With an accuracy of plus or minus 1%, our new checker will increase course of high quality with out work interruption, raises consistency in meeting exercise and with a streamlined documentation characteristic, drastically improves the administration of fastening in any software. The preliminary launch was effectively acquired by any operation that depends on precision torque, and there are quite a lot of them. And as you may think about, the brand new checker is correct on monitor to be a Snap-on hit product with gross sales of $1 million within the first yr. So it appears prefer it’s a reasonably robust product for us. C&I, combined progress, challenged with headwinds, however it did have vital areas of enchancment paving the best way for future progress.

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Now on to the Instruments Group. Quarterly gross sales of $542.7 million, up $37.9 million, together with 9.5% in unfavorable foreign money and a 9.6% natural improve, positive factors within the U.S. operation and continued enlargement within the worldwide networks. And it was all led by huge ticket gadgets, instrument storage and diagnostics each with boffo double-digit positive factors. Working earnings for the Instruments Group have been $116.1 million within the quarter, $5.6 million above 2021, and that included $4.5 million in unfavorable foreign money. The working margin was 21.4%, 50 foundation factors under final yr, however that was impacted by foreign money and by product combine, however it was nonetheless a results of appreciable power.

Instruments Group once more represents the continuing energy and market management of our van community. It is written throughout the financials. And that positivity is clearly and boldly echoed within the voices of our franchisees. I can inform you; I used to be simply at one in all our annual kickoffs, it is unmistakable that they are pumped, enthusiastic and assured. They know they’re rising. They usually firmly consider there’s extra available. And our franchisee well being metrics affirm all of that to be true. The quantitative trajectory relayed in that information helps each little bit of the positivity-of the constructive angle.

And the franchisees expressed their pleasure in additional formal methods. Throughout the quarter, we have been acknowledged by the Franchise Enterprise Evaluate, which surveys franchisee satisfaction. And in its newest rating of their publication, as soon as once more, newest annual rating, that publication as soon as once more listed Snap-on as a high 50 franchise, marking the sixteenth consecutive yr we acquired that award. And internationally, Snap-on was ranked #1, #1 in Elite Franchise Journal’s High U.Okay. Franchises for 2023, ending not solely above the U.Okay.-only franchise techniques, but in addition coming in forward of a lot of extremely popular world manufacturers. Now that sort of recognition displays, I believe, the basic power of our van enterprise, and it might not have been achieved with no steady stream of revolutionary new merchandise.

As a part of that, Snap-on continues to steer the business with useful gizmo storage improvements designed to enhance productiveness and permit techs to personalize their workspace. We are the first to market with the LED PowerTop, brightly lighting the gleaming Snap-on instruments like particular jewels as every drawer is accessed. It is fairly a sight. It allows the techs to point out the delight of their work.

And constructing on that characteristic, in December we began delivery the primary of our new IRIS instrument storage items. It is a 68-inch particular version EPIQ roll cab, which permits the technician to regulate the drawer lighting with an infinite array of coloration alternatives. It’s an eye-catcher, coated in storm grey paint paired with pink trim, and in addition to its look, it additionally options for the primary time a specifically lit Snap-on emblem nameplate. It is revolutionary, hanging. And as for all EPIQ packing containers, all of them, it screams performance. The PowerTop and the PowerDrawer present 10 electrical shops and 4 USB ports all through the roll cab that ensures that each one the cordless instruments, the lights, the equipment are charged and on the prepared. It additionally options our distinctive pace drawer for sensible, customizable instrument group. It is a extremely popular and productive characteristic within the retailers. Comfort, productiveness and distinction, the IRIS acquired an amazing reception, serving to to drive the landmark instrument storage quarter we had only recently. It reveals that delight actually is a strong salesman. We present that day by day.

Properly, that is our Instruments Group, booming within the U.S., progressing internationally, persevering with the stream of latest merchandise, constructing the model, enhancing the van channel, and shifting ahead with momentum.

Now for RS&I. Within the fourth quarter, our RS&I Group outcomes confirmed what we have been saying all alongside: Snap-on is effectively positioned for the continuing rise in car restore. RS&I gross sales within the quarter of $437.9 million elevated 11.6%, together with $9.5 million in unfavorable foreign money and a 14.3% natural acquire. 14.3%, boomshakalaka! It was an important efficiency, and that rise was authored by double-digit improve in OEM dealerships as producers proceed to launch new fashions, spend money on new tools, and implement important instrument applications. However our enterprise within the impartial garages additionally

Snap-on Integrated February 2, 2023, at 10:00 a.m. Jap