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Good morning, and welcome to the Snap-on Incorporated 2023 Third Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note today’s event is being recorded. I would now like to turn the conference over to Sara Verbsky, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, operator, 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 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 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 our 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, everybody. As usual, I'll start by covering the highlights of the quarter, and then I'll provide an update on our general environment and the trends we see. Aldo will then give you a detailed review of the financials. Speaking about the last three months, I can say without question or qualification, we are once again encouraged fortified by the progress along our runways both growth and improvement. We encountered headwinds and we engaged challenges in a number of geographies still we capitalized on our opportunities, wielding our advantage and overcame the potential for disruption. The franchising network remain resilient generating positive gains through a broad and sharp rise in critical industries expanding what is now a consistent upward trajectory enabled by the confluence of our robust market of growing product lines and an effective expansion of capacity in that business. And that progress was pretty evident in our numbers. They speak for themselves. Reported sales were $1,159 million, up 5.2% from last year, a 4.7% organic rise and $4.4 million in favorable foreign currency effects with growth in every segments. This represents our 13th quarter, well, above pre-pandemic levels. OpCo income, OI before financial services were up 9.7%, reaching $245.2 million, OpCo operating margin rose 90 basis points to 21.2% with higher sales volumes, the benefits of great new products and the ongoing efficiencies of a rapid continuous improvement or RS&I more than offsetting up 50 basis points, a bad news from unfavorable foreign currency effects, 21.2% and 90 basis points. Nice. The operating income for our financial services operation grew $69.4 million from the $66.4 million last year, a 4.5% improvement and the result - and that result combined with the OpCo performance to raise our consolidated operating margins to 25.1%, a 70 basis point rise from 2022. And EPS, EPS was $4.51. reflecting a 37 or 8.9% increase above last year. Strong. Well those are the numbers. Once again strong signifying our corporation’s continuing advance. You see, we again believe that Snap-on is stronger now than at any time in our history and the results they say it so. Now let's review the markets. In vehicle repairs, key metrics continue to be favorable. The average age of vehicles on the road continuing to rise and in turn the number of techs in the garages, in the garage is growing high to high mid-single-digits maintaining consistently positive trends period-over-period, period-over-period. That's clearly upward. Technician wages are robust and continuing to climb. So the market is favorable and the metrics back it up. But more than the quantitative evidence, you get the feeling of optimism potential when you speak with technicians. Recently, I had a chance to visit with our customers’ franchises and mechanics in New York. And I'm here to tell you the enthusiasm they displayed in the industry and the confidence they expressed in their future was something else. It was contagious. Even in this time of turbulence, the message was clear. They see opportunity and they're looking for more, more innovative solutions, that will increase productivity and take advantage of that potential. And their confidence on the way forward is palpable. And we believe they see Snap-on products, brands and people as the best way to ensure that positive future. Vehicle repair is a strong market. We see this confirmed throughout the franchisee network in North America and in our international operations. It's one of the reasons we've expanded capacity. We believe our franchisees and our technicians have never been more prosperous. It all makes sense. The car park is increasingly requires more repairs or greater complexity and our customers, the techs are major participants in that reality. They need - and they need new tools to follow the opportunity. Snap-on is positioned to take full advantage of that possibility. Another important sector for us is the vehicle repair shop owners or managers. These are people who stand right next to the techs, but they buy at different cadences. This is where repairs systems and information group or S&I operates every day with advantage. The vehicle park is changing. The shops have to keep with the upswing model-by-model, new challenges, new challenges that they have to navigate. Electronics to support more features. Automotive systems that enhance driver safety. New body materials to increase durability and reduce weight. Network of sensors to anticipate traffic and road conditions. No power trains. Enhanced internal combustion engines. EVs and plug-in hybrids and the conserved energy and on and on and on. Each of these, each of these trends creates opportunity for garages and they know it. But they also know it requires new more sophisticated equipment. The opportunity - that opportunity we see shines right through political uncertainty or economic turbulence. We see, though that underneath every day when we call on the garages new software to guide repairs or manage the shop. Essential programs to accommodate either sequences of new vehicles, calibration protocols and advanced systems for sensor rays, advanced under car equipment to accommodate the precision - that the precision that supports efficient driving. And we see the shop owners and managers are eager to take advantage of those trends Snap-on has the hardware and software to enable that pursuit bringing to shops and the results in our C&I are confirming the strength of that market and our strong position in it. Finally, let’s discuss the critical industries. This is where we extend outside the garage solving tasks that that really matter. This is where commercial industrial or C&I lives. And where much more international activity happens. This is the arena of critical applications, space declarations, wind power maintenance, subsea mining, smelting that exceeds 2300 degrees Fahrenheit, the mobilization of first responders. All critical environments where the penalty for rearview was high and the need for repeatability and reliability often requires custom tools engineered for a single purpose. In other words, tasks that require a Snap-on solution. Just like in previous quarters, the market is booming. Momentum in multiple sectors like the military, general industry, aerospace, heavy-duty and aviation. Of course, do just see variations from geography-to-geography, this is an international business. Areas impacted by external factors that create disruptions in Europe, with the uncertainty associated with the Ukraine war in Asia where the remnants of the pandemic are still pretty apparent; there's turbulence in China and the weakening of currencies these days are impacting particular countries. But overall, the critical industries are robust offering us significant potential for taking advantage and making significant gains. And in the quarter, we did just that. So our markets are resilient and are on a positive trajectory and we believe that our runways for growth will present clear and abundant opportunities as we move forward enhancing the franchise network, expanding where repair shop owners and managers extending to those critical industries. And building and emerging markets. Rising - rising and going forward by leveraging our broadening product line, wielding our strengthening brand, and deploying the increasing understanding of the work that is the hallmark of the Snap-on team. That's the markets. Now, let's turn to the segments. In the C&I group, third, quarter sales reached $266.4 million, up $9.6 million, which includes $1.6 million in unfavorable currency effects and an organic sales growth of 3.2% above last year. From an earnings perspective, C&I's operating income was $58.1 million, up 11.1% double-digits including $2.9 million of unfavorable foreign currency. And the operating margin was 15.9%, an increase of 120 basis points overcoming 70 basis points of negative currency. We did have some variation across the group - across the group business units with substantial gains in industrial vision offsetting declines in Asia operations. But as usual, the C&I rise showed the power of our Snap-on value creation, particularly on customer connection, innovation authoring great new products, solutions that make critical tasks easier, like our new CT9038 power tool. We talked about this. We talked about this to a last quarter saying the franchisees were waiting for its launch. Well it was worth the wait. It's a special to0l. A three eight inch drive, 18 volt impact unit that, that, that offers compact housing measuring only five inches long. That's why we call it the stubby. The unique silhouette is made possible by engineering the overall housing mechanism to stabilize the electric motor rather than the standard approach of adding a whole independent structure to support the drive components. It's an innovation that reduces overall body dimensions allowing users to navigate really tight spaces and believe me, that's an attractive advantage for engine and suspension work on newer vehicles. And it does that while still delivering 520 foot pounds of bolt break away torque, power capable of busting with even the most stubborn of seized and seized fasteners. It's what you would expect from Snap-on. It's an ergonomically balanced - it's ergonomically balanced, greatly reducing user fatigue. It's equipped with a super bright LED light to clearly illuminate the workplace. It also offers three torque settings and forward and reverse and includes a variable speed trigger enabling techs to apply just that necessary force avoiding the fastener damage that you know, often can happen in tight spaces. The September launch was a big way oversubscribed. Clear testimony to the appreciation of the stubby’s compact power and it's still showing great momentum. The orders remain very strong. It was worth wait. C&I product is encouraging. But there's another story in the group. Our industrial division, extending the Snap-on brands to the critical industries. We've said in the past that the opportunity was there. Always needed was more capabilities to deliver. Well it played out just that way. We did add capacity for kidding and it drove results. Expansion came to the fall of the last year. And this past period was the third straight quarter of clear double-digit growth in the critical industries. And that was what's strong margins. Gangbusters, gangbusters margins, gangbusters growth. It overcame the C&I challenge in Eastern Europe and Asia. And we believe we have much more room to run in the critical - in the critical industry's arena. So we're adding more capability in that business right now to take full advantage. Let's C&I substantial challenges overcome by strong products and expanded capacity to drive upward in the critical industries and there's more to come. Now on to the tools group. Sales line was up organically 3.7% over last year, reaching $515.4 million in the quarter. That's finished with great in a quarter, that finished with great momentum. And the Group's operating income continue to move strongly upward to $113.4, million, and 11% increase, double-digit increase over 2022 levels. Another in a series of those double-digit increases for the tools group and the operating margin was – it was 22% up 140 basis points from last year and that rise and – that considerable rise was achieved overcoming 50 basis points of unfavorable currencies, - a great quarter for the profitability and growth. Now, the third quarter is when we hold our annual Snap-on franchisee conference what call is the SFC. This year the event was a net show with 9,000 people attending, franchisees, guests and of course, Snap-on team all participating in the, in a weekend of special - in a great weekend. It was a weekend of special training. Hands-on encounters with our massive product line and for some fun - for some fun, special Snap-on celebrations, they're really good. The attendees had the opportunity to spend time ordering directly from the tool exit expo floor. And I am happy to say orders were up again this year, which is and that exposed spanned a space of over three football fields where our entire portfolio of products was on display, but it had a wide array of demonstrations and that was specially designed to showcase the Snap-on performance advantage. The conference also provided a number training sessions, helping franchisees expand their business. Seminars and special breakouts, highlighting our product features and unique advantages in critical categories like power tools and diagnostics and we topped off that multi-day event. This is, these are the celebrations with a - of coach buses transporting the teams to downtown Nashville for unique Snap-on’s evening. Boom, shakalaka was the word of the day with another memorable SFC and sightful, education, great, new products, and a special fellowship, a special fellowship that reinforces our unique bond with our franchisees. From my perspective, our van drivers at Nashville spoke enthusiastically about their current businesses and radiated firm confidence in their future with Snap-on. And if you were there, you would have seen it too. During the tool expo, franchisees were able to spend time interacting with some of the new innovative products derived from our customer connections inside game, directly in the workplace handles were big at the SFC and in the quarter and the demand was driven by special new products like our 12 millimeter 6.6. meter Duramax glow plug socket. This product was inspired by a franchisee observing the technicians removing blocking components one-by-one from a diesel vehicle, fender of special intake lines in steering shifts. These items create access barriers increasing the difficulty of executing the very basic repair of just changing diesel glow plugs, a routine test that that was made difficult because of our crowded engine compartment design with minimal regard for servicing. We listened to the franchisee feedback, went to work designed - and new socket longer than the standard to reach the glow plugs from a distance. And with a flex mechanism that guide around the blockers, making - making it unnecessary to remove them. Technicians immediately recognize the considerable time savings that - it made the new sockets very popular. It's another customer connection that transforms a laborious process, making more easier, freeing time and increasing tech capacity and therefore tech income. Also on display was another Display was another example of customer connection, the new FHC 72MPRR, these product terminations are mouthful. Triples but it's a we call it a triple function ratchet. Three tools in one. Again, born out of customer connection directly in the worst place. First the ratchet head can be secured parallel to the handle serving as an traditional ratchet. Next, the head can be adjusted to take any one of 16 available positions, 240 degrees around the handle centerline enabling the tool to work while reaching around obstacles. Finally, the unit can be placed in a free spin mode providing the tech with 360 degrees in continuous rotation, greatly reducing work time in low torque situations. Our customers, the technicians again saw the great benefit of that improved productivity and that recognition made the triple function ratchet a million dollar hit product in just the first month of selling. It was another win for customer connection and a driver for the tools group. The tools group proves a third quarter achievement and momentum fueled by customer connection, innovative insight, anchoring great new products. And with the group’s continuous dedication to Snap-on value creation, we believe the hits in the progress will just keep on comments. Turning to RS&I. Sales of $431.8 million in the third quarter were up as reported by 4.2% with an organic improvement of 3.1%, expansions in the undercar equipment and our diagnostics and information portfolio continued to offset the OEM businesses where - which finished down slightly in a traditionally lumpy arena. OI for RS&I was $104.9 million, up 10%, again double-digits from 2022 and the operating margins was 24.3% represent - which represented an improvement of 130 basis points again against 20 basis points of unfavorable foreign currency. We've great confidence in our RSI business. Our customers and industries, partners feel the same, and that confidence was demonstrated in the latest public recognitions. Recently Motor Magazine shows our

Thanks, Nick. Our consolidated operating results are summarized on Slide 6. Net sales of $1,159.3 million of the quarter represented an increase of 5.2% from 2022 levels, reflecting a 4.7% organic sales gain and $4.4 million of favorable foreign currency translation. Organic sales growth was balanced across all three of our operating segments and from a geographic perspective, we experienced year-over-year gains in North and South America, as well as Europe. Asia continue to be attenuated by weakness in China and Japan, the latter hampered by a depreciating Yen. Consolidated growth margin improved 160 basis points to 49.9% from 48.3% last year as gross margins expanded across all of our operating segments. Contributions from increased sales volume with pricing actions, lower material and other costs and benefits to the companies RCI initiatives were partially offset by 50 basis points of unfavorable foreign currency effects. Operating expenses as a percentage of net sales rose 70 basis points to 28.7% from 28% last year, primarily due to increased investment in personnel, and other costs. Operating earnings before financial services of $245.2 million in the quarter compared to $223.5 in 2022. As a percentage of net sales, operating larger before financial services of 21.2% including 50 basis points of unfavorable currency effects, reflects an expansion of 90 basis points over last year. Financial services revenue of $94.9 million in the third quarter of 2023 compared to $87.3 million last year, while operating earnings of $69.4 million compared to $66.4 million in 2022. Consolidated operating earnings of $314.6 million in the quarter, compared to $289.9 million last year. As a percentage of revenues, the operating earnings margin of 25.1% reflects an improvement of 70 basis points from 2022. Our third quarter effective income tax rate of 22.6%, compared to 21.6% last year. Net earnings of $243.1 million dollars or $4.51 per diluted share, including an $0.08 per share impact from unfavorable foreign currency, reflected an increase of $19.2 million and $0.37 per share from 2022 levels, and represented an 8.9% year-over-year improvement in diluted earnings per share. Now let's turn to our segment results for the quarter. Starting with C&I Group on Slide 7. Sales of $366.4 million dollars increased from $356.8 million last year reflecting $11.2 million or 3.2% organic sales gain which was partially offset by $1.6 million of unfavorable foreign currency translation. Organic growth includes a double-digit gain in sales to customers and critical industries, partially offset by a double-digit decline in the segment to Asia Pacific operations. With respect to critical industries, sales to the military were robust as was activity in the aviation sector. Overall C&I organic sales to external customers were up 7.1% for the quarter. Gross margin improved 210 basis points to 39% in the third quarter from 36.9% in 2022. This was largely due to increased sales volumes in the higher gross margin critical industry sector, pricing actions and benefits from RCI initiatives. These improvements were partially offset by 60 basis points of unfavorable foreign currency effects. Operating expenses as a percentage of sales rose 90 basis points to 23.1% in the quarter, from 22.2% 2022, primarily due to increased sales and higher expense businesses and investments in personnel and other costs. Operating earnings for the C&I segment of $58.1 billion, including $2.9 million of unfavorable foreign currency effects, compared to $52.3 million last year. The operating margin of 15.9%, including 70 basis points of unfavorable currency effects, compared to 14.7% in 2022, reflecting an improvement of 120 basis points. Turning now to Slide 8. Sales in the Snap-on tools group of $515.4 million compared to $496.6 million a year ago, reflecting a 3.7% organic sales gain and $500,000 of favorable foreign currency translation. The organic sales growth reflects a double-digit gain in our international operations and a low-single-digit increase in our US business. Gross margin improved 140 basis points to 46.3% in the quarter from 44.9% last year. This increase is primarily due to higher sales volumes and pricing actions and benefits from RCI initiatives, partially offset by 50 basis points of unfavorable foreign currency effects. Operating expenses as a percentage of sales was unchanged from last year with benefits from higher volumes offset by increased personnel and other costs. Operating earnings for the Snap-on tools group of $113.4 million including $2.7 million of unfavorable foreign currency effects, compared to $102.2 million last year. The operating margin of 22% includes 50 basis points of unfavorable currency, compared to 20.6% in 2022 reflecting an improvement of 140 basis points. Turning to the RS&I group shown on Slide 9. Sales of $431.8 million compared to $414 million in 2022 reflecting a 3.1% organic sales gain and $4.8 million of favorable, foreign currency translation. The organic sales increase includes a high-single-digit gain in sales of undercar equipment and a low-single-digit increase in sales of diagnostic and repair information products to independent shop owners and managers. These gains were partially offset by a low-single-digit decline in activity with OEM dealerships where we often see variability in essential tool programs from period-to-period. Gross margin improved 260 basis points to 45.5% from 42.9% last year, mostly due to lower material and other costs and increase sales volumes and savings from RCI initiatives. Operating expenses as a percentage of sales went up by 130 basis points to 21.2% from 19.9% last year, primary reflecting increased personnel and other costs. Operating earnings for the RS&I group of $104.9 million compared to $95.4 million last year. The operating margin improved 130 basis points to 24.3% from 23% reported last year. Now turning to Slide 10. Revenue from financial services increased $7.6 million to $94.9 million from $87.3 million last year, primarily reflecting the growth of the loan portfolio. Financial services, operating earnings of $69.4 million compared to $66.4 million in 2022. Financial Services expenses were up $4.6 million from 2022 levels, including $4 million of higher provision for credit losses. The year-over-year increase of provisions reflects both the growth of the portfolio, as well as a return to what we believe to be a more normal pre-pandemic rate of provision. Sequentially, the provision for credit losses decreased by about $500,000. For reference, our gross worldwide extended credit or finance receivable portfolio has increased 9.3% year-over-year and we believe that delinquency in portfolio performance trends currently remains stable. In both the third quarters of 2023 and 2022, the respective average yield on finance receivables was 17.7%. In the third quarters of 2023 and 2022 average yields on contract receivables were 8.8% and 8.6% respectively. Total loan originations of $305.2 million in the third quarter represented an increase of $5 million or 1.7% from 2022 levels, including a 4% increase in originations of finance receivables. Moving to Slide 11, our quarter end balance sheet includes approximately $2.4 billion of gross financing receivables with $2.1 billion from our US operation. The 60-day plus delinquency rate of 1.5% for US extended credit is the same as it was in this period last year. On a sequential basis, the rate is up 20 basis points reflecting the seasonal trend we typically experience in the third quarter. As it relates to extended credit or finance receivables, trailing 12-month net losses of $47.9 million represented 2.51% of outstandings at quarter end, which is up slightly from the 2.45% reported at the end of last quarter. Now, turning to Slide 12, cash provided by operating activities of $285.4 million in the quarter represented 115% of net earnings when compared to $129.9 million last year. The improvement as compared to the third quarter of 2022, largely reflects lower year-over-year increases of working investment, as well as higher net earnings. Net cash used by investing activities of $59.7 million included net additions to finance receivables of $35.1 million and capital expenditures of $25.1 million. Net cash used by financing activities of $135.3 million included cash dividends of $85.6 million and the repurchase of 194,000 shares of common stock for $51.8 million under our existing share repurchase programs. As of quarter end, we had remaining availability to repurchase up to an additional $304.5 million of common stock under our existing authorizations. Turning to Slide 13, trade and other accounts receivable increased $15.1 million from 2023 events. Net sales outstanding of 60 days compared to 61 days as of 2022 year end. Inventory decreased $200,000 from 2022 year end. On a trailing 12 month basis, inventory turns to 2.4 compared to 2.5 at year end 2022. Our quarter end cash position of $959.3 million, compared to $757.2 million at year in 2022. Our net debt to capital ratio of 4.8% compared to 9% at year 2022. In addition to cash, we expected cash flow from operations, we entered into a five year $900,000 multi-currency revolving credit facility on September 12, which amends and restates our previous $800 million facility. As at quarter end, there were no amounts outstanding under the credit facility and there were no commercial paper borrowings outstanding. That concludes my remarks on our third quarter performance. But briefly review a few outlook items for the remainder of 2023. We anticipate the capital expenditures will approximate $100 million. In addition we currently anticipate that our full year 2023 effective income tax rate will approximate 23%. I’ll now turn the call back to Nick for his closing thoughts. Nick?

Thanks, Aldo. Well, that's our third quarter. You know, I always say as the third quarter could be somewhat squirrely, not always indicative of trends. That's because of the SFC and the vacation seasons around the world. But having said that, the last three months haven’t been encouraging. We took on some significant headwinds, the war in the Ukraine, and the uncertainly in China, both politically and economically. We engaged those challenges came through at all with clear progress. New heights across the board. Continuing our - it all, continue our upward trajectory movement, the upward conjecture we've been on for some time. We spoken quite a bit about capacity constraints, first in the industrial business and later in the tools group, born of the increasing demand for our solutions. And in this quarter, we clearly see the power of such expansions wielded by capable of experienced team enabled by decisive advantages, and products, and brands and applied in markets that are critical and resilient even amidst the challenges. The industrialization is performing as we said it would. Clear double-digit growth and strong profitability now, demonstrated for three straight quarters as its new capacity has come online. And the tools groups starting to see the very early effects of that capacity propulsion closing out the quarter with great momentum and with significant rises in overall profitability. At RS&I, not capacity bound, but establishing a strong and profitable position in the repair shops with software strength like our Mitchell 1 systems, diagnostic ascendance like our decorated

[Operator Instructions] Today's first question comes from Brad Jordan at Jeffries. Please go ahead.

Hey, good morning guys. This is Patrick Buckley on for Brad. Thanks for taking our questions.

Sure.

Last quarter, you guys called out the demand exceeding capacity in a few tools product lines. Did you see that mix mismatch balance out this quarter? Or has some of the trends persisted there?

Yeah. Well, like, I think I – what I was trying to say in my remark is that it got better through the quarter. We started to get some of the value with the capacity expansions. We’re starting to get the early effects of those things. So you saw some of that start to balance out, but it's still there. We expected to continue to - but those capacity expansions to continue helping us going forward. But it's kind of the same thing. When we have these capacity constraints and they were principally in hand tools and in the tools group, there were at hand tools and in and tool storage as the quarter, we see them ease a little bit, but they're not where we want them to be. They're going to be, yes.

Got it. That's helpful. Thank you. And then, within your OEM dealership customer base, you guys will –in that RS&I business you called out some weakness and lumpiness. Is overall demand pretty healthy there or what exactly is the driver?

Demand is pretty healthy on a relative basis. I mean, the thing is what these businesses what this business referred to is, these are projects, programs authored or commissioned by OEMs principally to deal with the idiosyncrasies of a changing environment or with a new vehicle. Maybe it needs a new trailer hitch adjustment because something wasn't anticipated or a different tool to take out the wiring harness or maybe to support vehicle charging stations that dealerships once because electric vehicles are coming on or maybe for a special. And what it is, is the OEM ask us to configure the product and then distribute it to its dealerships. And, that’s been going upwards. But it is lumpy, it's big project, that's a big project that's good product. So if you get, x number of men in one quarter and you get x minus one in another quarter is a little bit of pressure on that. In this situation, the, the EQS business was down somewhat. Well, I think low-single-digits or something like that, but it was really last year it has risen tremendously associated with the fuselage of new models that are rolling out into the markets. And so this is down somewhat versus a pretty strong position. So it just reflects kind of some lumpiness along the surface for that business and that’s created some offset to C&I. For RS&I.

Got it. That's helpful. That's all for us. Thanks guys.

Sure.

Thank you. And our next question today comes from Gary Prestopino with Barrington Research. Please go ahead.

Hey, good morning everyone.

Good morning, Gary.

Nick, can you - you said that the orders coming out of the conference were strong. I mean, could you give us some idea of some metrics to surround that? I mean, was it one of …

Yeah, sure. They were up mid-single-digits. So, this is a nice we like this kind of thing because it shows we're going to keep growing in that sort of range we expect to grow. It's been upward during the pandemic, it have been up more higher at some points. But generally mid-single-digit growth is pretty good for us. We were kind of very encouraged by that idea. You know, you got to remember though Gary, as you know very well, these things are just orange. You know, they are orders. They are not necessarily sales and those orders are spread out over six months or seven months. So it's hard to correlate them to anything in particular, but having said that, having orders up mid-single-digits is better than a poking an eye with a sharp stick. You know, it's okay. We kind of like that.

Right. Okay. And then, just a question just in terms of, as we go forward as the car park gets older, but you're starting to get more of a proliferation of older cars with technology where does your emphasis go at that point? Does it more of a shift from hand tools to increased diagnostics? Specialized diagnostics for these cars? Or is that just or maybe you can give us some guidance there?

The thing is, is that you would think that would be logical. I would. Yeah, for sure, it bodes greater emphasis on electronics and software and other highly - high tech things like calibrations and things like that, which are the words of the day, then they are now, and then you are going to see a continuing upswing of that investment and the capability and value and revenue and profit generated by that stream. But I'm not so sure that hand tools will be attenuated, because as we look backwards, you know we remember this industry in the 90s where the number of trouble codes, electronic trouble codes on a car were measured in dozens. Now they're measured in tens of thousands and the demand for handle tools is only going up. So I would, I'm not so sure that hand tools will be lessened. I believe that software and electronics and diagnostics and calibration will be increased. That's what I would say. Now, by the way, the hand tools are pretty good margin. But it’s hard to predict those, because like I try to explain and explain since I was putting out with the diesel plug, gold plug sockets and the triple flex function in ratchet. Really these are things that are observed after the cars on road and you see the struggles that the technicians are having and you would enable them. And so I would anticipate they will continue to be in demand as we go forward. We haven't seen any abatement of that demand even as we've seen a growth in the electronics and calibration business.

Okay. And then, just a question for Aldo, just on the tax rate, Aldo, I think you have kind of said and have the numbers in front of me, but your tax rate for this year would be between 23% and 24% on previous calls. Now you’ve stepped it down to 23%. But to get to that kind of a tax rate for the year, you're going to have to be somewhere over 24% for Q4. Am I reading that, right?

That will be the neighborhood actually of - I think our rate year-to-date it’s put them all together is around 22.9% or something like that. So we are in the ballpark area. So I think it'll be in that neighborhood in Q4 We've had some favorable outcomes on reducing our state taxes along with some other items. But that's what benefited Q3. In order to Q3 last year it was even better. So sometimes there's variation that occurs from time to time. But 23% is about the right number I think we're going to get to this upcoming full year.

Okay.

Actually you are looking over a year we had you know kind of a - what 6,7,5,6 cents impact for taxes year over year each quarter. Negative impact. Yeah, so we still were up 8.9% even with the $0.37 even when that $0.06 impact.

Okay. Thank you.

Thank you. And our next question today comes from David McGregor with Longbow Research. Please go ahead.

Yeah. Good morning, everyone.

Hi, David.

Hey, Nick. I just wanted to ask you about the UAW strikes and any potential impact or re precautionary decision across the business. You talked already about the dealership business and you characterized as being lumpy, but I'm wondering just maybe OEMs told you to hit the brakes on that. Well, they are sorting the strike issues and then there was any followed on the tool segment as well?

Yeah, that's a complicated. Look, it's hard to predict, of course, this is like shooting darts in the dark or something. But, look, I think I think this is the situation. First of all, I want to correct just a little bit. The dealership business itself was not down. The OEM programs were down some, but they were still at a relatively historically high levels even though they backed off a little bit, year-over-year. So we haven't seen what I would call a significant pullback in the OEM programs at this point. Having said that, the OES, the UAW strike, I used to work for the auto companies themselves, and they are cash monsters, you know, they eat cash like mad and so it could happen as the strike goes on longer, you could see some diminishment in that business, in that particular business. Now, when that would hit, I'm not so sure because, they might not cancel programs. They must just delay some or they may they may in fact cancel future programs. Not so clear how they would play out. But it is a possibility that that would happen. Regarding the dealerships themselves, I don't necessarily – I think the effect on them is unknowable because sometimes if they don't get new cars, they just turn more attention to repair and parts. And so this is good news for us. Sometimes they pull in the back down the hatches and reduce. But generally I think they tend to look at more at repair and parts if they don't get the new cars and that's not so bad. So I see that as being the two possibilities playing out.

Right. Okay, thanks for that. And then, just back to your earlier observation with the SFC order book was up 5% to mid-single-digit.

I think it’s 5, to kind of mid-single.

No you said mid-single.

Right.

Right. Single-digit minus – I apologize.

Sure.

I'm just trying to sort of reconcile that with some of the capacity challenges you're facing which are clearly improving, but it sound like they'll still be somewhat of an issue in 4Q. Do you see more of the fulfillment on that order growth being channeled into sort of 4Q and maybe on a year over basis than what you would seen a year ago when there wasn't that kind of an impediment in place? And there was a consequent you might see a little bit of incremental growth from that concentration in 4Q?

I guess. I don't know, I think I'm not quite sure I understood exactly the import of your question, David. But, but the thing is, the way I see it is, the capacity is getting better. Even if you have the building up, you can start putting in the machines there's a ramp up period. You don't have this worse and so you kind of get this, it starts to help you. The first the first product that comes out is the help but it's not so clear how much of a help will be. I think, you'll still see us in a fourth quarter trying to stick handle around the capacity issues and that's part of the thing that's here. But that's stick handling will get more – less complex and therefore we should be able to take more advantage of the orders. But the timelines, the time constants associated with that are always pretty hard to predict, the dependent on your ability to wrap up, which we have a lot of faith in and it is dependent on the nature of the orders applied against those. I would simply say that looking forward we feel like we're in a better position than looking recently backwards.

And then - maybe this is a questions for Aldo, but are you able to talk about just, the impact on margins from the capacity constraints and incremental costs associated with that in 3Q?

No, the overall margin performance is pretty solid as you saw across the board. Sure, there are incremental cost and expediting expenses and elements of over time of overtime having to be expended. But at the same time, we with the supply chain improvements that have occurred over the past 12 months or so, we have more resources to turn our attention to RCI initiatives. So, David, well, there is a lot of challenge in any quarter we expect to rise the occasion and try to offset those incremental costs. But yes, there will be some incremental cost involved, but the tools group and the other segments are able to offset that.

I don't know I had a chime in here though. In my book, I think over a hundred basis points margin improvement in every segment - I don't know, sounds gangbusters to me. Not so. And so, it sounds pretty good to me. So I think - I think it should be helped going forward, but I'm not sure where that will lay out. We anticipate like, I say we expect to improve margins all the time.

Great. Thanks gentlemen.

Sure.

Thank you. And our next question today comes from Christopher Glenn with Oppenheimer. Please go ahead.

Hey, thanks. Good morning all. Curious Nick if you could elaborate on your comments about expand adding capabilities in the critical industry space, what types of activities? What's the scale? What exactly are you chasing so to speak?

Well, look I think this a first of all, I would say that we haven't plumbed the complete ceiling of the first capacity expansion. By the way, just as a commercial, if you want to, if you want to behold the capacity expansion, you could look at it and I think the back page of our annual report this year. So, it's right there. Pretty, pretty sizable thing. And so we're still figuring out how to wheel that. That's how it works. You start out and it's pretty good and then you do better, better and better. So I think we have some, some ways to go there. What I'm talking about adding is, we just added a new machine shop, just for the critical industries in that space. And so that's a particular product where we used to have to outsource them. They took longer to do and we weren't as effective in getting them out. And so we decided to do it ourselves in-house. And so we see that will match up one, we can we can be more efficient in sourcing, which is a big factor for us and two, we can be more creative and actually matching the direct demands that customers want. So that's what I meant.

Great. And then, cash is approaching $1 billion. Now, not sure what level you are comfortable holding but that will kind of keep piling up unless you accelerate some sort of deployment. So I am wondering how you are thinking about that cash balance?

Well, look, I think, I think this, first of all, we are very working capital intense. So, as we move upwards, you tend to use some of that cash for working capital. Although, we're in an era where we were, we used working capital to cushion ourselves against the difficulties of the pandemic. So, some of that go way out. We look hard at our dividends, which we have paid every quarter since 1939. And I love to say at this point have never reduced it any quarter since 1939. And so, perpetuity is our guiding line on dividend. So we'll look at that again, we’ll look at that. And then, you have things like pension and you have, you have things like acquisitions, which are important to us. So, we have a landscape of acquisitions, which will constantly look at. Like, I always say, some are big, some are small and we're not afraid to make a big one. So I kind of like having a war chest for that, especially in these tides when the when the interest rates are pretty high. And then finally we look at buying back opportunistically shares.

Yeah, following up on the pipeline, are you seeing any changes in availability actionability of some of the larger prospects?

I'm not seeing any. I guess we see a little bit more availability. I'm not sure actionability is any better or not. I think there's been a lot of discussion of that. I think bankers – every bank that you see wants to talk about that. But I don't see much difference in that regard. You would think prices would be coming down with the maybe with interest rates rising. I don't know but - I don't see that. We see a little more availability, though. Little more availability.

Okay, great. Sorry last point for me. I think you said technician concept meant to high-single-digits. I imagine there's some lag effect to seeing that benefit. Is that fair to think about that as a lead indicator and driver during that ‘24?

I think that is fair to look, I think, especially sense there's an accelerator there, Christian. I've been in a shop I am ten1years. And for most of the years technicians were growing at 1%, 1.1%, that was just this. It was really like, a metronome. 1.1%, 1.1% , 1.1% And now it's growing mid single digits. And so, this has got to come in and accelerate for us because one, they'll be more technicians and two, the new guys need to tool up. Now, of course that tool up takes on different shapes. So, for example, they may not be buying the top of line boxes right away. They may be focused on cards, which in fact if you looked at our tool storage business in the past quarter, it was heavily guided to cards. And so, we're seeing some of that effect right now. What they do need to tool up and one of the great things about it is, we spent, I think we're like thousands of schools around the country trying to make sure that people understand that the Snap-on brand is the most powerful brand that repair making students Snap-on customers for life. And I think we see that as they come out into the marketplace. So growing Texas music to warriors.

Thanks for all the color.

Sure.

Thank you. And our next question today comes from Scott Stember with Roth MKM. Please go ahead.

Good morning guys. Thanks for taking my questions.

Hey Scott.

Hey. Within the tools, could you just tell us how some of the sub segments did, hand tools versus tool storage versus diagnostics in power tools?

Yeah. Look, I think the big the big cohonent this month was hand tools, just not last quarter, it was hand tools sold very well in the quarter. And so that, that was pretty strong. Diagnostics was off certainly after three good quarters and they didn't have a new installation here. And power tools was down somewhat because the stubby wasn't launched for sale until after the SFC. So that was really a back-end phenomena given part of the great momentum in that situation. If you look at the back end, you would see power tools being a big factor in that situation because it's sold like wildfire. Like I said, the wait was worth it but we demonstrated at SFC people were crowding around it, but we weren't selling it. We just wanted to create more pent-up demand in that situation. Tool storage was down somewhat, but that was pretty much a substitution of as I just said, of got the carts which are lower, lower value per unit than the bigger units. And they take up a little more, a little more manufacturing space. So that, that kind of thing is what was in was in tool storage. Units were pretty good, but revenues were a little lower because of the mix.

Got it. And as far as the sales after van versus into the van.

Sales off the van probably follows the, you can say they pretty much follow the tools group, in terms of the numbers you saw in the tools group in general overall and the rise at the end of the quarter. I think one of the things this time, I think we saw a lot of vacations in some cases, like we always do that's why I say these quarters were squirrely.

At the sell-in – sell-through was was essentially the same as sell-in.

Must be the same. Yes.

Okay. Got it. And then just last housekeeping question I saw the corporate expense up five plus million. What was that related to?

Pretty much stock-based compensation was a lot of it and part of that is, okay, I think we're doing a little better this year than last year and just a basic year. But also, after you put several years together of good if you go back and look at our numbers, they're up, up, up, up. You know, you are talking about quite a bit of getting - point OI margins to start, it starts to work its way into the long term incent this as well. So, you're starting to see some of that play out in that situation. There are other things drifts and drafts here, but that I think for government work, that's it.

Got it. That's all I have. Thank you.

Okay.

Thank you. And our final question today comes from Luke Junk with Baird. Please go ahead.

Good morning. Thanks for taking the questions. A couple of margin related questions for me at the segment level. First one Nick, just if I look backwards in the tools group, there's just been a lot going on there in terms of material inflation, supply chain, product, mix that's been variable and it seems like those are things that could settle down into next year. And I guess I said that against what's already been a step function change in profitability in the tools group. Do you see any key offsets or risks that we should be thinking about going into next year maybe normalizing price increases versus just building off of where the tools business is now and sort of a normal margin progression into 2024?

No. I don't - I look, I think this time material wasn't a major factor. Tools group is sort of over that, you know. And so I don't think you're going to see that. I think the tools group is just on a good - what, what you eat. But by the way, all the - lot of the things you mentioned, like product mix and all that that wasn't on it. It's all every quarter there. Here's been like this, every quarter is like that. They're always a mix of things that happen in the tools group. So we just simply try to balance them so they drive things upwards. This quarter, we got a nice dollop of good margin business. The hand tool business is pretty good. And by the way, when you take a customer connection and you solve somebody's problems, that's why I try to talk about those two things. When you get the glow plugs out in a substantially shorter time, people want that and you get your margins for it. It might seem arcane, but that's the kind of stuff that gets you money. When you provide them a triple flex ratchet, where they can use three different things that are having problems getting around them, they will pay it for it. And that kind of stuff works for us. So most - I think one of the things that's been driving our margins in this period and all the periods has been a relatively robust product activity. Now, one of the things that did happen, I think fairly is during the pandemic when supply change started to be a problem, we were focusing on our engineers on substitution somewhat and took away new product capacity, because the engineers, we only have so many engineers, some of them are working on trying to find components that you can actually source, so you can deliver. But now that that's all over, we can turn the engineers on new product again. So the machine starts rolling at full speed. So we feel pretty good about this actually going forward.

Thanks. And then just a follow up on RS&I, just thinking about mix in that business. So maybe I'm reading into this too much in which case, tell me if I am, the under car equipment, that's been growing strong double-digits for going, three years now just slightly lower growth up high-single-digits this quarter. I'm just thinking of sort of the mix of growth here between the software businesses in under car equipment and to what extent we might see more of that software mix shine through going forward. Thanks.

Well, I don't know. I mean, I think we'd like to see the software mix go up. I mean I think you're going to see that software is up nicely. I mean Mitchell 1 had a better, nice quarter. Mitchell 1 had a great quarter, people or the repair shop owners or managers, or whatever they and we see that building there. So we think we got that on with some great new adjustments and we got more coming. You got the diagnostics business, which will which will I think as we move forward new offerings will drive that business. And - but undercar equipment is lower - is lower profitability, but in the context of relativism they are I don't know, I believe at all-time high in profitability for them. So when you compare year-over-year, you're getting a positive margin contribution from those guys. So what we have here, I mean, I think the way forward is somewhat what you're talking about, the way forward for RS&I is more software, but also we believe we can raise the margins in things like the equipment business. Because we have been doing it and they're at an all-time high now and going upwards. So we see those to be the two, I guess factors in that situation. So that's where I see. So I think pretty good things. But look, RS&I with good sales and equipment with good strong sales and equipment that what were they, 24.3% up 130 basis points, that's not shop liver. So they seem to be able to keep improving, go back and look at the results. They keep going upwards. I think that'll continue.

Okay. Yeah, I’ll leave it there. Thanks for that comment on the equipment margins. That's helpful, Nick.

Sure.

Thank you and ladies and gentlemen, this concludes 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. Good day.