Nick Pinchuk - Chief Executive Officer Aldo Pagliari - Chief Financial Officer Sara Verbsky - Vice President, Investor Relations.

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

Thank you, Stephanie, and good morning everyone. Thank you for joining us today to review Snap-on's second 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 website, www.snapon.com, under the Investor 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, including a reconciliation of non-GAAP measures is included in our earnings release and in our conference call slides on Pages 14 and 15, both 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'm going to start the call by covering the highlights of our second quarter and along the way I'll give you my perspective on our results. Once again they were encouraging and our markets, robust and promising and our continued progress and strength amidst the pandemic.

The pandemic isn’t over, but we believe we're stronger right now than when it all started. Of course, we’ll also speak about what it all means, then Aldo will move into a more detailed review of the financials.

We believe that our second quarter again demonstrates Snap-on’s ability to continue with the trajectory of positive results, overcoming a variety of ongoing headwinds, accommodating to the lingering virus environment, meeting the challenges of the day across the business world and advancing along our runaways for growth and for improvement.

Our reported sales on the quarter were 1,081.4 million and they were up versus last year, $357.1 million or 49.3%, including $20.6 million of favorable foreign currency change and $19.6 million in acquisition related sales.

The organic sales were up 42.5% with significant gains in every group; our fourth straight quarter being above pre-pandemic levels, a V-shaped trajectory that defines resilience and flexible capability. The OpCo operating income of $217.1 million was up $126 million from last year, which included $4 million of restructuring charge.

OpCo operating margin was 20.1%, up from the 2020 level of 12.6% or 13.1% as adjusted for restructuring, representing a 700 basis point as adjusted improvement.

The financial services operating income of $68.9 million increased 19.6%, higher originations, lower losses, delinquencies, below pre-pandemic levels, our finance company passing the greatest stress test of our time with flying colors, and that result combined with OpCo for a consolidated operating margin of 24.5% up 560 basis points as adjusted.

Quarterly EPS was $3.76 up a 103.2% from last year, and excluding the 2020 restructuring charges EPS grew 96.9% versus the pre-pandemic levels of 2019 the EPS grew 16.8%, clearly tracing an ongoing positive trend.

I've said it before, but it bears repeating, we believe Snap-on is stronger now than when we entered this great weathering, and we believe our second quarter is emphatic evidence of that fact. Compared with 2019 our sales in the past quarter grew $130.1 million or 13.7%.

That reflects $23 million of acquisition related sales, $17.2 million of favorable foreign currency and $89.9 million or 9.3% organic game.

The 2021 OpCo operating margin of 20.1% was up 10 basis points from 2019, but that gain was achieved against 70 basis points of unfavorable currency and acquisition impacts, all while absorbing the lingering effects of the virus, it's not gone. So, those are the numbers.

From a macro market perspective, it's clear that our automotive repair sector remains favorable.

The technicians across the map are still at their posts, repairing cars and trucks, keeping the world running and they are busy, and as expected after the COVID, it appears that people are leaning more towards personal transportation and are holding onto their vehicles longer every year. Auto repair is a strong and resilient market.

You can hear it from our franchisees and you can see it in our numbers. As we look forward we see greater opportunities as vehicle techs encountered even more complex repairs, new technologies, alternative powertrains, greater proliferation of driver assistance electronics, it’s all music to our ears.

And then there is the repair shop owners and managers, RS&I territory, a little more mixed, particularly in Europe, but a return to growth in repair, garages and dealerships. They are starting to invest.

Undercar equipment and OEM programs are coming back and RS&I is taking advantage of that trend with new equipment offerings and advanced database solution continually improving our software products and our diagnostic releases.

Products like Mitchell 1 Repair Information Software and Shop Management Software and Electronic Parts Catalogues and our Dealer-FX shop management technology, and our heavy duty and our intelligent diagnostic units, big data basis and getting more powerful, and easier to use, helping the shop fix it right the first time efficiently.

Repair shop is changing, rising in complexity and RS&I has the products to match. Finally, let's talk about critical industries where the Snap-on rolls out of the garage, solving past the consequence.

This is where the C&I operates, our most international operations where the customers have endured the longest impact of the virus and have been slower to accommodate it or recovering it, what I call varied rates. Segments like oil and gas and aviations in geographies like Southeast Asia and India still down.

But despite the variation we did see growth in critical industries, improvements in education. The students are coming back and in power generation and heavy duty fleet, all combining to offset that continuing turbulence.

So overall I describe our C&I market as healthy and representing clear opportunity, and coupled with auto repair, we believe our markets are robust now and there’s considerable opportunity ahead, and we have opportunity ahead for us as we move along our runways for growth and improvement, and I can't leave [ph] this section, about robust progress and abundant possibilities without speaking on the engine of our advance Snap-on value creation.

Customer connection and innovation, developing new products and solutions, born out of insights and observations, gathered right in the workplaces and RCI, guiding the expansion of franchisees selling capacity with better processes, more effective training and a new focus on social media, it will all help drive our progress, overcoming the – accommodating the virus and enabling us to take full advantage of the opportunities and chart a continuing and positive trend forward; that's the overview.

Now let’s move to the segments. In the C&I group, sales in the quarter were up 33.8% or $88.6 million versus 2020, including a $71.3 million or 26.3% organic uplift with double digit progress across all of the divisions.

From an earnings perspective C&I operating income of $55.5 million including $1.1 million of unfavorable foreign currency represents a rise of $32.6 million compared to 2020, which included a $2 million or restructuring.

That all means an as-adjusted increase of over 122.9% and the operating margin was 15.8%, an as reported increase of 710 basis points, a rise of 630 basis points as adjusted and an uplift of 120 basis points from the pre-pandemic level in 2019 despite 90 basis points of unfavorable currency.

When compared with pre-pandemic 2019, sales were up 4.6%, including a 0.4% organic gain, above flat, now a continuing bright spot for C&I.

SNA Europe did deliver yet another quarter of growth expanding beyond pre-pandemic levels against the wind, with the sparkle of Ergo Tool Management System leading the way, tailoring products specific to customer needs.

Europe is a varied market environment, but SNA in Europe is defining economic gravity again, and that positive was joined by contributions from recovering areas in critical industry like heavy duty, power generation and as I said before, education, whose come to the party just now.

And from Asia Pacific geographies like China and Japan, and those gains were balanced by declines in attenuated sectors like the military, aerospace and natural resources, all still weak. We do remain confident in and committed to extending in critical industries and we're committed with great new products.

Speaking of product, in the last quarter it helped solve challenging tasks across aviation and other critical industries. We launched the new Snap-on 14.4 volt microlithium cordless right angle mini drill, with a 6000 RPM, making it ideal for drilling a variety of materials, plastics to aluminum to fiberglass.

The unit has a compact 90 degree head, which provides easier access to confined spaces and reduces worker fatigue, it’s a big factor. In addition, it also offers a higher quality chuck that achieves precise drilling with minimum run-out, ensuring tight tolerances are met with considerable reliability.

To top it all off, the drill also utilizes a double ball bearing supported spindle shaft and spiral bevel gears. I know that’s a mouthful, but it all means that the new power tool has a clear superiority and durability. The cordless right angle midi is a great innovation with an array of advantages and the techs are noticing it.

So that’s C&I, a promising quarter, moving down it's runways for growth with strong profitability, C&I, OI margin 15.8%. Now on to the tools group. Sales were $484.1 million up $160.8 million, including $154 million or 46.7% organic gain, double digit growth both in the U.S.

and the international operations, and the operating margin was 21.4%, up 930 basis points. Compared with pre-virus 2019 sales grew $78.3 million, including $70.7 million or 17.1% organic gain and this quarter its 21.4% operating margin.

It was up 380 basis points compared with the pre-virus numbers, coming out of the pandemic stronger indeed, another power – I was going to say powerful, I guess I could say that, but another positive quarter with double digit expansion across all geographies and all products. We do believe our van network remains quite strong.

Just a few weeks ago I spent time with a dozen franchisees on our – dozen franchisees on our U.S.

National Franchisee Advisory Council at our Algona, Iowa tool storage plant and they were pumped and prosperous, excited by their current position, positive about the other vans in the regions - in the regions they represent, and very optimistic about their prospects for even more, beyond the windshield surveys.

We see other indications of continuing strength, like the Business Health Metrics, they remain quite favorable, qualitative and quantitative indicators, both very positive, and that positivity was not just internal, it was reinforced by the external view.

Snap-on was recognized again this year among the top 50 in the franchise industry by Entrepreneur Magazine and once again we scored highest in the tools distribution category, place we’ve held for quite some time and now this type of recognition, this kind of positivity reflects the fundamental in contemporary strength of our franchisees and of our overall van business, and would not have been achieved without a continuous stream of unique new products.

Hand tools were up in the quarter and part of that, and part of that torque is rising in importance as more mechanical provisions, precision becomes necessary to support vehicle automation and we are riding that wave with great new products, like our new ATECH micro torque wrench with a quick release head.

The quarter inch drive quick release has a positive locking mechanism to retain the socket solidly and securely in place, and at the same time it offers a push button for easy tool disengagement. It holds and it ejects, both important under the hood, at it’s a time saver.

It’s quite a time saver in close clearance applications like valve cover removal and spark plug replacements that happen every day in the garage.

The tool also offers visual and – visual, audible, and vibration alerts to confirm that the proper torque has been applied and it has a wide torque range, 12 to 240 pound inches, and the new micro also includes a 50 degree flex head ratchet for better access to fasteners, a 72 tooth quarter inch drive socket ratchet enabling efficient operation in tight areas and a plus or minus 2% accuracy.

Our micro tech takes precision fastening to the next level. Tool storage is also strong in the quarter and part of that success was our KTL 1023 A3 Roll Cab, a wide 72 inch Triple-Bank Tool storage box. It offers three extra wide drawers for longer and larger tools, giving the technician more organizational options.

Our patented lock and roll latch mechanism which prevents draws from drifting opened and our ISO-Ride® Caster for riding a smooth ride, smooth rolling and excellent weight capacity, plus, plus it adds our LED lighted power top which spans the full width of the cabinet for better illumination and great eye appeal.

It includes 10 offset AC outlets and 4 USB ports for charging a larger array of the tech select electronics. The KTL 1023 A3, storage efficiency in a box that captures sharp attention in any shop. Sales of the unit, well it’s a sellout. Our new products are in fact making a difference in the tools group. You can’t miss it in the numbers.

They also – and the group also registered its fourth straight quarter of above pre-pandemic levels, the tools group unmistakably is moving onward and upward. Now on to the RS&I group.

Sales were up 62.7% or $153.6 million versus last year, including $135.7 million or 54.1% organic uplift with double digit growth weighted toward our under car equipment and our OEM project businesses.

But with our diagnostics and information product businesses still delivering strong double digit increases in addition to the waiting towards undercar equipment and OEM projects.

From an earnings perspective RS&I operating income of $86.7 million represents a rise of $36.1 million or 71.3% compared to 2020, which included $1.4 million of restructuring.

And the operating margin was 21.8%, an increase of 110 basis points from last year, 60 basis points as adjusted but again to the 180 basis point impact of unfavorable currency and acquisition affects.

When compared with 2019, sales were up 14.2% as reported and organic growth was $29.7 million or 8.4% with double digit advances in undercar equipment, OEM projects, diagnostics and information in North America, all of that being attenuated by a general weakness in Europe.

For profitability the OI margin was 21.8% -- the OI margin of 21.8% was down 360 basis points, with a 150 point impact from unfavorable currency and acquisition effects and with a further drag from the higher sales of undercar equipment in OEM projects, both at the lower end of RS&I margins.

Having said that, RS&I has great opportunities and we are fortifying its way forward with more new products.

We just introduced our new ZEUS Mobile work centers, giving the technicians the ability to use the full capabilities of our top of the line diagnostics information systems, including our exclusive fast track intelligent diagnostics from anywhere on the service bay. It is a compact footprint for great mobility, reaching all over the shop.

It also incorporates a lockable tool drawer, tool storage cabinets and a large 27 inch touch-screen display. The new ZEUS workstation offers significant improvements in convenience, in security and in visibility, combined with the power of our most sophisticated databases.

It's just the ticket for those shops that want to solve the most difficult repair challenges and want to visibly display their advance capability for all the customers to see as they come in the shop, and the new workstation is making a difference, attracting attention and it's setting new volume levels for this category.

So to wrap-up RS&I, improving position with repair shop owners and managers, strong growth across all the divisions, recovering areas of undercar equipment and OEM projects and expanding product lines to lead the way forward. Well, those are the highlights of the quarter, tools group, strong progress everywhere, unmistakable strength.

C&I reporting a positive performance with significant profitability against variations across industry and geographies and RS&I expanding volume in independent repair shops and OEM dealerships, gains in the U.S. overcoming weakness in Europe.

Overall sales increasing for the corporation up nicely, both versus last year at 42.5% up and compared with pre-pandemic levels at 9.3% up, continuing our V-shaped recovery. OpCo operating margin, a strong 21% up again in the face of 70 basis points of unfavorable currency and acquisition effect.

EPS, $3.76 in the quarter, up for the fourth quarter in a row, up versus last year, up versus last quarter, up versus pre-pandemic levels. It was another encouraging quarter. Now, I’ll turn the call over to Aldo. Aldo..

Thanks Nick. Our consolidated operating results are summarized on slide six. The second quarter of 2021 exhibited solid financial performance, particularly as compared to last year's heavily pandemic impacted second quarter.

The results also compared favorably with the second quarter of 2019, which being a pre-COVID-19 time period may serve to be the more meaningful baseline.

Net sales of $1,081.4 million in the quarter increased 49.3% from 2020 levels, reflecting a 42.5% organic sales gain, $19.6 million of acquisition related sales and $20.6 million of favorable foreign currency translation. Sequentially organic sales improved by 4.5% as compared to the first quarter of 2021.

Additionally, net sales in the period increased 13.7% from $951.3 million in the second quarter of 2019, including a 9.3% organic gain, $23.0 million of acquisition-related sales, and $17.2 million of favorable foreign currency translation.

Consolidated gross margin of 50.2% improved 310 basis points from 47.1% last year, which included 30 basis points from restructuring costs. The gross margin contributions from the higher sales volumes and benefits from the company's RCI initiatives were partially offset by 20 basis points of unfavorable foreign currency effects.

Operating expenses as a percentage of net sales of 30.1% improved 440 basis points from 34.5% last year, which included 20 basis points from restructuring costs. The improvement primarily reflects the benefits of higher sales volumes, partially offset by higher stock based cost and 70 basis points of unfavorable acquisition effects.

Operating earnings before financial services of $217.1 million compared to $91.1 million in 2020, reflecting 138.3% year-over-year improvement. As a percentage of net sales, operating margin before financial services of 20.1% improved 750 basis points from 12.6% last year, which included 50 basis points for restructuring costs.

Financial services revenue of $86.9 million in the second quarter of 2021 compared to $84.6 million last year, while operating earnings of $68.9 million increased $11.3 million from 2020 levels, primarily as a result of higher revenue and lower provisions for credit losses.

Consolidated operating earnings of $286 million increased 92.3% from $148.7 million last year. As a percentage of revenues, the operating earnings margin of 24.5% compared to 18.4% in 2020, which included 50 basis points from restructuring costs.

Excluding the restructuring costs, operating earnings margin in 2021 increased 560 basis points from last year. Our second quarter effective income tax rate of 23.3% compared to 24.1% last year, which included a 20 basis point increase related to the prior year quarter's restructuring charges.

Net earnings of $208 million of $3.76 per diluted share increased to $106.8 million or $1.91 per share from last year's levels, representing a 103.2% increase in diluted earnings per share. As compared to 2020, excluding the restructuring charges of $3.3 million after tax or $0.06 per diluted share, diluted earnings per share increased 96.9%.

Relative to the second quarter of 2019, net earnings increased $27.6 million or $0.54 per share, representing a 16.8% increase in diluted earnings per share. Now, let's turn to our segment results.

Starting with the C&I group on slide seven, sales of $350.5 million increased 33.8% from $261.9 million last year, reflecting a 26.3% organic sales gain, $7.7 million of acquisition related sales and $9.6 million of favorable foreign currency translation.

The organic gain reflects higher activity in all of the segments operations and includes mid-teen increases in sales to customers in critical industries.

Within critical industries, robust sales gains were achieved in general industry, heavy duty and technical education, but were partially offset by year-over-year declines in sales to the military, which had remained strong in the pandemic impacted period last year.

As a further comparisons, net sales in the period increased 4.6% from 2019 levels, reflecting $1.4 million of organic sales gains, $7.7 million of acquisition related sales and $6.4 million of favorable foreign currency translation. As compared to 2019, sales in our European based hand tools business were up high single digits.

With respect to critical industry sales activity in that period, our military, international aerospace and natural resources segments were below 2019 levels. All other critical industry segments are at or about the second quarter of 2019.

Gross margin of 39.5% improved 510 basis points from 34.4% in the second quarter of 2020, which included 80 basis points from restructuring charges. Contributions from the higher sales volumes and the improvements resulting from the lower restructuring costs were partially offset by 60 basis points of unfavorable foreign currency effects.

Operating expenses as a percentage of sales of 23.7% improved 200 basis points compared to last year, primarily as a result of the improved volumes. Operating earnings for the C&I segment of $55.5 million including $1.1 million of unfavorable foreign currency effects, compared to $22.9 million last year.

The operating margin of 15.8% compared to 8.7% a year ago. Turning now to slide eight. Sales in the Snap-on tools group of $484.1 million increased 49.7% from $323.3 million in 2020, reflecting a 46.7% organic sales gain and $6.7 million of favorable foreign currency translation.

The organic sales increase reflects a gain of approximately 40% in our U.S. business and a gain of approximately 80% in our international operations, with strong growth across all product lines.

Net sales in the period increased 19.3% from $405.8 million in the second quarter of 2019, reflecting a 17.1% organic sales gain and $7.6 million of favorable foreign currency translation. Additionally, sales in the U.S. operation were up 18.8% in that period, while franchisees sales of the van versus 2019 were up 21%.

Gross margin of 46.8% in the quarter improved 510 basis points from last year, primarily due to the higher sales volumes, benefits from RCI initiatives and 50 basis points from favorable foreign currency effects. Operating expenses as a percentage of sales of 25.4% improved from 29.8% last year, primarily due to the higher sales volumes.

Operating earnings for the Snap-on tools group of $103.5 million compared to $38.4 million last year. The operating margin of 21.4% compared to 11.9% a year ago, an improvement of 950 basis points.

Turning to the RS&I group shown on slide nine, sales of $398.6 million compared to $245 milling a year ago, reflecting a 54.1% organic sales gain, $11.9 million of acquisition related sales and $6 million of favorable foreign currency translation.

The organic increase reflects a rise of approximately 80% in sales of undercar equipment, as well as a gain of approximately 50% in sales to OEM dealership and an increase of approximately 30% in sales of diagnostics and repair information products to independent repair shop owners and managers.

As compared to 2019 levels, net sales increased $49.7 million from $348.9 million, reflecting an 8.4% organic sales gain, $15.3 million of acquisition related sales and $4.7 million of favorable foreign currency translation.

Gross margin of 44.7% declined from 47.4% last year, primarily due to the impact of higher sales and lower gross margin businesses and 40 basis points of unfavorable foreign currency effects, partially offset by 70 basis points of benefits from acquisition.

As a reminder, undercar equipment, as well as the facilitation program related activity, both of which had healthy sales increases in the quarter, typically have a gross margin rate that is below the RS&I segment’s average.

Operating expenses as a percentage of sales of 22.9% improved 380 basis points from 26.7% last year, which included 50 basis points of restructuring costs. Contributions from the higher sales volumes and benefits from lower costs related to restructuring were partially offset by 190 basis points of unfavorable acquisition effects.

Operating earnings for the RS&I group of $86.7 million compared to $50.6 million last year. The operating margin of 21.8% compared to 20.7% a year ago. Now, turning to slide 10. Revenue from financial services of $86.9 million compared to $84.6 million last year. Financial services operating earnings of $68.9 million compared to $57.6 million in 2020.

Financial services expenses of $18 million decreased $9 million from 2020 levels, primarily due to lower provisions for credit losses resulting from $2.8 million of lower year-over-year net loan charge offs, as well as favorable loan portfolio trends which support lower expected reserve requirements.

As a percent of the average portfolio, financial services expenses were eight-tenths of 1% and 1.3% in the second quarter of 2021 and 2020 respectively. In the second quarter the average yield on finance receivables of 17.5% in 2021 compared to 17.6% in 2020. The respective average yield on contract receivables was 8.5% and 8.2%.

The lower yield on contract receivables in 2020 includes the impact of lower interest business operations support loans for our franchisee. These loans were offered during the second quarter of 2020 to help accommodate franchisee operations in dealing with the COVID-19 environment.

As of the end of the current quarter, approximately $8 million of these business operation support loans remain outstanding.

Total loan originations of $285.8 million in the second quarter increased $30 million or 11.7% from 2020 levels, reflecting a 17.9% increase in originations of finance receivables, while originations of contract receivables were down 11.5%.

Last year's contract receivable originations included the aforementioned offering of business operation support loans to qualified franchisees during the second quarter of 2020. Moving to slide 11, our quarter end balance sheet includes approximately $2.2 billion of gross financing receivables, including $1.9 billion from our U.S. operation.

Our worldwide gross financial services portfolio increased $13.2 million in the second quarter, primarily due to the higher originations. The 60-day plus delinquency rate of 1.2% in the United States extended credit is up 20 basis points from the rate of 1% in the second quarter of 2020.

As we commented during our second quarter 2020 earnings call, we estimated in the quarter the 60-day plus delinquency rate was favorably affected by 20 to 30 basis points as a result of forbearance and deferred payment programs in place during that period last year.

As it relates to extended credit or finance receivables, trailing 12 month net losses of $41.6 million representing 2.4% of outstandings at quarter end is down 15 basis points sequentially and down 53 basis points compared to the same period last year.

Now turning to slide 12, cash provided by operating activities of $238.2 million in the quarter decreased $15.4 million from comparable 2020 levels, primarily reflecting the higher net earnings more than offset by net changes in operating assets and liabilities, including $98.4 million of higher income tax payments.

The increase in cash paid for income taxes reflects both higher levels of taxable profitability, as well as the IRS no longer allowing companies to defer estimated tax payments as compared to the IRS accommodation offered during the second quarter of 2020.

Net cash used by investing activities in the $29.7 million included net additions of finance receivables of $18.7 million.

Net cash used by financing activities of $147.9 million included cash dividends of $66.7 million and the repurchase of 566,900 shares of common stock for $137.4 million under our existing share repurchase programs, partially offset by proceeds from stock purchase and option plans of $61.8 million.

As of quarter end, we have remaining availability to repurchase up to an additional $251.6 million of common stock under existing authorizations. Turning to slide 13, trade and other accounts receivable increased $4.7 million from 2020 year end. Day sales outstanding of 56 days compared to 64 days at 2020 year end.

Inventories increased $14.4 million from 2020 year end, but on a trailing 12 month basis inventory turns of 2.7 compared to 2.4 at year end 2020. Our quarter end cash position of $965.9 million compared to $923.4 million at year end 2020. Our net debt to capital ratio of 10.8% compared to 12.1% at year-end 2020.

In addition to cash and expected cash flow from operations, we have more than $800 million in available credit facilities. As of quarter end there were no amounts outstanding under the credit facility and there are no commercial paper borrowings outstanding. That concludes my remarks on our second quarter performance.

I’ll now briefly review a few of the guidance for 2021. We anticipate that capital expenditures will be in a range of $90 million to $100 million. We currently anticipate absent any changes the U.S. tax legislation, that our full year 2021 effective income tax rate will be in a range of 23% to 24%.

I'll now turn the call back to Nick for his closing thoughts.

Nick?.

Thanks Aldo. Well, at the beginning I said I would speak on what this all means, I want to try. First, it means that Snap-on and its markets are resilient. The virus, probably the greatest threat to our society and to business and in many decades it was a great shock.

Miles driven down big dealerships, many furloughed, no travelers, aviation, no travelers, oil and gas and free-fall [ph] and education, virtually little need for equipment, nobody is in the classrooms, and yet we weathered this shock without trauma.

The credit company stepped in with just the right bridging at just the right place for customers and franchisees and our direct selling vans kept rolling, quickly accommodating to the environment.

Snap-on kept investing in our product, our brands and our people, and we accommodated and recovered to post four straight quarters of above pre-pandemic results, tracing a B shaped recovery and emerging from the height of the storm stronger than we entered, resilience against the greatest business threat in memory.

But it's more than resilience, more than bounce back, it also demonstrates great flexibility. As the world passed through this shock, through accommodations of psychological recovery, change was the order of the day and Snap-on adjusted. Fuel by our fortified advantages and product brand and people, we accommodate it.

The pandemic limited face-to-face interaction. We expanded virtual contact and came away with some long term social media tools that will enable our franchisees for some time. When technicians focused on shorter pay back items, we gave them hand tools and power tools and torque.

When repair leaned away from maintenance to complex repairs and the shock, we provided ADAS calibration tools and intelligent diagnostics and helped our franchisees expand their selling capacity to manage those more complicated offerings efficiently. When some critical industries weaken, we developed offerings for those that maintained.

When the virus attenuated the distributors in Europe, we focused on customization and more direct interactions. All of that achievement in a time of change demonstrate Snap-on’s flexibility and confirms we can prosper mid-future change going forward as we've always done, by observing work and solving whatever the new problems are.

Snap-on’s second quarter, tools grew up in all geographies and in all product lines. Sales up 17.1% compared with 2019 and OI margins up 21.4%. C&I gains offsetting the challenges of the lingering COVID, rising profitability to 15.8%, up 120 basis points from the pre-pandemic level, even with the 90 basis point impact from unfavorable currency.

RS&I, sales up 8.5% versus 2019. Undercar equipment and OEM projects recovering in an OI of 21.8% down from the pre-pandemic, but still strong. In Snap-on overall sales is up 9.3% organically versus 2019, an OI margin of 20.1% and an EPS at $3.76, up meaningfully versus every comparison.

It was an encouraging period again, demonstrating resilience and flexibility. Encouraging for the now and we're confident, encouraging for the prospects of growth and improvement for the future on through 2021 and well beyond. Before I turn the call over to the operator, I'll speak directly to our franchisees and associates.

Your support is the fundamental element in driving our continuing positive trend; for your role in helping our society and our company to navigate the pandemic, you have my admiration.

For your contributions in offering this quarter’s strong results, you have my congratulations; and for your continued commitment to the Snap-on team, you have my thanks. Now, I’ll turn the call over to the operator. Operator..

[Operator Instructions] Our first question comes from Bret Jordan with Jefferies..

Hey! Good morning guys..

Good morning..

When you think about the mechanic in the tool segment, you know I guess demand has been very strong, we're hearing a lot about labor rate inflation.

Are you seeing a real change in their buying patterns that they are more liquid than they have historically been, and you know more biased to pay cash for higher ticket items I guess?.

I think it's a combination of that. I think they are. I think they are and our franchisees are more flush and therefore they are able to underwrite the shorter payback that even for bigger, even for a medium ticket items which might have going on EC before the franchisees are willing to underwrite it and let them pay RA.

I do think the technicians are kind of – have good cash, because the business has been going well for quite a long period of time and they are interested in continually investing in tools, so you see that as a factor. I mean that's certainly a factor in the business.

And one of things we see is, is that you'll notice that RA is very strong versus EC in this quarter and we see that as you know the technicians are buying and still have capacity to buy more in the future, because they have borrowing capacity under our EC. .

When you think about the technicians as they relate to this next round of stimulus on the child tax credits, do you have any demographic color as to whether they are more or less likely to have kids that are going to give them a stimulus check?.

You know, I don't know, the technician population is pretty spread. I wouldn't say they are more or less. In fact I think they are – I think they are the kind of the average, the every man. There are old technicians and young technician, so I don't think there's any particular concentration. You know you don't go into a garage and see all young people.

You don't go see all old people either, so I don't think there's any particular position in that and they have some kids, but not different than the regular population. By the way, you know Aldo has to apologize for his voice. He was at the Deer District overnight at the Bucks game, so he's a little under the weather..

Thanks guys..

Sure..

Thank you. Our next question comes from Curtis Nagle with Bank of America..

Thanks very much. Just a quick one. You just – I got to ask this, because you brought it up a couple of times in the prepared remarks about new social media tools. Could you expand on what you're talking about, what these tools are, your targeting new customers? [Cross Talk].

They are no so much – sure, they target new customers, but what I’m really referring to hear without – I didn't want to get into in the remarks because there’ll be a lot to say and I don't.

Really what this is we used social media before, but in the pandemic we realized a more effective way to use them was to pre-brief customers, in other words to contact them.

You know at first we started out by saying, okay, we want to stay in touch with our customers via social media or any electronic means that could do it at a distance, but then we realized, Boy! It's a powerful tool for making for sales efficiency when you're actually in front of them.

Because what you can do is contact them on the social media, you have a relationship with them, you can pre-brief them about how a great new prod – what the elements of a particular new product is, like the 14.4V power tool I talked about or the Techwrench I talked about and then you can also pre-brief them on any promotions we might have.

And so then when you're actually spending the time in front of the technician, you can spend your time closing the deal. This kind of shrinks the time and so it takes some of the pre-sell out of the face time and makes it more efficient, that's what we're talking about here.

We learned how to do that very well in this – in the pandemic and that's going to serve us well. And as part of the idea, remember I always said that the pacing element for sales through the tools group has been the franchisees time where they are hitting new limits.

They are up 17% versus pre-pandemic levels and it's because we've expanded their capacity. .

Got it, okay. And just you know a follow-up, just any general comments in the U.S.

tools group in terms of competition with your – well your close competitors Matco and anything – any notable changes relative to your last quarter?.

Jeez, I don't know. I can tell you – you know I just spent. We were – Aldo and I were just in California talking to our franchisee. You know we were out there visiting plants and we visit franchisees and I was at the NFAC at our Algona plant and I was like, those guys think they're crushing it.

So I don't know what that means in terms of market share, but it sounds good to me. .

Got it, okay. Fair enough. Thanks very much..

Thank you. Our next question comes from Scott Stember with C.L. King..

Good morning, guys and congrats on the Bucks win. .

The Bucks, yeah this is NBA Championship Headquarters right here..

Just talking about in tools you guys said that everything was up pretty much. It sound like tools led the way, hand tools. Can you talk about the diagnostics? [Cross Talk].

Excuse me Scott, I didn't actually say that. Hand tools did not lead the way this quarter. It was up big, but actually the best year-over-year number was tool storage. .

Oh okay. .

Yeah, but they were all big. I mean when you compare it to 2020, everything looks great you know. I mean it's all great, that was the nature of downturn. But there is no doubt, what I tried to say with that, all products, all geographies, just our way of saying that tools group had a gangbusters quarter. .

Got it. And any comments on tools, I mean on sales off of the van versus sell-in. The last couple of quarters you had sounded like it was pretty much in line..

Yeah, I think Aldo said – yeah, they are generally holding in line and like Aldo said, it was what, you know we were up 17% versus pre-pandemic levels and sales of the van were up 21 I think or something like that. So I think you know it's going pretty well, just rolling through the van. .

Good. And lastly on Europe, European within Snap-on tools, tremendous growth there.

Maybe just speak to what's been driving the recovery there and did you give – for Europe at least, are we back to pre-pandemic levels for tools?.

Yeah, Europe is above pre-pandemic levels. Now, okay to be fair you know, Europe wasn't all that hot you know in 2019, but it's still clearly above the pre-pandemic levels. In other words it's offset whatever the impact of the pre-pandemic was.

The tools group is pretty much across all geographies, which is kind of interesting, because there ain’t no stimulus in the U.K. and Australia and Canada. .

Got it. Thanks again for taking my questions..

Sure..

Thank you. Our next question comes from Luke Junk with Baird..

Good morning Nick, Aldo. Good talking this morning..

Hi Luke..

So first question I had, a near term question. As we get further into the psychological recovery post the onset of COVID, we saw an increase in originations both year-over-year and sequentially this quarter.

Nick, as you put your finger on the pulse of bigger ticket purchases, tool storage especially, do you feel like we're getting closer to or may be already at an inflection point in terms of mechanic attitudes around discretionary spend right now?.

Yeah, I think we are. I mean I don't know. Who – you know it could be famous last words Luke you know. You got a lot of people talking about the delta variant and all this stuff, I don't think so.

I think the people of work, the people in the factories and the people in the garages, like I’ve said on other calls, are kind of thinking you know they've weathered the storm you know and they're not going to get shocked again no matter what, and so I think they kind of changed their level, they are starting to recover, and so you start to see people – you know we saw it in our tool storage numbers.

One of the reasons why we took the franchisees, you know the franchise council to Algona, our tool storage plant, is everybody is screaming for more tool storage.

Now, one of the effects was that when we entered the COVID they sold down their used inventory – their used boxes that they had taken in trade you know, so they had a lot of that rolling out, but still they are looking for boxes now, so I think things have turned.

The question is, are the franchisees so flush with cash that they want to finance some of those boxes or some of them, sometimes they sell them a locker, which is not quite as expensive as a box and they can afford to finance those kinds of things. But I do think, when I talk to franchisees, they are telling me that they’ve kind of turned the corner.

They’ve turned the corners probably to – maybe too binary a word for it you know. We were coming back though. Things are pretty optimistic in the shops. .

Good, that’s helpful. And second, wondering, looking forward here, how we should think about the impact of the franchisee conference this year. What I'm wondering is both in absolute terms, i.e., what is that event going to look like this year, and also in relative terms given the unique nature of last year's virtual conference. .

Yeah, look it's going to be bigger than any of the conference, we think, who knows? We still got a few weeks ago, but registrations are higher than they've ever been. When I talk to the franchisees, they are really excited about going, no matter who I talked to.

I heard – they were always kind of optimistic about it, but this one is really big, because it's – you know we're celebrating our 100th really and they’ve been kind of – and they’ve been away for – they didn't have it last year, so they are really, really talking about it, so it’s going to be bigger I think, and so what will the effect be.

I’ve said for dogs age on these calls that the third quarter can be a little bit variable, because there's a lot of wind – you know how many people go to the franchise conference, do they take more weeks, what happens in Europe and so on, but I'm telling you, I am not forecasting any weakness or anything like that.

I'm just telling you, you never know how those things are going to turn out, but I like how we’re entering the quarter, I like our moment you know. So I think whatever happens, we'll make the best of it. We're in a great position to navigate the quarter. Hello? Okay, he was – he had to go to the Bucks celebration, so okay, don’t ask right. .

Thank you. Our next question comes from Christopher Glynn with Oppenheimer..

Thank you..

Okay Chris..

Aldo, feel better..

Yeah, I got it Chris, I got it covered..

Alright. So you know great commentary on the momentum and the overall buzz around the operations. The counts are kind of binary into the back half and you know your language around tools is that the momentum is so robust, you know storage sold out.

So you know I think you were a little more hedged the last couple quarters about what current run rates mean for continued growth, but what I'm hearing is you're very confident and you can continue to compound not just overall, but at SOT. So I just wanted to bounce that off you, if I’m kind of hearing you right. .

You know you're not going to get me to forecast the quarter, you know what I mean. I'm not going to say you know we're going to build on a 17 – they were upward over 17% increase over pre pandemic levels.

But all I'm saying is the tools group, the reason why we say all products all geographies is we can't find anything wrong with it, and we always can find warps in some places you know, this is a good, you know what I mean, so we like our moment. How that plays out in the third quarter, I'm not sure. You know you've been on the call.

We’ve been on these calls a long time and I've always said that the third quarter is not – I'm saying I like our momentum. I think we're going into the quarter really strong.

We feel stronger than last quarter, but I will add that I've always said that the third quarter is not necessarily a trend indicator, whether it's way up or way down, it has to do with all that windage, you know how many how many vacations to people take in Europe is one big thing, and the franchisees are allowed to take the same vacation as last year or more, I don't know, but I do think I haven't seen the tools group this strong.

.

Okay, great. And just a more pointed question. Are you seeing an increased uptake in interested and franchisees adopting second associates over the past couple months. .

Yeah well, if you – you know I don’t know. I think – look it’s starting to come out of the thaw, because I think you can imagine why people are a little more reluctant in the COVID. There’s a lot of interaction questions, a lot of viscosity and that kind of thing. I think they grew by 2% to 2.5% sequentially, so that's not bad I think.

So whether that has to do with the thaw or actually people getting more excited, I don't know. I do think when I talked to franchisees, they do more quickly go to the conversation. Gee! May be I ought to get a – I’m doing so many, so much business, maybe I better get a franchisee. The guy in California was just talking about that.

This guy just started like a few years ago. He signed up for a competitor and then he was talking to the guy and he said, you ought to go – the guy was sold him the thing. He wanted to go to the best, so he came to Snap-on and the thing is this guy is so pumped, he is going up so far, he's talking about, gee, maybe I could do more with an assistant.

I need an assistant and a lot more and more people are doing that. So we would expect some expansion in this area. .

Great! Thanks. .

Sure. .

Thank you. Our next question comes from David MacGregor with Longbow Research. .

Hey! Good morning everyone. And Nick, congratulations on a really strong quarter. Just outstanding growth, outstanding results across the enterprise. So I guess I wanted to understand, just a couple of housekeeping questions. What was the changer of provisions? If you mentioned that, I missed it. .

Change? Sorry Dave, change of provisions?.

Yeah, a question for Aldo. Didn’t you….

Specifically David, we said that the charge offs were lower by $2.8 million. But the charge-offs are just one of the indicators.

When you look at your overall provision for losses, its down about $9 million to cut to the chase, but that's based on an assessment of what is the reserves side that we think we need for expected losses over the duration of the portfolio, which runs a little over four years on average, so that's the change of order.

But again as you’ll see – you'll get more information obviously when the Q comes out, but if you look at charge offs are lower, the 60 plus day delinquency rate is lower, the net trailing 12 month losses are lower. The recoveries are better, the non-performing loans number are lower, the amount of past due accounts are lower.

So you’ll put that all together and that what’ll arrive – lets us arrive at the conclusion that the reserves were able to be reduced somewhat. .

Sure, that makes sense. But $9 million is the number, that’s what I was looking for. I guess my question is, I guess going back to the whole discussion around originations and Nick, you talked about the fact that the technicians are just in better shape today than they've been in a while.

I guess you know a lot of stimulus and a little wage growth will do that. But I just wondered right now to what extent you think the slower origination growth may be attributed to technicians. Again, because they're in better shape, just qualifying for lower cost credit from alternative sources and they are just going on. .

Well I, you know I have a tougher time figuring that out. I don't think so though, because it might be, it might be in the U.S. I don't think – I actually don't think David, I don't think stimulus is a much of a factor, maybe some, because you know we have pretty good growth in international operations.

We don't see as clear a pumping of the money into the economy. So when we look at it across the world, it doesn't seem as though that specific characteristic of America is a factor. I don't know – maybe, but I tend to think it's more a combination of the franchisees feeling more flush. You know you kind of got an interesting interaction.

You have people who at first were leaning toward shorter payback items, and maybe that expands to away from hand to you know past handled tools up into lockers or spiffier [ph] tops for tools storage boxes which are more, which are more fundable by the franchisees over time.

Franchisees like to build their shorter term credit, so they like that, and it is true that the technicians do have more cash. I mean they've been working all through the pandemic, and so that that's kind of built up in a relative cash. It could be eligible for other credit, we have no way of knowing that. I don't hear anybody mention it though.

Now, I talked to a lot of franchisees and they may not necessarily mention, but we haven't heard, we have heard that particular thing come up in any environment, so I don't know. .

Yes, it’s an interesting dynamic. I guess we’ll watch and see where it goes.

You talked about the strength in storage, which I guess was surprising to hear and certainly strength to me is counterintuitive given – it's hard to think of another product you sell that would be more carbon steel intensive, and given you know cold rolled steel now hitting $2,000 a ton this week, you know there has been an awful lot of inflation which I'm assuming you past through.

So is there just no elasticity there in storage or are legacy storage sales kind of flat and what were you seeing the growth on – why this new product introductions?.

Yeah, no it was a strong quarter in storage. I think somewhat, I'd like to think our offerings are kind of spiffier than they have been.

You know I talked about this extra wide, the 72 inch master series in the call with the lighted top, those things are statement makers in garages, and I think that having refrained from some this for a period of time, technicians are getting more anxious to buy them and they have the money and they get are getting a little more confident, so they go out and look at them.

That’s really – I think that's the situation. I wouldn’t say there is no elasticity, but I think you know – I mean is there elasticity with new cars. I mean the thing is people are buying new cars and reused cars and so on.

I mean so I think when people want something in this category, which is I’ve often said, I think you and I have had conversation that a tool storage box like car, so people tend to want them and they’ll pay a little bit more. It’s not no elasticity, but people will go up and pay from them, that's my analysis. It's really the psychology and the need.

A combination of need and psychology and our biggest cycle – the product we have, which is the biggest psychological factor in people buying is tool storage. Now, all I can tell you is, our tool storage plant is sold out, sold out. .

Yeah, that’s fantastic, that’s great. I guess, you talk about the strong growth in storage.

How much of that growth was from some of the new products? I guess what was the legacy product growth looking like?.

Well look, I think when I say – I don't know, I don't have that number at my fingertips, but there's a lot of wrinkles you can put in tool storage you know. Like we wouldn't necessarily call a new color a new product.

On the other hand, if you roll out a new color, remember when we rolled out purple, there was an explosion you know, so some of that happens. It just has to do with the wrinkle that makes it, oh! This is the best box in the shop or it’s the newest thing, that's really what happens. So we are constantly doing that stuff. .

I just want to wrap up, one last question, and I guess you know you kind of touched on this earlier in your conversation, so maybe I'll ask the question in a slightly different way, but I’m just thinking about tool segment growth sort of going forward and prior to the pandemic tools were struggling with growth for a rather extended period of time, and certainly we are coming short of that 4% goal that you’d set for the segment.

Now, you know through the last four quarters, you know just sort of the easy compares are behind you, but you deliver remarkable growth through that period of time, including on a two year basis just to be fair.

I guess if we think about the growth potential for the business now that you know you have four easy compares that are behind you, I guess what has changed the support or sort of growth going forward and what gives you confidence that the segment can track forward at greater than 4% when you were having so much [Cross Talk]..

Okay, I’ll tell you, it is this way, a simple statement. We figured out new ways to expand the selling efficient of the franchisees. This has happened before, there's a precedent for this.

If you go back and you look before that term which you told, you know you said that they struggled for growth, and it’s a fair characterization in some ways, between 11 and 16 the compounded annual growth rate was 7.2% and that was fueled by the expansion of the capabilities we found artifices [ph] would do that, the vans, the Rock 'n Roll Cab and so on, and in this case, we believe we’ve broken through another ceiling to a new level and it's provable by the absolute amounts that are flowing through the vans at this point.

So that's certainly true for us and so we keep – we've always said, keep pounding that and we can sell more. We're not bound by the market; we are bound by our ability to sell.

And so that's part of it, that's part of getting those franchisees to be able to deal with these more complex products, and we think we've made a step change over the last – now we’ve been investing in it for like three years or something. You know trying to get that, but we think we've done it, and we think this is probable by the absolute amounts.

Whatever the source of that volume is, it proves that the franchisees can accommodate it, they couldn't before. .

Thank you. Our final question comes from Gary Prestopino with Barrington Research. .

Hey! Good morning everyone..

Hey Gary!.

Most of the questions have been answered, but I guess I just wanted to pick up on some of the things the last questioner was asking, as it relates to the margins. You know it looks like your tool and C&I margins from Q2 ‘19 have expanded fairly significantly, particularly the tools group.

I mean is there anything that's inherently changed in the business or is that just the function of, that's just the leverage of the business with the sales growth?.

Well look, I think there is leverage you know in that situation, so that's good. I think it would be a mistake to overlook the idea that embedded in there is some pricing to offset. You know we’ve got a whole bunch of – we've got material costs in there. I don't want to get in as its documented, but we got a great dollar for material costs.

Anybody who's reading the press sees that the varying levels of steel we use from steel rod to plate steel to sheet steel and on have gone up tremendously. The costs of freight are up tremendously, yet through pricing and RCI we shove them aside and we got that 20.

So yes, there's leverage, but there's also great RCI in there that’s dealing with the material cost, that’s one thing to think about. So you got a combination of those and you have some other costs in there. I think we talked about it, I think you will see some of it when you see in the Q, but I do think it's a combination of those working very well.

21.4 I think might be the highest we've ever seen in the tools group, I don't know, but we kind of hope to get the highest every quarter actually. So I don't like to say that, but we're pretty pleased with that. .

Okay, thank you. .

Sure. .

Thank you. This concludes today's question-and-answer session. I'd like to now turn it back to our presenters for any closing remarks. .

Thank you all for joining us today. A replay of this call will be available shortly on snapon.com. As always, we appreciate your interest in Snap-on.

Good day!.

Thank you ladies and gentlemen. This concludes today’s presentation. You may now disconnect..