Snap-on Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 17, 2025
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Operator

Good day, and welcome to

Operator

the Snap on Incorporated twenty twenty five First Quarter Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Sarah Verbsky, Vice President of Investor Relations.

Operator

Please go ahead, ma'am.

Sara Verbsky
Sara Verbsky
VP, IR at Snap-on

Thank you, Nick, and good morning, everyone. We appreciate you joining us today as we review Snap on's first 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.

Sara Verbsky
Sara Verbsky
VP, IR at Snap-on

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 Web Cast Viewer as well as on our website, snapon.com, under the Investors section. These slides will be archived on our website along with a 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.

Sara Verbsky
Sara Verbsky
VP, IR at Snap-on

Additional information and the factors that could cause our results to differ materially from those in the forward 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?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Thanks, Sarah. Good morning, everybody. As usual, I'll start by covering the first quarter and along the way I'll give you my perspective on our results, our markets, the current environment, our position in the turbulence, how we're engaging the situation and what we think it all means going forward. Then Aldo will move on to a more detailed review of the financials. Well, these are interesting times.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

I don't think we've seen an interlude so packed with economic news, government shakeups, tariff bursts, the administration declaring that there's likely to be pain before the Renaissance emerges. I mean, the hits just keep on coming. You can see that uncertainty though in a more formal way in the consumer sentiment index. It dropped precipitously, decreasing by 30% just since December, the second lowest rating ever. And it particularly impacted the perspective of our grassroots economy like our technician customers.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

It prompted an avoidance of longer payback finance items that outran the Tools Group pivoting to quicker payback products. It created the pause in our upward trajectory that's visible in the quarter's numbers. Our sales of $1,141,100,000 as reported represented a 3.5% decline including $13,900,000 on unfavorable foreign currency translation and organic sales that were down low single digits 2.3% on mixed results across the operating groups. Operating income for the quarter was $243,100,000 and that compared to $270,900,000 in 2024. OI margin was 21.3% and that was versus last year's 22.9%, which I remind you, included 90 basis points associated with the benefit from the 2024 legal win.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Now notably, the gross margin was 50.7%, up 20 basis points despite the reduced volume. In effect, our OI margin gap reflected the fact that we kept spending on maintaining and strengthening our advances in product and brand and in people, believing as we did in the pandemic that it's best to emerge from turbulence at full strength. And we plan to do just that. For Financial Services, operating earnings of $70,300,000 were up 2.9% from last year, still from last year's $68,300,000 So as reported OI margins in the quarter, including both financial services and OpCo were 25.2% versus the 26.5% recorded last year. Quarterly EPS was $4.51 was down $0.40 which reflected the lower volume and 16% from last year's legal payment and $09 in higher pension amortization costs included in the 2025 number.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

So now let's talk about the markets. We believe auto repair is quite critical. It remains strong and continues to be a great place to operate. And the industry metrics agree. Now some people have pointed out that hours worked are down over the last couple of months and that's true.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

But there's positive news almost everywhere else. The U. S. Car park on average is 12.6 years old and it's getting old it's old now and it's getting older. Household spending on repairs on car repairs are up substantially both year over year and over the trailing twelve months and tech wages continue to rise nicely mid single digits.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Now having said that, the techs the technicians are among those who are daunted by the current turbulence. Many of them believe we're going to a more positive place, but they fear the economy will careen off the rails before we get there. Those people who work are part of the broad group driving the drop in consumer sentiment. But even though they're now cash rich, they fear they don't have the financial cushion for an off the rails event as such. And as such, they're reluctant to embrace finance products, items like tool storage boxes or top of the line diagnostics.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

We can see it clearly in the double digit drop in our credit company originations. On the other hand, we do believe that the techs still confidence poor, still have an interest in quicker payback items that makes their work easier. They want to make more money. So our tools group will keep pivoting to match the current preferences, working with perseverance, with focus and with confidence to restore that group's advance in closing its sales graph, just like it had established last year. So that's the vehicle that's the techs, that's the tech sector.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

But also on vehicle repair, we have independent shops and OEM dealerships approximate, but distinct segment from the techs. That's the market of RS and I. The garages, those people there continue to tool up with the latest equipment and diagnostic systems, meeting the needs of their customers, getting them back on the road quickly. They know they have to invest. They know they need innovative new hardware and software that improve efficiency, repair efficiency and accuracy.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

It's an imperative to match the repair complexity of today's sophisticated and technically advanced vehicles. It's table stakes for them in the world of today and the repair shop owners and managers will keep moving in that direction. Another opportunity in the markets in the market we've focused on is critical industries. We've termed the market critical industries. Sectors like natural resources, the military, aviation, heavy duty fleets, where the penalty for failure is high.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

This is where C and I makes its money, where we're offering custom solutions to reach new operations and make their critical work easier. Of course, like everything, we see period to period challenges and variations across geographies and across segments, particularly in this time. And in the first quarter, we did see the usual pause in military business and almost always temporarily accompanies a new sheriff in the Defense Department. But after a period dysfunction, however, the war fighters win out and the process gets back on track. But in general, this is a robust arena and we believe the critical industries are in a place of abundant opportunity and we believe we're growing stronger in that arena every day, connecting with more customers, using the insight to expand our product line and extend our presence wider and deeper.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

So overall, I describe our markets as continuing to offer opportunities. Of course, this is an environment where challenges do exist and there is turbulence. But we are confident that with our advantages and our strengthening product lines that solve critical challenges and our extraordinary brand that literally defines a professional and our very experienced team that's so enabled, we believe will prevail against these challenges. Now, now let's briefly address the issue of the day, tariffs. A word that was mentioned last Friday in The Wall Street Journal two fifty four times.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Yesterday, it was down to a mere 163 mentions. Paraphrasing Klauswitz, the world is in a fog of tariffs, a time in which there are so many changing variables that it's difficult to see the way forward. It's an environment that will require urgent action to adjust, to optimize it and take advantage. And we're confident in that FOG. We are, of course, not immune to the challenge of tariffs, but we believe Snap on is greatly advantaged by our manufacturing strategy to make in the markets where we sell and enable quick adjustment to changing production landscapes that are likely to happen.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

We already have the facilities. 36 factories around the world, 15 right here in The USA, many of which we've just expanded. We're positioned well with American products. Our major product lines are already made in America using American steel. And our U.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

S. Plants already produce some version of almost all our product lines. What that means is no extended ramp ups for relocated products. We already have the resident know how right here in The USA. And for the select freights placed in America, where we use some high tariff components, we have 21 factories outside The U.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

S. Sourcing activities in several locations and that gives us access to a myriad of alternative sources. Finally, skilled American workers, one of the barriers to reshoring or reacting to tariffs is skilled American workers are in short supply. The National Association of Manufacturers, after all, says there are 500,000 openings in US manufacturing right now. But we haven't had difficulty filling positions.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And we believe we can continue to do just that in the future. So we're in the flag of tariffs, but we are confident and we believe we can engage and manage the turbulence. We're not immune to the impact, but we believe we are very advantaged. Now let's move to the segments. In the C and I group, organic sales decreased by 2.9%, low single digits.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

C and I's operating income was $53,200,000 below the 2024 levels by $2,200,000 but operating margins were 15.5%, a new first quarter record, up 10 basis points from last year. First quarter, remember, is always seasonally kind of weaker for C and I. In effect, though, if you think about the this is the key point. Gross margin for C and I gross margin in C and I in the period were 42.6%, up 180 basis points. Yes, 180 basis points.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

In effect, we continued OE investments to expand our advantage despite the lower volume and it was a well considered offset to gross margin gains, but we believe it was worth it. We're confident in and committed to extending in critical indices and we'll keep strengthening our position with C and I as we move forward, observing the task and using those insights to design products that make work easier all across critical industries. You can see that in our torque lineup, where precision and accuracy are essential. The aviation market where penalty for fail, where the penalty varies high, continues to adapt our control tech wrenches or what we call the C Tech, made in The USA, built in our plant located in the city of Minnesota, California. An expanding presence in aviation, covering a wide range of sizes, each specifically matched to unique tasks.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Aerospace makers and fixers love this product for its quality and accuracy, but the big kahuna is its ability to document the force applied to the fastener, wirelessly creating a record that the sensitive task has been completed just as specified. Now as we recently learned, this is a pretty important where aircraft are involved. It's one of the reasons why it's still strong a product. And our Carol Stream facility in Illinois produces an elite lineup of preset torque wrenches and wireless controllers. Devices that excel in any production operation, we're approving reducing rework, decreasing warranty needs and just raising customer satisfaction are vital.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Actually it's pretty much everywhere the operation is critical. So our SR controls link with the manufacturer's internal system and they relay engineering protocols directly to the shop floor operator, identifying the right tool, confirming the task is complete and correct, storing the record, all to ensure that the right specs were applied and make sure nothing leaves the line without being fully correct. And our newly expanded Kenosha facility, another one of our expansions in The United States, the C and I custom tool department makes the very difficult possible. A recent example is the aviation maintenance operation an aviation maintenance operation that required a one of a kind abnormally long three inch spline socket to effectively access a very tight area in an exceptionally high performance wing structure. Now this is not an easy tool to make or to come by.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

But our customer product team in Kenosha designed it, tested it, and put it in the customer hands all in quick time, making that critical task easier with insight and speed that's only enabled by an operation close to the customer. That only such an operation close to the customer can achieve. In Murphy, North Carolina, our power tool plant launched a new combination set that was quite well received. The starter set was our PH3050B Series Air Hammer that really packs a punch, hitting with unwavering force, tackling heavy duty repairs with power and speed, 2,500 blows per minute, our specially hardened piston strikes the chisel with enough force and kinetic energy to dislodge even the most stubborn components. But the coolest part of the design is the special Kevlar disc inside the hammer's body, absorbing the shock, dramatically softening the vibration, making it more ergonomic, much easier and more comfortable for the operator, no more jackhammer joints.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Now in our VUM set, that beast hammer is paired with our most popular air chisels, Hot Forge for durability in our Elizabethton, Tennessee plant and kitted into a foam pallet for easy storage. It's a great package and the techs know it. So that's C and I, a high in first quarter profit margins, delivering solutions that make work easier make work safer and easier and more productive, all enabled by American plants. Now on to the Tools Group. Organic schools organic sales were down 6.8% with a high single digit decline in The U.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

S, partially offset by low single digit gain internationally. The difference between those markets you notice. Opportunity income of $92,400,000 compared with the $117,300,000 of 2024 with an operating margin of 20%. The Tools Group continued to see challenges with the technicians sliding confidence with greater hesitancy to purchase long payback items like large tool storage pockets or big ticket items in general. The pivot to faster payback items was gaining traction against the worry brought on by the ongoing wars, the border crisis and a consistent inflation.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

But we believe the events of the first quarter drove down confidence at an accelerated rate, outrunning the continuing progress of the group's pivot. Our shift is powered by altered capacities and refocused marketing and promotion campaigns and probably most importantly, by the introduction of innovative new products that make immediate impact with a short term payback. Products like maiden snap on factories like our recently expanded Milwaukee, Wisconsin plant, bringing raw American steel into the back door, forging it into near net shape, applying skill and know how to harden and finish the steel into a final product. One example is our low profile flank drive socket capacity recently expanded, purposely built to navigate tight quarters, enabling the tech to beat the clock, beat the flat rate and expedite the repair by maneuvering around instead of removing obstacles to reach the fastener. It's to get right around, doesn't have to spend the time removing the obstacle.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Once engaged, the patented design grips the bolt on flats and not on the corners, quickly removing the part with ease without debilitating damage to the points of the fastener. Quick payback items like our other quick payback items like our Synergy 100 tooth ratchet made our Elizabethan Tennessee forge, a design that's unprecedented for strong and easy operation in tight spaces. It's now been introduced for our entire range, including our challenging to make long handled versions. This quarter, we put the Synergy together with an array of those low profile sockets, a combination that offers increasing accessibility, versatility and reliability, a powerful match. The shops love those QuickPayback sets and they're right in the current preferences for the techs.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And when technicians are bouncing from bay to bay or job to job, they need versatility to make speedy adjustments and remove hardware. So another quick payback hit product was our lineup is our lineup of adjustable wrenches made in our Elkmont, Alabama facility. It's the only American made adjustable wrench on the market. It's a demonstration of U. S.-made flexibility, handling a wide range of different sized fasteners with just one tool.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And the kind of the cool part about this is the smaller models are easy to fit in your pocket. So they're always ready as you move from bay to bay. And for customers needing to secure their tool investments, we released our latest additions to the roll cart lineup, our KHP 46. Now this is at the bottom end of the bigger ticket items. It rolls out of our Algona, Iowa facility and it provides a rugged and secured storage that's only 40 inches wide, making it easy to position right in the work area.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

But it's equipped with slides providing drawer capacity up to two forty pounds. That means it's a solid chassis that can hold everything necessary for positioning essential tools close to the workplace. In addition, the unit's top compartment can be configured in multiple layouts for managing power tools. And it's got an installed 120 volt outlet and USB port that allow all electronic accessories and cordless batteries to be charged and be at the ready. The KH PE46, a roll card that's solid, mobile with powerful features, a sturdy storage solutions with a quicker payback.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

It matches the needs of competence, poor tech that require a storage upgrade now and it is popular. Well, that's the Tools Group armed with U. S. Factories, factories, vertically integrated with the ability to speed designs and flexibility for pivoting to short payback items determined to prevail in the turbulence. Now let's move to RS and I.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Sales in the first quarter were $405,900,000 with an organic gain of 3.7%, advancements in our Diagnostics and Mitchell one operations and strong double digit improvements in our OEM market. Operating earnings for RS and I were $122,100,000 up $9,200,000 or 8.1% from last year. And the operating margin was 25.7%, representing an all time high for the first quarter and that was up 140 basis points better than 2024, reflecting continuing software expansion and the benefits of RCI. RCI shined through the turbulence this quarter with a gangbusters performance and it was enabled by product. So let's talk about that product a minute.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

We continue to enhance our software coverage leveraging our proprietary databases with over 500,000,000,000 data points and 3,000,000,000 repair records, numbers that are unrivaled in the industry and unrivaled in helping techs navigate and diagnose cars faster. It's a lasting advantage. And keeping current with the techs preference keeping consistent or current with the techs now preferences, we celebrated the twentieth anniversary of our SOLUS diagnostic unit. This version, the latest version, called the SOLUS plus built in our San Jose, California production and development center. It's aimed at simplifying the complex and making techs faster at diagnosing the true failures of modern vehicles.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

It's our fastest handheld with a two second boot up, and it's our fastest payback way to powerful vehicle diagnostics. And the techs responded to the campaign, recognizing the power and the speed of the handheld all at a quick payback. The program was actually one of the highlights of the quarter. Later in the quarter, our Rochester Hills, Michigan facility released our all new ProLink platform, the diagnostics handheld handheld diagnostic platform focused on heavy duty commercial trucks, new hardware, a faster processor and an improved touchscreen. But the major advancement is integration with our repair database with the repair databases of Mitchell one, putting repairs procedures, vehicle specifications and step by step routines for fixing the truck directly into the tech's hands.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

The new Michigan based ProLink puts Snap on in the clear lead for multi model heavy duty diagnostics. And Louisville, Kentucky is home to our vehicle lift plant, all types and sizes of lifts. And among the biggest hits is our Challenger CV10 AB3, the two post lift with the unique ability to adjust in width on the fly. It's flexible enough to be installed in any facility, in any bay and powerful enough to handle a wide range of vehicles. Lifting vehicles is essential for accessing suspension system and for transmission setups and for EV repairs.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And for a range of shop tasks, with this lift, the techs can adjust the suspended height, allowing for the best ergonomic approach to the work and bringing them closer to the work piece to execute the repair. The challenge with 334B, it's a great product and everybody knows it and it's from Louisville, Kentucky. We know this is a turbulent time, but RS and I had a strong quarter and we believe it's poised for more. And we keep driving to expand that group's position with repair shop owners and managers, offering more new products, developed by our value creation process and we believe it is a winning formula. Well, that's our first quarter, quarters of both challenge and advancement.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Gross margin, 50.7%, up 20 basis points despite the volume low the lower volumes. The Tools Group continues to pivot towards shorter payback items, Match and Text preferences. C and I penetrating critical industries, recording Q1 operating margin of 15.5% driven by Precision Torque and Custom Solutions. RS and I also recorded an operating margin record in the first quarter, '20 '5 point '7 percent driven by software and unmatched database. The environment is interesting.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

We are on alert, but we are confident, confident in our product, in our brand and in our people and confident in our ability to confront the fog with clear advantage. Now I'll turn the call over to Aldo?

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

Thanks, Nick. Our consolidated operating results for the first quarter are summarized on Slide six. Net sales of $1,141,100,000 in the quarter compared to $1,182,300,000 last year, reflecting a 2.3% organic sales decline and $13,900,000 of unfavorable foreign currency translation. Activity in our automotive repair markets was mixed. Gains in sales to OEM and independent shop owners and managers were more than offset by lower sales to technicians through our franchise van channel.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

Within the industrial sector or our C and I group as compared to last year, declines in sales to the military and in our European based hand tools business more than offset increases with other critical industry customers. Consolidated gross margin improved 20 basis points to 50.7% from 50.5% last year, primarily reflecting benefits from the company's RCI initiatives. Operating expenses as a percentage of net sales rose 180 basis points to 29.4% from 27.6% in 2024, mostly due to a non recurring benefit of $11,300,000 from legal payments received last year and the effects of lower sales volumes, partially offset by savings from RCI initiatives. Operating earnings before financial services of $243,100,000 in the quarter compared to $270,900,000 in 2024. As a percentage of net sales operating margin before financial services of 21.3 compared to 22.9% reported last year, which included a benefit of 90 basis points from the legal payments.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

Financial services revenue of $102,100,000 in the first quarter compared to $99,600,000 last year, while operating earnings of $70,300,000 compared to $68,300,000 in 2024. Consolidated operating earnings of $313,400,000 compared to $339,200,000 last year. As a percentage of revenues, the operating earnings margin of 25.2% compared to 26.5% in 2024, again, including the benefit from the legal twenty Net earnings of $240,500,000 compared to $263,500,000 in 2024 and net earnings per diluted share of $4.51 in the quarter compared to $4.91 per diluted share last year.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

When comparing the quarter's EPS with the first quarter of the prior year, there is a $0.25 of headwinds on a year over year basis. In the first quarter of twenty twenty five, diluted earnings per share included approximately $09 per share of increased year over year non service net periodic pension expenses, primarily from higher amortization of actuarial losses, while the first quarter of twenty twenty four included a $0.16 per share benefit from the legal payments. Now let's turn to our segment results for the quarter. Starting with the C and I Group on Slide seven, sales of $343,900,000 compared to $359,900,000 last year, reflecting a 2.9% organic sales decline and $5,600,000 of unfavorable foreign currency translation. The organic reduction includes low single digit decreases in activity with customers in Critical Industries and in the European based hand tools business.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

With respect to Critical Industries, a double digit reduction in sales to the military mostly as a result of contract delays more than offset higher sales of our specialty torque products and in other critical industry sectors. Gross margin improved 180 basis points to 42.6% in the first quarter from 40.8% in 2024. This was primarily due to lower material and other costs, increased volumes in the higher gross margin sectors of critical industries and savings from RCI initiatives. Operating expenses as a percentage of sales of 27.1% in the quarter compared to 25.4% largely reflecting the impact of reduced sales volumes. Operating earnings for the C and I segment of $53,200,000 compared to $55,400,000 last year, the operating margin improved 10 basis points to 15.5% from 15.4% in 2024.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

Turning now to Slide eight. Sales in the Snap on Tools Group of $462,900,000 compared to $500,100,000 a year ago, reflecting a 6.8% organic sales decline and $3,600,000 of unfavorable foreign currency translation. The organic decrease reflects a high single digit decline in The U. S. Business, partially offset by a low single digit gain in our international operations.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

During the quarter, we believe the heightened economic uncertainty continued to weaken confidence and technician sentiment, which impacted their willingness to increase their purchases in the current environment. Gross margin declined 190 basis points to 46.3% in the quarter from 48.2% last year, mostly due to a year over year shift in product mix and from the decreased volumes. Operating expenses as a percentage of sales of 26.3 in the quarter compared to 24.7% in 2024, largely reflecting the lower sales volume. Operating earnings for the Snap on Tools Group of $92,400,000 compared to $117,300,000 last year, the operating margin of 20% compared to 23.5% in 2024. Turning to the RS and I Group shown on slide nine.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

Sales of $475,900,000 compared to $463,800,000 in 2024, reflecting a 3.7% organic sales increase, partially offset by $4,900,000 of unfavorable foreign currency translation. The organic gain includes a double digit increase in activity with OEM dealerships and a low single digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers. These gains more than offset a mid single digit decline in sales of undercar equipment. Gross margin improved 70 basis points to 45.7% from 45% last year, primarily reflecting increased sales of higher gross margin products and benefits from RCI initiatives, partially offset by higher material and other costs. Operating expenses as a percentage of sales improved 70 basis points to 20% from 20.7% in 2024, largely due to the higher sales volumes and savings from RCI initiatives.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

Operating earnings for the RS and I Group of $122,100,000 compared to $112,900,000 last year. The operating margin improved 140 basis points to 25.7% from the 24.3 reported last year. Now turning to Slide 10. Revenue from financial services of $102,100,000 reflected an increase of $2,500,000 or 2.5% from $99,600,000 last year. Financial Services operating earnings of $70,300,000 compared to $68,300,000 in 2024.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

Financial Services expenses of $31,800,000 compared to $31,300,000 last year. Provisions for credit losses of $19,100,000 compared to $18,800,000 in 2024. As a percentage of the average financial services portfolio, expenses were 1.3% in the first quarters of both years. In the first quarters of twenty twenty five and 2024, the respective average yields on finance receivables were 17.617.7%, while the average yields on contract receivables were 9.1% and respectively. Total loan originations of $268,700,000 in the first quarter represented a decrease of $33,000,000 or 10.9% from 2024 levels including an 11.7% decline in extended credit originations.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

The decrease in extended credit origination mostly reflects lower sales of big ticket, longer payback items such as tool storage units. Moving to Slide 11, our quarter end balance sheet includes approximately $2,500,000,000 of gross financing receivables with $2,200,000,000 from our U. S. Operation. For extended credit or finance receivables, The U.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

S. Sixty Day plus delinquency rate of 2% is up 20 basis points from the first quarter of twenty twenty four, but unchanged from the last reported the number reported last quarter. Trailing twelve month net losses for the overall extended credit portfolio of $57,800,000 represented 3.41% of outstandings at quarter end. While delinquencies and net losses have been trending upward, we believe that these portfolio performance metrics remain relatively balanced considering the current environment. Now turning to Slide 12, cash provided by operating activities of $298,500,000 in the quarter represented 121% of net earnings and compared to $348,700,000 last year.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

The decline as compared to the first quarter of twenty twenty four largely reflects the lower net earnings and higher year over year increases in working investment. Net cash used by investing activities of $32,000,000 mostly reflected capital expenditures of $22,900,000 and net additions to finance receivables of $8,200,000 Net cash used by financing activities of $193,600,000 included cash dividends of $112,200,000 and the repurchase of 260,000 shares of common stock for $87,200,000 under our existing share repurchase program. As of quarter end, we had remaining availability to repurchase up to an additional $398,400,000 of common stock under our existing authorizations. Turning to Slide 13. Trade and other accounts receivable increased $37,100,000 from 2024 year end.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

Days sales outstanding of sixty six days compared to sixty two days at year end 2024. Inventories increased 17,800,000 from 2024 year end, including some investment to mitigate supply chain uncertainties. On a trailing twelve month basis, inventory turns of 2.4 were the same as year end 2024. Our quarter end cash position of $1,434,900,000,000 compared to $1,360,500,000,000 at the end of twenty twenty four. In addition to our existing cash and expected cash flows from operations, we have more than $900,000,000 available under our credit facilities.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

There were no amounts borrowed or outstanding under the credit facility during the year nor was any commercial paper issued or outstanding in the year. That concludes my remarks on our first quarter performance. I'll now review a few outlook items for the balance of the year. With respect to corporate costs, we currently believe that expenses for the remainder of 2025 will approximate $27,000,000 per quarter. Additionally, during 2025, as previously shared, we have and expect to incur approximately $6,000,000 pre tax per quarter of increased non service pension costs largely due to higher amortization of actuarial losses.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

These non cash costs are recorded below operating earnings as part of other income and expense net on our statement of earnings and will have about a $09 per diluted share quarterly negative effect on EPS for the balance of 2025. We expect that capital expenditures will approximate $100,000,000 and we currently anticipate that our full year 2025 effective income tax rate will be in a range of 22% to 23%. Finally, in 2025, our fiscal year will contain fifty three weeks of operating results with the additional week occurring in the end of the fourth quarter. This occurs every five or six years and historically has not had a significant effect on our full year or fourth quarter total revenues or net earnings. I'll now turn the call back to Nick for his closing thoughts.

Aldo Pagliari
Senior VP of Finance & CFO at Snap-on

Nick?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Okay. Thanks Aldo. Well, that's our quarter. It's a period marked by particular and acute uncertainty piling on our already confidence poor technicians and abrupt development that set us back for the quarter. Overall sales were down low single digits, 2.4% organically.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

OI margin was 21.3%, down but still relatively strong, authored by a gross margin of 50.7%, up 20 basis points despite the lower volume, again, gain attenuated by our considered decision to keep investing despite the lower volume. The Tools Group impacted by the continuous airburst of commercial change, sales and OI margin both afflicted. But C and I and RS and I had bullwhip performances, pillars of they were pillars of continuing strength supporting the enterprise. C and I successful in critical industries with torque and custom solutions. Sales down, but more than explained by the settling in of the new military leadership.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And overall registering OI margin of 15.5%, up 10 basis points for a first quarter record. RS and I, another strong performance. Sales up 3.7% organically with OI margin of 25.7%, up 140 basis points for another first quarter record, driven by progress in software, the power of its databases and the benefits of RCI, gains across that group. And of course, the fog of tariffs, a challenge that dominates the commercial landscape and Snap on is not immune to the effects, but we believe we are advantaged with newly expanded facilities, 15 factories all across America with deep know how in America to make our major products, with a global sourcing network, 21 plants all across the globe to be agile and optimizing it against whatever tariff array emerges and with an ability to attract and hold manufacturing associates. So these are interesting times, action packed with news every day.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

We are on alert. But we're also confident, confident in our ability to navigate through the turbulence, confident in the opportunities available in our essential markets and of our position in the fog of tariffs, not immune, but advantaged. And most of all, confident in our product that truly does make work easier, confident in our brand that really does mark the serious professionals and confident in our people, battle tested and committed that led us through that led Snap on through the great financial recession and the pandemic and came out roaring. And we believe that powerful combination will overcome the turbulence and extend our long term positive trajectory as it has done so many times in the past. Now before I turn the call over to the operator, I'll speak to our associates and franchisees in these turbulent days.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

I'll simply say for your contributions made every day, for your deep dedication to our team and for your unshakable confidence in our future held fast even in the turbulence. I thank you all. Now I'll turn the call over to the operator. Operator?

Operator

Thank you. Will now begin the question and answer session. And your first question today will come from Scott Stember with ROTHMKM. Please go ahead.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Good morning and thanks for taking my questions.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Nick,

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

you were talking about, obviously, it sounds like the shops are still relatively strong, but the confidence for the technicians is falling even further than before. So what's the game plan here? Do we see opportunities to further pivot to lower price items? Or is there something else that needs to be done?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

No, look, I think there's a couple of factors there. One is the pivot worked in the first quarter. It's just I don't think we've seen a place where the hits just kept coming so much. I mean when the administration itself says there will be pain, this is kind of unprecedented. And you can see it in the customer and the consumer sentiment.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

If you look at those numbers, you see the drop from December is precipitous. And so we didn't know about that when we were talking to people. We talked to franchisees all over the country and we heard that in the shops. And really what it is, is our pivots worked. I talked to some of them that did pretty well.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Some of those sets I talked about sold well. Some of the products in like the cart sold well. What we learned in the period, I think, that's a little bit different is we were pivoting to what you would call standard short quicker payback items. But what we found if we tailored things at the bottom end of the bigger ticket items like carts that simulated a box, like the Solis, which is at the bottom of the diagnostics, we could make hay with those as well. Now you can't say you made great hay when you're down 6.8% organically, but that's really what we saw in that situation.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

So we're going to keep pivoting because we saw continued traction. It just got overrun. This was an unusual period. I think anybody who says this is an unusual period isn't reading The Wall Street Journal and seeing tariffs in two fifty four times. And so the thing is that's what we saw.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

So we think the pivot, we learned some things on how to make the pivot better. So we're going to continue to do that. And we'll learn from those things as we adjust. We're pretty confident that this works. And if you don't believe it's America, look at the outside The United States.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Outside The United States, less affected by all this turbulence in recent days, all those businesses went okay.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Got it. And then if you're looking at RS and I and C and I, RS and I in particular, if you were to back out the intercompany declines, which I assume had a a pretty big impact there, what would the organic rates sales rates in RS and I have been?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

It's about it's a little bit better. I think it's the organic rate was about 3.7%. If you backed out the inner companies, you're probably in the 4% range, something like that, maybe a little bit better in that situation. RS and I the big thing about RS and I is, it's software packed these days. Software was up more than the increase in that.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And the cool thing about it, Scott, is if you look at the RS and I division, almost all of them are up nicely profitability. So they're hitting on all cylinders. They really did have a strong quarter. And if you look back, it's been strong quarter after strong quarter after strong quarter. Now I realize some people may have thought it would have done better.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

They might have sold more. You could have argued that, maybe one percentage point more. You could have thought that. But 25.7%, up 140 basis points, it's a pretty good quarter. And it's driven on the strength of their product and the increasing ability to affect the database.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

AI is part of that. Part of the reason why the databases are getting better and more effective is we can now translate what the when you use natural language processing, that will translate what the technicians say about the repairs much more efficaciously into a database without as much time. So we're able to move forward in building that database much more effectively. And that's helped us in this situation. But you can see there that even in diagnostics, we're making them we're pretty well positioned against the tariffs.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

I'm not saying we're immune. I've said this many times, we're not immune, but we like where we are.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Got it. And then last question before I go back in the queue. It sounds like the military had a pretty profound impact on critical industries. Was that having anything to do with these Doge movements? Or is there something that we should expect to see in the quarters

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

ahead on May No, I don't know if it had anything to do with the Doge. I think it more had to do with people trying you got budget cycles in there. But I will tell you, Scott, we saw it in the Biden administration. Anytime the administration changes, there's a new sheriff in town and he won't be pushed around. And so the thing is they change the they start talking about the procurement processes and so on, slows everything down.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And then after a while, the war fighters kind of say, the 50 caliber bullets when they go overhead, I'd like to have better tools. I don't want to have somebody else's tools or some tools that are missing and everybody caves and it goes back to normal. So I think that's really what you're seeing mostly in the situation. I don't think it was associated with except for maybe, Scott, the psychology of the Doge sword waving overhead of all government employees. But I don't know how to evaluate that.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

It was significant. Without let's put it this way, without the military downturn, C and I would have been up.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Got you.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

All right. That's all I have.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

else was good.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Awesome. Thank you so

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

much.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Sure.

Operator

And your next question today will come from David MacGregor with Longbow Research. Please go ahead.

David Macgregor
President at Longbow Research

Yes. Good morning, everybody.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Good morning, David.

David Macgregor
President at Longbow Research

Good morning, Nick. Wanted to start off by just asking about truck level sales comps. What do you think those looked like this quarter in The U. S?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Say that again. You said truck, you mean the van?

David Macgregor
President at Longbow Research

Yes, the van sales comps. Yes, sales comps off the van.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

They're about the same as we saw to the van, about that same level. It was pretty much matched up in this quarter. It isn't always matched up in a quarter, but this particular quarter was kind of dead on, pretty much the same. So we sold to them about what they sold off the vans. And I don't know what you make of that because it always rolls up and down.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

As you know, because you've followed us for years, it kind of it usually varies from period to period, but this was one of those that matched up.

David Macgregor
President at Longbow Research

But you didn't see any destocking at the truck level?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

No, we didn't see that. Now there could have been some, but I don't think so. I think it's the numbers match. Of course, it's an situation. And I will tell you that the franchisees start to get daunted when they hear the technicians talk about these things.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

But the franchisees have a lot more, I would say, cushion to deal with what I said would be an off the walls things, off the rail things. I think really what happened is reflected in the customer sentiment and maybe some of the franchisees got some of that thing, but there wasn't much destocking.

David Macgregor
President at Longbow Research

And then you talked about negative mix in the Tools segment. I'm just trying to reconcile that with the narrative of

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

being a weak big the low end diagnostics sold. Remember I said, that's why that's actually why I put the SOLUS thing in there. One, we learned something about it that we could chip away at the bottom end of the big ticket items and have success if we position them and program them correctly. And diagnostics driven by that low end, the Solis, the speedy one and cheaper was up in the quarter. And anytime diagnostics is up in a quarter, it's a weight on Tools Group's margins because as you know, they share the margin with the RS and I Group.

David Macgregor
President at Longbow Research

Right. So what would hand tools have looked like, Nick, just isolate that category?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Hand tools were not up, but they were certainly not down the way tool storage was. Tool storage was a killer. And you look at the originations in the quarter, you can see it. Coming out of last year, the originations were up 5.8% were down 5.8%, well, they're down almost double in this quarter, 11.7%. And I think that's it all.

David Macgregor
President at Longbow Research

How do you respond promotionally to the weaker demand?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Well, margins our gross margins in the tools group were down some, but some of that has to do with the mix I just talked to you about. And we tend not to change prices that much. I mean, certainly, across the corporation, I would say that 50.7% gross margin is ample evidence that up 20 basis points when your volume is down like this is ample evidence that you aren't giving it away in pricing. So while we do get more active in promotions and we try to make it more attractive to the customer, we're not out there begging for volume. I don't like that.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And so we don't really do that.

David Macgregor
President at Longbow Research

And Nick, can you talk about the regional kickoff? Can you talk about the regional kickoffs and just were orders up or down this year and by how much?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

The regional kickoffs were down this year. And I'm not going to give you how much because it distorted, David. It's hard for us to evaluate because you know, you know, not not so great is that several of them were affected by snow. And so what happened was some of these regions some of these regions I was at one, you know. Some of these regions I'm saying some of these regions are are pretty big, you know.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And so snowstorms were bearing down, so people left early. And so we didn't quite have the full participation that we like to have in those situations. So it was hard for us to evaluate. It was one of the things that was difficult to evaluate what was happening in the quarter in the beginning because we looked at those and a lot of them were subject to these kinds of one off type weather situations. And so we weren't sure what to make of that.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

But when you talk to the techs themselves, you could hear that it's certainly starting to break through, especially as we started to get later in January when you started to hear after the inauguration. Everybody loves the our guys love the administration. But like I said, I think I said last quarter, it feels like they're on Space Mountain. They're afraid they're going to go off the rails.

David Macgregor
President at Longbow Research

Right. Last question for me is just on manufacturing capacity. And you've obviously done a lot there recently. But I'm also guessing that backlogs are directionally lower now as a consequence of this demand situation. Can you say by how much your backlogs are down?

David Macgregor
President at Longbow Research

And in what product categories you may be seeing the greatest backlog depletion?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Tool storage. Remember, we used to have remember about a what was it, a year and a half ago, we were up to our eyeballs in tool storage backlog. Well, it's kind of liquidated that. One, we expanded our Algona facility and the demand has dropped off for the big ticket boxes. Now we shifted more capacity to lockers and carts and so on, which is I think one of the things we have confidence in going forward.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

So we think we're in a good shape. I mean, we don't have a lot of backlog everywhere. Now certain products are backlogged. Swivel sockets, for example, have a little bit of backlog. You always have some kinds of things.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

But generally, the expanded capacity has put us in the right position. That's why we think we're one of the reasons why we think we're advantaged for the tariffs. We are available for American production.

David Macgregor
President at Longbow Research

Got it. Thanks very much.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Okay.

Operator

Your next question today will come from Gary Prestopino with Barrington Research. Please go ahead.

Gary Prestopino
Managing Director at Barrington Research Associates

Good morning, everyone.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Good morning, Gary.

Gary Prestopino
Managing Director at Barrington Research Associates

Nick, you mentioned in your opening

Gary Prestopino
Managing Director at Barrington Research Associates

comments about the fact that hours worked were down by technicians as well in the quarter. I mean, vehicle repair is generally kind of mission critical. So could we assume that that was less elective maintenance kind of services? Or what do you

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

I put that in because it's a fact. Hours down hours worked in the rolling 12 was up, low single digits, but it was up. In the last couple of months, it was I want to say 3.3% or something like that. I'm not sure what that means over a couple of months. It does mean, I suppose, that some of the garages aren't relatively white hot in the last couple of months.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

But in wintertime, that could mean a lot of things. So in normal times, lately those things and lately all the metrics in vehicle repair have been monotonically improving, improving, improving, improving, improving. And so I suppose in we're kind of sensitized to the idea for a couple of months that there was a drop off and it got my attention and some other people's attention. But I'm not sure what to make of it as a long term trend. You would believe if hours are down, it probably is elective things because you got to have your car.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

So you would think that would be the case and maybe some people are worried about some of the off the rails scenario. I think one of the things you do see is you see consumer sentiment is down. You see our numbers down. But you see other people say, well, activity is strong, but I think they're dealing with a different FICO zip code, FICO zip code, better credits, more the better healed people than maybe the mechanics in the garage or the people of work. I think that's part of what we see.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Ourselves, Aldo, I think said in his presentation that our own yield dropped from 17.7% to 17.6% and that really is the people who originating loans for us are better credit risk than they were before. And so it just means that the people at the bottom end are too reticent. They're too affected by the uncertainty. So maybe you see some of that in the garages too. I don't know.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

I because I I think people gotta repair the cars. You know, sooner or later, you gotta go in.

Gary Prestopino
Managing Director at Barrington Research Associates

Right. Alright. Thank you.

Gary Prestopino
Managing Director at Barrington Research Associates

And then lastly, could you maybe comment on you made a lot of reference to the fact that this whole issue with tariffs coming up could have impacted technician confidence. As you went through your quarter, did things really accelerate on the downside starting in March? '1 could take away from what you were saying that a lot of the impact in the Tools Group in particular was due to these the uncertainty regarding tariffs and that kind of cropped up in March. Could you maybe give us a go ahead.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

I would say, Gary, the guys I talked to, it wasn't only tariffs. You come out and you're saying, okay, we're going to reduce the government. But then they start I have no political there's no political commentary, but they are laying off people seems like willy nilly. In other words, no one knows what and so I think the people at work, even though they truly believe in trajectory and the goals of the current administration, they're saying, don't know how the hell they can change all the government this much and not come out with some screw ups. And then you start hearing stuff like Greenland and Panama and Gaza.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

You hear that stuff. And so even before they started talking about the tariffs, people are saying, geez, I don't know. What's really happening here? I'm worried that the world is going to come off the rails and the tariffs came over the top. So that's a long way of saying, I don't think things changed so much.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

I wouldn't say it got worse. I think just in general, this was a continual statement that people said, I don't know our people after all aren't really affected by the tariffs, but they're kind of saying the broad view, I don't know if some administration can do this many things, coming up with new ideas every day and not strike out a few times that might screw us up badly. That's the general view. Now tariffs is a different thing. It's more affects the companies.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

When I say the fog of tariffs, I'm talking about at the Snap on level or the company level. That's dominating everybody. Everybody wants by the way, everybody wants to talk about tariffs. Anybody you can talk to wants to talk about tariffs. And so it is a fog that does affect technicians and it affects a lot of different things.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

We just say in that fog, as we look forward, we think we're advantaged.

Gary Prestopino
Managing Director at Barrington Research Associates

Okay. Thank you.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Thanks.

Operator

And your next question today will come from Sharif El Sabahi with Bank of America. Please go ahead.

Sherif El-Sabbahy
Sherif El-Sabbahy
Analyst at Bank of America

Hi,

Sherif El-Sabbahy
Sherif El-Sabbahy
Analyst at Bank of America

good morning.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Good morning, Sharif.

Sherif El-Sabbahy
Sherif El-Sabbahy
Analyst at Bank of America

Just

Sherif El-Sabbahy
Sherif El-Sabbahy
Analyst at Bank of America

within the Tools Group, are you able to give us a sense of how the demand drop looked throughout the the quarter, maybe a bit of cadence,

Sherif El-Sabbahy
Sherif El-Sabbahy
Analyst at Bank of America

if there's anything

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

There wasn't there wasn't much case you know you know, Sharif, it's it's hard to say. You know, usually usually, things are different from week to week. This quarter was more uniform. Wasn't just like I tried to explain to Gary a minute ago, the it started out, we thought, and there was really bad weather. So sometimes you can say, okay, it's bad weather.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And that happens often in beginning of the year because volumes are always light. And so you're like that legend, the princess in the pea, any little change will affect you. And but it kept being weak. When you talk to people, once the administration got in place, they started listing and they're saying, geez, our guys are getting a little over overactive, let's say. And then that's when they started to worry about the world.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

It's interesting when you talk to the people at work, technicians and the guys in the factory, they're pretty savvy on this stuff. And I think it's because they don't have that much cushion. And so they're very sensitive to this. We found this all through a lot of different situations. And in some ways, through the canary in the coal mine, because that's why I've been talking about uncertainty for some time.

Sherif El-Sabbahy
Sherif El-Sabbahy
Analyst at Bank of America

Understood. And we've talked about this dynamic of a shift to quicker payback items for quite a while. Have you seen any shift in the quarter just with regards to the volume? Is that purely just a harder shift towards this trend? Or are you seeing lower demand for even some of the quicker payback items as well?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Yes. We did see some but we look, I'm just telling you what I think happened from a lot of interviews, windshield surveys and fortified by the metrics of the customers consumer sentiment numbers. But if you look at it, we had our the things I put in the event like in the script, in the discussions, like Solas, big hit, Synergy paired with the Flank Drop pockets, low pro big hit. You know, the idea so those are low payback items that are big hit. The the the tool the sturdy tool storage cart, unprecedentedly holding two forty foot pounds, big hit.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

So you had hits in the lower payback items. We had almost no hits in the big payback items. So you could see the progress. I just think, like I said, my assessment and I think this has played out as some both quantitative and qualitative support from interviews and from the consumer sentiment numbers, is that the effects of the last quarter on the general populace with topped off by the tariffs were so pervasive that they outran our progress in those things. So I think we've made progress in our performance.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

It's just everything else kind of the level of everything else kind of dropped. But the stuff we focused on seems to work. It's just the things you can't focus on everything.

Sherif El-Sabbahy
Sherif El-Sabbahy
Analyst at Bank of America

Understood. Thank you for the color.

Operator

And

Operator

your next question today will come from Luke Young with Baird. Please go ahead.

Luke Junk
Senior Research Analyst at Baird

Good morning. Thanks for taking questions. Nick, wanted to start in terms of how you can play offense in this environment and maybe just a finer point, thinking mostly about the Tools Group in terms of marketing, kind of the balance of engaging franchisees versus engaging with technicians directly. And in terms of investments, the steady pace of investment, just where we might see you look incrementally in terms of allocating dollars this year?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Well, I think I said it. I think we're kind of encouraged by the idea that we can chip away at the lower end of what you might call our traditional big ticket items. After you run the programs after a while, I'd say like hand tools and power tools and the other stuff, you kind of got to recycle some. And so now we found a new and pretty successful area at the lower end of that, like Solas, which is way cheaper than say a Zeus or a cart, which is way cheaper. I mean, it may be a factor of four cheaper than big Epic unit.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And so you feel as though that's the kind of thing you can focus on. So we're kind of encouraged in that position. And then, of course, you double down, you try to make sure that more of your new product introductions are in the area where you can have effect. You don't want to spend a lot of time worrying about, so you shift resources from the top of the line diagnostics from things like some of those are already in pipeline sometimes or things like Epic tool storage boxes or anything that's very expensive and you try to hit that sweet spot and put most of development and promotion sources in those areas. So we continue to do that.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And particularly when we see this, because what happened in the quarter was the program seemed to work, the other stuff didn't. So the general level dropped because of uncertainty. So we think we can hit. It's just a matter that's why I say that stuff overran us. You can think about this, that program is successful, the other products sort of the underlying base dropped in this quarter beyond where it had been before.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And so what we'll try to do going forward is focus on those in terms of product. Then in terms of we've got some ideas around getting to the customers. We're constantly evolving the idea of social media and putting out a little shorter videos, kind of a version of TikTok, Snap on network, we're trying to do that. That tends to work for us, but we might have done that anyway. I'm not sure, Luke, but I mean, that's where we'd allocate some resources.

Luke Junk
Senior Research Analyst at Baird

Got it. We've talked a lot about the technician side in terms of sentiment and just how they're reacting to the environment. What about franchisees and the folks that you're spending time on? I guess, I'm thinking especially things like Cushion and how they might be thinking about working capital in their businesses, be it, inventory, their payables, extended credit, those sorts of things.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Yeah. I you know, look. I think I think, well, it's down, but it's not bad compared to pre pandemic levels. So and they're the same franchisees. So I don't think we quite have even though this is not something we are cheering about or something like that, it's hardly threatening.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

It's not enterprise threatening for Snap on. You can look at the cash flows. I mean, the cash flow is down, but we aren't wringing our hands over. We're trying to figure out where to get cash. We're not to step back from anything and most franchisees are in that situation.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Now there are some in which the idea is like always down at the bottom end, they may be threatened in this situation. We try to work with them to make sure they can survive this situation. That's another place where we'd spend time to try to make sure that the terminations, the exiting of the franchisees stay right in the same place. And more or less, for government work, it has stayed in the right place in the same place. It's just in this environment, it's a little harder to get people to move because everyone who might be a franchisee is, in fact, somewhat confidence impaired in this situation.

Luke Junk
Senior Research Analyst at Baird

Got it. Thanks, Nick. Appreciate the comments.

Operator

And your final question today will come from Patrick Buckley with Jefferies. Please go ahead.

Patrick Buckley
Patrick Buckley
Associate at Jefferies

Hey, good morning guys.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Good morning.

Patrick Buckley
Patrick Buckley
Associate at Jefferies

Could you talk a little

Patrick Buckley
Patrick Buckley
Associate at Jefferies

bit more about recent dealer sentiment? I guess Liberation Day and all the auto tariffs were more Q2 event. So anything notable to call out there to start the quarter?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

What do you mean by dealers? You mean automotive dealers?

Patrick Buckley
Patrick Buckley
Associate at Jefferies

Yes. And just demand

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

you mean like semi dealers?

Patrick Buckley
Patrick Buckley
Associate at Jefferies

No, the auto dealers.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Yes. Like a Chevrolet dealer or a BMW dealer?

Patrick Buckley
Patrick Buckley
Associate at Jefferies

Exactly.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Look, I don't think we saw any particular move in that situation. Here's the thing.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

In our org, it doesn't really, for sure, make any difference what happens with new cars. Not for sure. In fact, the dealerships make you're probably very familiar with this because I think you look at dealers all the time. They make a lot of money on repair and spare parts and used cars. They don't make so much money on new cars.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

So if the new cars if you have tariff problems in the new cars or the auto companies are spitting up blood all over the ID, they got tariffs going back and forth in Canada, it doesn't make that much difference, I think, the dealerships. Now the dealerships moan about not having new cars, but I do remember during the pandemic when they didn't have new cars, their margins were at an all time high, I think. So I don't think being in the back shop, it doesn't affect us so much. And so when I talk to dealerships, they will moan about the worry that, boy, if they can't get cars, they are going to lose some and if asymmetrically, they have less cars than, say, their competition in the area, they may lose the customer bases that they've worked so hard to build up. There's that kind of thing.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

But I don't think for the near term that makes much difference for our business with them. I don't think they pull back. They might, some of them do, but some of them actually think in those environments that they want to invest and repair more because they're not going to get new cars, so they got to get the cash flow out of repair. So sometimes they want to do that in this situation. So it's unknowable in that situation.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

I suppose the one caveat to that is, Patrick, is that to the extent we are commissioned by programs with the OEMs that could be affected by turbulence with new cars and all this noise with the tariffs. We haven't seen it so far.

Patrick Buckley
Patrick Buckley
Associate at Jefferies

Got it. Helpful. And then I guess looking at the Tools Group, it seems like international segment was a bit higher than U. S. Could you talk about maybe some of the drivers there and the outlook for the international segment there?

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Sure. The international segment isn't worried about any of this stuff. They're not worried that Donald Trump's talking about Greenland and Gaza and the Panama Canal. They're not worried that they're really not worried about at the grassroots level, at the grassroots level. I don't think they're worried about the idea that they're going to tariff China One Hundred And Seventy Percent or whatever they are, 245%.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

I'm not sure what the number is these days. But I don't think they're so worried about that. And it's kind of proportional to where they sit. So Canada is probably more worried because the tit for tat with Trudeau and so on, I think impacted them some. So and but if you look at Australia, The UK, they're kind of offshore.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

And so that I don't think we see much of an effect in those places. And I think that's simply because the whole cash rich confidence poor phenomena has always been from the beginning when we started to see it a U. S. Phenomena.

Patrick Buckley
Patrick Buckley
Associate at Jefferies

Great. That's all from us. Thanks guys.

Nicholas Pinchuk
Nicholas Pinchuk
Chairman, CEO & President at Snap-on

Okay.

Operator

This

Operator

concludes our question and answer session. I would like to turn the conference back over to Sarah Verbsky for any closing remarks.

Sara Verbsky
Sara Verbsky
VP, IR at Snap-on

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.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Snap-on Q1 2025
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