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Snap-on Q1 2023 Earnings Call Transcript


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Participants

Corporate Executives

  • Sara Verbsky
    Vice President, Investor Relations
  • Nicholas T. Pinchuk
    Chairman and Chief Executive Officer
  • Aldo J. Pagliari
    Senior Vice President - Finance and Chief Financial Officer

Presentation

Operator

Hello and welcome to the Snap-On Incorporated 2023 First Quarter Results Conference Call. [Operator Instructions] I would now like to turn the conference over to your host today, Sara Verbsky, Vice President, Investor Relations. Ma'am, please, go ahead.

Sara Verbsky
Vice President, Investor Relations at Snap-on

Thank you, Keith [Phonetic] and good morning, everyone. Thank you for joining us today to review Snap-on's first 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, 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. Additional information and the factors that could cause our results to differ materially from those in the forward-looking statements are contained in our SEC filings.

Finally, this presentation includes non-GAAP measures of financial performance, which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding these measures is included in our earnings release issued today, which can be found on our website.

With that said, I'd now like to turn the call over to Nick Pinchuk. Nick?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Thanks, Sara. As usual, I'll -- good morning, everybody. As usual, I'll start the call by covering the highlights of the first quarter and I'll give you my perspective on what it all means. And then Aldo will provide a detailed review of the financials. Along the way, we'll cover the markets, the robust gangbusters. We'll also give you a view of our momentum. It's been unbroken and vibrant. Once again, the story of our quarter is continued resilience. Our ability to navigate the complex while knowing that with the flip of a calendar will bring new challenges. You could pick up any significant publication or listen or watch any business show and you'll encounter a barrage of concerns, measures of adversity and contraction. But we know we can resist the difficulties. And so, we have for the past three months and for quarter-after-quarter.

You see we're armed with significant advantages. Our market displaying resilience, worn out of criticalities. Our brand standing above, delivering quality and reinforcing personal pride. Our products, they clearly move the world forward by making the critical easier. And finally, our people. Our team. Experienced, capable, and competent. We are encouraged by this quarter. And I'll tell you why. Our reported sales in the period were $1.183 billion, up versus last year by $85.2 million or 7.8% including $24 million or 240 basis points of unfavorable foreign exchange. Organic sales, they were up 10.2%, increases in every group, our 11th consecutive quarter of year-over-year operating expansion. Our opco, operating income, for the quarter was $259.8 million, including $7.6 million of unfavorable foreign currency, increasing by 16.5%. And the operating margins, the operating margin, it was 22%, rising 170 basis points over the last year. For financial services, operating income of $66.3 million compared to last year's $70.4 million. And that combined with opco resulted in a consolidated operating margin of 25.6% and an 80 basis-point improvement. And the first quarter's EPS, $4.60, up $0.60 or 15% from last year's $4. So, we believe our confidence and our ongoing optimism is clearly justified by the numbers.

Now let's look closer at our markets. The automotive repair environment remains hot. Demand across all disciplines. We continue investing in new products and accommodating repair challenges of newer models, matching the increased complexity. As platforms change, the modification requires new tools to accomplish this task and we're keeping pace, whether it's an internal combustion engine or an electric vehicles, the tech's need and assist and we're ready to bring it. The updates create a range of challenges, new challenges, from accessibility issues associated with compliance spaces, required new designs of varying geometries. The tighter engineering talent is fueling the need for precision torque instruments to the increasing number of passengers and listing our power tools to remove and install parts efficiently to the rise of drive by wire. More electronics, the great -- the more of the electronics, the greater the need for handheld diagnostics and special software that can communicate with and manage the neural network of computers and sensors. We're seeing strength in OEM dealerships. As new models break down to the market, new arrays of a essential tools, equipment, and diagnostics are needed to service different and unique characteristics of each vehicle. For independent repair shops, business is booming. You would be taking your vehicle in for service. Recently, you've witnessed this firsthand. The bays are full and the parking lots are chock-a-block. And when I speak with our franchisees, they are enthusiastic, saying demand is robust. It's written all over the numbers. Garages are scheduled further out for shops of all types. Owners see the growth. They know they need technicians. And as you might expect, the rising tech tech count is substantial and the wages are moving up and then of course, this is all music to our ears.

We believe that with the new vehicle models, the rise of automation, the growing need for precision, and the increasing vehicle complexity, we may be entering the golden age of vehicle repair and our numbers say, it may be sought. So, vehicle repair is a great place to operate for our Tools Group and for our Repair Systems & Information Group, RS&I. And we believe it's only getting better.

Now let's talk about the critical industries where Commercial and Industrial, or C&I, takes Snap-on out of the garage, solving tasks of consequence, representing our most significant international presence. It's an area where we're, I suppose, most subject to global headwinds. But the news is still reasonably encouraging. The critical industries kept rising across sectors. Aviation, education, heavy-duty fleets, general industry and natural resources, all up. And the military, once down, is now rebounding with high demand. And for geographies, North America was strong, Europe was improved, even in the face of the ongoing war in Ukraine and the revenue disruption, the Brexit, and Asia-Pacific remained mixed, variation across the landscape. But overall, the critical industry markets of C&I showed significant and broad positive. Every sector. The first quarter was marked by substantial strides in that arena and we see more opportunity on the horizon.

We believe there's abundant and ongoing potential all along our runways for growth, enhancing demand network, expanding to repair shop owners and managers, extending the critical industries, and building in emerging markets, leveraging our expansive product line, we're holding our strengthening brand and deploying the increasing understanding of the tech, connecting to the customer, standing face-to-face in the workplace where the tasks are performed, observing the work, turning that insight into innovative new products, and some in the future for professionals. And we amplify that endeavor by applying a generous helping a rapid continuous improvement, or RCI, as we call it, driving our productivity and our margin upwards. So, that's our view of the markets.

Now let's turn to the groups. In the C&I group, sales of $363.8 million, including $12.5 million of unfavorable foreign currency, increased 7% to last year. Organic sales were up 11.1% with double-digit gains in critical industries and specialty [Technical Issues] that precision leading the way. C&I's operating income of $55.8 million, including $2 million of unfavorable foreign currency, represents an increase of 22.1% over last year and the operating margin was 15.3%, up 190 basis points from the 2022 level. Promising numbers. C&I demonstrated considerable growth despite the ongoing uncertainty across geographies. One of the factors that's been attenuating C&I in the recent past was the impact of supply turbulence. The customized -- you heard me say it on the call, the customized kits with many different products are vulnerable to availability disruption and one of the drivers behind the C&I rise were the improvements along the supply chain. During the period, we started to clean the log jams and reduce the impacts. The first quarter is evidence of that progress. For some time, we've said that the demand in critical industries have been strong. It continued in the first quarter. And that positive is rooted in innovative products designed specifically for making a difference in critical path. One example is our new ATECH 1/4-inch Drive Flex-Head TechAngle Micro Torque Wrench, through a mouthful, but it's a great product. It's aimed directly at the aircraft repair where the necessity for torque position is rising. The need for power is increasing and repair in tight spaces is becoming more common. Our new unit works on all three fronts.

The new wrench is almost 1-foot long, but less than 1 inch in diameter, configured to facilitate access deep inside engine compartments. It's also equipped with the 50-degree Flex-Head design allowing it to avoid obstacles and it uses our durable 72 tooth gear mechanism, enabling the tool to operate with small rotations when the barriers restrict motion making it tough to wrench. The new ATECH has the power, significant power, reaching 300-inch pounds and it's expanding the range by 20% and increasing the number of applications that the tool can cover, consolidating tests from multiple devices to one convening unit, and eliminating change over time providing -- that's providing a nice productivity gain. The unit has four loop modes: LCD, LED, vibratory, and audible. Those four prevent over-torquing even when the the visibility is low and the space is constrained. And when combined with the unit's accuracy of plus or minus 2%, the feature serve to keep the fastening right on spec. The ATECH, accessibility, power, and accuracy protects throughout the aviation sector. It's another hit product that helped drive C&I upwards in this quarter. Well, that's C&I, on the rise, higher sales, stronger profits, powerful products, and more to come.

Now on to the Tools Group. Sales of $537 million, up $24.9 million, including $7.1 million of unfavorable foreign currency, registering a 6.3% organic gain, with high-single-digit increases in the U.S. and a low-single-digit rise in international network. And the operating margin, the operating margin was 24.5%, up 180 basis points against the 80 basis points of unfavorable currency. Boomshakalaka! This was a great number for us. We're really optimistic and encouraged by this. The vehicle repair markets are strong and resilient and the traits an ongoing pass of abundant opportunity. And once again, the tools numbers back it up. But beyond the quantitative evidence, I was just with some of our van drivers last week, and their view was indefinitely positive. That's the only word I can use. Without a equivocation or without question, they say shops are busy. All our product lines are in high demand. And their technician customers are brimming with confidence. It seems like the people of vehicle repair from top to bottom have great expectations for the way forward. And that positivity is evident in the continuing enthusiasm for big tickets, longer payback items, diagnostics, and tool storage boxes. They continue to be major contributors to our results. You can see it in the success of the top-of-the-line ZEUS+ Handheld Diagnostics unit. You can find it in the reception of our latest addition to the EPIQ tool storage lineup. The 68-inch EPIQ Limited Edition box toolbox, we call it the Neon Stinger. It's generated considerable excitement with its eye-catching look, a gloss black body, with the newest color in tool storage trim, [Technical Issues] I mean, this baby pops. Even in the less than bright lighting in say the corner of a shop, of a tool storage -- of a repair shop, it stands out at any place, giving the tech the chance to make a statement. And it's not just the glow. It also offers a range of powerful functionality. The SpeeDrawer providing customizable organizations. A Power Drawer with securable charging space. An LED power top, spanning the entire length of the box, fully illuminating the drawers and the tools, making them shine like the jewels they are.

The Stinger -- it also offers 15 power outlets and six USB ports, all to ensure the tech's cordless tools, lights, and accessories will always charged and ready to go. I will tell you. Demand was strong and Stinger was a Snap-on million-dollar hit product in the blink of an eye. So, the Tools Group, robust demand in all product segments. And the momentum train just kept running throughout the quarter.

Now let's speak of RS&I. Sales reached $446.6 million, up $48.4 million, or 12.2% including $6 million in unfavorable foreign currency. Organic activity advanced 13.9% with double-digit increases in undercar equipment and OEM businesses driving the gain. Two big contributors. RS&I operating earnings were up $104.6 million, rising 14.2% over last year, and the operating margin was 23.4%, up 40 basis points. Again, once again, this quarter, software products and subscriptions were a significant plus. Along those lines our Mitchell 1 division responsible for providing repair information software to independent shops continued to succeed, pursuing customer connection innovation by bringing great new improvements to shop efficiency. At this year, one example is -- at this year's meeting of the Heavy-Duty Technology & Maintenance Council in Orlando, Mitchell 1 introduced our powerful wiring navigation features, specifically for trucks. It was made clear to large truck professionals that our new software would make it much easier and quicker for technicians to navigate the challenges of electrical issues on the bays, ever more complex vehicles whether powered by internal combustion or battery cells. The feature makes real difference. It's a significant aid to truck repair world, enabling quick transition from one wiring diagram from another, following the wire without interruption between views. This is a significant time saver for the techs across the industry. And the shops are noticing.

Mitchell 1 just released another great product. It's automated work package function for its collision repair software. The new system gathers into one screen all the relevant information needed for collision jobs, overall procedures, illustrations and diagrams, all retrieved with the click of a button, with one click of the button. One of the difficulties in collision repairs that the multifaceted nature of the task, unique part details, repair procedure, system diagrams, but that information is usually found in separate places and in varying categories within the vehicles documentation. Our new system combines the data into a single work package that guides the technician progressively through the effective repair. It sounds really simple but in fact, the consolidated comprehensive information eliminates the 20 to 90 minutes that's ordinarily needed to prepare an effective guide for a collision repair task. We believe the new software will be a big contributor to Mitchell 1's growth. It's a clear savings in an area that's rising in modern vehicle repair.

With the increase of vehicle automation and the associated growth in sensor networks, collision repairs are increasingly more important. And our new feature is right on target to ease the way. We keep expanding in RS&I. In RS&I, we keep expanding RS&I's position with repair shop owners and managers, offering more and more solutions for the day-to-day challenges, wielding customer connection and innovation, two essential components of Snap-on's value creation, processes to drive winning new software and hardware. We're confident. It's a successful formula. And RS&I results reinforce that view.

So, those are the highlights of our quarter. Continued momentum. Our 11th straight period of year-over-year operating growth. C&I is showing strength, gaining against the slide turbulence of the day. RS&I remaining robust, rising with software and hardware. The Tools Group, a healthy enhanced van network aiming for more. Organic sales in the quarter up 10.2%. Opco, our operating margin, 22%. And EPS $4.60, up 15% over last year, a significant increase. It all adds up. It all serves to provide clear evidence and powerful testimony that Snap-on has emerged from the great withering in the COVID, stronger than when it entered, and the enterprise is continuing the upward trend with capability and conviction. It was an encouraging quarter.

Now I'll turn the call over to Aldo.

Aldo J. Pagliari
Senior Vice President - Finance and Chief Financial Officer at Snap-on

Thanks, Nick. Our consolidated operating results are summarized on Slide 6. Net sales of $1.183 billion in the quarter, increased 7.8% from 2022 levels, reflecting a 10.2% organic sales gain, partially offset by $24 million, or 240 basis points of unfavorable foreign currency translation. The organic sales increase this quarter includes broad-based gains across all the segments. From a geographic perspective, we experienced double-digit year-over-year organic sales growth in North America and low-single-digit organic gains in Europe. Consolidated gross margin of 49.8% improved 110 basis points from 48.7% last year. Contributions from the increased sales volumes and pricing actions and benefits from the company's RCI initiatives more than offset the effects of higher material and other costs, as well as 20 basis points of unfavorable foreign currency. While the supply chain environment has somewhat improved, we believe the corporation continued to navigate effectively cost and other challenges associated with the ongoing conditions.

Operating expenses as a percentage of net sales of 27.8%, improved 60 basis points from 28.4% last year. Operating earnings before financial services of $259.8 million in the quarter compared to $223.1 million in 2022. As a percentage of net sales, operating margin before financial services of 22% improved 170 basis points from last year's first quarter. Financial services revenue of $92.6 million in the first quarter of 2023 increased 5.6% compared to $87.7 million last year. Operating earnings of $66.3 million decreased $4.1 million from 2022 levels and included a return to what we believe to be a more normal level of provisions for credit losses and those recorded last year. Consolidated operating earnings of $326.1 million in the quarter compared to $293.5 million last year. As a percentage of revenues, the operating earnings margin of 25.6% improved 80 basis points from last year. Our first quarter effective income tax rate of 23.1% compared to 23.7% last year. Net earnings of $248.7 million, or $4.60 per diluted share, including $0.12 of unfavorable impact associated with foreign currency, increased $31.3 million, or $0.60 per share, from 2022 levels, representing a 15% increase in diluted earnings per share.

Now let's turn to our segment results for the quarter. Starting with C&I on Slide 7, sales of $363.8 million increased from $340.1 million last year, reflecting a $36.2 million, or 11.1%, organic sales gain, which was partially offset by $12.5 million of unfavorable foreign currency translation. The organic growth primarily reflects double-digit gains in sales to customers in critical industries, and in the segment, specialty torque business, as well as low-single-digit increase in the segment European-based hand tools business. With respect to critical industries, the sales gains were wide-ranging in the quarter. In addition to higher activity across general industry, sales to the military were robust, as were sales to technical education, aviation, and natural resources. Gross margin of 38.8% improved 240 basis points from 36.4% in the first quarter of 2022. This was primarily due to higher sales volumes, including increased activity in the higher gross margin critical industries, pricing actions and benefits from RCI initiatives. These improvements were partially offset by the effects of higher material and other costs.

Operating expenses as a percentage of sales of 23.5% in the quarter increased 50 basis points from 23% in 2022, mostly due to increased sales in higher-expense businesses. Operating earnings for the C&I segment of $55.8 million increased 22.1% from $45.7 million last year. The operating margin of 15.3% improved 190 basis points from 13.4% last year.

Turning now to Slide 8. Sales in the Snap-on Tools Group of $537 million compared to $512.1 million a year ago, reflecting a 6.3% organic sales gain, partially offset by $7.1 million of unfavorable foreign currency translation. The organic sales growth reflects a high-single-digit gain in our U.S. business and a low-single-digit increase in our international operations. Sales in the quarter were up year-over-year in all product lines. Gross margin of 47.3% in the quarter improved 180 basis points from 45.5% last year. This increase is primarily due to higher sales volumes and pricing actions, lower material and other costs, and benefits from RCI initiatives, partially offset by 80 basis points of unfavorable currency effects. Operating expenses as a percentage of sales of 22.8% were unchanged from last year. Operating earnings for the Snap-on Tools Group of $131.7 million, including $6.1 million of unfavorable foreign currency effects, increased $15.7 million from last year, while the operating margin of 24.5%, including 80 basis points of unfavorable currency effects, improved 180 basis points from 22.7% in 2022.

Turning to the RS&I Group shown on slide 9. Sales of $446. 6 million increased 12.2% from $398.2 million in 2022, reflecting a 13.9% organic sales gain, partially offset by $6 million of unfavorable foreign currency translation. The organic gain is comprised of double-digit increases in sales of undercar and collision repair equipment and an activity with OEM dealerships and a mid-single-digit gain in the sales of diagnostics and repair information products to independent shop owners and managers. Gross margin of 43.5% declined 110 basis points from 44.6% last year, primarily due to increased sales in lower gross margin businesses and the effects of higher material and other cost. These declines were partially offset by benefits from pricing actions and savings from our C&I initiatives, as well as 30 basis points in unfavorable foreign currency effects. Operating expenses as a percentage of sales of 20.1% improved 150 basis points from 21.6% last year, primarily due to benefits from sales volume leverage and higher activity in lower expense businesses and savings from RCI initiatives. Operating earnings for the RS&I Group of $104.6 million compared to $91.6 million last year. The operating margin of 23.4% compared to 23% reported a year ago.

Now turning to Slide 10. Revenue from financial services of $92.6 million increased from $87.7 million last year, primarily reflecting the growth of the loan portfolio. Financial services operating earnings of $66.3 million, including $700,000 of unfavorable foreign currency effects compared to $70.4 million in 2022. Financial services expenses of $26.3 million were up $9 million from 2022 levels, including $8.1 million of higher provisions for credit losses. The year-over-year increase in provisions reflects both the growth of the portfolio as well as a return to what we believe to be a more normal pre-pandemic rate of provision. For reference, provisions for finance receivable losses in the quarter were $14.2 million as compared to $6.3 million in the first quarter last year. In the first quarters of 2019 and 2018, provisions for losses were $12.5 million and $15.8 million, respectively. In addition, the gross worldwide extended credit or finance receivable portfolio has increased 7.5% year-over-year. And we believe the delinquency and portfolio performance trends currently remain stable. As a percentage of the average portfolio, financial services expenses were 1.1% in the first quarter of 2023 as compared to 8.8% last year. In the first quarters of 2023 and 2022, the respective average yield on finance receivables were 17.7% and 17.6%. In the first quarters of 2023 and 2022, the average yield on contract receivables were 8.7% and 8.5% respectively. Total loan originations of $300.9 million in the first quarter increased $55.3 million, or 22.5%, from 2022 levels, reflecting a 25.1% increase in originations of finance receivables, and a 9.2% increase in originations of contract receivables. The increase in finance receivable origination reflects the continued strong demand for big-ticket products sold by our franchisees during the quarter.

Moving to Slide 11. Our quarter-end balance sheet includes approximately $2.3 billion of gross financing receivables, including $2 billion from our U.S. operations. The 60-day-plus delinquency rate of 1.5% for U.S. extended credit compares to 1.6% in 2022. On a sequential basis, the rate is down 10 basis points, reflecting the seasonal trend we typically experience between the fourth and first quarters. As it relates to extended credit or finance receivables, tailing 12-month net losses of $45.1 million represented 2.46% of outstandings at the end of the first quarter. While this was up 12 basis points from a year ago, it is 45 basis points lower than year-end 2019.

Now turning to Slide 12. Cash provided by operating activities of $301.6 million in the quarter compared to $193.9 million last year. The increase from the first quarter of 2022 primarily reflects lower year-over-year increases in working investment, improved net earnings, and lower cash, tax, and compensation payments. Net cash used by investing activities of $72.9 million included net additions to finance receivables of $49.6 million and capital expenditures of $23 million. Net cash used by financing activities of $152.1 million included cash dividends of $86.1 million and the repurchase of 356,000 shares of common stock for $87.2 million under our existing share repurchase programs. As of quarter end, we had remaining availability to repurchase up to an additional $345.4 million of common stock under existing authorizations.

Turning to Slide 13. Trade and other accounts receivable increased $20.7 million from 2022 year end. Days sales outstanding of 62 days compared to 61 days at 2022 year end. Inventories increased $16 million from 2022 year end. On a trailing 12-month basis, inventory turns of 2.4 compared to 2.5 at year end 2022. The growth in inventory primarily reflects higher demand, including inventories to support new products as well as critical industry projects. Additionally, to better assure availability, given the dynamics of the current supply chain situation, our level of safety stocks and in-transit parts components and raw materials are up as our year-over-year costs associated with finished goods. Our quarter-end cash position of $833.8 million compared to $757.2 million at year end 2022. Our net debt-to-capital ratio of 7.4% compared to 9% at year end 2022. In addition to cash and expected cash flow from operations, we have more than $800 million available under our credit facilities. And as of quarter end, there are no amounts outstanding under the credit facility and there are no commercial paper borrowings outstanding.

That concludes my remarks on our first quarter performance. I'll now briefly review a few outlook items for 2023. We anticipate that capital expenditures will approximate $100 million. In addition, we currently anticipate that our full-year 2023 effective income tax rate will be in the range of 23% to 24%.

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

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Remember, I mean, it really pops well, something else that pops is the Tools OI margin. It's something to catch attention. It pops like a neon sign, 24.5%, up 180 basis points directly against 80 basis points of unfavorable foreign currency. All that added up to strength across the corporation, organic sales advancing 10.2%, up big, even in the uncertainty. OI margin, 22%, 22%, representing a rise of 170 basis points.

And the final tally of it all, EPS. It was $4.60, up by a clear distance over any comparison. And finally, our performance is marked by length, by the extended positive trend. It was the 11th consecutive quarter of year-over-year operating gain. The world is evolving as we thought it would. New equipment and software being needed to follow the acceleration of model change and new technologies. The vehicle repair market is looking like it's approaching a golden age, more technicians, wages rising, collective and individual optimism across the sector.

And we saw our momentum extending in the quarter, a positive view that was confirmed by the voice of the franchisees. And moving forward, we believe that the momentum will continue. And we are confident -- we're confident that we're positioned to make the most of the abundant opportunities, growing and improving. We've done it period after period, and we did it again in the first quarter.

You see, we do have device of advantages in our product authored by customer connection and innovation, easing the way for critical path, making a clear difference with professionals. We have an advantage in our brand, marking the serious and the professional, bringing pride and dignity, like no other name. And we have an advantage in our people, our team, challenge-tested and fully dedicated, and we believe the resilient markets and these considerable advantages will enable Snap-on to maintain its momentum and continue its rise into the second quarter throughout 2023 and well beyond.

Now before I turn the call over to the operator, it's appropriate that I speak to our franchisees and associates, our team. I know many of you are listening. This quarter is encouraging, but those who would ask why or how need only look to all of you. For the considerable part you played in this performance, you have my congratulations.

For the extraordinary commitment you've given to our team, you have my admiration. And for the unfailing confidence you hold in Snap-on future, you have my thanks.

Now I'll turn the call over to the operator. Operator?

Questions and Answers

Operator

[Operator Instructions] And this morning's first question comes from Christopher Glynn with Oppenheimer.

Christopher Glynn
Analyst at Oppenheimer

Thank you. Good morning, everybody. I was curious, Nick, about the C&I kind of showing some stepped up organic growth there. You talked about the supply chain easing a little bit. So curious what -- if you're seeing past due backlog kind of diminish here and where you are in that stage? And is overall backlog continuing to grow because it sounds like the breadth is becoming quite assertive.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Backlog is still pretty strong. I mean the 11.1% the increase -- by the way, it was bigger than that really in the critical industries. So that wasn't borne out of the backlog. Pretty much the backlog is still there. And what you're seeing is our getting some of the fair challenges underway. I'm not declaring complete victory over the supply turbulence but it looks a lot better this quarter than it has in the past plus, you got the military coming back in that period. The military was down before. So you have those two factors driving the critical industries upwards, and that's pretty good. And it isn't -- we still have a pretty strong backlog sitting there. Orders just keep going. Everybody likes to have customized product.

Christopher Glynn
Analyst at Oppenheimer

Okay. And you know in the press release, you mentioned the [Technical Issues] continues the Snap-on value creation process and you referred to considerable capacity for improvement. Could you elaborate on some of the specifics that undergird that statement?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Yeah, we could be a lot more efficient in selling off the vans. This is one of the reasons that [Technical Issues] our business going upwards in the Tools Group and the principal components of driving it upwards, we could do better in that. Our factories could be more efficient because they're chockablock. They're up to their eyeballs. We're trying to expand them. So we're working on the expansion, and we're pounding the RCI into those expansions. So we better -- that will help us quite a bit. So you see that.

And I think in a lot of ways, RCI applies to the Tools business to the Product business because that's the complexity if repair goes up. It needs new products and having a large number of new products really necessitate a real focus on RCI and the actual customer connection and innovation process. And so we'll drive that through.

So fundamentally, we see a lot of opportunities. Our business is sort of like that, Chris. We sort of structurally have opportunities because we have 85,000 SKUs. We're pretty vertically integrated in a lot of places, sometimes -- some cases, raw steel comes in the back of the factory and through a number of different processes from forging all the way to plating to make it look like jewels and putting in the hands of the end user, we have tremendous verticality. So we have horizontal, 85,000 SKUs and a verticality. That creates a lot of interest for continuous improvement. So we have lots of confidence in our ability to do better.

Christopher Glynn
Analyst at Oppenheimer

Great. If I could sneak one more in, just want to go a little deeper into the military that had been soft for some time, and it sounds like it's a pretty sharp and resetting levels there. Just curious if you could give some color on -- I think lumpiness is part of the military story, too. So just curious how to factor that aspect here.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

I think we're seeing an encouraging situation. I mean we were spitting up blood all over the military in the quarter -- further quarters. It was a big negative for [Indecipherable] was really not there. But now it seems to have come back in a number of different projects, and they're not huge projects. They're smaller projects. So this is kind of a -- we interpret it as an opening of a spigot. Every time -- the guys who know to tell me this every time a new administration company in, regardless of who it is, there's a new share up in town. They raise -- we're going to have new procedures, the new procedures actually don't work. And so eventually, the [Indecipherable] say, I need tools, and therefore, the spigot opens. That's what's happening now.

Christopher Glynn
Analyst at Oppenheimer

Thank you.

Operator

And the next question comes from Bret Jordan with Jefferies.

Bret Jordan
Analyst at Jefferies Financial Group

Hi, good morning guys.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Hi, Bret.

Bret Jordan
Analyst at Jefferies Financial Group

I think you called out sort of strength in some of the higher ticket items. Could you give us some more color on that, sort of what the hand tools versus high ticket and then storage versus diagnostics within the higher ticket product mix?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Sure, look, hand tools are about -- just with the growth this period. So if you're looking for mix, there's really not a mix story along the product lines. We don't see. If you step back, you look at it, there's a lot of product, particularly hand tools, they're about equal to our growth, give or take, equal to our growth.

And in terms of big tickets, you got diagnostics being stronger than tool storage because we just introduced and we introduced the [Indecipherable] Plus, I think it's $12,000. This is a monster, the top-of-the-line handheld diagnostic. And so that's been selling robustly. And you see that together with tool storage in the originations this quarter. So I think for the selling of -- from the selling to the franchisees quarter, you're seeing a good pick ticket, that a little bit more or more with diagnostics this quarter than in past quarters because of the [Indecipherable] launch. And then you see hand tools kind of keeping pace with the average. Everybody else is the [Indecipherable] are floating around in there.

Bret Jordan
Analyst at Jefferies Financial Group

Okay. And then a question on the credit business. I mean, obviously, underlying rates have come up and your -- I think your yield was 17.7% or so. Is there the potential to bring your yields up? I mean can you pass through some of the higher base rates on those loans? or is that.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

I could answer this question, but Aldo needs to have at least one question, so, I will it to him,

Aldo J. Pagliari
Senior Vice President - Finance and Chief Financial Officer at Snap-on

Brett, probably not. And the reason for that is we hold our rates and that's the lowest rates in the world. They are reflective of the credit profile of the customers that we serve. So they certainly are competitive in the segment where we play. Bu Our rates have been kind of steady over the decade, not just the years, decade. And we're funded long, as you probably recall. And therefore, we don't have the same upward pressure on our cost of funds for the next several years. So as a result of that, we tend to hold the program spend. So the uptick you see right now really is probably reflected a little bit of the slightly better profile of customers as maybe compared to a year or so ago, but it's very slight, right 17.6, 17.7.

Bret Jordan
Analyst at Jefferies Financial Group

Okay. And 1 last question for you then on the cost input side. Are you seeing -- what's the cadence? I mean whether it's metals pricing or labor or obviously shipping has come down, but how are you seeing the input cost cadence trending?

Aldo J. Pagliari
Senior Vice President - Finance and Chief Financial Officer at Snap-on

So look, the cost is similar, similar. There's slight pockets of improvement. Every once in a while, you still have to resort to a spot buy and you're looking at materials. So I'd say the most broadly speaking, as I think we said earlier, is that there's some improvement, but every day, you have to remain agile, flexible. There's always a new challenge when you walk in the door. So modest improvement, but still you got to bring all your resources to the table to effectively manage it.

Bret Jordan
Analyst at Jefferies Financial Group

Okay, great, thank you.

Operator

And the next question comes from Gary Prestopino with Barrington Research.

Gary Prestopino
Analyst at Barrington Research

Hi, good morning, everyone.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Good morning, Gary.

Gary Prestopino
Analyst at Barrington Research

I have a question for Aldo, so was in the second question.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Oh, no.

Gary Prestopino
Analyst at Barrington Research

Yeah, I got one for you too. In the other category, Aldo, there was a $15.2 million looks like positive and you tax effect that, it's about, I think, $0.20 of earnings, $0.21 of earnings. What exactly is that?

Aldo J. Pagliari
Senior Vice President - Finance and Chief Financial Officer at Snap-on

I don't know if you're looking at other income, but if we're looking at that -- actually, believe it or not, Gary, on the cash that we have on hand, we're earning a much higher level of interest income than what we did last year. You might remember, about a year ago, you're getting hardly nothing on your money. Now effectively, the corporation is earning about 4.75% on whatever cash it does have.

Gary Prestopino
Analyst at Barrington Research

Okay. All right. So that explains that. And then I just want to get a question on the diagnostics and the software. Nick, it's growing. Are you finding that there are shops that and I don't -- can't believe that this is possible that did not have any diagnostic capabilities that are rapidly adapting it because of the more of the electronics on the models or are entities just looking to upgrade and buy a more powerful machine?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Well, I mean, look, I think the -- sure, there are shops that don't have diagnostics. I mean, there are guys who think they can do it themselves. And by the way, you can repair it yourself, but it takes more time. And so the more experienced technicians think they can get through it -- some of them, particularly in truck shops, you'll see that more.

But generally, diagnostics are an upgrade and they're upgrading the software. And what happens, the good thing about this, like I say in the remarks, is the more drive by wire, the more you need more advancements in both the software and the hardware. It's one of the reasons why the [Technical Issues] has been such a [Technical Issues] hit, is that it really does move everything forward, bigger screens, make it easier from a hardware point of view, and it's got enhanced software.

And we tried to emphasize that we keep coming up with ideas like Mitchell 1, like the wiring diagrams for trucks. That may not sound like much, but it's bad because if you have to keep -- it's really helpful because if you have to keep trying to find the wire in a new view, it's a real puzzle sometimes, and they're holding about collision. Collision is boring. And so writing software for collision, we're kind of, I think in kind of one of the only few they're trying to do that, and we see that being very positive. So there's a lot of opportunity flowing through there.

Most of it, though, it really depends on the shop. If you're talking about just the vehicle repair shop, most of them are upgrading what they have already. In some cases, the shop certainly has something. That would be it. In some cases, you're adding technicians that are using more diagnostics or don't have a diagnostic now, they're borrowing. In other cases, if you look at truck or collision repair, they're just starting to get diagnostics. That's a little more fertile ground for air.

Gary Prestopino
Analyst at Barrington Research

Okay. And then as you sell these higher-ticket diagnostic products, I would assume that the software package that comes with it or is associated with it is also a higher ticket versus the low-end diagnostic?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

I'll tell you what, Gary, I don't know how we can afford to sell it for the price we do. But we do -- we view it as a high value, but yeah, the software is more -- its like when you buy the initial package, you get software for a period of time, like six months in the package. And so then you could take a subscription then that will start after six months or you can wait till six months over and take a subscription or you can wait for up to six months and buy a title. But if you're talking about let's take a look at the discrete purchase would be like buy a title, which would be six months of new software, [Indecipherable] higher than the next level down and the next level down. So it's higher.

Gary Prestopino
Analyst at Barrington Research

And just lastly, do you foresee a situation where as more EVs proliferate through the car park that you would develop a diagnostic tool that's just specific for EVs?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Sure. But -- yes, that's a long time off there because first, what would happen is a diagnostic unit that would handle internal combustion and EVs because they're going to be sharing the space for a long time. They're going to be chewing the same dirt on a highway for a long time. And so the real thing is you're going to need a broad group of that, both in software and tools. That's what's going to happen. Eventually, EVs may take over a plug-in hybrids or whatever evolves in that situation, and that will move the car part. But it's a long way process.

There's no singularity in here. But once they start to get some presence in the market, you have to start including them in your diagnostic software so that you help the technicians deal with them as you help them deal with the 650-horsepower BMW M5 competition.

Gary Prestopino
Analyst at Barrington Research

Okay, thank you, very much.

Operator

Thank you. And the next question comes from Elizabeth Suzuki with Bank of America.

Elizabeth Suzuki
Analyst at Bank of America

Great. Thanks for taking my question First, I wanted to ask about the financing arm. In terms of your outlook, I mean, do you see risk to originations, if your customers start shifting from some of these bigger ticket items to smaller ticket and as credit conditions more broadly kind of tighten, does that have an impact on your customers' ability or willingness to take on additional debt for those large products.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Actually, I don't know. That's a big question. There's a lot of hypotheticals in there. I don't think we see a risk right now. People seem to be robust in terms of the big ticket items. One of the messages of our point is I think I said when we're at the conference, there almost seems to be two economies, the financial economy and the physical economy. And the physical economy right now seems pretty pumps to me. And so we see -- and we see that with the take-up of big-ticket items that expresses their confidence.

Really, and in past downturns, it hasn't been the rates that's influenced because our rates stay the same. It hasn't been the rates or the actual money of technicians that influences the choice. It's their mental view. The paraphrase was [Technical Issues]. It's a psychology [Technical Issues]. And so basically, in the great financial recession, it was the -- we would have said economies [Technical Issues] repair shops [Technical Issues]. And t\They kept going. And so yeah, but they were getting up every day and getting bad news for breakfast on all the shows and reading the paper. So they were worried about taking long-term long payback items, but they had the money.

So I don't anticipate the money going away, but I -- but they could change their attitude, depending on how much bombardment occurs. I think really, that's how we see the world playing out. Repair is essential. It keeps going. But the mentality of the customers can shift between big ticket and small ticket. We saw -- I mean, one evidence that you go back to just out of the COVID, coming out of the COVID everybody had money and garages never stopped, but they were focused on small ticket items, not big ticket. And when they start to get more comfortable and they had the psychological recovery and exhilaration, they started to go big ticket. That's what we see it.

Elizabeth Suzuki
Analyst at Bank of America

Yes. Got it. No, it certainly makes sense that the sentiment is a little different here on Wall Street than it is on Main Street. So agree on that. Thank you for that.

Operator

And the next question comes from Scott Stember with ROTH MKM.

Scott Stember
Analyst at Roth Mkm

Good morning, guys.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Good morning, Scott.

Scott Stember
Analyst at Roth Mkm

Nick, you're talking about how collision is booming. I just wanted to flesh that out a little bit. How much of it is just from, I guess, a volume standpoint at the collision level which I guess you could see with increased purchases of on the car or just collision equipment versus increased demand of diagnostics for ADAS for the collision side.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

No. In both of those. I think increasingly, in the collision area is people are more and more interested in -- as we go forward in the sort of like the ADAS situation where you're talking about calibration and setting the neural network of sensors. And also, things like we talked about with Mitchell 1 with the special collision focused software because people are seeing that job more and more.

Two things are happening -- three things are happening, I suppose. The first one is a lot of different materials in a car now. So you just can't bend steel, you have to cut different like carbon fiber and so on. So there's a lot of different physical products that we sell that make that. That was -- that's a long-standing trend.

And then as the neural networks have become more ubiquitous, they need a lot of software and hardware that's focused on that to recalibrate and do that. And then thirdly, collision shops are getting more jobs because the collision has taken more time. If you don't think that -- when you hammer your bumper, see how much it cost you, how long it takes you to get it replaced. Those are taking more time. So there's more work for collision shops. So they're seeing three factors. One the material; two, addressing the neural network and three, just handling the volume and get productivity.

Scott Stember
Analyst at Roth Mkm

Got it. And housekeeping in the Tools segment sell into the van channel versus sell-through? Were they pretty much in line?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

They were in line, pretty well balanced this quarter. You know, they go up and down, but we pretty much feel as though they're kind of matching up and they have and they fluctuate from quarter-to-quarter. But this quarter is evenly keeled. maybe there's a little bit more selling off the van that's selling into van, maybe a little bit, but not anything significant. So is pretty solid.

Scott Stember
Analyst at Roth Mkm

All right. And just last question, just going back to Bret's question about the, I guess, the composition of the Tools Group. It sounds that tools were up or hand tools were up in line with the overall segment. Can you maybe just talk about anything to point out new products out there? Is it different selling tactics? Is it bundling of certain things? Just trying to see what's behind it?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

A lot of different things. I mean, fundamentally, the big kahuna in the Tools Group this time is [Technical Issues] plus, a big ticket item [Technical Issues] So that's rolling through that business. And so that's the thing that gets your attention. I talked about this Neon Stinger, I really meant it. I was flying off the shelf. We showed it at our kickoff and people loved it because my staff and technicians want to make a statement. So tool storage has got some nice products. So you have a new model and diagnostic that's driving that. You have some really nice innovations in tool storage.

And in hand tools, we have got a number of different things, some of which are things like new pliers. We have a range of new pliers that everybody loves. I was talking to the franchisees, like I said, a couple of weeks ago. And these guys whipped out these pliers and started talking about how great they are and easy to sell because they're so functional, having grip. They hold on really well to three positions so you can handle any kind of job. People love them. So you see that, plus we're bundling some things like impact sockets, putting together some impact sockets where they weren't bundled before. So people impact sockets or things you use for [Technical Issues] hard and difficult like trucks. You really need a lot of power so the sockets have to be of a different dimension. Less hard but stronger, thicker walls and those kinds of things. So we see those coming out, maybe focused on the truck shop. So those are the kinds of things that are driving the situation. But it's always that way. There's always a story around product.

Scott Stember
Analyst at Roth Mkm

Got it, that's all I have. Thank you guys.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Okay.

Operator

And our next question comes from David MacGregor with Longbow Research.

David MacGregor
Analyst at Longbow Research

Good morning, everyone. Thanks for taking the question. Let me start off by just asking about the revenue mix overall. Are you seeing a shift in the percentage of revenues from technicians versus independent garage owners and dealerships?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Not really. I mean you could say that. Let me say this. Only in this way, not in the Tools Group for sure. I don't see it in the Tools group. You could argue that, all right, you tend to get garage owners who are also technicians. They are the probably #1 buyer of Zeus Plus So in that way, you might see more of that. But every time you roll out the top of the line diagnostic unit, you're seeing that. So adjusting for our expectations in that way, I don't see any change in the Tools group.

If you go to RS&I, while repairs software and diagnostic sales to impendent repair shops were up, the two big pounders in RS&I was the OEM businesses following the new models and the equipment, but equipment is split between pretty much equally between garages and independent. So generally, you'll see a slight shading toward OEM garages on the RS&I side. You won't see any -- much of a mix change on the tool side except for the fact that Zeus Plus seems to always -- the big kahuna always sells, has a strong shop buy. That's pretty much it. [Technical Issues], we don't see any change.

David MacGregor
Analyst at Longbow Research

Just staying on the garage for a minute, Nick. Your contract receivable is up 9.2%. your sales to garage owners are maybe starting to face a little more difficulty in securing credit returning to Snap-on [Technical Issues] an alternative?

Aldo J. Pagliari
Senior Vice President - Finance and Chief Financial Officer at Snap-on

Probably the contract receivables are with the franchisees and the van leases and inventory [Technical Issues].

David MacGregor
Analyst at Longbow Research

Yes, flowing in there as well. I just say, does this group facing even more of a challenge on secured credit?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

David, it's a logical extension of bad -- higher credit maybe. But I'm not hearing it. I don't know. You're a windshield guy, too. I mean, I don't hear it in my windshield surveys, nobody is saying that. And I would just offer our impression was based on how our franchisees are and how they say the technicians are? Is the balance sheets are pretty robust?

So yeah, that might happen, but I don't think we're seeing it happen now. I don't think that's occurring right now. I think this is a pretty robust sector. We haven't -- we didn't see it get manipulated during the great [Technical Issues]. They were more cautious, but they were still pretty flush. So I don't know what happened, but I don't hear it anyway.

David MacGregor
Analyst at Longbow Research

Okay, thanks for that. And then just on storage and maybe any of the other categories where you've got large backlogs. Can you just give us some sense of how far back those backlogs are extending?

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Too far. That's why we're [Technical Issues] factory. Look, that is -- [Technical Issues] at these franchisees. I don't know you can take this around many [Technical Issues] if you wish, but these guys are telling me they can sell every tool storage box they get. [Technical Issues] I don't want to really get into that [Technical Issues]. But it's pretty substantial, probably longer than we would like.

But sometimes we wonder -- I'd tell you what, just a key looking at sometimes we wonder if it is a better of the backlog long. It makes people want them more. I don't know. You know what I mean? Because everybody wants a Snap-on box, it seems. So maybe it just makes it more attractive, like if you have to wait for a car for a long time. But we'd like to bring this backlog down. That's why we are enhancing our factories in all categories really. Virtually all of our product lines are up to [Technical Issues] and trying to turn out the factories. But the one that chases us the most is tool storage because everywhere we go, people say, I need more. I need more. I need more.

David MacGregor
Analyst at Longbow Research

Is there a reason then Nick, why at the regional kickoffs you were offering discount packages on storage? It seems odd that you'd be just coming [Technical Issues] in backlog.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

No, because we [Technical Issues] discount packages all the time. That's part of the reason to buy now. You could say, okay, you don't have to have the discount package. But in reality, in reality, David, our franchisees are conditioned to sell off a kind of deal. Our art is to make that deal attractive but leaner or richer depending on how we want to move the product.

David MacGregor
Analyst at Longbow Research

Got it. Last question for me is just, I guess, given the strength in big-ticket sales, Nick, combined with -- whether you're on Wall Street or Main Street, there's a slowing macro out there. I guess, what gives you confidence you are pulling forward technician purchasing power that adversely impacts hand tool sales and future growth at some point down the road.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Actually, I don't worry so much about hand tools. I don't. I mean, we -- hand tools have been strong, come [Technical Issues]high water. I mean I think -- I mean I have only been here 15 years. So maybe that's not long enough. But the thing is it seems though hand tools -- if you're talking about the longer payback items like I was talking [Technical Issues] sooner or later sometime, the psychology of it all breaks through and even the guys who are working every day and pulling in the money, they say, I want to keep my powder dry for a while, sometimes.

But that's a psychological balance which I think right now, there's tremendous reservoirs of optimism in the people of work. It's different than the big companies. If you look at the National Association Manufacturers, and you look at small manufacturers versus large manufacturers. There's all of a sudden a big divide between them in terms of their optimism, their outlook.

The small guys have almost never been higher. So I think this is part of what it is. I think there's a lot of talk. As you say there is a lot of talk. So I'm not saying it's wrong or anything like that. But when you walk in -- when I walk in a garage or meet the franchisees, they're saying, who's this guy, his guy, Paul, I don't even know who he is.

David MacGregor
Analyst at Longbow Research

Well, it was a good quarter. Congratulations, Nick.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Thank you, thank you.

Operator

And the last question comes from Luke Junk with Baird.

Luke Junk
Analyst at Robert W. Baird

No, we're maybe a little limited for time, so I'll just ask 1 question today. And what I was really hoping to understand is, Nick or Aldo, you could just unpack the gross margin gains we saw both in the Tools Group and C&I this quarter a little bit more, especially when I'm hoping to understand how much normalization we're seeing right now on the margin in terms of price and what's going on with material costs and whether you think that's sustainable or even there might be more opportunity as we go from here.

Nicholas T. Pinchuk
Chairman and Chief Executive Officer at Snap-on

Well, look, I would like to do this. So I'll do this. Look, and C&I is simple. Critical industries, Boom Shakalaka. Critical industries are the highest margin business in that area. And the margins are robust and they did pretty well. And like we talked about the military and I don't know if you heard that call, but the military tends to be is the base by base type of product we're getting that's moving it. And that tends to be pretty good.

So I think that's one factor you're seeing there. That's pretty strong. They were up -- the critical industries were up greater than 11%. And that's what drove the margins. I think, principally, there are other things. I mean another thing is that generally, the supply chain is getting better, but some of the stuff you go out and buy a whole bunch of stuff on [Technical Issues] you bought [Technical Issues], you buy a lot because you don't want to have to not have them. So some of that stuff is working its way through. So it's a very complex mix. We are seeing some abatement, that should continue.

And -- but mostly, the big factor there, the 190 basis points had to do with critical industries doing well. The customized kits are great for us and they sold, we broke some of the bottlenecks, and we did well in that situation. So that's C&I.

If you look at Tools Group, it's -- there's no product mix story that I think guys were wondering. If there were, it wasn't that. But it is the fact that there is an attenuation in the commodities, so the commodities, which Tools Group is very vertically integrated, so they buy commodities in a lot of situations. So they get a nice pop from that. And so they're getting some improvement in that situation. Of course, they're taking their foot off the pricing in concert with that. And then the Tools Group has been hammering away at RCI. So you see a lot of that happening in this situation. So we think the whole thing is sustainable. Now that -- I'm not telling you that the OI margins are those are going to be the same next quarter, but we don't think they can't. We believe they could go higher, not necessarily next quarter, but we think there's room to move up from RCI and a rationalization of the situation.

Luke Junk
Analyst at Robert W. Baird

Great, thanks for that Nick.

Operator

Thank you. And this concludes the question-and-answer session. I would like to turn the floor to Sarah Verbsky for any closing comments

Sara Verbsky
Vice President, Investor Relations 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

[Operator Closing Remarks]

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