The operator welcomes participants to the Snap-on Incorporated 2023 Third Quarter Conference Call and introduces Sara Verbsky, Vice President of Investor Relations. Nick Pinchuk, CEO, and Aldo Pagliari, CFO, will provide a review of the company's third quarter results. The presentation includes slides and non-GAAP measures of financial performance. Any forward-looking statements made during the call are subject to potential differences in actual results. The earnings release and SEC filings can be found on the company's website.

In the second paragraph, Nicholas Pinchuk takes over the call and begins by highlighting the progress and challenges faced by the company in the last quarter. Despite encountering headwinds and challenges in certain geographies, the company was able to capitalize on opportunities and generate positive gains through its franchising network. This was reflected in the reported sales, which were up 5.2% from last year, and OpCo income, which increased by 9.7%. The company's operating margin also improved by 90 basis points, reaching 21.2%.

The operating income for the financial services operation of the corporation grew by 4.5%, resulting in a rise in consolidated operating margins and an increase in EPS. The market for vehicle repairs is favorable, with key metrics showing positive trends and technician wages on the rise. The corporation's recent visit to customers and franchises in New York showed a sense of optimism and confidence in the industry's future, with technicians looking for innovative solutions to increase productivity. The corporation believes that its products, brands, and people are the best way to ensure a positive future in the strong market of vehicle repair.

Snap-on is experiencing success due to the increasing need for car repairs and the changing landscape of the automotive industry. This creates opportunities for both franchisees and technicians, as well as shop owners and managers. The company's S&I division is focused on providing tools and information to help shops keep up with new vehicle models and technologies. Despite political and economic uncertainty, there is a high demand for new and sophisticated equipment in the industry, and Snap-on is well-positioned to meet that demand. This is reflected in the company's strong performance in the C&I market.

The critical industries, which include commercial and industrial sectors, are where Snap-on's solutions are most needed. These industries require custom tools and have a high penalty for errors, making Snap-on's reliable and repeatable solutions essential. While there may be variations in different regions due to external factors, the critical industries are generally robust and offer potential for growth. In the past quarter, Snap-on has taken advantage of these opportunities and plans to continue expanding in these markets, as well as in emerging markets, by leveraging their product line, brand, and understanding of the industry.

The C&I group saw an increase in sales and operating income in the third quarter, with organic sales growth of 3.2%. The group's operating margin also improved, despite negative currency effects. The success can be attributed to Snap-on's value creation through customer connection, innovation, and great new products like the CT9038 power tool. This tool, nicknamed the "stubby," offers compact size and high torque for working in tight spaces. It also has an ergonomic design and LED light for ease of use.

The paragraph discusses the success of Snap-on's "stubby" torque wrench, which offers three torque settings and a variable speed trigger. The September launch was oversubscribed, indicating strong demand. The industrial division has also shown double-digit growth and strong margins due to expanded capacity. The tools group's sales and operating income have also increased significantly.

The tools group had a 22% increase in operating margin, overcoming unfavorable currencies. The annual Snap-on franchisee conference was held during the third quarter, with 9,000 attendees. Orders were up this year and the expo showcased the Snap-on performance advantage. The conference also included training sessions and seminars to help franchisees expand their business. The event ended with a special evening in downtown Nashville, strengthening the bond between Snap-on and its franchisees. The franchisees showed confidence in their current and future business with Snap-on.

The tool expo showcased new products that were inspired by customer feedback and observations from franchisees. These products, such as the 12 millimeter 6.6. meter Duramax glow plug socket and the FHC 72MPRR triple function ratchet, were designed to make repairs easier and save time for technicians. These customer connections have transformed laborious processes and increased tech capacity and income. The products were well-received and demonstrated the company's commitment to meeting the needs of their customers.

The triple function ratchet was a huge success due to its ability to rotate 360 degrees, improving productivity for technicians. The tools group had a successful third quarter thanks to customer connection and innovative products. The RS&I business also saw growth and recognition for its Zeus Plus diagnostic platform.

In the 11th paragraph, the Zeus Plus is praised as the top of the line for vehicle repair, with its prominent bright screen, faster processor, and improved lab scope. Seven Snap-on products, including the Zeus Plus, were chosen for the People's Choice awards. The quarter saw strong progress, with 13 straight quarters above pre-pandemic levels, and strong margins and sales growth. The RS&I division is leading the charge in enabling repair shops to handle the challenges of modern vehicles. The overall corporation saw a 5.2% increase in sales and an 8.9% increase in EPS. Aldo Pagliari will now provide more details on the consolidated operating results on Slide 6.

In the third quarter, the company experienced balanced organic sales growth across all three operating segments and in North and South America, as well as Europe. Gross margins improved due to increased sales volume, pricing actions, and lower costs, but were partially offset by unfavorable foreign currency effects. Operating expenses also increased, primarily due to investment in personnel. Operating earnings before financial services increased by 90 basis points over last year. Financial services revenue and operating earnings also increased. Consolidated operating earnings and earnings per share showed improvement compared to last year. The effective income tax rate and net earnings also increased.

The C&I Group had sales of $366.4 million, with a 3.2% organic sales gain and a 210 basis point improvement in gross margin. Operating expenses as a percentage of sales rose due to increased sales and investments. The operating margin improved by 120 basis points. The Snap-on Tools Group had sales of $515.4 million, with a 3.7% organic sales gain and a 140 basis point improvement in gross margin.

The increase in sales for Snap-on tools group is mainly due to higher volumes and pricing actions, but was partially offset by unfavorable foreign currency effects. Operating expenses remained unchanged from last year. The RS&I group saw a 3.1% organic sales gain, with increases in undercar equipment and diagnostic and repair information products, but a decline in OEM dealership activity. Gross margin improved due to lower costs and higher sales volumes, but operating expenses increased. Financial services revenue also increased due to loan portfolio growth.

In the third quarter of 2023, the financial services sector saw an increase in operating earnings to $69.4 million, compared to $66.4 million in 2022. Expenses also increased, including a higher provision for credit losses. This reflects both portfolio growth and a return to pre-pandemic levels. Loan originations increased by 1.7%, with a 4% increase in finance receivables. The quarter-end balance sheet showed $2.4 billion in gross financing receivables, with a 60-day delinquency rate of 1.5%. Cash provided by operating activities was $285.4 million, representing 115% of net earnings.

In the third quarter of 2023, the company saw improvements compared to the previous quarter, with lower increases in working investment and higher net earnings. Cash was used for investing and financing activities, including repurchasing shares and paying dividends. The company's cash position and net debt to capital ratio also improved. The company expects to spend $100 million on capital expenditures and have an effective income tax rate of 23% for the full year. The call was then turned back to Nick for closing remarks.

The third quarter is usually unpredictable due to seasonal factors, but recent months have not been positive due to challenges such as the war in Ukraine and uncertainty in China. Despite these challenges, the company has made progress and achieved new heights, thanks to its experienced team, strong products and brands, and resilient markets. The industrial business has shown double-digit growth and strong profitability, while the tools group is starting to benefit from increased capacity. The RS&I division is also performing well, with a strong position in repair shops and successful products. Overall, the quarter was encouraging with a 3.2% increase in sales and significant gains in critical industries despite challenges in Europe and Asia.

The third quarter results for the corporation were positive, with increases in sales, operating margins, and EPS. The tools group, RS&I, and overall OpCo all contributed to this growth, overcoming currency headwinds. The company's advantages in product, the Snap-on value creation process, customer connection, and people have helped drive this success. The CEO praises the franchisees and associates for their hard work and dedication in achieving these results.

The speaker expresses gratitude for the unwavering confidence shown in the company and its team. They then turn the call over to the operator for questions. The first question is about the mix mismatch in some product lines last quarter and whether it has improved this quarter. The speaker explains that while it has improved, there are still some capacity constraints that they expect to continue to improve with ongoing expansions. The second question is about the weakness and lumpiness in the OEM dealership customer base, and the speaker explains that demand is healthy, but there are projects and programs commissioned by OEMs to adapt to changing environments or new vehicles.

The OEM has asked the company to configure and distribute their product to dealerships, which has been a successful venture with some fluctuations. The EQS business was down slightly, but the overall orders from the conference were up mid-single-digits, which is a positive sign for continued growth. The company is encouraged by this trend.

The speaker discusses the difficulty in correlating orders to sales, but notes that having orders up mid-single-digits is still a positive sign. They also mention the potential for increased emphasis on electronics and software in the future, but believe that hand tools will still be in demand due to the increasing complexity of car technology. The speaker also mentions that hand tools have good margins.

The speaker discusses the difficulty of predicting demand for certain products, such as diesel plugs and gold plug sockets, as they are observed after cars are on the road and technicians struggle with them. They anticipate continued demand for these products despite growth in the electronics and calibration business. The questioner asks about the tax rate and the speaker responds that it will likely be around 23%, with some variation due to favorable outcomes in reducing state taxes. The speaker also mentions that there was a negative impact of 6-7 cents per quarter for taxes, but the company still saw an 8.9% increase in earnings.

The speaker is asked about the potential impact of the UAW strikes on the business and whether the OEMs have told them to slow down. The speaker corrects the notion that the dealership business was down and explains that the OEM programs were still at high levels. However, the UAW strike could potentially affect the business if it continues for a longer period of time. The speaker also mentions the possibility that dealerships may focus more on repair and parts if they don't receive new cars.

The speaker discusses the company's 5% increase in the SFC order book and the challenges they face with capacity. They expect the capacity issues to improve in the fourth quarter, but it is difficult to predict how much of the order growth will be fulfilled in that time. They have faith in their ability to ramp up and are optimistic about the future.

David McGregor asks Aldo Pagliari about the impact of capacity constraints and incremental costs on margins in the third quarter. Pagliari responds that while there are some costs involved, the supply chain improvements over the past year have allowed them to focus on RCI initiatives. Nicholas Pinchuk adds that they expect to improve margins in all segments. Christopher Glenn asks Pinchuk to elaborate on the company's plans to expand capabilities in the critical industry space, and Pinchuk responds that they are still exploring options and have not reached the full potential of their initial capacity expansion.

The speaker mentions the company's capacity expansion, which can be seen in the annual report. They have added a new machine shop to improve efficiency and meet customer demands. The company has a large cash balance, which they may use for working capital, dividends, and acquisitions.

The company is constantly looking at acquiring both big and small companies, and is not afraid to make a big acquisition. They also have a war chest for this purpose, especially during high interest rates. There has been some increase in availability of larger prospects, but not much change in actionability. The company expects the technician concept to drive high-single-digit growth in the future, as there is an increase in the number of technicians and new technicians need to tool up, which may initially involve purchasing lower-end products. This was reflected in the company's recent quarter, where their tool storage business saw an increase in sales of cards.

In the paragraph, the speaker discusses the performance of different segments within the tools category. Hand tools performed well, while diagnostics and power tools were down. This was due to the lack of a new installation and the delayed launch of a new product. Tool storage was also down, but this was attributed to a substitution of lower value units.

During a conference call, Scott Stember and Nicholas Pinchuk discussed the company's recent financial results. Pinchuk explained that while unit sales were good, revenues were slightly lower due to a shift in product mix. He also noted that sales from the van followed the overall trend in the tools group. Stember asked about the increase in corporate expenses, to which Pinchuk attributed to stock-based compensation and long-term incentives. Luke Junk then asked about margins in the tools group, to which Pinchuk mentioned various factors such as material inflation and supply chain issues that could potentially settle down in the next year.

In the paragraph, Nicholas Pinchuk discusses the profitability of the tools group and mentions that there are no major risks or offsets to consider for next year. He also talks about how product mix and customer connections have been driving margins for the company. Pinchuk believes that the tools group is on a good trajectory and that their robust product activity has been a key factor in their success.

The company faced supply chain issues during the pandemic, which led to a focus on substitution and a decrease in new product capacity. However, now that the supply chain issues have been resolved, the company can focus on new product development again. The software businesses, such as Mitchell 1 and diagnostics, have shown strong growth and are expected to continue to drive growth in the future. The under car equipment business has also seen growth, but at a slightly lower rate, and is currently at an all-time high in profitability.

The speaker believes that the way forward for RS&I is to focus more on software and to continue improving equipment margins. They also mention that RS&I has been consistently improving and that equipment sales have been strong. The speaker believes that this trend will continue and encourages listeners to review the company's results.

This summary was generated with AI and may contain some inaccuracies.