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

Thank you, Christina, and good morning, everyone. Thank you for joining us today to review Snap-on's fourth quarter and full year 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 otherwise state management's or the company's outlook, plans, or projections are forward-looking statements and actual results may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in our forward-looking statements are contained in our SEC filings. Finally, this presentation includes non-GAAP measures of financial performance which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding those measures is included in our earnings release issued today which can be found on our website. With that said, I'd now like to turn the call over to Nick Pinchuk. Nick?

Thanks, Sara. Good morning, everyone. Today, I will begin with an overview of our fourth quarter, provide an update on the current environment and trends, and discuss some of the challenges we've faced and the progress we've made. Aldo will follow with a detailed financial review. The fourth quarter was promising, reflecting the strengths that define Snap-on: the resilience of our markets, the advantages of our strategic position, and the effective execution of our teams. This created momentum, allowing us to overcome challenges, as evidenced by our numbers. Our reported sales for the quarter were $1,108.3 million, up 3.2%. This included $12.2 million from acquisitions, which was partially offset by $3 million due to unfavorable foreign currency exchange. Our organic sales grew by 2.3%. Notably, when comparing to the prepandemic levels of 2019, we see a clear upward trend. Sales for this past quarter were up 16% as reported and 13% organically compared to 2019, continuing a trend of accelerating growth beyond pre-COVID levels. The quarter also showcased the outcomes of Snap-on's value creation processes, combining safety, quality, customer connections, innovation, and rapid continuous improvement to yield significant progress. Our operating income for opco reached $232.2 million, an increase of $16.16 million from last year, and the operating margin was 21%, an all-time high, reflecting a 90 basis point increase from last year and a 310 basis point rise from 2019, all accomplished despite current challenges. In financial services, operating income was $67.2 million, down from $68.5 million last year; however, delinquencies were lower than in both 2020 and 2019, demonstrating our unique business model's ability to navigate tough environments. The combined results from opco and financial services provided an overall consolidated operating margin of 25.1%, up from 24.4% last year and 22.5% in 2019. Our quarterly earnings per share was $4.10, significantly higher than last year's $3.82, which included a $0.02 restructuring charge. This represents a 33.1% increase over 2019, which is a considerable achievement. Now, let’s discuss the markets. We believe the auto repair environment remains favorable. However, we are experiencing some turbulence in areas serving vehicle OEMs and dealerships. Global new car sales are mixed, with positive progress in China but challenges in North America and Europe during the fourth quarter. Overall volume is below 2019 levels, and supply chain constraints have delayed new model releases and features, affecting our essential tool programs. Nonetheless, dealership repair, maintenance, and warranty remain robust, techs are thriving, and dealers aim to support their shop enhancements. So, while the OEM market is mixed, technicians are feeling optimistic. There is a growing demand for repair shop equipment, though essential tool programs are currently limited. In the independent repair shop sector, confidence is high. Feedback from our franchisees, shop owners, and technicians highlights a strong optimism, and this is reflected in our sales within that sector. Overall, we believe vehicle repair is a favorable space for our tools and our Repair System & Information Group. In the critical industries served by our Commercial & Industrial group, we see progress, but lingering effects from the pandemic create headwinds. The quarter’s results varied by country, with a recovery in Asia and emerging markets, while Europe experienced mixed results. There are also disparities across different sectors, with education, natural resources, and general industry improving, though military spending faces significant challenges. Overall, I would describe our C&I markets as resilient against the ongoing turbulence, and we believe we are well positioned to confront current challenges while paving the way for growth. We are optimistic about our potential for further improvement. Our Snap-on Value Creation processes continuously fuel our progress, especially through customer connections, understanding the work of professional technicians, and leveraging innovation to align with that insight. We believe our product lineup is becoming stronger every day, and we are committed to making ongoing investments. As vehicles become more complex, technicians require more sophisticated assistance, and Snap-on is keeping pace. In 2021, we achieved a record number of $1 million projects. Throughout the pandemic, we worked to maintain our product quality, brand reputation, and workforce, and this commitment has yielded positive results, generating substantial momentum for our future. This momentum is evident in our full-year results. Sales reached $4,252 million, an 18.4% increase, with a 15.1% organic rise year-over-year and a 14% organic gain over 2019. The opco operating income margin for the year was 20%, a new high, up from 17.6% in 2020, surpassing the 19.2% recorded in prepandemic 2019. Our earnings per share for the year were $14.92, reflecting a 30.4% increase, or 28.3% after adjustments for nonrecurring restructuring costs from 2020, and a 21.7% increase adjusted from 2019. These figures clearly indicate ongoing momentum. Now, regarding the operating groups, let’s start with C&I. Fourth-quarter sales for this group totaled $358.7 million, down by $5.7 million, including $4.1 million due to unfavorable currency impacts. Versus 2019, sales grew by $5.8 million, mainly due to acquisition volume and currency effects. In the quarter, we observed recovery in Asia, with progress in Indonesia, India, Japan, South Korea, and China. However, Europe and North America faced more environmental challenges, resulting in a slight decline during the quarter. Within the sectors, we saw some positive advancements in our precision torque line, but these gains were more than offset by reduced activity in critical industries, primarily due to lower U.S. military spending and supply chain constraints affecting custom kitting. Operating income in C&I was $50.1 million, down $6.1 million, which included $1.2 million from unfavorable currency impacts. While gains in Asia and the torque line were promising, they could not compensate for diminished military activity and ongoing supply chain issues. That said, our specialty torque operation registered ongoing improvements through innovative new products created via customer connections and observations. Our recently launched QB4R line of 3/4-inch Drive Break-Over Torque Wrenches, designed for tough applications such as torquing lug nuts on large trucks, is an example. This product combines our regionally acquired Norbar industrial torque technology with sturdy ratchet designs produced in our Tennessee and Elizabeth factories, ensuring reliable accuracy while withstanding high stress. Sales of this new wrench have been strong, reflecting the rising demand for precision as torque products gain prominence. Though the C&I results were mixed, significant advancements indicate a positive trajectory for the future. Now let’s turn to the Tools Group. Sales reached $504.8 million, an increase of $9.9 million, supported by favorable currency effects and a $7.9 million organic rise from continued expansion in the U.S. while facing a slight decline in international networks. Compared to 2019, the Tools Group grew by 21.5%, maintaining an upward trend for six consecutive quarters following prepandemic levels. The operating margin was 21.9%, one of the highest ever, up 300 basis points from last year, achieved despite ongoing challenges. Our investments in product, brand, and people have allowed the Tools Group to thrive. The results affirm the leadership of our van network, with our franchisees growing stronger, as shown by the franchisee health metrics we monitor. They reflect an unmistakably favorable trend. Our franchise's excellence is recognized, as Snap-on continues to be ranked among the top franchise organizations both domestically and internationally. Once again, we have been recognized by the Franchise Business Review as one of the top 50 franchises for the 15th consecutive year. Furthermore, we ranked third among all franchises for veterans according to Entrepreneurial Magazine's list. Snap-on also earned the number two spot among U.K. franchises according to Elite Franchise Magazine, underscoring our strength and innovation amid challenging times. Now, moving to RS&I, fourth-quarter volume was $392.5 million, an increase of 8.7%, with 5.5% organic growth, spurred by modern car equipment sales, handheld diagnostics, and a rise in information and data subscriptions, even as we saw a decline in our vehicle OEM and dealership-focused business. RS&I operating income rose to $97.2 million, marking an 8% improvement from 2020, which had included $1 million in restructuring costs. Compared to 2019 prepandemic levels, sales grew by $57.5 million, up 17.2%, reflecting a $43.7 million or 13% organic increase. The gross operating income margin was 24.8%, consistent with a strong performance despite acquisition impacts. Software products and subscriptions played a significant role in our success, particularly our Mitchell 1 ProDemand auto repair information software that enhances shop efficiency. As the importance of wiring diagrams for vehicle diagnostics rises, the new ProDemand offers features that help streamline the navigation of diagrams, leading to positive initial feedback from shops and technicians. To summarize, these highlights show our continued effort to achieve progress amid challenging conditions. We are experiencing ongoing growth when compared to prepandemic levels, fostering gains through our Snap-on Value Creation processes, which contributed to a 21% opco operating margin, a record high. Our EPS of $4.10 reflects significant improvements, showcasing that Snap-on has emerged from the pandemic stronger and with momentum to reach even greater heights as we move forward. Now, I will hand the call over to Aldo. Aldo?

Thanks, Nick. Our consolidated operating results are summarized on Slide 6. During the fourth quarter of 2021, the resilience and continued strength of our business model enabled Snap-on to close the year with another period of robust financial performance. The quarter also compared favorably with the fourth quarter of 2019 which being a pre-COVID-19 time period, in some cases, may serve to be the more meaningful baseline. Net sales of $1,108.3 million in the quarter increased 3.2% from 2020 levels, reflecting a 2.3% organic sales gain and $12.2 million of acquisition-related sales, partially offset by $3 million of unfavorable foreign currency translation. Additionally, net sales in the period increased 16% from $955.2 million in the fourth quarter of 2019, including a 13% organic gain, $20.9 million of acquisition-related sales and $7.1 million of favorable foreign currency translation. In both comparisons, the organic gains more than offset lower sales for the military. Consolidated gross margin of 48.1% improved 10 basis points from 48% last year. The gross margin contributions from the higher sales volume, pricing actions, 30 basis points of favorable foreign currency effects and benefits from the company's RCI initiatives offset higher material and other costs. For the quarter, the corporation continued to navigate effectively the supply chain dynamics associated with the global pandemic. Operating expenses as a percentage of net sales of 27.1%, improved 80 basis points from 27.9% last year which included 10 basis points of cost from restructuring actions. The improvement is primarily due to higher sales volumes, partially offset by 40 basis points of unfavorable acquisition effect. Operating earnings before financial services of $232.2 million compared to $216.2 million in 2020 and $171.4 million in 2019, reflecting an improvement of 7.4% and 35.5%, respectively. As a percentage of net sales, operating margin before financial services of 21% improved 90 basis points from last year and 310 basis points from 2019. The operating company margin of 21% represents the highest quarterly level of profitability in Snap-on's modern-day history. Financial services revenue of $86.9 million in the fourth quarter of 2021 compared to $93.4 million last year, which included an extra week of interest income associated with the 53rd week of 2020 fiscal calendar. Operating earnings of $67.2 million decreased $1.3 million from 2020 levels, reflecting lower revenue, partially offset by lower provisions for credit losses. Consolidated operating earnings of $299.4 million increased 5.2% from $284.7 million last year and 28.2% from $233.6 million in 2019. As a percentage of revenues, the operating earnings margin of 25.1% compared to 24.4% in 2020 and 22.5% in 2019. Our fourth quarter effective income tax rate of 22.3% compared to 21.8% last year which includes a 10 basis point increase related to the restructuring actions. Net earnings of $223.7 million or $4.10 per diluted share increased $14.8 million or $0.28 per share from last year's levels, representing a 7.3% increase in diluted earnings per year. As compared to the fourth quarter of 2019, net earnings increased $53.1 million or $1.02 per share, representing a 33.1% increase in diluted earnings per share. Now let's turn to our segment results, starting with the C&I group on Slide 7. Sales of $358.7 million decreased from $364.4 million last year, reflecting a $1.6 million organic sales decline and $4.1 million of unfavorable foreign currency translation. The organic decrease primarily reflects a low single-digit decline in sales to customers in critical industries. Within critical industries, lower sales to the military were partially offset by gains in general industry and technical education as well as improved sales into oil and gas applications. As a further comparison, net sales in the period increased 1.6% from 2016 levels, reflecting $8.7 million of acquisition-related sales and $3.8 million of favorable foreign currency translation, partially offset by a $6.7 million organic sales decline. As compared to 2019, sales in our European-based hand tools business were up mid-teens. Those gains were more than offset by lower activity with the military. As you may recall, the fourth quarter of 2019 included sales for a major project that is substantially complete. Gross margin of 36.5% declined 130 basis points from 37.8% in the fourth quarter of 2020 primarily due to the higher material and other costs, partially offset by benefits from RCI initiatives. While pricing actions have been taken in this segment to help offset the increasing cost, the longer-term nature of certain customer agreements affects the timing of price realization. Operating expenses as a percentage of sales of 22.5% in the quarter compared to 22.4% last year. Operating earnings for the C&I segment of $50.1 million compared to $56.2 million last year. The operating margin of 14% compared to 15.4% a year ago. Turning now to Slide 8. Sales in the Snap-on Tools Group of $504.8 million increased 2% from $494.9 million in 2020, reflecting a 1.6% organic sales gain and $2 million of favorable foreign currency translation. The organic sales increase reflects a low single-digit gain in our U.S. business, partially offset by a low single-digit decline in our international operations. Net sales in the period increased 22.6% from $411.7 million in the fourth quarter of 2019, reflecting a 21.5% organic sales gain and $3.9 million of favorable foreign currency translation. Sales gains in the quarter were led by our hand tools category with strong performance sequentially as well as versus both the fourth quarters of 2020 and 2019. Gross margin of 43.9% in the quarter improved 100 basis points from last year, primarily due to the higher sales volumes, pricing actions and 60 basis points from favorable foreign currency effects which offset higher material and other costs. Operating expenses as a percentage of sales of 22% improved from 24% last year, primarily reflecting the higher sales and benefits from ongoing RCI and cost containment efforts. Operating earnings for the Snap-on Tools Group of $110.5 million compared to $93.6 million last year. The operating margin of 21.9% improved 300 basis points from 18.9% last year. Turning to the RS&I Group shown on Slide 9. Sales of $392.5 million compared to $361.1 million a year ago, reflecting a 5.5% organic sales gain and $12.2 million of acquisition-related sales, partially offset by $500,000 of unfavorable foreign currency translation. The organic gain is comprised of a double-digit increase in sales of undercar equipment and a mid-single-digit gain in sales of diagnostic and repair information products to independent shop owners and managers, partially offset by a low single-digit decrease in sales to OEM dealerships. Also during the quarter, the RS&I Group continued to benefit from the increasing number of monthly software subscribers for its aftermarket and dealership repair shops. As compared to 2019 levels, net sales increased $57.5 million from $335 million, reflecting a 13% organic sales gain, $12.2 million of acquisition-related sales and $1.6 million of favorable foreign currency translation. Gross margin of 46.1% was unchanged from last year as benefits from pricing actions and 60 basis points from acquisitions were offset by higher material and other costs. Operating expenses as a percentage of sales were 21.3% compared to 21.2% last year, primarily due to 150 basis points of unfavorable acquisition effects, partially offset by the impact of higher sales and 30 basis points from lower expenses related to $1 million of restructuring costs that were recorded in the fourth quarter of 2020. Operating earnings for the RS&I Group of $97.2 million compared to $90 million last year. The operating margin of 24.8% compared to 24.9% a year ago. Now turning to Slide 10. Revenue from financial services of $86.9 million decreased $6.5 million from $93.4 million last year, primarily as a result of an additional week of interest income occurring in the 53rd 2020 fiscal year. Financial services operating earnings of $67.2 million compared to $68.5 million in 2020. Financial services expenses of $19.7 million were down $5.2 million from 2020 levels, primarily due to $5.6 million of decreased provisions for credit losses resulting from favorable loan portfolio trends, including reduced year-over-year net charge-offs which support lower forward-looking estimated reserve requirements. As a percentage of the average portfolio, financial services expenses were 0.9% and 1.4% in the fourth quarter of 2021 and 2020, respectively. In the fourth quarters of both 2021 and 2020, the average yield on finance receivables was 17.7% and the average yield on contract receivables was 8.5%. Total loan originations of $256.3 million in the fourth quarter decreased $16.1 million or 5.9% from 2020 levels, reflecting a 3.6% decrease in originations of finance receivables and a 16.6% decrease in originations of contract receivables. Last year's extra week in the quarter contributed approximately $10 million of finance receivable originations. As a reminder, revenues in the quarter are generally dependent on the average size of the financing portfolio rather than originations in any one period. Moving to Slide 11. Our quarter end balance sheet includes approximately $2.2 billion of gross financing receivables, including $1.9 billion from our U.S. operation. The 60-day plus delinquency rate of 1.6% for U.S. extended credit compared to 1.8% in the fourth quarter of 2020. On a sequential basis, the rate is up 20 basis points, reflecting the typical seasonal increase we experienced between the third and fourth quarters. As it relates to extended credit or finance receivables, trailing 12-month net losses of $41.1 million represented 2.38% of outstandings at quarter end, down 24 basis points as compared to the same period last year. Now turning to Slide 12. Cash provided by operating activities of $222.7 million in the quarter reflects 97.2% of net earnings and compared to $317.6 million from last year. The decrease from the fourth quarter of 2020 primarily reflects higher cash payments for income and other taxes, an $85 million increase in working investment, partially offset by higher net earnings. The change in working investment is largely driven by increased receivables and higher levels of inventory this year versus a reduction of inventory in 2020. The increase in inventory primarily reflects higher demand as well as incremental buffer stocks and expanded levels of in-transit inventories associated with the supply chain dynamics in the current macro environment. Net cash used by investing activities of $23.8 million included net additions to finance receivables of $9.7 million and $16.3 million of capital expenditures. Net cash used by financing activities of $154.1 million included cash dividends of $76.1 million and a repurchase of 355,000 shares of common stock for $75.5 million under our existing share repurchase programs. As of year-end, we had remaining availability to repurchase up to an additional $454.9 million of common stock under existing authorizations. The 2021 full year free cash flow generation of $872.6 million represented about 104% of net earnings. Turning to Slide 13. Trade and other accounts receivable increased $41.6 million from 2020 year-end. Days sales outstanding of 58 days compared to 64 days at 2020 year-end. Inventories increased $57.3 million from 2020 year-end. On a trailing 12-month basis, inventory turns of 2.8x compared to 2.4x at year-end 2020. Our year-end cash position of $780 million compared to $923.4 million at year-end 2020. Our net debt-to-capital ratio of 9.1% compared to 12.1% at year-end 2020. In addition to cash and expected cash flow from operations, we have more than $800 million available under our credit facilities. As of year-end, there were no amounts outstanding under the credit facility and there were no commercial paper borrowings outstanding. That concludes my remarks on our fourth quarter performance. I'll now briefly review a few outlook items for 2022. We anticipate that capital expenditures will be in the range of $90 million to $100 million. In addition, we currently anticipate, absent any changes to U.S. tax legislation, that our full year 2022 effective income tax rate will be in the range of 23% to 24%. So, I'll now turn the call back to Nick for his closing thoughts.

Thanks, Aldo. That's our fourth quarter. Positive performance, overcoming challenges as we expect to do. In these times of turbulence, we continue to rise based on the resilience of our markets, vehicle repair expanding at the shop level, techs pumped and garages optimistic, overcoming the postponement of essential OEM programs. Critical industry is mixed but with promising areas, gains in general industry, natural resources, and education, and progress in emerging markets. Difficulties are in the air but we're able to prosper nonetheless on the power of our strategic position, controlling the customer interface with our wide product line and unique brand. And perhaps most importantly, we rose on the consistent and capable execution by our team, employing agile marketing, considered active pricing, new and higher-value products, quick redesigns to match available materials, aggressive spot buying, and as always, our ongoing RCI. It's a combination that offers another positive performance and has all spelled out clearly in our numbers. Sales rising organically over prepandemic levels by 13% with the last four periods, up organically 8%, 9%, 11%, and 13%, expanding the gain over 2019, demonstrating a positive second derivative in the rising sales quarter-by-quarter. Opco OI margins of 21%, a record high in the midst of multiple challenges, up 90 basis points from last year and up substantially more from 2019. And it all came together for an EPS of $4.10, up 7.2% from last year and 33% from the prepandemic period, leading to a full year EPS of $14.92, new heights despite the storm. It was an encouraging quarter and a year. The period clearly had challenges but we were able to overcome maintaining our progress, extending our upward trend. And we believe that Snap-on exits 2021 with substantial momentum that will carry us forward. And as we mine the abundant opportunities of our resilient markets, we held the advantages of our unique strategic position and engage the considerable capabilities of our challenged-tested team. We'll continue to track progress throughout 2022 and well beyond. Now before I turn the call over to the operator, I'll speak directly to our franchisees and associates. Many of them are listening to this call. My friends, you are the base of the success we've registered this quarter and this year. For the extraordinary progress you achieved, you have my congratulations. For the unique individual and collective capabilities you brought to bear against the challenges, you have my admiration. And for the commitment you bring to our now and the conviction you hold in our future, you have my thanks. Now, I'll turn the call over to the operator.

We'll take our first question from Scott Stember with CL King.

Hi, good morning, guys and thanks for taking my questions.

Good morning, Scott.

To better frame things out, obviously, as the comparisons are getting more difficult, can you maybe talk about, in the Tools Group, in the U.S., on a two-year stack and maybe also sort of flush it out by tools and some of the other segments?

The Tools Group has been performing well, showing growth for six consecutive quarters with an increase of over 21% this quarter. They are well-positioned during this turbulent time, benefiting from a diverse product line and strong brand presence that allows them to effectively engage with customers. This enables them to introduce valuable new offerings that appear to be enhancements rather than just price hikes, as customers are willing to pay for additional features. Their agile marketing approach allows them to adapt to supply chain challenges by promoting products that have ample supply. The group is also efficiently managed due to vertical integration, which has helped them achieve impressive numbers. In terms of profitability, they are doing well, and past investments in selling capabilities are starting to pay off with consistent growth. Currently, we are exploring further potential to sustain this positive trajectory, particularly through improved social media and training strategies. As for RS&I, although it has seen some fluctuation in margins, it experienced a 5.5% organic growth this quarter, buoyed by a positive trend in independent repair shops and an increase in subscription-based software services. C&I faces more challenges due to mixed market conditions across different sectors and countries. Some regions, especially in Europe, have struggled, and while customized toolkits have high margins, their delivery can be disrupted by sourcing issues. The military segment within C&I remains weak, but we anticipate a rebound. Overall, we are optimistic about the Tools Group, see RS&I improving, and expect C&I to maintain steady sales as we enhance our management strategies.

Got it. And just last question. This seems to be the first quarter that we've heard about or any quasi meaningful impact from supply chain. Can you maybe talk about that? And any further mitigation efforts that you guys could put through, whether it's RCI or anything else?

Let me clarify that when I focused on Commercial and Industrial, I mentioned supply chain issues. However, our perspective is that there will always be challenges. Our numbers show a 15% increase, or 13% over prepandemic levels, with a 21% operating income margin. If you examine these figures, there isn’t much turbulence reflected in them. We believe we are managing well through any issues. While it is difficult to predict the future, we expect to improve as we move forward. Currently, we excel at agile marketing, product redesign, and spot buying, which helps us avoid significant disruptions. We will address specific areas of disruption, but overall, we are not experiencing major problems. For instance, in tool storage, we would be able to sell more if we could increase production, and we are actively working on that. Therefore, I disagree with the notion that we are being adversely affected by these challenges. We are handling the situation effectively, and the numbers indicate that we had a strong quarter, regardless of any perceived turbulence.

Got it. Thanks for the color. That's all I had.

And we'll take our next question from Bret Jordan with Jefferies.

Hey, good morning, guys.

Good morning.

Good morning, Bret.

You called out, I guess, some of the pricing contracts in C&I as obviously, costs of everything have gone up versus the prices you received. Could you talk maybe about the magnitude and the timing of some of the pricing resets that you have going forward?

Yes, they're quite varied by segment. Our point is that the commercial and industrial sector operates on a longer timeline. This means we have commitments with some customers, but not all, which leads to some impact. We are seeing some pricing increases in this sector, but not compared to other areas. The focus for us isn't primarily on pricing; it's more about managing costs. The disruptions we are experiencing are largely related to the custom kitting situation and the challenges in delivering those products, which has significantly affected volumes, especially in critical industries.

Okay. great. And then within the OE business, was there any improvement in cadence as we got through the quarter? Obviously, some of the OEs on the auto side are talking about some improvement in supply chain but did you see any change in their buying patterns as the quarter progressed?

Yes, their fourth quarter was quite poor. It was a challenging time for those companies. In terms of projects, we didn't notice a significant change in cadence; in fact, many new models with updated features are expected to launch soon, and we didn't observe any shift in pace during the quarter. While I may be somewhat cautious in stating this, my overall perspective is that it was a hard quarter for the auto manufacturers. Moving forward, things should improve, and some of these new offerings will become available. We are already engaged with some of these products and are simply waiting for their release. From what I've seen at the dealership level, repair operations are thriving, leading to dealerships investing in equipment. There has been a noticeable increase in our RS&I business, particularly in undercar equipment for repair shops and collision-related services. Additionally, dealerships are purchasing software from us, which is promising. However, regarding the programs from the original equipment manufacturers, it's uncertain when those will materialize. What we do know is that there exists a backlog that will benefit us once it is resolved.

Okay, great. And then one final question. I guess you called out hand tools as strong in the Tools Group a couple of times. Did you say what the spread was sort of hand tools relative to storage and diagnostics?

I did not.

Why did not?

I want to move away from discussing the numbers by product line in the Tools Group. To us, those specifics are not essential. The Tools Group registered a 21.9% margin. Hand tools contributed to that, but the larger products also showed growth during that time. Tool storage and diagnostics increased as well. Hand tools currently receive attention because we are more vertically integrated. Essentially, when a hand tool arrives, we only add steel, capital, and labor. It has performed strongly over various periods. I prefer not to dive deeper into that. I just want to acknowledge that hand tools were a solid product, as were diagnostics, and we also saw growth in tool storage.

Okay, great. Thank you.

Great.

We'll take our next question from Luke Junk with Baird.

Good morning, thanks for taking my questions. First question, Nick, I wanted to ask a follow-up on something that you mentioned a couple callers ago, and that's regarding the investment spending past year as we begin '22 or maybe even more broadly as we go through the next few years at this stage of the cycle. You've been steadfast about maintaining the rate of investment in the Tools Group, in particular and you referenced plumbing to death of these capacity creation initiatives from here. Just wondering if you're able to talk about any new focus areas, or within the capacity creation initiatives where we might see the company push a little incrementally in '22?

We are definitely reviewing how we source and what additional capacity we need in our factories. However, I don't believe this will distort our financials. I want to clarify that I didn't mean the operating expenses would dramatically increase. Previously, our operating expenses were higher because we were investing considerable effort in various areas to identify what would resonate with the Tools Group. Currently, our operating expenses are at a comfortable level. While they may rise slightly, it won't be significant. We plan to invest more in social media because we've gained valuable insights there. We have extensive data on our franchisees and customers, and we believe we can improve our predictive capabilities. We're actively exploring this, and although I don't have specific updates, we have detailed data similar to our Mitchell-type SureTrack information for cars, which we can leverage to enhance the effectiveness of the Tools Group. This will enable our teams to make better decisions when engaging with customers, and that's one of the key areas we're focusing on.

Okay. And then I want to ask a bigger picture question as a follow-up. Thank you for that. Dealer FX was, I think, approaching the one-year anniversary of that acquisition. I don't know if you could talk about progress in year one under the company's ownership? And looking forward, more importantly, should we expect to hear more about this business in the future as a complementary software platform sitting alongside Mitchell 1 in that dealership environment? Thank you.

Sure. I think that's why we acquired it for two reasons. First, from a financial standpoint, it closely resembles Mitchell 1. I'm sure you're aware of Mitchell 1, as we've been discussing the growth of our diagnostics and software in independent repair shops almost every quarter since I joined. Their trajectory continues to rise. Mitchell 1 understands that interface well, and we're leveraging that proven expertise to apply it to Dealer FX. Over time, we anticipate similar success there. While I’m not guaranteeing it will be as successful as Mitchell 1, it will certainly be a solid business. You’ll see its financial impact, but it's also strategically important for us because it offers insight into emerging technologies. These innovations will drive our future development decisions, and we'll observe their impact first through Dealer FX. You'll hear more about this in the future. However, it's still early in this process; it's our first year, and there are challenges to navigate. Regarding Canada, I believe Justin Trudeau recently contracted COVID, which could affect activities there. Nonetheless, Dealer FX performed well this quarter, and we're managing our expectations for it. You'll hear more as we progress, as it will be significant for us both strategically and financially.

Great. Well, yes, I appreciate that it's still early days there. That's great color and I'll leave it there.

Okay. Sure.

We'll take our next question from Liz Suzuki with Bank of America.

So this one is for Aldo. I guess could you just talk about the inflation impact that you expect through the course of the year and how the cadence of that could work out with the dynamic of cost and price and how that would impact the P&L?

Well, certainly, of course, everybody is talking more about inflation than in the past and Snap-on is not immune from that. However, Liz, I think it is something we manage and strive. First, we always look for alternative ways to reduce cost, whether that be alternative sourcing, alternative componentry, rapid continuous improvement to get some productivity. And of course, if we can't cover that, then we look for pricing actions to help us out. We do believe we have pricing power personified by the Tools Group. And then as Nick already has said, we get pricing over time in the commercial-industrial group and repair systems and information in light of the fact that they have longer-term customer agreements. So, we don't immediately just put pen to paper and say, oh, it's got to be this pricing. We try and strive to see what we can offset internally. At the same time, we're cognizant of the new features we always bring to market. So rather than bring a price increase to market, our preference is, can we bring a higher-featured product to market and talk more about that feature, even though it might cost more to the customer. We try to create that vision as there's more productivity being brought to market. So that's kind of our broad-based approach. So yes, there's more inflation but we'll continue to try to bring more innovation and more value add for the customer.

Great. And I guess second question is just on priorities for capital. I mean, your net debt-to-capital ratio came down about three percentage points since last year. It's at a historically low level. What are you thinking about for this upcoming year and beyond in terms of where your priorities lie?

I believe our priorities remain aligned. We are committed to investing in our business, as we see that as the best way to provide returns for our people, investors, and stakeholders. If there are opportunities to invest in new activities, we will pursue those. Additionally, we have a robust pipeline of potential acquisitions that we are evaluating. I believe that, given the current turbulence, opportunities for acquisitions may become more accessible. We are focused on a few prospects that have potential for movement and are open to both large and small deals. Our Board has also approved an additional $500 million for share buybacks. We are committed to our dividend policy, having paid dividends consistently since 1939 without ever reducing the amount. We frequently assess the appropriateness of increasing the dividend. These are the key areas we are considering as we navigate a year marked by uncertainty, possibly presenting us with opportunities.

Great, thank you. It's very helpful.

And we'll go to our next question from David MacGregor with Longbow Research.

Hi, good morning, everyone. Nick, it's encouraging to hear you leaning a little more into the data analytics. So I think that has the potential to move the needle. So congratulations on that initiative. I guess to start off with, what do you think sales of the truck were up year-over-year?

I would say it's about the same as the Tools Group, roughly in the same range. Over the past two years, there have been some quarter-to-quarter differences, but overall, they have remained consistent. This quarter reflects that trend as well, although there are some factors to consider with the 53rd week and franchisees possibly ordering a bit more than usual. Generally, the inventory for the Tools Group appears to be holding steady.

Got it. And then just still on the Tools Group, you talked about the 300 basis points of operating margin improvement. About 200 basis points of that came out of SG&A and 60 basis points was FX. So clearly, it feels like the price-cost pressures that everybody else in the world seems to be feeling are coming home to roost at Snap-on as well. Go ahead.

We find that maintaining gross margins is a typical situation in this environment.

Well, I'm just trying to understand the price cost pressure.

It's like this. We are experiencing pressures from various factors affecting both our gross margin and SG&A. Our perspective on the operating income margin generally indicates an improvement of up to 300 basis points, which is not bad. While the gross margin may have increased less than the operating earnings, both are showing reasonable gains compared to prepandemic levels, specifically around 100 and 200 basis points. I believe these improvements are significant in today's environment. Although there are challenges with supply and sourcing, we are managing them effectively without sacrificing anything.

As you look ahead to 2022, Nick, you mentioned the opportunity to raise pricing within the tools segment, as well as the chance to introduce products with better margins. Can you share your thoughts on how you plan to balance these two opportunities? Are you more inclined to focus on pricing first, and then enhance that with improved margin products, or the other way around?

I believe that if we lean towards new products, we should be cautious about that approach. It's important to recognize that costs are definitely impacting our numbers this quarter. We are managing these costs through pricing strategies. Sometimes people overlook the number of new products we launch; we introduce two to three dozen impactful products each quarter, which provides us with significant opportunities. Our experience enables us to handle this effectively. Our team understands how to navigate this situation by combining direct pricing, promotions, and new product launches, which helps us maintain our strategic position. We are not being passive in our approach at all.

I wanted to ask about the 6% drop in originations. I've also noticed that the yield on the portfolio is decreasing slightly. Are you observing changes in how new technologies are utilizing credit? Or is some of this due to the substitution of RA credit, resulting in a loss of share to your franchisees in the credit market? Additionally, how much of this could be attributed to alternative sources of credit, as has been discussed by others?

I was recently with the franchisees at the kickoff event in Omaha. Our franchisees believe we are not losing market share to other alternative sources. They feel that these other providers are in a strong financial position, which allows them to offer better rates. According to the BLS data, investment in repair services has increased significantly year-over-year, both in nominal and real terms, and technician wages have risen over 5% year-over-year. Additionally, the number of technicians is on the rise. This shows a growing group of individuals who are financially secure and prefer to stay with us rather than incur debt. This is beneficial because it indicates that they have the ability to manage debt when necessary. One aspect to consider is the impact of the 53rd week last year, which typically alters our calculations. Even if franchisees take a brief hiatus, they will likely generate higher year-over-year originations because these transactions occur in the field eventually. The exact impact is unclear, but it is something to consider, and I don’t believe it is an unusual occurrence.

The credit origination is down 16%. Can you discuss what might have contributed to that?

I would say that considering the $10 million I mentioned and the extra week we had, we would have likely seen a slight increase in the U.S. market, although there was a slight decline internationally. The international market isn't as strong as the U.S., and we noted that our sales in the U.S. were higher compared to international sales. If we look at contract originations, in 2020 we had more new startups, but the current environment with our franchisees is more stable, leading to fewer startups, particularly in the international segment. When new franchises are started, many franchisees prefer to lease vans and borrow from Snap-on credit, which could impact us. I don't want to downplay this issue. It's important to remember that we are still in an uncertain environment, and historically, people tend to purchase lower-priced items until things become more stable. As a result, I don't believe that tool storage has performed as well as what we see in revolving credit accounts, which suggests more activity there.

That makes sense. Last question for me is just with respect to the share repurchase activity and you talked about the fact that you just had another authorization from the Board. But activity in the fourth quarter really didn't change much year-over-year, roughly in that $70-odd million. A good number for the full year, by the way. So good activity there. But how do we think about share repurchase here? And why wouldn't you step up and just get a lot more aggressive here in terms of buying back your stock at these levels?

Well, we always think of things like that. But if you look at the funnel of time, it averages between 2% and 3% of the outstanding share count, more or less. And it's hard to be an expert in this market. I have no idea if the advertising revenues of Facebook will impact Snap-on the next day when I get up and things of that nature and I'm being extreme of that example. But we try to take a measured approach to it. It has its role. It's not the only solution in terms of how to use cash.

Okay, great. Thanks very much, gentlemen.

Welcome, David.

That concludes today's question-and-answer session. Ms. Verbsky, at this time, I will turn the conference back to you for any additional or closing remarks.

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

This concludes today's call. Thank you for your participation. You may now disconnect.