Good morning, and welcome to the Snap-on Incorporated 2024 First Quarter Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Sara Verbsky, Vice President, Investor Relations. Please go ahead.

Thank you, Gary, and good morning, everyone. We appreciate you joining us today as we review Snap-on's first quarter results, which are detailed in our press release issued earlier this morning. We have on the call, Nick Pinchuk, Snap-on's Chief Executive Officer; and Aldo Pagliari, Snap-on's Chief Financial Officer. Nick will kick off our call this morning with his perspective on our performance, followed by a more detailed review of our financial results by Aldo. After Nick provides some closing thoughts, we'll take your questions. As usual, we've provided slides to supplement our discussion. These slides can be accessed under the Downloads tab in the 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.

Thanks, Sara. Good morning, everybody. As usual, I'll start with the highlights of our first quarter. I'll provide my perspectives on the results, on our markets and our path ahead. After that, Aldo will give you a detailed review of the financials. We believe that our first quarter once again demonstrated Snap-on's ability to maintain its strength to engage headwinds, manage challenges and leverage the multiple opportunities of our markets. Looking at the results in total, we are encouraged. Like most quarters, we had turbulence from geography to geography and from operation to operation. North America was mixed, but with significant gains in critical industries. Internationally, our consolidated results were also mixed, but yielding overall positives as our operations in Europe and Asia overcame the effects of recessions in Europe and the delayed recovery in China. Now the results: First quarter sales were $1,182.3 million, about flat to last year on an organic basis, excluding $6.7 million from acquisitions and $2.5 million from favorable foreign currency, our sales were lower by 0.8%. OpCo OI was $270.9 million, an increase of $11.1 million, and the OpCo operating margin for the quarter was 22.9%, up 90 basis points. Both those numbers benefited from the legal payment referenced in our release. But with or without that legal flow, our first quarter OpCo OI and the margin were among our best. It's a strong statement given the turbulence of the day. Financial Services operating income grew to $68.3 million from last year's $66.3 million, and the results combined with OpCo to raise our consolidated operating margin to 26.5%, up over the 25.6% recorded last year. And EPS was $4.91, including a per share benefit from a legal payment of $0.16, but up $0.31 or 6.7% from last year. So those are the numbers. Now let's turn to the markets and the trends we're seeing as we connect with our customers. From an overall perspective, we believe the automotive repair arena remains favorable. Vehicle OEMs and dealerships continue investing in tools and equipment, preparing for the tie to new models, bringing the latest technology and drivetrains to the market. In the quarter, our Repair Systems & Information Group, or RS&I, as we call it, expanded our reach into OEM programs and took advantage of the opportunities throughout its global footprint. As we look forward, we see further prospects for RS&I capitalizing on that trend, supplying dealerships and independent garages with just the products they need to confront the wave of modern platforms that are coming. So the shops are strong. Now let's speak of the technicians, the individuals that use the wrenches, punch the keys, or tap the screens. This quarter, I had multiple occasions to visit with franchisees. The report was generally that shops are humming, the bays are running at full capacity, and all that mirrors what the macro data says naturally. The car park is continuing to age, now at an average of 12.5 years, and I think moving up. Technician wages are rising, and hours worked are increasing. We believe it all signals ongoing and robust demand for repair. The activity is strong, but there is a difference between the industry overview and the technician outlook for the future and, by extension, their purchasing sentiment. The barrage of bad news, inflation, uncertainty about current events, and the fear of what's coming around the corner impacts outlook. Paraphrasing characters from Dune, fear is the outlook killer. It erodes confidence. Technicians are well-positioned, and they continue to invest but it's in quick payback items that will make a difference right away and don't require a long-term payment stream. In response, we're continuing to redirect the Tools Group focus in our design efforts and our selling and marketing efforts, working to match the current customer preferences. So that's the auto repair. Now our Commercial and Industrial Group, or C&I, serving critical industries is the most international of all our groups. In the quarter, C&I managed the difficult challenge of balancing multiple economies that are in economic turbulence. Europe has more than half a dozen countries in technical recession, and China, along with nearby countries, continues to struggle. India, on the other hand, is booming. Modi has the train running. So that's a positive in Asia amidst some very difficult economies. So that's the geographies. Now let's focus on the sectors. Areas like aviation continue to be strong. You don't have to read the papers for long to realize there's a significant focus on aerospace production and repair, where the price for failure is high. That arena is increasing demand for our precision torque products and our asset control solutions to improve safety and productivity. In addition, within that critical arena, custom kits matching a set of items to a particular task is an important business, especially for the military, both domestically and internationally. Critical industries is a substantial opportunity, and we are investing, expanding capacity, and adding new products either organically or through the acquisitions we made over the last few years, fortifying our runways for growth and extending outside the garage. Overall, the quarter was favorable despite the headwinds. The Tools Group pivoted, RS&I expanded with OEMs, C&I extended beyond the garage, proving the critical nature of our offerings. The OpCo OI percentage demonstrated once again the power of Snap-on’s value creation processes through safety, quality, customer connection, and innovation, developing solutions born out of insight and observations right in the workplace. This understanding melded with RCI helps Snap-on to hold fast in the turbulence of the day. That covers the macro overview. Now let's move to the segments. In the C&I Group, sales were $359.9 million, representing a decrease of $3.9 million or 1.1%, which includes $6.7 million in acquisition-related sales, $1.4 million in unfavorable foreign currency, and an organic decline of 2.5%. It reflects higher activity with customers in critical industries, more than offset by weakness in Asia-Pacific and in our power tools. From an earnings perspective, C&I operating income was $55.4 million, about the same as last year. The operating margin was 15.4%, up 10 basis points, and that was despite a 30 basis point headwind from currency and acquisitions. Within the quarter, the demand for custom kits addressing specific critical tasks remained robust with increased demand for control solutions like our Automated Tool Control products. Power tools were down in the quarter, but help is on the way. New power tool models born out of customer connection were recently introduced, fulfilling specific needs for repair garages. This includes the PH3045B AirHamer, a tool that replicates the effect of swinging a hammer with tremendous productivity enhancements. It features an easy-to-use retainer that securely holds a chisel while the piston hammers away, making it efficient and effective in tight spaces. We are encouraged by these innovative new products. Lastly, the RS&I group saw sales of $463.8 million, up $17.2 million or 3.9% versus last year, with an organic sales increase of 3.3%. The operating earnings for the group reached $112.9 million, reflecting an increase of $8.3 million or 7.9% versus last year. The operating income margin was 24.3%, rising by 90 basis points, driven by OEM-related activity and sales in undercar, preparing shops for new technologies. Overall, we believe Neo is positioned to support repair shops and will continue expanding our reach.

Thanks, Nick. Our consolidated operating results are summarized on Slide 6. Net sales of $1,182.3 million in the quarter compared to $1,183 million last year, reflecting an 0.8% organic sales decline, partially offset by $6.7 million of acquisition-related sales and $2.5 million of favorable foreign currency translation. Activity in our automotive repair markets was mixed, with gains in sales to OEM and independent shop owners and managers more than offset by lower sales to technicians through our franchise van channel. Within the industrial sector for our C&I group, sales to customers in critical industries were up mid-single digits in the quarter as compared to last year. Consolidated gross margin of 50.5% improved 70 basis points from 49.8% last year, primarily reflecting benefits from lower material and other costs and savings from the company's RCI initiatives. Operating expenses as a percentage of net sales of 27.6% compared to 27.8% last year. In the quarter, as noted in our press release, operating expenses included an $11.3 million benefit for payments received associated with a legal matter. The 20 basis point improvement in the operating expense ratio is primarily due to the benefit from the legal payment, partially offset by increased personnel and other costs, which includes a 20 basis point impact from acquisitions. Operating earnings before financial services of $270.9 million in the quarter, including the benefit from the legal payment, compared to $259.8 million in 2023. As a percentage of net sales, operating margin before financial services of 22.9% compared to 22% last year. Financial services revenue of $99.6 million in the first quarter of 2024 compared to $92.6 million last year, while operating earnings of $68.3 million compared to $66.3 million in 2023. Consolidated operating earnings of $339.2 million, which included the legal benefit compared to $326.1 million last year. As a percentage of revenues, the operating earnings margin of 26.5% compared to 25.6% in 2023. Our first quarter effective income tax rate of 22.2% compared to 23.1% last year. Net earnings of $263.5 million or $4.91 per diluted share, including an $8.8 million or $0.16 per diluted share after-tax benefit from the legal payment compared to $248.7 million or $4.60 per diluted share in the first quarter of 2023. Now, let’s turn to our segment results for the quarter, starting with the C&I group. Sales of $359.9 million compared to $363.8 million last year, reflecting a 2.5% organic sales decline and $1.4 million of unfavorable foreign currency translation, partially offset by $6.7 million of acquisition-related sales. The organic decrease is primarily due to a double-digit reduction in the power tools business and a high-single-digit decline in the segment’s Asia-Pacific operations mostly associated with lower intersegment sales. These declines were partially offset by a mid-single-digit gain in sales to customers in critical industries. With respect to critical industries, military and defense-related sales were robust, as was activity in the aviation sector. Gross margin improved 200 basis points to 40.8% in the first quarter from 38.8% in 2023. This is largely due to increased volumes and the higher gross margin in the critical industry sector. Lower material costs and other cost savings from RCI initiatives contributed to this. Operating expenses as a percentage of sales rose 190 basis points to 25.4% in the quarter from 23.5% in 2023, primarily due to the effects of lower sales volumes, investments in personnel and other costs, and a 70 basis point impact from acquisitions. Operating earnings for the C&I segment were $55.4 million compared to $55.8 million last year, with an operating margin of 15.4% compared to 15.3% in 2023. Turning now to sales in the Snap-on Tools Group of $500.1 million compared to $537 million a year ago, reflecting a 7% organic sales decline, partially offset by $600,000 of favorable foreign currency translation. The organic decrease reflects a high single-digit decline in our U.S. business, partially offset by a mid-single-digit gain in our international operations. Gross margin improved 90 basis points to 48.2% in the quarter from 47.3% last year. This improvement primarily reflects decreased sales of lower gross margin products. Operating expenses as a percentage of sales rose 190 basis points to 24.7% in the quarter from 22.8% in 2023, largely due to the lower sales volume. Operating earnings for the Snap-on Tools Group were $117.3 million compared to $131.7 million last year, with an operating margin of 23.5% compared to 24.5% in 2023. Turning to the RS&I Group, sales of $463.8 million compared to $446.6 million in 2023, reflecting a 3.3% organic sales gain and $2.5 million of favorable foreign currency translation. The organic increase includes a high-single-digit increase in activity with OEM dealerships and a low-single-digit gain in sales of undercar equipment. Gross margin improved 150 basis points to 45% from 43.5% last year, primarily due to benefits from lower material and other costs and savings from RCI initiatives. Operating expenses as a percentage of sales rose 60 basis points to 20.7% from 20.1% last year, primarily reflecting increased personnel and other costs. Operating earnings for the RS&I Group were $112.9 million compared to $104.6 million last year, with an operating margin of 24.3% compared to 23.4% reported last year. Finally, revenue from financial services increased $7 million or 7.6% to $99.6 million from $92.6 million last year, primarily reflecting growth of the loan portfolio. Financial Services operating earnings were $68.3 million compared to $66.3 million in 2023. Financial services expenses rose $5 million from 2023 levels, including $4.3 million of higher provisions for credit losses. In the first quarters of both 2024 and 2023, the average yield on finance receivables was 17.7%. In the first quarter of 2024 and 2023, the average yields on contract receivables were 9% and 8.7%, respectively. Total loan originations of $301.7 million in the first quarter represented an increase of $800,000 or 0.3% from 2023 levels. Increased originations of contract receivables were mostly offset by a low single-digit decline in extended credit originations. Moving to our quarter-end balance sheet, we include approximately $2.5 billion of gross financing receivables, with $2.2 billion from our U.S. operation. For extended credit or finance receivables, the U.S. 60-day plus delinquency rate of 1.8% is up 30 basis points from the first quarter of 2023 but unchanged from the rate reported last quarter. Trailing 12-month net losses for the overall extended credit portfolio of $54.1 million, representing 2.75% of outstandings at quarter-end, which is up 16 basis points from the end of last quarter. Considering the current environment and despite these slight upward trends, we believe the delinquency and portfolio performance metrics remain relatively stable. Cash provided by operating activities of $348.7 million in the quarter represented 129% of net earnings and compared to $301.6 million last year. The improvement as compared to the first quarter of 2023 largely reflects lower year-over-year increases in working investment, which included a reduction in inventory during the quarter as well as higher net earnings. That concludes my remarks on our first quarter performance.

Thanks, Alan. Well, that's the first quarter. Strength amidst turbulence. Even with a part of the enterprise below standard, you see Snap-on is a business that reaches varied customers in different industries and in various geographies united in coherence that is the criticality of work, the essential nature of what we do. We have opportunity and advantage in virtually all of those arenas. As a consequence, even when the largest of our entities is not to standard, we find ways to maintain overall strength. It's that coherent strategic breadth and the experience and capability of our team to execute that has made Snap-on so resilient, moving consistently upwards for all these years, and this quarter was another demonstration of that resilience. C&I engaging economic challenges across geographies, extending to critical industries, proving that Snap-on can roll out of the garage, exploiting considerable opportunity, and do it profitably. The Tools Group acting to adapt, committing to accommodate the tech's preferences for quick payback products and doing it with still enviable margins. In fact, with gross margins up 90 basis points showing the promise of their pivot. RS&I is seeing opportunities with repair shop owners and managers and making the most of it despite the challenges in Europe, with volume and margins growing in a very imperfect environment. The credit company is working against the grain of short payback preferences and still raising profit. It all came together to keep activity flat despite the difficulties, registering an Opco operating margin of 22.9%, up 90 basis points, and to record an EPS of $4.91, numbers that are among our strongest results with or without the legal benefit. As such, we look ahead with confidence, fortified by our inherent product advantages, deep, wide, and growing, solving more critical tasks every day, advantages in our brand. Snap-on is the outward sign of pride, working men and women taking their jobs. And with our people, committed, capable, and turbulence-tested many times this team knows how to drive positives from the difficult. Fueled by these advantages, we believe Snap-on will maintain its strength, moving positively throughout 2024 and well beyond. Now before I turn the call over to the operator, I want to speak directly to our franchisees and associates worldwide. The first quarter was a resilient and robust demonstration of Snap-on strength against challenge. It all reflects your extraordinary effort to make it solid. For your contributions to the results, you have my congratulations. For the special capabilities you bring to bear on behalf of our team every day, you have my admiration. And for the unshakable belief you consistently display in our future, you have my thanks. Now I’ll turn the call over to the operator.

Our first question today comes from Scott Stember with Roth MKM. Please go ahead.

Good morning and thanks for taking my questions.

Good morning, Scott.

Nick, it sounds like within tools that power tools was the weakest. Could you maybe quantify that and talk about how the other sub-segments like tool storage, diagnostics, and hand tools are performing?

Power tools was down. The most interesting thing, power tools, faced a tough comparison. They had one of the bigger quarters last year. It actually was up sequentially. So we saw some movement there and the pivot towards shorter payback items versus where we were in the fourth quarter certainly contributed to the decline. Diagnostics was down, but one of the factors that helped profitability was that tool storage was up, and hand tools weren’t as afflicted as the others. The Tools Group for tool storage and hand tools has both distribution and manufacturer’s margin, explaining the impact of the current inventory dynamics. Tool storage was up, particularly in the lower end, which we’re pleased about because we’ve worked hard at the Algona plant to get more capacity in accessories and classic line items. Hand tools showed potential as we roll out more products going forward.

So some of the two new power tools you referred to; when do you think we’ll start seeing a shift in performance?

We introduced some of that at the end of the quarter. As the events progressed, we noted improvement. While I don't want to overplay this, sales improved as the quarter went on. I think we had some momentum towards the end, particularly with the Easter holiday period contributing. I think we’re encouraged by those developments. We have others coming in the second quarter. So I believe we’ll see improvement.

If you remove the intercompany pressure in RS&I and C&I, how did they do externally in terms of sales in the quarter?

If you take it organically, externally, C&I was up 2.2%, and RS&I was up almost 6%, 5.8%. So RS&I had a pretty good quarter, especially in the context of Europe where seven countries are struggling with recession. The hand tools business in Europe had a tough time, but the other segments performed well.

That's all I have for now. Thank you.

The next question is from Christopher Glynn with Oppenheimer. Please go ahead.

Thanks. Good morning, guys. Nick, nice descriptions on the NPIs. I was actually lagging a bit because I had that issue with the caliper pins on my Sequoia last time I fixed the brakes. So I don’t think the Sequoia was on your list, but you can add it.

We often see that. When we talk about short payback items, technicians acknowledge their practice in the past and realize that these tools will make a difference. It typically works out well for us.

I was wondering if you could contrast the decent strength from repair shops within the auto repair umbrella versus the technicians who are experiencing weaker confidence. Any insights?

We've observed this before. Similar to the financial recession and the COVID recovery, shops, in these instances, didn't experience as much disruption as technicians faced confidence challenges. For instance, during COVID, shops quickly adapted while technicians were uncertain about the future. With bad news permeating, technicians begin to feel apprehensive about what lies ahead, causing them to pull back on larger investment decisions. It can create a delay in their purchasing behavior, especially regarding non-essential tools.

Then, to continue, should we expect a couple of quarters to align as you pivot towards shorter payback items?

Exactly. While I’ve tasked the Tools Group to expedite this pivot, the timeframe for improvement remains uncertain, as reevaluating capacity and aligning our teams can present challenges. Nonetheless, we expect to see improvements moving forward, although I cannot pinpoint how quickly they will come.

Understood. Thank you, Nick.

The next question is from David MacGregor with Longbow Research. Please go ahead.

Good morning everyone.

Hey David.

I guess based on our work, we expected weaker confidence from technicians, but we also know you were more promotional than normal in the first quarter. Yet franchisees were not responding as effectively as anticipated. Going forward, do you plan to further raise the promotional discounts and incentives? Can you restore growth in the Tools segment in 2024, or should we expect continued decline?

I don't believe we were more promotional than usual in the first quarter, although I don’t track every single promotion. I don’t foresee altering our promotional strategy extensively. Our focus will be on developing short payback items. Promotions often reflect urgency; we prefer to ensure solid product functionalities are prioritized. We expect improvement but will not overcommit to promotional tactics.

Can you discuss the progress made this quarter with increasing manufacturing capacity? How did that affect top-line performance?

We made significant progress at our Algona plant in storage solutions, while possibly lagging slightly in other locations. Increased capacity alleviated pressures in some areas, although I cannot confirm significant implications for total volume growth in the immediate quarter.

In the last quarter, inventory putbacks from franchisee attrition negatively affected growth. Was there further franchisee attrition this quarter? Did inventory putbacks have a role in the negative growth?

There were indeed inventory putbacks, but possibly less than before. While some putbacks occurred, they were not quite as impactful. Rather, I suspect that accumulated uncertainty contributed to franchisees returning inventory.

On credit, I'm trying to make sense of flat originations in light of weaker Diagnostics sales. Could you clarify if revolving account transfers were a factor?

Revolving account transfers were not a significant factor. Overall credit participation and confidence remain stable despite lower sales of higher-ticket items, which we will continue to watch closely.

The next question is from Gary Prestopino with Barrington Research. Please go ahead.

Hi and good morning all.

Good morning, Gary.

Nick, can you help me out? The market for auto repairs is very strong, yet your power tools and diagnostics are down. Is this due to technicians having their needs met over recent purchases? Is that reflective of a lack of opportunity for innovation?

In diagnostics, we did sell quicker payback items. It was the higher-end products that didn't sell as well. In power tools, while the situation may seem worse, we also noted improvements sequentially. We anticipate steady demand, but technician activity may vary based on uncertainties in the economy.

You mentioned this happened before, during the Great Recession. Can you share how long it took to recover?

During COVID, it took about two quarters for technicians to adapt and regain confidence. In recessions, it varies, but we focus on ensuring the right products are available rapidly to support technicians' demand for what they need.

The next question is from Luke Junk with Baird. Please go ahead.

Yes. Good morning. Thanks for taking the questions. Can you share how much of this demand shift you've noticed from mechanics? What’s your gut feeling regarding the extent of control versus external market influences?

We've been vigilant about gathering feedback from franchisees. The feedback indicates a need for quick payback products, reflecting a cautious attitude toward larger purchases amidst economic uncertainty. We continue to devise products with technicians’ needs firmly in mind.

I appreciate the clarification on RS&I growth, especially regarding OEM dealerships amidst advancing technologies. Do you see differences in margin potential compared to historical levels?

Certainly, RS&I benefits from new model launches and warranty activity, providing a unique growth opportunity within our focus on advanced technologies. The effects are already visible in our improved margins, and we expect continued growth alongside emerging opportunities.

The next question is from Sherif El-Sabbahy with Bank of America. Please go ahead.

Hey, good morning.

Sherif, how are you?

Doing well. Thanks. I had one question specific to the power tools segment. Were there any particular markets or end users experiencing notable pullback compared to your expectations?

No specific market pullbacks stand out. We see a transition between pneumatic and cordless tools, where technicians favor cordless for convenience and flexibility. Demand remains strong overall, although technician purchasing behavior fluctuates.

Thank you. I appreciate your insights.

The next question is from Bret Jordan with Jefferies. Please go ahead.

Hey good morning guys. I wanted to touch on sell-in versus sell-out on the U.S. franchise tools. Can you provide color on the POS trends compared to their take rates?

The sell-off from the vans outpaced sales to the vans this quarter, especially towards the end, indicating strong performance and growing demand for our products. We observed an expanding gap as the quarter progressed.

How does the sellout rate compare to the general market growth rate? Are we holding our market share?

I’ve spoken with 36 franchisees, and none expressed concerns about losing share. While some might face challenges, we remain confident that our unique offerings position us favorably in the market, and this tendency appears to continue.

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

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

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