Earnings Call Transcript
Snap-on Inc (SNA)
Earnings Call Transcript - SNA Q3 2025
Operator, Operator
Good day, and welcome to the Snap-on Incorporated Third Quarter Results Conference Call. Should you need assistance, after today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Sara Verbsky, Vice President of Investor Relations. Please go ahead.
Sara Verbsky, Vice President of Investor Relations
Thank you, Bailey, and good morning, everyone. We appreciate you joining us today as we review Snap-on's third quarter results, which are detailed in our press release issued earlier this morning. We have on the call Nick Pinchuk, Snap-on's Chief Executive Officer, and Aldo Pagliari, Snap-on's Chief Financial Officer. Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions. As usual, we 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 the 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 results may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in the forward-looking statements are contained in our SEC filings. Finally, this presentation includes non-GAAP measures of financial performance, which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding these measures is included in our earnings release issued today, which can be found on our website. With that said, I'd now like to turn the call over to Nick Pinchuk. Nick?
Nick Pinchuk, CEO
Thanks, Sara. Morning, everyone. Well, we believe our third quarter demonstrated encouraging momentum, continuing our progress. Moving upward against one of the most challenging environments of our time, wars, inflation, and tariffs. Moving upward against the tides of seasonality, and upward amidst the variability that always accompanies the late summer. The quarter showed that the resilience of our markets, the momentum of our program, the advantage of our strategy, making in the markets where we sell, and of our structure, the flexibility provided by our 15 factories in the US, have driven us forward. We believe it will serve us well for some time. As we proceed today, I'll start with the highlights for our quarter. I'll provide my perspectives on the results, on our markets, and on the path ahead. And then Aldo will give you a detailed review of the financials. My thoughts regarding the past three months are that without question or qualification, our results are once again encouraging. Fortified by the progress along our run rates for both growth and improvement. It was another quarter bearing witness to our building traction amidst the uncertainty and headwinds of today. You can see it in third quarter sales of $1,190,800,000. We're up 3.8% from the $1,147,000,000 recorded last year. Excluding $9,000,000 in favorable foreign currency translation, organic sales increased by 3%. In this third quarter, sales were up sequentially over the second quarter results, again, against normal seasonality, and we believe it offers substantial evidence of ongoing momentum. The operating income margin was 23.4%. Now that includes a 190 basis points from a recent legal settlement. So excluding that legal item, OI margin was 21.5%, down 50 basis points, 20 of which were due to unfavorable currency. But 21.5% is still at a strong level and represents our second highest third quarter ever despite the turbulence. For financial services, Finco OI of $68,900,000 was down from the $71,700,000 last year. And a number that when combined with our APCO results, resulted in an OI margin of 26.9%. EPS was $5.02, $4.71 excluding the 31¢ from the one-time legal benefit, representing the highest ever for a third quarter. And overcoming a $0.09 impact from higher pension amortization costs. So those are the overall results. We think they're pretty good. Now let's take a view of the markets. During the third quarter, the auto repair market remained favorable. Displaying a continuing need and a rising complexity. Miles driven keeps growing, people move even in difficult times. And they're holding on to their vehicles longer, requiring more upkeep. The car park keeps aging. It's now averaging nearly 12.8 years. In other words, people need repairs with solid regularity and the range of vehicle models needing work just keeps expanding. And the vehicles keep getting more complex every day. The ever-expanding array of drivetrains, motors, neural networks of sensors, multiple systems, a melding of hardware and software to control a growing range of functions. It all marks the trajectory of modern vehicles. It's an environment of constantly rising repair challenges. In short, vehicle repairs never had a more promising future. And you could see it in the industry metrics. Spending on repairs, up double digits. Tech counts rising. Wages continuing their upward march and keeping with the increasing skill required to keep the world mobile, so the techs are cash-rich. But they're also confidence-poor. Certain of their value, but uncertain about the environment. They still want new tools that make the work easier, but they remain reluctant to commit to paying for big-ticket items with long-term financing. But in the turbulence, our strategy of pivoting toward faster payback items is taking hold. And it's making gains. Automotive repair is a great business, essential to our society and always advancing. Snap-on's well-positioned for success with our short chains and ability to redirect manufacturing, capitalizing on opportunities and challenges as they arise. Now let's speak of the other side of vehicle repair where repair systems and information or the RS and I group operates. Repair shop owners and managers know they have to upgrade to keep pace with increasing complexity and to keep driving productivity. Technicians need to wade through more possibilities than ever to find the right fix, and RS and I can put them right on target. With our innovative hardware and powerful software, proprietary database, offering faster, more accurate ways to navigate the thousands of repair procedures that confront techs in a modern shop. It's a changing market in which dealerships and independents need to have the equipment and the specialty tools for tackling the advanced vehicles rolling into their garages. As we go forward, the momentum just keeps building. And you can see it in the RS and I results. For the critical industries, now this is the area where we have the largest global footprint. Operating across geographies and in multiple currencies. The rapid-fire policies out of Washington and the headwinds politically and economically across the globe have clouded the prospects. Many of the players have adopted a wait-and-see approach, wanting the dust to settle for tariffs and for various other arenas before charting a course. Fearful that the wind will suddenly change again and leave them embarrassed or disadvantaged. But despite the continuing reticence, our order book keeps growing. In fact, despite everything, customers have started to commit, and we saw a nice and very profitable growth in the quarter. Critical industries offer a great opportunity for our customized products that will drive productivity, and though still attenuated, some of that potential is starting to shine through. So overall, our markets offer attractive opportunities. The ever-changing landscape does dampen some of the possibilities, but our operations again this quarter enabled by our broad and innovative product line, our distinctive and meaningful brand, and our committed, capable, and battle-tested team displayed unmistakable momentum, overcoming uncertainty, and taking advantage of abundant opportunity. That's the mark. Well, let's talk about the books. In C and I, third quarter sales reached $367,700,000, which compared to the $365,700,000 of last year. The quarter's volume included $4,800,000 of favorable currency translation, and an organic sales decrease of 0.8%. From an earnings perspective, C and I's operating margin was 15.6%, a decrease year over year of 110 basis points with 30 basis points of that coming from unfavorable currency. Gross margins were robust at 40.9%, down 30 basis points. But that variance is pretty much explained by the unfavorable currency. And it's a level that clearly demonstrates our resistance to the impact of the tariffs. Results were mixed across the business units, with the organic sales decrease primarily due to reductions in the Asia Pacific business. Reflecting the quick relocation of the supply chains away from that reach. Gains in critical industries and in specialty torque were the offset. Critical industries in particular showed strength in the aviation, heavy-duty, and natural resources sectors, demonstrating that criticality can overcome the uncertainty of the changing trade policy and will continue to do so. Precision torque also continues to be a spark. The appetite for accurate measurement continues to rise. When the cost of failure is high, even a slight deviation is a problem, and operators want confirmed precision. Our production facility in Carol Stream, Illinois knows it firsthand. And in the quarter, it launched the all-new TAC two torque and angle click wrench. It's built for the task of securing essential components like hydraulic fittings on heavy-duty equipment and natural resources or agricultural applications. Places where downtime in a remote area can be catastrophic. The TAC two offers a fast-charging cradle, making sure that the tool is always powered and at the ready. Without the weight and thickness of other tools that utilize onboard batteries. The wrench is also accompanied with an electronic module that communicates the torque value actually applied, allowing confirmation that the proper spec has been achieved and providing documentation for later review. And finally, heavy-duty equipment contains considerable variation in fastener geometries. Our new unit features a unique mechanism that accommodates over 200 different adapters, enabling the device to physically address the wide range of fasteners used across different pieces of equipment. It consolidates dozens of tools into one model. The TAC two. A new level of flexibility, connectivity, and ease of use, and the customers love it. Also with C and I is our power tools operation, which in the back half of the quarter launched our new 14.4 volt, 3/8 inch x 2 long cordless ratchet. Now this product hit the techs right between the eyes. Manufactured in our Murphy, North Carolina plant, it's in a league of its own. A best-in-class 80 foot-pounds of torque and a best-in-class 13-inch neck, 50% longer than any other offering. I mean, this tool reaches farther into tight areas, applying greater power at the point of work. Everybody's talking about it. It speeds up repair. And it's already a million-dollar product. Well, that's C and I, critical industries and torque leading the way forward, leveraging customer connections to solve the critical and navigating the turbulence in international markets. Now let's move to the tools. Sales volume up organically 1% increased activity in the international network and slightly higher sales in the US. Notably, the volume's also up sequentially from the second quarter. An unusual pattern we believe demonstrates that the group has momentum and continuing momentum going forward. The group's operating margin was a strong 21.7%, up 10 basis points from 2024. And that was overcoming a 10 basis point impact from unfavorable currency. Now the third quarter is where we hold our annual Snap-on Franchisee Conference, or SFC as we call it. This year's event was in Orlando. Nearly 9,000 people attended. Franchisees, yes, and of course, the Snap-on team. It was a weekend filled with hands-on training, transaction interactions with our expansive product offerings, and some great fun. With a cavalcade of 155 buses transferring the on-crew to Disney's Hollywood Studios to celebrate a 105th anniversary. It's quite a week. The Product Expo Floor was our largest ever. Spanning 185,000 square feet, well over three football fields where our entire portfolio of products was on display in real work situations. A new feature this year enabled franchisees to witness firsthand the Snap-on difference in solving typical repairs. It was another memorable SFC, one filled with inspiration, education, great new products, and friendships, reinforcing the unique and special bond we have with our franchisees. The atmosphere and the outlook of the franchisees were extremely confident and positive. I've talked to many of them since then, and they left pumped, ready to hit the road and apply the lessons learned. And the icing on the cake. SFC orders were up nicely, increasing over last year by mid-single digits. A 100% new products were on display at the conference, new innovative offerings derived from our customer connection insight we gained directly in the workplace, faster payback products like our S 6,750 millimeter socket forged in the Milwaukee plant. You see a traditional unit can't easily install cylinder head bolts on Ford 6.7 liter power stroke engines used on their range of trucks from F 250 and above. That sophisticated power plant requires a precise seven-step torquing procedure that reaches nearly 300 foot-pounds. And here's the thing. A normal socket is quite challenged to handle such force, and many a socket has been damaged trying to apply the power needed. On top of which they're too big to avoid nearby obstacles. Completing the job with the standard tools often requires component disassembly to clear the way. So our engineers, acting on a customer connection, designed a purpose-built socket. Increasing the wall thickness by 32% to withstand the extreme force and reducing the height for a more compact device, creating more access and higher durability in the same package. Snap-on customer connection and innovation, making a difficult task easier, faster, and safer. But Milwaukee did more. The plant just released the all-new coal forged hot green plier. Funny name, I know. I know. But it's a real-time saver. When removing or reinstalling upholstery to access sensors, heating or cooling elements, and wires located within the vehicle seats. See, we don't always realize, but complexity is not just under the hood or in the drivetrain. It cuts all over the chassis. The new pliers are built to remove and install high-grain retention clips, keeping the seat cover tight, providing a factory appearance repair, and doing it with increased safety. The new tool makes a difficult but everyday task quite simple. And I'll tell you, the receptionists are baffled. And in our Elkmont, Alabama plant, local engineers addressed the customer connection observed when with techs using small pocket screwdrivers to pry small components apart, separate terminal connectors, or remove seals. Well, screwdrivers are not meant for those jobs. It's quite unsafe, and you know, can lead to some pretty nasty cuts. So the Elkmont team developed a three-piece pocket pry bar set. Just over five inches long, small enough for those post-quarter, but tough jobs. This bundle made that common but difficult work much easier and safer. It was a lot of the techs oversubscribed. It was really a brilliant view by the Elkmont guys. Powering tools, the tools group pivot. Quick payback products from all over our American factories made the group's quarter. Big hits, continuing momentum, driving sequential growth, and offering the strong levels of third-quarter profitability. We like the Tools Group performance in the quarter, and innovative new products forged the path. Now RS and I, sales of $464,800,000 in the third quarter were up as reported, 10% with an organic improvement of 8.9%. Higher activity with OEM dealerships and increased sales of diagnostics and repair information products led the way. Operating earnings for RS and I of $141,200,000 in the period included a benefit of $22,000,000 from the legal settlement and compared to the $107,300,000 in 2024. The operating margin for the quarter at RS and I was 30.4%, 25.6% as adjusted to exclude the legal effect, still up 20 basis points from last year and overcoming 30 basis points of unfavorable currency. The RS and I quarter was marked by some strong performances. In hardware and software, sales and diagnostic repair information to repair shop owners and managers rose high single digits. The new Triton handheld had a strong quarter. Its brighter screen, enhanced labs scope, and powerful intelligent diagnostic powered by billions of repair records make it popular with franchisees, and increasingly essential for advanced techs. At the same time, our sales to OEM dealerships grew by double digits. Snap-on is fast becoming the partner of choice for assisting automaker programs aimed at supporting new models of recalls. And that operation turned in a, I would call, a gangbusters performance in a quarter. We have great confidence in our RS and I business. Our customers and industry partners share the same belief. And it was demonstrated as PTEN Magazine announced its esteemed 2025 innovation awards and its people's choice awards. RS and I was well represented with the Apollo Plus fast track intelligent diagnostic platform, the Yosem cam aligner for heavy-duty trucks, and Mitchell one's JobView software, all recognized as winners in both designations. RS and I also captured single awards for its diagnostic thermal imager, its BK 5,700 Borskoe, and for its ProCut x 19 cordless rotor matching system. That's a mouthful. In fact, collectively, the corporation was honored with a total of 25 PTEN awards across the 56 possible categories. We believe it's a true testament to our competitive advantage and product across the corporation. But back to our RS and I. We're quite positive about RS and I's possibilities with repair shop owners and managers as the vehicle industry evolves, and the quarter supports that confidence. I mean, 8.9% of organic growth with higher margins, Boom. Shakalaka. RS and I did good. So those are the highlights of our quarter. Progress against big volatility and uncertainty. Against seasonality, and against the variability of the third quarters. C and I, the power of our customized kits, punching through reticence in critical industries, withstanding the Asia Pacific supply chain disruption, Tools Group, great products, competent franchisees, strong sequential momentum. The pivot continuing with traction. Profitability remaining strong. RS and I, organic sales, up 8.9%. Strong gains with both OEM dealerships and with independent repair shops. Great new and decorated products, both hardware and software. Powered by our proprietary parent diagnostic data. All enabling technicians to make complex repairs easier. And it showed the numbers. And the overall corporation sales up 3.8%, as reported 3% organically. Gross margins, 50.9%. Resilient and resistant, holding firm in times of unprecedented sourcing turbulence. OI percentage, 23.4%. 21.5% excluding the legal benefit, still very strong and among the highest ever for a third quarter. It was an encouraging quarter. Now I'll turn the call over to Aldo. Aldo?
Aldo Pagliari, CFO
Thanks, Nick. Our consolidated operating results for the third quarter are summarized on Slide six. Net sales of $1,190,800,000 in the quarter represent an increase of 3.8% from 2024 levels, reflecting a 3% organic sales gain and $9,000,000 of favorable foreign currency translation. Sales in our automotive repair markets were up, led by the strength in our repair systems and information group, which included solid gains in OEM dealership and independent repair shop owners and managers as well as higher sales of diagnostic products for our franchise of Amgen. Within the industrial sector, our C and I group sales to critical industry customers increased in the quarter, but those gains were more than offset by continued weakness in the export activities of our Asia Pacific operation. Consolidated gross margin of 50.9% improved sequentially from 50.5% in the second quarter and compared to 51.2% in the third quarter last year. The year-over-year decline of 30 basis points primarily reflected 20 basis points of unfavorable foreign currency effects. While Snap-on is relatively advantaged in the current tariff environment, generally manufacturing products in the markets where they are sold, our costs can be affected by trade policies. In the third quarter, the impact of tariffs was largely offset by the higher sales volumes and benefits from the company's RCI initiatives. With respect to the unfavorable foreign currency effects similar to last quarter, although to a lesser degree, Snap-on incurred negative transaction impacts associated with the year-over-year strengthening of the Swedish krona, the euro, and the US dollar. As a reminder, Snap-on has factories in Sweden serving both the C and I and the RS and I groups that export throughout Europe and into the United States as well as into emerging markets. Operating expenses as a percentage of net sales of 27.5% compared to 20.2% last year. In the quarter, as noted in our press release, operating expenses included a $22,000,000 benefit from the settlement of a legal matter. The 170 basis point improvement in the operating expense ratio is primarily due to the 190 basis point benefit from the legal settlement, which was partially offset by higher brand building and promotional investments as we celebrated our 105th anniversary. Operating earnings before financial services of $28,500,000 in the quarter including the benefit from the legal settlement compared to $252,400,000 in 2024. As a percentage of net sales, operating margin before financial services, of 23.4% including a 190 basis point benefit from the legal settlement compared to 22% reported last year. Financial services revenue of $101,100,000 in the third quarter compared to $100,400,000 last year while operating earnings were $68,900,000 compared to $71,700,000 in 2024. Consolidated operating earnings of $347,400,000 were include the legal benefit compared to $324,100,000 last year. As a percentage of revenues, the operating earnings margin of 26.9%, including the legal settlement, compared to 26% in 2024. Our third quarter effective income tax rate was 22.6% in 2025, and 22.9% in 2024. Net earnings of $265,400,000 or $5.02 per diluted share, including a $16,200,000 or $0.31 per diluted share after-tax benefit from the legal settlement. Compared to $251,100,000 or $4.07 per diluted share in 2024. In addition to the benefit from the legal settlement, when comparing the quarter's EPS with the third quarter of the prior year, diluted earnings per share also included approximately $0.09 per share of increased year-over-year non-service net periodic pension expenses, primarily from higher amortization of actuarial losses. Now let's turn to our segment results for the quarter. Starting with the C and I group on Slide seven. Sales of $367,700,000 compared to $365,700,000 last year, reflecting an eight-tenths of a percent organic sales decline, which was more than offset by $4,800,000 of favorable foreign currency translation. The organic decrease includes a mid-single-digit reduction in the segment's Asia Pacific business partially offset by low single-digit gains with customers in critical industries and in the specialty torque operation. Overall, the organic sales decline largely reflects a reduction in certain cross-border sourcing activities in the current trade situation, which was offset by improving demand from our critical industry customers, including the United States and international aviation, as well as technical education. Sales for the US military were down year over year. However, order activity has been increasing, despite the uncertain timing of funding for some government-related projects. Gross margin of 40.9% in the third quarter compared to 41.2% in 2024. This decline was due to 30 basis points of unfavorable foreign currency effects. In the quarter, higher material and other costs were offset by increased sales in the higher gross margin critical industry sectors and by savings from the segment's RCI initiatives. Operating expenses as a percentage of sales of 25.3% in the quarter compared to 24.5% last year. Largely reflecting the impact of lower sales in the Asia Pacific business as well as increased personnel and other costs. Operating earnings for the C and I segment of $57,500,000 compared to $61,000,000 in 2024. The operating margin of 15.6% improved sequentially from 13.5% in the second quarter and compared to 16.7% last year. Turning now to slide eight. Sales in the Snap-on Tools Group of $56,000,000 compared to $500,500,000 a year ago. Reflecting a 1% organic gain and $600,000 of favorable foreign currency translation. The organic increase reflects a low single-digit rise in the segment's international operations and slightly higher sales in the US business. During the quarter, we believe the introduction of new products like the next-generation Triton Diagnostics platform combined with our ongoing pivot to shorter payback items was successful in overcoming continuing uncertainty and the confidence of technician customers in the current environment. Gross margin declined 50 basis points to 46.8% in the quarter, from 47.3% last year, mostly due to a year-over-year shift in product mix. Operating expenses as a percentage of sales improved 60 basis points to 25.1% in the quarter from 25.7% in 2024, largely reflecting the higher sales volume. Operating earnings for the Snap-on Tools Group of $109,900,000 compared to $108,300,000 in 2024. The operating margin of 21.7% improved 10 basis points from last year. Turning to the RS and I group. Shown on Slide nine, Sales of $464,800,000 rose 42.1 compared to 2024 levels, reflecting an 8.9% organic sales increase and $4,000,000 of favorable foreign currency translation. The organic gain includes a strong double-digit increase in activity with OEM dealerships and a high single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers. These gains more than offset a low single-digit decline in sales of undercar equipment, including collision repair products. Gross margin declined 40 basis points to 47% from 47.4% last year, primarily reflecting increased sales of lower gross margin products, higher material and other costs, and 20 basis points of unfavorable foreign currency effects, partially offset by savings from our CI initiatives. Operating expenses for the RS and I group in the quarter included a $22,000,000 benefit from the previously mentioned legal settlement. Operating expenses as a percentage of net sales improved 540 basis points from last year primarily due to a 480 basis point benefit from the settlement, as well as from the higher sales volumes. Operating earnings of $141,200,000 including the $22,000,000 legal benefit compared to $107,300,000 last year. The operating margin of 30.4% including the 480 basis point benefit compared to 25.4% reported in 2024. Now turning to Slide 10. Revenue from financial services of $101,100,000 compared to $104,000,000 last year. Financial Services operating earnings of $68,900,000 compared to $71,700,000 in 2024. Financial services expenses of $32,200,000 compared to $28,700,000 last year. The increase is primarily due to $2,500,000 of higher provisions for credit losses, as well as a rise in personnel and other costs. As a percentage of the average financial services portfolio, expenses were 1.3% in 2025, and 1.1% in 2024. In 2025 and 2024, the average yield on finance receivables was 17.7%, while the average yield on contract receivables was 9.1%. Total loan originations of $274,100,000 in the third quarter represented a decrease of $13,900,000 or 4.8% from 2024 levels, including a 4.9% decline in extended credit originations. The reduction in extended credit originations mostly reflects continued lower sales of discretionary big-ticket items such as tool storage units. Moving to slide 11, Our quarter-end balance sheet includes approximately $2,500,000,000 of gross financing receivables with $2,200,000,000 from our US operation. For extended credit or finance receivables, the US sixty-day plus delinquency rate of 2% is up 10 basis points from 2024 and also reflects a typical seasonal increase from the rate reported last quarter. Trailing twelve-month net losses for the overall extended credit portfolio of $71,400,000 represented 3.59% of outstandings at quarter-end. We believe these portfolio performance metrics remain relatively balanced, considering the current environment. Now turning to slide 12. Cash provided by operating activities of $277,900,000 in the quarter compared to $274,200,000 last year. Net cash used by investing activities of $21,000,000 mostly reflected capital expenditures of $19,900,000. Net cash used by financing activities of $180,900,000 included cash dividends of $111,500,000 and the repurchase of 250,000 shares of common stock for $82,000,000 under our existing share repurchase programs. As of quarter-end, we had remaining availability to repurchase up to an additional $3,600,000 of common stock under our existing authorizations. Turning to Slide 13. Trade and other accounts receivable of $925,700,000 included $25,100,000 of foreign currency translation, $17,700,000 from the legal settlement, and a greater mix of sales with longer payment terms. This represented an increase of $110,100,000 from 2024 year-end. Day sales outstanding of seventy-one days compared to sixty-two days at year-end 2024. Inventories increased by $81,100,000 from 2024 year-end, primarily due to $38,900,000 of currency translation, improving demand trends, and some investment intended to mitigate supply chain uncertainties. On a trailing twelve-month basis, inventory turns of 2.3 compared to 2.4 at year-end 2024. Our quarter-end cash position of $1,534,100,000 compared to $1,360,500,000 at the end of 2024. In addition to our existing cash and expected cash flows from operations, we have more than $900,000,000 available under our credit facilities. There were no amounts borrowed or outstanding under the credit facilities during the year, nor was any commercial paper issued or outstanding in the year. That concludes my remarks on our third quarter performance, and now I'll review a few outlook items for 2025. With respect to corporate cost, we currently believe that expenses will approximate $27,000,000. Additionally, as recognized in the previous March 2025, we expect to incur approximately $6,000,000 pretax in the fourth quarter of increased non-service pension costs largely due to higher amortization of actuarial losses. These non-cash costs are recorded below operating earnings as part of other income and deduction expense net on our statement of earnings. We'll have about $0.09 per diluted share negative effect on EPS in 2025. We expect that capital expenditures for the year will approximate $100,000,000. And following our assessment of the One Big Beautiful Bill Act, during the third quarter, we continue to anticipate that our full-year 2025 effective income tax rate will be in a range of 22 to 23%. Finally, in 2025, our fiscal year will contain fifty-three weeks of operating results with the additional week occurring at the end of the fourth quarter. This occurs every five or six years and historically it has not had a significant effect on our full-year or fourth-quarter total revenues and net earnings.
Nick Pinchuk, CEO
Thanks, Aldo. That's our third quarter. It was encouraging, and, you know, marked with words like resilience, momentum, and advantage. It represents meaningful progress. Progress clearly won against some unprecedented turbulence. Gains captured against the headwinds of seasonality and increases against the variability of the late summer period. As such, we believe we leave the quarter more confident and stronger than when we entered. The pivoted and tools group is building traction. The potential for critical industries and specialty torque is breaking through. Our expansion with repair shop owners and managers continues to rise and our advantage in strategy and structure, which fortifies our resistance to tariffs, demonstrates its efficacy. And you can see it reflected in the groups and the numbers. C and I, year-over-year gains realized in sequential improvements demonstrated fueled by progress in critical industries and precision torque, gross margin holding firm in a time of trial. The Tools Group, another positive quarter. OI margin up and bridging to strong levels, OI margin up and holding to strong levels. Momentum continued. Sequential growth displayed the pivot to quicker payback items strength RS and I, continuing expansion with repair shop owners and managers. 8.9% organic growth, gains in hardware and software, and yet another strong performance in OI margins. And it all came together for an encouraging overall performance. Sales for the corporation were up organically 3% with sequential gains. Gross margins. A powerful 50.9%, down 30 basis points. But primarily due to currency. OI margins of 23.4% or 21.5% excluding the legal action, the second highest ever third quarter. And an EPS of $5.02. $4.71 excluding legal the highest ever third quarter. In a very turbulent time. As we go forward, we proceed with confidence because we believe our markets will remain robust. And Snap-on will benefit from our advantages in strategy, making in the markets where we sell, and structure, enabled by the flexibility of our factory array, and products. We make work easier and more reliable, and everybody knows this. And brand. Snap-on really is the outward sign of pride and dignity for working men and women. An advantage in people. Our team is skilled, battle-tested, committed, and always aims high. We believe this combination of advantages will propel our corporation to even stronger performance as we proceed through 2025, and well beyond. Now before I turn the call over to the operator, I'll speak directly with our franchisees and associates. I know many of you are listening. We've spoken today of momentum, of performance, and of new highs. Know that all of that has been created by your extraordinary effort in the past three months. For the success you've achieved this quarter, you have my congratulations. For the energy and skill I see you bring to the corporation every day, you have my admiration. And for your ongoing confidence and dedication to the future of our enterprise, you have my thanks. Now I'll turn the call over to the operator.
Operator, Operator
Thank you. At this time, we will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. Withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Christopher Glynn with Oppenheimer.
Christopher Glynn, Analyst
Wanted to dive into some of the businesses at RS and I for the diagnostics and repair systems. I think five quarters of growth now. More consistency than I've seen in the past. You know, usually, it's been a little lumpier with new product splashes and then some lulls. So I don't know. Anything to read into this kind of consistency?
Nick Pinchuk, CEO
I know. Well, I think we'd like to believe we've gotten the launches a little bit better. You said yourself TRITON was launched last quarter and had a good quarter last quarter. And this quarter, the other thing about it is this quarter, I think versus the prior quarter, we had pretty good performance on a sequential basis across the line. And this has been something that you kind of need. You can't just always depend on, you know, new launches. Although, as we go forward, you're gonna see more new launches happen in this year and things like that. You know, a launch would happen this year, so you get that in the but sort of the holy grail in diagnostics is to make hay with the launch and then but not lose volume with the other business and that happened this quarter. So we feel kind of good about that. But we'll see how it goes going forward. We'd like to see that happen. And I think we're starting to get some understanding of how to promote both the launch and the existing platforms. Side by side.
Christopher Glynn, Analyst
Great. And then, yeah, just on the other two pieces, OEM, sounds like that kind of share accrual is kind of building on itself and has some legs. And then on the undercar, does that feel like that's stabilizing or still kinda firmly in a wall?
Nick Pinchuk, CEO
Yeah. It looks like undercar, it looked like it stabilized this quarter. I mean, it was down. You know? And okay. We don't like that. And it was down a lot less than in past quarters, so it didn't hurt RS and I as much maybe. It wasn't as much of an offset. It part of the idea of the 8.9%. I mean, that may not be the highest quarter RS and I ever had, but in this kind of environment, I think it's supersonic. So that worked out pretty well. And some of it had to do with narrowing in that gap, and you've rightly said it. That the OEM, you know, the OEM business is both programs happening and share gain. We used to talk about lumpiness, and it still could be, business, but we have a share gain component on top of this, which tends to offset some.
Christopher Glynn, Analyst
Okay, great. And then C and I, didn't hear about your European tools, assuming it's kinda flattish. Does that feel pretty steady?
Nick Pinchuk, CEO
Yeah. Do you know France? It gives me a headache. I think so.
Christopher Glynn, Analyst
Not personally.
Nick Pinchuk, CEO
Yeah. You know what I mean? No. Look. I think the thing we're noticing is the grassroots in Europe are starting to display that, in fact, they have maybe for a couple quarters, displayed the same kind of uncertainty or reticence that you see in the United States. So you see a bifurcation in Europe where the I would call it maybe the, you know, transactional business with individuals. You know, the up and down the street business is kind of flattish, not so strong. But there's hay to be made in projects. Which is part of the success of critical industries in this quarter.
David MacGregor, Analyst
Yes. Good afternoon, Nick, Aldo, Sara. Good morning.
Nick Pinchuk, CEO
Yes. I'm at a different time at a different time.
David MacGregor, Analyst
Right. You're right. Yeah. Yeah. I'm on the other side of the road. Greenland?
Nick Pinchuk, CEO
I okay. I'm in Greece. Yeah. I wanted to ask about the sequentially strong volume and tie that back to maybe some of the investments you've made over the last couple of years in capacity. And I'm just wondering if that incremental capacity now gives you the ability to fulfill on the SFC orders a little faster. And if that's really what's driving this. And if so, how do we think about the margin improvement? And in April? I think you're right to point out that the capacity increases that we did over the last, you know, two and a half years have helped you match better the ups and downs of the volume. But I think the SFC this year was not necessarily a component in the sequential improvement. Actually, I don't think it was at all. The sequential improvement really primarily affects our more effective pivoting that had certain products, one of which was diagnostics, but there were others like air conditioning, so on, that tended to push things forward. And so that's why we feel pretty good about that. And the SFC effect is beyond that sequential improvement. We do. I've made a lot of it in my remarks. And a sequential improvement is a big deal for us because we don't see it very often, and we think it does indicate momentum. Going out after the SFC you're gonna see that play out. But the SFC had some great orders. But not many of them got in the third quarter, I think.
David MacGregor, Analyst
Right. Do you feel like you maybe pulled forward a little from 4Q here, or should we expect 4Q to be?
Nick Pinchuk, CEO
No. No. I don't think so. I don't think so. I think SSC just.
David MacGregor, Analyst
Yeah. Go ahead.
Nick Pinchuk, CEO
No. That's a good enough answer. I guess I'm just trying to, secondly, square or try to square, you know, the strength in unit volume with the 1% organic growth in Snap-on Tools, which suggests maybe price was down. How much of this is mix? How much of this is promotions? And will we see this again in 4Q? Wow. Look, I think some of it might be promotions. But, you know, let's put it this way. The margins were up pretty good. The margin was 21.7%, up 10 basis points. And the gross margin was down, I guess, 40 basis points. You know? But that was against 10 or 20 basis points of currency. So it wasn't a big fluctuation. I don't think that's a factor. I mean, the thing is the volume might be I don't know if I recognize so much that the volume was that high compared to the sales. But you know, in fact, I don't recognize that at all. I kinda just think it was a quarter that had always its variable mix. And it went through, had good profitability, and the US had increases, which it the second one in a row, and we're pretty positive about that. So I don't think we're worried so much about that situation. Certainly, we don't think the pricing is eroding. If just if you if we thought the price I mean, if the pricing was eroding, know, you'd see it grow smart. And we're not seeing anything like that.
David MacGregor, Analyst
Okay. And, you know, if you if you yeah. Go ahead.
Nick Pinchuk, CEO
Was just gonna say I was just gonna say, David, you know this you know this very well. One of the big kahunas in this quarter for the tools group was diagnostics. And it ain't one of the biggest margin businesses for the Snap-on Tools Group because it shares the margin with another one of our divisions, the diagnostic division. And still the gross margins held.
David MacGregor, Analyst
Yeah. Okay. Yeah. That's an interesting point. And then finally, just off the truck sales. You know, how you're feeling about, I know you've got good data on that. How would that have compared with the sell-in?
Nick Pinchuk, CEO
The off-the-truck sales was a little bit higher than a little bit lower than the to-the-truck sales I think, though, it was you know, we see this all the time. It's within, I think, the range of variability that happens in those two businesses. They always seem to come out about the same in the year. Last year, for example, beyond the truck, off the truck was while it had variability from quarter to quarter was dead nuts, at the end of the quarter. Equal. So I think we kinda saw it. So there's nothing there that it's a little bit lower, but it's nothing that has us concerned about that. It's just within the margin of the usual variability.
David MacGregor, Analyst
So there's a little bit of restock going on. Is it your general sense that the franchisee are still pretty liquid? They've still got very good liquidity so that if 2026 ends up being a better year, they're in a good position to restock up in advance of that.
Nick Pinchuk, CEO
Yeah. I think there's some of that. But I think, look, I think you know, I think this uncertainty thing has to be fixed. I think they're starting to catch some of the uncertainty. You know? And so I think that has to be fixed. And then when they get back, know, then they go back to their old levels. And I don't know. I don't know. But there is that possibility going out in the future at some time. But we're not looking for restocking to be a major push. We never really planned it that way. Sometimes it can affect the variability from quarter to quarter, but generally, I said, it all kind of evens out.
Gary Prestopino, Analyst
Hi. Good morning all.
Nick Pinchuk, CEO
Morning, Gary.
Gary Prestopino, Analyst
Aldo, what impacted FX have on EPS this quarter?
Aldo Pagliari, CFO
It was $0.01 of negative news, Gary.
Gary Prestopino, Analyst
Okay, thank you. And then regarding how well you did in the RSNI business with the dealerships, particularly OEM dealerships, are you seeing a movement here for these OEM dealerships to start increasing their capital equipment outlays, you know, after a couple of years of maybe not doing so or is this just does it just kinda go and, you know, kinda bunches up and down cycles on a quarterly basis?
Nick Pinchuk, CEO
No. No. I think look. I think that's a pretty big question. I mean, there's a lot of segments, Gary, that even within the dealership business. But I generally think you're seeing a constant drumbeat in the dealerships and in the independent shops realizing that there's all these new features and benefits and powertrains that they have to adjust to. So you're seeing some of that. Now part of the reason why OEM is big this quarter is because you're also seeing a drumbeat of new models coming out. And I think this idea of pivoting from electric vehicles to internal combustion are gonna even keep that going. So, and on top of that, we're gaining some share. So I think that particular business yeah, it's gonna have some variation from quarter to quarter in terms of what it sells. But I think it's pretty solid. I think that's a place where the economy is pretty strong. The people that people need to repair to maintain the mobility. People keep driving. The car park keeps aging. All those things, drives business in that area. It you know, they won't be explosion or anything like that. But I think it's gonna be a good growth. We say we say that the RS and I business should grow and we say we should grow at 4 to 6%. In ordinary times, we say RS and I should be in the middle.
Gary Prestopino, Analyst
Okay, sounds good. And then just lastly, getting back to the order rates coming out of the conference, and that doesn't you know, the translation in sales. Is there any you know, is there a correlation that you can look at? Or, I mean, is that all over the place? You know, one conference, you could have great orders, but then it doesn't translate into sales. And vice versa.
Nick Pinchuk, CEO
That's right. That's what happens. I don't know. You know, I go down there, and every time they tell me, you know, it's a know, so orders were great or the orders are lousy to come back depressed or ecstatic, and many times, it doesn't play out that way, and in the fourth. This year, though, I think we've tried to guard against that. We tried to make the packages smaller so the cancellations would not which what the variability comes out of because people get down there and their eyes are too big for the stomach. But and I think, you know, you have good you certainly have good orders spread out into the fourth quarter. So I think that's pretty positive.
Gary Prestopino, Analyst
Well, did you come back depressed or ecstatic this year?
Nick Pinchuk, CEO
I'm ecstatic. But, you know, I'm kind of a sucker for good news.
Operator, Operator
Thank you. This concludes our question and answer session. I would like to turn the conference back over to Sara Verbsky for any closing remarks.
Sara Verbsky, Vice President of Investor Relations
Thank you all for joining us today. A replay of this call will be available shortly on snapon.com. As always, we appreciate your interest in Snap-on. Good day.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.