Snap-On Inc (SNA)

• Hand tools were the strongest category in the quarter, significantly contributing to sales and margins, reflecting a successful pivot to meet customer preferences. -
• Gross profits in the Snap-on Tools segment increased by 100 basis points, driven by lower cost of steel, efficiency improvements from new factory arrangements, and better efficiencies, leading to improved operational performance. -
• Introduction of new products and promotions boosted sales, with 500 out of 4,500 products displayed at the tool show being new, enhancing customer offerings and driving growth. -

• Softness in hardware sales within RS&I, particularly undercar equipment like aligners and lifts, due to customers delaying big-ticket purchases amid macroeconomic uncertainty and higher financing costs. -
• Negative impact from CDK's disruption, which diverted dealership attention away from purchasing equipment, as they focused on staying operational without a computer system. This was not a favorable event for Snap-on in the quarter. -
• Technician customers are hesitant to purchase big-ticket items due to uncertainties such as elections, interest rates, and global events like wars, affecting demand for Snap-on's products. -

1. Tools Group Momentum
   Q: How did the pivot in the Tools Group impact Q3 growth?
   A: The shift towards hand tools significantly drove growth, with hand tools being the strongest category this quarter. - Hand tools represented a major mix of sales for franchisees, helping margins and reflecting what customers are ready to buy. -

2. Diagnostics and Software Growth
   Q: Is the Apollo Plus driving growth in Diagnostics, and does the Tools Group benefit?
   A: The launch of Apollo Plus boosted Diagnostics sales, with sales and activations up substantially year-over-year. - It's the most cost-effective way to get intelligent diagnostics, appealing to the market. - Tools Group benefits, and software subscriptions are up substantially, contributing to profitability. -

3. Gross Profit Improvement
   Q: What contributed to the 100 basis point gross profit increase in Snap-on Tools?
   A: The increase resulted from a combination of factors: category mix favoring hand tools, efficiencies from new factory arrangements, and lower steel costs. - Hand tools provided some favorability, but improvements were across the board. -

4. Q4 Growth Outlook
   Q: How are you thinking about Q4 growth for Snap-on Tools?
   A: While not providing guidance, we believe the Tools Group has momentum. - With uncertainty, customers want lower payback items, and we're catering to that with compelling new products and expanded factory capacity. -

5. RS&I Hardware Sales
   Q: What's happening with hardware sales in RS&I?
   A: Hardware sales, particularly equipment like aligners and lifts, are seeing a slowdown. - Customers are hesitant to make big-ticket purchases due to macroeconomic factors and may delay installations. -

6. Torque Products Growth
   Q: What's driving growth in torque products in C&I?
   A: Increasing complexity in critical industries requires more precise tools, and torque wrenches provide that precision. - Additionally, the need for documentation is driving demand, as our tools connect with factory systems to record correct application. - This business grew in profits and sales in the quarter. -

7. Franchisee Attrition Trends
   Q: Can you update us on franchisee attrition trends?
   A: Attrition trends have remained about the same, fluctuating by tenths of a point quarter-to-quarter. - We saw an increase in the number of assistants as a percent of franchisees, which is favorable. -

8. Corporate Expense Modeling
   Q: How should we model corporate expenses for 2025?
   A: Lower expenses this year are due to reduced performance-based compensation. - For 2025, model around $27 million per quarter. - This year's slower growth affected performance-based compensation. -

9. Election Impact
   Q: How might the election outcome impact your business?
   A: It's difficult to predict the impact due to uncertainty around policy specifics. - Tariffs could require adjustments but might benefit those producing locally. -

10. SFC Orders and Fulfillment
    Q: How did SFC orders perform and what's the fulfillment pattern?
    A: SFC orders were flat year-over-year, adjusted for a shorter selling period. - - We've planned reinforcing promotions and expect fulfillment over a shorter period. - -

11. Mechanic Sentiment and Sales Mix
    Q: Is improved momentum due to product mix or mechanic sentiment?
    A: Mechanic sentiment isn't improving. - Momentum comes from pivoting to offer attractive, quick payback items that customers can buy without long financing. - Third quarter sales were up over second quarter, indicating momentum. -

Quarterly guidance for Q4 2024:

• Corporate Costs: Expected expenses in the upcoming fourth quarter to be more in line with those incurred in Q3 2024 - - (no prior guidance)

Annual guidance for FY 2024:

• Capital Expenditures: $100 million - - (lowered from $100 million to $110 million - )
• Effective Income Tax Rate: 22% to 23% - - (no change from prior guidance - )