Snap-on Inc. Q1 2010 Earnings Call Transcript

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Snap-on Inc. (SNA)

Q1 2010 Earnings Call

April 20, 2010; 10:00 AM ET

Executives

Leslie Kratcoski - VP, IR

Nick Pinchuk - Chairman, President and CEO

Aldo Pagliari - CFO

Analysts

Jim Lucas - Janney Montgomery Scott

Keith Schicker - Robert. W. Baird

Gary Prestopino - Barrington Research

Presentation

Operator

Good day ladies and gentlemen and welcome to the Snap-on Incorporated 2010 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our remarks, we will conduct a question and answer session. (Operator Instructions). As a reminder, this call is being recorded.

I would now like to introduce your host for today’s conference call, Leslie Kratcoski, Vice President of Investor Relations. You may begin your conference.

Leslie Kratcoski

Thank you David and good morning everyone. Thank you for joining us today to review Snap-on’s first quarter 2010 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 recently appointed Chief Financial Officer. Nick will lead 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. You can find a copy of these slides on our Investor Relations portion of our website, next to the audio icon for this call. 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 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 factors that could cause our results to differ materially from those in the forward-looking statements are contained in our SEC filings.

With that said, I’d now like to turn the call over to Nick Pinchuk, Nick?

Nick Pinchuk

Thanks Leslie. Good morning everybody. Well, we’re once again encouraged with our results. We continue to make operational gains and to strengthen our strategic position. Both have helped us to deliver the results that are improving and I say are reasonable given the extended economic challenges.

Our first quarter operating margin before financial services was 11.6%, 210 basis points higher than the first quarter of last year. In fact, I think it's noteworthy that this 11.6% exceeds the first quarter record of 11.1% registered in 2008 and that was before the economic crisis. And the profits in that period were achieved at significantly higher sales levels.

This shows our commitment to the Snap-on value creations processes is driving strong improvement. The financial results are testimony to power that effort. With our focus on Snap-on value creation processes, safety, quality, customer connection, innovation, rapid continuous improvement or RCI as you call it, we’re becoming a stronger company and one that's well positioned to take advantage of any recovery. And we are seeing some positive signs, some good signs in certain market. Those opportunities added momentum to the operating progress we've been achieving over the past several quarters.

Aldo will take you through the financial but first, I’ll provide you with a perspective on the results, my own perspective. Regarding growth, our overall sales were up 8.6% from last year, over 4% organically excluding currency. As in the recent past, our results are mixed by geographies and by market segment. So I would say the quarter provides evidence that overall market have stabilized and are showing some signs of upward potential but because of the varying nature of the results, they’re not yet clearly rebounding.

In the past, I’ve mentioned the trends in big ticket items, products with relatively higher sales value, tool storage unit, diagnostic products as well as under car equipment, items which have longer paybacks. We believe sales in that arena are barometer of both our customer’s financial outlook and if they’re confident in their future.

Ending last year, the signs here were mixed. While in the first quarter, sales were mildly positive in all three of those big ticket categories. So we have some good news but its one quarter. Going forward, we are going to, we’re striving to create a reliable positive trend in those product line. It's important to us.

We’re also all aware that Europe was particularly hard hit last year at the downturn. And here again, we saw positive signs, following on with the big ticket discussion, our sales of under-car equipment in Europe posted gain encouraging given the overall struggle of Europe and give the capital nature of those purchases. We also saw increase however in our European based hand-tool business, both sequentially and year-over-year.

Encouraging here too was the fact that we saw some mild momentum in each month throughout the quarter. However, the mix nature of the results are also evidence in Europe. While we are encouraged by the overall gains South of Europe or existing Europe has a particularly strong position and Spain especially continuous to lag. Unemployment in that country is still very high and the drag is evident in a day-to-day commerce.

Another market segment that provides some gauge to the economy and one that get a real lot of national attention is the automotive OEMs and their dealers. To put this market in perspective for Snap-on, we have limited direct exposure. Our Equipment Solution Division or EQS and Snap-on business solutions SBS are where we do sell primarily OEM dealerships.

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