Snap-on (SNA)

Q1 2012 Earnings Call

April 19, 2012 11:30 am ET


Leslie H. Kratcoski - Vice President of Investor Relations

Nicholas T. Pinchuk - Chairman, Chief Executive Officer and President

Aldo J. Pagliari - Chief Financial Officer and Senior Vice President of Finance


Joseph D. Vruwink - Robert W. Baird & Co. Incorporated, Research Division

James C. Lucas - Janney Montgomery Scott LLC, Research Division

David S. MacGregor - Longbow Research LLC

Alek B. Gasiel - Barrington Research Associates, Inc., Research Division

Michael Aaron Prober - Clovis Capital Management, LP



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Good day, and welcome to the Snap-on Inc. 2012 First Quarter Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Leslie Kratcoski. Please go ahead, ma'am.

Leslie H. Kratcoski

Thanks, Melissa, and good morning, everyone. Thanks for joining us today to review Snap-on's first quarter 2012 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 discussions. You can find a copy of these slides on 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 the 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?

Nicholas T. Pinchuk

Thanks, Leslie. Good morning, everybody. I'll start off as usual with the highlights of the quarter and with my perspective on the results and on the overall business. Then I'll turn the call over to Aldo for a detailed review of the financials.

Our first quarter was another period of encouraging progress. Once again, it show that the Snap-on Value Creation Processes are enabling improvements just as they been doing for some time in a variety of macroeconomic environment. I think you could say that these past few years sure have been marked by a very dynamic environment. And yet, our discipline around safety, quality, customer connection, innovation and Rapid Continuous Improvement or RCI has driven momentum in good times and in bad.

Speaking momentum, our first quarter reflects continuing gains in the majority of our markets, and it represents another period of favorable operating margin comparisons. Organic sales increased 7% from last year. The OpCo operating margin of 13.3% was up 70 basis points, while FinCo contributed $23.9 million of operating income, a substantial increase from $12.5 million a year ago. The end result is an EPS of $1.21, a rise of 26% from the first quarter of 2011.

Now the primary feature in the past quarter was the volume. Widespread, strong gains across the majority of our business and the Tools Group serving automotive technicians and the Commercial & Industrial group or C&I serving emerging markets of Asia, as well as professionals in critical industries through our industrial division. And in diagnostics and software sales through our Repair Systems & Information group or RS&I, which focuses on serving repair shop owners and managers. All of those areas had solid gains.

If you recall that we identified 4 key strategic runways for our growth, areas that we believe will be decisive for our future, building an emerging markets, extending into critical industries, enhancing our franchise network and expanding in the garage. We believe this quarter's performance represent ample evidence of significant progress in each of these areas.

Importantly, I think, our overall 7% volume gain and improved profitability was achieved even in the face of a turbulent Europe, a headwind that strengthened since the last quarter.

Just like in the past quarters, our overall environment is favorable, but Europe is a clear challenge. Our volumes in Western Europe and Western European markets were down mid-single digit. You can see that impact most notably in the results of C&I, but it's also evident in the volumes of RS&I where we have a sizable European presence in our undercar equipment business.

The real story in the quarter though is that we were, once again, able to overcome the challenges and still grow robustly. So overall, we continue our progress, gaining in those areas we've identified as being decisive for our growth.

Now on to the highlights of some of the segments. C&I group organic sales were up 6.4%. So in spite of Europe, our overall C&I sales gain was actually more than we posted in the previous 3 quarters.

I mentioned the strong gains in both Asia and our industrial business, 2 of those strategic runways for growth, while both of those businesses were up double digit.

Related to Europe, I'll remind you that we have particularly large and higher-margin position in the South, especially in Spain. And that regions been even harder hit than the rest of the continent, so that certainly amplifies the European impact for the group. Operating margins in C&I was 10.2% compared to 11.6% last year. Now in those numbers, we did incur $3.5 million and restructuring charges related to Europe. Given the situation, we're making adjustments to the cost structure to better match the environment. These actions brought C&I margin down by 120 basis points.

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