Q4 2011 Earnings Call
February 02, 2012 10:00 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
Michael J. Wherley - Janney Montgomery Scott LLC, Research Division
Richard J. Hilgert - Morningstar Inc., Research Division
Gary F. Prestopino - Barrington Research Associates, Inc., Research Division
Previous Statements by SNA
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Good day, and welcome to the Snap-on Inc.'s 2011 Fourth Quarter and Full-Year Results Conference Call. [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, Investor Relations. Please go ahead.
Leslie H. Kratcoski
Thanks, Yolanda, and good morning, everyone. Thanks for joining us today to review Snap-on's Fourth Quarter 2011 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 will now turn the call over to Nick Pinchuk. Nick?
Nicholas T. Pinchuk
Thanks, Leslie. Good morning, everyone. Well, our fourth quarter represented an encouraging performance to cap off the year. The progress was not only reflected in the financials, but it also can be seen in our strategic advancements. The Snap-on Value Creation Processes, the principles and processes we use everyday to guide our actions, they're driving results. Our focus on safety, quality, customer connection, innovation and Rapid Continuous Improvement or RCI, as we often call it, it's paying off. And we believe the advancements made throughout 2011 on our runways for both growth and improvement position us to go forward with strength. Aldo will provide detail on the financials. But first, I'll offer some of my perspectives on the highlights for both the quarter and for the year. Sales in the fourth quarter were up organically by almost 6% from 2010. Operating income rose about 30% with our operating margin of 16.3%, up from 13.5% last year. Now net profit increase, of course, included some substantially higher earnings for Financial Services. As expected, that rise came right along with the continuing buildup of our on-book portfolio. But before Financial Services, the operating margin was 14.1% and that compares to 12.6% last year and represents a new high for Snap-on for any quarter.
With respect to the economic environment, the events in Europe are creating a bit more of a headwind. I don't think that'll come as a surprise to anybody. I would, however, still characterize our overall market on balance that's favorable, fairly stable and you see that in our overall sales growth. Just as we've demonstrated since the recovery began, we were once again able to gain position and defined the pockets of strength that allowed us to offset areas of external weakness.
I told you during the discussion about 3 months ago that our third quarter sales volumes, excluding the effects of currency movements, were above the pre-recession levels of 2007 and 2008. That was the first time we could claim an overall recovery in volumes. While the fourth quarter continued that overall trend, today we're reporting results that exceed fourth quarter 2007 levels, which is the most appropriate pre-recession comparison. And in addition, sales increased sequentially off the third quarter, consistent with our normal seasonality. So while Europe does pose some challenges, we are maintaining our momentum.
Now for some highlights from each of the segments and a discussion of our advancements in 4 strategic areas, extending into critical industries, building in emerging markets, enhancing the franchise network and expanding in the repair garage. We've identified these runways as being decisive for our future, and we made solid progress in each of them during the quarter and, for that matter, throughout 2011. In the Commercial & Industrial segment or C&I, organic sales increased almost 5% in the quarter. That growth was somewhat higher than the past couple of periods. So while C&I was where we see the most impact from the challenges of Europe due to our large hand tool operation in the region, SNA Europe, we actually saw better year-over-year comparisons than we've been posting recently. That progress was due to the gains in our Industrial business and to our continued growth in emerging markets, both in C&I. The C&I segment margin for the quarter of 11.2% was down from last year's 12.6%, largely reflecting the $2.9 million in additional restructuring charges and some challenges to the profits at SNA Europe as that part of the world is obviously not yet recovering. That margin rate, however, was improved from what we saw in the past couple of quarters, reflecting the relative strength of our Industrial businesses, which posed double-digit growth and reached new performance highs.