Snap-on Inc (SNA) Q2 2010 Earnings Call July 23, 2010 11:00 am ET Executives Leslie Kratcoski - VP, IR Nick Pinchuk - Chairman, President and CEO Aldo Pagliari - CFO Analysts David Leiker - Robert W. Baird Jim Lucas - Janney Montgomery Scott Gary Prestopino - Barrington Research Presentation Operator
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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 turn the call over to Nick Pinchuk, Nick? Nick Pinchuk Thanks Leslie. Good morning everyone. I think it's fair to say that the second quarter results provide some significant evidence that our strategies are working. We continue to make tangible gains in markets that are mixed, still tough, but improving. In this environment we remain committed to the Snap-on value creation process. They form a powerful framework for both capturing those opportunities and for achieving cost and flexibility improvement and we continued to make progress in the four and key strategic initiatives that we believe would be decisive for us going forward; enhancing the franchise network, expanding our presence in vehicle repair facilities, extending out of the garage and into critical industries, and building and emerging markets. In each of those areas we are encouraged by the progress that's evident in our second quarter. The organic sales in the quarter were up nearly 10%, about $57 million from last year and operating earnings before financial services were up more than $25 million or 47% over last year's level. The resulting operating margin was 12.2%, that's up 310 basis points from 2009. Encouraging progress was the Snap-on value creation processes, processes like safety, quality, customer connection, innovation and rapid continuous improvement have driven to reality. As usual, Aldo will take you through the financials in detail but first I will give you our perspective on the markets and cover some of the operating highlights.
Last quarter, I characterized the markets as, I think I said stabilized, favorably inclined but not rebounding. Since then, we haven't seen any exceptional economic acceleration. However, I will say that overall nothing has led us to be less positive.So certainly, we now have one more quarter of stability and we actually see some pockets are further strengthening. So we are a bit more encouraged, but we remain cautious. It's clear that the recovery is fragile. Let me provide you a little bit more color on the sales front. In addition to the 9.6% of year-over-year organic sales increase, volume was also up about 6% sequentially from the first quarter. For us overall, there is not much seasonality except in the third quarter when summer vacations and shutdowns primarily in Europe can make volume hard to predict. So the 6% sequential increase in the second quarter was fairly strong compared to what normally is relatively flat for a second quarter progression. In fact, it was the strongest second quarter uptick we've seen in at least seven years. This strength was reasonably widespread with all the operating group, Commercial and Industrial tools and RS&I were up all stronger than the normal increase. In addition to those overall volumes, we've also been watching the trends and what we've been calling big ticket items, large dollar products like diagnostics and under-car equipment that have longer payback, and tool storage units, which are more discretionary purchases. Given the capital nature, we believe activities in those products are a window on our customer's financial position and the overall confidence and we are encouraged by what we saw. Under-car equipment sales showed favorable trends in the quarter and that was true in both North America and Europe. Diagnostics and Tool storage units, which are generally sold through the van channel also showed positive sign. So, now we recorded two quarters of big ticket progress and that is a fairly strong positive because we seen quite a bit variation in these products during the downturn over the last 18 months. Read the rest of this transcript for free on seekingalpha.com