All right, everybody, thanks for joining us for this fireside chat with Snap-on. With us today, we have CEO Nick Pinchuk. Thank you for joining us. I'm Scott Stember, Analyst covering recreational leisure auto parts. If anybody has any questions following the meeting, you could email me at sstember@roth.com. Again, Nick, thanks for being here. Snap-on is the largest producer of parts, or excuse me, tools for the mechanics and dealerships in the automotive industry. You guys have what I call a secret sauce behind the Snap-on Valuation Creation model. Can you maybe just talk about how it all works, how you guys are able to continually stay on front and remain the top player? It's a big question, but look, happy St. Patrick's Day. I didn't realize it was St. Patrick's Day before I came here. My old neighborhood, they've been at the bars like five hours already. In their honor, Erin Go Bragh. Erin Go Bragh. That's it, boy. Off to a good start. Okay, let's talk about Snap-on Value Creation. We have two things. One is we say we have our runways for growth, and that's enhance the van channel, expand with repair shop owners and managers, extend to critical industries, and build on emerging markets. We also have something called Snap-on Value Creation, which is all about improvement. We say it's surrounding the processes of safety, quality, customer connection, innovation, and Rapid Continuous Improvement. It drives the improvement we've had. We say we can improve, we can improve even if we don't have extra value. Over the last 15, 60, well, maybe 17 years, we've averaged 85 basis points of improvement in OI margin every year on average. That's been based at Snap-on Value Creation. It fits what I would call our Snap-on's operating doctrine. It is customer connected, as we said there. I suppose it's product complex, and it is people-centric. Everybody would say people-centric, but in fact, it's driven by the people. Let me explain a little bit. The principal value creating mechanism for Snap-on is being in the workplace, observing the work. We call that this process customer connection. We don't survey the customer. We go stand next to them and observe what they're doing. We have people who can observe the work and say, "Look, there's a particular idiosyncrasy about this particular task, which is critical, and we will produce a tool, either a wrench or a piece of software that will make it easier." The problem with this is it drives an incredible product complexity because we will do that for a high-volume product or a small-volume product, believing that the customer will pay us for this. It is customer connected, product, I mean, product complex. And then how do we manage the complexity is one of the questions. We have as part of this Snap-on Value Creation, safety, quality, we make sure that we keep our people safe. Because if we make things for working men and women, what can we do if we can't keep our own people safe? We make it quality. Nobody questions whether Snap-on products are quality. The other thing we have is rapid continuous improvement. In other words, our people get up every day and try to figure out how to manage this complexity, how to make their jobs easier. We have every major facility, we have somebody in those facilities whose job it is to urge people on to do this. A couple of three dozen times a year, we have Japanese consultants come in, and people come from all over Snap-on and work on Kaizen in that factory to try to move that factory forward. Also to understand, to create greater understanding of Kaizen themselves and then irrigate their own plants in this way, or own offices. Once a year, we have the Snap-on management team do this. Every year, we have a Snap-on RCI, rapid continuous improvement contest, where 30-40 teams come from all over the country. They exhibit what they did. We name a grand champion. They have a traveling trophy, and we give them $10,000 for a party. Our view about customer rapid continuous improvement is the people are at the center. We have the people at the center. We Kaizen it. We see if we need technology to move it forward, and then we train the people on the technology and we go forward. Our idea is we use technology to make our people more powerful, not technology to replace them. Also, one of the things that's about this is we don't look at a problem and say, "We're driven by the problem, not by the technology itself." We don't bring out new products because we can. We bring out new products because they will solve a problem and people will pay us for it. That's it. Thank you. Last year or so, the Tools Group has seen, I guess, some of the end users have been pivoting to lower-priced product, and you guys have been pivoting yourself to supply them that, and it's had an impact on the business. How far along are we in the pivot process? Because the declines in organic sales have definitely been abating. The second derivative Tools Group is better, of course, is small comfort. I feel comforted by this. I think first quarter last year, Tools Group was down year- over- year 7%. Second quarter, 7.7%. Third quarter, 3.7%. Fourth quarter, 1.4%. Therefore, the second derivative got positive. Part of that is driven mostly by the pivoting. We are not all the way because you have to pivot, you have to pivot designs, and you just do not wake up someday, go into being a garage or a factory or someplace and say, "I need this new tool," and it is going to appear overnight. That is something we have to do. That takes a while to bring out the tools. Secondly, manufacturing takes a little longer to pivot. Even selling takes longer to pivot because when you're selling through franchisees, which are not third party people, but they're people who have their own idea of what their business is. Some of them love selling big payback items. You have to get them, the longer payback items. You have to get them to focus on shorter payback items. We are moving it along. The characteristic of what you saw there was the balance between our ability to pivot and the ups and downs of uncertainty in the customer base. The uncertainty goes up. We hope we can keep pace. If it explodes, maybe not. You cannot keep pace. That kind of thing. Got it. Throughout this whole process, you've been saying that the economics and the sentiment, or more of, I guess, the economics of the repair technician and the shops remains very strong. Has that changed at all? A lot of different ways. Windshield surveys. I go into garages myself. They seem full. I was just in a dealership, and the guy who runs the shop comes up to me and says, "You know any place I can get more technicians? I need more technicians. I'm bursting." You see this in almost every shop you go to. If you talk to our franchisees, I just talked to 50 of them all over the country, and they said the shops are pretty full. If you look at the Bureau of Labor Statistics data, they say spending on automotive repair, household spending on automotive repair up. The number of technicians up, which is faster than I've ever seen it grow before, 3% as opposed to 1% over the last 15, 16 years. Pay is up mid-single digits. That's moving quite positively. What you saw in the uncertainty was, just explain a little bit, why is it the tools group is down? It's because the technicians are cash rich, but their confidence poor. They're saying, "I'm pretty good now, but I don't know what the hell is going to happen in the medium term. I'm not sure what's going to happen in that medium term. Therefore, I'm not going to tie myself to something that might be a toolbox. We sell toolboxes $10,000. They pay them off over four to five years." They're reluctant to do that in this environment. Not zero sales of those things, but people are more reluctant. That's the point, they're pivoting to the things they think they can pay off earlier. I mean, you can see it right now with the tariff. I think it's a classic example with the tariffs and so on. You see the tariffs. By the way, if you talk to people in the garages, you talk to franchisees, they love the current president. They're like on Space Mountain now. They're like on Space Mountain. Ever go on Space Mountain at Disney World? You get on Space Mountain, it goes out and you're in the dark. The thing goes left and right, left and right, left and right, left and right, but you believe that you're going to get to a good place at the end. This is the way all our people are feeling now. Left and right, left and right, left and right. Lately, because of so many things that are going on, they wonder if the president's going to screw things up in the shorter term, and does he know what he's doing? They believe he's going to get us to the right place. That is where they are. Therein lies the whole idea of uncertainty. It had different roots before last year. Now it's metastasizing on that idea. I know you guys don't give guidance, and every quarter we've seen the same store sales number. I'll give you guidance. Milwaukee Bucks are going to win the NBA. Okay. Beyond that. Okay. Okay. Okay. Okay. As far as are we getting closer to being flat to inflecting up, do you think, in the next six months? We don't give guidance. There you go. We don't give guidance. I mean, look, I was at an, you know, first of all, we don't have backlog. We don't have much backlog in that situation. I am telling you, I know we're making progress. I love our chances in the future. We have strength in product brand, and we have a great group of people that I think aren't inexperienced. This isn't our first rodeo. I was just at an event in Washington where 92% of the CEOs thought we were going in recession. Your guess is as good as mine with some of this stuff. I mean, nobody, and I think the Space Mountain analogy is true. I think that left and right, left and right, people think they're getting in the right position, but they're not sure that the church, the president even said himself we might go into recession. That's going to create that kind of thing. However, I will say, in terms of the long-term trajectory, I'm not talking about this quarter or anything like that, because it could be worse. We ain't shaking in our boots. I understand you had like Country and Western last night. So we ain't shaking in our boots. Actually, I was quoted in Reuters saying the same thing, and we're not. The traditional mid-single digit growth narrative has not changed longer term at all. No. I mean, look, our strength is I still, boy, if you were a Snap-on guy and you realized that huge percentage of technicians or customers all wanted your product, they may not want to pay that much, but they all want your product. I think we just got an email on CNBC, I think today somebody said, "Well, once people are using Snap-on tools, they're not going to go to anything else." That's true. We have a product advantage. We have a brand that people put our wrenches in the hands of their babies and carve their tombstones in the shape of our tool storage box. Our brand is non-pareil. I think we've got a great group of experienced people. The average guy at Snap-on's been there 15 years, which means when they walk in the door, they're going to be there 30 years. That's a lot of experience about understanding what will solve problems in places like auto repair or aviation or oil and gas, which is the principal value creating mechanism of our company. It depends on experience. Got it. Let's talk about the Snap-on loan portfolio. The liquidity rates and write-downs have creeped up just a little bit, but it seems like it's more in line with pre-pandemic levels. Just talk about the favorable risk-reward scenario of running this business. I think, you know, I always like to say that Snap-on Credit company is the business that fell from Saturn. You know, I mean, the thing is we sell, we have a yield rate of, what is the yield rate? It's like 17.7%. It was down a tenth this quarter, but it's pretty solid there. The cost is about 5%. If you look at credit companies, you'll see that our returns are pretty solid. In fact, come hell or high water in the Great Financial Recession or the pandemic or anything, we didn't spit up blood over any of those things with our portfolio. The portfolio is solid. One of the reasons, there's a logical reason why this is the case, is because we're not a regular credit company. We loan to the same guy over and over and over again, and that's a technician. We know how technicians behave, and we can tell the good risks from the bad risks. When a guy wants to borrow from the credit company, we ask the franchisee what they think. We strike the franchisees as how good they are at it. A huge portion of them, even if the credit bureaus, which are specialized on technicians, say no, we will listen to the franchisee. It mostly works. What that means is for every big ticket item, the franchisee is part of the credit decision. He is on the hook if the technician, if the borrower defaults, the franchisee is on the hook for 25%. He has an interest. He collects every week from these guys. He sees them every week, sees them every week. Here's the cool thing. That's 35% of the business most times. 65% of the business, the franchisee sells small ticket items to him like a power tool, $600. He doesn't say $600. He says $50 a week, and he knows that's over 12 weeks. By the way, a guy gets on a van sometimes for a power tool, and a franchisee will say, "You know, I don't think you need that power tool. You know, it doesn't really fit your work. We'll bring in our new one in eight months." I asked the guy, I asked the franchisee, "Why'd you do that?" He says, "Because I know this guy's paying me $100 a week already. I know his daughter's going to college next month. I want to see him pay when his daughter's in college." He makes a credit decision, and then he collects that $50 a week every week for himself. What that means is every transaction on the van, a credit decision by the franchisee. Everyone. Every interaction weekly with the technicians, a collection. The franchisees are the most powerful credit collection or practiced credit and collection force in the country. That's why this business works like it does. The credit company works like it does. Let's pivot over to RS&I. Ooh, RS&I, yeah. You guys have been taking advantage of increased complexity of vehicle repair. Maybe just talk about how you've been able to do that. I think one of the things that drives, actually all our businesses in vehicle repair, and it's 70% between the tools group, which is 40%, and RS&I, which is like 28%, 30%, it's driven mostly by the changes in the vehicles. The vehicles keep changing. They've been changing for 30 years. I mean, back in the 1990s, when you can measure the number of electronic codes on a vehicle in dozens, now you measure them in 10,000. The electronics have gotten much more complex, and the vehicles become more fly-by-wire. We make the decoder ring to understand what the vehicle's saying based on what's wrong. You might think this is simple. It ain't that simple. Because even though they have tens of thousands of these codes, you do what you do, you scan them. It will give you the fingerprint, and then you have to fare it through or go through a decision tree, if this, if that, if this, generally. We have databases, one database, five billion, no, three billion, three billion repair instances. When the car said this, this was really what was wrong. You pay us for that, we will allow you to say, "Okay, put in the make, model, and mileage of the car and show us the car's fingerprint based on a scan, and we'll give you a Pareto diagram saves." 69% of the time it was a mass airflow sensor. 12% of the time it was the local wiring harness. It saves a huge amount of time for mechanics. As the number of data trouble codes get bigger and bigger, you aren't going to be able to decode that by sound or even by decision tree. You're going to need something like this, and we have it, and it's proprietary. For those things that are outside the Pareto diagram that come up on alternate Wednesdays in months with R's in them, we have a 500 billion data point database that you can fare through and solve these things. These are the things that really create havoc in an independent repair garage because it'll take days to find the problem. Not to fix it, just to find out what the problem is. You got to figure out how to fix it. We have the database to do that. That's the RS&I business, as well as some advanced lifts and aligners and tire changers. That business profitability was 26.6% last quarter, up 150 basis points, 200 basis points at the gross margin line. It was an all-time high. Over to Commercial & Industrial. You've been gaining some nice momentum as of late, despite weakness in the general economy and in Europe and other countries. How have you been able to do that? RS&I is, you can think of it this way, rolling the Snap-on brand out of the garage. Now, right here, it allows us to talk about one thing. What is our space? Our space is the critical. In other words, we solve things where the penalty for failure in solving those things or fixing the product is high. The need for repeatability and reliability justifies a Snap-on level product. We used to think we're just in automotive repair because that's one of those places. Then we realized there's a whole bunch of places like this, like military, aviation, oil and gas, you know, natural resources, even education. We're building product lines in all those places and building our understanding so that we understand the military problems and the aviation problems the way we understand vehicle repair. What that is, it's growing because we're building our product line and penetrating that place. Now, the people who work in those places really love Snap-on products. They like to get them. We just didn't have the fixes that they have now. We're building those out. It's working pretty well for us. It is very critical. We discipline ourselves. For example, I used to work in the air conditioning industry. For reasons passing understanding, air conditioning people don't think it's critical to fix it. United Technologies, they had Otis and Carrier. The board would ask me, "Why does Otis Elevator have higher margin service than Carrier?" I just said, "People don't get trapped in air conditioners." That is sort of the thing. We don't sell to the air conditioning industry. We can sell to the elevator industry, though. Before we turn to questions, talk about tariffs. You guys are relatively insulated compared to many other industries. We are resistant, not immune. The thing is, we make in the markets where we sell. We import some stuff from China. We do not import hardly anything from Canada. We are kind of, you know, but we can be hit by this, but it has not got us wringing our hands. Now, where we do not know what is going to happen is if there is, you know, sort of like counter tariffs in places like Canada. Canada keeps 25% on. We sell in there. We will have to figure out how to deal with this. We already did something. We just pound in a lot of inventory in there. We will wait to see how it plays out. We can run off the inventory for a while. For example, if Europe does that or other countries do that, we will have to work around those. It is not going to be trajectory altering for us. Got it. We'll turn it over to the audience. Have any questions? I can talk about who's going to win the Kentucky Derby if you'd like to give you a few tips on that. Yes, okay. Journalism. Okay. Is the name of the horse. Yeah. Yeah. He holds, that's my point, is he's got 65% of his, he's got, you know, a franchisee, he can have $200,000 on the street, right? He's got his own credit portfolio himself. That's why I say that's one of the reasons why our credit company is so powerful is because these guys are seeing the people every week and they know how to do it. Yeah. I think the whole thing is like this. Two things, two things. One is it leads us to be able to, it comes back to the scanning process. AI fits in a bunch of other places here, but it's, you know, it's, you know, it's, I think like in most places, it happens over time. I don't think there is any deliver you from evil technology. I've been in the business, I've been running general, I've been a general manager or president of a big company for 40 years, and I've never seen a singularity till this day. Even robots, we just bring them in and they helped us, but they didn't change everything overnight. AI will help a lot in this situation. You got these dozens of fingerprint. One, it will be able to sort through this and find the patterns in there in the 500 billion database quicker. The other thing it helps us is natural language processing, which you get a report. Our base data is a report from a technician. Here's what the car said, here's what I did. The problem is technician is a whole other language. There are 37 different nouns for the mass airflow sensor. You think I'm kidding? I'm not. Therefore, you have to fare it through this. Oh, by the way, they're not the most assiduous when they fill out the repair form. The AI helps you bridge those gaps and use more of that data we're taking in. That helps us a lot. Any other questions? Yeah. Nice hat. Good in Irish. No, no, no, retail. It's not our business. We're not a make your money by the penny company. Now, the franchisee is only 40% of our business. Remember, that's our principal value creating mechanism, to be in the garage, to add value by telling the worker, the franchisee, the guy who's doing the job, this will fix your job. We observe it and we'll come back and we'll generate a product that really will fix his job. If you're talking about the vans, some of the stuff we guarantee for life. We'll fix it for you right on the van or give you a new one, you don't have to go to a shop. The technicians are sub, sub, sub, sub prime credit risks. Who else would lend to them but the people who called on them directly? They do. Market research is a very euphemistic description of what they do in that situation. It's the franchisees plus our own people who ride with the franchisees are in the garage. I've been in the garage myself. I actually solved a couple of problems. People can't believe it, but it happened. Time for one last question. Yeah, I was on, actually I was on Squawk Box the other day talking about this. It isn't the tariffs that's going to make the difference. There were already 429,000 jobs empty in manufacturing. And there are two reasons you got to skill them. So you got to, we're 933 technical schools with Snap-on certification. Secondly, I'm doing all I can at the top of my lungs to say how essential these jobs are. All you got to do is think about the pandemic. During the pandemic, the people at work, the people in the factory in the garage were at their posts keeping our society from disintegrating while we engaged and defeated the COVID. LeBron James makes a lot of money, but he wasn't at his post. He makes a lot of money because he's the only person who does what he does, but he's not essential. The welder is essential. The more we talk about that, the more we're able to do that. The President just did this. He declared February the Career and Technical Education Month, and he said, "We will create alternate paths to university education that will provide real skills for real careers that communities need. We will make technology work for our people, work for Americans, not Americans for technology." That says it all. It says that these people are essential. The more we talk about that, the more we'll be able to recruit people. Sure. Sure. Sure. Yeah, well, the techs, we make them Snap-on customers for life. All right, thank you, everybody.