On Thursday, Snap-on, Inc. (NYSE:SNA) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analysts and investors.
Tools Group Growth
Joe Vruwink – Robert W. Baird & Co.: This is Joe on the line for David. I think the most obvious surprise and it’s a great quarter, with the Tools Group growing 12%. Several straight quarters now that group has been putting up double-digit results, so I’m just wondering, if you can point to anything specific that might be driving that because it’s obviously well in advance of what some of your public peers are reporting for growth in their businesses?
Nicholas T. Pinchuk – Chairman and CEO: I think there is a couple of factors, one is that as I’ve said, we kept investing during the downturn, we said that. we invested in the health of our franchisees and they didn’t take a step back during the down turn. They in fact got better and stronger and I think, coming out of that we came out of the downturn with relative to others a strong, strong network, that’s one. Two, we have been investing in innovation, if you ever been here you see the innovation works and you see the products we are rolling out, so that they have attractive products. And then finally as I said in my remarks, we’ve been spending time working on RCI in terms of rapid continuous improvement and expanding the selling time. Only a – not all of the day is spent on selling and so this a productivity opportunity for us and we are working on that. I’ve said many time on the call, I think our call and then analyst meetings one-on-one that fully enabled our vans call on may be 800,000 technicians or 850,000 technicians and there are 1.3 million technicians in the United States. And they don’t call on them because they are less target rich. This is a productivity opportunity. What you’re seeing here is an effect that given our people more time to sell, more productivity advancements and therefore able to call on broader range of customers. And so you see those three effects, new products, stronger health and better productivity. And that’s what is generating these double-digit gains.
Joe Vruwink – Robert W. Baird & Co.: So with the van count pretty much stable productivity has helped you increase coverage, is there an indication of how much more you can pull that lever to see further revenue increases?
Nicholas T. Pinchuk – Chairman and CEO: This is right. This is same store sales, it’s a great – it’s a encouraging look. I don’t want to speculate on that. I mean I said that the numbers – but the numbers – when we had a first couple of quarters like this, I said well one quarter a trend does not make. But now the Tools Group has been putting together some pretty good quarters, I think through organic growth there have been stuff like 9, 10 and 6 and 9 and 12. So they’ve been doing pretty well. So we think this has got runway.
Joe Vruwink – Robert W. Baird & Co.: The new trend is double-digits?
Nicholas T. Pinchuk – Chairman and CEO: No, I wouldn’t say that I wouldn’t say it is double digit. But I think we feel very good about position the Tools Group is in. so without making any projection. I’d stick to my projection which says we are looking to grow as a company at 4% to 6% organically. Right every quarter. The Tools Group is a component of that.
Joe Vruwink – Robert W. Baird & Co.: Just on the C&I business I think this is the first quarter that saw the military side of that business isn’t a headwind. And I am just wondering with organic growth going from 4.5%, 5% to now it’s up above 6%. Would 6% be a more sustainable pace of growth in that business if…
Nicholas T. Pinchuk – Chairman and CEO: Look sure we said, we said that our growth range would be 4% to 6% organically and we’ve said that C&I will be towards the top end of that. so this kind of line’s right up with that, it’s a little bit better than that actually. And you are right in saying that this military was not a headwind this time. But this is, military is part of the critical industries. The critical industries piece of this business, and so you have and that concentrated in our industrial division. And if you go back to our last call you’ll see this is a second quarter in row which the industrial business has been registering double digit growth, which we view as confirmation of our assertion that we have runway in these critical industries. So we think that the C&I group will be helped by that.
Joe Vruwink – Robert W. Baird & Co.: Then just one last one from me for Aldo. Can you say what the delinquency rates have been running at with portfolio?
Aldo J. Pagliari – SVP, Finance and CFO: Well, the delinquency rates are published on Chart 11 if what you are suggesting is the all in bad debt rate that we sometimes talk to. Again, it remains a favorable trend with some of these delinquency rates.
Joe Vruwink – Robert W. Baird & Co.: So, like around 3%?
Aldo J. Pagliari – SVP, Finance and CFO: About 3.3%.
Jim Lucas – Janney Capital Markets: Couple of things here. You’ve given a lot of good color not just this quarter but over the past several quarters about the runways and how they continue to widen. Wanted to just delve a little bit into the Tools Group. In the past, you’ve talked a little bit about the makeup of bigger ticket items and demand there, and just curious what you are seeing in terms of the purchasing patterns of your customers if it’s more toward the handheld, the software upgrades, the toolboxes or is it just really just the day-to-day?
Nicholas T. Pinchuk – Chairman and CEO: Actually it’s the mix by product. If you characterize it, let’ say, big ticket full storage, the big boxes and the big size diagnostics and so on all the way down to hand tools and so on, that mix hasn’t changed for several quarters. The big tickets have been reasonably strong and robust in those mixes, and they haven’t really gone down or up within a reasonable what I would say quarterly vintage. So I don’t think you would see any trend inside there, whatsoever. You see some times in the Tools Group, as they reach out to other customers, you get a different mix within those groups like if you sell more to heavy truck or somebody like that, you’ll get different diagnostics and different hand tools and so on. You’ll get a different mix within the groups. But we haven’t seen much change with regard to dimension between big ticket and small ticket. It’s pretty much been the same.
Jim Lucas – Janney Capital Markets: If we take a step over to the C&I side on critical industries, are there any particular industries where you’ve been more successful and conversely are there others where you’ll find you’re not having as much traction, just curious as to what is standing out there?
Nicholas T. Pinchuk – Chairman and CEO: If you look at the quarterly numbers, Jim, you’ll get ups and downs every quarter. These businesses can be lumpy, but if you step back and you look at it over March or say 18 months or so on. I would say that we’ve been pretty strong in aerospace we’ve been very good at that. I think we’ve been good in the military, when the military has been positive, hasn’t been so lumpy, and we haven’t had these sort of political headwinds flowing through the military. So we’ve been strong in that with critical applications. Those are two I think that we’ve been better at. Natural resources is very good for us at times you know and so on and so I think those have been the improving areas for us.
Jim Lucas – Janney Capital Markets: Finally on Europe, I mean undoubtedly that’s going to continue to be a headwind. You’ve got some further cost actions that you’re going to taking. When you take a step back and look at your competitive position in Europe. Where you are today, what you are doing from a cost structure, is it really more just about playing decent, until the headwinds subside? Can you just talk a little bit about how you manage through the current environment in Europe?
Nicholas T. Pinchuk – Chairman and CEO: First thing I would say is we’re not exactly wringing our hands over it. You go back and forth, when you make comments on these calls and you want to say, you want to make people aware of the issues in Europe and so on. But we – this isn’t our first recession or our first downturn, of course, so we’re managing through this. So what we see is our customers are still in place. We see our productivity at our RCI efforts creating opportunities for restructuring. We see our Asian factories ramping up to the point they get capability and so on. So they can support and provide even more capacity. We’re being proactive in the idea. We’re bringing together the new capacity expansion we’re seeing in Asia and okay, looking to support Europe more than that. We’re taking the RCI activities and tailoring the footprint to the current environment reflecting those RCI activities. So I think those two things are happening. And one, so I wouldn’t call it necessarily planned defense, I would say more or less same, we believe the market comes back, we believe our customers in place. We believe that the BAHCO brand is still strong and around that we are tailoring footprint to be as flexible as possible. So in future ups and downs, we’re less vulnerable to let’s say variations in volumes and then on top of that, we’re overlaying the idea that more capability is coming online and the very flexible and growing capabilities in our Asian market. And that will also create the kind of restructuring program around Europe. One of the things I do want to emphasize around our brand, one of things that’s encouraging to us there is that, when you look at SNA Europe’s primary brand BAHCO, it’s selling pretty well outside any – when you are not talking about the core Europe, when you are talking about the periphery around Turkey, Russia and Middle East and so on, this brand is selling pretty well. So we are convinced there’s nothing wrong with the product line. It’s still very strong and being well received, and we get our pricing there. It’s just in those economics that are causing us the current challenges – those economies that are causing us the current challenges, and remember that Spain, as you know, is one of our biggest area, it was one of our biggest areas and the highest margin areas, and it’s down substantially in the quarter.