Snap-on at Bank of America Conference: Strategic Insights on Growth

On Tuesday, 18 March 2025, Snap-on Inc. (NYSE: SNA) presented at the Bank of America Global Industrials Conference 2025, outlining its strategic focus on serving professional technicians and exploring growth opportunities. While the company faces challenges such as technician confidence and tariffs, its vertically integrated model and strong financial performance provide a positive outlook.

Key Takeaways

• Snap-on targets professional technicians, avoiding the DIY market to maintain product value.
• The company operates 36 factories globally, with a significant presence in the U.S.
• Snap-on’s financing arm supports technicians with installment plans for expensive tools.
• Despite a slight decline in growth last year, operating margins increased significantly.
• Snap-on is exploring growth in heavy-duty applications and agricultural markets.

Financial Results

• Snap-on’s growth rate shrank by 0.9% in 2023, but operating margins expanded to 22.7%.
• The company has maintained an uninterrupted dividend tradition since 1939, recently increasing it by 15.1%.
• With 32% of sales invested in working capital, Snap-on prioritizes organic growth and strategic acquisitions.

Operational Updates

• Snap-on emphasizes direct relationships with technicians, avoiding internet sales to prevent commoditization.
• The company operates 36 factories worldwide, 15 of which are in the U.S., and conducts business in 130 countries.
• Technicians, who often fall into the subprime financial category, spend an average of $2,500 to $3,000 annually on tools.

Future Outlook

• Snap-on sees growth potential in heavy-duty and agricultural markets, focusing on direct observation and tailored solutions.
• The increasing complexity of vehicles and demand for skilled labor drive long-term growth optimism.
• Government initiatives promoting technical education may boost technician confidence and market demand.

Q&A Highlights

• CEO Aldo Puglari emphasized the importance of addressing daily challenges and prioritizing key problems.
• The company remains cautious about tariffs, noting that vertical integration offers some resilience.
• Snap-on continues to explore acquisitions with a focus on strong brands and cultural fit.

For a detailed review of Snap-on’s presentation, please refer to the full transcript below.

Full transcript - Bank of America Global Industrials Conference 2025:

Sherif Al Sabahi, Analyst, Bank of America: This afternoon, really happy to have Snap on with us. I’m Sherif Al Sabahi. I work on the US machinery, engineering, construction and waste team out of New York. And I’ll pass it over just to Aldo to give us a to introduce himself, to give us a little bit of color on his background at the firm.

Aldo Puglari, Snap-on: Oh, okay. Aldo Puglari. Snap on based in Kenosha, Wisconsin. Started in 1920, so it’s our hundred and fifth year. And sometimes, I think the value of history is it does somewhat repeat itself.

Back in 1920, everyone’s thinking about new cars. There’s more than a hundred different brands in The United States alone, so I apologize for having US centric measurements, but not so different than China today. We look at China, all the different manufacturers, and everybody’s thinking about how to build new cars, build new cars, build new cars. Luckily for us, nobody’s thinking about how do you fix cars. So these people come up with this idea in 1920, and he says, you know, I have an idea.

First off, I’m gonna go direct to the technician. I’m gonna mark it direct, not through a distributor, not through a catalog direct. And I’m gonna come up with an idea that impresses upon the technician that the work they do is every bit as critical as the work that a surgeon does. And I exaggerate not. And they lay the tools out, at least the story goes on green felt, the way a jeweler would lay out a surgeon’s scalpels and make them think they’re precious.

So as a result of that, the technician, the mechanic says, wow. This person really thinks I’m an important person. I welcome their visit. The culture of the company is to make that interaction the highlight of the technician’s day. And then, of course, you need to have a marketing slogan even back then.

So the guy says, okay. I’m gonna come up with five do the work of 50. What does that mean? I’ll have, you know, 10 different sockets, and I’ll snap them together on a handle of five different configurations, five do the work of 50. The marketing stopped there because that’s just the name of the company Snap On.

That’s where the name comes from. And over the hundred and five years that has continued to progress and has gotten to other theaters of life. About 37% of what we do today is direct to technicians. But we have right alongside the technicians, there’s other important things that are done, such as the garage shop today in 1920, the technician, the garage shop, one and the same. Now a garage shop is much more sophisticated.

It could be a classic OEM dealership like a Toyota, which tends to be big and urban centric with maybe fifty, sixty mechanics, making big time durable goods decisions on things like electronic databases, repair information, alignment machines, wheel balancers, lifts, electric car charging stations now in the latest rendition. And yet you still have a lot actually dominant, the number of shops that are still in the aftermarket selling to get cars repaired. United States, for example, there’s today about 18,000 OEM dealerships. At their zenith, there was 25,000. Great financial recession occurs in 2010.

Number goes down a bit. It hasn’t really changed much. The other 250,000 plus shops are all independently owned, and that number has been kind of steady over the years. People like to get their cars fixed close to where they work or close to where they live, the fact. So if OEMs lost after this work, and they do, they haven’t acted that way in terms of setting up more points of services.

There’s some of the realities of physicals that exist in life. And then on top of it, Snap on has catered to service repair, the two segments I just described. But there’s a need for other critical tools. If you think of Heathrow, if you think of aviation, it’s not just Boeing and Airbus, which do need investment in specialty tools. But if you look around the world at the MRO participants, how quick I can turn that jet airliner around at Heathrow tonight or tomorrow morning actually for us is every bit as important to that flight line manager.

And we’ll be flying on American Airlines. I guess national pride. I don’t know why, but I guess it was the cheapest fare probably, so this finance guy. But an on time departure is a big deal. And the person in Dallas, Texas where American Airlines is headquartered ain’t making that decision.

Pardon my English or my corruption on it. That’s being made locally. So the idea of Snap on is up close and personal, observing the work, identifying when there’s criticality involved. And when criticality is involved, whether it be productivity or other fail safe mechanisms, people are willing to pay for that premium. So as a result of that, we sell products on a premium basis across the scope of our business.

We’re willing to say things like, we do not like selling on the Internet. We do not like selling to do it yourself because we find that over time that kind of commoditizes one’s offering. You might be wrong in that view, but we’re willing to actually declare that we’re going to focus on the up close and personal, which comes with higher operating expense because you have to actually go to the work to see the work. But then that be it’s hard to duplicate. When we go to the field and see what’s being done, it’s a lot more relevant than just doing a survey of people.

We all get surveys every day online, right, surveys for everything, from your flight to the hotel to the quality of the b of a, presentations. You’re gonna get it all. But when you actually see somebody upfront and spend the time with them, they get to see what’s really making a difference in your business and how you can be more successful. That’s kind of the overview.

Sherif Al Sabahi, Analyst, Bank of America: And so you’ve touched on this focus on the technician, these critical roles that they play. There’s a lot of coolest companies out there, but how is Snap on unique, and how do you see yourself in a competitive landscape? Which is?

Aldo Puglari, Snap-on: Because I said we don’t cater to do it yourself, the one advantage and disadvantage is you don’t get scale. Advantages, you don’t have scale. So that means you can do more bespoke, unique, smaller lot sizes. You can cater to the more nuanced needs that might exist in different businesses. The example I’ve been using today, and again, I’m not an engineer, so I don’t know this by trade, but the needs of a mining company in Antofagasta, Chile, that’s a mile underground in the copper mines, are different than the needs outside of Perth when you’re doing open pit mining and moving major large apparatus on the surface of the earth.

There’s a difference between maintaining or decommissioning the North Sea oil platforms and making sure there’s no leakage on the ocean floor as compared to what’s needed when you’re putting new oil platforms into the Gulf Of Mexico or, North Sea, which they don’t do too much of anymore. So because these nuances exist and because we can survive, we’re very vertically integrated. So we have a lot of manufacturing capability in house. We actually have 36 factories around the world, about 15 in The United States and 21 outside The United States. So it’s not like we’re US only.

Doing business in 130 different countries. We have the flexibility to adapt. Now again, that means you have to command the premium because it costs money to adapt and be in these less than desirable scale opportunities. It’s not like we don’t like scale for the sake of scale, but when you declare certain strategies, make certain choices, then scale comes with DIY. But we don’t like that because it commoditizes the product.

Lower margins, more competition, more Me Too requires more advertising, etcetera, etcetera, etcetera. We find that over time, we can get more profitability the way we’re organized.

Sherif Al Sabahi, Analyst, Bank of America: Thanks, Hans. And you also have this sort of unique approach to the market where you’ve got franchisees direct to customer and other markets. You’ve also got a financing arm. Could you touch on how that financing arm fits into Snap on’s overall strategy and supports the both the franchisee and or direct market sales?

Aldo Puglari, Snap-on: Be careful not to scare everybody. Financing company. If you’re following industrials, financing companies are not so common. Snap on existed in a way, shape, and form really since the nineteen thirties. If you look at the pictures of the trucks in our museum, earn now pay later.

I mean, this is in vogue these days. Everybody’s talking about subscription based services. When you go over the concept, earn now, pay later, and I’m not talking about payday loans, but it’s like that, you’re selling high priced tools. Well, how do you sell a $100 wrench in 1930? Maybe it’s a little high price point for that time.

But you sell it by saying it’s $5 a week. That’s how you get it across. Eventually, the price point gets to a precipice where you need more duration, and that’s where the financing company comes in. So we have a financing company to help enable the franchisees and their customers. They’re the actual decision makers as to when to use financing.

But when price points start to get higher, things like a tool storage box, a median price of a tool storage box at Snap on with nothing in it, it’s about 8,000 US dollars. I mean, they’re not cheap. So you’ll find that the poster child of what gets written on extended credit is tool storage boxes. So mix off the back of the van, since we’re going down this path and I’m talking a lot, off the back of the truck, about 70% of what the franchisee sell is financed by themselves with their own working capital. These are the products that are selling x amount per week over up to fifteen weeks.

Thirty percent of the time, again, more or less, they’re selling things that require longer duration. Now the longest loan that Snap on Credit offers is up to five years, and the average loan in the portfolio right now is a little bit over four years. That number has been, you know, the five year duration, that maximum has been in place for twenty plus years now. So that kinda gives you a little bit of color. But what’s important about this, I wanna scare everybody in the room.

Before the word subprime was ever invented, that describes a technician. That is the financial profile of a technician. In our databases, 63% of our customers would meet the definition of a FICO score that’s in the subprime or lower category. Because of the nature how auto repair work is organized, and until you come into this room, you wouldn’t have thought of it. The technician owns their own tools that only exist in certain markets of the world, unfortunately.

United States, Canada, United Kingdom, and Australia. Common theme is the British Empire is in there somewhere. And in those markets, the technician owns their own tools. Everywhere else in the world, China, France, Germany, Italy, Brazil, the employer provides the tools. But because the technician owns their own tools, you have the pride of ownership.

You have the weekly in person collection agent, the franchisee, who simultaneously trying to collect the $5 to $20 per week or whatever the amount is, and at the same time, sell some new trinket or gadget or more importantly, a productivity solving solution to them. And they’re pretty artful at this. And by the way, you’re doing it with all your friends around you. So if I’m repossessing your tool, everybody else in the garage can see that. By the way, you need the tool because your employer doesn’t provide it to be productive.

Odds are you’re paid more by the job, not by the hour. So if I can squeeze in one extra job, whether it be putting in a break, putting in windshield washer componentry, that can get it done faster, that benefit accrues to myself. I get more pay. So therefore, the productivity is resonates. And on top of it, these people love adding to their collection of tools.

We find on average again, average gonna be misleading. But on average, people are spending 2,500 to $3,000 a year on tools. And over their career, they’re amassing more than $45,000 worth of tools and a tool storage unit. And again, broadly speaking, these are people that after tax might be making $50.60, 70,000 US dollars. What other job in the universe do you have to take an annual salary to work to make a living?

It’s a very unique business, but people just never stop and think of the nuances of it.

Sherif Al Sabahi, Analyst, Bank of America: And over the past year or so, we’ve seen organic growth be impacted in tool setting a little bit. And despite sentiment being fairly positive, the shops are full. There’s a lot of work to be done. Technicians have been pulling back on spend for those big ticket items. Have you seen any change with that with regards to the backdrop?

Anything in terms of purchasing attitudes, just given some of it?

Aldo Puglari, Snap-on: I’ll talk more at the macro level. Let me get in, I’m not ducking the question. We don’t give current guidance. I love that fact actually that don’t give current guidance. We give long term guidance.

But you could see that in the fourth quarter, and you can ask yourself how have things changed since the end of the fourth quarter. Technician confidence was weak. And when things are weak and you’re talking to friends that are attending the Bank of America conference, if they’re giving you bullish interpretations and signals, you’re more apt to make major investments. If your friends from Bank of America say, I don’t know. I don’t know what this saber rattling is, and two hundred and some people died today in Gaza, and the war is no closer to resolution.

And now you’re firing at Yemen, and I don’t know if that’s indiscriminate firing or it’s targeted firing. The world is still a little unstable is the point I’m getting at. So confidence has probably not gotten better over recent times from a macro perspective. The good news is that there’s plenty of work. You can go to any skilled labor application, whether it be at a factory, whether it be welders, machine operators, CNC machine maintenance people or technicians in an auto garage or at the tarmac at Heathrow.

There’s a need across the board for more skilled people. The governments of the world are starting to talk about this more surgically saying, Lee, we need to have more technical education. We have to make technical education and trades more popular for people to go into. Everybody wanted their children, once the time, to go into academia. And they all wanna go out and become investment bankers and things of that nature, but not everybody can do that.

And not everybody can be an art historian, and there’s nothing wrong with being an art historian. But it is a number of people that actually know how to work the trades. And you have to make it popular and have it full of pride like it did back in 1920 when people would be surgical felt, green tools, whatever you wanna call it, and and take pride in what they do. And that’s kind of our calling to make that popular again. Now the question on confidence, I’ll let the the audience be judges of that at this point in time.

But, the demand, the market is there and is needing people to make further investments because the number of cars are getting accretive. There’s not less cars on the road, there’s more. They’ve gotten a year older. There’s more complexity being introduced each and every day with whether it be vehicles, whether it be getting the astronauts back, with SpaceX versus Boeing, whether it be, I think there’s one of the CEOs of one of the an airline today declared that there won’t be any improvement in at least our expectations on delivery of aircraft for four years or more. That means whatever Boeing makes, whatever Airbus makes is not enough.

That means whatever the installed base of aviation is today, you have to keep them all online and running. So the need is there. So I feel pretty good about that. It’s not like your your demand has dried up. I think it’s people’s confidence that has to, again, mature.

And our job is to make them feel confident that if they make an investment in Snap on products, their chances of success are gonna be higher.

Sherif Al Sabahi, Analyst, Bank of America: And when we think about these these larger ticker items that, technicians might be putting off, typically, everyone thinks of storage. What else might be included in that? And, you know, as a technician from their standpoint, what in their careers are they purchasing larger things like storage? How often can they or how long can they really put it off for, given the need to Well

Aldo Puglari, Snap-on: In the interim? Step on stuff last a long time. And, in fact, our tools are guaranteed for life. So the hard iron sockets, wrenches, pliers, screwdrivers, those are guaranteed for life. So unless you lose it, you’re gonna get that replaced for free.

When it comes to power tools, there’s again variations on power tools and there’s specialty items. Now if you’re doing more work in a lot of these cars is the more they get computerized, you’re working sometimes under dashboards. You’re working on on more frail componentry. So you need smaller power tools that get into nooks and crannies and work in a controlled torque environment. So you don’t strip the fasteners that you cannot even see sometimes.

So getting variations, if you get into battery operated vehicles, I think there’s 90% more faster. It’s mostly associated with the battery pack. But all these items require a wider array of nuanced tools that, you know, you don’t even really need them. I can postpone it because I came to work this morning thinking I could fix every car that came into my shop, more or less. Now Snap on shows up with some new ideas, some new invention, said you could do this more productively.

Well, if I only see a certain vehicle once a month, I’d say, yeah, you know, I’ll struggle through it. I’ll take the extra fifteen minutes, an hour or two hour, whatever it is. But if I see this this vehicle with regularity, I say, wow, this could be a real time saver. I’ll get investment on investment return on this, plus I like to add to my collection of tools. I think you meet with success.

But you need to have one, the person convinced that your tool delivers the productivity that you promise. I think we’re pretty good at being able to demonstrate that, but it takes shoe leather to get out there in front of people and show them the difference. And you need to have people have a reasonable level of confidence to say, I think that demand is gonna keep coming into my shop or out at the tarmac or wherever it would be, and therefore, I’ll get a return on this. It’s not gonna be all of a sudden I bought this and I don’t need it.

Sherif Al Sabahi, Analyst, Bank of America: Makes sense. And just over the long term, Snap On has been able to grow earnings high teens outside the pandemic on, call it, mid to high single digit revenue growth. And investor expectations seem to be well below that historical range. Today, where do you see the most opportunity for growth and what verticals are you most excited about?

Aldo Puglari, Snap-on: It’s hard to read as to how people arrive at I think the PE ratio is what it is because of the mathematics. I don’t know if people can target a PE ratio. I think sometimes Snap on can get lumped in, with a more casual observation that’s associated with auto manufacturing. And auto is broadly speaking, usually are signed lower multiples because they have such cyclicality. But we’re really not so dependent on new car manufacturing.

Actually, we’re not really at all. We don’t make parts. So even if people say in the world of electric vehicles, there’s less parts components, really it’s time and where we can save people time becomes more relevant. The important thing though that you touched on a very good point, we actually shrank last year by nine tenths of 1% with our overall growth rate for the year, but our margins expanded. And we believe, and this becomes a little bit more doable when you’re vertically integrated, there’s always things that behind the scenes can be improved.

You can’t do it necessarily linearly every quarter. My boss or CEO would expect that. So we aspire to that, but it’s hard to to do it every quarter. But if you look at the tunnel of time, since 02/2005, Snap on had an operating income as a percent of 6.5%. Now this past year was 22.7%.

That’s without the financial services. It would be actually higher if you had financial services on top of that. So we think there’s ways to improve. I think people see the absolutes and they might wonder, is that as good as it gets? Can it be better?

We think it can. We don’t we don’t have a declared final target. But we think we have a great brand. We got a great history, great culture, not just a Snap on brand, but some of the brands we acquired over the years like BACCO, which is very big in the European theater and in emerging markets and Car O Liner when it comes to collision and John Dean and Hoffman, which are brands that are known in the world of alignment. We think they all bring unique characteristics.

So why should we not aspire to have margins equal or better than the highest industrials? And we don’t have a declared benchmark, but we know there are certain industrials that have in the high 20s. So I think some people look at the 22% or so and say, man, maybe it’s maxed out, so I got to go with strictly growth. And Snap on and auto repair or MRO is never gonna be as sexy as the next AI invention. Yet behind the scenes, there are elements of machine learning that go into the products and the tools and the things that we do for a living.

But I don’t wanna get too dramatic and I’m playing the AI card, but we use machine learning and sophistication when it comes to databases that are used to predict what might be the most likely root cause of a problem on a car. We have the by the book steps one, two, three, four, five, six, seven, eight that the OEM might prescribe, but then you get predictive failures. So we have and I call that more machine learning than anything else. So, again, I don’t think we have the sexy growth story necessarily. And I think it’s a consistent story.

And even in the great financial recession, if you look at our margin performance back just before we entered, it was 12.2%. Yes. It declined during the great financial recession to 9.9. So while that was a disappointment, especially going below 10%, my boss wasn’t happy with that. It wasn’t end of life.

So we think we know how to deal with these traumas that are gonna present themselves over time, and they will. But again, MRO, repair, criticality is enduring. And therefore, we think there’s going to be a continuous demand for the products and services.

Sherif Al Sabahi, Analyst, Bank of America: You’ve touched on some of these data products and other items. Turning to RS and I that is a sales into the dealers, lots of those larger pair systems. Have you seen a change in the backdrop there in terms of dealers willing to spend on on systems just given the more volatile backdrop?

Aldo Puglari, Snap-on: They’ve actually been well, sometimes it’s prescribed and related to new car platforms that roll out. So when there’s a lot of new activity, it forces sometimes, for lack of a better word, dealers to make investments. So for example, when a Cadillac declares we’re gonna have x amount of sales are gonna be electric. Like I have a charging station in the front of the dealership for their customers. They have to have at least one in the back for the technicians.

We don’t make charging stations, but we might facilitate the industries that sell into that and help dealerships remodel, for lack of a better word, their base, their appearance, and the investments that go along with them. Some of those programs have been quite dynamic of late in our equipment services division that did had a very strong 2024. And that still seems to have a good order book as we enter 2025. So you can get variations, but still the need to deal with the ever complex array of cars that are coming is there’s no signs it’s gonna be, you know, because cars keep getting more complicated.

Sherif Al Sabahi, Analyst, Bank of America: Understood. And okay, turning sort of to the commercial and industrial side of things. We’ve seen a few years of really strong machinery fleet sales, notable replacement the last few years and what looks to be several strong years ahead for some end markets in terms of repair. Are you seeing any variation in those markets? And how should we think about your sales sell through versus some of the replacement demand and upkeep for these fleets?

Aldo Puglari, Snap-on: Fleet sales directly are not so big a piece of the business to snap on itself. It’s more you have fleets in different places that you might make spot buys and different vehicles. But selling the repair information to the fleets is important. And selling products that are unique such as the diagnostic products that are used to service heavy truck. Snap on, I think, still has a lot more upside yet in heavy duty applications.

Even though we’ve been around for one hundred and five years, we’re far more penetrated on the light vehicle and truck side than we are in the heavy duty. So I think that you have opportunities that still exist on that side. And again, criticality is important. Trucks are not, they’re very valuable assets when they’re on the road, not so much when they’re not running. Same, I’d say, extends into agriculture.

I think we’re still in early days of penetrating agriculture. But if you get into the number of variations of what’s needed to service the agricultural fleet, there’s as many repair stations, I think in Europe and The United States as there are actually for cars, but it’s just not something that’s been top of mind so much. But it’s a growing important sector, I think, for us to pursue. So I think you get whenever there’s criticality involved in these trucks and tractors are getting more computerized, more complicated, more nuanced, I think there’s a need for the people that service those to add to their repertoire of products and services.

Sherif Al Sabahi, Analyst, Bank of America: And you mentioned and you touched on the fact that you’ve historically had a bit more limited penetration in some of these commercial markets. Going forward, how does SnapOM look to expand? And maybe why were those barriers there versus the

Aldo Puglari, Snap-on: The pacing element is observation of the work, just like it was back in 1920. How do you get out and actually observe the work? Anybody, as I said, can survey people. But you really have to see what’s really wrong. You have to be at the workplace.

You have to invest the time and effort and energy. And then how can you take back to your engineering capabilities the problem that you observed in the field and what you might do to remedy it? That’s a solution. Same on heavy duty. It’s a matter of not treating the segment as a byproduct.

Oh, I have some products that overlap. Let me sell here. That’ll take you aways. That’ll take you even though I have wrenches that are used. They can repair a car.

Oh, look. They can repair an aircraft up to this extent. But if you really wanna get serious about it and build the segment, you have to approach it more surgically and structurally and cater then to those nuances. And again, servicing a truck is different than servicing a tractor and servicing, as I mentioned, a mine in country A versus country B can be different. And catering to those variations is what Snap on does.

So even though our absolute level of sales is one third of size of some others in the industry, we might have three, four times the stock keeping units.

Sherif Al Sabahi, Analyst, Bank of America: And when you look to expand in these areas, is it mostly an organic process, developing those tools internally or are there bolt on opportunities?

Aldo Puglari, Snap-on: Both. Organic is obviously the first choice and that’s where you have the most comfort. It’s got more predictability because you’ve been doing it, you have people on staff. When supply chains get disrupted, sometimes you have to devote your engineering talent to qualifying new suppliers versus coming up with new products. So when you don’t have supply chain dynamics that are accruing, you have more engineering talent to deploy.

But M and A certainly has its role. The example I like to use is right up the road here in Oxford as a company that Snap on acquired maybe back in twenty sixteen, twenty seventeen or so, Norbar. Norbar was created at the end of World War II because there were not torque companies in The United Kingdom that were capable of servicing Rolls Royce engines for the aircraft that were used in World War II. They had to get a license from someone in The United States. Norbar eventually got the direct ability to license it and perfected their own products.

And over time, that company progressed and became very well known in the industry if you’re in torque circles. At the same time, it was a £50,000,000 company. But their know how was extremely gifted. And therefore, if you marry it up with a Snap on that has maybe a bigger balance sheet, more geographic dispersion, and also power tools capability. You could start to marry the technologies of torque with the technologies of power tools and other industry sale capabilities, and you get long sought afterword synergy.

Synergy is very hard to find. Sometimes you have to be very skeptical as a finance person, I think, in judging it because sometimes synergy doesn’t. In this case, we look for opportunities where the company has a strong brand. Family had a great reputation. The family, the owner of that company recently retired.

So you spent a good seven plus years with us. It goes to show that Snap on is a company that values culture and legacy. And as a result of that, it makes it possible to attract other potential M and A candidates because you can point to examples where you bought family owned or smaller operations and their legacy can live on. So we try to find things that are kind of a cultural fit. Doesn’t mean we don’t make changes, but we’re not looking to make rash changes.

We’re not the type of company that when you look at m and a, you’re gonna put two things together and get a huge cost synergies because you’re blowing up the corporate headquarters. There’s a time and place for that, but that’s not Snap On’s approach. Not that we don’t look for cost savings, but foremost, what’s the reputation of the company? What are the unique characteristics? What are the products?

What’s the talent? Will the talent stay or

Sherif Al Sabahi, Analyst, Bank of America: will the talent walk out

Aldo Puglari, Snap-on: the door? These are all things that we think very highly of first and foremost. And then how can you amplify their capabilities when you take the entirety of Snap on and presence in certain geographies that they might not be otherwise?

Sherif Al Sabahi, Analyst, Bank of America: How do you amplify what they already do well? And you touched on balance sheet. You’ve got a really strong balance sheet that affords you quite a bit of optionality. The last few years, you’ve seen quite a quite a bit of cash flow build. And you’ve been consistent on the dividend in terms of growth.

Outside of that, what do you see as the priorities for use of cash? And how has that changed at all these last few years?

Aldo Puglari, Snap-on: We’re very working capital intensive. Number one, I mentioned organic growth. That’s what most companies strive to the most because they’re most comfortable with it. Today, Snap on invest about 32% of working capital 32% of sales is in working capital. There’s not like a a law that says it should be that high.

I tell people, can it be better? Yes. But I ask you not to model it so. Yes, you can produce projections of cash flow could be better, but we get compensated on our operating income in relation to return on that operating assets. So when we make an investment in inventory in particular or sales terms, we look at the returns that they generate and we’re comfortable that our product doesn’t obsolesce quite the way many other industries do.

We’re not subject to the expression of fashion sense. Our product doesn’t go out of stock. The iron lasts forever. As I said, it’s guaranteed forever. So sockets, wrenches, pliers, I can put those on the shelves and not really worry too much about them.

Electronics will deteriorate over time. Batteries will become weaker over one, two, three year period. And electronics, you always have to look at what’s the next great invention that’s coming because you can supersede your own offering. So there you gotta be a little bit more mindful of it. But working capital has been a pretty safe bet.

And in times like these, when people are threatening tariff a versus tariff b, you want to be flexible and nimble and have second sources of supply. The world learned that following COVID, the value of not being just in time inventory techniques. So

Sherif Al Sabahi, Analyst, Bank of America: while

Aldo Puglari, Snap-on: we’re not against any of those principles, we find by maximizing working capital turnover is not necessarily the way of maximizing profitability. So that’s one, organic growth. Number two, m and a. That’d be the most, second most desirable way to grow in the type of industries that are coherent to what we do. So we’re not looking to reinvent the company.

We’re not looking to add diversification. We’re trying to go into what the industry might call bolt on acquisitions. We use the word coherent acquisitions. And that’d be the next objective. And then you mentioned the dividend.

Yeah. Dividend unreduced and uninterrupted since 1939. There’s no right or wrong to that. That’s just our philosophy. So you can probably guess fairly, with fair certainty the current management team is is still endorsing that strategy.

That means every time we increase the dividend, we have to think of it as a perpetuity, which means we’ve modeled cash flow. It’s not guaranteed, but we’ve modeled it. And if you look at the dividend increase, it was 15% dividend increase most recently, 15.1, I think, to be exact. But if you look over the last five years, I think you have consistent double digit increases in the dividend. I’m not guaranteeing that going forward, but we kind of feel if you look internally, our confidence in the type of businesses that we have continue to be pretty good in terms of cash flow generation.

And then share repurchase, there’s a role for share repurchase. Certainly, we avoid dilution. You get varying levels of share issuance. When stock prices go up, you tend to have more option exercise. We have employee stock purchase programs.

We have franchisee stock purchase programs. The more stocks rise, the more people participate. So you get some variation there. And then we eat into the outstanding share count a bit each and every year. Again, are we declaring any type of accelerated share repurchase?

No. No. And, again, no right or wrong answer, but we’re not big believers in dramatic use of our cash for share repurchase. We have outstanding at the end of the quarter, we had $429,000,000 worth of outstanding share repurchase authorization. But we always feel if there was a need to do more, we can always go to the board in a proper fashion and get more if needed.

But I’m not telegraphing anything like that now.

Sherif Al Sabahi, Analyst, Bank of America: And how should we think about Snap on’s product development cycle? You’ve touched on every new generation of vehicle having new problems that need to be solved in Snap on developing the tools to solve those. So how should we think about just the refresh of the portfolio and maybe how development varies between hand tools and power tools?

Aldo Puglari, Snap-on: Yeah. We retire some products over time, but more or less, we’re growing consistently our number of SKUs. So we’re not looking to skinny down the line for cost savings. So we found that we have gotten a return on variation. The nice thing is that when you’re vertically integrated, a lot of the technologies of the world are coming your way and enabling companies to make more rapid changeover of tools, dyes, products, and But then how do you make things in units of five or 10 or one?

Even how do you do that cost effectively? We try to look at that. But technology is going our way in terms of enabling factories to be more flexible, capable. So not only do you get raw capacity expansion when you make investments in new tools and machinery, but you also get more flexibility where operators can run maybe five machines in a cell, where before you’d have classically one operator, one machine, one operator, very redundant work, very boring work. Now it’s a little bit more intriguing.

The skill level of the person has to be higher. We do a lot of that teaching internally, but it makes the job more interesting. When jobs are more interesting, people are more productive, more creative and you get better quality, I think. So we we try to approach it in that fashion. But the need for new tools and the ideas, incubation period, six months typically.

But if there’s an immediate and acute need, can you do things more rapidly? Some some things take longer to develop? Yes. Like everybody else, when it comes to our diagnostic line electronics, we have things in the back shelf. And you try to say, well, when should I release that?

If I announce it too soon, do I dry hole my current offering? So we try to be cognizant of that and have some some logic to what we do. It doesn’t mean we’re perfect by any means, but we have a lot of ideas. We get a lot of ideas from our customers. We get a lot of ideas for people that go into the field.

So it’s a very iterative process. And the way we kind of measure it is the number of what we call million dollar products. And that’s a product that sells $1,000,000 in its first twelve months of existence. Doesn’t mean it’s only a million, sometimes it could be much more. But it takes a lot of million dollar products to add up to $4,800,000,000 But we have more than a hundred of those in recent times that compares to if I go back ten plus years, it might have been 20 or so.

Oh, again, rough numbers. So just having a targeted vitality rate, while it sounds great, and a lot of people will talk about that, you gotta put more context around the vitality. You have to say what is the purpose and what is it you’re going to try to do with it. Because if you just try to manage any given metric, I sometimes find you submaximize the performance of a company. So you try to look at everything and balance it.

And I believe the biggest challenge in business is every day you walk into 1,000 problems. Usually, on their own, each one is solvable. Problem is figuring out what are the top three gonna solve today. And this that’s just been my experience. And trying to focus on the top three because you cannot do everything.

You cannot do everything well. You can’t do it. And some people are afraid to declare that. And again, I said at the beginning, strategy about choice. You have to try to get your operating management team to identify what are the couple of things that are really going to make a difference.

Sherif Al Sabahi, Analyst, Bank of America: And thinking high level, you know, something that’s been in the news quite a bit in front of mind for investors has been tariffs. And the landscape’s been shifting quite rapidly. Really? How should we think about their impact to Snap on, if any?

Aldo Puglari, Snap-on: First off, I’m not a fan of tariffs per se. I believe tariffs, broadly speaking, as an economist by training, it it undermines what any given country, prefect, or state does well. Right? All kinds of to an economic world trade is you do this really well, you do that, I’ll do this, and we’ll help each other out. So tariffs get in the way of that.

So it creates inflation in some way, shape, or form. Now that’s theory one. Theory two is being vertically integrated, I think, gives companies more flexibility to deal with it. I’m not Snap on is not so dependent on buying and resell. What’s that source of supply?

And are you gonna are they gonna have declared componentry that’s gonna be subject to the tariff or not? Or if I have to get a second source, how do I control that? I mean, you get a second source in the last, coming out of COVID period. You know, you wanna make sure you get a quality second source. You just don’t get a second source.

You have to qualify the product and make sure it meets up to your reputation, particularly if you’re selling premium products. So the more vertically integrated one is, the more I believe you’re resistant, not immune, but resistant to the effects of tariffs and trade. And as I mentioned, in some part, as I know I’m talking a lot, but we do have 36 factories, 15 in The United States, you know, the remainder 21 outside The US, and we try to manufacture close to where we sell. There’s national pride everywhere in the world. US Technicians love buying US stuff.

Italian technicians love buying Italian stuff. But the practicality is we sell 80,000 SKUs. You try to get them proximate to your major market because it costs a lot of money to transport things across oceans and then the freight time and coordinating the deliveries. So there’s a certain practicality to being vertically integrated, and I think that helps with respect to tariffs. Now having said that, the thing that no one can predict in this room, I suggest, is what’s going to be the follow-up?

Is there going to be, as you’ve seen in the newspapers, don’t buy American whiskey. Right? The Canadians are you see that there you saw that hockey teams got into a fight. Is that gonna be enduring and permanent? Will that have a negative effect?

Because we sell products in Canada, as do others, and there’s not a lot of manufacturing of tools in Canada. So it’s not like there’s an immediate exposure there, but then how do I know a Canadian customer might not be, prone than to say, well, I’ll get something from Europe. I’ll get something from Asia. These are all risks that are unquantifiable at this point in time. Now we don’t think that’s gonna be the case.

We think people are looking at Snap on as a product that they’re married to to a point in time, but you never know what happens when emotions run hot. So tariffs, a concern, unpredictable, uncodified until you get more direction. I mean, are we stocking up on champagne that comes from France right now? Not me, but some people might say, I don’t want to avoid a 200% tariff. We try to position inventories creatively to try to mitigate, but you don’t know the full rules yet.

So it’s hard to really predict with accuracy. But I’m not a fan of tariffs.

Sherif Al Sabahi, Analyst, Bank of America: Thank you. Well, with that, I think we’re just about out of time. Thank you so much for joining us today.

Aldo Puglari, Snap-on: Okay. Thank you.

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