Snap-On at Oppenheimer Conference: Strategic Positioning Amid Challenges

On Wednesday, 07 May 2025, Snap-On Inc. (NYSE:SNA) participated in the Oppenheimer 20th Annual Industrial Growth Conference, offering insights into its strategic direction amidst market challenges. The company emphasized its commitment to customer proximity and operational efficiency, while addressing concerns about tariff impacts and consumer confidence. Despite facing softness in military spending, Snap-On remains optimistic about its long-term growth, supported by a strong cash position and strategic investments.

Key Takeaways

• Snap-On is focusing on customer proximity and vertically integrated manufacturing.
• Tariff impacts are being mitigated through strategic production shifts.
• Military spending softness is expected to recover under the new administration.
• The company is investing in software solutions to enhance automotive repair efficiency.
• Snap-On maintains a strong liquidity position with $1 billion in foreign cash.

Financial Results

Snap-On reported mixed performance across its business segments:

• RSNI Segment:

- Achieved a 3.7% increase in the quarter.

- Profitability improved to 25.7%, with a 40 basis points increase.

- Gross margin rose by 70 basis points.

• C and I Segment:

- Experienced a 2.9% organic decline due to reduced military spending.

- Profitability reached 15.5%, up by 10 basis points.

- Gross margin increased by 180 basis points.

• Overall Performance:

- Gross margin stood at 50.7%, a 20 basis points improvement.

- Decremental margins decreased by 360 basis points, leading to a 20% decline.

- Current levels remain 500 basis points above 2019 figures.

Operational Updates

Key operational insights include:

• Equipment Services (EQS):

- Growth driven by OEM programs related to new car models and recalls.

- Achieved double-digit growth and increased profitability.

• Military Spending:

- Softness in spending affected C and I results, with recovery anticipated.

• International Markets:

- Weakness observed in Europe, particularly in Nordic countries, Spain, and Italy.

- Asia presents opportunities despite challenges, with China facing significant issues.

Future Outlook

Snap-On’s strategic direction focuses on:

• Enhancing working capital efficiency and dividend payouts.
• Pursuing acquisitions to strengthen its van channel and expand in emerging markets.
• Investing in software solutions to improve garage efficiency and predict repair trends.

Q&A Highlights

Key discussion points included:

• Tariffs:

- Challenges in predicting tariff impacts, with production shifts as a mitigation strategy.

• Software Business:

- Emphasis on diagnostic tools and electronic parts catalogs to boost garage efficiency.

• Consumer Sentiment:

- A 30 percentage point drop in sentiment since December impacted large purchases.

In conclusion, Snap-On continues to navigate market challenges with strategic focus and operational efficiency. For a detailed understanding, readers are encouraged to refer to the full transcript.

Full transcript - Oppenheimer 20th Annual Industrial Growth Conference:

Unidentified speaker, Analyst: Thank you, Annie, and welcome everyone to our Generac fireside session. Special thanks to Nick Aldo and Sarah for joining from Generac and glad to have you guys back at the conference. Thanks for participating. So I think wanted to kick off with sort of a high level kind of frame up type question then get into some of the comings and goings of the business model and the market backdrops. But Nick, maybe if you could discuss Snap on’s market position, competitive distinction and challenges and, you know, high level management style and philosophy?

Sure.

Nick Aldo, Executive, Generac: Yes. Look. Snap on is, I suppose it’s the, I would say, the premier tool company in the world and certainly has a brand that’s substantially one of them one of the most powerful, not the most powerful with working men and women, in The United States. What what all over the world, really, and but particularly in The United States. And where we operate is we operate where the jobs are critical.

That is the need for repeatability and reliability justify a Snap on level level tool or a piece of software or so on. And, you know, we used to we used to just provide wrenches, hand tools, but now we found and we used to just sell through our van channel, is now 40% of our business. We found that we could we could provide things a ranch, of course, but a piece of software or anything in between, as long as it solve critical tasks. And we could sell through our vans well, but we could also sell through distributors and direct. We have big direct sales force.

Our principal snap principal value creating, mechanism is a little different than others. We tend to wanna be at the at the place of work so we can observe that work and figure out the particular challenges in the critical environment. So when I say critical environments, of course, mean automotive repair, but also aviation, oil and gas, heavy duty truck, education, mining, a lot of different things, again, where the penalty for failure is high. We we like to be there. In fact, we are there.

We’re we spend more time in more workplaces than anybody else in the world. We call on a million technicians almost every week, almost a million technicians almost every week. And so we’re there. We observe the work, and we get insight from that that says, boy, we could make a tool. We could make an innovation that would make that work easier, that would create greater ease in that work.

And that is the fundamental value creating system that we have. We tend to make in the markets where we sell because the essence of our business is to be at the point of work. So as such, we have 36 factories around the world, 15 here in The United States. So, you know, in the in the parlance of the day, tariffs, aren’t terrifying us. We’re not immune to them, but we are we are resistant to them.

We can we can maneuver around them very well. In terms of in terms of our our management philosophy, I think it comes down to that. We like to be forwardly placed. We like to drive the decision making down as close to the the customer as possible. We try to be vertically integrated, which we are.

And, again, we try to be as close to the customer. All the while trying to make sure that we keep reinforcing one incontrovertible fact is that work is essential. We saw it in the pandemic, and so we try to reinforce the pride and dignity of work. And one of the best supports for that is is that Snap on brand is the outward sign of pride and dignity that men working men and women take in their profession. They ask us they take pictures on their wedding days in front of a Snap on box or off a Snap on truck.

They put a Snap on wrench in the hands of their newborns, and they ask us for Snap on boxes so they can bury their loved ones’ ashes in them. And I ain’t kidding about that too. It is the outward sign of pride and dignity pride and dignity for working men and women. So that’s our company.

Unidentified speaker, Analyst: Great. Thanks for that, Nick. And, you know, right now, we’re again, an environment where you have I think you call it confidence poor, the condition for for the text presently with all the, you know, headlines and issues. So your response has been what it’s been in the past, SOT assortment pivot work. You know, we had some nice initial momentum, it looked like in the third quarter, effectiveness arguably ed, you know, into the first quarter, as maybe that sort of sentiment fatigue got built more with with the tech tech’s condition.

Are there, you know, other adjustments to make there? Is it more just kind of block and tackle, execute the pivot?

Nick Aldo, Executive, Generac: I I I think this, Chris. I think we would I would characterize it slightly differently. I think we kept making progress in the first quarter. It’s just there was such a huge drop in confidence in that quarter. Now I might say, well, it’s baloney.

You know? You’re just you’re just kinda you’re just taking windshield ideas of of supporting maybe or justifying a downward trend. But if you if you do it if you think about it qualitatively, we were seeing, just let me back up and say, the garages are filled. We don’t think they’re cash poor. We think they’re cash rich.

They keep getting cash. The problem is all through the past past year, they’ve been looking at the bad news they’re getting for breakfast, like the two wars. I might say, okay. It’s Ukraine and, you know, The Middle East. How’s that gonna affect us?

But if you’re if you’re if you’re twirling wrenches in a garage, you’re pretty sure that your children if we fight, your children are gonna be among those who fight. You see, that’s the thing. It weighs on the grassroots. These are people who have FICO scores 600, six 20, that kind of thing. They’re at the bottom level of the of the economic chain.

And now they they do pretty well. They they keep their families warm and safe and dry, and they have money for tools and so on, but they’re not they’re not at the same level as the people on this call. You know? And so so they have a view for this. And then they see things like the border was, you know, kinda chaotic.

And they saw the idea that the prices went up in the in the in the post pandemic period when when, Shanghai or China interrupted the supply chain and they haven’t gone down. Beef is still 44% above what it was in pre pandemic levels, and milk is still 23% above. And eggs are, you know, quite a bit above, but for a lot of reasons. And so they see that, and they worried about that uncertainty. So they pulled back from big ticket items.

Now big ticket items in Snap ons parlance are like the box behind me. They get financed over three, four, five years. And so they didn’t wanna less willing to tie themselves to that that kind of, cash cash obligations. They were willing, though, to go into the quicker payback items, which they they liquidated the, the payments in twelve to fifteen weeks. And so they’re in kind of had a consumer shift, and we were pivoting our product line.

30% of our product line are those big ticket items that are longer paybacks and are financed over three to four to five years. And the other two thirds are pretty much, the shorter items. And so we were pivoting more of our product line to that. It was working. And the uncertainty kept going.

You know? The uncertainty didn’t abate, but we kept closing the gap through last year by virtue of the effectiveness in the pivot. Then came the new administration. And so they’re looking at this, and they’re hearing the rapid fire come out of Washington. Words like, you know, Gaza, we’re gonna build a hotel in Gaza.

We’re gonna take over Greenland. I don’t know what we’re gonna do with Canada. And and and so you hear that, and you hear the tariff blizzard, the fog of tariffs, and they are thinking, jeez. What’s really gonna happen now? And so if you if you think about that, it is a higher level of uncertainty for virtually everyone now qualitatively.

And quantitatively, if you wanna look at consumer sentiment, it dropped thirty thirty points, 30 percentage points since December to the second lowest ever. So what happened was our our pivot kept working. We were learning things about what we could sell, you know, on a hunt that they would accept, like lower levels of some of the of some of these boxes. People still bought those or lower level diagnostic units. We did that.

So that we learned some things and we made some gains, but the confidence dropped much more precipitously, thus the change.

Unidentified speaker, Analyst: Great. Helpful frame up. Thank you. And, you know, how would you size the unmitigated tariff costs and timeline to neutralizing? You know, is it primarily sourcing and production shifts, relative to pricing?

Nick Aldo, Executive, Generac: No. Look. I I think it’s boy, you know, Wrangler, you know, the the thing is is that it’s not who knows now? I mean, where do you think Vietnam tariffs are gonna land? You know, they’re talking about talking to China now.

You don’t know. You you don’t know. You don’t particularly, I think the a particular thing is it seems like every day we’re actually tracking the announcements out of the White House every day. We have somebody tracking the announcements because they’re going wild. Every every every day, there’s a new there’s a new revelation that comes out.

I’m meeting with this guy. I’m gonna exempt these the consumer goods, things like that. So I think it’s pretty hard to judge. Also, our case, where we we don’t have big flows as imports. Remember, we make in the markets where we sell.

What comes off the van, 80% is made in America. So our our our our main products, you know, the tool storage box behind me, the hand tools we have, % US. US steel, everything. A lot of others are mostly US products, and some come from place like Europe or or so so there’s a kinda complex cocktail of sourcing. And as the tariffs go up and down, it’s very hard to predict that.

And then on top of it, we have the ability to direct our sales through our promotion programs to things we think are unaffected by the tariffs. Thirdly, we have experience in shifting things that occurred in the pandemic right after the pandemic when, as I said, when the supply chains were interrupted. If you look at that and say it’s hard to predict what the exposure is going forward because we didn’t like it to be very minimal. Now it’s not gonna be minimal, but we’re working pretty hard to do this. And we’re we’re we’re unable to do this because if you step back and think about it, you know, people have talked about three to five years to put up manufacturing plants in United States.

We’re not gonna do that. And and the barriers to that those manufacturers are three things. Do you have the facilities? We have 15 plants in The United States. The biggest ones we’ve just expanded.

Do you have the know how? Well, we make a version of everything we of almost everything we sell in The United States already. Even if we import it from other places, we make a version of it. So we have the know how here to do most of our stuff. And then finally, people say, you know, and I think this is true, it’s hard to get workers.

Well, we have a pretty good reputation with our workers, and we can hire because we didn’t lay off in the pandemic. So we haven’t had trouble getting workers. So I think we’re one we’re not we have a thinner wedge exposed. You know? We’re kind of advantaged versus others in this situation because we’re making the markets where we sell.

We’re experienced recently in having do done this. And by facility, if you count if you count the plant space, the know how, and the workers, we’re pretty enabled in this situation. So how that all plays out going over the future is hard to say, but I kinda like our chances to be among the best in this.

Unidentified speaker, Analyst: Thanks. Appreciate that. And, you know, I wanted to discuss the the resilience we’ve seen out of our SNI’s OEM business. You know, to what degree is that isolated from OEM production challenges and profitability on EVs? All the noise that they’re facing on the the production side, obviously, the the service centers are a a a different business under that, but within the same, know, entities.

Nick Aldo, Executive, Generac: Well, you know, there is a there is a business when I presume you’re referring to the business within RSNI, we call equipment services, that really has done well recently. And it’s done well on two things. I haven’t talked about this very much, but it’s it has been one of the drivers. RS and I, by the way, was up 3.7% in the quarter, and its profitability was 25.7%, up a 40 basis points. So and that that profitability went up 70 basis points of gross margin.

So it was it was pretty cool in in that situation. And when you within that, one of the one of the late late coming late bloomers here over the last, I’d say, three or four years, you follow us, Chris, is that our EQS business, which which gets projects or programs from the OEMs and provides those to the dealerships. And what this might be, it usually is something like this. Every time every time somebody brings out a new car, believe me, there are there are repair idiosyncrasies built into that car that they don’t foresee. And when they finally see the finished car, they’d say, whoops.

It’s gonna be hard to get this wiring harness. It’s gonna be hard to get those spark plugs. We need a software patch or something like that. And so they would they would, engage us to provide that product and distribute it to their dealerships. And they prescribed five to every dealership or one or two, things like that.

It could be something like a lift table for batteries, you know, in an electric vehicle. So every time a new model comes out, there’s some of that. Every time there’s a recall, there’s some of that. So that gets driven by the programs. And what you’re seeing now, even though the auto you could argue that when the auto industry is down, they might pull back from some of those programs if they were discretionary.

But if you’re bringing out new some of them can be discretionary to to improve vehicles as well, to improve the service. So there are three types of things. One, new model, one recall, one improved the service. You might see the improved service come out if they if the OEMs were difficult. OEM sales, I think, are kinda down, but the new model introductions keep going.

So that’s probably going to keep that business moving. It is a lumpy business because you got to get a program, you got to get a program, you got to get and sometimes the the you know, there’ll be a quarter without the program. But lately, it’s been a nice drumbeat and I don’t see a interruption to that. But here’s something else that happened in that space, as we’ve gotten more and more in this business and as we’ve become more capable and as the OEMs have become more familiar with our capability, we I I think it’s pretty sure that we’re gaining a larger share of those programs. And that’s what’s been driving us.

So in the quarter, that business was up, you know, kind of double digits. And it it did pretty well in terms of profitability that was up. And I don’t see that going down in the near term. That doesn’t that doesn’t back away, Chris, from The U from the overall thing that it is a kind of lumpy business, and it could see some some flat spots from quarter to quarter to quarter. I’m not telling you anything about the next quarter, by way.

I’m just saying I understand. I see it I I see it going upwards because I see us gaining share, and I see a number of new models coming out just in just staying at a good down good beat.

Unidentified speaker, Analyst: Great. And, going over to C and I had some military softness more than offset a decent trend at the balance of critical industries and, you know, just modest international softness. So, you know, you’ve talked about Ben here before with military change of administrations, sometimes people, you know, take a pause. But, you know, what’s your base case for how how the military demand phases? Because it seems to be kinda, you know, steering directionally what C and I is gonna do.

Nick Aldo, Executive, Generac: Look. I think well, the military, they were let’s put it this way. Here’s here’s the quarter for C and I. C and I was down, I think, 2.9% organically, but its, its profitability was 15.5%, up 10 basis points, and its gross margin was up 180 basis points. So fundamentally, the C and I profitability would have been substantially stronger if we didn’t keep spending around a lot of those areas.

Kept spending. Actually, that’s a theme for Snap on in total. Snap on gross margin was up in the quarter, 50.7%, up 20 basis points, but we kept spending even with lower volume. So that’s what drives some of the profitability financials in this quarter that okay. Gross margin pretty strong, reasonably strong, not up where we want it to go, but it’s still up and offset by just same SG and A at lower volume and so.

You come back to C and I, they had a they were down in a quarter, up in profitability, but the whole down was explainable by a military. And the military is in what we call the critical industry segment of C and I, piece of C and I. And we find this not every time a new administration comes in, but often. New administration comes in and it’s, you know, new sheriff in town, I’m gonna put my way my stamp on it. And usually what happens is is after a while, and this is, you know, a a time a time, space of indeterminate proportion.

But what happens really is in the end, the new stuff doesn’t work as well as the new people thought it was gonna it clogs the system as it did now. It tends to stop the system. The war fighters complain. Nobody wants the guy to be standing there, you know, and when the 50 caliber bullets over going overhead in a wrench break, they wanna have the best stuff there. So in in the end, the warfighters win, it goes back to normal.

And so I think you’ll see that happen, and I can’t predict when that will happen. But it will come back. And I have to say, I do think, boy, I I think our view is in fact, I think you would most people would say this. I think, you know, the kind of the wind is blowing on the side of more military spending, I think. So I don’t I don’t think that’s gonna be a a hole in the system.

Now, overall, that business has been doing okay. Its profitability has been going up. C and profitability has gone up, and the critical industries have been driving it even against the headwinds of the international markets. C and I is our our most international of businesses. So I would say where the tools group may be 85% United States and RS and I may be 70% United States or North America rather.

C and I is like 40, and the rest is outside somewhere. So I think you you you can see some waves some waves associated with with international business. And in this quarter, you know, Europe was, was weaker than before. Has hasn’t been strong since the Ukraine wars. But what what we saw in this quarter, the the Nordic countries seem to turn down, and maybe Spain and Italy were a little weaker, you know, some of the sudden.

Germany seemed to get better, you know, for us. And then when you go out to Asia, I mean, China is kind of a basket case. Japan was okay, but it’s got a had had a currency problem in the quarter in terms of importing stuff. And, you know, Indonesia and India is weakening, I think, because Modi, the prime minister, has lost his his, mortal Latin majority and able to impose things. So it’s starting to drift away in terms of a great economy now.

So you kinda see those things happen internationally. So I I do think when you look at that business, boy, the the critical industries are getting bigger and better than ever before, higher profitability. Yeah. This time, the military gave them a hold, but everything else you looked at everything else, they were up nicely. And so I I I do believe he got that.

And the rest of the business will just have to deal with the the ebbs and flows, but there are but then there are positives. But I do I do really, think we have something going there in C and I.

Unidentified speaker, Analyst: Okay. Great. I think I’ll try to come back to that. Wanted to jump over to the liquidity that that you have, the cash position. I’m gonna pause to remind anyone listening in, we have the portal, I’ll check it for Q and As in a bit.

You have a billion foreign cash, $230,000,000 net cash, just wanted to revisit thoughts on carrying so much liquidity, some would argue it’s inefficient with the dividend payout, you know, over two times covered and historically share repurchase and bolt on activities been, you know, fairly modest. So the cash position coupled with the capital allocation posture, you know, seems to to to, you know, beg, it seems to leave a leave a gap what the capital intentions are.

Nick Aldo, Executive, Generac: Okay. I’ll tell you our intentions. We we our first priority is, is working capital. We’re working capital hawks. You only have to look at our working capital.

So we’re working capital intensive. We get a good return on it, though. Our return on assets, I think, in the thirties someplace, you know, mid thirties. So I think that’s not so bad. I do think and it generally goes upwards.

You know? And so I think that’s proven to be a good formula for us. So we are working capital on. Secondly, we yes. We do pay a dividend.

And we started paying a dividend in 1939, and we have paid one every quarter since, and we have never reduced it, which means our dividend policy is perpetuity. So we wanna make sure that we can keep that up because we think that’s a very big positive to our long term shareholders. And and then then we do make acquisitions and I, you know, I I like to be ready to make big or small acquisitions. So we’ve we’ve made some bolt ons in the past that have been significant. For example, Cariliner or Norbar.

Cariliner, the the collision business and nor bar the heavy duty torque business or dealer effects, the the software business for running dealer shops. Those have been reasonable. And, you know, we’re not afraid to make a big one, actually. You might think we are. I’m just not looking for something transformative.

If I found something that was coming our way that was coherent with our businesses, that is expand with enhance the van channel, expand with repair shop owners and managers, extend the critical industries, and build in emerging markets that would enhance that would enable us in the critical, we’d be willing to take we’d be willing to go after that. And we review every quarter. We review these things pretty extensively, but we’re careful about our money. And then we buy back shares and we bought we bought back some shares in reasonable proportion to those things if you actually go back and look at it. And on top of it, you know, the consumer sentiment just dropped 30%.

I’m not sure I am moaning about having cash. I’m not sure. I don’t think Warren Buffett is moaning either, but but he’s not we’re not Warren Buffett either. You know? But I don’t think this is the worst time to have cash.

That doesn’t mean I think we’re gonna need it, but I I like having it there because I do think we might make an acquisition or we might do something else. I don’t know. But those are the those are our priorities.

Unidentified speaker, Analyst: Okay. Great. Appreciate the the the Buffett comparison, and, he does like to have a lot of cash on. But he retired before you did. So congrats.

Nick Aldo, Executive, Generac: He’s a lot older than me, though. I wanna point out.

Unidentified speaker, Analyst: Yes. He is. Yeah. I

Nick Aldo, Executive, Generac: mean, he old, but he was old. He’s a lot old.

Unidentified speaker, Analyst: Yeah. While we’re on the topic of, you you know, bigger strategic prospects and probabilities and considerations here, you know, the C and I strategic growth target is is above more into the heavier mid single digits. You’ve gotten that in spots. It’s been tough to do that on a compound basis even though the backdrop of having less market share makes sense why that would be your leading growth business through the time. But, you know, we talked about one thing goes this way, one thing goes that way.

To what extent do you and the board review the idea of maybe slimming down? Do you need to be in European tools APAC? Can you better configure the portfolio composition at CNI at large to better enable, you know, say, a five or 6% compound truly through the cycle?

Nick Aldo, Executive, Generac: Well, look. Two years ago, you it would have been penal not to be in China. You know? And it’s still the largest market in the world. So or maybe one of the largest markets and certainly the largest automotive market in the world.

So I’m not so sure I like pulling out of there. And I I I do have faith in Asia. It’s through a spot now where there’s a lot of turbulence, but I’m not abandoning the idea that that is an opportunity. This this is this is kind of very judgmental. I happen to be a judgment, my judgment is Asia is still an opportunity for us, and it’s because it is still emerging.

It’s got tremendous economic power in a lot of different places. And so I feel, you know, that’s some place you wanna be. I think Europe you have you have some question about Europe, but we do review this periodically, and and it’s not like we’re not we’re we’re not looking at this with a critical eye. But we learn things in Europe, and our businesses in Europe around RS and I are pretty good. You could say the European hand tools business in in Asia I mean, in Europe, that’s in C and I has had its ups and downs, but we kinda have faith in it because we see a transition going in there.

It used to be an off the shelf type of distributor business. Now increasingly, it’s become a customization business. So that’s working. We see we see some of that working, maybe not as quick or as powerful as we want. It isn’t like we don’t have a strategy to make it better because we do, and we do think we can work that through.

It’s just that it’s hard to overcome the ups and downs. Now you’re again, it’s a judgmental thing. Do you think Europe will be considerably, constantly down? I tend not to think that. I tend okay.

They’re gonna fix the Ukraine thing, and then they’re gonna find their way through this. So that’s that’s our sort of strategic take on that. If you look at C and I in total, yes, the international markets have buffeted them. We have decided because we have a favorable view of the trajectory of those long term for those markets and we keep our position in there. But if you then look at the critical industries worldwide, you would see that that that business grew in the range where we expected to grow over the last five years.

And its profitability has gone up pretty much as where we want the profitability to rise, like, maybe over, you know, 70 to 80 or 90 basis points every so I think we kinda like what’s going on there. Now you you when you look at it and you’re a modeler, I don’t think you like taking the I don’t know. We don’t like taking the Buffets, you know, the the ups and downs. But then it comes back to what’s your belief about the long term view of those geographic positions, and we tend to be still okay with them.

Unidentified speaker, Analyst: Perfect. Good. Very clear answer. Thank you, Nick. And then, I wanted to dive into the software business because the RS nine margin trends have been a nice steady story, and I think you just have a a bit of a perpetual mix tailwind there.

So just, wanted to touch on the, you know, scope. I think you’ve called software a third of the RS and I set.

Nick Aldo, Executive, Generac: Yeah. It’s growing. Yeah. Yeah. Look.

Here’s the thing. Remember, I didn’t lead off with this, but our groups are facing certain customer bases. The tools group faces the technicians. C and I RS and I faces the garages themselves, and they some and they come together in tools and RSNI making diagnostic units and then selling it through the the van channel. And C and I is where we roll the Snap on brand out of the garage to other industries.

But if you look at the software business in general, I’d rather talk to it in general than just in C and I because of the diagnostics business. But software is becoming more important. Now everybody would know this. Boy, if you can if you can put efficient systems to run the garage, then the garages will love it. Whether it’s independent garages or dealerships, we’re in both those places.

By the way, all that gives you early warnings on what repair is gonna look like in the future. You have things like electronic parts catalogs, which we don’t we’re we’re the market leader, I think, in that. But here’s the cool thing about it. If you think about repairing cars, there are four steps. One is you get you get kind of, you know, maybe a, there’s something wrong with the car.

Well, the cars these days have thousands of data points. They call them electronic trouble codes in the car. So you gotta read them. They call it scanning. So we scan.

And you have to you have to have a huge library because every car is every model is different. So you have to have a huge a huge library to actually read it. We have the biggest library. Our diagnose our handheld diagnostic units have the biggest library. Now what happened is is it used to be that technicians would diagnose just by listening to the car or driving it a little bit.

Now they look at the data points. Then what happens is, well, experienced technicians can look at the data points themselves and say, the data is saying this. But as the data points get larger, it’s harder to do that. And then the galaxy of data points, the growing galaxy of data points that are in there, it’s hard to do it by the seat of your pants. Now okay.

Then you could go you the OEMs provide you some guide. You go through decision tree based on the data and say, ah, it’s a mass airflow sensor. But we have databases based on experience in cars, 3,000,000,000 actual repair events. And so you can plug it in and say, well, you know, I’ve got an Audi that’s got, 85,000 2,015 Audi that’s got 85,000 miles on it. Here’s what the footprint.

Here’s what the signature of the the data points are, the electronic trouble codes are, and we’ll give you a Pareto diagram. So you don’t have to go through a long decision tree to say, okay. 69% of the time, it was the mass airflow sensor. So we we scan. We have the best scanners.

We you know, the widest library of scan scan data. We have the only proprietary database of of, how to how to diagnose the car. By the way, we have a 3,000,000,000 unit database, and we got a 500,000,000,000 database for the things that don’t show up. That happens so infrequently, they don’t show up on that Pareto diagram. So we can teach as the as the number of data points get bigger and and, mechanics get more and more confused by it, they can turn to our database, and it helps them.

Then on top of it, all of this just told you what’s wrong. Then how do you actually take the part out? Well, a senior mechanic’s got to memorize 2,000 procedures. 2,000. How many is a surgeon, memorize, by the way?

So we will by the way, junior mechanics don’t know all those procedures, so they can go to our Mitchell one database and figure out how to do it. And then once they figure out how to do it, it still doesn’t mean it’s easy to do. And then you turn to a snap on tool to make it easy. So we’ve got that full range covered. And as the software as the car gets more complex, the software that we have that’s proprietary becomes more essential to do the to do the, repair.

That’s why you’re seeing software goes up in in RS and I. It’s one of the reasons RS and I was up 40 basis points this time.

Unidentified speaker, Analyst: Great. Thank you for that. And then, you know, SOT, the decremental margins were pretty steep. I know volume was down and and you talk about, continuing the investment spend because you have a a long term focus and you’re thinking about two, three, five years out even as you’re thinking about today. So appreciate that, but just curious about the impacts across volume mix and pivot program investments.

Just any perspective on how Yeah.

Nick Aldo, Executive, Generac: Was down it was down, like, 360 basis points, I think. You know? So it’s not the most comfortable situation, but still 20%. You know? So they didn’t chop liver.

You know? That’s that’s up. That’s 500 basis points above 02/2019, by the way. So so okay. But here’s the thing.

Okay. You wanted to mention it. Half of it’s SG and A. Half of that percentage, Chris, is keep spending. You know?

And we’re not keeping spending for the we we are spending for the four or five years, but I’m expanding I’m spending so I’m ready when this when this confidence comes back. And I think I don’t know when it’ll come back. When it comes back, just like when the pandemic fixed, we kept spending through the pandemic and we’re ready to come out. We came out roaring. And so I I’m following that playbook again.

That was half the that was half of it. You know? Then the other half, I think you could say maybe, you know, sixty forty volume mix, maybe fifty fifty volume mix. In this particular in this particular interlude, the first quarter, we sold we had a a program around the lower end diagnostics. Remember I said that we learned that we can nibble at the bottom end of the bigger ticket items, the longer payback items, and get people to buy those things if they were smaller smaller tickets themselves.

And so we did it in diagnostics, and diagnostics was a bigger portion of its sales this time. It grew in an atmosphere that, you know, in an overall that was down, Chris. And so what that means for the corporations, great margins. But for the tools group, they share the margins on diagnostics with the RSNI group. And so fundamentally, for the tools group, diagnostic is one of the lower margin businesses.

But that’s that’s what drove the mix in this time.

Unidentified speaker, Analyst: Alright. We’ve got to pivot to the next block next blocks, both you and I. Awesome chatting with you, Nick. Have a have a great day. Appreciate the time.

I agree to talk to you, Chris. See you later.

Nick Aldo, Executive, Generac: Take care.

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