Please standby, we are about to begin. Good day. And welcome to the Snap-on Incorporated 2015 First Quarter Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Leslie Kratcoski, Vice President, Investor Relations. Please go ahead.

Thanks, Jamie, and good morning, everyone. Thanks for joining us today to review Snap-on's first quarter results, which are detailed in our press release issued earlier this morning. We have on the call today Nick Pinchuk, Snap-on's Chief Executive Officer; and Aldo Pagliari, Snap-on's Chief Financial Officer. Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions. As usual, we've provided slides to supplement our discussion. You can find a copy of these slides on our website next to the Audio icon for this call. These slides will be archived on our website along with the transcript. Any statements made during this call relative to management's expectations, estimates or beliefs, or otherwise state -- management's or the company's outlook, plans or projections are forward-looking statements, and actual results may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in the forward-looking statements are contained in our SEC filings. With that said, I'd now like to turn the call over to Nick Pinchuk. Nick?

Thanks, Leslie. Good morning, everyone. As usual, I'll start with the highlights of our first quarter and along the way I will give you perspective on our results, our markets and on the progress we've made. Then, Aldo will move into a more detailed review of the financials. I believe that our first quarter once again provide a strong evidence of Snap-on advancing along our runways for both growth and for improvement. Our EPS in the quarter was a $1.87, up from a $1.62 last year, that rise reflects an opco operating margin of 16.7%, an increase of 120 basis points. Combining those opco gains with earnings of $40.3 million from Financial Services brought Snap-on consolidated operating margins to 20.1%, compared to the 18.6% registered last year. Our operating improvement in the quarter came on organic sales growth of 9.9%. Overall, sales in the quarter were $827.8 million, a rise of 5.1% from the prior year and those gains include a significant unfavorable foreign currency translation of $38.5 million or 540 basis points. Now currencies headwind, it was last year, it’s likely to continue throughout the year and if the present rates hold, it will rise somewhat going forward. But we are very encouraged by organic growth in both volume and profitability, and we believe both represent a continuation of our strengthening position and capability and of the generally favorable business environment for each of our operating groups. For us the quarters result a testimony to the abundant opportunity along our runways for growth and of our ability to take advantage as conditions unfold. Like in past quarters, the environment surrounding our Automotive Repair related businesses, the Tools Group and RS&I, Group was generally positive. The changing technologies across the fleet continue to drive the need for new problem-solving products,…

Thanks Nick. Our first quarter consolidated operating results are summarized on slide 6. Net sales of $827.8 million in the quarter were up 9.9% organically, reflecting broad-based growth across all of our operating segments. On a reported basis, net sales including $38.5 million of unfavorable foreign currency translation increased $40.3 million or 5.1% from 2014 levels. As you know, Snap-on has significant international operations and is subject to foreign currency translation fluctuations. Largely due to the recent strengthening of the U.S. dollar, foreign currency movements adversely impacted our year-over-year sales comparisons by approximately 540 basis points. Consolidated gross profit of $410.1 million increased $31.4 million from 2014 levels. The gross margin of 49.5% in the quarter improved 140 basis points, primarily due to benefits from higher sales, lower restructuring costs and savings from RCI initiatives. Operating expenses of $272.2 million increased $15.2 million, largely due to higher volume related and other expenses, partially offset by savings from RCI initiatives. The operating expense margin of 32.8% increased 20 basis points from 2014 levels. No restructuring costs were incurred in the first three months of 2015. Last year, we incurred $2 million dollars of restructuring costs. Pension expense in the quarter was approximately $2 million higher as compared to the prior year, reflecting updated pension plan assumptions for 2015, which include the effects of lower discount rates as well as increased life expectancies. As a result of these factors, operating earnings before Financial Services of $137.9 million in the quarter, including $6.4 million of unfavorable foreign currency effects increased $16.2 million from prior year levels and as a percentage of sales improved 120 basis points to 16.7%. Financial Services revenue of $57.4 million in the quarter increased 14.3% from 2014 levels, while operating earnings of $40.3 million increased 17.2%. The increases in…

Thanks, Aldo. As our first quarter similar to our other quarters, growth and improvement, EPS of $1.87, up 15.4%. Once again, there were headwinds, varying economies, fluctuating currencies, and political unrest, but we overcame by finding and making the most of the opportunities. We made significant progress along our runways for growth, driven by new products and new customers, enhance the band channel. Tools Group organic sales up 12.9%. And we believe the network has never been stronger, expand with repair shop owners and managers, RS&I organic sales up 6.3%. OEM, dealerships, and independent shops capturing new customers with the growing product bundle, extend the critical industries and build in emerging markets. C&I organics sales up 9.8%, SNA Europe progressing against the economic tied, our critical industry team building our understanding of those critical workplaces, launching new products aimed at those tasks and gaining position. Once again, again this quarter we clearly saw the effects of Snap-on value creation, advancing down our runway for improvement. OI margin improvements are more than a 100 basis point in every group and an overall opco margin of 16.7%, an increase of 120 basis points. It was an encouraging quarter. We believe it serves as more testimony, great testimony that our business models have the strength, our runways offer the opportunity, and our teams have the capability to continue to trend positive progress as we move forward even amid headwind. Before I turn the call over to the operator, it’s appropriate that I mention our franchisees and associates. I know many of you are listening today. The encouraging performance of the first quarter and the positive trends are continuing due to your contribution and commitment. For the result you’ve authored, you have my congratulations and for your dedication and support to our team, have my thanks. Now, I will turn the call over to the operator. Operator?

[Operator Instructions] And we will take our first question from Tom Hayes with Northcoast Research.

Thank you. Good morning, gentlemen. Thanks for taking my questions.

Good morning, Tom.

Just wondering specifically on the C&I Group great organic growth. I was just wondering if there are any industries that maybe outperformed your expectations. And then correlated to that, just wondering about your exposure maybe to oil and gas market as they kind of have some challenges right now?

Yes. Look, I expect good news in every market, every quarter I think because we are not -- thing is we are in early days in penetrating critical industry. It’s an aspect of coherent growth that what we’re doing there is duplicating what we have done for automotive repair technicians all these years. We are doing it for other people and other industries you know observing work and making it easier with just the right tools, whether it’s software or hardware. And so an element of that is learning about the industry. So it’s early days. Now we have very industries in there, aviation, the military, oil and gas, power generation, mining. One of the advantages of this is we don’t really have much [indiscernible] in the way of share in these businesses. So therefore each quarter rise and falls not so much on the effect of the industry, just on our own performance. So we have lumpiness from section to section or from industry to industry. In this particular quarter, we actually saw fine performance in places like I said in my power generation, mining, railroad, the military. The military was up this time because we were able to see opportunities. Aviation is a big business in that area. And oil and gas actually was up, even slightly in this quarter. So we saw the usual lumpiness from operation to operation, but the critical industry business really is the driver behind C&I and you see the C&I growth across those segments. So I didn’t see any particular surprises. I guess if you are looking at our business, you might say, ghee, they grew in oil and gas, even though the market was weak. My view was we don’t have that biggest share in oil and gas. Therefore, we can grow against weak markets.

Okay. Great. Thanks for the color. Just one kind of follow-up question. I was just wondering on the -- how much share repurchase authorization you still have?

We’re having about $215 million.

Okay. Thank you for the questions.

Sure.

We will take our next question from Liam Burke with Wunderlich.

Thank you. Good morning, Nick.

Good morning, Liam. How are you doing?

I am fine. Thanks. The organic growth of the Snap-on Tool segment is pretty strong, closer to the high-single digits. A lot higher than more of a mid-single digit expectation, what's driving that incremental growth?

Well, I think what’s driving it is, is that the Tools Group team is understanding how to enable the franchisees that we have in various places. We have 4,800 worldwide. We have 3,478, I think in the United States are van. And they are learning quarter-by-quarter how to do it better. And that’s allowing to sell more to same customers and reach other customers, which they had on their routes but they hadn’t been calling on. So the effects of these, I think maybe threefold. One effect is I think we’ve talked about it many times. I think they’re very cleverly breaking through the natural boundaries of that model by adding space with a Rock N' Roll Cabs and you can see it in the progression of the tool storage and breaking through the time by adding a help with things like the TechKnow vans. Now I think, we have 66, 67 of Rock N' Roll -- 66 Rock N' Roll vans throughout the world now and we have now up to 35 TechKnow vans, that’s about four since last quarter. And so you can see breaking that natural boundary is helping. Secondly, Boy, we’re using as much as possible. We using as much as possible our customer connection. We spent a lot of time in the shops and we’re organizing that process and getting that information back into the innovation process and rolling out new products, like that 36-Inch Breaker Bar. People might look at that and say, what’s that? It’s just a long bar. But the idea was -- it wasn’t really available in the marketplace and the ones that were available aren’t as comfortable. Innovation doesn’t have to be earth shattering. It just has to make work easier in this space and the Tools Group is understanding how to do that. And then thirdly, they’re looking at the franchisee and saying, we know your time is valuable. We’re going to make it better. We’re going to drive RCI into the vans and that’s all resulting in this kind of thing. Their numbers were up 12.8% in the quarter, 12.9% in the quarter, 11.8% the quarter before that, 6% the quarter before that, 6.6% the quarter before that and 6% before that. In fact, 19 of the last 20 quarters, they’ve been 6% or above. And that’s -- what’s driving it all is tuning that business. It’s kind of a -- if you step back and you look at the auto repair you would say, it’s going to go better than GDP. 4% to 6% is what we say. But if you have capability that resonates with those franchisees like they figured out, you would see these kinds of numbers.

And you touched on RCI across all businesses. They were providing incremental profitability along with volume increases. Can you push RCI in a similar fashion to the van channel?

Sure. That’s what we’re doing. We’re putting RCI into the vans drivers. Now, things like -- I think I’ve mentioned this before on the corporate things like when you repair a ratchet, repairing a ratchet was taking 15 minutes every ratchet. Sometimes, I was on vans where people brought on four ratchets to be repaired at one stop that would have killed the route that day. But we have tools, kind of just like a factory. We are laying it out like a factory, like our van drivers can repair within three or four minutes now and number of things like that, so taking RCI, looking at the van, doing value stream mapping on the van and reducing the time. Adding to their selling time is part of the process, which is allowing them to reach out to more customers. That’s exactly what we’ve been doing. Thanks for that question.

Thanks Nick.

Okay.

Our next question comes from David Leiker with Baird.

Hi. Good morning. This is Joe Vruwink for David.

Hi Joe.

Hey, Joe.

Maybe staying with the Tools Group for a second, any products in the catalogue that’s become kind of logical extensions of this recent company-owned van strategy? I should say….

I don’t feel so. I think -- not any particular product. I don't think -- I'm sure I could go through launching of new products and find those that came from a company-owned store driver but only around customer connection. We have the van driver itself is the guy or an employee goes out there and he reports back as part and he gives us leads for new tool as part of the company-owned store and that flows back. But we don't really differentiate between a lead from a company-owned store and a franchisees. But in my remarks, you might have heard the whole idea of the power tool draw organizer at the bottom -- at the tool storage box. That came from the Rock 'N Roll Cab and their company stores. They are not selling but their company stores are rolling there. People got on those Rock 'N Roll Cabs and they start talking about boy, wouldn’t it be good if we had a power tool organizer at the bottom in one of these drawers. We got that idea. We gave it to the engineers, they put it in place and we’re rolling out this new product and it’s looking to be a good seller. So that’s an example. I guess the only thing is if you have the company owned stores, they just add the flow of ideas back from the field, the customer connection that comes back from the field.

Yeah. So I guess, my question was more oriented towards the Rock 'N Roll Cab and the TechKnow van put really a spotlight on particular things. Is there some extension of that strategy that you can keep rolling out across the Tools Group?

Well, we only have 35 TechKnow vans now. We actually added a couple Rock 'N Roll Cabs in the last quarter, so that’s growing much more slowly. But we added four TechKnow vans, so they may continue to grow some. Whether we add another extension, we may have some ideas but I don't think I'm going to pre-announce them on the call here. I think that’s the magic and the magicians are trying to find out more techniques and activities or programs that would expand the power of the franchisee. See, I think, one of the things, Joe, I just want to point out. Part of the -- really what the Tools Group has done is they figured out that these vans, these franchisee are a great resource, they are better then anybody else. And they figured out how to help them, be more powerful and amplify that power of that rolling retail space and that really capable and committed entrepreneur that's driving it. And we’re going to do more of that, but I’m not about to announce any more of that.

Okay. Fair enough. And then switching gears over to the profitability and RS&I this quarter. You call out a few product areas that I would normally think are a bit lower margin within that segment, yet the margins improved year-over-year. Has RCI kind of neutralized thinking about that business in terms of software being sold or equipment being sold from an EBIT margin standpoint?

As I said many times in these calls, our RS&I is the hardest to characterize from a margin perspective. Yes, we had good growth in things like equipments, which tends to be lower margin. But you know, we had a good quarter in software that offset it. Our software is rolling. When I go out and talk to people, they love our diagnostics. In many cases, they’re solving problems three or four times faster than anybody else -- three to four times faster than anybody else and the software is up. So that’s good stuff. Our Mitchell1 Information business and our Diagnostics and Independent Garages are pretty robust. And okay, equipments growing, but those two things are relatively imbalanced. So I don't think we saw a lot of mix in those numbers except for maybe the acquisition might have been there a little. Now the story of 140 basis points in, I think its 140 basis points in RS&I is we had about 50 and 60 of RCI, and we had – I think we had 70 or 80 of restructuring because last year we had a big restructuring dial up in there. So that’s how you can kind of way you look at that. But still a pretty big dial up of RCI, plus you don’t want to no mistake about this even though the equipment the lower margin business are growing so as the software.

Okay. Great. I’ll leave it there. Thank you.

Okay.

Our next question comes from Gary Prestopino with Barrington Research.

Good morning, everybody.

Hi, Garry.

Hi, Garry.

Good. All right. Nick, it’s the inevitable question on margins and just looking at the gross margin, I think that gross margin you reported in Q1 was probably the highest that it’s been for quite some time? And I was just wondering if there were something in there that got it about 49% or is -- one time deal or are we at a new kind of sustainable level here, so if you could directly you could talk about that?

Yeah. Look, I don’t -- we don’t spend a lot of time agonizing over the difference between gross margin and OE, I kind of test the operations to drive their operating income and I tend to focus on that much more. And what we said is, is that, we believe that we have both run ways for growth and improvement that accrues operating income and from quarter-to-quarter they accrue, those two things accrue in different proportion between gross margin and operating expense. So I wouldn’t call the gross margin necessarily breakthrough, but there’s nothing special in there this quarter. So there is nothing really -- there’s no real -- I don’t think there’s any real onetime event or anything like that. Really I mean you saw you saw our currency numbers in the quarter I think you, our sales were -- what was it 38.5% in currency and about 6.9% in OI and we are -- we have currency headwinds one of the current rate stays the same those will rise. But on the other hand we believe that that's sort of arithmetic, well, we are so enthusiastic about our operating opportunities and you can see it in this quarter the operating opportunities worked out. Currencies are going to go up and down, but the operating gains are going to stay with us forever and we view the 16.7% as being part of that.

Okay. That's fair. And then Europe I’ve been reading that new car registrations are up? It seems that Europe starting to get some traction? And I think you said your European hand tools business topline was up commensurate with C&I? So -- the cadence has been that you’ve moved on a quarterly basis over the last couple of quarters from low single-digit to mid single-digit to high single-digit growth in the…

It hasn’t been that -- I don’t think it’s been that thinking about it back here, I have to go back and look it. But I don’t think it’s been that sort of straight lines, but if you looked that it over say like eight quarters or something like that you probably see some kind of movement. I think what happens this order is basically some of our activities are paying off associated with new product development. We do have some new products that are exciting the customers you can create enthusiasm even in what I consider to be a relatively dead market in Europe. New car sales usually doesn’t help us that much, except for the fact that, except for the broader fact that new car sales probably accompanying a more positive economy. It is true though that we made -- I think encouraging gains in selling in Europe. We -- France and Germany which had been a drag in the last couple of quarters. In fact they were down in the last couple of quarters, they were up this quarter and we continued with the Nordic countries and we had some business in Turkey, of course, Eastern Europe was week, so and Spain was up off of a relatively low base. So we kind of saw -- we kind of saw the same progress in Europe that we’ve seen in other quarters, except we started making progress in France and Germany. Eastern Europe is kind of dead right now and Russia is difficult so on. So that’s kind of -- so I guess you could be entitled for the idea, Europe got a somewhat better. But profits were even better, very strong performance because of the effects of RCI.

That's great news. And then lastly, as I just look at this, the reported revenues and the unfavourable currency translation, if I add back the impact of currency translation and then say you had about 25% of your sales are based internationally. Is that correct?

A little more than that. I think it’s -- let me see I think it’s about, what is it like 35%, yes 35% is international.

Okay. Because I was getting -- I was getting a currency hit of somewhere between 17% drag on the numbers from a 25% contributions, so it’s 35%, it’s still going to be about 10% to 12% hit. And I am just wondering were the -- was the euro down that much that it caused that kind of drag on the numbers, or is my math wrong?

The euro was down. We have several currencies that impact us on a translation basis. You’ve got -- first of all, you got the euro and then you got the pound and then you’ve got the Canadian dollar. If you look at that and actually when I said 35%, it’s -- I was embracing our northern neighbours here and I was using Canada. If you just look at the United States, talk about, maybe think of Canada, it’s international which is somehow I don’t really always, it’s 40% outside the United States, so Canada is in there. So you see those kinds of variations.

Okay.

I mean, basically, one of those companies that is in current -- we are affected by currency, but we have some good -- some reasonable natural hedges from transaction because we tend to make in the markets where we sell.

Right. That's the next question I was going to get to. You have those natural hedges, so...

No, not in everything, but we are not immune. Certain like this we are currency resistant from a transaction point of view, but we are not immune. So we don’t bring our hands over it. We see it coming like I said clearly we had currency -- we had currency last year actually. We’ve got it this year. If the rates stay where they or rise some, but it doesn’t affect our operating activity because we know that that 16.7% is going to stay with us, that 12.9% is going to stay with us, that 9.8% is going to stay with us.

Okay. Thank you very much.

Sure.

Our next question comes from Richard Hilgert with Morningstar.

Thanks for taking my questions. Good morning, everybody.

Sure.

Good morning, Richard.

I was looking at the currency impact a little bit differently. I added back the currency impacts to each one of the revenues for each of the groups, and then also added back the negative impact for currency for each one of their operating results.

Yes.

The year-over-year increase or expansion in margin, excluding currency, was 140 basis points. When I did all those add backs, I came up with an expansion that was just about 10 basis points less than that at about 130, which is still a fantastic performance. But I'm curious, is that because -- correct me if I am wrong, but isn’t C&I a little bit more of the mix when you add back the currencies and that's why the expansion wasn't quite as much when you take into consideration the currency?

I’ll tell you this. I’ll tell you this is that in our numbers 120 basis points for our calculation, no effective currency in that 120. In other words, it all balances out at the corporate level. At the corporate level, it all balances out. So we don't really -- at a margin level, at a margin rate level. So the 16.7% from our perspective is basically all RCI, it’s pretty much – it’s got bad news from pension, it’s got bad news from pension and so on, and it’s primarily RCI and volume productivity.

Yes. No matter how you slice it, it’s still a great performance.

It’s got a little bit of restructuring good news, offsetting pension and the rest is productivity, currency doesn’t come in there. But if you go by the various groups, C&I it’s helped a little bit on the margin rate basis, not on an absolute basis by currency. Tools Group being, Tools Group would -- if they didn’t have currency, Tools Group would be much more -- it would have been more than 150 basis points. And our C&I a little bit of currency. But that’s way it kind of works out.

Okay. And then on the hand tools side, since we’ve had improving economic conditions for the last three, four years now, have you see an increase in the number of garages opening up in the United States. Is that all sold out?

No. Technician population is probably growing at about 1.3% for government work that would be the number. But the garages, in fact, if anything, if anything actually, depending how far back you go, the dealerships have shrunk. I think the dealerships were about 21,000 before recession, now that it’s 17 or 18. So they have shrunk. The independents have stayed about the same. The independent have taken more share since that’s started before the recession. That seems to may be, now this state always trail. So that’s kind of levelled off a lot of people think now. But I think there hasn’t been a big change in the characteristics, except the independents are becoming more sophisticated, because they have the deal with the changing technologies. 20 years ago there were 50 engines codes on a car, now there is 5,000 engine codes. It’s hard to fix the car without the diagnostic unit now, and we have the best one. And so we are selling them to technicians now, not just the garages and so that’s helping drive our business. So that technology change in the independent space, that’s why we talked about the diagnostic workstation because the independent garages know that people know their cars are more like spaceships these days. And they want to bring them to people who could fix and therefore this diagnostic unit makes it look like wow, this is big computer unit that can fix the car, helps fix the car and it grows confidence. And actually, it helps in terms of accuracy. So, if anything, we’re seeing a greater demand of our product in the independent shops and other shops because of the change in technology, that’s’ the big change.

Okay. Great. And then with respect to your comments about Europe and new car sales in what that means, in terms of hand tool sales over there. Just noticing Western Europe trailing 12 months, new car sales are up about 6%, Eastern Europe however, those, is up about 10%. They were up as much as 15% back about, around the third quarter of last year. But that growth rate is kind of steadily got down a bit. They are still tracking year-over-year increases. So I’m kind of curious, it makes sense that France and Germany, you’re doing better. The industry is doing better in general in those two countries. But I'm surprised that the Eastern Europe hasn’t really kept up with the expansion of the new-car demand, any comments about that?

The new car demand is down in Eastern Europe, right.

No. I mean, it’s still up.

It’s still up. But for us new cars don’t matter. I mean, I think, I’ve said that, because the new car sales are almost always -- except in emerging markets place like China and India so on. There is almost always small compared to the installed base to the car part. Consider the U.S. $16 million cars, North America, 17 million 18 million cars sold. There is a 300 million on the road. It’s like a fly spec almost, the new cars, compared to those on the roads So doesn’t really move our business that much up and down and sort of a shortly basis. In terms of Eastern Europe, I think, I would just suggest you that I'm not really sure what’s going on in the Eastern Europe, it’s a cocktail of different countries. So it’s really hard to say, I mean, you see Russia being so weak. On the other hand, our business is up in Poland, for example, if you include that in Eastern Europe.

Yeah. I do.

So it’s hard to make much prediction about that. I think this is just one of those turbulent things that where traditional economics don't always work in every period.

Okay. And just for clarification on new car sales, it would impact you from the perspective of the new diagnostics in the new tools that have to come out of the service new vehicle, right?

Sure.

Okay.

But that’s a longer wave event. In other words, you’re right, Richard, but the next year isn’t that much different. It changes some, and so people need to adjust for that. But these things work through over time. I was reacting to the idea that people say while new car sales were up in the first quarter therefore your business is going to be better. I don’t think so. It doesn’t affect us that much.

.:

It’s much longer.

And the last question for Aldo. The financial services business, the receivables debt year-over-year keeps growing at the low double-digit numbers, despite the lower revenue on the single-digit numbers. Any comments on how come we’re still seeing so much more growth, I thought that the financial services business was pretty much penetrated for being a captive now?

Richard, just to remind you, most of the activity in financial services actually about 94% to 95% of, it really reflects activity in the Snap-on Tools Group. So if you look at on Snap-on Tools Group performance, again it was, I think, organically 12 plus percent, 12.9%. And I think, what you’re seeing when you look at the originations of 14.2 on the topline for full year growth, you seeing it really reflective of the Tools Group and the Financial Services penetration of their sale of not just big-ticket items, but a variety of the product that they sell. So overtime it will mirror that and I think if you look back, it’s rather consistent with Tools Groups performance over the last several quarters.

Okay. Are they doing more in RS&I at this point?

Above the same level. I mean, we are growing with RS&I at about the same level. The biggest different has been the reflection of the Tools Group.

Okay. Great. Thanks, guys. I appreciate it.

Thank you.

Take care.

And there are no more questions over the phone. So at this time, I’d like to turn the conference back over to our host for any additional or closing remarks.