Snap-on Incorporated 2026 Q3 Earnings Call

Please go ahead. Thank you, Chloe, and good morning, everyone.

We appreciate you joining us today as we review Snap-on's third quarter results, which are detailed in our press release issued earlier this morning. We have on the call 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 will take your questions. As usual, we have provided slides to supplement our discussion. These slides can be accessed under the Downloads tab in the webcast viewer, as well as on our website, snapon.com, under the Investors section. The slides will be archived on our website along with a transcript of today's call.

Any statements made during this call relative to management's expectations, estimates, or beliefs or that otherwise discuss 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. Finally, this presentation includes non-GAAP measures of financial performance, which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding these measures is included in our earnings release issued today, which can be found on our website. With that said, I would now like to turn the call over to Nick Pinchuk.

Nick? Thanks, Sara. Good morning, everyone.

As usual, I will give you my thoughts on our markets, on our results, and on the way forward. Aldo will then provide a detailed review of the financials. Well, these really are interesting times. You do not have to look any further for confirmation of that than the Snap-on quarter. It takes some understanding, but our quarter is primarily marked by three major themes. The impact of diesel prices, despite what is fundamentally a stable technician market, the continuing rise in the critical industries reaching new heights, and Snap-on's capability to absorb substantial turbulence, and despite the difficulties, keep margins strong. The result of it all is that our numbers were mixed, marked by the turbulence, but with rays of light from the underlying strength of our enterprise shining through. Now for the results. For the third quarter, our sales were $1,183.7 million as reported, representing a 0.6% increase.

Adjusting for currency and acquisitions, organic sales were short by 2.8%, with mixed results across the corporation. We will talk about that later. OpCo Operating Income, or OI, for the quarter was $248.1 million, down from the $278.5 million of last year, which it is important to note, included $22 million from a 2025 non-recurring legal settlement. The OI margin was 21%, lower by 240 basis points versus last year, but that included 190 basis points from the legal gain. Adjusting for the one-time legal item, the OI margin was down by 50 basis points. The gross margin improved 10 basis points to what I consider a very robust 51%, strong despite the environment. It is a real demonstration of Snap-on's resilience.

In effect, our margin combines strong gross margins and a belief in our way forward, impelling continued spending on maintaining and strengthening our advantages in products, in brands, and in people, even in a wave of turbulence. Executing on our belief that the future holds considerable opportunity and our conviction that we want to attack that potential at full strength. The financial services operating income of $68.3 million was down slightly from last year's $68.9 million, and the overall as-reported OI margin in the quarter, including both financial and OpCo, was 24.7%. Quarterly EPS was $4.64, below last year's level of $5.02, which again included a legal item from the prior year, and that was worth a 31-cent boost in the 2025 numbers. Those are results. Let us talk to the market.

Vehicle repair is a varying picture, with sub-sectors of players having different perspectives, but the underlying market remains strong. When we visit the shops, as we have during the quarter, the garages are constantly crowded and full, and the owners and managers are always looking for more techs. It is the first thing they mention when you see them. The technicians themselves, they are busy and prosperous and see continued stability in both work and income. At its core, at the grassroots level, repair is strong, and you can see it in the numbers. Household spending on fixing cars up mid-single digits and technician wages continuing to rise. It is still a great time to work in a garage. In this environment, technicians remain cash strong. They can buy what they want or need, but at the same time, there is still confidence poor.

Actually, based on a number of articles in, I think, respected publications, papers, and magazines, the loss in confidence in the near future is a perspective that appears now to be more commonly present across the economy. For the techs, this continues to play out as a reluctance for committing to the extended financial obligations that are associated with big-ticket items. Loan originations are down again this quarter, reflecting that sentiment. The focus is on quicker payback items like power tools and hand tools. In effect, it is a story you have been telling it for some time. It is a stable story. Vehicle repair itself remains strong, as it has been. Snap-on's path to our tech customers are the franchisees. Up to this point, they have been relatively unaffected by the environment. Now, the precipitous and unprecedented acceleration in diesel fuel prices has grabbed their attention.

The result is that franchisees have built cash to manage the rising fuel costs without stress by reducing inventory. You can see it in our results. Sales to the vans were down while volume off the trucks to technicians is stable. The resulting ripple drove significant variations in our results as the reduction wave is passing. While the numbers look turbulent, the underlying core tech market remains as it has been for some time. On the upstream portion of vehicle repair shop owners and managers, the market is mixed again. Independent shops are reasonably optimistic, recognizing what could be called, I think, the great days of automobile repair. Abundant opportunities for more work as the car park evolves to even more complex vehicles. They fully understand the need for more sophisticated systems that match those challenging trends. Snap-on has just the products for the task.

For OEM dealerships, the view is quite different. The repair bays are full, but dealerships tend to be heavily influenced by new car sales, and that picture isn't as positive. Volume is down, I guess impacted by the reduced number of new car model launches. Car buyers are not so enthusiastic about buying older models. As you might expect, the trials of those lower volumes spill over into repair departments, kind of attenuating the appetite for shop upgrades. At the same time, lower vehicle introductions mean fewer tool-up programs to support new models, taking our already lumpy program business to lower levels, and you can see it in RS&I numbers. In their numbers, overall volume is down, but much of that shortfall is driven by decreases in the EQS project-driven business, the lumpy business.

Overall, vehicle repair is robust, but various sectors have been influenced by in-period challenges, I guess you could call it. Now to the critical industries. This is where C&I operates, and I can tell you, it's looking good. Experts in this interlude are regularly declaring the economy is strong. This is part of all that. Military, general industries, natural resources, places where the penalty for failure is high and the need for repeatability and reliability justifies a Snap-on level product. It's a segment where the growing emphasis on precision and efficiency is driving demand for greater and greater customized products. This is the Snap-on sweet spot. It's music to our ears, and you can see why when you look at the encouraging C&I numbers. It's not just this period. C&I keeps taking full advantage of the favorability, racking up gains quarter after quarter. That's the markets. Vehicle repair mixed, but with a strong core.

The critical industries, booming. Now let's move to the segments. Let's talk about C&I. It was an encouraging demonstration of strength. Sales were $404.3 million on organic sales gain of 7.4%, and that excludes the $10 million from the recent Hi-Force acquisition. It's an all-time high. It's a robust increase, fueled by innovative new product launches and by the gains piling up in the industrial business, driven by growing demand for our custom solutions in the military and general industries and in natural resources. Broad volume progress across the critical industries. From an earnings perspective, the C&I results get even better. Operating income of $74.7 million, improved $17.3 million or 29.9%, and the operating margin was 18.5%, up 290 basis points. Another record for the group. Gangbusters. The primary force was the industrial division, continuing to forge the path forward, taking Snap-on out of the garage very profitably.