Leslie Kratcoski - Vice President, Investor Relations Nick Pinchuk - Chief Executive Officer Aldo Pagliari - Chief Financial Officer

Tom Hayes - Northcoast Research Liam Burke - Wunderlich Joe Vruwink - Baird Gary Prestopino - Barrington Research Richard Hilgert - Morningstar

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, making those markets robust. In that regard the Tools Group has enhanced our franchise network with van productivity and with innovative marketing taking clear advantage of the favorability to sell more to existing customers and to reach new customers, all on its way to strong growth. At the same time, RS&I is also growing, capitalizing on those positives and utilizing its broader product line to expand repair shop owners and managers. Now C&I, serving customers in critical industries and the most international of our groups does face more variations in the market. Its European operations are confronted with large differences across the business from the relatively calm U.K. to the turbulence in the Middle East to the challenges of Russia to the political uncertainties of newly elected governments in places like India and Indonesia. But it’s in past quarters, the opportunities outweigh those headwinds and when combined with our growing range of customer driven products and with our expanding capabilities aimed specifically at the needs of industries and customers, C&I again showed gains, extending in critical industries and building emerging markets. Besides advancements on our runways for growth, we also made progress on our runways for improvement with Snap-on value creation and safety, quality, customer connection, innovation and rapid continuous improvement, our RCI as we call it. RCI has become a part of the fabric, a daily activity at Snap-on. You can see it in the results. OI margin is up and you can see it advance like our annual RCI conference held recently just down the road in Illinois, nearly 400 people, almost 40 best practice teams came together to share ides, buy for awards and celebrate their progress, bringing the learning and enthusiasm back home to the local teams. You can’t help but walk away from these events encouraged and convinced that there's great potential for further improvement. Well, that’s the environment. Of course, as it will always. There are headwinds. Market-to-market variations in difficult macros, but despite the challenges our operations moved significantly along each of our runways for both growth and improvement and you could see it throughout the numbers. Now let's move to the segments, in the C&I Group, organic sales were up 9.8% with contributions coming from our European, U.S. and Asian operations. From an earnings perspective, C&I operating income of $44 million, increased $4.9 million or 12.5% and that represents our margin rate for C&I of 14.8%, an expansion of 130 basis points. SNA Europe again recorded volume growth. This time similar to that achieved by RCI -- by C&I overall, brought gains in many of our markets, led by selling strength and by products that generate real enthusiasm. But SNA Europe improvement in the quarter goes beyond sales growth and far those gains made from past restructuring. Our initiative to improve productivity with focus on both costs and product development are clearly evident in the operations achievements and you can see it again this quarter. Organic sales were up, but profits, profits were up more. Illustrating the power of RCI even in the European environment that remains challenged. Industrial division was also part of the C&I rise. It grew in a number of critical industries, areas like power generation, mining, railroads and the military, as everybody knows, the military sector remains uncertain. But having said that, we have made the most of the opportunities available, this time the opening arose with the changing roles of various units as the troops are redeployed back to the allied states. Actually, that’s a major theme for our first quarter, making the most of the opportunities as they arise mid to turbulence. Another big factor and again in critical industry were expanded product offerings targeted at practical workplace needs. One new example in the recent quarter was the with the PDX series of air drills, ideal for the aviation industry, made in our Murphy, North Carolina plant, these pneumatic drills are using application ranging from light assembly to metalwork, perfect for drilling ferrous and nonferrous metal, plastics and composite materials, the kind of versatility that’s so helpful in aviation application. And the feeterrable trigger provides outstanding control and unparallel run out performance offering great accuracy. Beside utility of the tool, the low sound, low vibration, soft grip and aluminum housing offers maximum comfort with reduced operator fatigue. Another attractive feature in the workplace to ease the professional’s task and enable more consistency throughout the day. These drills are especially usual. One performing important repair work on damaged aircraft still, an application that must be critical in nature. We believe we have another industry winner, the PDX drill, a Superior Aviation tool consistent with Snap-on name. Our industrial division also has driven growth by leveraging the Snap-on RCI experience. Participating in several customer-sponsored lean events right on customer’s side, side-by-side with the customer’s local team. Snap-on people sharing their experiences and insight of rapid continuous, improving, helping customers solve their problems but all the -- problem -- but all the while, gaining deeper practical understanding of the crucial task in critical industries, creating opportunities to tailor our products to the work and to drive more sales. We say we help professionals in solving the critical, RCI is becoming a tool to do just that. Our Asia-Pacific division also posted higher activity, registering progress, building the physicals and limiting the impact of the economic difficulties in Japan. I was just there, attending our annual reseller’s conference this year within C&I in China, bringing together enthusiastic Snap-on associates and resellers from all across the region. New Asian-ized products were introduced. Training seminars were conducted and the group's enthusiasm confirmed our extended opportunities in Asia-Pacific. That’s C&I. Now on with the Tools Group. Organic sales up 12.9%, solid grow in all geographies. The groups operating earnings of $59.8 million represented a margin rate of 15.8%, up 150 basis points for the Tools Group. The results continue to speak for themselves. They clearly demonstrate ongoing progress along one of our runways for coherent growth, enhancing the franchise channel and there is abundant evidence of the strength of positive trajectory of that channel. It is stated clearly in our franchisee metrics, financial and physical and poor indicators of network health likes sales per band and franchisee turnover. We monitor them closely and they are favorable across the board. In our direct interactions with the franchisees, the meetings like 2015 kickoffs held all over the network earlier in the year. They were marked by -- I can tell you they were marked by enthusiasm and optimism by commitment and energy, gatherings of entrepreneurs and professionals confident in reaching higher. Our Snap-on value creation process, the process is also critical components of the Tools Group progress. Innovative new products, many of these launched from the customer connections we observed on a daily basis. Those solutions, those products are significant players in driving the group’s upward trajectory. An example is the KRL1163 Tool Storage Cab with the power tool organizer system based on customer connections made on our Rock N Roll Express bands. This model transforms the bottom drawer of the box into a customized secure, easy to access storage system for frequently used power tools. It’s a feature that can make technicians work easier. Visitors to our Rock N Roll Cab highlighted the need, our design teams made it a reality, customer connection to innovation to winning product. Speaking of tool storage, this summer marks our 95th year in business. We’ve just launched a special set of tool storage box, highlighting our long tradition of excellence with unique anniversary panel and custom red trim etched with the years, 1920 and 2015. The new units also offer the Snap-on echo remote locking system, another customer connection driven option that we’re confident will be quite popular. These special anniversary boxes are already gathering -- generating considerable excitement on the advance and in the shops. Lots of excitement around these blocks. And we believe there will be strong sellers, clear testimony on the strength of the Snap-on brand and on the bond between Snap-on and professionals. More innovation can be seen on product like the new Snap-on half inch drive 3 six-inch breaker bar, the SHN-36 originally developed from customer connections of the heavy duty mechanics desiring more -- a longer handle for increased leverage. The addition of a soft grip provides added control on comfort and that’s a premium when you're removing tires or adjusting tracks on construction and agricultural equipment, a loosening head bolts on large engine, a much improved product that will make work easier, innovation even on the most established product line. Finally, I want to mention the Tools Group efforts with RCI. Progress, I think, it’s clearly evident in the financials but to double down on a testimony, I spoke before of our annual RCI conference. While a team from Tools was awarded the grand champion at this year's event. The Tools Group rework center for their work on substantially reducing turnaround time, highlighting that at Snap-on. The shop floor has no monopoly on RCI. And illustrating that even an experienced organization like the Tools Group potential RCI opportunities abound up and down throughout and across the business. And we can’t talk about the Tools Group without speaking of its strategic partner about our financial services organization. With each quarters Snap-on Credit becomes more attuned just what programs can best aid our franchisees. And the first quarter demonstrated that progress clearly portfolio growth, profits up over 70% and all the while holding delinquencies to a relatively low level. Snap-on Credit, a greatest historic tools business, and you can see that relationship play out in the positive trend. Now let’s move to RS&I. The first quarter organic sales for RS&I rose 6.3%, broad gains with both OEM dealerships and with independent shops. Operating earnings of $63.9 million were up $5.8 million. The operating margin of 23.5% rose 140 basis points. I’ve spoken often in the past about our line of successful handheld diagnostic units and they continue to drive growth and excitement in the independent repair space. And the first quarter was no exception with our VERUS PRO and MODI’s ultra unit being recognized by undercar digest in this year’s list of top 10 tools, continuing our strength of award-winning products with that publication. Undercar digest bases its selection on the votes of actual users. The award confirms that our handheld diagnostics resonate strongly with professionals. And it demonstrates the power of customer connection and innovation in generating unique productivity solutions. That’s what these stools are about. The VERUS PRO and MODI’s Ultra, they are also key components of our next generation advanced diagnostic work stations, launched in February. These new work stations include handheld diagnostic unit in docking station, a flat screen monitor and accustomed Snap-on tool box. They provide comprehensive diagnostic support to fix cars accurately and quickly and they go a long way in reinforcing the shops images having strong professional capability in the electronics arena, a feature we believe is of significant value to many independent garages as they strive to build customer confidence in this environment of rising vehicle technology. With more than 800 workstation sold since the launch, this is another one of our hit products with over $1 million in first year sales. And it’s another add to our growing track record of innovation success and it’s driving sales progress. Our equipment division also registered gains in the quarter with several national account in part exceeding by highlighting our expanding product bundle, including challenger lifts, Pro-Cut on-car brake lathes as well as the new undercar equipment and broad diagnostic offerings. Snap-on equipment increased productivity for the automotive repair shop networks and advantage rooted in our expanded and enhanced line of products. Finally, we continue to see further progress with our Nexiq heavy-duty and fleet information systems, as well as progress with the improved functionality and comprehensive content contained in Mitchell1’s ProDemand and SureTrack products. All are differentiating offerings that lead to more business. Armed with those products, we achieved a number of multi-location customer wins in the quarter, displacing competitors and gaining traction across the marketplace. Snap-on innovates in the information products, unique database solution, effective navigation systems with speed to repair, all emphasizing our growing strength in vehicle information and they helped drive RS&I sales again this quarter. So that’s the highlights. Significant progress was made in the quarter. Organic sales rise 9.9%, along all our runways for coherent growth. EPS of a $1.87, up 15.4%. Gains achieved through our Snap-on value creation processes, RCI and customer connections especially shinning through, strengthening our business and driving to a 16.7% opco operating margin, up 120 basis points. It was an encouraging quarter. Now, I will turn the call over to Aldo.

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 both revenue and operating earnings primarily reflect the continued growth of the Financial Services portfolio. Consolidated operating earnings of $178.2 million in the quarter, including $6.9 million of unfavorable foreign currency effects increased $22.1 million or 14.2%. And the operating margin of 20.1% improved 150 basis points from 18.6% the year ago. Our first quarter effective income tax rate of 32%, compared with 31.6% last year. Finally, net earnings of $110.5 million or a $1.87 per diluted share increased $14.6 million or $0.25 per share, representing a 15.4% increase in diluted earnings per share. Now, let’s turn to our segment results, starting with the Commercial & Industrial or C&I Group on slide seven. Sales of $297.5 million in the quarter were up 9.8% organically, primarily reflecting similar sales strength both in critical industries and in our European-based hand tools business. Gross profit in the C&I group totaled $116.5 million in the quarter and a gross margin of 39.2% improved 40 basis points from 2014 levels, largely due to savings from RCI initiatives primarily in Europe. Operating expenses of $72.5 million in the quarter decreased $1.1 million and the operating expense margin of 24.4% improved 90 basis points, largely due to sales volume leverage. As a result of these factors, operating earnings for C&I segment of $44 million including $1.3 million of unfavorable foreign currency effects, increased $4.9 million from 2014 levels and the operating margin of 14.8% improved 130 basis points. Turning now to slide eight. First quarter sales in the Snap-on Tools Group of $378.2 million increased 12.9% organically, reflecting comparable sales gains in both the company's U.S. and international franchise operations. Gross profit of a $166.3 million increased $18.3 million from 2014 levels and the gross margin of 44% improved 90 basis points, primarily due to benefits from higher sales. Operating expenses of $106.5 million increased $7.7 million from 2014 levels, mostly due to higher volume related expenses. The operating expense margin of 28.2% improved 60 basis points, principally due to sales volume leverage. As a result of these factors, operating earnings for the Snap-on Tools Group of $59.8 million, including $3 million of unfavorable foreign currency effects increased $10.6 million and the operating margin of 15.8% improved 150 basis points. Turning to the Repair Systems & Information or RS&I Group showed on slide nine. Sales of $272.3 million in the quarter increased 6.3% organically from 2014 levels. The organic sales increase primarily reflects a high single-digit gain and sales of undercar equipment, as well as mid-single-digit gains in both sales to OEM dealerships and the sales of diagnostic and repair information products to independent repair shop owners and managers. Gross profit of $127.3 million increased $9.3 million over 2014 levels and gross margin of 46.8% improved 190 basis points, principally due to savings from RCI and other cost reduction initiatives and $2 million of lower restructuring costs. Operating expenses totaled $63.4 million in the quarter and operating expense margin of 23.3% increased 50 basis points, largely due to operating expenses of Pro-Cut, which was acquired in May of last year. First quarter operating earnings for the RS&I group of $63.9 million, including $2.1 million of unfavorable foreign currency effects increased $5.8 million or 10% from prior year levels. And the operating margin of 23.5% improved 140 basis points. Now turning to slide 10. In the first quarter, operating earnings from Financial Services of $40.3 million on revenue of $57.4 million, compared with operating earnings of $34.4 million on revenue of $50.2 million last year. The average yield on finance receivables of 17.7% in the quarter, compared with 17.5% last year. And the average yield on contract receivables was 9.5% in both periods. Originations of $230.7 million increased 14.2% from 2014 levels. Moving to slide 11. As of quarter-end, our balance sheet includes approximately $1.4 billion of gross financing receivables, including $1.2 billion from our U.S. Snap-on credit operation. Approximately 80% of our U.S. financing portfolio relates to extended credit loans to technicians. During the quarter, our worldwide finance portfolio grew approximately $23 million. As for finance portfolio losses and delinquency trends, these continued to be in line with our expectations. Now turning to slide 12. Cash provided by operations of $78.1 million in the quarter decreased $10.2 million from comparable 2014 levels as higher net earnings in 2015 were more than offset by net increases in operating assets and liabilities, largely as a result of $15 million discretionary domestic pension plan contribution as well as higher tax related payments in the current year. Net cash used by investing activities of $59.5 million included $38.6 million to fund a net increase in finance receivables. Capital expenditures of $18.1 million in the quarter were comparable to the prior year. Turning to slide 13. Days sales outstanding for trade receivables of 60 days compared with 61 days at 2014 year-end. Inventories increased $6.8 million from 2014 year-end levels, primarily to support continued higher customer demand and new product introductions. On a trailing 12-month basis, inventory turns of 3.6 compared with 3.7 turns at 2014 year-end. Our quarter-end cash position of $114.4 million decreased $18.5 million from 2014 year-end levels. The net decrease includes the impact of funding $198.8 million of new finance receivables, the repurchase of 340,000 shares for $49.7 million, dividend payments of $30.9 million, and capital expenditures of $18.1 million. These cash decreases were partially offset by $160.2 million of cash from collections of finance receivables, $78.1 million of cash generated from operations, and $22.8 million of cash from a net increase in short-term borrowings. Our net debt-to-cap ratio of 27.6% compared with 26.3% at 2014 year-end. In addition to our $114 million of cash and expected cash flow from operations, we have more than $700 million in available credit facilities. And our current short-term credit ratings allow us to access commercial paper markets. At first quarter-end, we had $52.5 million of commercial paper borrowings outstanding. This concludes my remarks on our first quarter performance. Now, I will turn the call over to Nick for his closing thoughts. Nick?

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.

Great. Thanks everyone for joining us today. A replay of the call will be available shortly and as always we thank you for your interest in Snap-on. Good day.