Leslie Kratcoski - VP-IR Nicholas Pinchuk - Chairman & CEO Aldo Pagliari - CFO & SVP-Finance

Joe Vruwink - Baird Liam Burke - Wunderlich David MacGregor - Longbow Research Tom Hayes - Northcoast Research Bret Jordan - Jefferies Scott Stember - C.L. King Gary Prestopino - Barrington Research Richard Hilgert - Morningstar

Good day, and welcome to the Snap-on Incorporated 2016 Third 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 of Investor Relations. Please, go ahead, ma'am.

Thanks, Rachael, and good morning, everyone. Thanks for joining us today to review Snap-on's third 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 closing thoughts, we'll take your questions. As usual, we've 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 Investor Information. These slides will be archived on our website along with the transcript of today's call. 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. Finally this presentation includes non-GAAP measures of financial performance, which are not meant to be considered in isolation or they substitute for their GAAP counterparts. Additional information regarding these measures is included in our Q3 earnings release issued today, which can be found on our website. 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 third quarter highlights providing update on the environment, and speak about some of our trends. Aldo will then provide a more detailed review of the financial. In the third quarter we again showed progress along our runway for growth and for improvement. And we saw those gains across all our operating segment. Total reported sales were $834.1 million up 1.5% and that included $9.7 million of unfavorable currency. It also included the incremental $1.1 million of sales from last year's acquisition of Ecotechnics. Organic sales were up 2.6% and the OpCo operating margin it was up 140 basis points reaching 18.9%. When you add in the $50.6 million of operating earnings and financial services and that was up from $43.5 million in 2015 but consolidated operating margin was 23%, an increase of 180 basis points. Our EPS was $2.22, up $0.24 a double digit increase, rising 12.1% from last year. Let's consider the environment. Automotive repair continues to be favorable and we believe our Tools Group and our Repairs Systems and Information or RS&I Group, they're both well positioned to take full advantage of that opportunity. The Tools Group clearly demonstrated enhancements to the franchise network, gains in both the North America and European markets continuing to make the most of the opportunities so abundant in an aging and changing vehicle fleet. At RS&I serving repair shop owners and managers, sales progress was mix. The volume of diagnostics and repair information products to independent shop was up mid single-digit. For the OEM side, activity with individual dealers was up, while programs commissioned by the OEM manufacturers, a historically lumpy space was down. Under car equipment was flat with variations from product line to product line. For Commercial and Industrial or C&I the group was up organically 1.5%. Snap-on Europe, SNA Europe was higher again making progress against the turbulence of Brexit and the other uncertainties across its market. The industrial business was flat reflecting the challenges we’ve seen now for a year. Significantly however the critical industry activity recorded the second straight quarter of sequential growth following more than year of decrease, reductions driven by the difficult macro environment in areas like oil and gas, military and the Middle East. Now there will always be headwinds across our operations. They’ve been a factor in other quarters and they were present in the third quarter but we did overcome, we did see it growing because we’re well positioned to confront the challenges and continue to proceed down our runways for growth, enhancing the franchise network, expanding with repairs shop owners and managers, expanding to critical industries and building in emerging markets. These do represent our growth strategy and we continue to make progress along those quarter. At the same time, those growth drivers are joined and supported by the benefits of Snap-on value creation, safety, quality, customer connection, innovation, rapid continuous improvement or as we call it RCI. Together these are the processes, the tools we use each and every day to drive improvement and improvement is written all over our results especially customer connection, understanding the works of professional technician and innovation matching that insight with technology to make work easier. Snap-on value creation once again led to more prestigious awards. We were recently honored with two MOTOR magazine top 20 and with five professional tool and equipment news or P10 innovation award. Those winners represent only a fraction of a wide array of new products born out of insight, of the insight of our franchises and our direct sales people, transplanting workplace observations into productivity solution and in the quarter those customer connections were a big factor in our results. To see some of that let's move to the individual groups. Commercial and Industrial, organic sales is up with an operating margin reaching 15.1%, an increase of 80 basis points from last year’s 14.3%, the benefit of Snap-on value creation evident in the ongoing stream of innovative new products developed for the critical industry. One of those products launched in the third quarter by our Industrial division is the PWZ five pliers wrench. This wrench is the latest and the largest model in a popular Snap-on PWZ series. It’s a long 41.34 in inches. It can handle jobs that would traditionally require a pipe wrench with much less slippage for better overall performance and for better safety. It features inwardly angled teeth, fine at the back, large at the front for stronger and more secured grip on objects of all sizes and the narrow jaw design gives improved accessibility in tight compartments and in those cramped corners. It’s perfect for applications on tie rods and other areas that are hard to reach in industries like railroad, oil and gas, for serving fleet, actually any heavy duty application. You heard me speak about in the past about our growing industrial product line. Well this wrench is another great ignition to our handful line up for critical industries. Now SNA Europe, 12 quarters in a row of year-over-year growth navigating some difficult geographies and some taped economies. SNA sales activity continues to be positive but its profits are even more encouraging now up for 14 straight quarters and we believe there is still more opportunity. And the Asia Pacific operation mixed environment across the region, we continue to invest in building our physicals and the Asia operation has gains contributing to the progress in the quarter. So that's C&I. Now on to the tools. Organic sale is up 5.6% significant growth both in the U.S. and international and the internationally. Operating income of $64.6 million compared to $56.3 million in 2015, the operating income margin of 16.3% rose 150 basis points from last year’s 14.8%. Volume gains as well as operating improvement from RCI translated into a significant margin rise and that 150 basis point gain it over attained 60 basis point of negative currency. When you consider the Tools Groups’ success you can see the power of Snap-on value creation of customer connection and innovation. The MOTOR Top 20 and the P10 award represent just a few examples of the recognition our products continue to receive. Awards from industry publications but also awards from the professionals that use our tools every day. Innovation is consistently innovation, it’s consistently been a key contributor to our Tools Group and in the third quarter more new products. Like our reversible ratcheting combination wrench, the latest in the line of a Snap-on wrench of adding a reversible feature to our patented ratcheting mechanism utilizing our dual 80 technology combining dual pulls with thin walls, box end designs, smooth operation, more torque transferring tight basis and a port it incorporates the iconic Snap-on plank drive profile biting into fasteners without rounding corners preventing slippage. The new reversible ratcheting combo wrench it’s more turning power, enhanced durability, compact design and built stronger to last longer. This is the core of Snap-on value creation. Customer connection and innovation solving specific problems in the shop. Take the new 20 millimeter 12-point impact socket born from hours of observations in the workplace, hours of observation at workplace. This socket is designed to remove head bolts in large industrial engines, long enough to reach the deepest of inaccessible and strong enough to remove the toughest fasteners a unique combination. It’s produced in our Elkmont, Alabama plant and it’s essential for servicing large off road equipment. It may not be needed often but when it is it’s critical and Snap-on has it. It’s just another example of our commitment to make work easier solving our technician’s most challenging problem. In the third quarter it’s also when hold the annual Snap-on franchisee conference or SFC. This year it was in Orlando with more than 8,700 attendees franchisee and family members from over 3,000 routes, three days of showcasing the opportunities, the opportunities to enhance the franchise channel and I can report to you because I was there that based on the optimism and the confidence of our franchisees it was big success in orders because we orders at these events and orders while they were up once again beating the record levels of 2015. Now when we speak of the wrench, we also have to consider the strategic combination of Snap-on credit. Our financial services are on help to create opportunities across the organization but especially within the Tools Group it’s been an ongoing partnership for over 50 years and our credit company had a strong presence at this year’s SFC supporting franchisees with unique program. 270,000 of our approximately 875,000 about 30% of our technician customers in the United States have credit company contract enabling those big ticket item. The credit company has been a key part of franchisee success and the third quarter was no exception to that. Now let’s move to RS&I. Organic sales were up 1.7%. The operating market of 25.1%, it increased 50 basis points from the 24.6% registered last year. As I mentioned RS&S clearly show progress in providing repair information and diagnostics to independent show owners and managers. And certainly a portion of that growth came from innovative new product several launch at the SFC. Product like the MODIS Edge, our latest diagnostic offering an enhanced industrial design, improved ergonomics, reduced weight and Code Scan capability that allows the Tech to scan all of the vehicles computer system with the systems with the push of a single button. It also contains fast excess oil change and recent information, automatic vehicle identification and are unique SureTrack expert database. All features specifically designed to save the technician significant time. This new handheld is lighter, faster and smarter and simply based on the excited crowds of franchises at the SFC that carved out precious time to a 10 MODIS Edge handheld training. We expect this to be a very popular item. Another exciting SFC launch was our Diagnostic Thermal Imager, this completely new Snap-on offering a breakthrough and pinpointing drop with a graphical display illustrating surface data, temperature data and a referenced library of nominal and respect thermal images for a variety of auto parts found in break, emission system and in vehicle electrical equipment. We believe we have a winner with the Diagnostic Thermal Imager and autos at the SFC prove it, its sold out. And RCI innovation wasn’t just an diagnostic product. Take the brand new polytech air conditioning unit from our recent acquisition eco technique. Develop and manufacture specifically for the North American market meeting a very aggressive launch both our US and our Canadian customers have a firm strength of the units designed performance. Its been our real testament to the capability of the eco techniques team. And speaking of products, I’m getting more to sell to repair shop owners and managers. This week we entered into a definite agreement to acquire Car-O-Liner based in Gothenburg, Sweden, but reaching around the globe. Car-O-Liner product offering in its special expertise are important editions to the Snap-on team providing extraordinary capabilities in collision repairs at segment were changed now authoring opportunity. It’s an operation that strengthens our position both in auto and in the heavy duty. Car-O-Liner is another coherent business and we believe that match with Snap-on team, it offers substantial possibilities for both growth and for improvement, all of that. Great opportunity going forward. So that’s the highlights of our quarter. Organic sales, up 2.6% gains across all group progress along our runways for growth. Snap-on value creation trying our customer connection insights into innovative new products and along with our ongoing RCI initiatives driving margin improvement and it all shows in a result. Optical OI margin arising to 18.9%, up a 140 basis points. EPS of $2.22, up 12.1%. It was an encouraging quarter. Now I'll turn the call over to Aldo. Aldo

Thanks, Nick. Our third quarter consolidated operating results are summarized on Slide 6. Net sales of $834.1 million were up $12.6 million or 1.5%. Due to the strengthening of the US dollar or currency moment adversely impacted our Q3 sales comparisons by 120 basis points excluding $9.7 million of unfavorable foreign currency translation and $1.1 million of acquisition related sales. Organic sales increased 2.6% reflecting pretty good progress and serving the vehicle repair sector as well as well as improvements in sales in our commercial and industrial segment. Consolidated gross margin of 50.2% grew 70 basis points from 2015 leveled, primarily due to benefits from higher sales in savings from RCI initiatives. Operating expenses of $261.5 million yielded an operating expense margin of 31.3% in the quarter, an improvement of 70 basis points, primarily due to sales volume leverage and lower pension expense. As a result of these factors, operating earnings before financial services of a $157.6 million including $4 million of unfavorable foreign currency effects, increased 9.7% and as a percentage of sales improved 140 basis points to 18.9%. Financial services revenue of $71.6 million in the quarter increased 17.2% from 2015 level. And operating earnings of $50.6 million increased 16.3%. Consolidated operating earnings of $208.2 million including $4.5 million of unfavorable foreign currency effects increased 11.3% and the operating margin of 23% improved 180 basis points from 21.2% a year ago. Our third quarter effective income tax rate of 31.2% compared to 31.6% last year. For the full year we now anticipate that our 2016 effective income tax rate will be slightly below our full-year 2015 rate of 31.7%. Finally, net earnings of $131.7 million or $2.22 per diluted share increased $14.9 million or $0.24 per share for 2015 levels, representing a 12.1% increase in diluted earnings per share. Now let’s turn to our segment results. Starting with commercial and industrial, our C&I Group on Slide 7. Sales of $289.3 million in the third quarter increased modestly over 2015 levels excluding $3.5 million of unfavorable foreign currency translation, organic sales increased 1.5%, primarily due to a mid-single-digit increase in the segment's European-based hand tools business and a low single-digit increase in both the segment's power tools and Asia Pacific operations. Organic sales to customers in critical industries were essentially flat and the decline to the aerospace market segment was largely offset by gain in sales to the military and increases in both the technical education and natural resources market segments. Despite the continued presence of certain headwinds in the industrial space, we were encouraged that sales performance has improved what we had seen earlier in the year. Gross profit of the C&I Group of $112.7 million compared $109.5 million last year. The gross margin of 39% improved to 110 basis points primarily due to savings from RCI initiatives and 40 basis points of favorable foreign currency effect. Operating expenses of $69 million in the quarter compared to $68.2 million last year. The operating expense margin of 23.9% increased to 30 basis points, primarily as a result of higher cost including cost associated with continued expansion initiatives in Asia and 10 basis points of unfavorable foreign currency effects. As a result of these factors, operating earnings for the C&I segment of $43.7 million including 0.3 million of favorable foreign currency effects increased $2.4 million of 2015 levels and the operating margin of 15.1% improved 80 basis points from 14.3% last year, representing a recent high for C&I and up a 130 basis points sequentially. Turning now to Slide 8. Third quarter sales in the Snap-on Tools Group of $397.2 million increased 4.4%. Excluding $4.6 million of unfavorable foreign currency translation, organic sales increased $21.2 million or 5.6% reflecting mid-single-digit gains in both the company’s US and international franchise operations. Gross profit of $173.3 million compared to $166.5 last year. Gross margin of 43.6% declined 20 basis points as benefits from higher sales and savings from RCI initiatives were more than offset by 60 basis points of unfavorable foreign currency effect. Operating expenses of $108.7 million in the quarter compared $110.2 million last year. The operating expense margin of 27.3% improved to 170 basis points, primarily due to sales volume leverage and savings from RCI and other cost reduction initiatives. As a result of these factor, operating earnings for the Snap-on Tools Group of $64.6 million including $3.2 million of unfavorable foreign currency effects increased $8.3 million and the operating margin of 16.3% improved 150 basis points from 14.8% last year. Turning to the Repair Systems & Information, or RS&I Group, shown on Slide 9, third quarter sale of $286.1 million increased 1.1% from 2015 level excluding $2.8 million of unfavorable foreign currency translation and $1.1 million of acquisition related sales, organic sales increased 1.7%. The organic sales increase primarily reflects a mid-single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers. In the quarter, sales of both undercar equipment and sales to OEM dealerships were essentially flat. As Nick mentioned, sales to OEM dealerships this quarter were practically impacted by the timing of essential tool of facilitation program sale. For example, sales in Q3 of last year benefited from a refrigeration related facility action program which has since lapsed. Gross profit of $133.1 million compared to $130.9 last year and a gross margin of 46.5% improved 20 basis points, primarily due to savings from RCI initiatives partially offset by 10 basis points of unfavorable foreign currency effects. Operating expenses of $61.3 million in the quarter compared to $61.2 million last year. The operating expense margin of 21.4% grew 30 basis point principally due to savings from RCI initiatives. Third quarter operating earnings for the RS&I Group of $71.8 million including $1.1 million of unfavorable foreign currency effects increased $2.1 million from prior level and the operating margin of 25.1% improved 50 basis points from 24.6% last. As we announced earlier this week and as Nick mentioned in his remarks, we have entered into an definitive agreement to purchase Car-O-Liner. Car-O-Liner annual sales are approximately $95 million and we expect them to generate operating income margin somewhat similar to those of RS&I undercar equipment business which are typically in the low teens. We expect to complete the acquisition of Car-O-Liner within the next month. Our plan is to fund the transaction with a combination of cash on hand and approximately $125 million in issuances of commercial paper. Now, turning to Slide 10. Operating earnings from financial services of $50.6 million on revenue of $71.6 million compared to operating earnings of $43.5 million on revenue of $61.1 million last. Financial services expenses in the quarter included some additional headcount related expenses to help better serve our growing portfolio. But, as a percentage of the average portfolio financial services expenses were 1.2% in both periods. The average yield on financial receivables of 18% in the quarter compared to 17.9% last year and the average yield on contract receivables of 9.4% compared to 9.5% last year. Originations of $269.8 million in the quarter increased 4.7% prior year level. Moving to Slide 11. Our quarter end balance sheet includes approximately $1.8 billion of gross financing receivables including $1.6 million from our US operation. Approximately 81% of our US financing portfolio relates to expanded credit loans to technicians. The first nine months of 2016, our worldwide financial services portfolio grew $190.3 million. As per finance portfolio losses and delinquency trends, these continue to be in line with our expectation. Now turning to Slide 12. Cash provided by operations of $111.9 million in the quarter decreased $1.8 million from comparable 2015 level. Its higher net earnings were more than offset by $11.4 million of higher cash tax maintenance and $5.4 million of higher US pension contributions. Net cash used by investing activities of $69.2 million included $56 million fund, a net increase in finance receivables and $16.5 million of capital expenditures. Turning to Slide 13. Trade and other accounts receivable increased $26.6 million in 2015 year-end levels reflecting both higher sales in an increase in days sales outstanding from 60 days year-end to 63 days at third quarter end. Inventories increased $25.8 million in 2015 year-end levels, primarily to support continued higher customer demand and new product introductions. On a trailing 12 months basis, inventory turns of 3.3 compared with 3.5 turns at 2015 year-end. Our quarter end cash position of $117.5 million increased $24.7 million from 2015 year-end levels. The net increase includes $501.7 million of cash collections of finance receivables and $415.6 million of cash from operations. These cash increases were largely offset by the funding of $691.4 million of finance receivables, dividend payment of $106.3 million, the repurchase of 492,000 shares for $76.4 million and $56.6 million for capital expenditures. Our net debt to capital ratio 22.6% compared with 24.6% at 2015 year-end. In addition to our $117 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 the commercial paper markets. As of third quarter end, we had $8 million of commercial paper borrowings outstanding. That concludes my remarks on our third quarter performance. And I'll now turn the call back over to Nick.

Thanks Aldo. Stepping back and looking at the Snap-on third quarter; we believe a number of things are apparent. Our part of the auto repair market is solid. As we've seen in the past that followed the different trajectory that new car sale. It was reliable even in the withering discussion of 2009 and strong today. And we believe our ability to take advantage of that opportunity grows every quarter and you can see it in a result. Tools Group, sales up 5.6% organically. The franchises were prosperous and stronger. The group's OI margin up 150 basis points against 60 basis points of unfavorable currency. The credit company continue to serve as the Tools Group's strategic partner and enabling franchises and technicians as it has done for five decades to recession after recession without disruption. RS&I selling to repair shop owners and managers mixed growth in uncovering the usual ups and downs of OEM sponsored programs, but showing real progress with individual shot, both independent and dealers. And C&I a mixed turbulence but now growing again, showing year over year and sequential gains despite the difficult macros and despite the difficult macros registering operating margin of 15.1% up 80 basis points. Showing what we believe is confirmation of the great value it offers as run rate of coherent growth. And finally in the result you can see the effects of Snap-on value creation more new product driving gains and the engine of rapid continues improvement offering efficiency, it all came together for organic sales growth of 2.6% and an optical operating margin of 18.9%, up 140 basis point and an EPS of $2.22 and increase of 12.1% a double digit gain again. And the Car-O-Liner acquisition giving us more to sale, more opportunities for coherent growth and providing more possibilities for the Snap-on value creation to drive progress. The great opportunity. It was an encouraging quarter and we believe it clearly confirms the future of continuous Snap-on growth and improvement as we move through the end of this year and into 2017 and beyond. Before I turn the call over to the operator for questions, I'll keep directly to our franchises and associates. I know that many of you are listening or will listen to this call. Once again you should know that the encouraging performance of our corporation is only possible because of your capability, your energy and your dedication. For your extraordinary contribution to our progress you have my congratulations and for your unfailing commitment to our team, you have my thanks. Now, I'll turn the call over to the operator. Operator?

[Operator Instructions] We'll take our first question from David Leiker with Baird.

Hi, good morning. This is Joe Vruwink for David. I wanted to discuss the deceleration in origination growth this quarter. So maybe for context, can you revisit the driver of the double-digit origination growth, that has been seen in recent quarters? And then maybe comment on whether demand conditions or other items change for those same drivers, or those same products in the current quarter?

Sure. Look, a couple of things, first of all big ticket the idea of Snap-on tool storage and diagnostic were strong in a quarter, in fact stronger than - so much stronger than the overall Snap-on tools growth and incidentally this is side hand tools were also pretty strong in the quarter. So it was still a good quarter for big ticket items, which are the principle driver for these things. Secondly and the reason that is the case. Reason why big ticket has been the case it's because we've been investing in product, great new tool storage products and number of used features and number of great attractive product that get customers excited. The fact that diagnostics are more important in the repair shop than ever before and technicians are trying to - I guess caliber off to have better and bigger diagnostic take care of those products. It's natural that big ticket items would be stronger, so you would see that. So I think that looking at the Tools Group and seeing that lead the way is just a consequence of our investment in the marketplace and as the kinds of product we've had and the demand to the market associated - the shift in the market associated with more diagnostic. And also our investment in enabling event that breakthrough the original structural barriers of the bands that is the space and time the Rock n Roll CADs which we talked about quite a bit which helped tool storage and the Techno band we have 67 of them now. In a Techno band we have 49 of them and that drive fairly robust bigger ticket items sale. In terms of higher-double digit before - double digit origination before and somewhat less originations now, you can't trade quarter-to-quarter, because there isn’t a perfect one-to-one correlation. Remember that when you are looking at originations you are looking at franchisee sales. When you are looking at the Tools Group you are looking at our sales. We sell for the franchisees but the timing is different then you have on top of that the franchise margin and then we have on top of that the idea that a tool storage sale or diagnostic sale may ignite the couple of trading type sales which would also be somewhat supported by the credit card. So, you put those all together and that shows the landscape, but when we step back and we look at the say, 2015 numbers, when we look at the 2015 numbers about origination and the Tools Group big ticket sale, they seem pretty much the same. And this year we start to see year to date the same kind of thing.

So I'm sure you know, in the market, there seems to be this idea that tools group growth is only strong because origination growth is strong. This quarter, you actually maintained a strong rate of growth, organic growth, stable quarter over quarter, originations came down. That either to me seems like the hand tool category may be strengthened quarter over quarter, or this whole relationship of painting tools group as a byproduct of the credit business maybe isn't the most accurate relationship.

This is the most accurate. The tools group is a strategic partner- I mean the credit company is the strategic partner of the Tools Group. But if you think about it, yes, okay, but only 270,000 of our 875,000 customers, they have a credit company contract that's only about 30%. So if you think as a Tools Group growth been driven exclusively by the credit company mojo, think again. It just isn’t that wide, of course, it is grown because the market has - the customers have turned that way and we have invested into support that with new product and also part of the way we figured out how to enable the band has been associated with that segment. But it's a natural thing, I've been talking about the Rock n Roll CADs for multiple quarters and that would naturally of course drive a little bit more credit company activity. Okay?

And then my last question if I can, the comps are difficult, so to do the growth you did this quarter was positive. I'm just thinking, you took 3,000 routes down intra-quarter for the franchisee conference. Is there any indication based on vans coming back online, and your order activity, that’s the pace of sales you got strength in year-over-year in the Q4?

I am not in the business of projecting out. I'll only say this is what I said on the call, look. The Franchisee Conference was baffled. It was really good and the enthusiasm was good, so I can tell it anecdotally or anybody was there was talking anecdotally I'm just with the national franchises, the National Franchise Advisory report and they are all positive. And quantitative piece is the orders were up, it was up over the record that we set last year at the SFC. Now they don’t translate one to one in sale, they were up significantly. It doesn’t translate one to one, but what it says is our guys saw the new product they were confident in the future they invested and they ordered so they think good things are coming.

Great, thank you.

We’ll take our next question from Liam Burke with Wunderlich.

Thank you. Good morning Nick, good morning Aldo. Aldo, in your prepared statement, maybe you can answer, you talked about the physicals, the investment in emerging markets of C&I. Are you seeing any kind of significant revenue growth there to begin absorbing that upfront investment?

The emerging markets tend to have their own volatility and lumpiness so to speak for lack of a better word but we believe that the secret to penetrating the emerging markets is to establish physical presence, people, place, products that suite those market and those environments. So through thick and thin we’re continuously looking for opportunities to expand our footprint because we know that what we’ve today could still be improved upon. So that’s basically our philosophy when it comes to that Liam.

We’re investing in things like more Blue-Point stores, more products. You are trying to expand your product line and more sales outlets. For example we just opened another sales outlet in Vietnam this quarter. So that’s the kind of investment we’re doing because in the 11 years I lived in Asia I know I am confident that the building of the physical allows you to take advantage of the market as it matures.

And, same with C&I, on the new product introductions, you talked about that being a big driver of incremental growth. Are there any particular verticals that you, this quarter, saw opportunity to put new product into the market?

Well, we had - we talked about couple of those. I mean I think in this particular market the natural resources we’ve been - I can only say that actually we’re trying to play the long game in C&I. We believe we’re trying to build our activity in each of these markets. So for example, not in this particular quarter because we wouldn’t make product adjustment for a quarter. We see opportunities, we build out – our goal was to build up in each of the markets. For example last year we brought out 929 new products just for aviation, 313 for oil and gas even though it was, we’re having probably one of the most difficult times, 313 for military even though it was a difficult time. So we just keep addition not so much targeting. Now we still have some great opportunities they are still on heavy duty, the substitute for the pipe wrench, that’s been a great new product. And so we see things like that all the time. We see enhancements to our visual control system, our tool control system which we’ve seen now. Amazingly we’ve seen the tool control system more and go bleed into oil and gas. We have a major sale in Canada associated with oil and gas as opposed when we had been using it just for aviation. We can see it rolling into railroad with small enhancements. That’s the kind of thing we’re doing.

Great. Thanks Nick, thanks Aldo.

Our next question comes from David MacGregor with Longbow Research.

Good morning everyone. Congratulations Nick, on a good quarter. The question is on the tools group and your margin is up 150 basis points, including 60 BPs of negative FX. You have come through a period where you have a period of hypergrowth, as that term might be applied to this particular category. That growth seems to be slowing now. Obviously, there is a lot of cost opportunity that is out of reach when you're getting that kind of growth, but now the growth is easing a little bit. Maybe that cost opportunity becomes more accessible. The question is how sustainable are these year-over-year margin progression numbers, given that you now have a cost of opportunity you might not have had for the last couple of years?

I think there is some truth in what you say there, I don’t think you can predict quarter by quarter in this kind of situation. Of course one is with your eyeballs are looking for trying to double-digit growth that kind of things you maybe perhaps have some efficiency opportunities but we like to believe we take full advantage of those kind of things. I think though if you look at our overall number, if you look at the OI margin growth for the corporation and you take a look at the year-over-year OpCo margin and you go back and see it, you’ll see that it’s been triple-digits on awful lot of times awfully far back in peak sales growth and small sales growth. So I think we’ve been able to grow that margin in a lot of different situations on an overall basis. Now in the situation at Tools Groups it does give you a little more advantage, little opportunity to look at that but I wouldn’t allow the characterization that 5.6% is low. I think that’s pretty good growth. I mean we’re taking about 5.6% organically in GDP that are throwing between 1 and 2 all over the world. So I think it’s pretty good.

If I could just follow-up with a couple of other quick ones.

Yes.

The slower growth in the origination, how much of that was just the flat under car?

Say that again please.

The slower growth in originations I am just wondering how much of that might have been due to lack of growth in under car.

No, I don’t think it’s that much. I mean the thing is that of course there some under car equipment that gets sold in to the Tools Group space but just primarily when you’re talking about the origination, the primary driver is tool storage and the second driver is the big ticket diagnostics. So it’s not real. There is some of it in there floating around but I don’t think that’s much of a factor.

Okay, last question, I know you are going to market through your franchisees but you have a pretty substantial distribution arrangement as well. Was de-stocking within your distribution partners – how much of a growth inhibitor was that in the quarter?

I am sure there was some of it but I’d have to say it might have been, it would have shown up in the industrial business that was flat like I said it was up sequentially which gave us some positives. I don’t think it was huge factor this quarter, it might been some evolving.

Thanks very much.

Our next question comes from Tom Hayes with Northcoast Research.

Good morning gentlemen. On the RS&I group, Nick, your organic growth rates have been bouncing around the last couple of quarters. I wanted a little bit of clarity digging into that a bit. Maybe the route trajectory of the diagnostic equipment, versus the undercar that is in there as well.

Yes, look, like we said in the I think the statements, the formal statements is that diagnostic information and products and diagnostics so that will be like Mitchell and diagnostics the software and the handheld hardware to independent repair shop owners and managers were up mid single-digit and it’s been up. That kind of number gee I think every quarter for a long time. I can attest to it exactly but I think that in most quarters it’s has been bouncing around mid to high single-digit.

Okay.

So I think that’s doing pretty well. The big thing about diagnostics at this time I mean, not diagnostics but RS&I this time as I tried to make clear in the quarter we have this business in RS&I which produces, which takes contracts, OEM commission contract to distribute where you could talk potential tools or facilitate a project. So for example you might have somebody’s Aldo referred to this to do some air-conditioning, provide an air-conditioning reclaim system for all its dealers. One of the manufacturers is like, I want you to provide this air-conditioning system, I want you to get it my dealers, I want it to be two per dealer and I want it to be rolled out in the next four quarters or three quarters. We rolled it out. That’s a pretty big piece of sales. You might have another one that does an essential tool for a particular new product or a new technology that rolls out on an new truck that rolls to in a quarter but what happens is these are driven by the view of the OEM and the technology and the differences that are rolling through their new models. So they tend to be quite lumpy and what happened in this quarter for that particular type of business this was kind of a strong quarter in that business and that created the overhang, one of the overhangs in RS&I.

Okay, and then on the…

But the stuff we sell to individual dealers was pretty good.

On the Car-O-Liner acquisition, that was roughly $95 million in revenue. Is that a little bit of geographic clarity, is that all Europe, or is that spread across?

No, no. It’s like about, it’s like this. It’s about 45% U.S. about 30% in Europe and the rest in the rest of the world but there is a big piece of that like 20 points or 25 points in Asia. That’s the way it works. And the 275 people, 100 in the factories, 150 selling, 50 engineers and the rest to do in other thing.

Okay. Lastly if I could for Aldo. Fourth quarter last year on the operating expenses it took a pretty big step down versus 3Q of ’15. Is there anything in there that maybe you guys held back last year that we need to think about this year?

No I mean the top of mind you can think about the creates little bit of volatility if there is a changes in mark to market, it's depending on stock price one way or the other.

Okay. Thanks.

Our next question comes from Bret Jordan with Jefferies.

Good morning. This is David Kelley in for Bret. Just a quick follow-up on RS&I, and specifically the undercar business being flat. We have heard similar commentary from other aftermarket retailers and installers, and they mostly have been referencing the residual impact from last year's mild winter weather. Just thinking about some of the industry fundamentals and miles driven being up, it feels like it's a bit surprising that segment is still lagging. The question is, do you think there is some pent-up demand there, or some real opportunity for you as we lap last winter, and slowly inch to 2017?

I don’t know. For us the winter thing is a double-edge sword. I heard people say winter is tough and therefore we don’t sale balances or we don’t sale -- we don’t do tire service, we'll service when winter is mild. So we don’t do as much tire service. On the other hand I heard people say, yes, people are crashing into each other left and side there is lot of repair, we need more or less, we need more alignment going on. People are running into bumpers or bouncing into potholes. So it's a double-edge sword. I am not so sure, but I do think there is opportunity in our business. What we saw there was variation from product to product. We saw kind of stronger quarter and alignment and couple of the other product lines that are little bit weaker. We didn’t really think it was very significant or indicative of anything actually for us. We do think there is opportunity for the equipment business going forward though because we like our product.

Okay, great. So you don’t see any real structural issue that for whatever reason undercars?.

I don’t think so. We don’t see it anyway and we are in garage with every -- we have people in garage for hours every week.

Sure, sure. And a follow-up on the strong tools organic growth, I was just wondering if you could talk about some of the drivers there, the specific product segments that are just really outperforming as of late? Or even regional trends, are you seeing some specific region or part of the U.S.?

There can be regional trends, but they tend to very quarter to quarter, they tell you the truth. The thing is I can tell you I was just with a bunch of franchises, and from all over the country this is the National Franchise Advisory conference, they all seemed positive. And they are representing the region. So I didn’t run into a single person who was saying, this is tough. And we are saying that they were positive. At the SFC I can't emphasize enough, how important is it when people order more year-over-year. What is means is they are putting their money on the line, they are committing to taking products that they think things are going to positive, so they got a positive outlook. So we feel good about that. What's driving our business I think maybe three factors. One is our new products pretty robust. You heard me talk about couple of them for handtools. Handtools were up in the quarter, tool storage were up in the quarter, diagnostic were up in the quarter. We talk about that product line because I think about customer innovation is better than ever before. We have more products than we ever had. Secondly, our franchises are stronger. They are stronger and the despite the fact they are stronger they seem to be hungrier for more products. And thirdly, we've invested in things in the vans like Rock N' Roll Cabs. The Techno-Vans and our franchises are so confident that taking on system, so the model itself is getting better that another way it's a great market. Auto repair is a great market and like I said every quarter we know how to take better advantage to the opportunity. You can see it.

Okay, great, thanks. One more for me, and thanks again for taking my questions, I will pass it along. You referenced the jump into the US collision market with the deal. How do we think about US collision here? My understanding is you didn't have a ton of exposure to that market, and I know the US collision sector from talking to the LKQs and Coparts of the world, has certainly been strong, and feels like it is going to be strong for the next few years. What do you think you opportunity is in U.S. collision?

We like it for a few reason, one is we believe car liner is a great brand, but we smear the Snap-on over it even stronger. Secondly, this is a space which is changing, different materials are requiring different modes of collision repair. And car liner's the out front on that regards with their product line and our research and engineering can augment those 50 or 45 engineers at car liners to make them better. Thirdly, we think that repair start to become more important in collision shops because there is intelligent distributor around the car. You get a dent you got repair things and so we can bring the repair aspect the collision shops something no one else can do in this space. Our products in terms of our physical products and data base associated with repair. So we think it’s a great coherent acquisition.

All right great. I appreciate the color. Thanks again.

We’ll take our next question from Scott Stember from C.L. King.

Good morning. Can you maybe talk about Brexit, your initial observations, whether you have seen any impact on the UK market? And either from a sales or a currency perspective? And then, maybe just to talk about your expectations for currency. It looks like we still have some headwinds. I know initially before Brexit there was a thought that later in this year, that the comparisons would start to flatten out. Can you maybe talk about those two things?

Yes, look Brexit of course as I referred is a challenge for as part of the turbulence in Europe. But in fact if you look at the three pieces of our businesses in Europe, if you look at the Tools Group up strong in the U.K., you look at RS&I up nicely but you look at SNA Europe and SNA Europe was up in the quarter again I think it was the 12 straight quarter of growth. That was down slightly. So Brexit might have hurt them a little bit, it really would but generally overall volume it was great market for Snap-on. U.K. was one of our better market. The problem is in the currency so it becomes a big liner in terms of - it becomes a big effect in terms of sales, translation effect on our sales because we have pretty good sales in pounds and secondly remember we’re selling into the British market, selling in pound but we’re making in dollars, we’re making in United States. So we have a transitional impact. So if you step back and you look at our currency overall for the corporation that $2.22 it has $0.05 of currency impact and a lot of that was the U.K., a lot of that was the UK. Of course there were some other factors in there. And then looking forward when you start at look at the UK kind of went down in the quarter so we think kind of like from a sales perspective looking forward we probably don’t see as much pressure from translation but the profitability will be about the same maybe a little bit more impacted going forward because of the pound. Now going out beyond where are now. That’s based on where we sit today in terms of the pound. If the pound gets weaker it will impact us more. But that’s the major factor. We think our product and our improved capabilities overwhelm the sales factor, the selling factor just the currency sensitive factor.

Got it. And the last question on weather again, taking a different slant, the record warmth that we have had this summer, maybe for air-conditioning related products, have you seen any jump in demand for any tools that are related to any AC repair?

I am sure that happened but I can’t you quote you any figures on that, I haven’t sliced the tools by virtually AC repair. That is one of the thing that does happen. Every year there is a new story about that, it’s a hard winter or short winter and people have different tools. The cool thing about Snap-on is, we have the widest product line, so whatever the conditions we have something to sell into those conditions.

Got it. That’s all I have. Thanks so much for taking my questions.

Our next question comes from Gary Prestopino with Barrington Research.

Hi, good morning. A couple of questions. Did you call out what the European hand tools business was up on a percentage basis this quarter, Aldo?

I did not but it’s up mid single - I think maybe mid single-digit.

Okay.

Sorry go ahead.

No, I was just going to say, that’s about where it’s been all year right.

Yes, it’s been around that level, yes, it’s been growing. I mean, it’s still, I hate to say this but it’s still got headroom. I mean it’s still below where it was at its peak, maybe 15% or so below where it was but we think it’s got headroom and the profitability 14 up straight quarters. We know that has a runway.

Okay.

That’s a good thing for us.

Right, okay, so good things for it. And then, could you give us some idea of what Car-O-Liner's growth has been historically, and where you think you can take that? Top line growth?

I don’t think we’re looking backwards in terms of growth. We like to look forward and we see this as a kind of in the 5 plus vicinity, RS&I type. When you think of the RS&I type business growth that’s where we see it, the 5 plus type business. I think it’s a kind of a food errand to be true definitive looking forward but I can tell you that we think looking at it that’s a solid projection.

Okay. That is good. And then in terms of, it looks like year-to-date the corporate expenses are down about $13 million. Your SG&A is down as well. Is that all dealing with the pension expense on the market to market on the stocks?

It is Gary, the pension this year the way the accounting rules work we have a savings per quarter of about $1.9 million so you can multiply that by 3 and you get a year-to-date amount. And then the noise is created by how the stock price moves not just this year but remember you have to look at the movement relative to last year. For this particular quarter there is really no change of mark-to-market it’s very benign. So most of the changes in corporate expenses this quarter is related solely to pension expense.

How we look at it the quarter is down I think year-over-year like 1.2 million something like that, 22.5 versus 22.7 but the penalty for currency was well more than offsetting that. That's good news out of pension. So we think we ended up on the short end of that combination.

Okay, that’s all I have. Thank you.

We’ll take our last question from Richard Hilgert with Morningstar.

Thanks for taking my question. Good morning everybody. All of my questions have already been asked, congratulations on a great quarter, good to see the continued improvement and the profitability across the group still, and still seeing that nice growth in the financial services area. And, appreciated that little bit of color earlier on the differentiation between what is going on in hand tools, and the growth in financial services. Just a final question remaining for me was, I noticed that on a percentage basis, if you take a look at your intersegment number, on the breakdown for revenue with the segments, it has gotten a little bit larger, compared to history. It is running now above 14% number as a percentage of the total, of the segment revenues. And on an absolute basis, now up to $139 million. Just curious what is driving that and should we be expecting that percentage to be a higher amount of the total going forward?

Yes, no kidding, it will grow because of the Tools Group has been growing. If you think about it the Tools Group it’s got its own factory but it’s got that great distribution. So inside C&I there are factories like the power tools factory and so on like other places that sell, they sell externally but they also sell to the Tools Group SNA Europe does that, RS&I has some divisions that do that. We’ve torque wrenches in C&I that do that do that out in California so sell in both places. So as the Tools Group grow, you will see inter-company sales grow, it’s a natural outcome of that.

Okay, great. Thanks you very much and again congrats on the quarter.

That concludes today's question and answer session. At this time I would like to turn the conference back to Leslie Kratcoski for any additional or closing remarks.

Thanks everyone for joining us today. As usual a replay will be available shortly on snapon.com and as always, we appreciate your interest in Snap-on. Good day.