Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Caution Regarding Forward-Looking Statements:

Statements in this document that are not historical facts, including statements that (i) are in the future tense, (ii) include the words “expects,” “plans,” “targets,” “estimates,” “believes,” “anticipates,” or similar words that reference Snap-on Incorporated (“Snap-on” or “the company”) or its management, (iii) are specifically identified as forward-looking, or (iv) describe Snap‑on’s or management’s future outlook, plans, estimates, objectives or goals, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Snap-on cautions the reader that any forward-looking statements included in this document that are based upon assumptions and estimates were developed by management in good faith and are subject to risks, uncertainties or other factors that could cause (and in some cases have caused) actual results to differ materially from those described in any such statement. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results or regarded as a representation by the company or its management that the projected results will be achieved. For those forward-looking statements, Snap-on cautions the reader that numerous important factors, such as those listed below, as well as those factors discussed in its Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (“2023 year end”), and those discussed in this document, could affect the company’s actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Snap-on.

Risks and uncertainties include, without limitation:

  • Uncertainties related to estimates, assumptions and projections generally;

  • The timing and progress with which Snap-on can attain value through its Snap-on Value Creation Processes, including its ability to (i) realize efficiencies and savings from its rapid continuous improvement and other cost reduction initiatives, (ii) improve workforce productivity, (iii) achieve improvements in the company’s manufacturing footprint and greater efficiencies in its supply chain, and (iv) enhance machine maintenance, plant productivity and manufacturing line set-up and change-over practices, any or all of which could result in production inefficiencies, higher costs and/or lost revenues;

  • Snap-on’s capability to successfully implement future strategies with respect to its existing businesses;

  • Snap-on’s ability to refine its brand and franchise strategies, retain and attract franchisees, and further enhance service and value to franchisees in order to help improve the sales and profitability of franchisees;

  • The company’s ability to introduce successful new products;

  • Significant changes in the current competitive environment;

  • Risks related to pursuing, completing and integrating acquisitions;

  • Inflation, interest rate changes and other monetary and market fluctuations;

  • Price and supply fluctuations related to raw materials, components and certain purchased finished goods, such as steel, plastics, and electronics;

  • The effects of external economic factors, including adverse developments in world financial markets, disruptions related to tariffs and other trade or sanction issues, and global supply chain inefficiencies, including as a result of the current war in Ukraine and other regional conflicts;

  • Snap-on’s ability to successfully manage changes in prices and the availability of energy sources, including gasoline;

  • Snap-on’s ability to withstand disruption arising from natural disasters, including climate-related events or other unusual occurrences;

  • Risks associated with data security and technological systems and protections, including the effects of cyber incidents and from new legislation, regulations or government-related developments;

  • The impact of labor interruptions or challenges, and Snap-on’s ability to effectively manage human capital resources;

  • Weakness in certain geographic areas, including as a result of localized recessions, and the impact of matters related to the United Kingdom’s exit from the European Union;

  • Changes in tax rates, laws and regulations as well as uncertainty surrounding potential changes;

  • The amount, rate and growth of health care and postretirement costs, including continuing and potentially increasing required contributions to pension and postretirement plans;

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  • The effects of new requirements, legislation, regulations or government-related developments or issues, as well as third party actions, including those addressing climate change;

  • Potential reputational damages and costs related to litigation;

  • The impact of outbreaks of infectious diseases as well as the effects of governmental actions related thereto on Snap-on’s business, which could have the potential to amplify the impact of the other risks facing the company; and

  • Other world or local events outside Snap-on’s control, including terrorist disruptions, armed conflicts and civil unrest.

Snap-on disclaims any responsibility to update any forward-looking statement provided in this document, except as required by law.

In addition, investors should be aware that generally accepted accounting principles in the United States of America (“GAAP”) prescribe when a company should reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results, therefore, may appear to be volatile in certain accounting periods.

Non-GAAP Measures

References in Management’s Discussion and Analysis of Financial Condition and Results of Operations to “organic sales” refer to sales from continuing operations calculated in accordance with GAAP, adjusted to exclude acquisition-related sales and the impact of foreign currency translation. Management evaluates the company’s sales performance based on organic sales growth, which primarily reflects growth from the company’s existing businesses as a result of increased output, expanded customer base, geographic expansion, new product development and pricing changes, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year reporting period. Organic sales also exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying growth trends in the company’s businesses and facilitates comparisons of its sales performance with prior periods.

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RESULTS OF OPERATIONS

Results of operations for the three months ended September 28, 2024, and September 30, 2023, are as follows:

Three Months Ended
(Amounts in millions)September 28, 2024September 30, 2023Change
Net sales$1,147.0100.0%$1,159.3100.0%$(12.3)(1.1)%
Cost of goods sold(559.2)(48.8)%(581.1)(50.1)%21.93.8%
Gross profit587.851.2%578.249.9%9.61.7%
Operating expenses(335.4)(29.2)%(333.0)(28.7)%(2.4)(0.7)%
Operating earnings before financial services252.422.0%245.221.2%7.22.9%
Financial services revenue100.4100.0%94.9100.0%5.55.8%
Financial services expenses(28.7)(28.6)%(25.5)(26.9)%(3.2)(12.5)%
Operating earnings from financial services71.771.4%69.473.1%2.33.3%
Operating earnings324.126.0%314.625.1%9.53.0%
Interest expense(12.5)(1.0)%(12.4)(1.0)%(0.1)(0.8)%
Other income (expense) – net20.61.7%18.01.4%2.614.4%
Earnings before income taxes332.226.7%320.225.5%12.03.7%
Income tax expense(74.7)(6.1)%(71.1)(5.6)%(3.6)(5.1)%
Net earnings257.520.6%249.119.9%8.43.4%
Net earnings attributable to noncontrolling interests(6.4)(0.5)%(6.0)(0.5)%(0.4)(6.7)%
Net earnings attributable to Snap-on Inc.$251.120.1%$243.119.4%$8.03.3%
Percentage Disclosure: All income statement line item percentages below “Operating earnings from financial services” are calculated as a percentage of the sum of Net sales and Financial services revenue.

Net sales of $1,147.0 million in the third quarter of 2024 represented a decrease of $12.3 million, or 1.1%, from 2023 levels, reflecting a $19.2 million, or 1.7%, organic decline and $0.3 million of unfavorable foreign currency translation, partially offset by $7.2 million of acquisition-related sales.

Gross profit of $587.8 million in the third quarter of 2024 compared to $578.2 million last year. Gross margin (gross profit as a percentage of net sales) in the quarter improved 130 basis points (100 basis points (“bps”) equals 1.0 percent) from the third quarter of 2023 primarily reflecting increased sales in higher-gross-margin businesses, benefits from the company’s “Rapid Continuous Improvement” or “RCI” initiatives, and lower material and other costs.

Snap-on’s RCI initiatives employ a structured set of tools and processes across multiple businesses and geographies intended to eliminate waste and improve operations. Savings from Snap-on’s RCI initiatives reflect benefits from a wide variety of ongoing efficiency, productivity and process improvements, including savings generated from product design cost reductions, improved manufacturing line set-up and change-over practices, lower-cost sourcing initiatives, and facility consolidations. Unless individually significant, it is not practicable to disclose each RCI activity that generated savings and/or segregate RCI savings embedded in sales volume increases.

Operating expenses of $335.4 million in the third quarter of 2024 compared to $333.0 million last year. Operating expenses as a percentage of net sales rose 50 bps from 2023 primarily due to the lower sales volumes.

Operating earnings before financial services of $252.4 million in the third quarter of 2024 compared to $245.2 million in the third quarter of 2023. As a percentage of net sales, operating earnings before financial services were 22.0% compared to 21.2% last year.

Financial services revenue of $100.4 million in the third quarter of 2024 compared to $94.9 million last year. Financial services operating earnings of $71.7 million compared to $69.4 million in 2023.

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Operating earnings of $324.1 million in the third quarter of 2024 compared to $314.6 million last year. As a percentage of revenues (net sales plus financial services revenue), operating earnings were 26.0% in the quarter compared to 25.1% last year.

Interest expense in the third quarter of 2024 increased $0.1 million from last year. See Note 8 to the Condensed Consolidated Financial Statements for additional information on debt and credit facilities.

Other income (expense) – net primarily includes interest income, non-service components of net periodic benefit costs, and net gains and losses associated with hedging and currency exchange rate transactions. See Note 16 to the Condensed Consolidated Financial Statements for additional information on Other income (expense) – net.

The effective income tax rate on earnings attributable to Snap-on was 22.9% and 22.6% in the third quarters of 2024 and 2023, respectively. See Note 7 to the Condensed Consolidated Financial Statements for additional information on income taxes.

Net earnings attributable to Snap-on of $251.1 million, or $4.70 per diluted share, in the third quarter of 2024 compared to $243.1 million, or $4.51 per diluted share, in the third quarter of 2023.

Results of operations for the nine months ended September 28, 2024, and September 30, 2023, are as follows:

Nine Months Ended
(Amounts in millions)September 28, 2024September 30, 2023Change
Net sales$3,508.7100.0%$3,533.6100.0%$(24.9)(0.7)%
Cost of goods sold(1,726.9)(49.2)%(1,762.1)(49.9)%35.22.0%
Gross profit1,781.850.8%1,771.550.1%10.30.6%
Operating expenses(978.2)(27.9)%(989.5)(28.0)%11.31.1%
Operating earnings before financial services803.622.9%782.022.1%21.62.8%
Financial services revenue300.5100.0%280.9100.0%19.67.0%
Financial services expenses(90.3)(30.0)%(78.3)(27.9)%(12.0)(15.3)%
Operating earnings from financial services210.270.0%202.672.1%7.63.8%
Operating earnings1,013.826.6%984.625.8%29.23.0%
Interest expense(37.3)(1.0)%(37.4)(1.0)%0.10.3%
Other income (expense) – net57.41.5%50.01.3%7.414.8%
Earnings before income taxes1,033.927.1%997.226.1%36.73.7%
Income tax expense(229.2)(6.0)%(223.9)(5.8)%(5.3)(2.4)%
Net earnings804.721.1%773.320.3%31.44.1%
Net earnings attributable to noncontrolling interests(18.9)(0.5)%(17.5)(0.5)%(1.4)(8.0)%
Net earnings attributable to Snap-on Inc.$785.820.6%$755.819.8%$30.04.0%
Percentage Disclosure: All income statement line item percentages below “Operating earnings from financial services” are calculated as a percentage of the sum of Net sales and Financial services revenue.

Net sales of $3,508.7 million in the first nine months of 2024 represented a decrease of $24.9 million, or 0.7%, from 2023 levels, reflecting a $42.6 million, or 1.2%, organic decline and $3.5 million of unfavorable foreign currency translation, partially offset by $21.2 million of acquisition-related sales.

Gross profit of $1,781.8 million in the first nine months of 2024 compared to $1,771.5 million last year. Gross margin in the first nine months improved 70 bps from 2023 primarily due to benefits from the company’s RCI initiatives and lower material and other costs.

Operating expenses of $978.2 million in the first nine months of 2024, including a $22.5 million benefit for the final payments received associated with a legal matter in the first six months of 2024 (the “legal payments”), compared to $989.5 million last year. Operating expenses as a percentage of net sales improved 10 bps from 2023 primarily reflecting benefits from the legal payments, partially offset by the effects of lower sales volumes.

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Operating earnings before financial services of $803.6 million in the first nine months of 2024, including a $22.5 million benefit from the legal payments, compared to $782.0 million in 2023. As a percentage of net sales, operating earnings before financial services were 22.9% compared to 22.1% last year.

Financial services revenue of $300.5 million in the first nine months of 2024 compared to $280.9 million last year. Financial services operating earnings of $210.2 million compared to $202.6 million in 2023.

Operating earnings of $1,013.8 million in the first nine months of 2024, including a $22.5 million benefit from the legal payments, compared to $984.6 million last year. As a percentage of revenues, operating earnings were 26.6% in the period compared to 25.8% last year.

Interest expense in the first nine months of 2024 decreased $0.1 million from last year. See Note 8 to the Condensed Consolidated Financial Statements for additional information on debt and credit facilities.

Other income (expense) – net primarily includes interest income, non-service components of net periodic benefit costs, and net gains and losses associated with hedging and currency exchange rate transactions. See Note 16 to the Condensed Consolidated Financial Statements for additional information on Other income (expense) – net.

The effective income tax rate on earnings attributable to Snap-on was 22.6% and 22.9% in the first nine months of 2024 and 2023, respectively. See Note 7 to the Condensed Consolidated Financial Statements for additional information on income taxes.

Net earnings attributable to Snap-on of $785.8 million, or $14.69 per diluted share, in the first nine months of 2024, including a $17.5 million, or $0.32 per diluted share, after-tax benefit from the legal payments, compared to $755.8 million, or $14.00 per diluted share, in the first nine months of 2023.

Segment Results

Snap-on’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government and military, power generation, transportation, and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s multinational mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and original equipment manufacturer (“OEM”) dealership service and repair shops (“OEM dealerships”), through direct and distributor channels. Financial Services consists of the business operations of Snap-on’s finance subsidiaries.

Snap-on evaluates the performance of its operating segments based on segment revenues and segment operating earnings. The Snap-on Tools Group segment revenues include external net sales, while the Commercial & Industrial Group and the Repair Systems & Information Group segment revenues include both external and intersegment net sales. Snap-on accounts for intersegment net sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services), deferred income taxes and certain other assets. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.

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Commercial & Industrial Group

Three Months Ended
(Amounts in millions)September 28, 2024September 30, 2023Change
External net sales$288.778.9%$280.576.6%$8.22.9%
Intersegment net sales77.021.1%85.923.4%(8.9)(10.4)%
Segment net sales365.7100.0%366.4100.0%(0.7)(0.2)%
Cost of goods sold(214.9)(58.8)%(223.4)(61.0)%8.53.8%
Gross profit150.841.2%143.039.0%7.85.5%
Operating expenses(89.8)(24.5)%(84.9)(23.1)%(4.9)(5.8)%
Segment operating earnings$61.016.7%$58.115.9%$2.95.0%

Segment net sales of $365.7 million in the third quarter of 2024 represented a decrease of $0.7 million, or 0.2%, from 2023 levels, reflecting a $7.8 million, or 2.1%, organic sales decline and $0.1 million of unfavorable foreign currency translation, partially offset by $7.2 million of acquisition-related sales. The organic decrease is primarily due to a double-digit reduction in the power tools operation and a mid single-digit decline in the European-based hand tools business, partially offset by a gain in sales to customers in critical industries, including a high single-digit increase in specialty torque.

Segment gross margin in the third quarter improved 220 bps from last year, primarily reflecting increased sales volumes in higher-gross-margin critical industry sectors, lower material and other costs, savings from the segment’s RCI initiatives, and 50 bps of benefits from acquisitions. These improvements were partially offset by 30 bps of unfavorable foreign currency effects.

Segment operating expenses as a percentage of net sales in the third quarter rose 140 bps as compared to 2023 primarily due to increased personnel and other costs, and a 50 bps impact from acquisitions.

As a result of these factors, segment operating earnings of $61.0 million in the third quarter of 2024 compared to $58.1 million in 2023, an increase of $2.9 million or 5.0%. Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 16.7% in the third quarter of 2024 compared to 15.9% in 2023.

Nine Months Ended
(Amounts in millions)September 28, 2024September 30, 2023Change
External net sales$884.780.6%$848.977.6%$35.84.2%
Intersegment net sales212.919.4%245.522.4%(32.6)(13.3)%
Segment net sales1,097.6100.0%1,094.4100.0%3.20.3%
Cost of goods sold(644.8)(58.7)%(666.2)(60.9)%21.43.2%
Gross profit452.841.3%428.239.1%24.65.7%
Operating expenses(274.2)(25.0)%(256.2)(23.4)%(18.0)(7.0)%
Segment operating earnings$178.616.3%$172.015.7%$6.63.8%

Segment net sales of $1,097.6 million in the first nine months of 2024 represented an increase of $3.2 million, or 0.3%, from 2023 levels, reflecting $21.2 million of acquisition-related sales, partially offset by a $12.7 million, or 1.2%, organic sales decline and $5.3 million of unfavorable foreign currency translation. The organic decrease is primarily due to a double-digit reduction in the power tools operation and a mid single-digit decline in the European-based hand tools business, partially offset by a mid single-digit gain in sales to customers in critical industries.

Segment gross margin in the first nine months improved 220 bps from last year, primarily reflecting increased sales volumes in higher-gross-margin critical industry sectors, savings from the segment’s RCI initiatives, lower material and other costs, and 50 bps of benefits from acquisitions.

Segment operating expenses as a percentage of net sales in the first nine months rose 160 bps as compared to 2023 primarily due to increased personnel and other costs, and a 60 bps impact from acquisitions.

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As a result of these factors, segment operating earnings of $178.6 million in the first nine months of 2024 compared to $172.0 million in 2023, an increase of $6.6 million or 3.8%. Operating margin for the Commercial & Industrial Group of 16.3% in the first nine months of 2024 compared to 15.7% in 2023.

Snap-on Tools Group

Three Months Ended
(Amounts in millions)September 28, 2024September 30, 2023Change
Segment net sales$500.5100.0%$515.4100.0%$(14.9)(2.9)%
Cost of goods sold(264.0)(52.7)%(276.8)(53.7)%12.84.6%
Gross profit236.547.3%238.646.3%(2.1)(0.9)%
Operating expenses(128.2)(25.7)%(125.2)(24.3)%(3.0)(2.4)%
Segment operating earnings$108.321.6%$113.422.0%$(5.1)(4.5)%

Segment net sales of $500.5 million in the third quarter of 2024 represented a decrease of $14.9 million, or 2.9%, from 2023 levels, reflecting a $15.8 million, or 3.1%, organic sales decline, partially offset by $0.9 million of favorable foreign currency translation. The organic decrease is due to a mid single-digit decline in the U.S., partially offset by a low single-digit gain in the segment’s international operations.

Segment gross margin in the third quarter improved 100 bps from last year primarily due to lower material and other costs, and benefits from RCI initiatives.

Segment operating expenses as a percentage of net sales in the third quarter rose 140 bps as compared to 2023 primarily reflecting the lower sales volumes.

As a result of these factors, segment operating earnings of $108.3 million in the third quarter of 2024 compared to $113.4 million in 2023, a decrease of $5.1 million or 4.5%. Operating margin for the Snap-on Tools Group of 21.6% in the third quarter of 2024 compared to 22.0% last year.

Nine Months Ended
(Amounts in millions)September 28, 2024September 30, 2023Change
Segment net sales$1,482.6100.0%$1,575.5100.0%$(92.9)(5.9)%
Cost of goods sold(769.8)(51.9)%(826.5)(52.5)%56.76.9%
Gross profit712.848.1%749.047.5%(36.2)(4.8)%
Operating expenses(372.4)(25.1)%(366.2)(23.2)%(6.2)(1.7)%
Segment operating earnings$340.423.0%$382.824.3%$(42.4)(11.1)%

Segment net sales of $1,482.6 million in the first nine months of 2024 represented a decrease of $92.9 million, or 5.9%, from 2023 levels, reflecting a $93.6 million, or 5.9%, organic sales decline, partially offset by $0.7 million of favorable foreign currency translation. The organic decrease is due to a high single-digit decline in the U.S., partially offset by a low single-digit gain in the segment’s international operations.

Segment gross margin in the first nine months improved 60 bps from last year primarily reflecting decreased sales of lower-gross-margin products.

Segment operating expenses as a percentage of net sales in the first nine months rose 190 bps as compared to 2023 primarily due to the lower sales volumes.

As a result of these factors, segment operating earnings of $340.4 million in the first nine months of 2024 compared to $382.8 million in 2023, a decrease of $42.4 million or 11.1%. Operating margin for the Snap-on Tools Group of 23.0% in the first nine months of 2024 compared to 24.3% last year.

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Repair Systems & Information Group

Three Months Ended
(Amounts in millions)September 28, 2024September 30, 2023Change
External net sales$357.884.6%$363.484.2%$(5.6)(1.5)%
Intersegment net sales64.915.4%68.415.8%(3.5)(5.1)%
Segment net sales422.7100.0%431.8100.0%(9.1)(2.1)%
Cost of goods sold(222.2)(52.6)%(235.2)(54.5)%13.05.5%
Gross profit200.547.4%196.645.5%3.92.0%
Operating expenses(93.2)(22.0)%(91.7)(21.2)%(1.5)(1.6)%
Segment operating earnings$107.325.4%$104.924.3%$2.42.3%

Segment net sales of $422.7 million in the third quarter of 2024 represented a decrease of $9.1 million, or 2.1%, from 2023 levels, reflecting an $8.2 million, or 1.9%, organic sales decline and $0.9 million of unfavorable foreign currency translation. The organic decrease is due to a mid single-digit decline in sales of undercar equipment and a low single-digit reduction in activity with OEM dealerships, partially offset by a low single-digit gain in sales of diagnostic and information products to independent repair shop owners and managers.

Segment gross margin in the third quarter improved 190 bps from last year primarily reflecting increased sales of higher-gross-margin products.

Segment operating expenses as a percentage of net sales in the third quarter rose 80 bps from 2023 primarily due to the lower sales volumes and increased personnel and other costs.

As a result of these factors, segment operating earnings of $107.3 million in the third quarter of 2024 compared to $104.9 million in 2023, an increase of $2.4 million or 2.3%. Operating margin for the Repair Systems & Information Group of 25.4% in the third quarter of 2024 compared to 24.3% last year.

Nine Months Ended
(Amounts in millions)September 28, 2024September 30, 2023Change
External net sales$1,141.485.1%$1,109.283.4%$32.22.9%
Intersegment net sales199.914.9%221.216.6%(21.3)(9.6)%
Segment net sales1,341.3100.0%1,330.4100.0%10.90.8%
Cost of goods sold(725.1)(54.1)%(736.1)(55.3)%11.01.5%
Gross profit616.245.9%594.344.7%21.93.7%
Operating expenses(282.4)(21.0)%(274.4)(20.7)%(8.0)(2.9)%
Segment operating earnings$333.824.9%$319.924.0%$13.94.3%

Segment net sales of $1,341.3 million in the first nine months of 2024 represented an increase of $10.9 million, or 0.8%, from 2023 levels, reflecting a $10.8 million, or 0.8%, organic sales gain and $0.1 million of favorable foreign currency translation. The organic improvement reflects a mid single-digit increase in activity with OEM dealerships, partially offset by low single-digit declines in both sales of undercar equipment and of diagnostic and information products to independent repair shop owners and managers.

Segment gross margin in the first nine months improved 120 bps from last year primarily due to savings from RCI initiatives, and lower material and other costs.

Segment operating expenses as a percentage of net sales in the first nine months rose 30 bps from 2023 primarily reflecting increased personnel and other costs.

As a result of these factors, segment operating earnings of $333.8 million in the first nine months of 2024 compared to $319.9 million in 2023, an increase of $13.9 million or 4.3%. Operating margin for the Repair Systems & Information Group of 24.9% in the first nine months of 2024 compared to 24.0% last year.

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Financial Services

Three Months Ended
(Amounts in millions)September 28, 2024September 30, 2023Change
Financial services revenue$100.4100.0%$94.9100.0%$5.55.8%
Financial services expenses(28.7)(28.6)%(25.5)(26.9)%(3.2)(12.5)%
Segment operating earnings$71.771.4%$69.473.1%$2.33.3%

Financial services revenue is generally dependent on the size of the average financial services portfolio during the period, as well as on the average yield on receivables. Financial services revenue of $100.4 million in the third quarter of 2024 increased $5.5 million, or 5.8%, from last year. In the third quarters of both 2024 and 2023, the average yield on finance receivables was 17.7%. In the third quarters of 2024 and 2023, the average yields on contract receivables were 9.1% and 8.8%, respectively. Originations of $288.0 million in the third quarter of 2024 represented a decrease of $17.2 million, or 5.6%, from 2023 levels.

Financial services expenses primarily include personnel-related and other general and administrative costs, as well as provisions for credit losses. These expenses are generally more dependent on changes in the size of the financial services portfolio than they are on the revenue of the segment. Financial services expenses in the third quarter of 2024 increased primarily due to higher provisions for credit losses as compared to those recorded in the third quarter of 2023. As a percentage of the average financial services portfolio, expenses were 1.1% in the third quarters of both 2024 and 2023.

As a result of these factors, segment operating earnings of $71.7 million in the third quarter of 2024 compared to $69.4 million in 2023, an increase of $2.3 million, or 3.3%.

Nine Months Ended
(Amounts in millions)September 28, 2024September 30, 2023Change
Financial services revenue$300.5100.0%$280.9100.0%$19.67.0%
Financial services expenses(90.3)(30.0)%(78.3)(27.9)%(12.0)(15.3)%
Segment operating earnings$210.270.0%$202.672.1%$7.63.8%

Financial services revenue of $300.5 million in the first nine months of 2024 increased $19.6 million, or 7.0%, from last year. In the first nine months of both 2024 and 2023, the average yield on finance receivables was 17.7%. In the first nine months of 2024 and 2023, the average yields on contract receivables were 9.0% and 8.7%, respectively. Originations of $897.8 million in the first nine months of 2024 represented a decrease of $34.6 million, or 3.7%, from 2023 levels.

Financial services expenses in the first nine months of 2024 increased primarily due to higher provisions for credit losses as compared to those recorded last year. As a percentage of the average financial services portfolio, expenses were 3.6% and 3.3% in the respective first nine months of 2024 and 2023.

As a result of these factors, segment operating earnings of $210.2 million in the first nine months of 2024 compared to $202.6 million in 2023, an increase of $7.6 million, or 3.8%.

Corporate

Snap-on’s third quarter 2024 general corporate expenses of $24.2 million compared to $31.2 million last year. The year-over-year decrease primarily reflects lower performance-based compensation and other costs.

For the first nine months of 2024, general corporate expenses of $49.2 million compared to $92.7 million recorded in 2023. The year-over-year decrease primarily reflects benefits from the legal payments received in the first six months of 2024 and lower performance-based compensation and other costs.

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Non-GAAP Supplemental Data

The following non-GAAP supplemental data is presented for informational purposes to provide readers with insight into the information used by management for assessing the operating performance of Snap-on’s non-financial services (“Operations”) and Financial Services businesses.

The supplemental Operations data reflects the results of operations and financial position of Snap-on’s tools, diagnostics, equipment products, software, and other non-financial services operations with Financial Services presented on the equity method. The supplemental Financial Services data reflects the results of operations and financial position of Snap-on’s U.S. and international financial services operations. The financing needs of Financial Services are met through intersegment borrowings and cash generated from Operations; Financial Services is charged interest expense on intersegment borrowings at market rates. Income taxes are charged to Financial Services on the basis of the specific tax attributes generated by the U.S. and international financial services businesses. Transactions between the Operations and Financial Services businesses are eliminated to arrive at the Condensed Consolidated Financial Statements.

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the three months ended September 28, 2024, and September 30, 2023, is as follows:

Operations*Financial Services
(Amounts in millions)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Net sales$1,147.0$1,159.3$—$—
Cost of goods sold(559.2)(581.1)——
Gross profit587.8578.2——
Operating expenses(335.4)(333.0)——
Operating earnings before financial services252.4245.2——
Financial services revenue——100.494.9
Financial services expenses——(28.7)(25.5)
Operating earnings from financial services——71.769.4
Operating earnings252.4245.271.769.4
Interest expense(12.5)(12.4)——
Intersegment interest income (expense) – net16.816.1(16.8)(16.1)
Other income (expense) – net20.617.9—0.1
Earnings before income taxes and equity earnings277.3266.854.953.4
Income tax expense(62.0)(57.3)(12.7)(13.8)
Earnings before equity earnings215.3209.542.239.6
Financial services – net earnings attributable to Snap-on42.239.6——
Net earnings257.5249.142.239.6
Net earnings attributable to noncontrolling interests(6.4)(6.0)——
Net earnings attributable to Snap-on$251.1$243.1$42.2$39.6
  • Snap-on with Financial Services presented on the equity method.

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Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the nine month periods ended September 28, 2024, and September 30, 2023, is as follows:

Operations*Financial Services
(Amounts in millions)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Net sales$3,508.7$3,533.6$—$—
Cost of goods sold(1,726.9)(1,762.1)——
Gross profit1,781.81,771.5——
Operating expenses(978.2)(989.5)——
Operating earnings before financial services803.6782.0——
Financial services revenue——300.5280.9
Financial services expenses——(90.3)(78.3)
Operating earnings from financial services——210.2202.6
Operating earnings803.6782.0210.2202.6
Interest expense(37.3)(37.4)——
Intersegment interest income (expense) – net50.647.9(50.6)(47.9)
Other income (expense) – net57.349.80.10.2
Earnings before income taxes and equity earnings874.2842.3159.7154.9
Income tax expense(189.3)(183.8)(39.9)(40.1)
Earnings before equity earnings684.9658.5119.8114.8
Financial services – net earnings attributable to Snap-on119.8114.8——
Net earnings804.7773.3119.8114.8
Net earnings attributable to noncontrolling interests(18.9)(17.5)——
Net earnings attributable to Snap-on$785.8$755.8$119.8$114.8
  • Snap-on with Financial Services presented on the equity method.

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Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Balance Sheets information as of September 28, 2024, and December 30, 2023, is as follows:

Operations*Financial Services
(Amounts in millions)September 28, 2024December 30, 2023September 28, 2024December 30, 2023
ASSETS
Current assets:
Cash and cash equivalents$1,313.2$1,001.3$0.1$0.2
Intersegment receivables18.315.7——
Trade and other accounts receivable – net795.8790.60.60.7
Finance receivables – net——624.7594.1
Contract receivables – net4.75.5117.4115.3
Inventories – net995.81,005.9——
Prepaid expenses and other current assets151.5143.210.27.4
Total current assets3,279.32,962.2753.0717.7
Property and equipment – net545.9536.52.42.8
Operating lease right-of-use assets77.573.80.50.9
Investment in Financial Services405.9393.9——
Deferred income tax assets53.151.326.624.7
Intersegment long-term notes receivable844.2785.6——
Long-term finance receivables – net——1,309.01,284.2
Long-term contract receivables – net8.38.3413.8399.6
Goodwill1,086.61,097.4——
Other intangible assets – net277.3268.9——
Pension assets134.5130.5——
Other long-term assets34.930.20.10.1
Total assets$6,747.5$6,338.6$2,505.4$2,430.0
  • Snap-on with Financial Services presented on the equity method.

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Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Balance Sheets Information (continued):

Operations*Financial Services
(Amounts in millions)September 28, 2024December 30, 2023September 28, 2024December 30, 2023
LIABILITIES AND EQUITY
Current liabilities:
Notes payable$14.3$15.6$—$—
Accounts payable268.8236.21.21.8
Intersegment payables——18.315.7
Accrued benefits59.464.4——
Accrued compensation80.699.92.93.0
Franchisee deposits79.273.3——
Other accrued liabilities434.8432.228.527.4
Total current liabilities937.1921.650.947.9
Long-term debt and intersegment long-term debt——2,029.51,970.2
Deferred income tax liabilities83.279.2——
Retiree health care benefits20.221.8——
Pension liabilities65.582.3——
Operating lease liabilities57.054.00.10.6
Other long-term liabilities86.886.319.017.4
Total liabilities1,249.81,245.22,099.52,036.1
Total shareholders’ equity attributable to Snap-on5,475.05,071.3405.9393.9
Noncontrolling interests22.722.1——
Total equity5,497.75,093.4405.9393.9
Total liabilities and equity$6,747.5$6,338.6$2,505.4$2,430.0
  • Snap-on with Financial Services presented on the equity method.

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Liquidity and Capital Resources

Snap-on’s growth has historically been funded by a combination of cash provided by operating activities and debt financing. Snap-on believes that its cash from operations and collections of finance receivables, coupled with its sources of borrowings and available cash on hand, are sufficient to fund its currently anticipated requirements for scheduled debt repayments, payments of interest and dividends, new receivables originated by our financial services businesses, capital expenditures, working capital, funding of pension plans, and share repurchases and acquisitions, if and as they arise.

Due to Snap-on’s credit rating over the years, external funds have been available at an acceptable cost. As of October 11, 2024, Snap-on’s long-term debt and commercial paper were rated, respectively, A2 and P-1 by Moody’s Investors Service; A- and A-2 by Standard & Poor’s; and A and F1 by Fitch Ratings. Snap-on believes that its current credit arrangements are sound and that the strength of its balance sheet affords the company the financial flexibility, including through access to financial markets for potential new financing, to respond to both internal growth opportunities and those available through acquisitions. However, Snap-on cannot provide any assurance that financing will be available in the future on acceptable terms, or that its debt ratings will not decrease.

The following discussion focuses on information included in the accompanying Condensed Consolidated Balance Sheets.

Working capital (current assets less current liabilities) of $3,044.3 million as of September 28, 2024, represented an increase of $333.9 million from $2,710.4 million as of December 30, 2023 (fiscal 2023 year end), primarily as a result of the net changes discussed below.

The following represents the company’s working capital position as of September 28, 2024, and December 30, 2023:

(Amounts in millions)September 28, 2024December 30, 2023
Cash and cash equivalents$1,313.3$1,001.5
Trade and other accounts receivable – net796.4791.3
Finance receivables – net624.7594.1
Contract receivables – net122.1120.8
Inventories – net995.81,005.9
Prepaid expenses and other current assets148.4138.4
Total current assets4,000.73,652.0
Notes payable(14.3)(15.6)
Accounts payable(270.0)(238.0)
Other current liabilities(672.1)(688.0)
Total current liabilities(956.4)(941.6)
Working capital$3,044.3$2,710.4

Cash and cash equivalents of $1,313.3 million as of September 28, 2024, represented an increase of $311.8 million from 2023 year-end levels primarily due to: (i) $924.0 million of cash generated from operations; (ii) $629.3 million of cash from collections of finance receivables; and (iii) $61.6 million of cash proceeds from stock purchase plans and stock option exercises. These increases in cash and cash equivalents were partially offset by: (i) the funding of $731.3 million of new finance receivables; (ii) dividend payments to shareholders of $294.1 million; (iii) the repurchase of 637,000 shares of the company’s common stock for $177.5 million; and (iv) the funding of $65.4 million of capital expenditures.

Of the $1,313.3 million of cash and cash equivalents as of September 28, 2024, $507.7 million was held outside of the United States. Snap-on maintains non-U.S. funds in its foreign operations to: (i) provide adequate working capital; (ii) satisfy various regulatory requirements; and/or (iii) take advantage of business expansion opportunities as they arise. Although the Tax Cuts and Jobs Act (“Tax Act”) generally eliminated U.S. federal taxation of dividends from foreign subsidiaries, such dividends may still be subject to state income taxation and foreign withholding taxes. Snap-on periodically evaluates its cash held outside the United States and may pursue opportunities to repatriate certain foreign cash amounts to the extent that it can be accomplished in a tax efficient manner.

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Trade and other accounts receivable – net of $796.4 million as of September 28, 2024, compared to $791.3 million as of December 30, 2023, an increase of $5.1 million primarily due to an increase in days sales outstanding, partially offset by $1.6 million of foreign currency translation. Days sales outstanding (trade and other accounts receivable – net as of the respective period end, divided by the respective trailing 12 months of sales, times 360 days) was 61 days for September 28, 2024, and 60 days for December 30, 2023.

The current portions of net finance and contract receivables of $746.8 million as of September 28, 2024, compared to $714.9 million at 2023 year end. The long-term portions of net finance and contract receivables of $1,731.1 million as of September 28, 2024, compared to $1,692.1 million at 2023 year end. The combined $70.9 million increase in net current and long-term finance and contract receivables over 2023 year-end levels is primarily due to net receivable originations and $4.9 million of foreign currency translation.

Inventories – net of $995.8 million as of September 28, 2024, decreased $10.1 million compared to $1,005.9 million as of December 30, 2023, primarily due to easing supply chain disruptions, partially offset by $0.8 million of foreign currency translation. Inventory turns (trailing 12 months of cost of goods sold, divided by the average of the beginning and ending inventory balances for the trailing 12 months) were 2.3 turns as of both September 28, 2024, and December 30, 2023. Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 58% of total inventories as of September 28, 2024, and 59% of total inventories as of December 30, 2023. All other inventories are accounted for using the last-in, first-out (“LIFO”) method. The company’s LIFO reserve was $125.7 million and $115.9 million as of September 28, 2024, and December 30, 2023, respectively.

Notes payable of $14.3 million as of September 28, 2024, compared to $15.6 million as of 2023 year end.

Accounts payable of $270.0 million as of September 28, 2024, compared to $238.0 million as of December 30, 2023, an increase of $32.0 million primarily due to the timing of payments, partially offset by $1.2 million of foreign currency translation.

Other accrued liabilities of $450.0 million as of September 28, 2024, compared to $447.4 million as of 2023 year end, an increase of $2.6 million, including $0.3 million of foreign currency translation.

Long-term debt of $1,185.3 million as of September 28, 2024, consisted of: (i) $300 million of unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”); (ii) $400 million of unsecured 4.10% notes that mature on March 1, 2048 (the “2048 Notes”); and (iii) $500 million of 3.10% notes that mature on May 1, 2050 (“the 2050 Notes”), partially offset by $14.7 million of unamortized debt issuance costs and issuance discounts.

Snap-on has a $900 million multicurrency revolving credit facility that terminates on September 12, 2028 (the “Credit Facility”). The Credit Facility contains an accordion feature that, subject to certain customary conditions, may allow the maximum commitment to be increased by up to $450 million with the approval of the lenders providing additional commitments. No amounts were borrowed or outstanding under the Credit Facility during the nine months ended and as of September 28, 2024.

Borrowings under the Credit Facility bear interest at varying rates based on either: (i) Snap-on’s then-current, long-term debt ratings; or (ii) Snap-on’s then-current ratio of consolidated debt net of certain cash adjustments (“Consolidated Net Debt”) to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Consolidated Net Debt to EBITDA Ratio”). The Credit Facility’s financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of Consolidated Net Debt to the sum of Consolidated Net Debt plus total equity and less accumulated other comprehensive income or loss (the “Leverage Ratio”); or (ii) a Consolidated Net Debt to EBITDA Ratio not greater than 3.50 to 1.00. Snap-on may, up to two times during any five-year period during the term of the Credit Facility (including any extensions thereof), elect to increase the maximum Leverage Ratio to 0.65 to 1.00 and/or increase the maximum Consolidated Net Debt to EBITDA Ratio to 4.00 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined in the related credit agreement). As of September 28, 2024, the company’s consolidated cash balance, net of certain adjustments, exceeded consolidated debt resulting in actual ratios of (0.01) and (0.03), respectively. Both ratios are within the permitted ranges set forth in this financial covenant.

Snap-on generally issues commercial paper to fund its financing needs on a short-term basis and uses the Credit Facility as back-up liquidity to support such commercial paper issuances. As of September 28, 2024, there were no commercial paper issuances outstanding.

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Snap-on believes it has sufficient available cash and access to both committed and uncommitted credit facilities to cover its expected funding needs on both a short-term and long-term basis. Snap-on manages its aggregate short-term borrowings so as not to exceed its availability under the Credit Facility. Snap-on believes that it can access short-term debt markets, predominantly through commercial paper issuances and existing lines of credit, to fund its short-term requirements and to ensure near-term liquidity. Snap-on regularly monitors the credit and financial markets and, if it believes conditions are favorable, it may take advantage of such conditions to issue long-term debt to further improve its liquidity and capital resources. Near-term liquidity requirements for Snap-on include payments of interest and dividends, funding to support new receivables originated by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share repurchases and acquisitions, if and as they arise. Snap-on intends to make contributions of $6.0 million to its foreign pension plans and $3.7 million to its domestic pension plans in 2024, as required by law. Depending on market and other conditions, Snap-on may make discretionary cash contributions to its pension plans in 2024.

Snap-on’s long-term financing strategy is to maintain continuous access to the debt markets to accommodate its liquidity needs, including the potential use of commercial paper, additional fixed-term debt and/or securitizations.

The following discussion focuses on information included in the accompanying Condensed Consolidated Statements of Cash Flows.

Operating Activities

Net cash provided by operating activities was $924.0 million and $857.3 million in the first nine months of 2024 and 2023, respectively. The $66.7 million year-over-year increase in net cash provided by operating activities primarily reflects a $23.7 million change in net operating assets and liabilities and a $31.4 million increase in net earnings.

Investing Activities

Net cash used by investing activities of $163.9 million in the first nine months of 2024 included additions to finance receivables of $731.3 million, partially offset by collections of $629.3 million. Net cash used by investing activities of $227.2 million in the first nine months of 2023 included additions to finance receivables of $779.8 million, partially offset by collections of $626.5 million. Finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools, diagnostics, and equipment products on an extended-term payment plan, with average payment terms of approximately four years.

Capital expenditures were $65.4 million and $73.9 million in the first nine months of 2024 and 2023, respectively. Capital expenditures in both years included continued investments related to the company’s execution of its strategic Value Creation Processes around safety, quality, customer connection, innovation and RCI.

Financing Activities

Net cash used by financing activities was $448.3 million in the first nine months of 2024 and $423.9 million in the first nine months of 2023. Proceeds from stock purchase plans and stock option exercises totaled $61.6 million and $94.5 million in the first nine months of 2024 and 2023, respectively. In the first nine months of 2024, Snap-on repurchased 637,000 shares of its common stock for $177.5 million under its previously announced share repurchase programs. In the first nine months of 2023, Snap-on repurchased 909,000 shares of its common stock for $233.8 million under its previously announced share repurchase programs. As of September 28, 2024, Snap-on had remaining availability to repurchase up to an additional $471.5 million in common stock pursuant to its Board’s authorizations. The repurchase of Snap-on common stock to offset dilution related to equity plan issuances or for other corporate purposes is at the company’s discretion, subject to prevailing financial and market conditions. Snap‑on believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to fund the company’s additional share repurchases, if any.

Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939. Cash dividends totaled $294.1 million and $257.6 million in the first nine months of 2024 and 2023, respectively. On November 2, 2023, the Board increased the quarterly cash dividend by 14.8% to $1.86 per share ($7.44 per share annualized). Snap-on believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to pay dividends.

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Critical Accounting Policies and Estimates

Snap-on’s critical accounting policies and estimates, which are discussed in its Annual Report on Form 10-K for the fiscal year ended December 30, 2023, have not materially changed since the report was filed.

Outlook

We believe that our markets and our operations possess and have demonstrated continuing and considerable resilience against the uncertainties of the current environment. For the remainder of 2024, Snap-on expects to make ongoing progress along its defined runways for coherent growth, leveraging capabilities already demonstrated in the automotive repair arena and developing and expanding its professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including extending in critical industries, where the cost and penalties for failure can be high. In pursuit of these initiatives, we project that capital expenditures in 2024 will approximate $100 million, of which $65.4 million was incurred in the first nine months of the year.

Snap-on currently anticipates that its full-year 2024 effective income tax rate will be in the range of 22% to 23%.

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