Good day, and welcome to the Snap-on Incorporated 2017 First Quarter Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Leslie Kratcoski. Please go ahead.

Thanks, Laurie and good morning everyone. Thanks for joining us today to review Snap-on’s first quarter results, which are detailed on 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 provide some 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 and 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 as a substitute for their GAAP counterparts. Additional information regarding these measures is included in our earnings release issued today, which can be found on our website. With that said, I’d now like to turn the call over to Nick Pinchuk. Nick?

Thanks, Leslie. Good morning, everybody. As usual, I’ll start the call by covering the highlights of our first quarter. Along the way, we’ll look at results, the markets, the progress we’ve made and I’ll give you a perspective on what we believe it all means. Then Aldo will move into a more detailed review of the financial. We believe that our first quarter has convincing confirmation of Snap-on’s ability to continue its trajectory of positive results to overcome period to period variations from business-to-business to offset macroeconomic headwinds and to still keep advancing along our runways for both growth and improvement. Our reported sales in the quarter of $887.1 million were up 6.3%, including $29.1 million in acquisition related sales, partially offset by $9.6 million in unfavorable foreign exchange. Organic sales growth was 4.1%, with increases registered by every group. Those gains together with continued contributions from Snap-on Value Creation Processes, the principles we use every day, safety, quality, customer connection, innovation and Rapid Continuous Improvement or RCI, combined offer another encouraging quarter. Our EPS was $2.39, up 10.6% from last year’s $2.16. The increase includes an opco operating margin of 19.1%, 50 basis points higher than last year and that rise overcame a 50 basis points unfavorable impact from acquisitions. When you combine those current opco gains with earnings of $52.5 million from the financial services, it brings Snap-on’s consolidated operating margin to 23%, up from the 22.5% in 2016. Now let me pause here to note that these acquisitions may be margin attenuators at this point, but they’re actually landscapes that are fertile ground for Snap-on Value Creation. As we go forward, they’re actually great opportunities to achieve margin improvement – margin growth. Now let’s look at the markets. We believe the auto repair market remains relatively robust.…

Thanks, Nick. Our consolidated operating results are summarized on Slide 6. Net sales of $887.1 million in the quarter increased $52.9 million or 6.3% from 2016 levels, reflecting a $33.4 million or 4.1% organic sales gain, $29.1 million of acquisition related sales and $9.6 million of unfavorable foreign currency translation. Foreign currency movements adversely impacted our Q1 sales comparisons by 130 basis points. The organic sales gain reflects continued progress in serving the vehicle repair sector as well as further recovery in sales to Industrial market segments in our C&I Group. Consolidated gross margin of 50.5% improved 70 basis points, primarily due to the benefits from higher sales and savings from RCI initiatives. Operating expenses of $278.5 million yielded an operating expense margin of 31.4% in the quarter, an increase of 20 basis points as operating expenses for acquisitions and unfavorable foreign currency effects were partially offset by benefits from sales volume leverage. As a result of these factors, operating earnings before financial services of $169.5 million, increased 9.1% and as a percentage of sales, improved 50 basis points to 19.1%. The operating margin of 19.1% in the quarter reflects a 50 basis point impact from acquisitions and 20 basis points of unfavorable foreign currency effects. Financial services revenue of $76.8 million increased 10.5% from 2016 levels, and operating earnings of $52.5 million, including $0.3 million of unfavorable foreign currency effects increased $5.5 million. Consolidated operating earnings of $222 million, including $4.1 million of unfavorable foreign currency effects increased 9.7%, and the operating margin of 23% improved 50 basis points from 22.5% a year ago. Our first quarter effective income tax rate of 30.7% compared to 31% last year. Finally, net earnings of $141.6 million, or $2.39 per diluted share increased $13.3 million, or $0.23 per share from 2016 levels,…

Thanks, Aldo. Well, that’s our first quarter. C&I with organic growth of 3%; OI margin, 13.9. SNA Europe, continuing its bellwether trends, sales up, profits up again industrial, critical industries coming back with broader gain. Tools up 2.5% organically, OI margin of 17.2%, up 60 basis points against the currency headwind of 70 basis points. RS&I Organic sales up 7.8% with increases across this customer base, each of its customer base. OI margin of 24.7% flat versus last year, but with RCI and volume offsetting 140 basis points of acquisition impact. It all added up to an overall organic growth of 4.1% and opco OI margin of 19.1% up 50 basis points against 50 basis points of impact from acquisitions. And an overall EPS of $2.39 up 10.6%, it was an encouraging quarter, achieved against headwinds and variation. And we believe as we’ve said for some number of quarters that we’re well positioned to continue that trend. Great new products are entering the mix, aimed at customer needs and customer excitement, all drivers of progress along our runways for growth. And Snap-on Value Creation continues to drive our runways for improvement. And now, we have new landscape for our acquisitions, providing expanded possibilities for further margin improvement. We believe we have abundant opportunity for both growth and improvement. And we believe we possess the capabilities and the intent to take full advantage and continue our positive trend going forward to 2017 and beyond. Before I turn the call over to the operator, I’m going to – I’d like to speak to our franchisees and associates. I know many of you are listening. The encouraging quarter we’re announcing today reflects unique skill and commitments. For all your many contributions to our progress, you have my congratulations. And for all your extraordinary dedication to our team, you have my thanks. Now turn the call over to the operator. Operator?

Thank you, sir. [Operator Instruction] We’ll take our first question from Christopher Glynn from Oppenheimer.

Thanks good morning.

Good morning

Yes, just with the Tools Group, you’ve had some deceleration recently, but the comparisons were pretty tough in the first quarter, and it starts to get a little easier. So right now, you’re a little bit below what I think you’d call normalized. Is there a reversion that based on the comparisons that you expect?

Well, look. We always say that we expect the 4% to 6% growth for our divisions and there could be variations from quarter-to-quarter. We never necessarily predict the reversion based on comparisons. This particular one was a difficult comparison that you said, I think the better thought is, look, we feel pretty confident about the new products we’re rolling out. We’re kind of pumped about the whole idea of the long handle ratchet and the new tool storage program and color and the excitement that will generate and the idea of the PT850 half inch impact, which is a signature tool, and everybody loves it. We like those. And so at the end of the day, it comes down to product, and we’re kind of optimistic about that, that’s what I’ll say.

Okay, and then any update on franchisees, inventories and sell through against contracted sales to franchisees.

No, I’d say the – we’re in line with franchisee movements more or less. There’s always some variation in the inventory levels, but pretty much in line and reflective of our sales.

Yes, and that moves from time to time. That goes quarter-to-quarter, the franchisee sales particularly match ours. It really depends on how we’re feeling in the programs and so on.

Okay. And then with the originations and sort of a flattening trend, but portfolio continues to grow, can you talk about any trend of restructuring or re-aging the loans and how you view that?

We don’t restructure the loans. I mean, the loans stand by themselves and the originations, I think, largely reflect the pattern of what’s being demanded in that channel and as Nick has mentioned earlier, our tool storage, which is the most popular product to be originated on the contract was not as robust the quarter in that regard.

Okay, great. And then just, do you have any data on the net charge-offs and the ending allowance?

Yes, they were up slightly. If you look at it year-over-year, but stable and actually on a sequential basis, we saw a bit of improvement over all. So again, somewhat stable trends in line what our expectations.

Yes.

Okay thanks guys

Sure

Our next question comes from David MacGregor with Longbow Research.

Yes, good morning everyone.

Good morning

Yes. Good morning, Nick. A lot of good things this quarter. I wanted to just – I wanted to ask you about the storage and I’m just trying to get a sense of what’s going on there with your assessment of the negative growth in storage. Is this demand easing? curtailed to credit availability with respect to this category?

No, I don’t think it’s any of that. Sorry, I don’t think actually, I don’t think it’s any of that. I mean, there always can be factors, from time to time. My assessment is first of all, tool storage has been growing a longtime. This quarter even though with the down, it’s one of our top 10 quarters ever still in tool storage. But having said that, now we’ve had two quarters of tool storage less than robust positioning, and we conclude, maybe it needs a little more excitement, maybe – at the end of the day, these are product-driven. And you roll out a product and some – if some of them are singles and doubles and some are home runs. And when we look at the tool storage in general, you might be tempted to say that we look at the tool storage offering across the network. It’s down in 4 to 5 places where we have vans, and they aren’t affected by any of those things that you’re talking about, if you observe those markets over the years, they wouldn’t be affected by, let’s say, credit or so much by credit or by saturation. And so we conclude the tool storage line up just need a little goosing. So that’s why I’m talking about this new program rolling out, new colors and so on. It’s as simple as that, I think.

As there been any change in the number of Rock ‘N Roll Cap Expresses on the road?

No, we haven’t change them. So that’s another thought. I mean – but we – I tend to think it’s for our – it’s – this tends to be – there is a lot of factors, David. And of course, everything I say isn’t true everywhere. But the thing is, I think if you look across the networking and you see the behavior of tool storage and when it happens for two – for more than one quarter, it starts to get your attention. We say, "Hey, let’s accelerate a little goosing." And that’s what we’re doing. And so I think that’s what we’ve encoded in the tool storage situation. It’s not been ticked because diagnostics is rolling. Diagnostics is having a great quarter, had a great quarter, another great quarter. So that isn’t it. It isn’t the big ticket situation, just – and you see it from time to time. It doesn’t show up so clearly, but when we look at it at a granular level, we see positives and singles and doubles and triples.

I want to ask you about the acquisitions because hit you finally you got a lot of margin up side there, I guess I was going to ask you if you could just quantify your best guess on what the margin upside is? Do these acquisitions get back to kind fled average margins? Or could they surpass that? What’s the upside?

Well, I don’t really want to speculate on that. All I know is we ought to moving them upwards. You’ve got a year where they come in. You kind of have a year where they start to – their comparing to the year before where they weren’t in the number, but then after that given you Snap-on Value Creation and so on, you expect to have that effect, start moving them upwards. And I don’t know where the upside is I mean you got Car-O-Liner is there which is a kind of equipment level business, which is at the bottom of RS&I’s – OI margin. Remember, RS&I is a variance of several thousand basis points. And so OI margins and equipment is at a sort of bottom end of that because it’s hardware-based. And Car-O-Liner starts out a little bit lower than that. We think we got a lot of upside in those businesses. And so – but I wouldn’t want to quantify it. I am just happy to get a good chunk every year.

Did I hear you correctly?

No limits to the upside.

Did I hear you correctly that it takes about a year to integrate but that for a year you – they should not be…

I don’t mean integrate. I don’t mean integrate. I just mean that’s the arithmetic. In other words, if you have a lower margin business and you’re comparing to the year, the year before, you don’t have it in your numbers in the year before. So it stands out like a sore thumb. It’s a variance. And then when you – so you don’t – it might be less impact for the next quarter even if it gets better and less impactful, but it’s still going to be dilutive for a couple of quarters. But then, you start to have comparisons where it’s in the base, and you see your improvements standout visibly still that mean.

Yes, absolutely. You got a very good free cash flow storage your acquisitions become a more predominant part of the growth as we go forward from here?

Well, I think we’ve always said that we’re going to acquire along our runways for growth, and we have a sort of a list of acquisitions we’re reviewing constantly. I think acquisitions – I wouldn’t necessarily think they’re going to become more a greater part of the growth, but we’re constantly reviewing them and you can see us take advantage when the opportunities are there.

Last question is just, how do you promote growth of a second associate on the truck, when all those trucks where you do have a second associates, it seems like your getting superior growth to those that don’t have it. How do you incent your franchisees?

Well, I think it’s stuff like – it’s – we do two things, one is we try to make sure that there’s a sharing of best practices is that at colloquial meaning like the kickoffs, like the NFAC people are representatives, and they’ll go back and share it with their regions. And then of course, at the SFC, the Snap-on franchisee conference were pretty much all of them come, we try to make sure we trumpet the effects of those things and talk about and provide seminars on how to select and manage those people. And also, on our own, we try to provide packages that will support them. They’re not our employees, and we don’t urge these – it’s a situation. It’s important to say, “This is not our program." But we provide the support programs that make it possible.

Got it. Thanks, Nick

Thank you.

Our next question comes from Liam Burke with Wunderlich.

Yes good morning Nick. Good morning Aldo.

Good morning, Liam.

Good morning.

Nick you’ve put a lot of upfront investments in emerging markets in the C&I business. You highlighted the fact that in the – India and China are doing well. Are you starting to see any kind of positive operating return of those upfront investments?

Well, they’re profitable, but we keep investing. So I mean, the thing is, the balance is still about where it’s always been, so we don’t necessarily see – I don’t see a time where we’re going to see huge upside coming there. Because we still see opportunities. So in terms of top end, so we keep trying to reposition ourselves in terms of blue point stores, for example. We had another one this quarter as part of the C&I expense category. And so I don’t think we’re seeing a boost out of them in terms of the financials yet. This is just our view that they’re going to give us returns, and our approach is still, Liam, that we want to build the physicals, because we have confidence that as that wave comes and it starts to come, it starts to come, we’re going to see returns. But we don’t view it as a huge profit opportunity in the near-term, more or less as a positioning opportunity.

Great, thanks, Nick. And Aldo, on the cash flows, just touching the return in there. Even when I’m adjusting for some of the onetimes, your cash flow is starting to grow, it’s starting to accelerate. Beyond the acquisitions, where is the priority for cash allocation going to be?

Well, the first priority still always remains serving our organic growth. So we’re not afraid to make investments. We talked a little bit about that in the C&I segment. But when there’s opportunities to invest internally, we’re willing to do that as well. And of course, Snap-on credit still is growing. That’s been the use of our cash to some extent, and then as Nick mentioned already, support of acquisitions.

Okay. Thank you, Nick. Thank you, Aldo.

Sure.

Our next question comes from Scott Stember with C.L. King & Associates.

Good morning, guys.

Good morning.

Can you maybe talk about some of the new programs or the new tools and products you talked about in the Tools Group? Really, just talking about the new tools, the new cabinet program, new colors. Is there anything else to this new program outside of color? And maybe just talk about the timing of when these new products will touch showing up in your numbers.

Well, we’re talking about sort of the beginning and sort of like as we go forward into the second quarter and you’re talking about trim as well as programs that wrap around it, so you have kind of programs that try to make sure that people focus on it as well. And so those things are what wraps around the kind of thing. It has to do with, one an attraction that gives someone a reason to buy. This is what we say in the Tools Group. There are – they’re ongoing types of programs, a lot of programs that roll through this, but we’re talking about it’s aimed at the Tools Group, aimed at a new product that’s going to get peoples’ attention. And we wrap merchandising program around this and promotion program around this and maybe throw in some sort of hat or something like that, that gets people. So you give people a reason to pay attention to it. And we think when they pay attention to it, they see those colors with that trim, with the features that are available, this becomes a seller. And the Algona plant has, I think, an incredible amount of different options that can added on to this kind of thing. So we feel pretty good about it. It’s a new – like I said, it’s a new set of – it’s a new appearance that people won’t have seen before, and we think that drives excitement. One of the things that does, if you’re in a garage and a guy’s got a box, you like the appearance of a different box. You like some of the features of a different box. He wants trade out because he wants to get attention in his ward. This is what generates the activity.

Got it. And then the RS&I side, you’re starting to see some continued growth here in the – with the new car, the OEM dealers. Can you maybe just talk about what you’re seeing there? Are they sustainable trends. And the high single-digit growth that we’re seeing in this segment, if this is something that can persists throughout the year?

I don’t know. Look, I think these are program-related. So that particular segments of the business with OEM dealerships tends to be more lumpy than others, because you get a program. And sometimes, that program lasts for 3 quarters and it runs out and you don’t hook onto another program till you get out to the fifth quarter. So there’s a gap quarter in there. That’s – if you listen to these calls enough, you hear me talk about that stuff. But what I am encouraged about this time is, we have vehicle OEMs. We have heavy-duty OEM’s. We have heavy-duty OEMs. We have agriculture OEMs doing this. So it’s a kind of broad view of repair. We haven’t seen that so much come together. So it’s kind of positive in that regard. Now I can’t testify that these are going to continue, because as I said, this tends to be a lumpy portion of our business. But the fact that it’s spread across 3 different places, pretty good.

All right, and last question on currency. Brexit happened, I believe, in the end of the second quarter last year. Is this still a good assumption that in the back half of the year, we should expect the currency comparison to ease?

Yes, although the second quarter, we think – look, we state today, if the currency stays the way it is today, the second quarter will be somewhat tougher from a currency point of view because the other currencies were stronger in the second quarter then they deteriorated. But you’re right in terms of – it gets – the comparisons get easier as it flows out. So what we would – again, it will probably – the chance it stands right where it is today is probably low, but if did, we see some rise in currency difficulty going forward to the second quarter and then abatement in the third and fourth quarter.

Got it, that’s all I have. Thanks for taking my questions.

We’ll go next to Tom Hayes with Northcoast Research.

Hi thanks, good morning gentlemen.

Good morning.

Just wondering if we could dig into the C&I segment just a little bit. Last year, we were talking about three of the end markets: energy, military and avionics. Certainly a bit of challenge in 2016. Just want to see kind of what your thoughts are coming out of Q1 and for the balance of the year for those three segments?

Actually, I’m pretty encouraged. C&I is a big place for us. We got SNA Europe, which I just – if you’re going to talk about C&I, SNA Europe is a bellwether. That thing has become a monster. It’s growing 14 quarters in sales and 16 quarters in profits. And Europe, I don’t know if you’ve noticed lately, isn’t the most certain of places, so it’s done pretty well. But if you want to go to critical industries, like I think you’re referring to, which is about 1/3 of the business in C&I, we did focus on military and national resources and aviation. And natural resources came back for us. And what I like about this quarter is, it is about the same growth in the critical industries as past quarters. Although sequentially, it looks pretty positive, but also, it’s a little bit more broadly based. Last quarter, we had growth, but there are more eggs in the military basket, the military got better by wider – by a pretty wide margin last quarter, and that delivered the critical industry’s basket for us. This time, we have gains in natural resources in places like wind and mining and places like that oil and gas, and gains in heavy-duty and gains in general industry, a little more broadly based. Military is more tepid. In fact, it’s down a little bit this quarter, difficult to predict where military has gone quarter-to-quarter. I said that for a dog’s age on these calls. And then aviation still isn’t solved because for us, the Middle East, the international aviation business is kind of on its back because a lot of that business came out of the Middle East and it isn’t working for us right now. So you’re going to see some kind of recovery outside. You got military, which is chronically variable, and the rest of them are kind of recovering. Aviation, we still haven’t quite solved yet. So think positive, positive. I’m really encouraged.

Okay. And then Aldo, you start on the financial services piece. I think you kind of covered a little bit. I just want to make sure I understood the components. You said that EBIT margin go down year-over-year from about 70.9 to 68.4. I think you called out it was manpower and additional write-offs. Was that kind of the driver of the change there?

You’re talking about financial services?

Yes.

Yes. No, financial services are certainly these higher provisions for receivables over the last couple of quarters. We had that phenomenon in Q4. All I’m saying is that if you look year-over-year your provisioning is higher, I will be at a little bit less than what we had done in Q4 and you’re seeing a little bit of progress on the 60 plus day delinquency indicator.

Did you also mentioned, I thought you mentioned in your prepared remarks. You – Do you add manpower to the financial services business?

Yes. Little bit of additional…

Okay. Great, thank you.

Our next question comes from David Leiker with Baird.

This is Joe Vruwink for David.

Yes, Joe

Can you maybe comment on growth trends in the tools channel as the quarter progressed? And I’d be interested in whether these tax refund delays maybe impacted February at all, and do you start to see activity come back in March as refunds came back?

No, I don’t think so. I don’t – we didn’t see the tax refund delays. We didn’t hear anything like that. Generally, the week-by-week or month-by-month trends in our quarters don’t really mean much. We have quite a bit of variation. It’s sort of like quarter-to-quarter – quarterly variation in the month. So it really doesn’t mean so much. What I will tell you though is that I met just – we had – we box part this quarter. In the beginning, like middle of January, we met with the franchisees as they were booming. And then at the end of the quarter, a couple of weeks ago, I met with the franchise – the National Franchise Council for the U.S. they were really enthusiastic. So at least from the windshield surveys, I felt pretty good about it. The numbers are what they are. I still think the growth was – it was fairly positive for a retail business. But again, we had – and we had – so we don’t think it’s the market. The market is very positive for us, we think.

So when I look at your loan origination growth and let’s say that’s flat, therefore big ticket sales are flattish to do 3% organic growth, and tools implies the core hand tool category, which is obviously the majority of what you’re selling is maybe mid-single-digit growth directionally.

Look, first of all, let’s talk about – let’s talk a little bit about big ticket. Big ticket, you got diagnostics up. What drives the originations is big ticket. But there’s a new kind of wrinkle in this, and that is the thermal imager in diagnostics. This is a smaller-end diagnostic in effect like in the $1000 range. And what has been in diagnostics almost uniformly being financed is being – by the credit companies is being – some of that is being financed by their franchisees, because now they are strong enough to finance something like that. So that’s part of what’s going on in the originations activity. And there are other categories besides hand tools. There’s power tool, there are some other stuff, which we call shop and tech and so on. So I don’t think you can make just that view of the world. You can – you could kind of step back and make it. But you can’t just look at originations in this case and say that big ticket is completely flat, because you have that thermal imager in there this time, which makes it different.

So I guess – yes, so this is what I’m trying to get at. The industry, it seems to be growing at a mid-single digit pace. When you listen to your peers talk about their growth, seems to be mid- single. And when I look at Snap-on and consider that a lot of the products that have seen strong growth this cycle that are tied to originations, those have flattened out. If I look at the other stuff in the Snap-on portfolio, it would seem to be growing mid-single, so at the end of the day Snap-On still growing in line with its market. It’s just we’re weathering these comparisons right now where you have a particular big ticket category you called out tool storage, that is just going through a bit of a soft patch.

Yes, there’s some of that. That’s directionally probably correct. I think our big message here today is, we think the market is pretty good.

Yes. Okay, great. Thank you, guys.

Sure.

Our next question comes from Bret Jordan with Jefferies.

Good morning, guys.

Good morning.

On the corporate expense, the 21 and change, that’s pretty well-controlled. I think a year or two ago, you talked about it sort of being $100 million annual run rate. Should we think about that being more along the lines of 20? Or was that $5 million lower pension contribution the driver to the low level.

Okay. Look, I think – the way I would say it is, I think we spent something – let me think. I think we spent about $94 million last year in the corporate expense. I think you could say it’s going to be in that ballpark, maybe uplifting it slightly. That’s the kind of number I would expect. These things ebb and flow back and forth from quarter-to-quarter, so I would model it in that range, if I were you.

So the $5 million lower pension contribution was sort of just a timing issue around the first quarter.

No. Just to clarify. It’s Aldo. The pension contribution doesn’t really impact expense directly in the short run. Pension is relatively flat year-over-year. That’s just the contribution goes to the pension plan. So that’s not a direct cause and effect. So if you look at corporate expenses, they’re kind of flattish really the last year in Q1. Pension is up so slightly over year-over-year. So I’d say, you’re trending directionally to be, as Nick said, $95 million to $100 million range is still for modeling purposes, not unreasonable.

Okay. And then a question, I guess – I’m sure the franchisees are communicating with their customers daily. Is tool storage, is that – I mean, obviously, it’s more of a discretionary transaction versus diagnostics where you need the current technology to complete the job. Is there an issue there that this is sort of an indicator of mechanic sentiment? Or is it just that there’s nothing new enough and the channels just spur them to buy again.

Look, I think it’s always the case. You can bring out a new power tool or a new diagnostic threat and it can be, let’s say, double as my – by baseball analogy instead of a home run. I’m not saying that our offering is tremendously better. It’s – we think it’s strong, but it may not be as compelling as it was the last iteration. It may not be the home run. That’s a difference. I do think you’re right in that tool storage is a little more emotional. You look at that box, you say, "I remember being on an event once. A guy came at a fair, where this guy said, hey, did you see that white box with a sapphire trim? I really love it. I think I’ve got to buy it." He was so excited by just the appearance of the box. So that is the fact in this kind of thing. It’s not a saturation thing.

What’s the color that’s coming out?

I don’t know if I’m allowed to reveal that, actually, but Bret…

I mean, I’m going to wait to buy my Snap-on box if I see the new color of that.

Yes, you’re right, right.

On average yield and it’s up 10 basis points, I mean, I think it was a year ago this quarter we talked about some of the platinum franchisees allowed to be more flexible I think in their decision, their credit decisions. Is yield up because we’ve got – we’ve change the borrowing base a little bit? Or is that yield just up because we have seen some interest rate increase year-over-year?

Look, I think it’s more reflective of the actual credit profile, what we’re doing the underwriting on. And as I said, it’s actually down 20 basis points from last quarter. So 18%, 17.9% is kind of the natural range that settles in that, so there really hasn’t been a lot of movements on yields of over the recent turn.

Okay. All right, great. Thank you.

Thank you.

We’ll go next to Robert – or excuse me, Richard Hilgert with Morningstar.

Thanks for taking my questions. Good morning, everybody. Just curious with the administration talking about tax reduction. I’ve noticed your tax – effective tax rate consistently runs about 5 percentage points below the corporate average. If we were to see a reduction from the corporate rate of 35%, down to a 25% number, would your effective tax rate move the same amount or – are there anything – any things in your taxes that would change that ratio? Would it be less of a change? More of a change?

Well, first off, Richard, when you look at the overall rate of 31%, you have to remember, we’re about 80% influenced by the United States, 20% influenced by – let’s say the outside world’s tax rates. So you’re right. If you go back to the 35% statutory federal rate Snap-on takes advantage of probably around 250, a little bit more, slightly more than that of deductions, such as the manufacturing deduction, the R&D tax credit, things of that nature. So if you took a step back and look strictly at U.S. taxes as written today, you’d say, "Well, we’re in the 33% range, maybe the 32.5% range." So in theory, if a statutory rate is reduced from 35% to something less than 30%, Snap-on should actually stand to benefit on the U.S. effective tax rate. As you know though, these are pretty complicated items being discussed, so you see the actual rollout of the tax law, it’s really hard to opine on what the impact will be.

Understood. Just for clarification, on the C&I group, Nick, you’re saying military was a slight headwind, aviation was a headwind, but natural resources were positive. The European region was positive, doing very well. Is that the correct summary?

That’s correct.

Okay, great. And then I was curious, with the way that the growth rates have been going in RS&I, and you were mentioning some of the dynamics of the big ticket items. Could you maybe describe the growth rates there, more in terms of what’s been your experience with respect to the overall pricing in that group versus the overall volume in that group? And how much does each one affect the growth rate.

Wow. I don’t know. I mean, the thing is, look, all I can say is, we haven’t – we don’t have pricing generally as one of our line items in explanation. We don’t see much motion in pricing. And so generally, when we – and at both ways, when we price, we tend to do it around the new model which we set the value proposition and therefore, the prices get reset. We don’t like to reduce our prices to get volume, and so we resist that. And we do so in equipment. And so from time to time, it can happen. But in general, you are not seeing us knock down the prices. And if you doubt that, remember what I said, 24.7% OI margin against 140 basis points negative year-over-year impact from acquisitions, that means something – happen that was worth of 140 basis points.

Right. And you mentioned one item that you thought would be on the hit parade this year in the hand tools group. Given the kind of tapering off there, the last couple of quarters, your – what you said about your hit parade in years past is that you’ve got $1 million per year coming in from the hit parade from the new items that are going out, has that kind of tapered off in the last couple of quarters and then we can expect to see more of that kind of come back a little bit above that? Or how has that all playing out right now?

I don’t know. What we actually measure, Richard, is the number of million-dollar products, not the amount. So you can have Transformers, and you can have some other small – you can have the Jack Reacher, both of which make some money but aren’t necessarily a lot – are quite different in terms of the amount of money they’ll have. Transformers is a huge blockbuster, Jack Reacher made some money so that kind of thing, and so that what’s happening in these things. Maybe a fewer the hit products didn’t make us much, maybe a few of tool storage that’s came out didn’t sell quite a much, and they still were hit products. What I’m talking about in this particular one is, is that, that’s going to be hit product. We say it’s going to sell a lot more than that particular one. It will sell a lot more than $1 million. Our numbers of hit products though have continue to be pretty good, so they’re not really abating. It’s just the amount that are being associated with it. And hit products aren’t the whole thing, it is that the hit products that drive everything. Hit products drive the excitement through the whole bunch of non-hit products that are driving excitement some of which are former hit products that are older. So it’s a more complex – the revenue add up is a more complex thing. I don’t think you can look at a trend in the big new success – difference really.

Thank you. That concludes today’s question-and-answer session. At this time I’d like to turn the conference back to Leslie. Please go ahead.

Thanks, Lauren. We appreciate everyone for joining today. A replay of the call will be available shortly on snapon.com. And as always, we appreciate your interest in the company. Thanks.

This concludes today’s conference. Thank you for your participation. You may now disconnect.