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Snap On Inc. (NYSE:SNA)

April 25, 2013 11:00 am ET

Executives

Irwin M. Shur - Vice President, Secretary and General Counsel

Nicholas T. Pinchuk - Chairman, Chief Executive Officer and President

Irwin M. Shur

Good morning, and welcome to Snap-on Incorporated's 2013 Annual Meeting of Shareholders. My name is Irwin Shur, and I am the Vice President, General Counsel and Secretary of Snap-on. I'll be acting as the parliamentarian for today's meeting.

First, I'd like everyone to please turn off your cell phones before we get started or at least silence them. Each of you should have received the order of business and rules of order, and we would request that you abide by these rules.

It's now 10:10 a.m., April 25, 2013, and the polls are officially open. If anyone has not yet voted and wishes to cast their vote, our Inspector of Election, John Ruocco, Computershare is in the back of the room. There you will record your vote.

Attending today's meeting in person are the following Board members. I will ask them to please stand when I call their names. Karen Daniel, Division President and Chief Financial Officer of Black & Veatch

Corporation; Roxanne Decyk, retired Executive Vice President of Global Government Relations of Royal Dutch Shell plc; John Fiedler, retired Chairman of the Board of BorgWarner Inc.; James Holden, Snap-on's lead Director and retired President and Chief Executive Officer of DaimlerChrysler Corporation; Nathan Jones, retired President, Worldwide Commercial & Consumer Equipment Division of Deere & Company; Henry Kneuppel, retired Chairman of the Board of Regal-Beloit Corporation; Dudley Lehman, retired Group President of Kimberly-Clark Corporation; Edward Rensi, President and Chief Executive Officer of Tom & Eddie’s and retired President and CEO of McDonald’s U.S.A.; Gregg Sherrill, Chairman and Chief Executive Officer of Tenneco Inc.; and Nick Pinchuk, Chairman of the Board, President and Chief Executive Officer of Snap-on. Nick will present some update on the performance and progress of your company later in the meeting. Also here today are Bruce Erins Meyer [ph] and Mark Brahaney [ph], partners with our auditors, Deloitte & Touche LLP. They'll be available to answer questions following the meeting.

We have an affidavit that the notice of this meeting was mailed as required. It will be incorporated into the meeting minutes. Seeing that all shareholders have had the opportunity to vote, will the Inspector of Election, please, confirm that all ballots have been counted?

Unknown Executive

Yes, all ballots have been counted.

Irwin M. Shur

Thank you. It is now 10:12 a.m. and the polls are officially closed. I've been advised by our Inspector of Election that we have a quorum with more than 90% of all shares outstanding represented at this meeting. And with that, I call the 2013 Annual meeting of Shareholders to order.

58,429,972 shares of common stock, each having 1 vote are entitled to vote at this meeting. Voting results are stated as a percentage of the stock represented at the meeting, unless otherwise noted.

We have 4 items of official business on today's agenda. Our first item is the election of directors. The board has nominated the following candidates to serve until the 2016 annual meeting: John Fiedler, director since 2004; James Holden, director since 2007; W. Lehman, director since 2003; and Edward Rensi, director since 1992.

Each of the director nominees received votes in their favor of at least 94% of the shares represented and each has, therefore, been duly elected.

Our second item is the ratification of the Audit Committee's selection of Deloitte & Touche LLP as the company's independent registered public accounting firm for 2013. 93% of the votes -- the shares represented voted in favor of this proposal. And therefore, the Audit Committee selection of Deloitte & Touche has been ratified.

The third item is the advisory vote to approve the compensation of Snap-on Incorporated's named executive officers, as disclosed in the proxy statement.

As an advisory vote, this proposal is not binding on Snap-on. The result being presented for shareholder approval was set forth in the proxy statement, excuse me, the resolution being presented.

Since 97% of the votes cast have voted for the approval of the compensation of Snap-on's named Executive officers, the nonbinding resolution is hereby approved.

The last item of business is the proposal to amend the company's Amended and Restated Certificate of Incorporation to allow the declassification of the company's Board of Directors. Approval of this proposal requires an affirmative vote of at least 80% of the company's outstanding shares entitled to vote in the election of directors. 81.5% of the company's outstanding shares have voted in favor of this proposal. Therefore, the amendment of the company's Amended and Restated Certificate of Incorporation is hereby approved.

This completes our official business. And therefore, the meeting is now adjourned. And we will now have a short video about Snap-on, followed by remarks from Nick Pinchuk. Let's watch.

[Presentation]

Nicholas T. Pinchuk

Thank you. Please, sit down. Thank you for being such a great audience and thank you for that -- those applause. Look, when I look at that video, I'm reminded that this is a special company, founded on a brilliant innovation, 5 handles of different sizes, 10 sockets of different dimensions, fashioned so they'll snap on interchangeably, enlisted in a profound and timeless idea, the dignity of work. Think of the truth of that. And set forth on valued task, a valued purpose, summon the new, solve the critical, ease the way, create progress. This is a company that has enriched the stockholders, given the means for its associates to build lives of prosperity and fulfillment and has contributed to the communities in which we live.

We've done that for more than 9 decades. And I'm pleased to say we continue to do that. 2012 was an encouraging year, and 2013 is off to a positive start. And for me, it's my great and good fortune to be here again today and tell you that this company is strong and has a promising future.

This was a busy time for us, I'll tell you. I just got back from Asia a year -- no, a couple weeks ago, about 10 days ago and then we had the earnings release and now we have the board meeting. And I can tell you, the board is a demanding group, a great group of people. And then we have the annual meeting. And so you want to take a little rest. So I was thinking about flying to someplace warm. But the flights to Anchorage were all filled. Actually, it's one of the first times the annual meeting is being conducted without the leaves, so it is a little cooler here.

Look, we've made a lot of progress. And what I'd like to do first is to introduce you -- to you the management team, your management team. So they're right here in the front, so let me have them stand up. The President of the Tools Group, Mr. Tom Kassouf. The President of the Repair Systems & Information Group, Mr. Tom Ward. From SNA Europe, Mr. Jean-Pierre Levrey. I tried my best to put a little French accent in there, but I guess I couldn't. I failed. The Chief Financial Officer of Snap-on, Mr. Aldo Pagliari. President of our Asia Pacific Operations, Mr. Benny Oh. And the President of our Commercial Group, Mr. Anup Banerjee.

And so that's our management team and there are many other managers here, but I'd like to recognize 2 others. Boy, when you look at this video, I feel you cannot help but recognize the truth of it and cannot help but be impressed by it. The emotion, the focus, the communication capability of it that tell you exactly what Snap-on is about. It makes us feel good about Snap-on. And you would think that maybe we have a brilliant ad agency, but we do not. The emotion and the focus and the understanding of our business can only be mustered and summoned by people who are Snap-on. And I'd like to recognize 2 of them, the producers, the directors and the writers of this video, Alicia Smales, who is over here, and Rick Secor. Rick Secor. No outside agencies have worked on this video, except to help manage the visuals of it. But in fact, it's been written, produced and directed by Snap-on people. That's why it connects. That's why it connects.

So I'm going to make some remarks and so we have a cautionary tale. It is what tells you that -- it makes all kinds of statements about the forward-looking nature of my remarks and I'll let you read it. Okay, that's enough.

We start every presentation at Snap-on with who we are. And one of the things about Snap-on is we know who we are. Not every company does. We know that we are the company that makes the most valued productivity solutions in the world. We know that we believe in safety, quality, customer connection, innovation and Rapid Continuous Improvement. We know that we value things like truth and integrity and teamwork and listening and respect. And we know that we aspire to be the -- have the relationship of choice for whoever we touch. And the person who gave us this, who showed us the value and power of knowing who we are is here with us today, my predecessor, the former Chairman and Chief Executive of Snap-on, my former boss, my ongoing counselor and my friend, Mr. Jack Michaels. And he's here with Chris Michaels. Chris Michaels, please stand. Welcome back. We owe you more than we can say.

So Snap-on started 1920. Joe Johnson had the idea, 5 do the work of 50, 5 handles, 10 sockets, Snap-on interchangeably, there's an innovation, brilliant, changed the world. But what he did that I think was even more important, what the founders did was how they sold the product. They lay it out on green felt like those 5 handles and 10 sockets were as precious as surgeon's knives. And therefore, implying that the technician was as high a form of craftsman as a surgeon. And if he owned this tool, he would display to the world the dignity of his work. If you think about it, this is at the bottom of what Snap-on gives to people.

We do make work easier. But we allow them to display the dignity of their work. We've done it since 1920. And that was given to us by our founders, first among those, John Johnson, the man who had the idea.

And we have with us today, members of the Johnson family, a living link to our founder. And not every company can enjoy this as well, so I'd like to introduce them as well. First, a Snap-on treasure, Mrs. Mary Johnson. Please stand, Mary. Thank you for being with us again. And then we have the next generation of the Johnson family, people who were actually members of the management team, who are retirees and who among which we owe so much, Greg and Cathy Johnson and Paul Tutskey. Please stand. Thanks for coming back and thanks for all your good work.

So in 1920, as early as 1920, Snap-on recognized the dignity of work and we have done so ever since and we continue to do so today. We continue this today onto today's. We recognize that what we do solves the critical and allows the professionals to have pride in what they do.

And there are many ways this shows up in the world. One of my personal favorites is what I would call Snap-on supercritical. You can see this here.

Iron Man 3 is coming out. I think it's May 3. I don't follow these very carefully. And then May 3, it's coming out. And actually, Iron Man -- I can assure you Snap-on tools will be displayed prominently in Iron Man 3 as it was in Iron Man 2. And Iron Man 2 is one of the highest grossing films of all time. It grossed $623 million and have seen by 75 million people around the world. And then in the same -- in the sort of the same breath, Dark Knight Rising, the Batman film, seen by 135 million people and grossing $1.1 billion around the world. Snap-on tools were also clearly visible there. And we did not pay anything for that placement. You ask why. And the reason is because Tony Stark and Bruce Wayne, our genius billionaire tinkerers, who are superheroes by virtue of their mechanical capability. And when you are superheroes and you can afford anything, you will buy the best. And therefore, if it wasn't Snap-on tools in those movies, they wouldn't have been credible. It's true. It's true. It's true.

Now we celebrate the dignity of work in a number of different ways. For example, the tools give us something called the Masters of Metal tour. It's kind of a Carnival. It goes around the country. It has several trailers that goes around and demonstrates our tools inside various trucks. And we have franchisees come in from a certain area and they gather around these trucks and we have events where many people come in and they just have a night or an afternoon of fun. Sometimes we have an antique car show. There have been 89 such events. 65,000 people have rolled through this. And what these events do is they celebrate the mechanics that use our tools as masters of their trade and our factory associates as masters of their craft. In other words, celebrate the dignity of their work.

Now we've had many people say this that this is a great thing. But Snap-on is recognized in other places. We just had Paul Lion [ph] in here about 3 weeks ago, and he was up very effusive about Snap-on and called Snap-on the light at the end of the tunnel, a lot of good things. But also, Hilda Solis, Secretary of Labor. Now I don't know if you're familiar with politics. But if you're a public company that manufactures, you don't always get kudos from the Department of Labor. And yet Hilda Solis, when Andy Ginger and I were in our office, told us that her family was devoted to Snap-on tools, and she gave me a little side note. She says, "I think I've written more checks to Snap-on tools than any other company in America." Because her husband is very enthusiastic about repairing classic cars. So that's been pretty good for us.

So now, we also have a brand name where we celebrate the dignity of work. Mechanics simply are anxious to make our name their own. It's an anecdote. I'm on a truck in downtown Chicago, and a guy has jacket hanging in his truck and ask him, "How many -- you're selling these jackets?" He says, "Yes." I said, "How many of -- how much do they cost?" He says, "$80. "How many have you sold?" He says, "Well, I've only been selling them for 2 weeks." When you're a guy like me and you hear this, you figure this is equivocating. He hasn't sold that many of them. He's just saying this, it's only a short time. So I said, "How many did you sell? He said, "Well, including last night, I've sold 80." 80 jackets for $80 in 2 weeks. He only has 200 customers. So 40% of his customers were willing to pay him $80 just for the privilege of having your name on their chest. And you know why? Because associating with the Snap-on name celebrates the dignity of his work. It gives him pride.

And this has been growing. It's not just a new thing. It hasn't been developed by contemporary Snap-on. It's been developing from Joe Johnson all the way through. And we have here are some reminders of that past, Norm Lutz, our seventh President in the late '70s. We have Susan Lutz Kenyon and her husband, Bill Kenyon, and Janet Lutz is here. Daughters of Norm Lutz. And I'd like them to stand up and get a round of applause for the contribution Norm Lutz made.

And the 8th -- Norm Lutz, which is the seventh president of Snap-on. I talked to the 8th president of Snap-on 2 days ago, Bill Rayburn, just had his birthday, 88 years old. Hannah and Dave were in New York and as feisty as ever, giving me advice over the phone actually about how to manage the stock price and so on. And actually a great guy, very enthusiastic and he sends his best to all of you. He had a great contribution. You might remember -- some in the audience may remember this Soaring to New Heights program, where Bill Rayburn and -- I think he was Chairman between 1984 and 1988. He targeted first to have $1 billion of sales, and they got it. So a long history of making those changes, of making that progress.

And 2012 was another year of progress. Look at these numbers by the -- look at these numbers or the financial numbers here. EPS, $5.20. $5.20 versus the $4.52 last year, up like 15%. Look at sales. $2.94 billion versus $2.85 billion last year, up 2.9% on an as-reported basis, but 4.6% organic, if you take out the effects of currency and the OI margin went up -- was 13.5% a year before in 2011. Last year it was 13.9%, a great increase. And it was at the extent -- that extended another great trend for us. Look at 2006, $2.28 billion, $2.28 billion, then we went to $2.46 billion, then $2.84 billion, then $2.85 billion, $2.85 billion. This you'll see -- then the recession hit us, right? Recession hit us, so we go down to $2.36 billion. Then it goes up to $2.62 billion, then it's $2.84 billion and then $2.95 billion last year. But the best part of it is the profitability. Notice the rise in the profitability. We weren't so profitable back in 2006, 6.5%, 7.6%, 10.6%, 12.3% then dropped down to 9.9% at the recession. I wish we had gotten that extra tenths so we could have been double digits even in the recession. 12.1% then 13.5% and 13.9% last year. Big improvement.

Now this is opco. This is the operating company. But if you look at the financial company, the financial credit company, you can see some more improvements, some great improvements. I don't know if you're all familiar with this, but I'll tell you, we had a joint venture. We decided to dissolve this joint venture in the middle of 2009 and we brought the credit company home where it should be halfway through the year. In that half of the year, we started with a 0 portfolio. In that half of the year, the portfolio I think was $398 million at the end of the year, but we lost money because we didn't have such a big loan portfolio, but we had a lot of expense. We lost, I think, $9.1 million. Then the portfolio went to $733 million and we made $14.4 million. And the portfolio went, what, $935 million and we made $72.9 million. Then last year the portfolio was about where it should be, $1 billion, $1.84 billion and we made $106.7 million. That's kind of a good number.

So the profitability looked good. Last year was encouraging. And it was encouraging from a dividend point of view. Look at the dividend. We raised our dividend last year. I think last November the board approved a dividend increase of 12%. Good for our shareholders and the numbers looked something like this. 2010, $1.22, then $1.30 then $1.40, and we have paid a dividend every quarter since 1939. And we have never ever reduced this. Never ever. This speaks to stability.

Last year was encouraging, too, from another perspective. Bloomberg Businessweek. Bloomberg Businessweek. We were named in the top 50 companies of all companies in America. First time Snap-on was so recognized. And in fact, we were one of the few industrial companies, one of the few manufacturing companies to be so named among people like eBay and Apple and Disney and Amazon.com. And, well, it should've been because the shareholder return last year, 59.4% for Snap-on. I think the S&P 500 was something like 16% and the Dow Jones was 10.2%. This is the tale of the financial numbers of last year.

But you know, actually this wasn't the best in terms of performance. In terms of feeling good about the company, this wasn't the best for me last year. The best was the day I got this letter. Barry Roberts, Indianapolis. He works in a financial service organization. When I got this later, I'm thinking who -- what's this guy writing me? And it says, and I'll summarize it for you, "My aunt, Olive Roberts, worked for Snap-on for 25 years. Most of that time in the Algona plant. She retired, but she never ceased to be fond of her memories at Snap-on. And throughout her retirement, she was comforted and supported by the company. She was one of your biggest fans. She passed away last November at the age of 104. A life well lived. My thanks to Snap-on for all the support they gave her through her years."

This is actually a lot of what our company is about, providing the ability for associates to build lives of prosperity and fulfillment. And through her retirement, she was proud of her affiliation with Snap-on.

Now she was a 25-year Snap-on employee. She was 104 years old. But we have someone here who has been a long-time Snap-on associate. Roy Brainerd, who we have many stories of. He started out as a stock boy in Vancouver, in British Columbia, worked as a stock boy and rose to be one of our managers. There are stories about him that he traveled throughout the territory when hotels were not available and bathed in mountain streams. And I'm not sure if these stories are true or not, but it's certainly -- certainly, we have invoices signed by his wife, Carol, in his absence. He tells a story of when he was a stock boy when he was first starting with Snap-on that he would tear apart boxes at the branch. And then since he didn't own a car, he would have to deliver the tools to the dealers and he put the boxes in -- with a Snap-on van and he put the boxes in the van so his daughters, Linda and Susan, could sit on the boxes and ride with him. Today -- or this month, he celebrates the 70th anniversary of his days, first days with Snap-on. And he's traveled here from British Columbia to be with us. So we have here today, Roy Brainerd, his wife, Carol, his daughters, Linda and Susan, and apparently, the unseeded Jane. So please stand up and give them a round of -- Roy Brainerd, 70 years.

Okay. We did a lot of looking back and we're proud. But let's look forward. Snap-on has tremendous opportunities, runways for improvement and runways for growth. Our future is promising. And I want to introduce you to some part of that promise. We have with us here today, Dave Perry. Dave, standup, please. He's celebrating his second year with Snap-on. He's a benefits coordinator. He looks about the same as Roy with a little difference, a little difference.

Anyway, I wanted to assure everybody that the board is very, very worried about -- they're not worried, but they pay a lot of attention to leadership development and so I wanted to be sure that I personally, personally take it as my responsibility to mentor Dave in the selection of NCAA brackets. Thanks, Dave.

We have runways for growth and runways for improvement. Let's talk about improvement for a minute. And improvement has to do with what we call Snap-on value creation, a suite of processes. You might remember this. These are the beliefs in who we are. We believe that if we invest our energy in safety, quality, customer connection, innovation and Rapid Continuous Improvement, we will get better. And we have been investing and we do get better.

Safety. Now look, we're a company that makes solutions for working men and women. What does it say if we can't keep our own people safe? But more than that, it's just right that our people is safe. And I'm proud to say actually -- I use that word advisedly too -- I'm proud to say that boy, 93% -- or our people are 93% less likely to have an accident than they were in 2004. And 67 locations around this corporation had no incidents last year whatsoever. We started out in 2004 with an incident rate of 14. Last year, it was just 1. So safety is working.

How about quality? Well, we spend a lot of time on quality process and we have things like audit-critical defects and factory-critical defects. But the best thing about quality is I think what our customers think of you. So we asked Frost & Sullivan to ask technicians about Snap-on product and we asked them to say, we ask them what's your preferred brand? And we asked about hand tools. 80% say Snap-on, number 2 is 6%. For diagnostics it's 59% to 17%. For tool storage, it's 65% to 13%. Nick Saban never saw our scores like this actually. So that's good. And some of these are records. They're improving.

But that's not the best of this. Here's the best. I got this note. From Nicholas Sansone, Kansas National Guard, Corporal, deployed to Afghanistan. We have the privilege of using your tools every day and they have never let us down. In harm's way, can there be more critical a need and task than performing in harm's way? And we and you, have never let him down. This is quality. This is quality.

Okay. Customer connection. We're in more workplaces than anybody else, any other company in the world. 4,800 franchisees roll around the world, 3,471 of them in the United States. I guess, it's 600,000 auto repair shops in the U.S. and Europe. We're in 2,500 technical schools, where people are learning their craft and learning to be technicians of the future whether it's auto repair or aerospace or mining or power generation. And right here in this facility, I think we've had 16 visitors -- 16,000, not 16. 16,000 visitors come and give us ideas about how to improve our product and allow them -- allow us to observe them as they work.

And the important point about this, this is a critical, critical element of us, of our business. Because what Snap-on does is, this gives us a deep understanding of the practical. It allows us to understand that little change, which will in fact make work easier and liberate everyone. But to the people who don't understand the workplace, this looks like such an incremental change that shouldn't be important like a low-profile ratchet or changing the navigation system on a SOLUS Ultra. We're good at this better than anybody else. We understand work. We understand the practical nature and what needs to be done.

And when we marry this to a growing understanding of technology, which we are doing, it's a powerful combination. And we are enabling ourselves. We have for example electron microscopes, just added recently, where we can observe the domains in metal and add to our metallurgic capability. We have mastered or gotten a lot better in find an element analysis where you can model products and understand how they're going to react under stress. We can actually observe that stress with the X-ray refractometer. And we, out here, are modeling via additive manufacturing, creating 3D models that allow us to prototype much more quickly. And we put this together. That gives us an idea of the possible. Understanding technology gives you an idea of the possible. What can you do? So when you put that deep understanding to practical with the master of the possible together, you get innovation. And this is what we have here. And innovation has been working at Snap-on very well. The awards say-so. MOTOR Top 20, the MOTOR Magazine, the top 20. We got 3 of the top 20 tools last year. The SOLUS Ultra, the Integrity Test Lane and the Subaru ball joint puller. We got awards from Professional Tool & Equipment News, the PTEN award for a number of different things including the low-profile Pitman arm puller and so on. Undercar Digest and even in Europe, the Red Dot award for our Bahco Ergo line. And then what we like the best is we measure an effective tool by the tool that sells $1 million in its first year in introduction. That number last year was 5x what it was in 2006, 5x more innovation. So innovation is increasing.

And finally, Rapid Continuous Improvement. Getting up every day and thinking about how to make things better. This happens every day in Snap-on. Right now as I'm speaking, there's a team in the City of Industry working on the screwdriver line to reduce the lead time by 25%. There's a team in Portugal working on a flat file line to make it more flexible and manage more models. And there is a Shin Jujitsu consultant-led several teams in Minsk working on the hole saw line. And all of this together with both Snap-on value creation processes: safety, quality, customer connection, innovation and Rapid Continuous Improvement have altered improvement, and you can see it in the numbers: 2007, what is it, $2.85 billion or $2.84 billion and then $2.95 billion last year, $2.94 billion last year, $100 million difference, 10.6% OI margin in 2007, 13.9% last year, roughly the same sales, 330 basis points difference. This is Rapid Continuous Improvement.

And part of our capabilities are supported by our innovation. Everything is in here. And we have innovators in the audience that I'd like to introduce.

For example, we have with us Jack Bone [ph]. Standup, please. Now Jack is the first electrical engineer that we ever hired at Snap-on. He created -- we have things like diagnostics units. You see SOLUS Ultra. You see -- like VERUS PRO and they're great sellers for us. But there was a time, there was time in which boy, electronics weren't applied to cars. They're applied more generally. Well, Jack was with us when we had our first analysis scope and then the counselor. And so here's somebody who contributed to us and you have altered literally the whole repair systems and information group. You're a pioneer and I'd like you to give him a round of applause. Stand up again, please.

Okay. Improvement. Now how about runways for growth. We have 4 runways for growth we had identified as decisive for our future, enhance the van network, expand with repair shop owners and managers, extend to critical industry and build in emerging markets.

Let's talk about van network, enhancing the van network. This is our flagship. This is our heritage and we're doing it. We're expanding. The health of the network has never been better. The turnover is lower than we've seen in a long time. We are working on productivity so our franchisees have more time to sell. We have new marketing things like the Rock N' Roll Cab Express, a rolling showroom for tool storage, which is up double digits last year and we are leveraging this model.

Last year in the fourth quarter, the Tools Group finished up with 9 straight quarters of double-digit growth. We would call that in the financial terms defying gravity. So we have been enhancing the van network.

But if you look at the Snap-on tradition and the Snap-on tradition is about selling, selling tools through vans to auto mechanics, and we've done it better than anybody else in history. But actually that's a narrow description of what we do. If you step back, more broadly define what we do is we observe work and make it easier for any serious professional as long as they operate on critical tasks. That is the penalty for failure is high, so you need repeatability and reliability enough to justify Snap-on level premiums. And this opens up a wide span of other places we can grow, expand with repair shop owners and managers. This is the repair systems and information group. It grew at 9.3% in the first quarter. We have the knowledge base. 40 different models and our knowledge base goes back 20 or 30 years. We have a better knowledge base than anybody else.

We have technology around imaging and navigation that's better than anybody else's and we have an integration possibility around the product line that we offer these. We're expanding what we can sell to these people. That's a runway for growth we can have.

And then extending to critical industries. And then simply this is that when the task is critical like for Nicholas Sansone in harm's way, around an oil and glass platform or on an aircraft engine line. When it has to be done right, you want Snap-on. And we have opportunities to expand in this area. And we are doing so.

And then finally, building in emerging markets. Emerging markets are growing like mad and everybody, maybe everybody doesn't know, but I can tell you this is that China will buy 25% more new cars next year -- this year than the United States or North America will buy, 25% more. But despite the fact they're buying more new cars, there aren't that many cars in the road, there are 300 million cars in the road in the United States and Canada and they're 11 years old. China, despite the fact that a lot of new cars are being sold, there are only about 60 to 70 million cars in the road and they're new, so the repair age is starting to rise. And Benny Oh and his team are just starting to build. He started in 2004 in a hotel room, in a hotel room in Shanghai. Today, we have offices in 30 cities. We have 5 factories and a design center and we're going to keep building there. So those are our runways for growth, enhance the van network, expand with repair shop owners and managers, extend to critical industries and build in emerging markets. And it drove our growth in 2012.

But the beginning of 2013 wasn't so bad. We can look at this. $741.7 million of sales, up I guess 9% here. But what, if you look at the profit growth, OI margin of 120 basis points, a substantial growth. And then EPS growth of almost 16%, a great start to the year.

So that's my message. That's my principal message to you today. This is a great company, a special company, founded on innovation, dedicated to a purpose. We have a terrific past and an exciting future on runways for improvement with Snap-on value creation and runways for growth, enhancing the van network, expanding with repair shop owners and managers, extending to critical industry and building in emerging markets. 2012 was an encouraging year. And 2013 is off to a positive start. And you, in this audience, have created that path. I thank each and every one of you.

Now I'll take questions. Any questions? As a tradition at the annual meeting. Do we have any questions? Oh, no? Sorry.

Question-and-Answer Session

Unknown Attendee

Nick, you talked a little bit about the Masters of Metal Tour. I'm curious after spending a number of years in marketing myself. I'm just curious how that's being reacted to in the field by the franchisees and customers.

Nicholas T. Pinchuk

Well, the Masters of Metal Tour is doing pretty well for us. It's creating a lot of excitement around diagnostics principally. But other products like our hand tools. As I said, I think we had 89 locations and 65,000 people paying and what it does is it sets Snap-on apart. It makes it a little special. It's like a Snap-on carnival really. And there are other marketing events. You asked about marketing, other marketing events. We have something called the Rock N' Roll Cab Express. These are vans, which are filled with tool storage. If you think about it, tool storage is a very significant purchase for a mechanic. A van is about the size of a bread truck. It will only accommodate, as you know, very well, Rich [ph], 1 or 2 tool storage units. So when a guy is going to purchase a tool storage unit, many times, he doesn't actually get to see the actual purchase or what he's purchasing because he only has tools. His driver will only 2 out of the van. But the Rock N' Roll Cab Express, these are -- oh, we must have more than 40 of them now running around the country and they visit these people who are prospective buyers and they are bigger than a bread truck and filled front to rear, top to bottom with variations of tool storage, so our potential customers, the mechanic, can get a better look at what they're going to buy. And tool storage sales have shot through the roof. They were double-digits last year. They were double-digits again in the first quarter. So it's working pretty well. Tools Group is doing pretty well in marketing, I would say. Any other questions? Yes.

Unknown Attendee

As you're well aware, the Fortune 500 companies have trillions of dollars of cash on their balance sheet and they all have kind of varying ways they want to use it or not use it, depending on their strategies. And I'm just wondering what your strategy is and your vision as far as the $214 million that is on Snap-on's balance sheet, as of March quarter close 2013?

Nicholas T. Pinchuk

Right, thank you. Okay. Look, first thing is we are in a situation where -- an unusual situation where we're bringing back the credit company and therefore, we are transitioning the portfolio from a our former joint venture partner, CIT, back onto ours. So some of that cash will be required to make that transition. But certainly not all of it. And so our priorities for cash are this. We see the runways for growth. We know we have opportunities. So we will invest in the organic growth of the business because we are confident we have opportunities there. Secondly, we have paid a dividend every quarter since 1939 and we have never reduced it. I think we will make sure we take care of business there. And then thirdly, we have the opportunity, I think, in these runways for growth, enhance the van network, expand with repair shop owners and managers, extend to critical industries and build in emerging markets, to acquire companies with this cash that would fit onto those runways. We're not looking to expand beyond that. Remember what I said in terms of what I tried to communicate in that idea of tradition. We thought of ourselves as someone who sold wrenches through vans to mechanics. But actually what we did was observe work, make it easier for any serious professional in critical industries. That means if we expand the repair shop owners or people in oil and gas or aviation or the military or in emerging markets with those kinds of industries, we're just doing what we did before, observing work, making it easier with professionals in critical industries. And so we'll invest along those strategic lines of advance, and that will eat up our cash. I think it will. Okay? Any other questions? Yes? Mr. Jack Warren [ph]?

Unknown Attendee

[Question Inaudible]

Nicholas T. Pinchuk

Wait a minute. Wait for the microphone, Jack [ph]. I want to -- as Richard [ph] said, I want everyone to hear that. Go ahead, repeat it.

Unknown Attendee

Nick. You just made a very, very fine presentation. The question I have is how the hell do you do it without a teleprompter?

Nicholas T. Pinchuk

I'll say 2 things to you. First is, this is my job. I think about it a lot, all right? Secondly, if one were to convince an audience, if you want to, part of the CEO's job is to enlist an audience, enlist people in your cause, in your ideas. If you can't remember them, how will they, all right? So I have to remember them. Anything else? Anybody else? Feel free to compliment and I will. All right, yes?

Unknown Attendee

I'm a retiree and I was just wondering, when you got into the oil and the gas part of the business?

Nicholas T. Pinchuk

Well, we've been in the oil and -- she'd like to know when we have gotten into -- we've been in these businesses for a long time in a kind of sideways manner. We would observe the mechanical, the mechanics, the repair shop mechanics, and we developed a product line for them. It included wrenches and a whole bunch of things. And they were -- that's what we do. We observe these people and we knew what they did. We knew why they took their handkerchiefs out of their pocket with their left hand instead of the right. We knew exactly what they do and so we developed a product line for it. And we found that these product lines, they included things like wrenches and screwdrivers and by the way, oil and gas people use that. So we try to go to the oil and gas people and sell them. "Well, we have wrenches. You use them, why don't we buy them?" We did that for a long time, for the industrial division. But that's a far cry from what we're doing now. What we are doing now is we're doing the same thing, coherent thing that we did for auto mechanics. We're trying to say, "Okay, oil and gas guy. What is it you do? How you do you do work? How can we make it easier? And we'll develop -- we have product that will help you, but we'll develop some more for you." And so we're acting them. We're trying to solve their problem as opposed to sell them what we already have, which is what we did before. Other questions? Anything else?

Okay. Let me just finish by how I started. If you leave here with anything, I'd like you to leave here with this idea. This is a special company. It was founded on a brilliant innovation. Joe Johnson, 5 do the work of 50. It's dedicated to a profound idea, the dignity of work and it is enlisted in a special and valuable purpose, someone who solve the critical and ease the world forward. We have like the video says, we have moved forward on the brilliance of a few. People like Joe Johnson, Norm Lutz, Bill Rayburn and I daresay, Jack Michaels. But the progress has mainly been driven by the efforts of the many. The people here who do extraordinary things, terrifically extraordinary things.

For the community leaders that are here, you have created an atmosphere in which we can prosper. To the retirees in this audience, we know that we -- to the extent that we reach forward, we stand on your shoulders. We owe you a debt for this. And to the contemporary associates of Snap-on, I just want to leave you this. You do create the path. What you do does make a difference. Without the value you bring to professionals, vehicles don't roll, oil doesn't flow, cities don't rise, economies don't grow, planes don't fly, memories aren't made and I daresay, lives aren't built. You do make a difference. Whether you're a community leader who has supported us so much or a retiree who was paved the way for us or an associate who is creating a path now, for your capability, for your energy, you have my admiration. For the contributions you've made, you have my gratitude. And for allowing me to stand here again and represent you on this special day, you have my thanks. Thank you all for being here.

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Source: Snap-on Inc. - Shareholder/Analyst Call
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