Snap-on Incorporated (SNA) Earnings Call Transcript & Summary

Good afternoon, everyone. Thanks for joining us. My name is Curt Nagle, and I'm the Hardline analyst here at BofA to cover Snap-on tools along -- and along with our leading analyst, Lisa [indiscernible], help cover the aftermarket and auto service stocks. It's my pleasure to welcome SNA Chairman and CEO, Nick Pinchuk, who, over the past 12 years has led Snap-on to become or to be the leading premium tool manufacturer and distributor for auto repair and critical industries as well as running a very profitable diagnostics hardware and subscription business.

So Nick, before we get into some of the more specific questions to Snap-on and it's underlying industries that it serves, our team has a series of 4 or 5 questions that we've been asking, all of our participating companies at the conference. So the first one is talking about the current demand environment for each of your major segments as we've -- or as we are coming out of COVID, it certainly seems like things are moving in the right direction. The Tools Group saw a really nice pickup in 4Q. Your industrial markets are starting to pick up -- back up a little bit. The things like ISM picking up, commodity markets picking up nicely. And SAAR kind of hovering at [ $15 million, $60 million ] unit. So yes, just maybe a few words in terms of just kind of how you view demand through the year and how to think about some of the progression in some of your underlying markets and segments?

Sure, sure. Well, I think based on the question, Curt, it's impossible really to look for without looking back real quickly and thinking about the effect of the COVID. And we thought of the COVID as in 3 phases, shock, combination and psychological recovery. I've talked about this many times. Of course, the shock being everything sort of stopped in late March and April. And you can see it written across our numbers the way they work. And generally, you can say that almost broadly across our businesses, there was sequential improvement out of after April upwards at different rates. But generally, sequential improvement. And when you look forward into '21, we expect that sequential improvement to continue in various aspects of that, what I would call the troika of shock, combination, psychological recoveries. The first one we can talk about is the Tools Group. The Tools Group made up pretty well. And I think we said in the second quarter, we thought we'd go to a V-shape recovery and so it was. Tools Group ended up the third quarter, up 16.2% -- 20.2% in the fourth quarter, and our profitability was very strong. What that reflected, I think, and sales, not only to the franchise, our franchisees but from the franchisees to end customers were very positive, very strong. And what that reflects in terms of market view, is that the grassroots customer, which is the technician, the actual person [ trolling ] the wrench, recovered very quickly, started to accommodate to the virus and started to go up. So that sector was quite resilient. And I often -- people talk to me about, well, how are the technicians economically and so on. They're very [ flush ]. They're strong, and you can see it in the numbers. And going forward, we came out of the quarter in that sector out the year in that sector with momentum. And I think based on that great resilience of that auto repair market. And they're starting on what we call the -- they're starting to be, what we would call inter-psychological recovery where they've accommodated now they're starting to feel, oh, I can be confident in the future. I can invest in bigger and longer payback items. And so we see that extending through the 2021 in a very positive way. If you then go to the next level up in our business, which would be the next level up for our business but also in terms of economics, I think the smaller businesses like the repair shop owners and managers, the garages that employ these technicians, they, again, had the same kind of sequential improvement, and they ended up the year for us anyway, up maybe 7% organically, our business there, and they were growing, but they were still further behind the technicians in terms of psychological recovery because their confidence in the future was more measured. And then when you go up to critical industries, you have the same kind of thing, the broad bigger industrial, they create, what I would call the creation sector, which is dealt with by C&I, our business. And that business -- those businesses did okay. They did reasonably well, [ creative ] factories kept running. But there were several of them, several pieces which were afflicted, education, aviation, oil and gas. Oil and gas laying a, I guess, what you would say, a headwind across that particular sector. But still, each of them sequentially improving by oil and gas eking at a small level, aviation at a small level. Education, understandably going and probably coming back. And if you look at them, though, you still see C&I improving sequentially further behind the other 2 sectors because they're bigger businesses, I think, and are affected by what I would call secular trends in their particular industry and also the bigger the business, the more cautious they are. That's what I see in terms of the underlying businesses.

Got it. Understood. And then maybe just moving on to something that's been very topical across a number of industries that we cover. And that's an inflation and input costs. I guess, for you guys in terms of your own cost structure, how big a factor is this in terms of things like steel or other commodities? Is this -- yes, how do you think about pricing with that? Or is it just not something that's particularly material, I suppose?

Yes. Look, I think you can view it this way. I think, generally, we would put inflation and material cost threats. I would characterize that in the words of the immortal, Roseanne Roseannadanna, it's always something. So we kind of think that it's always going to be some challenge like inflation or something like that. We think that's just table stakes for running a business. And for us, it's particularly manageable because we buy maybe $75 million, $80 million worth of steel out of cost of goods sold, which is well north of $1 billion. So it isn't that big a factor for us. And secondly, we -- to the extent it becomes a celebrated effect, that is a very visible effect, we can price for it. So steel is up, we can price for it because we're the pricing leader. And so that gives you the, what I would call, the imprimatur, the [ league way ] enterprise. And so it generally doesn't become a factor for us. If there is some more obscure inflation that might affect us particularly selectively, like, let's say, for example, we had cadmium in our steel melt, we might not be able to price for that, let's say, because nobody would know that cadmium went up. But generally, we're not sitting here reassessing our numbers or our forward outlook based on commodity prices at this point anyway. Things can change, but I don't think that it's going to be the case.

Understood. And then, I guess, anything else in terms of your general cost structure where you're seeing inflation, labor? I guess, what's your current capacity, and you need to invest there?

Look, I think labor, we -- well, for us, the people in the factories, the people -- I'm proud to say that the people in the factories and the people in the warehouses have been at their posts every day throughout this as befit somebody who supports the critical mobility of our society. And we have given them salary increases every year since 2009 and last year was no exception. So we gave them the regular salary increase and God willing, we'll be giving them a regular salary increase in 2021. But I don't expect it to be a catch-up or anything like that because we've just kept moving it up as we've moved forward. So I don't see labor cost being a problem. My capacity, I don't see that being a major problem because we're pretty good at rapid continuous improvement. We could squeeze out more from the same space quite often, and then you can add machinery. We're always upgrading our machinery. And we could be expanding some facilities, but this is -- we do this on a regular basis.

Sure. Got it. Okay. So it's discontinuation of...

Yes.

Understood. Understood. Okay. And then just moving on to, I guess, as you see it, Nick, you've been leading the company for a while now. And I don't know, what's your outlook for some of the bigger, I guess, market share opportunities, transformational opportunities, if you were kind of looking out the next 5 years, in particular, thinking in kind of the context of things like if we're trying to have vehicles, automation and electrification. Some people see that as an opportunity. Some people see that maybe as a threat to your business? What -- how do you guys see it?

Well, I kind of pause at the word transformational. We think we have -- we have always thought. We have opportunities. We haven't yet plummed the ceiling of our opportunities to grow with along our runways for growth, making the bands better, reaching more repair shop, expanding with repair shop owners and managers, extending into the critical industries where we all try to [ share ] and building in emerging markets. So we think we have opportunities there. We also think we have opportunities to keep improving because our space is -- our landscape is very complex, and therefore, there are a lot of [ interest ] disease in our businesses that can always be improved. So we see that within ourselves, for acquisitions, we kind of -- like the one we just did recently with Dealer-FX for $200 million, we saw that as coherent acquisition. That is right down our pipeline that gave us both strategic and operational opportunities. So you see it that way. If you're talking about the forward-looking nature of the underlying repair business, we think it's only going to be positive. I think most people would say that coming out of the recession, there's going to be abundant opportunity associated with more driving. You can see this if you look at the results in China after the COVID slip away, and you can see it, I think, quite logically, in America, where you think the [ warm ] has turned associated with the trend towards everybody, with people moving downtown and depending on shared transportation, I don't think people are going to be so -- it's pretty well documented. I think that people aren't going to be so interested or ready to depend on fully on shared transportation of any nature in the future. And in fact, I think companies and a lot of people are going to try to move a little bit further away. So if this happens again, they're not so exposed. So I think that means more driving. That's #1. #2 is the rise of technologies, good for us, good for us. Our business thrives on change. Because as the world changes, we provide new tools to deal with those complexities or those changes. So that's good. #2 is that if you think about it for a minute, there are 285 million vehicles on the road in North America. And no matter what happens in electric vehicles and plug-in hybrids and -- hybrids or whatever, ain't changing that quickly. So basically, there's going to be a substantial period of time where there is greater variation in the requirements associated with repair. In other words, the technician is going to have to deal with a number of different platforms, where right now if he is dealing primarily with the internal combustion platforms. But if electric vehicles succeed as we hope they will, then there'll be much more variation. That means more tools, more business for us. And then you come down to the assertion that well, it's going to be less repair. I'm from Missouri. I don't know if that's going to be -- it's changed so much. I'm not even sure it isn't going to be more expensive. Now we have to see this. But I will offer to you that the change isn't as dramatic as you might think, because different tools, different activities. But right now, only 20% of the repairs are in the powertrain. It's all about electronics. Most of the activities around reprogramming, retooling, changing things around the electronics in a car now. And so I think they bring in electrics, there may be less parts, but the repairs, I don't think they're going to go down that much. And if they do, they're probably going to be more complex. And by the way, they're going to need different tools. And we are, I think, positioned well. In fact, we're already supporting some of the new Volkswagen -- some of the new Volkswagen cars or some of the other cars with the central tool packages that are going out for those. So I think this is good news for us, actually. And we're really pumped about the idea of all of this. So we'll see. And then if you talk about never mind platforms, what about autonomous vehicles? More autonomy you have in the vehicle, the more precise you have to control it. I mean, can you -- just thinking about it in terms of the idea, if you smash your bumper today, there's so many sensors in the periphery of a car, you have to recalibrate them all, and we have the best recalibration system. So the more of that that occurs, the better off we are.

Understood. And I think to your point, at least the rate of change on total vehicle population going to take a while. So in terms of the -- some of that repair going away, probably not anytime soon on top of all the things you just said. So changing subjects a little bit, I'd like to talk about capital allocation.

Sure.

So Snap-on an aristocrat dividend payer, the past 80 years have been consistently paying buybacks, periodic tucking acquisitions, all sorts of things that you guys are doing with your cash on hand. On Monday, as you mentioned, you, I think, made the biggest acquisition, at least in the past 10 years, at least looking back to my model, $200 million for a company called Dealer-FX, which is a software provider for OEMs and dealers. Could you talk a little bit more about, I guess, how this deal will enhance your -- the current OEM business? What opportunities it brings? How meaningful to growth it could be over the next few years?

Well, yes, look, I think it's this way. It's what we would call a coherent acquisition of an activity, which gives us strategic insight that will add to our effectiveness as technology changes. It is a company that is poised for expansion. And it is an area where this isn't our first rodeo, we've been in this with Mitchell 1 is very similar. So that's the basis for this. Look, it is the -- and it is on the forefront of the digitization of the repair shop in -- for OEM dealerships. And so the idea is that it provides a complete software suite for everything that goes on in a repair shop and a dealership from the booking of an appointment to the check-in, to the actual and examination of the car, the multi-point inspection, to the recommunication to the customer to tell them, oh, this is what we have to do, this is what we may do, maybe we ought to do it while we're there. And the idea of the checkout, the idea of the payment being automated. And then the idea of bringing people back in afterwards, keeping track of them. This is what everybody wants to do. We want to -- it's going to help dealerships sell more, get more repair activities. It does, in fact, help dealerships. It's been documented more dealerships to get more repair per visit. It's going to help them fix cars faster. It's going to help them sell more cars. It's going to help them to keep people after the warranty system. And this is attractive for them. So in that sense, it's very good. The other thing is it gives us insight, right? We're right there participating in the garage as new technologies first break on the car park. That's -- we're already in the garage, but this gives us a bigger telescope to see things and therefore, get ready for them as they make their way through the car park from 1-year-old to 11 years old or a 12 years old, however long they last in the car park. And thirdly, it's a business that has just updated all of this created the software, created its structure. So it's poised for growth. And this is what happened in Mitchell 1. It's basically Mitchell 1, one of our stalwarts who has grown come hell or high water in bad times and good and profitably has moved up in terms of scalability. We know the way because we managed Mitchell 1. And so Dealer-FX is a kind of Mitchell 1 only in the dealer space. Now the dealer space is different than the independent repair space that Mitchell 1 plays in, but the overall function is sort of the same. The cadence is sort of the same. So we feel pretty good about it. That's why we acquired it. We thought it would be a great place for us to enter, strategically attractive and operationally, maybe -- it's operationally supporting a pathway to growth for us.

Understood. So moving on to the Tools Group. So in 4Q, you saw a pretty nice acceleration. I think you attributed it to hand tools, we're growing at a pretty nice rate. Financial conditions for auto. Ignitions good. But thinking about, I guess, kind of cadence through the year. I don't know, do you see any risk of a pullback as the economy opens the discretionary spending as where it might go to other places, like travel and entertainment? Or do you think that's not so much a risk and things like better throughput at garages and miles driven going up and things like that or an offset? Or how do you think about it?

Well, that's a very insightful question. I think it's true that as the economy gets better, there is -- and psychological recovery in our province occurs more fully, technicians may be more interesting -- may be trading off between buying a toolbox and buying a jet ski, that can happen. We do think, though, that the momentum that's in there, the idea of our new product and the pacing characteristic for the pacing factor for the Tools Group, which is the ability. The efficiency of selling the franchisees, the efficiency of getting more selling time and being able to utilize it more with the more complex tools that matches the ever more complex products. The fact that we've been able to expand that throughout this year overwhelms the risk associated with, okay, you're going to have that trade-off. But it's a factor. Now it isn't for sure, they haven't been doing some of that now. You trapped at home. They may be remodeling their kitchen instead of buying a jet ski or they may be buying a 50 -- 100 inches TV or something. They could be doing those things because they're trapped at home. So it isn't like there isn't anything, any competition right now. But it is true, as the economy gets better, people probably -- there is that factor, and that could be a positive. That could be somewhat of an offset. But we don't see it as being an offset that overwhelms some of the positives going forward. The higher opportunity and our ability to take advantage of it and the growing strength of our product line in diagnostics and tool storage and tool -- and power tools and even hand tools. So those are things. We expect that business to grow the way we always thought it would grow in the 4% to 5% range may grow higher. But we think it's in good shape. Now next year, the 2021 is hard -- it's hard to gauge because you've got some down quarters and you got some up quarters. And so the only way to really assess it would be to step back and look at the full year really because the quarter-over-quarter is going to be something different. But we think, boy, we entered the year on a decent trajectory. We're optimistic about the Tools Group, and we exited the year much stronger than when we entered. We shook off the COVID and did that in our -- and one of the cool things was is our direct selling model seem to be ascended, seemed to work up against conventional wisdom, especially in the virus, the idea of being there in-person, being able to deal with the particular problems associated with the customers. Even giving them sometimes forbearance, which we did and got out of it very well. The whole thing seemed to work very well for us. So I'm kind of positive about the tools.

Okay. Good segue into the next question, just thinking about, I guess, the general state of competition in that segments. I think, Nick, competition you've talked about. Some of your larger competitors, maybe not being as, I don't know, in the market, in terms of what they're doing with their fleets, pulled back a little bit, maybe some have added. But yes, just generally speaking, what do you think the state of the market is in terms of your competitors? Any new entrants, things like that?

I don't know. That's not -- I don't really -- we don't really hear much about the competitors. Our franchisees tend to work against themselves. People tend to buy Snap-on products or choose from a whole bunch of others. I'm not even sure their customers are our customers really at the same level until after a while, they feel so they can aspire to a Snap-on product and they upgrade. I think this -- I do feel good of how we played the pandemic. We were on -- our people were on the road, up close and personal to customers every week, every day, every day. And my experience has been, and this isn't my first rodeo, that tends to accrue positively with customers. So not only our product, not only our service, not only our brand, but also that relationship, which tends to be built on a multiplicative factor in difficult times like the COVID should serve us well. That's what I think.

Got it. And just moving on to, I guess, big ticket purchases in that group and the credit book. Just kind of a couple of things. Number one, just looking at originations in your internal credit book, trending a little bit below tools. Usually, they run more or less in tandem. I guess just what's driven that disconnect? Is it's primarily just less need for credits? Lower big ticket sales? If it's the latter, do you expect some of these garages and some of the bigger -- some of your bigger customers feel more comfortable making investments as you kind of talked about and get the psychologic provisioners? How do you want to phrase it? Do you think that should tick back up? Or...

I think this eventually -- I think this -- I think our product is strong. I think people like it. I think what you're finding is -- we saw this at this sort of like in the Great Financial Recession in 2008, '09 and '10 is that customers need to have that full psychological recovery. They worry about big longer payback items. Therefore, they tend to focus more on shorter payback items like hand tools or power tools or so on. Our big ticket items grew reasonably nicely during the quarters, but not up to the rest of them. And that's what you saw that effect, I think, is that the gradual psychological recovery of -- the growing psychological recovery of the technicians. So that caused the disconnect, which you talk about. I think as you move forward, that should normalize itself a little bit more as people get more confidence. I don't know what the -- I know that slope should be positive, I don't know what the time lines are for that. It's hard to say. It's hard to predict. So you kind of feel that's what happened in the Great Financial Recession. So you would kind of expect it, but I can't predict the slope very much. I think also, what I would tell you is when you step back and you look at the full year numbers for originations versus big tickets sale -- versus overall sales, they aren't as far out of whack in terms of -- the gap closes a little bit. So when you say, you're looking at what was the originations in the [ U.S. ], up 4.5% and against, let's say, 19% or 20% growth in overall sales, it looks big in the fourth quarter. But I think that gets washed out a little bit in the full year.

Got it. Before I move on to the next set of questions, just for people who are listening in the audience. If you'd like to submit a question, just please go ahead and do so through the Veracast app and I can try and get to any that you guys put up. So yes, moving to the -- I guess, back to the C&I segments. So we talked a little bit about that in terms of its -- it's picked up trending a little bit low. Some of the other segments as it's been dragged down by some of the critical industries, education, as you mentioned. Kind of going through this year, I guess, what do you expect in terms of where you see continued inflection? What continues to drag? And just kind of where it ends up by the end of the year?

Okay. The C&I was flat, roughly, it was down 0.7% organically in the quarter. That's off of -- in the third quarter, it was down 8.7%. It was down north of 20% in the second quarter. So it's sequentially improving, and pretty much all the businesses show that kind of trend, sequential improvement. So you see that moving through. If you look at, let's say, let's unpack C&I and 1/3 of the business that's critical industries. See, general industry, the creation economy, factories doing okay. Heavy truck, doing okay. That makes sense. Creation just kept pounding on during this period. Military seems reasonably solid. You start to look at aviation troubled place, but we did okay in aviation because we did well in international aviation. And it kind of balanced out dog food in domestic aviation. Oil and gas, who knows, it was weak. And then education was also weak, but small detail, it's weak because there were no students in the classroom. So that -- but that should recover. So looking forward, I think that general industry keeps going out. So those other places, general industry and heavy truck and military keeps going well. I think aviation recovers because people are coming back to the classroom, and we're starting to see it go forward. I don't know what's going to happen in oil and gas. And aviation, again, domestic aviation, I don't know. I have no idea. I don't know the time lines there. I think we're eking upwards, but, boy, it's slow. So that's -- that piece of the business. And you look at our hand tools business in Europe, the SNA Europe business, up big, up nicely in the quarter. And part of that is, by the way, up in the U.K. So they succeeded against the twin headwinds of COVID and Brexit. And they did it because they started to sell customized product directly to the customer. I talked about the ascendance of direct sales, when you can see it written all over SNA Europe. So that worked pretty well. And I think that's going to continue. Europe is a little squish, right? But when we went into the COVID, it was on the downturn, I am feeling better about it now, actually. Then we go to Asia Pacific. Asia Pacific is a tale of 3 stories. Northern Asia seems okay. It's coming back. Japan never went anywhere. It kind of stayed okay. Korea is okay, coming back. China is recovering. You got the Southeast Asia weak, hard to understand -- I used to live in Singapore. So I understand a little bit of this is they're just very cautious. So you got places like Singapore is still locked down, and they got 2 deaths since August. And Malaysia is 2 people can -- only 2 people could go on a car. So you have this government restriction that's holding them down. And then India as predictable in something like this is a basket case. So what I see is that as we go forward, I think the North will be okay. I think Southeast Asia will recover, and it's a toss-up what India does. I'm not really sure. I kind of expect it to come back, but who knows. It's like one giant improvisation at this point. So it's hard to predict how the economy will coalesce around that. So that's sort of C&I.

Got it. And then maybe just looking at a little more long term. So arguably, C&I is the second you guys have that could have the longest tail for growth, at least on a relative basis, looking at things like market share. And just the number of ongoing industries you guys play in makes sense that there's plenty of need for highly specialized durable tools, which is what you guys do, that's your bread and butter. But yes, over the next 5, 10 years, pick your parameter, your time frame, where do you think the biggest opportunities are by industry and then by region?

Look, I think the biggest opportunity is in the U.S. first, and it's because we're getting better and better at customizing kits for these people, and they really like them. So that has to do with building out the product line, which we have done. We're doing it all time. And also making -- honing our ability to deliver those customized kits, and we're doing more and more of that. We did much better in that business, and that's also what's driving the European success. So you see those things. I think the U.S., critical industries, particularly around military and heavy truck. And I really do believe aviation when it comes back and oil and gas will be good businesses for us. And education has always been a good one. So I see those as the most important places for C&I. And then C&I, like I would say, I think, because our market share is lower, we would expect that to grow at the higher end of that 4% to 6%. And as profitability was up nicely in the fourth quarter -- I mean the fourth quarter was up 270 basis points -- 260 basis points, again, it's 15.4%, up 260 basis points against 100 basis points of bad news from currency and COVID.

Got it. So -- understood. Moving on to diagnostics. So another segment with another good set of results in 4Q. Some new modules, you guys put into the market some new software, I think 2. Somewhat, I guess, bucking the trend in terms of big tickets strength, do you expect this to persist?

Well, I think -- yes, go ahead, sorry.

No, say -- again, or what else is driving it? And again, I'll just kind of ask the question of just relative competition in the space, anything new or notable?

No, no, we don't see much in terms of competition in that space. I think our product lines are rolling very well. And each iteration puts us further ahead in terms of our software. In terms of the size of our proprietary database is now up to 200 billion diagnostic events and 2 billion repair records. Nobody has anything like that, including the OEMs. And the wielding of those databases through those handhelds is really a great advantage. And we have other advantages. And each of the new, for example, with the SFC, we launched the new Apollo, Apollo 2. We put one in the hands of every franchisee. And the fourth quarter saw that fruits of that labor paying off because that started to sell. And then the second, in the quarter, in this quarter, we're introducing the new TRITON, which is the next level up, faster, smarter and bigger screen and wielding even broader intelligent diagnostic capabilities. We think that will do well. And plus, we've got our franchisees where they are going to -- where they're able to sell these more effectively because we've learned how to help them sell this very complex product. If we step back and you look at C&I and RS&I overall, I guess, it grew at 7%. We think it's going to grow at the -- in the right in the middle of the 4% to 6% range. We just acquired Dealer-FX and that we really believe in the growth of that. I don't think it's going to be contributory. It will be cash positive. I don't think it's going to necessarily contribute to the EPS in the near term. I'm talking about this year or maybe next year, but it's got a strong growth profile, which we feel pretty good about. And we've seen it -- we've seen it happen with Mitchell. And if it does anywhere near that, this is going to be baffle in terms of help just to RS&I. But it won't happen right away for us, it'll help its growth a little bit. And then you look at the OEM business, the electronic parts catalogs business, which has done pretty well for us year in and year out. And that's going to help in a synergistic way with the Dealer-FX because you can sell both of them in the same package. And we figure that they will have some sort of synergy booth. As soon as our people start to figure, it takes a little while for those 2 activities to the match, but we're pretty confident they will. And then you got Mitchell 1. It's like a rock star. It just keeps growing no matter what in terms of information software for independent shops. So it's the other side of the Dealer-FX acquisition, but much more mature and much stronger in terms of profitability, and that just keeps developing. And the project business to OEMs, I think you're seeing the OEM, the SAAR start to come back. And that probably means that starts to be positive. And we saw signs of that in the fourth quarter. We think we'll see some of it going forward. And as I said, some of it has to do with project programs to support the new electric vehicles in a number of different places. So that all make -- we kind of think RS&I has a good future too as well.

Got it. And then just, Nick, a couple of quick ones from the audience. Just one, do you guys see sales and margins coming in this year at 2019 levels?

At 2019 levels?

Yes. So did you see sales and margins coming back to those levels this year?

I hope so. Geez. Yes. I think so. I mean, look, I think if you look at -- if you -- let me tell you, okay, so we're down 3.8% in the year in 2020. And I think our profitability overall, the OI margin was 17.6% down, what, 160 basis points. But in that 160 basis points was 30 bad news of currency. 30 bad news of COVID -- special COVID costs. 30 bad news of restructuring. We had about $12.5 million worth of restructuring in mostly associated with Europe. And 30 points of extra help that was in '19 associated with the legal settlement. So in the worse -- in the year of the great withering, we were down 40 basis points as adjusted versus 2019. So yes, given the momentum, I think we ought to do better.

Understood.

How much better? But I think I'd be somewhat -- yes, something -- let me just say, I expect to do better.

Understood. And then just another one. In terms of just inventories question on why at least as a percent of sales, it's been going up over the past few years?

Yes. Well, right. Look, our business -- for us, inventory is -- I'm going to say, we could be more efficient. But for us, our business is a working capital [ hog ]. The essence of our business is to be able to deliver on low volume solutions. This tends to drive inventory levels. And as we expand in critical industries, we're going to drive inventories up. Now you could have said that, okay, we would have -- we kind of worry about the returns, not really the broadening of the inventory. Inventory is not a first order variable for us. It's not something we manage as an independent variable, it's a dependent variable. We manage profits and returns. Now in the times in which you're trying to build your sales, in other words, we're having a little difficulty trying to get more product, more complex products through the eye of the needle in the Tools Group, you might be a little bit less efficient in inventory. And I think probably you could be entitled to the idea we were in that period. But our inventory, we're not so worried about things like obsolescence or anything like that. We have the capacity to sell what we have in inventory. So I think inventory is not a problem. You have 2 effects. One is is that the Tools Group is now starting to sell. So that's good things. And 2, we are expanding. We're expanding our scope, and this is business that makes money for us.

Understood. So I think we just have less than a minute left, so I'll ask a real quick one. Just in terms of Dealer-FX, how to think about profitability is in line with the overall RS&I?

It's not going to -- no, I think in the near term, I think what I said was it will be it accretive from terms of cash point of view, the EBITDA, but the EPS, it will be decremental probably in the near-term in the first year anyway, and we'll see what happens as we go forward in that situation. It won't be significant, though. It's not going to be a significant factor. So it is a business that I would most characterize as poised for operational excellence because they've gotten their technology in place. They have approvals from a number of OEMs. By the way, those OEMs are complementary to the people we have good relationships with. And so therefore, that fits together well. And they've structured themselves to be scalable just like Mitchell 1.

Got it. Right. I think, Nick, that wraps our time up. As always, thank you so much for your comments and your time, and again, on the line, thanks for joining, and have a good afternoon.

Okay.