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

All right. Great. Well, thank you so much for joining us. For those of you who are in the room and those of you who are online, we appreciate your time today. I'm Elizabeth Suzuki. I am the hardline retail analyst at Bank of America, and I'm really glad to be joined by the team of Snap-on today, including CEO, Nicholas Pinchuk. So thank you so much for being here with us. So I guess, first, I would love it if you could give our audience a little bit of background on Snap-on, the size of your addressable market and who your core customers are across the business segments.

It's hard to define our market because it depends on -- we're kind of a tools company. So if you add another tool, is that part of your market or not. So it tends to be expensive [ or $4 billion ] company and change. We're the market leader in most of the markets we prosecute. Look, our business, I think can best understand it by the divisions. So we have the Tools Group, 37% of our business. This is a group that sells to technicians, the technicians themselves. They are the people who actually tour the ranches and it delivers that product through a series of through a network of franchisees who drive with the tools on the truck, drive around and call on these technicians weekly. That's the model on which they may call on weekly. So that's -- I suppose the business when people close their eyes and talk about Snap-on, that's the business they think of. But then there's another business, about 28% or 29% of our business that deals with a customer that stands right next to them. This is not the technician. This is the [ repair shop manager ] and they sell semi-capital projects like products like let's say, tire changers and balancers and lifts and software that drives the shop, manages the shop or gives them special features like repair shop information or electronic parts catalogs. And then there's another business, about 27% or 28% of our business, which is the commercial and industrial group. And that is where they deal primarily with customers that are not in automotive repair. So as we say rolling the Snap-on brand out of the garage to people like in aviation, oil and gas, education, general industry, heavy-duty truck, things like that. And then we have a credit company, which provides the underpinning of finance for primarily the technicians in giving some grease for the sales and the -- [indiscernible] and sometimes to owner operator purchasers from the garage that will finance certain things. If you look at our business in general, you can think of it in a few ways. One is the principal value-creating mechanism is to follow the complexity, the changing vehicle markets or the changing critical tasks in work. We say we sell to people who conduct critical tasks. That is where the penalty for failure is high and the need for repeatability and reliability justifies a Snap-on level product. And so therefore, you're willing to pay for our product as it's a unique solution. And that occurs in auto repair and aviation and other things. And our principal value creating mechanism is to observe the work as it's being done in these workplaces and come up with a new tool, which will make it easier. It's hard to anticipate until you actually see the work being done. And so that creates this onward growth product following the increase in changes in the marketplace, particularly in automotive repair. You overlay on top of that, that our brand, the Snap-on brand is probably one of the strongest blue-collar brands in the world. It's simply the outward sign of pride and dignity that working men and women take in their profession. So we have people who wear our jackets, put our wrenches in the hands of our newborn and literally bury their ashes in our boxes.

So I guess passing by my dealership and seeing a Snap-on Van, if they're every once a week is really about what people are used to seeing in the Snap-on brand. But how have all of these -- how these various business segments come together over time? How did it grow into these 4 segments than it is today?

Like all other businesses, we started in '19, '20. The original idea was that the auto industry was just in a nascent period, 7.5 million vehicles on the road. And so therefore, as in all capital, the spread of a capital device, the repair follows. And there was some question about what would a repair man -- a repair technician do for a car, what tools would he make? And then we had a founder who said, "I can rationalize these. I may take 5 handles of different configurations, [ the lips, the crank ] and put them together with 10 sockets of different dimensions and fashion them so they Snap on interchangeably. So that's what made -- that started us in automotive repair. We did one other thing, which really created the underpinning of this brand in the beginning. He said I'm going to -- we're going to assume the general tools distribution, the distributors, that vendor tools and call on these technicians directly And when you go into shops salesman, lay those tools out on green felt as if they are precious as surgeons' knives, implying that if the technician uses these tools, he will declare to the world, he's doing something special, perhaps as special as a surgeon. And so that created this underpinning. And so then we did that for years and years and years and maybe 15, 20 years ago, 25 years ago, we asked ourselves, the business wasn't doing so well. So you said, let's talk about ourselves. What do we do? He said, hey, we make great wrenches. We sell them through vans to auto mechanics. But what we really did was observe work, figure out how to make it easier. It could be a wrench or a piece of software and what the person has to be doing something they think is important. If it's not important, like air conditioning repair, which for reasons passing [indiscernible] air-conditioned business. For reasons [ passing understanding ] people don't take that seriously. They take elevator repair seriously. [ You just asked ] me about this in the Board of Directors' meetings, why aren't your service margins as high as the elevator business? I said, because people don't get trapped in elevators. I mean, air conditioners. And that's kind of the way it is. And so we realized we could roll the Snap-on brand to other people like repair shop owners and managers who knew about the brand already, but still had some critical to do. And then in technicians for aviation and the military and other things because they were also critical. That's how those divisions got formed.

The auto service industry has been pretty severely impacted by the pandemic, given that miles driven came down more than we've ever seen. But -- so everything we hear about new and used vehicle prices being through the roof, it would seem that the average auto dealer is probably in pretty decent shape financially. So what are your dealer customers indicating about their ability to invest further in their service base?

Let me correct you a little bit. Auto repair [indiscernible] because we went down -- well, it depends on how you, certainly wasn't impacted for much more than a quarter the miles driven for reasons, it's hard to explain exactly as far as I could see, doesn't seem to impact our business. I've been in the shop for 15 years, and it hasn't over time. So the fact that the miles driven dropped off didn't in the near term, create a downward blip. The downward blip in the end of the first quarter 2020 and the second quarter was created by the fact that people were closing their garages. Not that there wasn't people -- there weren't people who needed the repair, it was because the garages and our own people were trying to figure out how am I going to do this? Am I going to catch some that's going to put me in one of these hospitals that are almost maybe [ evil ] at this time. So there was a kind of shock. But even when we announced the second quarter, we already knew by them that were coming out in V, and we did because once people got over the shock and realized they could accommodate the critical repair, the idea of the repair was essential that safely, they started to come back and it did come back. So the effect in the 2020 era had nothing that really directly do with miles driven. And in fact, miles driven doesn't drive our business. What drives our business is the complexity of the vehicles. And it doesn't even seem to affect the actual garages in the near term. Now I think logically, if you told me that milestone was going to be 50% over 5 years, then it has to affect it, you would think. Now the other thing you said, which I want to clarify, only 30% of our automotive repair business is dealerships. Most of it is independent repair shops. So the dealerships moved to a different cadence, actually. Similar but not congruent. And so they will tend to take things like maintenance, which we would call scheduled maintenance and oil changes and things like that, I'm sure you're familiar with. So if you have a pandemic that tends to be a little bit more effective than the automotive repair garage was just fixing your brakes and if you don't get the picture you are not driving any place. So that's what created our business. So in this situation, yes, miles driven are coming back, but that's not really making the difference. What's making a difference is cars are getting more complex. The number of technicians are actually getting bigger this time, but that hasn't even driven our business so much and technician wages are going up. So you have these 3 favorable demographics that are occurring. But over my time as a CEO, I haven't seen the auto repair market falter.

Yes, it's a testament to the resilience of the entire industry, but.

Well, we've paid a dividend every quarter, think about this now. We've paid a dividend every quarter since 1939, and we have never reduced it. So I think it shows you that our basic market doesn't take too many blips. To the extent we go into [ cycle store ] it's us, not the market.

And so to the extent that your customers in the tools business are still very willing and able to invest in their ability to service vehicles and improving their tools. I mean you haven't seen any slowdown in that over the last.

No. I mean if you look at our fourth quarter, you would conclude that we came out of a pretty good momentum right? You would conclude that. But I think that's the nature of the industry. I think something is happening here now though, I think I told you the shock accommodation to the virus, psychological recovery, they came back to a place where they thought, I can -- I'm not going to get shocked again so I can start acting like I used to. And then now it seems like at least -- when you talk to people at the grassroots in the factories or in the shops, they are almost exhilarated, I got shaken. I'm going to the NBA games. I'm going to -- and so they're happy about this. It may have been something like after the virus in 1918. 1920, things got pretty good. And so I think we're seeing some of that phenomenon now, and it's hard to shake it really. It's hard to shake. So I think you're seeing that. Plus, you're seeing an increase in the acceleration of the complexity of the vehicles. There was an article in the economist the other day -- 6 weeks ago that talked about the grease monkey is dead. Well, I got news for that guy who wrote that article. The grease monkey has been dead for a long time. Because right now, 80% of the repairs on a car don't have anything to do with the powertrain. They all have to do with something electronic or something a little more complicated. So these guys are still doing it. And as you see electric vehicles and other things rolling out but not just electric vehicles, autonomy or other changes that aren't so palpable because they've been happening the whole time, you get this kind of drive for more complexity. I'm not a grease monkey. I've got to be a technician, I've got to be a rocket scientist proactively. If you base your assessment about what somebody does based on the computing power and the device they work on technicians are more adept at technology than the guys who worked on -- landed on Mars -- on the moon in 1969, or the Viking probe that landed on Mars 1976, which I worked on, by the way.

Great. So I guess you would probably then assess that there wasn't that much of an impact from PPP loans or causing any pull forward in demand from your customers in the tools business.

I don't think so. And here's the reason not just -- not just from the market point of view, is that the Tools Group, the Van business has elements of it in places like the UK, Australia, Canada, and they didn't have any PPP loans there or stimulus. And if you look at the growth in the last year in 2021 or '20, in fact, the numbers in '20, after that be V dip, they're pretty much matching the US. So it didn't seem as though if something was happening, the particular prescription that the US had applied to it didn't seem to be giving asymmetric advantage to the US market, which says it probably didn't have an effect in our sales.

That makes sense. So how long does the typical Snap-on tool last before it either needs to be replaced or just becomes obsolete because you've come out with something that much better and.

Absolutely. Well, not exactly. First of all, Snap-on tools are built. We guarantee the hand tools for life. So -- but the thing is, is that a technician now has -- the average technician has 17 or 18 ratchets because the geometry of the vehicles change and the old ones still work on the old vehicles, which are still on our own, by the way, okay. So they still need -- so it's not exactly that they get obsolesce, but they don't quite work as well on a new vehicle. Sort of like a version of an Apple phone, the Apple phone, they bring out a new system and your old phone doesn't work quite as well. It still works, right? Sort of like that. So the thing is we kind of -- that's what we keep driving. We bring out these new products and they help you on the new vehicles as they roll into the garage. Also, there's a lot of electronics that keeps updating the amount of databases, we have some databases 230 billion records, things like this. So really technicians these days, if they're using Snap-on tools are engaging big data and solving cars. The interesting thing about this, though, is -- I don't know, it's hard to predict in the future. We've seen the electronics on a car grow from 95 -- 1995 to now where the number of turbo codes, electronic turbo codes moved from dozens in those days to thousands now. And so our electronic business has grown. The interesting thing is the hand tool business is growing right along with it. So for -- and part of the reason is I used to work at Ford and designing cars and you say to yourself, "Well, why is that the case because -- I hope there's nobody from the auto company sure, but they all designed for repairability -- when you have a new car at Ford, you design first, it's got to look good. Nobody buys the [ bad ]cars. Then it's going to perform. It's got to have some performance. Then it's got to hit the cost target. Then it's got to have a reliability, not the same as repairability, then it's got to be able to meet emission standards and safety standards. By the time you go through all those designs, you have no degrees of freedom left over for repairability. That's why every new vehicle almost always creates even a physical challenge to repair. So this is what drives our business. We see that. I've been in the garage myself figuring out, if you don't have a Mercedes SUV -- if you have a Mercedes, do you have an Audi. But I was in an Audi garage once the guy says, if this car comes in here with a check engine light, it didn't come out quick. And the reason is if you look at it, everything is packed into this place. You see what I mean. And so you got to get -- we have to give new tools to do that. So it's not as pleasing to think about the side of our business that says electronics. This is going to be streamlined and so on. But every time you bring out new stuff, it has a physical challenge as well, which is why we're so excited about electric vehicles and plug-in hybrids. People say electric vehicles. Well, if you look carefully, if you really want to look, an electric vehicle is not an electric vehicle, it's not an electric vehicle. They're all different. They have huge differences in design. Like every new technology, it gets employed in a variety of ways and later, that tends to process to some commonality. But in the beginning, it's a really big repair challenge. And on top of it, half the electric car growth in Europe last year was plug-in hybrids, which has an internal combustion image on top of the battery, but it really makes it [ harsh ] to deal with. So we're kind of really excited about this, and there will be a lot of electronics to deal with it, but there will also be new hand tools to deal with all this stuff.

Right. So it sounds like the Tools Group has been unflappable, basically, and then.

No, I wouldn't say that. But okay, I would say we just put it on cycle on cruise control and let it roll. Not quite like that but okay.

But then comparing that to the commercial.

You might say -- having met us, you might say it's got to be a good business. These guys couldn't be making good news out of it. So okay, go ahead.

So on the Commercial and Industrial group. So certain of your customer groups were impacted in different ways during the pandemic. So which have been basically thriving? And then which do you think have some room for recovery.

Sure. The commercial industrial business is a little more difficult to describe because you have so many different intersections, a lot of different geographic markets all over the world and several different customer bases. Let's talk about customer bases. So the principal target is rolling the Snap-on brand out of the garage to what I said in the beginning, critical tasks. So we have -- our pure critical industry business is about 1/3 of the commercial industrial. They have 5, 6 segments, the biggest one is a military. It's dog food right now. It is -- dog food, it's down multiple double digits, and it's been down that way for a little while for a few quarters. And that creates a particular headwind for them. Now you would think that these times might author a little turnaround in that. So we're kind of wondering if that's not going to happen. Then we've got Aviation, which is ironically kind of going in and out. It's been up and down but never really growing much. It's been kind of flattish. You've got oil and gas who actually turned the corner in the quarter. probably there's good news coming in that stuff. You've got general industry, which generally has gone reasonably well, and I think it's continuing to go. Heavy-duty, which underpins some of the critical mobility of our society. And so that's going okay. One of the things that's come back recently, which we put in critical is education because this is -- this creates the seed corn of all this stuff. And so for a while, there were no students. So therefore, we weren't selling to them. But now it's starting to come back. We're in -- Snap-on is in almost 3,000 technical schools, and 629 of them in the United States offer Snap-on-branded curriculum. So we're taking -- our touch phrases, we're making those people Snap-on customers for life. And it seems to be working for us in that situation. So you see that kind of variation. And in that business, it's always something. But the -- and then if you overlay on top of that, okay, Asia is a pretty variated landscape these days. And you look at Europe, the same kind of thing, US has been pretty solid. So you lay those over in the commercial industrial has been kind of flattish. But it's held its own in this situation. And its margins have been okay. It's -- the year's margin in Commercial Industrial was at an all-time high in a time in which things have been, I think, are a little tougher in those situations. Actually, the other businesses had pretty good margins, Tools Group all-time high and the corporation all-time high as well.

Well, the diagnostics and information group seems like it's very exciting, and there's a lot going on there. So what are the latest developments in that segment? And what do you expect in the next couple of years?

Well, some are not so in vogue and some are, like, for example, we keep expanding our database. And so what happens, how do you repair a car is cars got a lot of electronics and they get an [ electronic ] and you plug in a diagnostic laptop for a car, and it will tell you what the car is saying. And then if you pay us a little bit more, will allow you to drive the car through dynamic testing, and therefore, you can look at the waveform, get a little more information. But it's basically a fingerprint of what's wrong. But it is -- even the OEMs can't tell you right away because it's not definitive, even at the range there. And so what then you do is go to a database which we have, and you go through a series of if, I guess, decision trees. And after you go through several decisions trees you'll decide it's the mass air flow sensor as well. [indiscernible] we'll give you access to our $2 billion -- $2.2 billion repair -- actual repair record database that says if this is accurate and 1990 and it's got 125,000 miles on it, and it's got a C10 signature for the repair, you don't have to go through the steps, 65% of the time, it was the mass air flow sensing. And 12% of the time, it was the switch for the mass airflow sensor. And 3% of the time as a wiring harness and so we shortcut you. We allow you to take a [indiscernible] diagram, which will shortcut it all. If none of those things work, we have a 230 if you pay us more, we'll give you a $230 billion database record database that allows you to pinpoint the problem, which only occurs in [indiscernible] which have an R in it. But these are the things, if you're auto mechanics don't get paid by the hour. They get paid by the job. And so if the job takes longer, they get hold. And so they really want to get that -- and by the way, it builds a reputation and we can put them right on target with that database. That's one. 2 is that there's the latest thing as they've moved more and more out of powertrain and into the electronics of the car, it's the wiring diagrams, and we have interactive wiring diagrams where it's kind of a logical thing, but it isn't available. So they come out, you can easily navigate through them. You can move to the next one. Nobody else has that. Nobody else has these databases. And then the third thing, I think, in that sort of electronics is these days, there's an awful lot of autonomous capabilities on a car. It's going to be a long time before you can just say, okay, we're driving down the road. You're going to take your hands off the wheel. But right now, you have things like lane departure warnings and other things. And they -- basically, they depend on a network, a neural network of sensors that are around the vehicle. And any time you get any kind of damage, any kind of collision, any kind of repair, you need to recalibrate those. And so this is not a trivial operation. And every OEM has a different way to do it. We can -- we have networks that will allow you to decode all of that and calibrate right in the garage, and it's become more and more sophisticated. The types of targets you need to do it, the types of devices and cameras you need to do it. And so we have, I think, the best one in that situation. We continue to do it. And then the other thing that seems to be coming back and internal in that business is the basic, what I would call, semi-capital investment business, tire changers, balancers, lifts, dealerships are starting to come out of their funk and starting to invest in it. So that business has kind of come up -- now it's not as profitable. I mean there are thousands of basis points difference across RS&I in terms of profitability. Last time RS&I wasn't too bad. I think it was 22.8%, down 10 basis points over last year, down 120 basis points over 2019, but it was all explained by an acquisition we made on Dealer FX, which is less profitable. And that variance -- so explained all its variance versus prior years. So if you adjust for that, it looks pretty good. Dealer FX was something we acquired, which was we already had a repair shop management system for independents than what we call Mitchell 1, very profitable, very nice business for us. It keeps growing, all like clockwork, wobble through the recession. We acquired Dealer FX, and that does it for dealerships, a different dealership [ smart ] to a different cadence in terms of that situation. So we've just acquired them, and that will be a great business for us, we think. And then the other thing about it is it will give us an early warning as technology changes and pulse us through the car park with new cars, the first place you're going to see them in terms of repair is in the shop in the dealerships, not in independent shops. They'll go through the independent shops for a couple of years. And then after it's off of warranty and you take your car to a dealership and you look at the bill, you may have had this experience. Unless you're an analyst, say, for the Bank of America, you will say, "I feel like I encountered the Senate of Jesse James here in this situation, [ abandoned ] and therefore, I've got to go to the independent shop and that's what happens.

Yes. From personal experience, no longer by dealing.

Well, there's another thing, though, is dealerships, people always ask me, aren't dealerships going to eat up the independents. We want because the cars are going to get more complex. We're going to make sure they can eat up the independents because we're going to keep enabling the independents. This is a part of our business. And 2, there are 17,700 dealerships in America. There are between 250,000 and 300,000 independent repair shops. So proximity is a problem for the dealerships. If you're in Seneca Falls, New York and you have an Acura you may not have a dealership near you. So you're not going to go to a dealership or you're not going to drive the 60-mile to dealership where you bought it, you're going to want to drive a mile to the guys near you. It's a big factor.

Yes. Makes sense. And so also tying into that and thinking about the relationship with the dealer, then does that open up your addressable market essentially to not just vehicles that are off warranty, but anything that has been younger.

We already sell the actions. We actually already sell to these. Really, dealer effects is mostly to give us an early warning so we can start thinking about what we would need to repair the cars. You don't really know what happens in the car repair is the OEMs come out and they look at -- we have a business in this -- the OEMs are going to launch like Volkswagen, ID4, the ones that blew up in the ships. But Volkswagen, ID4 the OEM will look at it and realize even if they don't build for repairability, we'll recognize a certain repair -- idiosyncrasies in the car, and therefore, their dealerships need special tools to be able to deal with this. We have a business that does that. They call the essential tools. So we get that. We get understanding what the OEM thinks about. But the OEM is usually what they recognize is a small portion of what you really need. So that's the beginning. Then when they get into dealerships, Dealer FX will tell us what's going on, what's going bad there. And our franchisees will tell us the difficulties in making those repairs on the things that are. And as they go on into independent shops, we'll be able to do this. But if you come back to the dealerships, our franchisees call on the dealership, and they sell a lot of tools to them. We sell tire changes of balances and lifts and electronic parts catalogs to dealerships. 30% of our business is in the dealership but we really enable the independent technician. So it keeps -- I only brought that up because people keep thinking, "Oh, grease monkey is going to go away. The independents are not going to be able to keep pace. We're going to make -- we're going to allow them to keep pace.

Great. So I want to make sure I have time to touch on [indiscernible] as well. So do -- as we've seen rates kind of rise pretty rapidly, I mean, do rising rates typically impact demand or profitability in your financing arm? Or how does that one.

They don't really impact profitability. We're already charging at the top level. So it doesn't really -- our rates generally reflect the credit capability of the customer. So in a lot of cases, we're charging up to the limit. It can make -- it doesn't make a difference in terms of how we fund because our portfolio, our loan portfolio is funded long. We don't have short-term funding. So all our funding comes from 30-year debt, something like that. So it's a fixed rate debt. So it's not going to make a change whether the rates go up or down in that situation. What can happen, I guess, is certain customers, we will fund, for example, repair shop owners and managers in certain cases. We call it finance receivables, they may have fewer alternatives in the situation or those alternatives may go up versus us. So you would think that even those ours are already high, the alternatives would kind of approach our numbers and, therefore, change the balance a little bit. So there's a little bit of favorability, but I wouldn't call it a first order effect.

Got you. Okay. Well, I'm also going to open it up to the audience, if anyone has questions. I still have plenty more so. So I guess if you could sum up the growth trajectory of each of the 4 businesses, which do you think have been trending above your pre-COVID expectations, which are trending below and where -- and which have some room for recovery?

Well, look, I think this -- I think we're entering the golden age of auto repair because of the impingement if you go from -- remember, I gave the experience from '95 to, let's say, pre-COVID period, generally, you probably couldn't put your finger on anything that a particular trend. It was just sort of like a general electrification fly-by-wire trend. Then what you have today though, you have the -- all the talk about autonomous cars, autonomy for the cars. A lot of that's driven by the way, by the fuel economy requirements around the car, which required less visibility in your car. If you get in a car today versus a car 25 years ago, you find your visibility won't be as good, which is why you need the autonomy to help you. And so you see some of that. And so you got that plus you have all these new powertrains, electric vehicle powertrains, the auto -- the internal combustion engine aren't going away under any circumstance, you can't see yourself them going away that quickly. And then you've got plug-in hybrids and who knows what else. And so we have these things impinging. So you're going to see continued resilience in demand in automotive repair, only maybe at an accelerated basis. And our business is driven by that change. So the van business should be doing well. Now what happens though is sometimes we can't execute as well as we should. And we have 2 -- we have -- I guess we have 2 big factors in our ability to monetize that market. One is our ability to bring our product that matches the changing complexities. I think we're pretty good at that. So I'm not so worried about that. But then our franchisees themselves has to be able to have time to sell. They only have so much time. So we keep expanding the time of the franchisees. And so what will drive us forward in this kind of higher market, I think higher demands there, I think we'll be able to follow, but can we get the franchisees to do better? You might say, why don't we get more franchisees? I don't think we like that. I like the idea. I like the idea, telling franchisees, you're our people, you're going to get rich like we are, and it tends to motivate them. And so we like that. So that's the way we're going to play it. So it's going to play out that way. So I think we're in a good place there. So I think that's that. I think if you take out repair shops, the RS&I business, that should grow even faster because our penetration is not quite as high. It should grow faster penetration. And the reason is, we started that a little bit later, even though the brand is as powerful in that space. And so you would -- so that would be driven by our ability to find new products to match the different complexity and keep expanding our space in terms of product. And that's why we got Dealer FX and we acquired [ collision ] business. So that's -- you see that situation. Then you go C&I, which should theoretically grow the fastest because we're rolling the Snap-on brand out of the garage. There are 2 intersecting elements in that. One is, we don't know those businesses as well as we know automotive repair. So you're talking about aviation, oil and gas and so on. We're still figuring those out. We're building -- if you come to Snap-on, you can walk in my office and in the executive area you can pull out people who will go out and fix your car. They know automotive repair. We're in automotive repair business, and therefore, it's in our DNA. More and more, we're getting to understand oil and gas and the military and so on, and therefore, creating a broader and broader product line to engage those. So our ability to understand those businesses, recognize the complexity needed to fill out the product line is what drives that principally. Then on top of it, what we've learned is there's a lot of variation from time to time in each of those critical industries. Military can go off the bubble sometimes oil and gas can go away and boom. So you see this kind of variation and then, of course, more countries. So I believe that's a huge business for us, huge. It's got a lot of growth, but the growth will be more affected by the markets than our other businesses, which are more solid. That's the way I see it. It.

So I wanted to make sure I touch on inflation, which has been a pretty great topic across this entire conference. So ow I have rising product costs, freight, transportation and wages impacted Snap-on's margins.

Look, okay. You know what I say, you're too young to know, but there used to be somebody on Saturday Night Live, Roseanne Roseannadanna, she would get on and say, it's always something. And it is always something. So we view this as just another always something for us. Now we are arrayed in a place where it's not so -- we're not so vulnerable. We're not immune, but we're not resistant to it. And part of it is we have short supply lines. We tend to make in the places where we live. And if you -- let's just talk about inflation. We control in a lot of cases, the customer interface. We have the best brand. So we can be -- generally, we're the price leader. We have wide ranges of products. So therefore, you can market agilely and have promotions on top of that, which tends to blur your price -- the actual pricing you're visiting in the marketplace. And thirdly, we bring out a lot of new product to match the complexity and we price for value. So those things tend to work. And if you want to talk about supply chain, we do have shorter supply chains. And with 80,000 SKUs, we buy an awful lot on -- we don't buy a lot of anything. So therefore, you can buy on the spot market. So therefore, you can solve your problems somewhat, not that you don't get problems, you can but you can pass that pricing on. So it doesn't tend to impact you. Now I'll probably be explaining some problem in the next quarter or something. But so far, we've been able to deal with this. And I would say our margins at 21% in the fourth quarter that was okay in a place in which everybody is talking about this. Labor is not a problem. We didn't lay anybody off during the whole pandemic. And when we told our office workers to come back in August 9, they all came back. So we don't really have this business of -- the idea of the mass, the resignation or some of great resignation, we're not seeing it. So labor problems are not a first order for us. We could have problems sourcing things. We could have some commodity increases, but we seem to be able to manage it. Great.

And since I have 25 seconds, I'm going to ask you one last question, which is, what are you most excited about for the year ahead and beyond?

I like the idea that electric vehicles seem to be getting bigger because I think that shakes up the hole. That's got to be inhabiting the mind of the technicians. They realize that they have to deal with it. And we are the answer generally what they see. So I think this only gets better for us. Some people think it's worth for it. I don't think so. I think it's great for us. It's just how quickly that's going to happen, I think, is a question. There's a question about that. It's certainly going to happen, the time constants in that are very uncertain. So the faster it happens, the better we'll be.

Great. Thank you so much. Really appreciate your time and everyone who joined in person and online. Thank you very much.