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

Good day, and welcome to the Snap-on Incorporated 2026 Second Quarter Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the call over to Sara Verbsky, Vice President, Investor Relations. Please go ahead.

Thank you, Cole, and good morning, everyone. We appreciate you joining us today as we review Snap-on's second quarter results, which are detailed in our press release issued earlier this morning. We have on the call Nick Pinchuk, Snap-on's Chief Executive Officer; and Aldo Pagliari, Snap-on's Chief Financial Officer. Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of the financial results. After Nick provides some closing thoughts, we'll take your questions. . As usual, we provided slides to supplement our discussion. These slides can be accessed under the Downloads tab in the webcast viewer as well as on our website, snapon.com, under the Investors section. The slides will be archived on our website along with the transcript of today's call. Any statements made during this call relative to management's expectations, estimates or beliefs or that otherwise discuss management's or the company's outlook, plans or projections are forward-looking statements and actual results may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in the forward-looking statements are contained in our SEC filings. Finally, this presentation includes non-GAAP measures of financial performance, which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding these measures is included in our earnings release issued today, which can be found on our website. With that said, I'd now like to turn the call over to Nick Pinchuk. Nick?

Thanks, Sara. This was some quarter. [indiscernible] That Snap-on executes even in a blizzard and that our operations represent a clear incredible beacon to showing a continuing path for a positive trajectory as we go forward. Quarter, I'd say, was marked with the ongoing momentum of more green shoots, progress against the [indiscernible]. I mean this is a turbulent time. I don't know, I'm not sure I've seen more elements of uncertainty packed into a single quarter, Ukraine, inflation, fluctuating tariffs, restructured supply chains and now piling on the impasse with Iran. It's really something. But Snap-on shook it all off, punching right through the difficulties of the [indiscernible] with emphasis, fortified by the inherent -- and that was because we were fortified by the inherent and enduring positive our markets, the rising complexity of vehicles, the aging car park, the growing demand for precision and customization in critical industries and the rise of technology software that makes the special and proprietary more powerful. And you put all of that together with our decisive advantages in product and brands and people, amplify it with our Snap-on value creating processes, driving improvements, it makes for a powerful combination that creates an encouraging quarter and a very promising future, so it was. Now I'll take you through, and hit some of the highlights and giving you my perspectives on what it all means. And Aldo will give you a detailed review of the financials. So let's start with the results. I believe they testified to all that I just said, second quarter as reported sales were $1.235.1 billion, up $55.7 million or 4.7%, including $11.5 million from the recent additions of Hi-Force and Diesel Laptops. $8.7 million of favorable foreign currency translation and an organic gain of 3%. The OpCp operating margin or OpCp operating income or OI we'll call it from now on, was $268 million. And the Opco operating margin for the quarter was 21.8% compared to the 22% last year, down slightly but still strong, especially in this environment. The gross margin was an attention-getting 51.4%, 90 basis points higher than last year. So the overall story of the period was an encouraging performance overcoming the cost pressures and funding the investments for the future. For Finco, the OI was $67.5 million versus the $68.7 million in 2025. And when you combine that with our OpCo OI, it resulted in a consolidated operating margin of 25.2%. And EPS was $4.96, up $0.24 or 5.1%, another positive. So those are the numbers. Now let's turn to the market. Vehicle repair is still a great place to be. Cars and trucks are essential parts of our lives. But keeping them out of a [indiscernible] is more and more of a challenge. The park is getting older every day. The models are getting more complex with each new launch. And so the -- I would say this is -- I've said it before, I think this is the golden age of vehicle repair and the numbers tell the story, spending on repair, technician hours works -- at work and mechanic wages are all up. So the garages are pumping and the [indiscernible] cash rich. But in this environment, they still remain confident and the uncertainty hasn't gone away. A single [indiscernible] will tell you that. For our customers, the technicians remain reluctant to take on longer-term obligations on good ticket purchases. Tool storage volume and the associated originations are still down. But the mechanics need to meet the rising complexity, so our pivot to quicker payback items is working. Overall volumes are up. You see the technicians really are regulated segment, resilient and period by period. That's what's playing out in the Tools Group. Recently at the -- just to sort of -- recently, I had the opportunity to visit franchisees in the field, speak with some shop owners and technicians, and I'll tell you I came away more convinced than ever that this is a great place to be. The franchisees were pumped and excited about their current prospects and very optimistic about their future. The independent shop owners, they can only talk about how to get more technicians. They wanted as many as they could find. And [indiscernible] said they were slammed, telling me that repairs are getting way more difficult, especially troubleshooting and accessing -- and accessing and repairing, [indiscernible] and accessing and repairing newer systems. Getting better -- that means complexity is only going to get worse from a repairability level, getting better access in tight orders to speed their work was high on their list. And we're putting them right on target. One technician, I have my we brought out this new power tool, the NanoAxcess to fit it in your pocket. He said, "I have my new now. I have my new NanoAxcess power tool, the other day, it helped me save 90 minutes off a repair, we need more tools like that." Snap-on speeds the word and shows everyone I'm a serious professional. That's music to my ears because this is who we are and what we do. We go to work where the work is happening. We observe the [indiscernible]. We identified the toughest and most complex stat and we develop customized solutions that make things -- that make the work easier, faster and more productive. And the tech line up to gain that advantage One of the reasons why the pivots work. The other side, auto repairs, where the Repair System & Information or RS&I operates. We're expanding our presence with repair shop owners and managers, increasing and enabling our broad array of products all to help the garages meet the broader challenges of today's vehicles. The acquisition of Diesel Laptops, giving our team more to sell in the heavy-duty arena, is a great example of that effort. We like our potential to moving forward. The repair shop footprint is changing and upgrading both our dealerships and independent shops, and RS&I making the most of that trend with proprietary data-driven solutions that are the engines behind our intelligent diagnostics software and our Mitchell 1 software offerings. Right now, independent shops are -- so -- but for right now, independent shops are continuing to invest in adopting products that expand their capabilities. For example, this quarter, our new ACV cycling machine, aligned with the refrigerants used in modern vehicles and at the same time, offer new autonomous features that boost shop productivity. New design helps garages drive more repair orders and it was quite popular with the independents. Now for our OEM dealers, there's some hesitancy for capital expenditures. Owners and managers know they need upgrades to to match the new model, but a lot of them are keeping their powder dry, waiting to take their leads from the manufacturers. And the automakers have slowed their program launches. So the dealer side of the business is in a low spot. Having said that, RS&I understands the market and it has an unrivaled product portfolio that is unique in positioned to take full advantage of the segment as it evolves. Now let's speak of the world outside the garage in critical industries. This is -- we're Commercial & Industrial operations -- the Commercial & Industrial C&I group operates, this is our business with the largest international presence, serving it critical in the essential with penalty for failure is high, and that world is advancing, adopting new technologies and creating systems that are more and more sophisticated. It's an environment where the appetite for precision and customization is growing every day. And C&I is right on that trend. Sales were up big across a number of sectors and geographies at C&I. The critical industries are booming and our customer built kits and that specific challenges are there strong demand. This is also the time for -- and it's also a time for our specialty torque division because the rising of automated systems requires tighter tolerances. And so our expanding torque operation can fill that bill exactly from large hydraulic and [ tensioning ] systems to layer force applications where speed and control are challenging like in our [indiscernible], which we acquired a couple of years ago and challenging and essential. Snap-on increasingly has the product lines to cover the waterfront and meet the growing trend for precision. With the international landscape outside the garage, the Asia Pacific and European operations rebounded nicely and stabilized against the backdrop of a still ever-changing supply chain in that or Snap-on is advantaged by making it in the markets where we sell and buy our 36 factories around the world, giving us considerable flexibility. Those strengths were clearly in play in this quarter, and the C&I results are a dramatic confirmation. So overall, in both people repair and the critical industries, the quarter demonstrates the strong resilience of our markets and our significant ability to take advantage. The period also shows the power of Snap-on Value Creation processes, safety, quality, customer action, innovation and rapid continuous improvement, RCI, and it all came together, creating popular new products and continuing improvement. I mean gross margins are up 90 basis points. That's the macro overview. Now let's move to the segments. I think we'll start with C&I. Sales were $395.8 million, an increase of $48 million or 13.8%. Now that includes $6.8 million from our Hi-Force acquisition, $2.5 million of favorable foreign currency and an organic gain of 11%, 11%. Now giving that, there's only 1 reasonable thing to say, [indiscernible] We love it. I'll tell you, there are gains and improvements all across the business. Double-digit increases in Asia Pacific, in the European hand tools business and specialty torque and power tools, [indiscernible], the demand for custom kits and physician torque and innovative power tools is strong, what we always said would happen. Finally, in the industrial business was up mid-single digits, but that includes continued weakness in the military sector which somewhat attenuated is a demonstration of considerable strength, and I mean considerable strength and heavy-duty natural resources and in both the U.S. and international aviation. From an earnings perspective, C&I operating income was $66.5 million, improved $19.6 million or 41.8%. Yes, 41.8%. And the operating margin, it was a new record, 16.8%, 330 basis points above last year and the gross margin in the midst of material cost inflation and inflation, it was 42.6%. That's up 260 basis points over last year. We said Snap-on could extend out of the garage, and it's doing just that, and it's doing it profitably. Innovative new products from our [indiscernible] Carolina were a major driver of that. One example was our all-new [ CTR-829, ] that's a quarter-inch drive for volt ratchet with an extra long range, stretching out 11 inches to reach into those isolated spaces. It's a little brother of the previously launched [indiscernible] model, but that doesn't mean it's weak. [indiscernible] produces 40-foot pounds of torque and operates at 400 RPMs, all out of a small contract frame that houses a bright LED ring illuminating the workspace. Now techs can reach further under the under the dash and between tenders and engaging bolts with ease. And when they hit the panel trigger boom, the 829 makes quick work of the task, reach, power and speed. It's a winning tool, and I'll tell you the techs say it so. During the quarter, we also released the new [indiscernible] digital [indiscernible]. Remember I said Precision is important. The ATEC 135, it's the latest entry on our already popular ATEC product line, and it's loaded with popular features that make a difference, easy navigation and durable housing, compact head design and incredible precision. It is designed in our [indiscernible] industry facility in California, and it offers a new color display, a brilliant screen that provides better viewing from any angle and makes the crystal clear image this is important even in direct sunlight. And even at both 135-foot pounds of torque and it's the biggest [indiscernible] industry, the 135 is another tool that makes torque tasks much easier. Precision works on the rise and Snap-on is a leading. Well that's C&I. Significant growth across the global footprint. Sales up 13.8%, 11% organically, the second straight quarter of big increases in sales and operating income of 16.8%, a 330 basis points improvement, a C&I all-time record. The Snap-on brand is extending out of the garage to serve the critical and C&I is a rocket ship that's making it so. So now let's turn to the Tools Group, group sales were $508.8 million, up organically 3%. The green shoots continue increases in both the U.S. and international operations. Pivoting to quicker payback items, the power tools and the torque wrenches in their lineup. Operating income of $115.1 million compared to $116.7 million last year, the operating margin was a respectable but still down 22.6%. Volumes were strong, but they were driven from products made by the other Snap-on division like the aforementioned power tools and torque where strong corporate margins for those tools as a whole are shared across the operations, making the Tools Group margins there. The group's strongest sales this quarter were part of the pivot to match the customers' changing preferences. I guess it's not changing now. They've been there for a little while. And launching products that simplifies some of the nonstandard solutions that challenge repair or monitor cars. Actually, when I was talking to the techs, they talked about this quite a few, solely they said, "Oh, we love your product that attack some of the special and more difficult paths we have." For instance, something as simple as you're removing lug nuts kind of evolve into thorny procedure. Several OEMs but chrome covers on the wheel nuts for appearance. Well these caps often swell in the from exposure to moisture or around here and also harsh winters. When that happens, traditional sockets won't fit and valuable garage time is wasted cutting that material away, often a very routine procedure. So seeing the problem, we developed a 7-piece drive socket set that has in between metric sizes from 16.5 millimeters to 22.5 millimeters, providing just enough change in size to provide -- to fit the task, providing solid engagement, enabling rapid improvement and driving a quick repair. I know it seems trivial, but it's a manufacturing challenge to make these special sockets that was accommodated by the unique flexibility of a Milwaukee plant, and it was a tremendous fit with the techs. And it's quickly become 1 of our million dollar hit products. We also received -- we also introduced -- we also recently introduced this a 7-piece swivel torque impact flexed is ideal for difficult jobs where techs have to access high-strength torque fasteners in tight and obstructed areas that's a combination that's quite common in European high-performance vehicles, places like Volkswagen [indiscernible], BMW caliber brackets, Mercedes front brake calipers and Jaguar drive shafts. And the design group of the laser welded [indiscernible] joint offering up to 30 degrees of flex enabling a power tool to operate quite effectively in combined spaces by offsetting its position and still getting to the faster. That makes the repair -- all this makes the repair possible without time-consuming disassembly. The set was just introduced, and it's clear the techs are big fans once again. So that's the Tools Group, growing against the wins of uncertainty, pivoting to faster payback items, observing work and developing solutions that solve the complex, but now let's turn to RS&I. Sales in the quarter were $480.3 million, up 2.5%, including $4.7 million from the Diesel Laptops acquisition and $3.8 million in favorable foreign currency translation. Organic sales were up slight over last year. Momentum in our diagnostics and [indiscernible] equipment for independent garages was attenuated by lower volumes in the OEM dealership segment. Operating earnings in the quarter were $115.1 million compared to $119.8 million last year. The group's operating income, OI margin was 24% versus the 25.6% last year, down, but still strong. And what that decrease represents the effect of higher sales in lower-margin equipment products and ongoing investments in our proprietary database, advancing with our large language models, an effort that we know will all pay dividends going forward. The independent shops were the bright spot. And a big reason was the recent launch of our Apollo handheld diagnostic unit. It's a new entry point for those for the techs wanting the power of intelligent diagnostics at a moderate cost. But in all the phrase, entry level, doesn't do it justice. The Apollo has features that [indiscernible] has a number of great features. The full power of our industry meeting proprietary information. expansive manufacturer and model coverage, fast track intelligence diagnostics for guided workflow and our [ SureTrack ] database powered by 660 billion vehicle events and 3.4 billion repair records. Apollo, it's whip smart, but it's also easy with improved display visibility and extended battery life and wireless connections to the vehicle, so techs can roam freely in the bay without [indiscernible] the drivers compartment. And the increased storage makes it clearly faster. So the new Apollo -- it's a winning combination smarter, easier and faster. Sales on the van were strong and the momentum's an important thing after the launch of momentum remains robust. Well, that's RS&I, powerful hardware and software differentiated by proprietary data with more speed and more accuracy than ever before. We in new products to conquer the complex repairs of today's cars. So that's Snap-on second quarter. Overall sales, $1.235.1 billion, an all-time record for the second quarter, organic sales up 3%. Gross margin 51.4%, up 90 basis points, powerful. The C&I group, organic sales up 11%, gross margin up by 260 basis points and the operating margin up 320 basis points, up [indiscernible]. It's a great quarter. The Tools Group, organic sales up 3%. The pivot working against the uncertainty. Gross margin is strong. RS&I, organic sales up slightly but as reported -- but the as-reported number setting a new record for overall sales in the second quarter, profits down but still quite strong. And the overall corporation, EPS of $4.96, up $0.24 versus last year. Snap-on was rolling down our runways for growth, enhancing the van [indiscernible] work, expanding repair shop owners and managers, strengthening our proprietary advantages and extending to critical industries, taking Snap-on out of the garage with emphasis and profitability. It was another encouraging quarter. Now I'll turn the call over to Aldo. Aldo?

Thanks, Nick. Our consolidated operating results for the second quarter are summarized on Slide 6. Net sales of $1.235.1 billion in the quarter represented an increase of 4.7% from 2025 levels reflecting a 3% organic gain, $11.5 million of sales from the acquisitions of Hi-Force hydraulic tools and Diesel Laptops that occurred during that period and $8.7 million of favorable foreign currency translation. Sales in our Commercial & Industrial sector or the C&I group, were up double digits versus last year with progress made across North America, Asia and in Europe. In our automotive repair market, sales gains were achieved through our franchise van channel in the United States as well as international. Consolidated gross margin of 51.4% compared to 50.5% in the second quarter last year. The improvement of 90 basis points primarily reflected the benefit of increased volume and savings from the company's RCI initiatives. Operating expenses as a percentage of net sales of 29.6% rose from 28.5% in 2025 primarily due to increased personnel and other costs as we continue to invest in support of our brand and our business opportunities. Operating earnings before financial services of $268.9 million in the quarter compared to $259.1 million last year. As a percentage of net sales, operating margin before Financial Services of 21.8% compared to 22% reported in 2025. Financial services revenue of $99.7 million in the second quarter compared to $101.7 million last year, while operating earnings of $67.5 million compared to $68.2 million in 2025. Consolidated operating earnings of $336.4 million compared to $327.3 million last year. As a percentage of revenues, the operating earnings margin of 25.2% compared to 25.5% in 2025. Our second quarter effective income tax rate was 21.9% in 2026 and 22.5% last year. Net earnings of $260.6 million or $4.96 per diluted share compared to $250.3 million or $4.72 per diluted share in 2025, reflecting a 5.1% increase in earnings per share. Now let's turn to our segment results for the quarter. Starting with the C&I Group on Slide 7. Sales of $395.8 million rose $48 million compared to 2025 levels, reflecting an 11% organic gain, $6.8 million of acquisition-related sales and $2.5 million of favorable foreign currency translation. The organic volume improvement includes advancements in our Asia Pacific and European-based Angels businesses, which have better tailored their cross-border supply chain activities in response to the current trade environment. The group also benefited from double-digit gains in our specialty torque and power tools operations. Sales to customers in critical industries rose mid-single digits in the period, led by robust activity in international and U.S. Aviation and including gains in heavy-duty fleets and technical education. Shipments serving military applications remain attenuated both in the quarter and year-to-date. Gross margin improved 260 basis points to 42.6% in the quarter from 40% last year, mostly due to the increased sales and savings from the segment's RCI initiatives. Operating expenses as a percentage of sales of 25.8% for the quarter improved 70 basis points from last year, primarily reflecting the higher sales volumes. Operating earnings for the C&I group of $66.5 million compared to $46.9 million in 2025 and the operating margin of 16.8% improved 330 basis points from last year. Turning now to Slide 8. Sales of Snap-on Tools Group of $508.8 million compared to $491 million last year, reflecting a 3% organic sales gain and $2.9 million of favorable foreign currency translation. The organic increase was due to low single-digit gains both in the United States and in the segment's international operations. Activity in the quarter included higher sales of featured new items, including those in the power tools, air conditioning service and diagnostics product lines. As a reminder, the Tools Group serves as a distributor for these products, which are made by our C&I and RS&I groups. Gross margin of 48% in the quarter compared to 48.3% last year. The 30 basis point decline primarily reflected a year-over-year shift in product mix, partially offset by savings from the segment's RCI initiatives. Operating expenses as a percentage of sales of 25.4% compared to 24.5% in 2025. The increase was due to higher personnel, freight and other costs. Operating earnings for the Snap-on Tools Group of $115.1 million compared to $116.7 million in 2025. The operating margin of 22.6% compared to 23.8% last year. Turning to the RS&I Group shown on Slide 9. Sales of $480.3 million compared to $468.6 million a year ago, reflecting a $3.2 million organic gain, $4.7 million of acquisition-related sales and $3.8 million of favorable foreign currency translation. On an organic basis, low single-digit increases in undercar equipment and in sales of diagnostics and repair information products to independent repair shop owners and managers were mostly offset by decreased activity with OEM dealerships. Gross margin for the RS&I group of 46.3% decreased 50 basis points from last year, primarily reflecting higher sales, lower gross margin products. Operating expenses as a percentage of sales of 22.3% compared to 21.2% in 2025. The increase was due to higher personnel and other costs, expanded technology investments as well as 20 basis points from the recently completed acquisition of Diesel Laptops. Operating earnings of $115.1 million compared to $119.8 million last year. The operating margin of 24% compared to 25.6% reported in 2025. Now turning to Slide 10. Revenue from Financial Services of $99.7 million decreased $2 million from last year, primarily due to lower interest income resulting from a year-over-year decrease in the size of the average finance receivable portfolio in the period. Financial service expenses of $32.2 million decreased from $33.5 million in 2025, mostly due to $1 million of lower provisions for credit losses. As a result, Financial Services operating earnings were $67.5 million compared to $68.2 million last year. In the second quarter, the respective average yield on finance receivables were 17.6% and 17.5% in 2026 in 2025 and while the average yield on contract receivables were 9% in 2026 and 9.1% in 2025. Total loan originations of $281 million in the second quarter represented a decrease of $12 million or 4.1% from 2025 levels. Originations of extended credit loans were $237.6 million in the period reflecting a decrease of $5.9 million or 2.4% from last year. Moving to Slide 11. Our quarter-end balance sheet includes approximately $2.5 billion of gross financing receivables with $2.1 billion from our U.S. operation. For extended credit or finance receivables, the U.S. 60-day plus delinquency rate of 1.7% is down 10 basis points from the second quarter of 2025. Additionally, the rate is down 20 basis points from last quarter. Trailing 12-month net losses for the overall extended credit portfolio of $71.9 million represented 3.7% of outstandings at quarter end, down sequentially from 3.75% in the first quarter of this year. We believe that these portfolio performance metrics are encouraging, considering the current environment. Now turning to Slide 12. Cash provided by operating activities of $271.5 million in the quarter compared to $237.2 million last year. Net cash used by investing activities of $195.1 million mostly reflected business acquisitions during the quarter of $154 million net of cash acquired, consisting of $99.1 million for Diesel Laptops and $54.9 million for Hi-Force. Additionally, the company incurred $23.1 million in capital expenditures. Net cash used by financing activities of $185.8 million included cash dividends of $126.4 million and the repurchase of 241,000 shares of common stock for $91.4 million under our existing share repurchase programs. As of quarter end, we had remaining availability to repurchase up to an additional $185.5 million of common stock under existing authorizations. Turning to Slide 13. Trade and other accounts receivable of $942.2 million represented an increase of $60.8 million from 2025 year-end levels, mostly due to higher sales and $12.2 million from acquisitions. Days sales outstanding were 70 days at the end of the second quarter and 67 days at 2025 year-end. Inventories, including $17.6 million from acquisitions, increased by $20.1 million from 2025 year-end. On a trailing 12-month basis, inventory turns of 2.4 were the same in both periods. Our quarter end cash position of $1.644.7 billion compared to $1.624.5 billion at the end of 2025. That concludes my remarks on our second quarter performance. I'll now review a few outlook items for the remainder of 2026. With respect to corporate cost, we currently believe that expenses will approximate $28 million for each of the remaining 2 quarters of 2026. As a reminder, in the third quarter of 2025, our diluted earnings per share of $5.02 included a $0.31 nonrecurring onetime benefit from an RS&I group legal settlement. We expect that capital expenditures for the year will be approximately $100 million, and we currently anticipate that our full year 2026 effective income tax rate will approximate 22%. I'll now turn the call back to Nick for his closing thoughts. Nick?

Thanks, Aldo. Well, that's the second quarter. Continuing the momentum in the midst of extreme turbulence. To use an anxious reference, now suddenly contemporary. It feels like we're moving between the [indiscernible] of international conflicts and the [indiscernible] of supply chain revisions. And although it's challenging, we are making headway. And so it is. C&I [indiscernible] Sales up organically, 11%. Gross margin is 42.6%, up 260 basis points, OI, 16.8% at all-time high. C&I on a trend, demonstrating that opportunities and rolling the Snap-on brand out of the garage are substantial, as we've always said, a bit worse. [indiscernible] up 3% organically. The momentum continues in the green shoots grow and RS&I sales up 2.5% as reported, up 0.7% organically, robust with independents impacted by the OEM [indiscernible]. OI margin is 24%, down but still strong, all while managing the turbulence and funding increased investments. And it all came together for the corporation sales up 4.7% as reported, 3% organically. Gross margins 51.4% and OI margin, 21.8%, both robust. The results taken individually or collectively are marked by momentum, strength and continuing green shoots. It was an encouraging quarter. And we believe it speaks volumes about the possibilities of our path. These are exceedingly turbulent and interesting times. Yet our markets remained quite resilient, both vehicle repair and critical industries, anchored in the essential nature of the task, activities that are needed, come what many. And the quarter showed we can participate fully in that resilience, wielding our decisive advantages in product, brand and people, product. We really do make critical tasks easier. You heard that echoed in the great new offerings we just discussed. Brand, Snap-on really does to find the professional like no other brand. You can hear in the voices of the tech we visited and people, the Snap-on team really is uniquely capable, deeply experience and relentlessly committed to achieve. You can see the engagement day after day. And with the opportunities of our resilient markets and the power of our advantage, we are confident confident in our belief that we will extend our progress, maintain it even in the turbulence and drive a positive trajectory on through the year and well beyond. Before I turn the call over to the operator, I'll speak directly to our franchisees and associates. You are both who really do make a difference. Snap-on story passed exciting now and promising future is rooted in your commitment. For the enthusiasm you bring to our enterprise every day, you have my admiration. For the success you've achieved this encouraging quarter, you have my congratulations. And for the unfailing dedication to our -- you hold to our team and the firm conviction you have in our days and decades ahead for our enterprise, you have my thanks. Now I'll turn the call over to the operator.

[Operator Instructions] And our first question today will come from David MacGregor with Longbow Research.

I want to start off by just asking about the gross profit upside in C&I, 220 basis points. How much of that do you think was mix driven versus maybe other factors?

260 basis points, by the way -- I think I know my numbers. But anyway, the yes, 260. Not so much, not so much. I mean, the thing is the tools, the highest profitability business which is the critical industry's industrial business was the business that grew mid-single digits. So grew below the average. And so that's far and away the most profitable. What happened in, you had movements upwards in a lot of those businesses because they brought -- a couple of them brought out great new product, particularly power tools and torque. Torque day is comps that are making hay while the sun shines here. And then you had recovery in Asia Pacific and [indiscernible] Europe where you got good absorption in that situation. So I think that was the factors.

Okay. It seems like there was probably a pretty good pull-through to the Snap-on Tools segment on some of these bigger ticket items like diagnostics and maybe specialty torque, but the originations were down 4%. Do you think the franchisees are just restocking in these items, which would be a little surprising ahead of the SFC, but what's your...

I don't know. Look, I think this -- if you step back and you look at what happened, there was pull through. I think you have the parts between torque and diagnostics because torque isn't that big in origination products. So you kind of have to take that -- I would diminish that in the mix. So you're talking about diagnostics versus tool storage. Diagnosis was up nicely, but the tool storage was down, and tool storage is a bigger piece of the pie. So when it's down, there's more volume flowing through there. So that's what happens in origination. Now originations, what were they down? A couple -- 3 points, something like that, small, low single digits. So it was slightly more -- less originations on year-over-year than last time, but not so big a change. I don't think we're surprised by it too much. I'm not sure -- and to answer your question directly, I'm not sure you can read too much into that in terms of stocking.

Okay. And then I think we've talked in the past about you increasing your in-sourcing since the whole tariff sort of situation developed. Can you talk about the extent to which that may have helped you on the margin side this quarter?

Well, yes, I can't give you any direct numbers, but 1 of the things I -- well, you heard the 14.4-volt ratchet and that we launched that. And the whole 14.4-volt line had been made in [ Kunshan ] and was eating for a period of time a lot of margins, a lot of tariffs. So we don't have that many tariffs. We have some of them. And so we brought that whole line home and we're able to start sourcing again with more volume in Murphy, which is the power tools plant, and that started to help us. Same kind of things happening in torque. We're doing that in torque. So it's really up and down. Diagnostics was ahead of the curve on that. They were already bringing stuff home. So they had the thing established. So they didn't get much out of this in terms of -- even though they did a great job of avoiding any kind of tariff entanglements. So I think you saw good news in both power tools and torque. And the numbers show it. Their profitability is up considerable number of basis points.

Okay. Last question for me is just on gross margins in RS&I and in Snap-on Tools were down year-over-year. And I realize there's some mix discussion there as well. I'm just wondering, Aldo had characterized the gross margins as having benefited from RCI. I'm just wondering at what point you need to lean more aggressively into the market on pricing in order to protect these margins.

I don't know. Look, yes, I could do that. I'm not so anxious to do that. The gross margin, look, the gross margin in Tools Group is down 30 basis points. So [ 90 ] of those basis points was an OE margin deterioration, how much they were down in the quarter. The 22.6% was down 120 basis points. So we didn't think gross margins were that much out of whack in the Tools Group. Now you always have more pricing you want to do both. I don't like that. I like to beat it with RCI and sourcing changes, especially in this environment, plus actually, I like to hammer it with good new tools. The big thing about the margin deterioration in the Tools Group was it was principally tiable to the fact that all the big hits this quarter were made by somebody else. So they had to share the margins. That's really the cadence of Tools Group. Actually, I'd tell you, we haven't seen a quarter quite this dominant for the other products. They all came out with hits that they sold -- I didn't mention [ Polartec ] the air conditioning, but that's made by the RS&I business, and that was shared through to Tools Group. So that's really good. So the Tools Group margins are not much of a concern for us.

And our next question will come from Christopher Glynn from Oppenheimer.

Just wanted to take a look at -- just want to use kind of storage as kind of a barometer for discussing the market for SOT. So storage had a really nice quarter. Last quarter seemed to be some optimism would hold. But maybe the first quarter was just a little bit of isolated success that sort of defied the characterization of the market as fast payback. Do I have that right, would you say?

Yes, sort of. I mean, I think in the first quarter, we launched that special semi-quinsentennial boxes that gave some boom to tools storage. So we only made like 1,776 of them. They were numbered, people were crawling over each other to get them. And so I think that overcame the reticence people saw it as a once-in-a-lifetime opportunity to get them, so they kind of overcame the [indiscernible]. So you saw some of that. I think -- look, I think this quarter, I think this uncertainty is about the same I don't know if you want to play the uncertainty game, you could have said in the first quarter, things were rolling along. Maybe you saw uncertainty was a little weaker, and then you poured the oil of Iran on top of it. So maybe you saw a little bit more reinforcement of the uncertainty, although we didn't think we saw it in our numbers. We think it's about the same. So in the first quarter, we chalked up, Chris, to some [indiscernible] new product that you can only get once in a lifetime.

Got it. Great. Semi-quinsentennial. I'd like the turn of phrase there. On the C&I, APAC and Europe, really pretty encouraging there and the volume leverage definitely notable. So appreciate your comments that, that business is on a trend that is about as far as you go in terms of forecasting. So I appreciate that. Anything interesting to say about market share in APAC in Europe?

No. I think -- look, I think it's a little -- we certainly -- if you were in ordinary times, I think we had a number -- we don't like to talk about market share. It's pretty squishy for us actually -- I know you are. Look, I think the rebound in in Europe though for the -- our hand tools business, our [indiscernible] base business was large enough so you would start thinking you must have made some gains in ordinary times. And these times, I don't know. You don't know. I mean I think as -- [indiscernible] up and down, the markets are positive on quarter. Certain markets are positive 1 quarter and then it shifts. So I think it's very difficult to predict. What we do know is we seem to be getting more efficacious. So that's good. Same thing happened in Asia, actually.

Okay. What do you mean by more efficacious?

Well, I think our product lines are getting stronger. I think -- we like -- the product lines are getting stronger. And I think we are having more direct customization in Europe and other places, same in Asia. So that's working pretty well. In Asia, we're selling more of what we call premium tools, which are Snap-on tools, which are pretty good, and we have some of the intelligent boxes moving around there.

Okay. Great. I appreciate that color. Last one, RS&I margin, first half run rate is a step down from what I'd call the normal 25% range, and you've called out the investments in technology. So just curious if we should think of these maybe sub-normalized run rates as kind of the the near-term picture continuing? Or do you see some lift into the I think we've had 3 quarters of about the same sales growth in RS&I actually.

For government work, you could say that. And so -- and in that situation, the OE with the investments in people and our technology and so on starts to remain pretty well. To put it in perspective, RS&I was down 160 basis points, but 50 of it was in gross margin, 110 was in OE, so if you want to talk about going forward improvement, I think you concentrate on the 50 basis points in gross margin, not so much the OE. .

Our next question will come from Scott Stember with ROTH.