Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Snap-On Inc  (NYSE:SNA)
Q3 2018 Earnings Conference Call
Oct. 18, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Snap-on Third Quarter 2018 Results Investor Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Leslie Kratcoski. Please go ahead.

Leslie Kratcoski -- Investor Relations

Thanks, Todd, and good morning, everyone. Thanks for joining Snap-on today to review our third quarter results, which are detailed in our press release issued earlier this morning.

We have on the call today Nick Pinchuk, Snap-on's Chief Executive Officer, and Aldo Pagliari, Snap-on's Chief Financial Officer. Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions.

As usual, we've provided slides to supplement our discussion. These slides can be accessed under the Downloads tab in the webcast viewer as well as on our website, snapon.com, under the Investors section. These slides will be archived on our website along with a transcript of today's call.

Any statements made during this call relative to management's expectations, estimates or beliefs or otherwise state management's or the Company's outlook, plans or projections are forward-looking statements and actual results may differ materially from those made in such statements. Additional information on the factors that could cause our results to differ materially from those in 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, including a reconciliation of non-GAAP measures, is included in our earnings release and conference call slide deck, which can be found on our website.

With that said, I'll now turn the call over to Nick Pinchuk. Nick?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Thanks, Leslie. Good morning, everyone.

Today I will start with the highlights of our third quarter, give you an update on the environment and the trends we see and I'll take you through some of the turbulence we've encountered and speak about our physical and financial progress. Aldo will then provide a more detailed review of the financials.

We believe that our third quarter again demonstrated Snap-on's ability to continue with the trajectory of positive results, overcoming period-to-period variation. We are encouraged by the results. Like every quarter, we had disparities from group to group and within each group.

The van business appears to have stabilized, with incremental improvement in organic sales trend, sales gains in the US, offset by decline in other geographies. Some segments saw a down period, with challenges in our businesses serving independent repair shop owners and managers and sales to OEM dealerships. But once again, our strength overcame.

Organic sales in the quarter were up 0.6%. Sales gains in critical industries and in Asia Pacific; a return to growth in the US van channel; progress in hand tools and power tools and the rise of software, it all combined to prevail against the variations and move us forward again.

OpCo operating margin of 19.3% was up from last year as adjusted by 70 basis points. Improved product mix across the groups, net positive foreign currency and again the benefits of rapid continuous improvement or RCI, they showed the way. Financial Services operating income was $59.3 million that grew $3.3 million from last year's $56 million. And that result combined with OpCo to raise our consolidated operating margins to 23.7%, up 90 basis points as adjusted. And excluding the one-time tax charge associated with the transition to the new US tax legislation, adjusted EPS was $2.88, up 17.6%.

Now let's speak about the markets. We believe the automotive repair environment continues to be generally favorable. We did see mixed results from our businesses in that arena. But based on what we've been hearing from our franchisees from technicians and from shop owners and managers, we believe the vehicle repair remains a favorable place to operate. And Snap-on, we believe we're well positioned to take advantage. For the critical industries, verticals like aviation, oil and gas, mining and heavy duty, we're seeing significant progress. Activity is strong almost across the board. We like the way the critical industries are sounding and trending.

We had further advancements outside the US; our Asia-Pacific division registering solid increases in key countries like Japan and India and Indonesia. We do believe we're well positioned to confront the challenges and make progress along our runways for growth. But at the same time, it's clear that we have great potential on our runways for improvement, the Snap-on value creation processes: safety, quality, customer connection, innovation and Rapid Continuous Improvement or RCI. There are constant driver of our progress: especially customer connection, understanding the work of professional technicians; and innovation, matching that insight with technology.

And in this quarter, Snap-on value creation, customer connection and innovation drove significant margin gain in the face of turbulence and led -- and beside that, it led to more prestigious product awards than we've ever had, more recognition than in any single year, just this quarter. Snap-on was prominently represented with 18 Professional Tool & Equipment News, PTEN, People's Choice product awards, where the actual users, the technicians, make the selections. Probably the best award.

We were also recognized with seven PTEN Innovation awards and we were honored with two MOTOR Magazine Top 20 awards. An essential driver of Snap-on growth is innovative product that makes work easier. It's always been our strength and those recent awards are testimony that great Snap-on products just keep coming, driving progress. And you can see it in the margins.

Well, that's the environment. Now we'll move to the individual operating groups. Let's start with C&I. Sales of $330.2 million in the quarter. It increased $15.6 million, including $1.6 million related to acquisitions and $6.5 million of unfavorable foreign currency translation. Organic growth was 6.7%. Gains across all divisions and most geographies. Operating margins reached 16.1%, one of C&I's highest, maybe the highest for C&I, representing a 10 basis point improvement from last year. That result reflects the power of our ongoing stream of innovative new products for critical industries, the product development and investment necessary to build the future, our robust effort in RCI and favorable foreign currency.

Let's take the industrial division, focused on critical industries outside the vehicle garage. It showed broad based gains with strong overall year-over-year performance, now accomplished for eight straight quarters. We continue to rise in critical industries and it's a favorable market environment that we're amplifying with the innovative new products aimed at solving critical tasks and the result is very encouraging.

The quarter saw advancements driven by great products like our lineup of 14.4 volt cordless tools, spanning everything from ratchets to drills to wrenches to saws to screwdrivers, each product developed for customers both in and out of the garage. They're compact, they're powerful and they're flexible and the customers are noticing. All of them now include variable speed triggers for maximum control, MicroLithium batteries that are lightweight and long-lasting and those batteries are interchangeable between all the matching voltage Snap-on tools, MicroLithium tools; lots of convenience in that.

One of those tools is the CTR767 14.4 volt 3/8 inch Drive MicroLithium Cordless Ratchet. It was released at the beginning of this year, and it's one of MOTOR Magazine's Top 20 tools. There's a long neck, an extra 6 inches. Jobs like timing belt changes, a work near fire vault, jobs that require reach, it makes them much easier. And there's a lot of those tasks across the workplaces of the world, and that extended neck doesn't compromise leverage or power.

The 767's specially rugged construction supports the 44 pounds torque output, while the robust ratchet mechanism, head and neck can handle 158 foot-pounds of manual torque. It has a variable speed trigger for greater control and can reach 275 RPMs. It has the torque to be versatile and it has the speed to make quick work of the task. Our customer connection showed us what was needed to make ratchet work easier: speed, accessibility, torque, reach and strength. And the CTR 767 has all of that. It's a difference maker for working professionals and the market reception confirms it. You can see it in the power tool results.

In this quarter, our City of Industry in California, the plant in California torque operation introduced the Snap-on CTECH 30 and CTECH 240 micro torque wrenches, the smallest electronic torque wrenches in the market; compact steel bodies, only 10.2 inches in length and less than an inch in diameter, they're light and their light, just under a pound. That compares to the standard torque wrench, which is 16.5 inches long and 1.9 inches in diameter and weighs nearly 2 pounds. The micro torques are designed for aviation, manufacturing and other critical industries where tight spaces are common and light weight is important.

The slim micro design enables techs to reach fasteners that are recessed or obstructed, often eliminating the need to remove components in order to gain access, saving a lot of time. The short overall length also enables a large swing arc, even in tight spaces, and that's a big-packed factor for job productivity. And the micros have interchangeable heads that make them useful across a variety of applications for different fasteners in special situations like those come all the time in aviation, where accessibility and flexibility are critical.

The CTECH micros are great tools and the technicians have responded. It's product like these, aimed at industry needs that help drive our progress across critical industry and keep working customer -- and we keep working customer connection and innovation. So the advancements will only continue. C&I, maintaining its momentum, extending in critical industries, building both sales and profitability.

Now on to the Tools Group. Organic sales about flat, 0.1%. But a return to growth in the US operation; up low single digits. And that return to growth was offset by variation internationally. That's the story of the Tools Group. Operating income in the quarter was $59.3 million, and that compares to $56.4 million in 2017. The OI margin was 15.2%, an 80 basis point increase. Favorable product mix, higher margin new products, software, the benefits of RCI and the favorable foreign currency, they made the difference.

Now the third quarter's when we hold our Annual Snap-on Franchisee Conference. Our SFC this year was in Nashville and it was the largest Snap-on gathering in our 98-year history, with more than 8,800 attendees, franchisees and family members from over 3,100 reps. For the franchisees, it's an opportunity for training, ordering new products and for fun. For the Company, it's an opportunity to gauge our franchisees' outlook on the business.

Order volume was up, most product categories showing gains over last year. And I can attest that the franchisees displayed confidence in our business and optimism in their future. And that positive outlook is reinforced, once again, by the advancements evident in our franchisee health metrics. These are the financial and physical indicators we monitor and evaluate regularly, and they remain favorable and robust. It's a significant factor. We do believe our franchisees can continue to grow stronger. And if you were with us in Nashville, you could have seen it clearly.

And our real reasons for the confidence. Our product lines are getting stronger. You heard about the product awards. Well, beyond that, there's a continuous stream of great new offerings, attention getters in hand tools and tool storage. The third quarter was a strong hand tool quarter. You can understand why when you see innovations like our new TSLF 72 1/4 inch Drive Dual 80 Technology speeder Handle Flex-Head Ratchet, long name for a special product, aimed at decreasing job times and increasing technician efficiency in any shop.

The speeder represents the fastest way to manually tighten or loosen fasteners. The flexible head provides access in tight automotive applications and the Dual 80 technology features a dual pawl, each with seven teeth engaging the gears, so has great strength (technical difficulty) enthusiasm, the kind that will make it another one of our hit products with $1 million seller in the first year.

(technical difficulty) C242. It's a 36-inch heavy-duty shop cart with five AC outlets and two USB ports, a speed drawer and a side panel organizer. It helps techs to organize and securely charge the tools and devices with tremendous ease. It offers two durable top options, stainless steel or bed liner, both popular features. And it comes in a variety of standard and newly released colors that make it different. The KRSC242 is -- it's already achieved its product status, and we believe it has much more runway.

Well, that's the Tools Group. Enthusiastic SFC, the US returning to growth and a substantial margin increase driven by innovative new products.

Now RS&I. Organic sales were down 4.8% due to high-single-digit decline in the sales of diagnostics and repair information products to independent repair shop owners and managers. Sales to independent shops were down reflecting (technical difficulty) a period of selling diagnostics to the van channel. No new handhelds were launched in the quarter and the US Tools Group growth -- US Tools grew in the quarter -- was achieved by franchisee focus on the great new products launched in other segments. And then sales to vehicle dealerships were also down in the quarter, reflecting fewer OEM programs in that lumpy business.

Despite that variation, however, RS&I OI margin was 25.7%, quite strong. A rise of 60 basis points from last year. Once again, RCI, innovation and software drove that progress. Our Mitchell 1 division continued to advance its industry-leading productivity solutions by introducing a text messaging feature across its shop management line. It became clear that users see efficiency in having text messaging capabilities integrated with the shop management software rather than relying on a general stand-alone third-party service.

The new integrated feature offers the capability of sending customers automated reminder text about upcoming appointments, thank you notes for the repair business and the invitations to participate in online surveys about their experience. The response has been overwhelming and positive, fortifying -- reinforcing and fortifying our leadership position in repair shop management software.

And we launched other great products in the period, like the Car-O-Liner, our recent acquisition. This is one of the things we wanted to do with Car-O-Liner when we acquired it, like the Car-O-Liner CT. So we launched the Car-O-Liner's CTR9 fully automatic spot welder. Our customer connection effort showed that with expanding -- with the expanding variation of steels now used in vehicle bodies, collision repair has taken on a new level of complexity. Technicians now spend considerable effort, identifying and measuring the specific material before the -- the specific material they're working on before the welding can begin. It takes extra time and it's often a source of welding error.

Well, the Car-O-Liner CTR9 fixes all that. It measures thickness, determines the electrical resistance and identifies the exact steel being welded automatically. It brings unmatched speed and accuracy to collision repair. It's a real productivity enhancer. And we launched it in Europe at the Automechanika show to considerable enthusiasm, and it will be introduced later this year in the -- later this fall in the US. And we're confident it will be quite a hit, boding good things for Car-O-Liner future.

RS&I: minimizing the impact of sales variation with innovation, new product, technology and software. That's the highlights of our quarter.

C&I continuing its positive trend of growth and profitability, extending across the emerging markets and critical industries. Tools Group reigniting the US van channel and registering margin strength. RS&I margin progress, despite the challenges in the quarter. Progress along our runways for coherent growth and advancements down our runways for improvement. Operating income margin of 19.3%, up 70 basis points on an added -- on an adjusted apples-to-apples basis. And an as-adjusted EPS, $2.88 in the quarter, 17.6% higher than last year. It was another encouraging quarter.

Now I'll turn the call over to Aldo. Aldo?

Aldo Pagliari -- Chief Financial Officer, SVP

Thanks, Nick.

Our consolidated operating results are summarized on slide 6. Net sales of $898.1 million in the quarter were down 0.6%, reflecting a 0.6% organic sales gain, $1.4 million of acquisition-related sales and $12.5 million of unfavorable foreign currency translation. The organic sales gain this quarter principally reflected broad-based growth in the Commercial & Industrial segment, and low-single-digit growth in the US franchise operations of the Snap-on Tools Group.

Consolidated gross margin of 50.5% improved 80 basis points, primarily due to a shift in sales mix, savings from RCI initiatives and 30 basis points of favorable foreign currency, partially offset by higher material and other costs.

The operating expense margin of 31.2% compared to 32.8% last year, which included 170 basis points from the $15 million legal charge that was incurred during Q3 of 2017. As a result, operating margin before Financial Services of 19.3% was up 240 basis points on a reported basis and 70 basis points on an as adjusted basis, respectively, from Q3 of 2017.

Financial Services revenue of $82 million and operating earnings of $59.3 million increased 3.8% and 5.9%, respectively, from 2017. Consolidated operating margin of 23.7% of revenues was up 250 basis points on a reported basis and 90 basis points on an adjusted basis, respectively, from last year.

Our third quarter effective income tax rate of 24% included a charge of 90 basis points or $1.8 million related to newly issued guidance associated with last year's US tax legislation. Excluding this charge, the effective tax rate for the third quarter as adjusted was 23.1%. This compared to a rate of 30.7% last year on an adjusted basis to exclude the 60 basis points of benefit from the legal charge.

Finally, net earnings on a reported basis of $163.2 million or $2.85 per share compared to $133.4 million or $2.29 per share a year ago. Excluding $0.03 per share for the tax charge, adjusted earnings per share was $2.88, up 17.6% compared to Q3 of 2017 adjusted per share of $2.45, which excludes the $0.16 per share legal charge last year.

Now let's turn to our segment results.

Starting with C&I Group on slide 7. Sales of $330.2 million in the quarter increased 5%, reflecting a 6.7% organic sales gain and a $1.4 million of acquisition-related sales, partially offset by $6.5 million of unfavorable foreign currency translation. The organic increase was broad-based and included a double-digit gain in the sales of power tools, high single-digit gain in the sales in our Asia-Pacific operations, a mid single-digit gain to customers in critical industries and slightly higher sales in the European-based hand tools business.

Gross margin of 39.6% decreased 70 basis points, primarily due to higher sales volumes of lower gross margin products, principally in Asia-Pacific in power tools as well as higher material and other costs, partially offset by benefits from RCI and 30 basis points of favorable foreign currency.

The operating expense margin of 23.5% improved 80 basis points, primarily as a result of sales volume leverage. Operating earnings for the C&I segment of $53 million increased 5.4% and the operating margin of 16.1% improved 10 basis points from 2017.

Turning now to slide 8. Sales in the Snap-on Tools Group of $389.8 million decreased 0.7%, reflecting slightly higher organic sales growth, more than offset by $3.2 million of unfavorable foreign currency translation. The organic sales change includes a low single-digit increase in the United States, largely offset by a high single-digit decline internationally.

Gross margin of 43.6% improved 180 basis points year-over-year, primarily due to 50 basis points of favorable foreign currency effects, increased sales of higher gross margin products and benefits from the Company's RCI initiatives. The operating expense margin of 28.4% increased 100 basis points year-over-year, primarily due to costs and 10 basis points of unfavorable foreign currency effects. Operating earnings for the Snap-on Tools Group of $59.3 million increased 5.1% and the operating margin of 15.2% improved 80 basis points year-over-year.

Turning to the RS&I Group, shown on slide 9. Sales of $314.4 million decreased 5.7%, reflecting a 4.8% organic sales decline and a $3.2 million of unfavorable foreign currency translation. The lower organic sales reflects a high single-digit decline in sales of diagnostic and repair information products and a mid single-digit sales decrease in sales to OEM dealerships, while sales of undercar equipment were essentially flat.

Gross margin of 48.7% improved 140 basis points, primarily as a result of a shift in sales that included lower volumes of lower gross margin products and benefits from RCI.

The operating expense margin of 23% increased 80 basis points year-over-year, primarily due to the effect of lower sales volumes. Operating earnings for the RS&I Group of $80.7 million decreased 3.7% from prior-year levels. However, the operating margins of 25.7% improved 60 basis points from last year.

Now turning to slide 10. Operating earnings from Financial Services of $59.3 million on revenue of $82 million increased 5.9% and 3.8%, respectively, from a year ago. Third quarter Financial Services expenses of $22.7 million were down slightly year-over-year as higher operating expenses were more than offset by $700,000 and $400,000 of lower provision expense for finance and contract receivables, respectively.

On a sequential basis, total provision expense of $12.5 million was down $1.7 million from $14.2 million in the second quarter, reflecting further stabilization in the credit portfolio metrics. As a percentage of the average portfolio, Financial Services expenses were 1.1% and 1.2% in the respective third quarters of 2018 and 2017.

The average yield on finance receivables in the third quarter was 17.7% compared to 17.9% in 2017, driven principally by product mix and reflective of the credit quality of customers originating loans in the quarter. The respective average yield on contract receivables was 9.2% for both 2017 and 2018. Total loan originations of $267 million decreased 1.8%, primarily due to a 2.1% decline in originations of finance receivables.

Moving to slide 11. Our quarter-end balance sheet includes approximately $2.1 billion of gross financing receivables, including one $1.8 billion from our US operation. Our worldwide gross Financial Services portfolio grew $35.6 million in the third quarter. As for the 60-day plus delinquency trends, they are stable year-over-year and increased sequentially, reflecting typical seasonality.

As it relates to extending credit for finance receivables, the largest portion of the portfolio, trailing 12-month net losses of $52 million represented 3.18% of outstandings at quarter-end, up 41 basis points year-over-year but essentially flat sequentially, further supporting continued stabilization in the portfolio's credit metric (inaudible).

Now turning to slide 12. Cash provided by operating activities of $129.8 million in the quarter increased $34.3 million or 35.9% from comparable 2017 levels, primarily reflecting higher net earnings. Net cash used by investing activities of $48.6 million included net additions to finance receivables of $22.7 million and capital expenditures of $29.9 million.

Net cash used by financing activities of $71.3 million included cash dividends of $46.1 million and a repurchase of 493,000 shares of common stock for $85.7 million under our existing share repurchase programs. Year-to-date share repurchases totaled 1.139 million shares for $184.4 million. As of the end of September, we had remaining availability to repurchase up to an additional $306.5 million of common stock under existing authorizations.

Turning to slide 13. Trade and other accounts receivable increased $3.1 million from 2017 year-end, including $14.5 million of unfavorable currency translation. Days sales outstanding of 65 days improved one day from 2017 year-end. Inventories increased $51.8 million, including $15.7 million of unfavorable foreign currency from 2017 year-end. As a reminder, the year-to-date increase in inventory included $20.9 million related to the recognition of an inventory asset associated with the adoption of accounting standards update Topic 606 on revenue recognition.

On a trailing 12-month basis, inventory turns of 2.8 compared to 3.2 at year-end 2017. Our quarter-end cash position of $122.2 million increased $30.2 million from 2017 year-end levels. Our net debt to capital ratio decreased to 23.8% from 27% at year-end 2017. In addition to cash and expected cash flow from operations, we have more than $700 million in available credit facilities. As of quarter-end, we had $154 million of commercial paper borrowings outstanding.

That concludes my remarks on our third quarter performance. I'll now turn the call back to Nick for his closing thoughts. Nick?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Thanks, Aldo.

The Snap-on third quarter: turbulence and variation across some of our businesses. But we overcame and made progress. The US Tools Group returned to growth, continuing on its improving trend. C&I, extending in critical industries, achieving progress across all its operations. RS&I did encounter challenges, but there are positive points throughout that operations, particularly in information and software.

And with all that, margins were up again in each group. C&I, 16.1%, up 10 basis points, possibly the best ever. Tools, 15.2%, up 80 basis points. And RS&I, 25.7%, up 60 basis points against the wind. And our overall margin, it was 19.3%, up 70 basis points, all demonstrating again the power of Snap-on value creation, customer connection and innovation, offering profitable new product and RCI, creating productivity, runways for improvement that drive margin consistently.

It was an encouraging quarter. And we believe the results of the period confirm that Snap-on has the opportunity to progress, the capabilities to take advantage and the team to improve even in difficult environments. And we're confident that those qualities spread across our operation will drive continued progress through the end of this year and on through 2019.

Before I turn the call over to the operator, I'll speak to our franchisees and associates. I know you're listening. The encouraging performance of this quarter reflects your skill, your intensity and your contributions to our Company. For your encouraging achievements, you have my congratulations. And for your unrelenting and unfailing support for our team, you have my thanks.

Now I'll turn the call over to the operator. Operator?

Questions and Answers:

Operator

Thank you. (Operator Instructions) We'll take our first question from Christopher Glynn with Oppenheimer.

Christopher Glynn -- Oppenheimer -- Analyst

Thank you. Good morning.

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Morning.

Christopher Glynn -- Oppenheimer -- Analyst

Nick, you sounded pretty confident and excited about the new product lines getting stronger at SOT. I'm wondering if you would note that that translates to improving visibility for the Tools segment to get back into the target growth range in the short order.

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Well, I think, it certainly looks like it's on a trend that way and we'll, based on what we hear from the franchisees, we see the impact of the new product in the quarter and we saw the SFC -- the SFC was very enthusiastic. Now that's a windshield survey. It's kind of a qualitative view. But I will tell you, the -- we walked around that floor and I've never seen it busier, and the -- while the -- all the product lines, we saw, we had a muted result in diagnostics which we explained. Everything was fairly strong. So the response at the SFC to the new product was good. Now that isn't selling onto the end users. That says the franchisees like the product, the power tools, and the hand tools and the tool storage. Now, we saw some of that come through though in the third quarter, reflecting much of that. So I feel pretty good about this.

Christopher Glynn -- Oppenheimer -- Analyst

Yes. And what about the international? That was in a slim negative and it sort of -- seemed to come a little bit out of the blue.

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

I tell you what, I've said for a long time that the third quarter was kind of a variable quarter and that's particularly true in our international businesses because of the way the vacations run through that. And they go back and they actually -- now we did this, if you go back and look at the third quarter, there's a lot of variations in the third quarter, extreme variations in our third quarter in those international businesses and a couple of those lined up this time in the same direction, and that created is kind of variation and turbulence.

Christopher Glynn -- Oppenheimer -- Analyst

So you're not concerned about that in terms of trend there?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

I'm not really concerned about that -- I'm not really concerned about that. I think I've said often that the third quarter, particularly in international, isn't a trend driver. You can't really, particularly outside the United States, you can't fully bank on that being a trend. And I'm not really concerned about that.

Christopher Glynn -- Oppenheimer -- Analyst

Okay. And last one, also sticking with the Tools segment. Just wondering if you are able to track the aftermarket among franchisees with their rev (ph) customers, and if you think at the margin that kind of recirculation of aftermarket tools is maybe becoming a bigger piece in the franchisee stock and trade.

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

You mean second-hand tools? Is that what you mean?

Christopher Glynn -- Oppenheimer -- Analyst

Yes.

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

I don't know. I don't think so. I mean they've always been there. I mean -- we don't see that increasing. I'm not hearing that. So I don't really believe that to be the case. I mean, certainly, it's been always a factor in diagnostics and tool storage, the bigger ticket items. But I don't see anything that tells me that, boy, that's a bigger number. I just spoke to a couple of franchisees a couple of days ago, and they didn't seem to mention that they were very robust about our product lines, including the diagnostics product line, yes.

Operator

Thank you. We'll take our next question from Scott Stember with C.L. King.

Scott Stember -- C.L. King -- Analyst

Good morning, guys. Can you maybe touch on the RS&I -- last year in the third quarter, I think you posted a high single-digit organic sales number and --

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

(inaudible)?

Scott Stember -- C.L. King -- Analyst

Yes, that was there, yes. And you've always warned that this is a lumpy business. How much of the difficult comps lumpiness? Maybe just give us a little bit more detail --

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

It isn't all that. That's certainly some of it. Look, I think there are two big factors in diagnostics, really driving the reduction in this quarter. One is -- the easy one to deal with is the sales -- our OEM programs business where we get essential tool programs commissioned by OEM manufacturers, and that is quite lumpy. And driven by technology, new launches and regulation and those things -- and that tends to go up and down. We had a particularly strong couple of quarters last year where we got a lot of those programs coming out of the OEMs. And we're in a period, and particularly this period where there is a few -- a smaller number of those. And so that creates a comparison vacuum. And then you look at -- really if you want to talk about comparison, we had I think maybe our first or second best diagnostics quarter ever last year because we launched the ZEUS at the end of the quarter. And so we had a great product launch; good SFC, lots of enthusiasm. And so comparing to that, is still wasn't -- I hate to talk about year-over-year comparisons, but that's part of the thing. That's part of what drives that. Now remember, the Tools Group still grew, even though diagnostics didn't -- sold other things. And really what happened at the SFC is, we didn't have a new product, and we had in diagnostics. We had great product new product in tool storage and hand tools and power tools and other things, and so people paid attention to those. That's really the tale of the tape in this situation.

Scott Stember -- C.L. King -- Analyst

And can you maybe speak to the visibility that you have, I guess, in the upcoming quarters with some of these larger programs with OEMs? Do you expect anything to pop up?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

We don't really give -- we don't really give guidance, but you know, boy, it seems to be on the floor right now. So I kind of believe this -- it's that the industry keeps being robust in automotive sales in the United States and North America. So we would expect really some recovery off of this as we move forward. In fact, I'm confident of that. The time constituents of that, I'm not sure of, but I'm pretty confident that that happens. These things happen from time to time. You see an ebb to flow, which is why we classify it a lumpy business. We're not actually concerned about it, but it does -- if it lines up with something like diagnostics having a muted quarter, you end up getting the results you have. But I still think -- I like to think that RS&I did a great job. 25.7% is the second highest OI margin ever for diagnostics.

Scott Stember -- C.L. King -- Analyst

And then just the last question, just the -- so it sounds as if you're still comfortable with the, I guess, the long-term growth rate of the business which I think you've said in the past is in that mid single-digit range. That hasn't changed, correct?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

No, that really hasn't changed. I mean we had -- like you said, we had an 8% last year. In fact, we had a pretty good year maybe for -- maybe five quarters or four quarters, it was a little bit over the range 7% to 8%. I always said that I thought it was a 5% business, and it kind of came back a little bit. But it's those specific reasons why that is. It's not like we're wringing our hands -- said all, when you talk to franchisees, they like this -- our product.

Scott Stember -- C.L. King -- Analyst

Got it. That's all I have. Thanks for taking my questions.

Operator

Thank you. We'll take our next question from David MacGregor with Longbow Research.

David MacGregor -- Longbow Research -- Analyst

Morning, everyone. Yes, congratulations on the SFC. It sounds like you were pretty pleased with the attendance. I'm just wondering what did the shorter SFC fulfillment window contribute to third quarter tools segment growth?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

It's hard to say that. I mean we -- you're saying that -- let me make sure you're asking the -- so fundamentally, we didn't drive SFC orders out into next year. We kind of let them be through December and then -- for government work -- and then not so much into the next year. That's we -- I think we've talked about that on another call. I'm not sure how much that really contributed to the whole thing. I guess if you do arithmetic -- and you say, OK, you compare year-over-year, and as we did you would say you did better than last year on your SFC orders, and you did better because it was a shorter -- and it was spread over fewer months, you would think it would contribute to that arithmetically, right? And so I think that's true, but that, to me, that was tremendously encouraging because we had left -- we, our guys when they were ordering were thinking of less time to be able to liquidate this kind of product. So we felt -- we felt pretty good. I think that was a real positive for us.

David MacGregor -- Longbow Research -- Analyst

Okay. Within the tools segment, how did the size of the average ticket compare to third quarter a year ago and also maybe how did the number of transactions compare to third quarter a year ago?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Say that first part again, David, please.

David MacGregor -- Longbow Research -- Analyst

Sure. Within your tools segment, in your US business, how did the size of the average ticket -- sales ticket that your guys wrote, how did that compare year-over-year and then also number of transactions?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Look, I think it's probably a little smaller. I think RA was -- what we RA are the smaller ticket items, and hand tools was very strong and power tools was very strong. So the thing is, if you -- how we interpret these things as we roll off the products, and hand tools was very strong off the SFC. I think you felt this yourself. But power tools was also very strong, and we kind of get this reinforcement, and those two are generally smaller ticket items, although you can have a big ticket item in a power tool, depending on which one it is, generally they're smaller ticket items.

David MacGregor -- Longbow Research -- Analyst

And number of transactions, perhaps?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Got to be. I mean, the thing is their sales were -- they're delivered -- the sales of the van were about the same as the US sales, so they were obviously about the same. So if they're selling those hand tools and power tools then the number of transactions are higher, I think. That's probably true. I haven't looked at that data myself. I'm just extrapolating logically.

David MacGregor -- Longbow Research -- Analyst

Right, that makes sense. If organic sales remain slow. Are you likely to respond with acquisition growth or is it possible we could see an extended period of a low target growth?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

I think we're coming back. I think the Tools Group is starting to solve its problem. I mean, if you look at the US, everybody was focused on that like a heat seeking missile. And it grew at 2.4% in the quarter. I think we would say not where we wanted to be, but a lot better than it's been. So it appears to me you would conclude that if you look at the history of the last three quarters in the Tools Group, it's got better every quarter. The second derivative of its growth has gotten better. So I think we're going back toward there. The RS&I situation we see as a positional thing and C&I has been doing pretty well. That's the way I see it.

David MacGregor -- Longbow Research -- Analyst

One more if I could. How did your storage business compare year-over-year?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Storage business in the quarter was about flat, down slightly. So it's kind of flat. The SFC was good, though, the SFC was stronger. So it takes a while sometimes for that stuff to work its way through the system. So that's kind of what we saw in the storage business.

Operator

Thank you. We'll take our next question from David Leiker with Baird.

David Leiker -- Baird -- Analyst

Good morning, everyone. And Nick, if we look at on the international side of Snap-on Tools, I mean, you sell primarily in three regions. Are you suggesting all three of them are -- struggled a bit in the quarter?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

No, I didn't. I'm suggesting -- I can tell you that two of the three struggled in the quarter. One was up. I think that sort of what I was saying in the prior call this time, a couple of them lined up negatively. We always see a lot of variation in this quarter. And thankfully it's been mostly more -- sometimes positive, sometimes negative, but this time we had two negatives line up. So that's what drove this kind of thing. I don't think we see anything in this. So what we're thinking is just quarter.

David Leiker -- Baird -- Analyst

And then in the diagnostics and information, this seemed to be -- you said that's more of a comp issue versus last year and I think you had said there was a launch in that. If you look at it sequentially, is there -- what's tone of business in that part of RS&I?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Look, the tone of business was about -- was down somewhat, because you're getting further from the product launch of Apollo, which was the beginning of the second quarter. I think the situation was, one, comparison to itself year-over-year, and two, comparison to being in front of all these other product lines that we're launching at its primary stage, which is the SFC. Remember, the thing is that the diagnostics business has only a few SKU -- a relatively smaller number of SKUs. So when you launch a new product, even if it isn't at the SFC, it gets a lot of attention. When you launch a new hand tool, it's one of many; we're launching a new power tool, it's one of many. So those tend to leap of the SFC or the CICWO (ph). So at the SFC, I think we had a set of compelling new products -- new products associated with the power tools and hand tools and they captured the attention of the people and we just didn't have anything new and so -- in diagnostics and so that tended to be a little bit of a mute. And then it was comparing to last year, which was kind of a pretty strong quarter (multiple speakers).

David Leiker -- Baird -- Analyst

Okay. And then if you look at -- and then if you look at the Snap-on credit to provisions are a little bit lower. Is that just kind of marking the market with what your actual experiences or something else there?

Aldo Pagliari -- Chief Financial Officer, SVP

So, you got it, David, so it's reflective. There's been attenuation of losses. There's less charge-offs for the provision that's required had to be a little bit less, so sequentially you see improving. Now, again, if you look at the absolute year-over-year, it's still higher. But sequentially, it's been improving, and the trends are going in the right direction.

David Leiker -- Baird -- Analyst

And then just one more number question. The corporate expense number came in a little bit light. Good thing, but that helped the margin there a bit. Anything in particular there?

Aldo Pagliari -- Chief Financial Officer, SVP

No, mostly it's the legal expense if you look year-over-year. Our tendency still -- corporate expenses per quarter run between $20 million to $25 million. You're right, this year at the lower end of that range. Last year, if you look and exclude the legal charges, we fell at about $23 million or so, something like that. So nothing really has changed there.

Operator

Thank you. We'll take our next question from Gary Prestopino with Barrington.

Gary Prestopino -- Barrington -- Analyst

Hi. Good morning, everyone. Most of the questions have been answered, but I guess could you maybe talk about -- you mentioned that in the conference in Nashville -- orders were up a certain magnitude. Could you maybe give us a range of what those orders were up vis-a-vis last year?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Yes. Look, they ranged -- they really ranged from high single digits to -- in fact, some people were double digits to a couple -- you would say mid single digits or maybe edging on both single digits -- it was a strong quarter. Diagnostics was not up, but everything else was pretty strong.

Gary Prestopino -- Barrington -- Analyst

Right, and that was all hand tools and power tools, right?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Yes, power tools. You know we have other things like compressors and air conditioning units. We sell things like that (technical difficulty).

Gary Prestopino -- Barrington -- Analyst

Yes, tool storage. Okay. And then dubbing what we're seeing as far as the -- you mentioned some of the lumpiness in the diagnostic business as you had tough comps and no new products. Does that really portend that this is more driven by new product introductions within that business?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Look, I think the answer is fortunately a little more complicated than that in this quarter. It is driven by new product introductions. So when you introduce a new product, particularly intelligent diagnostics which electrified everybody. The thing is those things tend to be tough comps. But then when you compare it like I said in an atmosphere of the SFC where everybody else is laying out their best -- putting their best put forward and diagnostics has already introduced two in less than a year, that's the kind of thing you see. Now, you're still seeing sell-through, the Apollos -- both the Apollo and the ZEUS did better than their predecessors. They've rolled out better than their predecessors. But it's just that situation of ZEUS' lapping last year's incandescent introduction is one of our best diagnostic quarter, maybe the best diagnostic quarter ever. And the idea that they're up against, for franchisee attention, some of these other products. That's simply it.

Gary Prestopino -- Barrington -- Analyst

Okay. And then really -- I think you may have mentioned this, but the feedback from your franchisees is that the environment is still pretty positive in the automotive repair?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Yes, Yes. I mean, like I said, I keep talking to them and they keep saying, yes. They're talking about two bays, shops now, expanding (inaudible) people being robust. Now you look at the BLS data in terms of the amount of the spending on car repair and the technician wages, they're all favorable.

Operator

Thank you. We'll take our next question from Bret Jordan with Jefferies.

Bret Jordan -- Jefferies Financial Group Inc -- Analyst

Good morning, guys. On the diagnostics question, and I guess you said incandescent launch of ZEUS. Is the trajectory of Apollo, I guess, lower than the launch trajectory of ZEUS and is that part of the diagnostics challenge?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

No, I don't think so. I think -- look, I think ZEUS was -- the reason -- I may regret using the word incandescent, you know. But look, it was a big launch because everybody got excited. It was the first time we talked about intelligent diagnostics. So that was the rollout of the 100 billion database. And so that got everybody talking more. I think that's more or less that. Both of these -- both of those products have exceeded their predecessors, and their predecessors were pretty successful. ZEUS is the -- and the other thing, Bret, is that ZEUS is a higher price point. So if you got the guys out there pounding away at a $12,000 price point, it tends to distort the situation. Everybody gets really excited a little bit more. It's as qualitative as that I think. But the Apollo was just as successful.

Bret Jordan -- Jefferies Financial Group Inc -- Analyst

Okay. And then a question, obviously, you talked a lot about tariffs and how you're relatively immune to them given your country of origin or your local manufacturing. And I guess as you think about the assembled content and its country of origin, do you see any pressure on your input costs? And I guess as you think about the inverse of that, how do you stack up relative to your competition in your mix of imported assemblages versus theirs?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

You know, I can't speak for the competition, but look, I think we make quite a bit of what we sell off those vans in America, we say like 75% to 80%. So we have a lot of US competition. But don't -- and when I say we have a thin wedge relative to other people versus tariffs don't mean we're completely going to hit them, but we've been dealing with material costs for (inaudible). I mean, our -- we've been giving salary increases -- you know, for example, people are talking about labor increases, we've been giving pretty robust salary increases for a decade to everyone and been managing it. We've been absorbing, yes, separate (ph) people in this room. And then we've been -- we have seen material costs. For example, we source US steel, but US steel rose, I think, 30% in the last 18 months and we've absorbed it. We have some of it in our P&L this time. But our margins were up 70 basis points. So I think you'll see some of this in the future, but I think we'll have to deal with this. Maybe I'll be explaining on a future call that we got dinged (ph) by some of it, but I think this is part of what we do is manage this. And one of the things we have, Bret, that's different is I think we're quite vertically integrated, so we have a lot of opportunity for RCI because of that vertical integration.

Bret Jordan -- Jefferies Financial Group Inc -- Analyst

Okay, great. Thank you.

Operator

Thank you. We'll take our next question from Richard Hilgert with Morgan -- Morningstar.

Richard Hilgert -- Morningstar, Inc. -- Analyst

Thank you. Good morning, everyone. The RS&I Group, is there -- you talked about how we're seeing some expansion out there going from two bays to four bays, that kind of thing. So there is -- there's potential for more investment out there. Is there anything out there on the horizon that causes somewhat -- some uncertainty among general managers and shop owners that might cause them to curtail any of their spending? Is there any of that out there anywhere?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Well, I don't think, in the independent repair shops. I think those tend to roll pretty well. I think over the years, I've seen them tend to be robust. Of course, people get different views. And during the recession, they were cash rich and confident, of course, but something can happen to puncture their balloon of confidence, but I don't see it right now. For OEM dealerships, they can ebb and flow depending on how good I guess new car sales are. But one of the great things is, is that the movement toward information and data and software is moving in a direction that plays in our advantage, and we see -- one of the stories behind our margins is that our software business keeps growing. The software content keeps growing. Software in the Tools Group was up significantly because of the intelligent diagnostics products of ZEUS and Apollo and some other things, and in software growth in Mitchell 1. Mitchell 1, our repair information and shop management business, up against all the RS&I software growth. So component of our margin gain is, part of it is our software business is growing and that's contributing to margin raise.

Richard Hilgert -- Morningstar, Inc. -- Analyst

That's great, and that's a great segue for my next question. How -- on your revenue for each of your groups, you have your organic growth, you have your impact from acquisitions and your impact from currency on your margins. With revenue being slightly softer, that would convey to me a potential negative operating leverage for your margin but then you're offsetting it, part of that coming from the mix of product, some of that software, is there any way to quantify, here's how negative the operating leverage was, here's how positive the impact from software is or here's how positive the impact of RCI is? Do you have any kind of information you can -- or color you can give us on that?

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Well, that's kind of more detailed -- I will say, look, over -- I'll just give you a little bit of thought over it. We're up 70 basis points as reported. 30 basis points was currency. And we had some bad news associated with -- the volume wasn't down, the volume was still up on an organic basis, so on an apples to apples basis, still up. So we didn't have any deleveraging in that. We had some material cost increases, we had some other cost increases associated with the SFC. So you're ending up with RCI and margin mixes of about equal to the 70 basis points, a little bit better than the 70 basis points that you had overcoming some of that bad news.

Richard Hilgert -- Morningstar, Inc. -- Analyst

Okay, great. Thank you.

Operator

Thank you. At this time we have no more questions. I'll turn it back to Leslie Kratcoski.

Leslie Kratcoski -- Investor Relations

Thanks, everyone, for joining us today. A replay of the call will be available shortly on snapon.com. And, as always, we appreciate your interest. Thanks a lot. Have a good day.

Operator

Thank you, ladies and gentlemen. You may now disconnect. And have a great day.

Duration: 61 minutes

Call participants:

Leslie Kratcoski -- Investor Relations

Nicholas T. Pinchuk -- Chairman of the Board and Chief Executive Officer

Aldo Pagliari -- Chief Financial Officer, SVP

Christopher Glynn -- Oppenheimer -- Analyst

Scott Stember -- C.L. King -- Analyst

David MacGregor -- Longbow Research -- Analyst

David Leiker -- Baird -- Analyst

Gary Prestopino -- Barrington -- Analyst

Bret Jordan -- Jefferies Financial Group Inc -- Analyst

Richard Hilgert -- Morningstar, Inc. -- Analyst

More SNA analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.