ITW - Earnings call transcript Q3 2019 | Illinois Tool Works Inc.

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Operator

Good morning. My name is Julianne and I will be your conference operator today. At this time I would like to welcome everyone to the conference call.

[Operator Instructions] Thank you. Karen Fletcher, Vice President of Investor Relations, you may begin your conference.

Karen Fletcher

Julianne. you thank Okay, welcome Third and Call. XXXX to morning Quarter ITW's Conference Good joined CEO, CFO, President and our Michael Santi; I'm Chairman Vice Scott by and Senior Larsen. and

an quarter today's outlook. results During discuss our third we’ll and full call, provide update year on XXXX financial

details to is XX-K that this this important results slide. of about for remainder our forecast presentation on for a reminder two statements as identified well contains from could the We XXXX, the that Form cause as differ Slide to company's more our you XXXX financial refer risks expectations. other forward-looking actual materially

Please measures non-GAAP to certain note press is measures, those comparable most reconciliation the GAAP measures of presentation that the this contained and uses in a release.

we for strategy long tour and the time hope at Today are is to will a business when March Day. Today's on We event, Texas details an Please how Refrigeration action. announcing the ITW's the for our and can Investor in update turn location term join us XX which and provide you up closer. offer alert in Friday, slide date model next the Worth, to site Fort announcement to on Plant three. see the a will opportunity date provide ITW save-the-date including and more our it gets sign strictly on of Traulsen,

four, it’s Chairman pleasure my and slide to call to on Scott CEO, and our move Santi. over the we’ll to now So turn

Scott Santi

Thank you, good Karen and morning.

portfolio, another quarter in execution. impacted the demand broad While operational of cross a auto in China we solid investment and environment slowing production delivered CapEx excellent and our North with declines across America section

points cash to a in by earnings delivered margin year-over-year XXX points growth, and with operating the contributing basis basis basis return initiatives operating volumes, points of than invested increased free XX%, lower challenges, more XX% XXX and on Despite Despite XX XX%. improved after-tax capital we share enterprise margin macro per increase flow. we

of year likely the we demand while lower rates the toward Motors macro of balance at the full of end our exiting of the at margin EPS combination that acknowledging year, $X.XX near-term potential $X.XX, on of XXXX range and range. ahead General strike Looking lingering our QX, skews uncertainties and performance probabilities guidance maintaining outcomes the the based are to the

Moving and executing a company within forward, level are progress the to enterprise XXXX the that our fully the context deliver in driving continue goals. we Finish-the-Job of control remaining to on in focus positioning term near performance at on on high the uncertainties, a strategy on agenda, things our while invested ready macro on enterprise

of continuing business ITW professionals strong towards Our performance customers is execute demonstrated performance scenarios make world the the of with around range our a dedicated resilience of combination a while of our and progress team of economic serve our ability to leverage the who the long-term power ITW deliver excellence full and and and to model a result across potential day-out. results day-in direct consistent it strategy to

on details the Michael? I'll to QX our Michael more that, for now turn over some With call results.

Michael Larsen

Scott, Thanks, as declined quarter, the everyone. slowed and demand revenue third across portfolio. morning In organic good our X.X% modestly year-over-year

X.X% points. the day, one basis revenue XX QX. basis down on shipping was This decline Simplification same-day versus X.X% quarter Line extra had was organic Product the so in

down positive while a X%. was plus Asia America Europe up X%. North On note, declined China X% Pacific X%. X%, and was was organic in growth geography, By down was International

cost. operating as strong enterprise within we execution XX on initiatives points XX% Our was our price and control expanded to by basis from elements with strong margins the contributions positive

decremental Our XX%. QX margin was

$X.XX federal fact year the contributed liability the of reduced XXXX by million, filed for we from tax quarter. that and our $XX benefited tax tax which $X.XX return our EPS of EPS in GAAP estimated

GAAP XX.X% $X.XX $X.XX $X.XX compared QX currency the of rate benefit basis our impact, to unfavorable of a was EPS lower year-over-year translation tax offset as from prior a foreign number by XX.X% which included On the year. in

cash increase XX% million of our repurchased and conversion out the expected excellent X%. an despite $XXX our Overall, financial execution raised of and of flow external strong operational dividend We XXX%. million, at with As free shares performance $XXX was by solid challenges. annual some

to and slide move five Let’s margin. operating

XXXX. from basis this again margin initiatives initiated accelerated initiatives seven from the points, see seeing XXX segments can the which ranging improved we're level basis you the activities worth As basis was and that contributing highest the noting with impact is enterprise benefits all the in across since we enterprise earlier operating It broad quarter restructuring is points, of the based XX to XXX year. chart,

of ahead dollar well and solid remains basis. material raw a inflation on Price

In items. basis addition, inflation one-time XXXX. points some pressures and cost expense equal was third eased which raw for and what coupled on XXXX. again of was price/cost leverage with wages since headwind, and in salaries, to unfavorable we margin half spent XX points, annual quarter, about was positive from was time was the XX basis impact material this Volume Restructuring normal, the first of other quarter

strong in again this summary, margin quarter. performance So, operating

slide provides to details on six for left on segment Turning table some color The organic on performance. grow. the

in equal essentially an QX. in were you was same As we can as which basis, the X% on QX, day decline see, down

some of Like QX, offerings. of lower demand in we related CapEx the levels experienced

both impact quarter. in You the last growth than Food points Equipment, X can Test lower & Measurement, see with rates and Electronics,

and three in cases, pretty to less benefit the year-over-year, due Automotive However, comparison good. in down order were were underlying was from remaining stable. the an segments pretty easier both OEM the QX, all largely rates and Welding

was individual X%, to strike percentage results revenues down Automotive the segment GM reduced point. revenue starting approximately by with X Organic OEM. as move let’s Now

was organic XXX growth XX essentially significantly. we year-over-year. increase had were of PLS addition, where In builds China was Europe a down basis Margins X% impact. of points North America points flat, was and in down market basis XX.X% X%,

down In America, up for despite demand on despite institutional comparison. was organic a Food was in the were about Moving equipment strong pretty restaurants we continue retail, revenue growth to performance little and business, was service side experience Equipment our X% difficult on North to X%. slower flat, in a slide which seven.

XX.X% X%. Test organic margin Operating & contributor. XX was little basis quarter as Test Electronics declined a revenue points to and Measurement Measurement and initiatives, with enterprise this down the expanded softer main was X%.

points Excluding margin sales been Operating semiconductor here. growth up main organic would expanded mostly Electronics with to a X%, manufacturers, down electronic XX driver have XX.X% to in equipment driven enterprise softness was initiatives assembly. by also nevertheless basis X%.

of the equipment International to now comp Turning slide last Welding down but to comparison tough XX% last year. consumables In against the more was eight. XX.X%. declined X% growth X%, American against X% the was point XX% of growth North operating revenue margin pretty Welding at side X%, organic and is than good up year. were America which activity to our customers. continues North underlying

X% was was Fluids X%. up was points, last Polymers up against up XXX aftermarket driven X% with Automotive and year. X% the & primarily down Operating Fluids organic of Polymers growth by X% initiative. margin basis down comparison was up enterprise

nine, remodel slide America demand which New lower X% by organic Zealand to and was up X%. continued however and in was commercial down in risk with essentially Australia North with Moving down residential was flat construction. was X%, X% Europe up construction offset revenue

down XXX was relative as businesses impact drivers performance and points basis Specialty, organic identified the similar to reduce potential and divestitures we've the revenue about the potential In point in X%. North down other These geography of and for was QX down core organic the half; words By of by X% segment America X.X%. down X% and a was growth was PLS the specialty international were divestitures. main

of end to XX. slide and on XXXX rates guidance combination outcomes range the while said, of lingering our QX, the that year macro at maintaining we of as Based of strike guidance term Motors the full and full about probabilities likely the year Scott range. are towards on performance potential talk skews $X.XX, exiting margin near Let's acknowledging General the demand our EPS $X.XX uncertainty lower

crept our While items XX%. in described is the has lowers rate approximately our I offset headwind year that of year we to since guidance foreign tax by tax the benefit QX. incremental of This discrete essentially full as full end currency updated QX earlier, that

XX%, full represent we environment, now expense our the result be expenses lower from restructuring margin and volume. operating We accelerated the approximately slightly down expect accelerated is for It guidance expect $X.XX higher slightly of of a that restructuring given the impact of as approximately which will previous that year-over-year. year that is incremental would QX a noting worth headwind in

expect rate our that all income. net Our conversion well will ahead year has full been performance and year cash of we strong be

of year. and remains plan repurchases to of Our our track share approximately billion terms repurchase on are we in own this shares X.X unchanged

various portfolio management a for are on Now our on activities. divestiture our processes quick track. Overall update

of complete to XXXX $X businesses looking and up divestitures billion year effort this we're end by divest targeting are reminder, As a XXXX. about totaling in the revenues to with half to certain with

positive purchases basis continue improvement. organic The the we includes calls. our gains dilution EPS will XXX regular rate of point counting impact about improvement sale offset earnings and in updates margin be incremental XX and Not on to approximately on and points basis growth with potential by our sherry provide will you

Investor result our our year January full a moving XXXX earnings we call. to part annual as now guidance, Day provide of XXXX March, of Finally will

turn With you. back to it I’ll that, Karen

Karen Fletcher

Michael. lines open for thanks Julianne, questions. please Okay, up the

Operator

J.P. Your Ann Instructions] Morgan. from [Operator you. Thank from first comes question Duignan

Your line is open.

Ann Duignan

everyone. morning good Hi,

Scott Santi

Good morning!

Ann Duignan

more color you markets cadence Maybe of on of morning. as could saw or through sales Good orders with and cadence end quarter went start out you the by in segment. terms we what of

mind, appreciate on to I don't just Motors you it. the some going what's as General If strike? color beyond

Scott Santi

Ann. sure Yeah,

really through a think on there's the yet basis So we I quarter. as nothing unusual went monthly

CapEx a talked some were QX in what it basis. as in we the on QX, Equipment to Test you extent where QX Food growth well here the Measurement in see think particularly show the in relative slowdown, did and a to we side script, rates up I and QX saw about saw we to modest similar as year-over-year on as in in lower

worth think You actually of know they look mixed into pointing order I pretty the a was bit here. that QX, little good so a we looking underlying heading businesses also at are out activity and these the when said, that rates, it in bag

impact I’d organic of Construction, in better QX. talked pretty Welding, strike an about Part than say Specialty. was certainly QX stable, we QX, growth segments, basis, automotive obviously the then here that the remaining and of on so easier GM and you and the the comparison, rate looks like year-over-year is know – a

Ann Duignan

industry? the follow-up on that. on a Could CapEx that the Welding maybe you the you in think as side reiterated still any back I had side change just I was but QX side there your in just color And slowing, versus if on and update think equipment. consumable consumables some strong, you I flagged comments mean, us in

Scott Santi

just is was I talking our business. about so which North XX% Yeah, America of really

know, some the softness in did You side, X% in X%, on see – QX the Consumables, year. in was comp from year, think down mind were up in equipment up we quarter. I up we second last keep XX% here the X% but consumables equipment last

maybe bit QX a slow side, little – in of but maybe North in the So, Welding America a we the second pretty on down think consumables what and said bit quarter. a we’ve overall here little similar I to saw of down is stable X%,

Ann Duignan

leave it time. of the the there interest color. I’ll I Okay, in appreciate Thanks.

Scott Santi

Ann. you, Thank

Operator

John from Inch next Gordon comes from Your Haskett. question

line open. is Your

John Inch

Good you. everybody. morning thank Yeah,

Scott Santi

morning. Good

John Inch

part of Michael, may strike, at ends that thinking are perhaps, as It does back fill does company, of that X%. not resolved process, in be – then it than guys assuming GM actually The working morning. to up does right the to Good GM strike fourth that it a flip there the X% or are higher you – because your has needle X% but terms and guidance. inventory drag, actually the when about move How the it? the in go not contribution get you that quarter is

Scott Santi

settled Well, I way guess scenarios, settled. never the embedded that potential [ph], quarter gets the would from through all scenarios gets in the through our next Board say I range. that all all guidance are week it the the with

advantage we have make – bet. in purpose is really You a particular no know there trying or to

company. in in not incorporated range have scenarios are of process, pessimistic involved the terms essentially I’ll guidance in potential Michael, know optimistic it. organic balance growth and our approaching you obviously the the sort of the you little the the the how the give we asked color We all since impact – year but for are most And a you the on and of that's of and most

Michael Larsen

week. think start I said QX, Yeah, Scott next case in point best kind here at as of up is, back this we

organic of, of essentially lost a full is already month, we’ve a impact almost that's in at auto the points alone, about point so the done at growth level, said, segment you get percentage maybe another resolved is if you So then speakers]. things X this this which the which ITW case of as quarter, kind if would And lose at scenario, not can point. we do [multiple Scott all worst

Scott Santi

scenario. the worst case is That

Michael Larsen

the worst case is scenario. Which

You growth know organic of here. we’d lose another X points

So today, of it. skew embedded it's those of you we're that range all our things view the guidance kind elements part what in of about talked the end lower in know are think we I terms and talking towards about as the

John Inch

Okay.

scenario you're So until $X.XX range in Jan low saying? doesn't GM for other that's resolved the captures case X, year, end the words, of if the get worst that, what still the your

Michael Larsen

in but pennies impact know I Yes. terms get don’t think, EPS, to you about talking of profitability, customer I here. obviously we of mean we're want into

John Inch

that's No, fine.

Scott follow of remember organic this to lead have historically my I you growth, going been you years; how and initiatives obviously and were ITW's your structural elevation at it's adamant enterprise very, to kind this for successful. for up, very fairly guys PLS, was Just in and a been

quarter is it actually points; of cadence, enterprise PLS at was XX kind last XX and sort are the quarter; in the basis we is same Here of initiatives accelerating. right, third

abate I'm risk lower-hanging future this to there the that would've just fruit. presumably a of be the makes PLS after the that this that, keep PLS this gets organic had doesn't you any with Is growth mean gone maybe just the PLS and from has off we know wondering, what for down cadence as thought I respect kind sense, road. you because impact if you impacted growth and benefits would an somehow

Scott Santi

it Well, as see I risk. think a the – don't I

are we’ve what it. we PLS that period know come I implementing play this, the you out down think definitely is rate really over seeing that the been has

John Inch

Right.

Scott Santi

to implementation back the strategy, front the remember running was of the X of to you points. If point end it X.X

embedded Day; through normalized you feel think movement operate I XX few on. know we're think should in I ongoing this fine some low certainly there's an demonstrating we far tuning at on model don't just the XX XX basis the too that – we're as certainly we certainly, so with the we You a years you about not Investor are like going to bps, talked normalized, hanging even know, suggested, business process but dealt from, fruit last and ago, how we we PLS at be

an terms A grow, position lot a that on Day of in at that growing of updates Friday on I on solid we're the businesses are tracking the how versus give we're front, working assure that you not we in still those we’ll on, getting rate to we’ll growing progress update divisions, as of give Investor XXth. making but you fulsome March, the said, and in I you

John Inch

Yes, Friday XXth. the

of of still we're see of these, I we more once for prospective So know I companies you're to feeling a result which slated PLS rid and EI, these divestiture. the presume you good once about as guess core going – growth the get

Scott Santi

all the everything the have focus a that are we right no we terms assure but growth certainly certainly it would of the – online we but That the I see continued environment you offset now, to know through is know in organic there and making the environment effort [ph] are this need from growth. remains progress accelerate one take has on the of some we're on difficult right process. little you really we rate, It's I'm qualitative to of it doing. not standpoint you yield more number of now macro solid progress, to Yeah, given unabated – steps the question.

John Inch

thanks. Many

Scott Santi

bet. You

Michael Larsen

Thanks.

Operator

from Jamie Credit Cook from comes question Suisse. next Your

Your is open. line

Jamie Cook

sort which margins morning. up the degradation what you if more fairly XXXX just and challenging so guess the that some that’s down third think keep faced still it's performance for know I margins think to degree detrimental more guess, know it’s provide quarter, QX I I more inability margin I the I on depressed. you expected, just context the terms you but about and think cost. can year-over-year of to the for you fourth just some we and QX guess quarter quarter the you you margins a is trying QX, function The margin then good, about, and to implies Good the even function second in And first organic about I'm while guess implying step quarter because price how elevated of step been in the growth if some in the guess understand there. performance in change of

my second of you second Thank this plays know whether you question all I just out and is your recessions how you versus debate, guys – managing market my slowdown question sort know business. terms guess familiar mid-cycle how And are in more concerns, then we challenging of you.

Michael Larsen

take a part, first I we'll don’t the Why is piece. the stab on the easy one, second together then which maybe take

to mean year really I as we to a tweaked them year. and spending margin to we've a you so guidance next in, things. the decision we're noticed, we just these going it. that pipeline restructuring and we've projects are account that portion are of really two so that's restructuring that on environment our forward demand in full so pulled projects the is made accelerate One were this further given full into year be more the for for for think some I And year,

And macro the potential just things talked volume piece on about those so know really GM the and is kind then leverage, two combined. impact we impact other you environment and the really of

the you we're at really decimal read you I look time next into, squiggle, the XX%. – much too about tell give will you I so into here, talking of for a know wouldn't we'll certainly I mean points the implications kind you year. at that I same when know

changed to ability margins, expand nothing perspective. Our continue that to from has

little the here play macro assumptions So from a from here, hopefully feel that really and better a out terms of in then margin think makes and… was the things you how about standpoint bit question I second

Scott Santi

at me. You’re looking

Michael Larsen

Scott here for some at looking I’m wisdom.

Scott Santi

Well, have this wrong, I I I but guess want don’t be none. interpreted to

I react the operate operate and how is are our you whatever are know the to of environment going to to we way. throws in best operate, view, going are company terms the going we fundamentally of and to external we think we ability our our

think highly company that building or underneath seven the spent to cushion has throws effective now we've of allows a competitive, six whatever that – years world to the us. very it I now react built kind margin us at

I some that of of. the largely that’s reasons relate they out of sure I'm that all think well you and you're to lot aware well all the right aware environment a are issues of for now uncertainty in

– cost that on for that way know the operate I you but structure, company on positioned ourselves. think that at profitability of most relative gets and will absolute resolved, terms the level whatever environment appropriate to in in terms and whatever given we’ve an and very we who margin a is we company optimistic, Personally find continue of I'm talked however in focus to historically high the operating of about some is knows. flexible that basis environment in a this well what

Jamie Cook

let else Okay, someone thanks. in. get I’ll

Operator

Your from is Securities, from question line Andy next Wells comes your open. Casey Fargo

Andy Casey

Good a Thanks morning! lot.

Scott Santi

morning. Good

Andy Casey

U.S.? in significant in a any provide see market? main did you color could bit by welding, the differences more Within little you performance

Scott Santi

in pretty maybe way America It to I describe we saw North is it. a was similar little what Andy. to So a think stability characterized in some not QX, by really

you look if low know side. on so and you heavy equipment that's digits, the the single businesses, at more down industrial I think

that offset so point so give flat, or the business said and side so more you four, basically data end point four, a up commercial an up I underlying by we Maybe The down flat. one consumables here. maybe like equipment I'll down

in gas quarter stable in mid-single America, not welding. QX, the side You digits but slightly but up North positive, big of oil a part so of know and really the in a – business actually terms was

Andy Casey

called concentrated or And is thank that year. in you. the look $X.XX any of similar QX, restructuring. segments the been we've out Okay, seeing to in of accelerative you Is few that forward that you placement the what then when during kind

Scott Santi

some you at, give if as is mean projects appendix Yeah, QX kind broad XXXX are of for pretty planned try as were accelerate of going points similar. demand we're it's very that seeing. schedule said, the result environment that this, look the of out. out a you along can and the in of know of release I to These this a based there’s to press all the some I – we're lays into I kind the that and those just

Andy Casey

directly But enterprise they initiatives than… are to related much more

Scott Santi

That is correct.

acquisition decision on to want you scheduled know half out I XXXX. a there time this the forward a integration turned know just enterprise year into that you make accelerated hindsight some automotive know side. pull we're first and if distinction, projects certainly you projects to initiative in think environment the were there this good think you We going I be a give the it's related was of for XX/XX that focus XXXX to around more that around

Andy Casey

Thank Okay, much. you great. very

Scott Santi

Sure.

Operator

next Your ISI. Raso David comes from question Evercore from

line Your open. is

David Raso

good Hi, morning.

Scott Santi

morning. Good

David Raso

the A fourth of margin. the quarter on quick clarification

does operating implied that. call to margin XX.X%, seem to With $X.XX XX%, implied be about the to it which something hit EPS, know your nearly or the mid-point, and it the so require XX.X%, is sales like you

line saying fourth are quarter to in just view. the if that a fourth So to quarter is by quarter we I'm hit step in the the items and helped margins fourth below the the EPS? down there's level, the is trying so,

Michael Larsen

item go or back fourth giving in we're be to give this we another restructuring, terms QX, lower of model a talked the tricky could about we're might not volume, because is, we from one about margins, QX as take here down one you historical we quarter. in like look guidance, the QX no What so any you impact and – I and at there's typically that, don't tell way counting is year I a full step Yes, little what a talked you time said, number. you will Dave, here on relative then

that's helpful the specific guidance giving So for you hopefully without quarter.

David Raso

you I take EPS your if can't unless help appreciate a do number, XX.X% below be whatever or and mid-point it you hit or have that, like that's get you the may line. margin but still XX.X% the obviously

bit in a and discuss mismatch offline. we can of the little a numbers there's So

were The inventory the down a I good time were management better than more meaning a than in thought performed pretty your years That's was quarter. during a lot sales your you inventory few you're first sales, to incremental The you’re they down. year-over-year restructuring for handling least slower seem at the in thing the maybe the fourth way likely doing quarter, the right does speak it inventory, know so ‘XX. a

it bit help view you inventory as Can in I year-over-year. You a channel? a you you pretty inventory, job of color? the know good sort help Can sequentially with us obviously own did the inventory with said your your just us how channel

Scott Santi

operational plus sell. you we talked Well, given before, this but in, channel elements are are it you inventory we know from X, embedded performance we let’s what I know XX% standpoint – for the we the know of the and think XX-XX, about of you call of

we You give tomorrow. ship us an it order today,

our more think it’s involved. to some business quicker reasons than or from inflection of I so advantage our channel others external of up of and tend we one in I from backlog market where the So have terms there's channel inventory, of show that's these their a know minimizing you carry maybe need an standpoint lot one why of in the standpoint the think other inventory, partners way the to

that there are I about given standpoint mean but it's think real know out some I I destocking certainly, the we’re relatively not of don't our service really to partners. but we're them are don't I to from element that's think material advantage, given way channel a an going you low it's that or there level issue a talk think toward our stuff, of – the any able because

David Raso

So that's interesting.

management, say that the XQ a saying normal that improvement to year-over-year, course You're just was the business. again we in inventory XQ normally

any not proactive… was that say would You

Scott Santi

all not Fort and we’re it what this – self-correcting about essentially getting Worth just our That is. we’ll of show a bought we we – lot you are talked today where producing little Right. demand in visit that into there, there's That’s a customers you before We’ve element detail. know stuff yesterday. but found to to bit when a

forward So the raw demand and what there's is replenishment. you are from the at. environment, reflection so in forecasting or essentially what replenishment It's material vendors, showed our which self-correcting to it’s up basically looking no all

David Raso

still away. you. year. Is asset sure to right some we comfortable it know Right. you of we’re Well, an update the know management, see by Thank Just of – the a us partners, sales months you asset discussing lastly hope of year. this give just is thank and that – by matter still portfolio it of still you. only this are done The of be the price? done end to make those the end Can half sales you we're the on few

Scott Santi

bit the in mean of little a above. it's processes I Yeah, are all various stages. all I of these think

to think by In the get them know we've about transactions of you is year. of terms year all completed these next completed this talked and I negotiations of our of goal end and half

in sale you on that financial based of some sure say I'm impact, we're our there on know I'll terms overall one-time adjust EPS those may going gains you you be that. out can to and know numbers call

as look will standpoint offset lower fundamentally this account. I that from is the by here, that we are we be a share essentially to divesting EBITDA forward, think financial XXXX,

the standpoint EPS impact on is no an significant from really So there company.

we've in by subtraction about. certainly improvement points points of as margins. of of are all you talked improvement That's when know element which organic operating growth completed structurally basis of our the then addition is And underlying our goal, XXX and these by XXXX, rate structurally XX in basis here there's an the

David Raso

Right, thank you.

Scott Santi

Sure.

Operator

comes Joseph Your Goldman question from from next Ritchie Sachs.

Your is open. line

Joseph Ritchie

everyone. morning, Thanks, and good

Scott Santi

Good morning.

Joseph Ritchie

points, a to but bit think year give level, year-over-year, an want roughly be the guidance I'm know and question guide explicit if XX full to call know David's differently, XX% asking implies it for don't understand it XQ, that basis you at you little maybe So XQ of is XX I margin we going pieces. about down the to moving operating the trying to

has I So coming now is from restructuring I recognize what benefit remember also the a but $X.XX through fourth to quarter, been XQ increased as there well. in

And moving so with pieces me help year-over-year. maybe of just can you kind the

Michael Larsen

see Joe. enterprise GM sure you know much I about, impact. we there's of are know positive. mean price right. we lower given and more the at talked And what volume, not an I you higher said you're and initiatives to assumption talked level Yeah, extensively the we've restructuring elements about then add trends previously. continue mean I cost high mean can to I expect you you a I which here, know we to contribute includes certainly I'm

kind So I pieces think of those are here. the

this I like you of kind up – We're I here. about the differences points talking is Again, are and the in decimal round you of QX wouldn't too a number. know versus things year know full in said, margin get caught

full the in you for pretty year, a think are flat. I year challenging essentially know margins

just so… a a out given so are performing the QX. If points margins you think improvement, the which at high pretty and year-over-year XX detrimental margins level basis the of I improving that margin is we're in, is the take restructuring, environment XX% company

Scott Santi

should I And we I’ll way just – any know this in same. is interpreting the extent that.

on track long term fully our we We by not XXXX, a we are think in margins where on take can basis right. to to

Joseph Ritchie

price more of as has investment turned guys recent years is it. also bridge bit that maybe a thinking bit companies, bit there's become moving of that give know Analyst you as the think March. industrial about tailwind you're overall spending of drag so which But pieces, as at a you costs going But I’m and you the commodities pieces, think you follow-on of Scott, and the little more been for you question only great. your been about we positive, of obviously the moving for different a explicit I see pieces be a to know about lot a a additional how should to Day in guidance going margin more little maybe a kind the provide year have next of on and can and in Okay, moving kind

Scott Santi

I can you know I don't that lever. a give Well,

to In guidance. terms our of specifics give we're you going

planning enterprise initiative in can process you January, the sure typically of standpoint haven't moving we backlog As so is a November, of pieces do that for from even I Michael we all We in projects. have yet. the completed said tell

from those continued margin next improvement expect year. structurally We

or planning exactly would a sitting you I today for so because haven’t what we through here line gone – is my say it take. did can't dimension or know yet, year, with the would be be – in give this would I which we it it would you point process, be full that but

volume other the is question for well be to company in and set terms know This next the where does year up. go a really that's You the macro. is going big of

can if we leverage but deceleration further if of react we then end going know some see growth the get volume in markets, XXXX, of terms you In we’ll from standpoint to we'll, it.

and and work of complete we of operate these I as add through full by next will those way point those divestitures as end think well margin Michael performance either year. we'll the then said, a

from of said we where an were our the to for sure. don't the I that’s path of know also and anything I to of the overall So becoming the that we going obstacle to company margin you XXXX, get clarity profile think standpoint see

Joseph Ritchie

thanks your time. Okay, for

Operator

comes Jefferies. Your next from Stephen Volkmann from question

line open. Your is

Stephen Volkmann

my morning. good Thanks Hi, for taking question.

of talked Hello? couple meaningful but that's quarter, Michael, already, not enterprise the you're of sort about etcetera in here? changes fourth initiatives, price cost, part this looking for I PLS, follow-ups. you Just at like of a things the equation quick not any think

Operator

are on line. experiencing Please We technical the stay difficulties.

reconnected. And now you're

Stephen Volkmann

Hi guys, can you hear me?

Karen Fletcher

our from the lost to we beginning. the connection start have in sorry so room, you'll Yes,

Sorry that. about

Stephen Volkmann

don't think my I I touch was good. it anything. fault, didn't Okay,

Scott Santi

question. the Joe Talk] last think like [Cross didn’t I

Stephen Volkmann

Jeffrey. this with sorry, Steve is Yeah

a of of you just weren’t enterprise to couple little first had the a in and you of of in the quick follow-ups sure like changes PLS, think this make on bit any one but I Michael, kind shift. things that kind quarter meaningful I price So forecasting just wanted to of explain I touched fourth initiatives, the cost stuff, cadence

Michael Larsen

not Yeah, that's about. we're that’s correct, what not we're yeah – talking

Stephen Volkmann

and might sort a I or mean it this kind XXXX of little first the your of slightly year, on does divestitures you know. of annoying or that Okay, potentially then but higher are be even end you XX% into return points basis And that XX flows the assuming improvement of projects bigger maybe lower don't great. working even, perhaps a get XX% done is question, of or this by

Michael Larsen

points say year Yeah, by I working see half see benefit of were year-end, so get – the then margin XX the the all clear. as that they half If directionally, let’s of growth impact. you mentioned that about earlier and a structural I'd so XXXX, hopefully targeting projects and by approximately I on, end complete full everything when basis in of say gets XXXX done you we're basis first like mean done everything is the be points that’s will of everything of the if half improvement, theoretically organic XXX XXXX, will of – by XXXX, so everything they where would year-end

Stephen Volkmann

on. Thank very so clear. you I'll Yeah, it much, pass

Michael Larsen

will is we be so from – anything then shouldn't you any completely goal EPS offset any impact see to And EPS know standpoint. the that

Stephen Volkmann

Got it, thank you.

Scott Santi

Yeah, through, flow some gains that would yes. one-time

Operator

Bystricky next question comes Citi. from Vlad Your from

line open. is Your

Vlad Bystricky

everyone. morning, Good

Scott Santi

Good morning.

Vlad Bystricky

going segments in auto for North color I look back around minute, obviously some there GM you just pretty So at good here if But issues you the rebound nice actually the in organic internationally. America. had to OEM, gave a

this really you on versus in widened us really the performance know So where on color China give what's can you builds going more and Europe especially in out quarter?

Scott Santi

the think now so. high you we to Europe, of last single to digits so about call, kind in think being mid to have flat Europe begin recovered down gone in and Yes, from things stabilize so to know as in as in well I talked I Europe we've builds appearing

Chinese China big gains, then local was continued really there a of as the OEM's. result primarily with And as outperformance penetration really

So even we’re QX, to in digits able and a market in know where X%. in builds our grow outperform you business mid-single the kind are down here of

pursuing of we've many new. years, continuation so. nothing really been for that there It's it's So the a strategy

Vlad Bystricky

versus at about and stepping ready maybe talked the ready picture, you've And divisions just growing helpful. to grow not back grow a then to that's term long bigger and Okay, three versus the last bit; challenge. growing categorized yet analyst groups that into you day

can businesses about we've current us through of the have that Now in some macro, longer whether hick-up the may each thinking anything any those and you particular had outlook seeing give the how businesses. a slowdown for more three been color a the of of that bit on be groups you're of term performing you changes how

Scott Santi

those also both that any and the get terms view agenda of standpoint seen changes update, we deliver growth to in really performed, haven't businesses good things to promise, of through how growth that those macro of the them some We potential anything period to from the in need in of meet exactly to the we different businesses of of our and terms I full guys when in even potential. We’ll pressure. this where there’s types do you March, a give

Vlad Bystricky

Okay, that's get queue. helpful I’ll back thanks. in

Scott Santi

thanks. Alright,

Operator

from Your question comes Research. next Nigel Wolfe from Coe

Your line is open.

Nigel Coe

guys. morning. Good Thanks

Scott Santi

morning. Good

Nigel Coe

QX end and you back I There’s the we range, on the what if well-trodden reasons, I'm it about us so – confusion for does to margin the XQ. for of of point XX% to understands one towards what point a apologize. going to a go here. said, is is take your which lower margin, lot obviously, message ground the

lower it’s higher impact. track $X.XX about you it just that some some a in this on structure, volume I'm very to Is QX in would So basis clear confusion just out impacts But be a could QX – out there. This if point lower in XX asking business we've some clarify the be volume? that got simply helpful. points of just of GM with of based could the that. sort

Scott Santi

Nigel. things two so Yes,

So a me earlier, I said recap more maybe what let it clearly. say little

margin orders, to our one goes down, from of volume the if down go so go you that’s typical one seasonality QX is here. because rates So QX back and piece our look,

The including second restructuring basis, so and then higher impact is year-over-year third quantified we the and that piece GM lower piece is potential volume, a on earlier. the

really points and just everything on into you within equation to we elements overall our I margins it's reflect EPS, know And those full overall guidance, guidance So talking decimal elements, are you treat that for organic about. and rounding’s even know talked the with really factored the growth about again, that we're year within those here. three and the

Nigel Coe

that's be to great, and especially down helpful you know you production that’s inventory managed there currency QX, another very you Europe. some and of from where fact to shut would got typically well that That's so course in QX down then as

to David Are just you call. QX, that in take of out the do? great million earlier inventory, what inventory know $XX typically another $XXX you you to a So planning I'm in job just did managing million curious, you know say Raso you

Scott Santi

It would do – to we don’t plan have that. forward any

week say fourth you level that earlier, essentially As us said is a the know quarter for and I way our self-correcting so I in week businesses to system normally of would are demand yes, the because experiencing to to volumes from not and XX-XX know operates. to it a tell do just of a, people the a operating dip But QX way system not actually more that and it's inventory what, therefore path. It’s it. follows you

Nigel Coe

QX well Thanks the question. lot. okay, a last margin Yep, Hopefully thanks. that's

Scott Santi

thanks. Alright,

Operator

comes from question next from Baird. Dobre Your Mig

open. is Your line

Mig Dobre

will pieces in million versus guidance. $XXX reduced about sure over you organic the macro? ask missed of this, but not call will quarter, guidance, but GM fourth little I hit in Hi, the by Not revenue X%. here I about good it the were ask if a morning. from I margin terms FX, prior revenue What the moving your

Scott Santi

Yeah, know difference big you mean piece. currency the really I is the

the So earnings more result here rates guidance us line moving against exchange the relative of we on when call. last top foreign know a headway were July a we really have you gave since and to QX, in we on EPS on when as

Mig Dobre

FX. all it’s that’s, so Okay,

Scott Santi

Yes.

Mig Dobre

America into segments the it's And pretty are my people to in of not welding we see. customers, remarkable looking in North the on what all industry that's I'm I'm to going the quarter. when business and I especially big and at volumes again, Certainly in the me grown production. that then follow-up some have talking cutting sort I'm side equipment hearing heavy that see your

the that and that kind simply taking may applies has as flipside the as I'm think for I not all sensitive, Equipment, is there. Food maybe market we're dynamics as other you macro why your environment that be is not that that's and as and some from Are business it slowed or is of dire thinking hearing to happening what share, operators there which instance. are So welding wondering would as your

Scott Santi

I start – to that think so part what don't of price, be rates, volume the difference welding. right, stable me the don't growth welding in saying point, side. be may with as and we characterized may break but out be know this and is part just so mean on versus else I at the that our we everybody of organic pretty it a Yes, let clear, here

side talked on You the know QX did we we solid point institutional the food on restaurants in can good. retail were pushed order and on so growth was to Equipment, specific that continue the pretty then underlying want side you about to rates to we see if as equipment the out are some and the orders side food Food really know flattish softness and you

earlier. So that's how it we characterize tried to

Mig Dobre

thank Alright, you.

Scott Santi

Thank you.

Operator

from comes Seaport question from Liptak Walter next Your Global.

Your line open. is

Walter Liptak

Hi, thanks. Good morning guys.

Scott Santi

morning. Good

Walter Liptak

that you Just in was food I that restaurant wonder a pretty being segment. equipment slowing. rapidly follow-on and as you seeing called some quarters color some CapEx you guys in The if things you prior what just growing know can I flat, for provide think segment? out about restaurants the more with you're

Michael Larsen

detail Yeah, right, so here. you all I – mean more a little give we'll I

and think fast terms little show bit full slower the to kind that a of really continued strong fine service, a basis on it's casual year-over-year the type growth of really of In like actually in quarter. dining QSR here was showing side, more the

flat about at the up ended we restaurant net-net So on side.

Walter Liptak

from – down what flat was but I think quarters. but that Okay, prior

I half. think first something there slowed? the up guys single that in were high Was digits you

Michael Larsen

that. I I best into look, I just can to and gave mean played tell the the you. description think go comps how have – mean back is you I I and I

are up if you probably in comps can main but driver, the factor that think I we on that. follow

Walter Liptak

Okay. you right, guys. All thank

Scott Santi

Sure.

Operator

question comes Pokrzywinski from Josh Your next Stanley. from Morgan

Your line open. is

Josh Pokrzywinski

guys. good Hi, morning

Scott Santi

Good morning.

Josh Pokrzywinski

Is you I price first help the of in about code something there we're on higher. kind price cost. going of some of the where on from deflationary this know that historically, end in of know high zip topped this business zip back higher basis based in you XX than being or of kind think a something system governs think as more in something guess set if we go I historically of XX look mix cost the maybe normally to environments, range. should that Michael, of of Just kind code kind level out kind maybe that of I point question is can

Michael Larsen

historically think we've just this offset far what with mean know year. goal price, and cost inflation you I I what that's No, always – material our has we've to any been done so

to things If are whether price cost, of basis in your here accelerate going XX you're asking the from points make I terms assumption of question. that’s wouldn't that if

Josh Pokrzywinski

about of down maybe the some a on a where road any helpful. be of function the you but coming changes pinched margin been little have Have or know in and OEMs prices I of about will as changes through know some more, maybe Got the pushing kind on emissions folks side, a of you know follow up, there And then mix challenges year. auto OEMs Thanks. back we kind Europe than the get some next any it, year. guess usual just just the mix you thinking more on that's on discussions of aggressive going getting next

Michael Larsen

but I you the of the the we any would I heard think so through if describe did, be haven't somebody we… way we very just surprised So environment plans yet,

Scott Santi

I more. how you push don't know can back

Michael Larsen

has tough industry solutions added our you value in and positioning provider. very niche, a know a It’s automotive

it’s thousands cost basis, be how but if and automotive, so… innovation generate hasn’t a changed price and and I'd of always fueled in change that pressures remain go the that’s know would patents, forward surprised that we by on You will

Josh Pokrzywinski

there. it Got it. Thanks, I’ll leave

Scott Santi

Sure.

Operator

question comes from next Your from UBS. Steven Fisher

open. Your line is

Steven Fisher

the versus comments clarify driving America you then North just of or you the broadly, parts where you made I was can there, market resi to up Thanks, non-res that a are give down. color just specifically just what good you on lower. clarify the was and non-resi said that construction and morning. wanted more Can non-residential resi little more

Michael Larsen

comment growth and where call residential in really the that's so and of said, the we really side we was experience the age in bulk what business; So, here American that's this a like solid – be North continues that's the North of remodel business the America. the X% quarter I to and the

You know lumpier. project the business commercial There’s side can be there. a in little a

of in this and One American ended and for data of of business to and into we warehouses those know that pour and the floors the North flat. can offset of mid-teens we some the kind quarter is in and projects up you down and move quarter, low provided that basically was out products centers concrete

Scott Santi

we clarify, that me that. Let on people do just don’t those floors, pour and they products use make we

Michael Larsen

We don’t pour we the… it, make

Steven Fisher

the view to related of does I XXXX per your at for XXXX. business, look relative auto imagine just some then And of understood. side vehicle Sure, to how content that. have this point the you

of kind a curious, bag Just what kind you from content perspective. have of the growth in already

Michael Larsen

business and seen saw penetration basis range and that on Yeah, is China of know number you auto three growth. is the years, going builds I content is two and Obviously basis to it's in XXX quarter to again, higher we be, whole many in launches mean the content you next are in for have what about content growth to product of so geared new average that terms to XXX the for but gains. that’s around but of before years, result talked in Obviously basis new locked above XXX market know don't vehicles, hasn’t continued of a as points the we that as changed. as XXX this

Steven Fisher

you much. thank very Okay,

Scott Santi

Sure.

Operator

Your from question comes last Nathan from Stifel. Jones

open. line Your is

Nathan Jones

me morning, Thanks in. fitting for Good everyone.

Michael Larsen

Good morning. Sure.

Nathan Jones

asked I actually Michael, a good. were that think that the you and comment you pretty test orders measurement about, don't in electronics anybody's made

surprising probably some you CapEx improving driving or seeing. talk know think you're that's maybe just what Can is bit little an bit know it's environment. was there given of timing the I that, a you more there whether a about a soft more trend you impact

Michael Larsen

had seen business orders then so… down a you is driven and electronic the electronics Yeah, couple from side by and here from order here an the differed of down semi-business. semi excluding up early, the X% test but we months on about we standpoint I to that so We've talked actually – the QX and we're X% mean I assembly. at primarily into QX, some measurement similar And look really some think as what business,

stable. But is the again – room clean more and it's is pressure like really again, more that the we the are technology MRO really side of electronics But into I side. encouraging of inside somewhat order QX. equipment more think head on pretty as so rates the But

QX historical, at always the business. look for you is biggest and the test quarter measurement If

as So you. can color that's as I give probably much

Nathan Jones

then I be to there's your would you looking kind XXXX initiatives about, and EI my at to the out question that, four you think whether point XXX I and enterprise found Clearly things thought to guys this from tailwind margin points, year you a you like a Okay, think you and If drive be maybe improvement said enterprise you're drive follow-up over. can you just to continue XXXX. an that little next know year. bit back continue are the you that out will on performing basis time of have Day expectation XXXX, years talk of initiatives, for so couple margin past that, point a XXXX Analyst guess a be half I a in four and would

Michael Larsen

of great Well, that Investor on Day. a here the here I element – core I time I think question, think and bit on of is I that's spending a we’ll what's quite XX-XX at going mean the be get this is you part think the businesses, you work XX/XX, terms better continuous material think the find. know in more the we opportunity area, that we underlying improvement of do raw the better in the know and I more we at of is

strategy, and were more all enterprise clear And at along, goal XX-XX to XX% up today that our in are to operating if with to not powerful the system Today all what is get the It's the in a XX% evolve. ever sitting the future, margins. way distant we to keep it's getting it's knew better as not better you mid-XXs that's that and end continues and company we to was too EBIT to when recall it so with. really path going we we been and than the to back XX-XX, launched in his we the

for you in give we yet, know just over the points So six consistent year specifics I progress make what I’ll terms continue years to of data done next but want point. with to you can't basis more one last and expect we've

is really at, this broad one is look driving you not This or based. segments If two this.

we sure that XXX the points said between for gives to basis so come you and confidence margins so… me think segments more across I XX a that the and give from some and there's lot should here opportunity standpoint,

Nathan Jones

Very helpful. Thanks much. very

Scott Santi

you. Thank great. Okay,

Operator

We remarks. turn Karen to over Fletcher back have the questions. no further I’ll for closing call

Karen Fletcher

call Julianne. any questions. have to Okay, joining further Thanks this to if for Thank thanks feel reach and on you. me out morning free the you us

Operator

concludes conference This today's call.

You may now disconnect.

Illinois Tool Works (ITW) 25 Oct 192019 Q3 Earnings call transcript