ITW - Earnings call transcript Q4 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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator President Relations, Vice your may conference. of Fletcher, you Investor begin Karen

Karen Fletcher

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

today's will quarter discuss During and financials XXXX year call, year provide and XXXX. we results guidance fourth full for full

on forecast important measures this uses that risks detail cause for certain is a We XX-K press X reminder this release. contained to forward-looking presentation the statements of our Form results other is presentation to and from identified as XXXX, measures to differ reconciliation about in a the you materially financial slide. well that could non-GAAP refer XXXX the as those Slide contains company's This more GAAP our comparable expectations. measures actual most for

have six an XX plans. is our Finally, Worth, us to folks, our like link Day you to for to we remind or March long and strategy webcast on on Investor The access today join investor listen up posted I the to website. in We the from encourage webcast our coming update on Texas. would range Fort weeks

Slide Please our the call Chairman my And over X. turn pleasure to to Santi. and now it's to turn CEO, Scott

Scott Santi

Thank Karen, morning good you, everyone. and

the of execution operating based of strong and and X%, quarter. in quarter operational return XX.X% financial QX. solid growth another we challenges, invested macro broad after-tax delivered delivered Despite of capital in team some ITW GAAP XX.X% The margin on of performance EPS

the contracting half went of second against of in from the of an the For decelerating industrial demand the to year environment backdrop the year. half the year that first in full

to execute control. things continue our well We within the in

down by grew expanded restructuring or of cash were flow XX.X% million As year-on-year, margin record delivered EPS X%. operating free that higher expenses $XXX X.X% and X.XX GAAP we despite to revenues a result, excluding

able and to to were X% we dividends returned addition, $X.X dividend in repurchases. by share and raise In of our shareholders form billion the

Equally path $XXX potential we execution our our strategy. through enhance our to of to we important, strategy than more solid support make full of the ITW's enterprise the the on execution and our in of invested performance million continued Last and profitability core XXXX, progress growth further businesses. year, to performance

to to addition, a continue forward make well-defined and strategy businesses. at progress full enterprise towards progress respective full achieve our Day ITWs our executing look focused potential In March. plans and of our Investor performance providing in progress on each in potential full to performance their divisions We update in our

performance Looking of portfolio differentiated ahead, and diversified a powerful a around of to the highly world model, continue XXXX ITW beyond. well economic to business proprietary quality deliver and scenarios in high skilled colleagues team as business dedicated position range and ITW's across

Now, to you Michael? I'll QX on as turn with well performance our XXXX. Michael who will provide and full the call XXXX over detail for as year guidance our more

Michael Larsen

Thank everyone. Scott, you morning good and

rate demand organic was environment. basis XX quarter, year-over-year strike points XX GM the fourth and remains enterprise The X.X% our the revenue pretty challenging simplification in In what line by organic points at in product growth declined quarter. reduced a basis approximately

across international By year-over-year. growth Organic was while Europe X% China up flat. portfolio geography, was X% in down America and our Asia X%, was North broad-based Pacific down declined and X%. was

impact unfavorable fourth expenses our expected, was within margin on the points year-over-year. our Operating from intuiting XX of the strong margin basis elements control restructuring higher execution in As XX.X% remain quarter.

restructuring XX and price XXX and basis X% and from expenses $X.XX impact. was those divestitures Enterprise from was foreign to positive cost basis points EPS expenses, points Excluding GAAP operating $X.XX XX.X%. higher higher was margin currency three to points. XX up included contributed year-over-year basis and up translation $X.XX initiatives headwind

The cash was challenging performance planned Overall, million net as execution and repurchased flow Free in resilient income was by characterized of demand XXX% a $XXX financial of rate another effective quarter operational XX.X%. and quarter. quarter during environment. we QX the was strong tax our the in own shares pretty

Let's move and to XX.X% of expense. margin. four basis XX Overall, operating Slide margin restructuring due points to was year-over-year primarily operating down higher

points improved restructuring Excluding those decline expenses, higher revenues. in X% margin basis XX despite a

benefits level our since Enterprise performance initiatives highlight the points the the implementation. to of basis were continues realized. initiated these basis and we quarter XXX initiative all majority key supporting based early that activities The driver year seven XXXX. be points in to are XXX The initiative the being impact of margin of enterprise of the once restructuring and segments again XX restructuring fourth enterprise from projects broad the across ranging are contributing highest

raw the material year. inventory course in of aggregate points The costs value the negative over have material the always XX declined our impact we of as AVXX Specifically tobacco execution. updated basis XX our current annual QX with solid basis price, we versus raw In do had last that and costs inventory costs unfavorable reflect this basis our was cost leverage points as fourth points. raw mark-to-market the do. quarter ahead an Volume standards every of front Price price remains in material while the quarter. XX year. year adjustment to to We of contributed

which last year. points. a wage and was basis item We inflation performance basis finally solid XX so category It points, other salary And had didn't also margin quarter the year the repeat includes this XX again for typical overall year. the favorable for and

performance. segment for five Slide to Turn on details

challenging from As growth in positive than X% in -- our lower XXXX every you see At XXXX. related automotive. biggest rate level, CapEx and equipment year seven rates on XXXX in year swings the the organic segments two enterprise was XXXX down with was X% can growth in from offerings the organic an swung one of that and you the know, segments our in standpoint industrial demand XXXX in

performance. the automotive down X% revenue at was OEM. starting GM North to a as was Speaking in regional let's the strike Taking of segments. two America percentage the approximately revenues move by automotive, closer Organic reduced three individual Results with with XX% down look points. significant reflects was essentially flat that X% China penetration, to Europe with growth one local XX% was output and versus in were particularly builds line continued increasing down compared China up bills organic OEMs. bills

service growth tough retail comp Moving of and restaurants equipment over year six, Equipment growth year. despite was had organic a growth food modest X% last on X% double-digit X% quarter. year up decline of in tough for good growth both to Slide X% year-over-year in quarter with in The a those. against the solid reflects comp and up business organic institutional of

XXX of to in the volume enterprise was in approximately X%. very demand record, expanded divested quarter we up also $XX the this enterprise X% points in highest the in with with Margin of main Also with contributor. The meaningful XX% and XX.X% operating measurement a initiatives, margin quarter strong in company Test test to basis Operating segment highlight experienced XX basis pickup the measurement customers. had quarter, as XXXX and growth electronics our revenues initiatives business business. expanded in points from was team leverage. XX.X% a Electronics a and from electronics with with instrument million. margins semiconductor the strong the contributions

tough a comparison year. was equipment Turning primarily year. of a last tough of North down X% to America X% growth Slide industrial up lower in demand seven, X% declined against X% welding to is the The against comparison organic revenue last business.

commercial, stable. which includes smaller users, and personal While business was pretty

business XXX primarily XXXX due with basis of quarter. in points was with growth by operating approximately the was overall XX.X% margin reduced gas points to organic we down X%, expenses. XXX restructuring down and $XX Oil an rate quarter, which In weldings installation million the basis divested higher -- revenues

down organic strong down plus X% basis driven XXX X%, automotive down year. comp tough X%, by growth was initiatives. Polymers Fluids fluids & was was operating Polymers was margin enterprise points a aftermarket versus up last primarily flat, X% of was

softness Zealand, America the was X% X%. and inventory was remodel Australia and the Moving expenses. was to and X% was X% XX.X% to margin higher residential construction up mark-to-market Operating but U.K. adjustments continued organic down down with down up which revenue Slide in eight, X%. restructuring New North down XX%, commercial with X% down Europe due up was

In a past is quarters. note positive improvement of from down an was revenue couple the on organic X% which specialty,

performance As in prior the quarters, businesses divestitures. PLS relative have significant of we identified the as potential the main and drivers are

Excluding potential these divestitures, core growth down was X.X%. organic

America was on and North geography, By X. X international

divestitures We also with point. rate in business million approximately X specialties revenues segment these reduced and growth of by of percentage a divested almost $XX XXXX this

currency foreign Now down translation in industrial X.X% nine revenue down Slide X.X% on X.XX $X.XX review impact was X.X% points. $X.XX environment, and by currency as total revenues divestiture with restructuring as and basis let's headwinds reduced full XXXX year-over-year. a foreign was organic of expenses challenging quickly demand year and divestitures EPS well gains and by GAAP XX from higher of revenues as included

was year-on-year tax margin XX.X%. excluding contributed XX.X%, capital points, as on Operating enterprise XX.X% after initiatives points return to expense basis XX restructuring improved XXX basis higher invested

free rate was net of X% conversion with performance income. XXX% strong cash a Our very up flow cash of and

dividend internal highly and share significant our shareholders. our to capital utilized by made repurchase to We our to investments profitable program our X% surplus support businesses, return increased grow annual and

various A remain quick that divestiture our on on track. processes overall update

strategic the plan is dilution $X we're effort this with points XX sales, objective potential with divest improve the targeted certain phase incremental year points. rate approximately our margins are Not management to offset The any with reminder, gains is up and share organic EPS billion a to portfolio by looking to businesses basis overall repurchases. improve As to effort totaling counting XXXX. our potentially complete basis by growth end by on of revenues and XXX

XXXX of these In growth a were X drag and with to points XX points organic a on share. $XXX In million to pre basis our the the businesses sale a approximately $XX XX revenues businesses we rate XXXX, tax of rate. margin gain basis of sale completed combined generating million or our quarter, fourth $X.XX

ITW our positioned delivered XXXX solid demand our strong the organic well challenging a including and environment beyond. team in -- company performance and for differentiated enterprise and on strategy made summary, the initiatives financial results, a in agenda, executed In challenging and growth demand environment, progress

our or that give and rate growth on to growth in of organic estimated the On we're We it Slide segments the for rate compared making initiatives. growth each market XX, a XXXX. on our segments we quick aggregate the wanted one organic actual to you progress decline update

segment. also simplification the included line We product by

basis full steady XX is As state expected potential be to PLS you about points. know,

markets aggregate outpaced X approximately As percentage blended good estimate our market specialty we some that we underlying you are segments can products. level, we've outgrowing their for enterprise except by our At rates see the points. overall, all made growth progress as

several next years, on overall expect one So completing organic our and additional progress of in good to our growth generate the we points initiatives percentage the improvement by agenda Job two organic rate. Finish or ITW's growth over

at As look providing March. in day Scott forward we mentioned, progress to our full update Investor a

and talk -- starting XX. let's about let's turn the page talk with XXXX Slide Now and

the range associated to for revenue the seasonality. for for current we in GAAP XXXX be current of X.XX currency each First, range to Organic the and at growth is exchange the At enterprise year. rates, X% X headwind expect to divestitures to X% adjusted levels level XXXX. with percentage forecast foreign EPS revenue. Using point our demand, of translation impact in the X.XX of of at

to expected points. PLS basis XX impact is be approximately

XXX enterprise expand initiatives free greater a flow range XX% XX% we to should tax XX.X% XXXX usual, ROIC points. improve a to net We to contributing expect basis of conversion than margin from cash to with with range and as a in operating XX% XX.X% of approximately strong to XXXX income. in expect After

repurchases from to repurchases share to core billion $XXX EPS We additional the million $X three divestitures. have the billion share dilution of completed allocated and with $X.X offset

which rate EPS an XX.X% also today's the $X.XX headwind at currency EPS. and XX.X% unfavorable Additional items of foreign include in range $X.XX expected rates a is to tax represents

return the At all and position a tell else. February word this into to we'll as relates obviously we've are it same last as everyone obviously Just our point, guidance early of to the to in in XXth. the situation China closely. assuming on to situation we Coronavirus baked quick in it's China too production, monitor work a we week continue that But and

on well of to we make Overall, differentiated agenda. the strategy progress for meaningful performance path as our to execute on across Finish through and implementation within our is potential Job wide performance things the range full scenarios financial ITW positioned continue control of the a enterprise our

influenced adjusted acceleration XXXX run Finally, the to are growth we by rates, we're there's these by an year-over-year segment note for expectation go providing And full no our current embedded on It's XX. in that as organic outlook of are comparisons demand for based through on and year obviously seasonality always, year. important Slide as guidance.

XXXX that the XXXX. The every performance to segments to see every margins margin true can segment growth forecast their expects improve to in You organic is relative rate as in is for same XXXX. improve

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

Karen Fletcher

right. up Q&A. Thanks open Michael. the to All Julianne, line are we ready for

Operator

[Operator Citi. first from comes Instructions] Andrew Your from question Kaplowitz

Your line is open.

Andrew Kaplowitz

I've Hey, Mike. got good morning guys.

big pickup quarter and you've CapEx in a in food which years. the equipments, that had You the watch in businesses tended instrument to over are

while recognizing uncertainty about be in did of you still customers? the because uncertainty, So trade CapEx does you there decisions tell that's XXXX? may see from it actually all out some And virus the now, some there the movement what

Michael Larsen

QX than better was QX. in Well, what saw I and were QX deferred a QX. rates we that number of in were businesses certainly orders the think that into of Part growth those

in And early Certainly a talk in Andy. a here pickup encouraging, it's to it's but early too little view, about too so in I those -- to a our tell demand little think businesses.

Andrew Kaplowitz

Okay. be here. accelerating That's strategy helpful. at program, enterprise your then, look if seems your benefit I margin to And

getting level programs think these mature, decelerate. off that or maybe Now you they'd would

that have points, just that you XX, know evolved what XXXX? you'll challenge Analyst on you as enterprise Is up, really coming to better at a is basis enterprise you strategy. least talk XXX but this, of get be So date Day to your and I in this expect strategy we through about target XX continuing

Michael Larsen

year here. time at one mean, a let's take I Well,

that of the XX think today a talked We've margin The working continued learn we quality powerful certainly current work standpoint. businesses better in we're why are significantly of generating and that eight than portfolio. into years when still with XXX and the materials we've that execution is expansion is in basis done enterprise this all journey. points from is, the terms are fact to significantly this we began I of an strategy more gotten We've XXXX about after the XX, the encouraging. raw in before higher

But encouraged that be will And a highly XX, confident of that, those margin be XX so put but big -- reach performance we you too those in little contributions the rest part be tell our assured that XX, I a and progress. early there. can goals. highly to might what we're are continued we to really XX think will a we've We're it's out by XXXX confident achieving in big XXXX. continue objectives

Andrew Kaplowitz

Thanks Mike. Appreciate it guys.

Operator

from Your next Research. question Vertical comes from Jeff Sprague

Your open. is line

Jeff Sprague

it. the all here? time us take Thank things So you. that just are the how I one Good divestiture morning remind would businesses be fell to you some accelerated Is individual can activity picking everyone. do place or left? And that, expect Good these at you pace up. in actually of kind are it of a to many see kind transactions.

Michael Larsen

Yes.

out. of We've businesses. we've the I So is line this was cadence a think got -- laid the that with in -- process here number

completed. divestitures three So

three are then sale beyond I a a this be of that we filed for businesses XX-K there there category. that are point think at held And that. in will another that see you'll when number

So challenging we're good we a than more bit making had most macro maybe in important… the going little into progress this. expected But what

Jeff Sprague

the down is process Which a slow bit.

Michael Larsen

Yes.

slow little was a it's think, bit. probably to going I I things down maybe say,

that, targeting -- track our structural are achieve of we're a growth important think XX margin out by done little a current thing just a to might organic we basis XXX track. get said, certainly points I the of really these improvement, points bit. overall but backdrop on the Scott we we're the processes are pushed mean, that in to and is end And at as I get macro the still But XXXX. basis rate have given those on expectation, improvement of shot

Jeff Sprague

Is of of here you that, Well, hunting a rich you've things buyer, that on up? kind see do flip getting for side you're the would on kind of acquisition really deals XXXX to you easier? the filling in Like side? obviously expect cash what been pipeline strategic happen the given

Michael Larsen

by past. things about active that that, from portfolio, regard we've And assets. assessing just say looked right meet anything before hit sort would up consider We very valuation on we're we've be the that certainly and in it's I matched in some to we terms of didn't opportunities hit that of the have willingness didn't I let's will valuation as the regard. we portfolios the to in our going XXXX in also yet adding as And to talked of the talked we activity successfully continue doubt our of that the to it portfolio overall and obvious. disciplined about standpoint more standpoint that to of And But in add we the regard. always strategically color of And combination were terms as to active our strategy in didn't is the in XXXX go. is our certainly add will a I had the no a we're to call have at in remain interesting Well, very that screen, think we in a And from been I -- environment. it posture sort kind fit criteria.

Jeff Sprague

Great. Thanks for the color.

Operator

comes question from next Mirc Your from Dobre Baird.

open. Your line is

Mirc Dobre

everyone. morning Good

at quick margin question Have on a Just this you factored point? in the guidance. any restructuring

Michael Larsen

Yes.

to Mirc, So margins which and XX.X% XX% are range the XXXX -- for restructuring. guiding point this at to we includes that

flat assuming adjust year obviously how this and year-over-year a that be at are we'll basis see the point accordingly. out we So plays on restructuring and will

Mirc Dobre

dollar in terms in of or terms Flat drag? margin

Michael Larsen

neutral. EPS margin dollar Flat in and therefore and terms drag

Mirc Dobre

of mind buckets follow here. to I'm my my wrap on kind the just up, Then Okay. trying

consistent me cost, the a low the the what end maybe the your low-end some the of points I'm and Can year. XXX with revenue guidance with high-end that's maybe enterprise some bit you've that's end sort price basis or do volume other in help to other here? the of of we the that of there's you So, And to be guidance But help. it here? low you've got if a XX.X, the Obviously things How I'm you're providing. the get looking presuming comparing or to initiatives at bridge I'm prior a could doing. items done

Michael Larsen

like What So EPS Mirc, or to you you talking do? are would margins.

Mirc Dobre

margin. EPS, margin, just Just not

Michael Larsen

Yes.

way think think I And initiatives information is, a we So maybe one already. it basis the about contribute a for to quite bit XXXX provided hundred points.

volume into guidance. have positive We our leverage baked

favoribility initiatives. I'd say margins. to then here is, at to look and in remainder rate, in can at You be a slightly might 'XX, going growth have. bit continue the We're there. our this we're a we're point, is positive to that assuming our we historically going The to invest on to of the how core what that compete always support we organic growth maybe And based and going as organic to we'll businesses see invest people Europe out. divestitures our neutral little plays invest that to Price we're impact sustain cost,

And so if had you kind it in XXXX, similar what expect to of look we at the remaining to maybe buckets, be XXXX.

Mirc Dobre

may, into That's Thanks. look than average? And or margin if lastly, it. out there expansion potential XXXX, as one to helpful. your that more having potential you at as two stand Got are than margin segments you I

Michael Larsen

Yes.

our XXXX. expect based up, said the they segments the to Mirc, think our progress told in over I is on my every us one board on on make level what of every continue across up in as to have planning at we bottoms segment process, really divisional think, we comments, really I I XXXX expect based this

Scott Santi

right? get, margin talked And about say more the volume the other leverage which more get. going that before, that's growth component, The to we deltas we're the in the is you increase I'd what

Michael Larsen

of Yes. example And think you I saw that. a good

up, of enterprise This quarter at performance the leverage of two the and the just look that if initiatives. you points, volume and measurement margins basis in test thirds was XXX

little see coming get can what a volume, organic in of you bit So bit of these little when businesses through. happens a we growth

So…

Mirc Dobre

enough. Fair you. Thank right. All

Operator

from Ann from comes next Your question JPMorgan. Duignan

Your open. line is

Ann Duignan

Hi. Good morning.

could at risks? versus your you you walk the looking just Just see various the and segments forecast, us through organic segment, growth downside where the upside

Michael Larsen

I'd run Well, say on based are of current all rates. these all, of kind first

OEM, couple those. I little a a think And slightly automotive there range of here a so, more are have welding, which wider in that maybe market reflects segments uncertainty

your equipment equipment food those think one a has construction solid, And fluids, that range in point. you to to two I test kind specialty at low measurement that mid the to measurement then, rest digit and single see polymers can pretty look of four food three. in the

we and year. -- know, how think So it. I characterize uncertain -- that a mean see mean, talked right? just is that's about. plays kind out have I to as we've this this is is got challenging I this of, a how XXXX pretty China you situation environment, we to we XXXX,

current the as so levels current using we're And this kind forecast businesses. is today, seeing here our sit we of these in demand that of

Ann Duignan

fluids, in closer I then I as consumer business that driven. and being mean, that you're obviously, context, of more And much are we to think businesses Yes. polymers these but than

so about for can talk downside, on you guidance just the the of the all one? negative And

Michael Larsen

the and business. I aftermarket I of consumer-driven to so you're the pointing think you half about Well, businesses. When fluid says say automotive think polymers

where of challenges this side, they're MRO in the numbers down probably year slightly. you particularly space, retail Particularly more side. at kind BXB, MRO on the look business in on that are had If fluids some the just We've Europe.

not very favorable couple this And other end also There including of XXXX fluids petrochemical Marine a say and are flat and some overall, exactly we'd polymers then, some in so point, you is and slightly in exposure. here that markets XXXX. exposure positive at have

Ann Duignan

you. Thank and I in get Okay. the appreciate I'll back color then queue.

Michael Larsen

you. Thank right. All

Operator

from comes from Securities. Fargo Andy Your next Wells question Casey

open. line Your is

Andy Casey

of in Would things, non-repeat typically inventory A several of clarification included those called margin on Thanks. the bit morning. the you in item. little an restructuring, walk, be a Good other? out past

Michael Larsen

Yes, that is correct.

Okay.

is it's year to we come interrupt year, raw just costs because we the So adjustment, the the inventory down material you, need but adjustment, every year that years that I and have throughout that inventory mark-to-market bit sorry, so adjustments than make it's say, prior a as larger one just little this the inventory.

a decided we out to call and the detail transparency, around so the item And give separate of kind that. as you it

Andy Casey

the you. Thank or earlier the macro. the divestitures, a buyers the slower expected And of than comment assets in margin that on you Is because And questions on of then, they the three Okay. the for timing four and uncertainty? encountering are top-line hesitancy their about purely category, the to from K, then mentioned your overall excluded pace few guidance XXXX what due was sale you from the and are potential XXXX performance? impact on

Michael Larsen

Yes.

-- with start So one. me that those but let

own So the in that we ones our that held we are sale, that in to see are assuming XXXX. are you'll going guidance for those

XXXX exclude further well acquisitions. any any numbers as divestitures as So

So as in the that as we this it think own businesses today. all of is really we

also your of first on I it's bit the… a these, I element little think I think think of And question, I timing. mean, it's some both. of an I think

Scott Santi

The longer. process taking is

Michael Larsen

a of these processes isn't say not, year. this disciplined I'll to bit desire little businesses. going those, we some that just into is if do both defer next some do of right longer, evaluation I seen a finally, more we the maybe I do backdrop. think might piece And we've due but this take the then There if there's as can is an maybe to Processes from I some to and with to of is and time more think uncertainty macro has divest it we're so mean other diligence. then these be the standpoint, And

you we we'll through keep posted year earnings get and these on get we'll go So the And update you calls. the as an processes. on

Scott Santi

quality have all high to going are these just I'm businesses.

think another fit relative businesses long stretch. are distressed -- there not on business that by are but for certainly us basis right term, these So that will the we a any

able where have to able So situation of do But We've the quality as wait appeal. eventually. these environment it all -- And and another lot value, fair said, extent there the been are we've then treat the we don't three a macro to Michael we're we'll creates to cycle far. we're to that certainly think assets that a so versions. three get out got going

Andy Casey

Thanks. Okay.

that already on we able that Just you have to margin performance type the K. those are three been the expect as a three to to sell? in that, Should follow-up a have mentioned the similar

Michael Larsen

Yes.

high think they're there's to a percentage. that is single digits The way average range. similar. I all pretty about maybe mean, I think the EBIT it in it's

think way about So that's one it. to

Andy Casey

Thank very you much. Okay.

Michael Larsen

Sure.

Operator

Your from of America. next Bank question Gilardi from comes Ross

Your line is open.

Ross Gilardi

Hey. just in we environment guys. this Thank become But was the three plus continuing how now are how organic in the a very Good can morning, at to e-challenging the shooting that. some in X% I environment. margins even flattish a get sort clearly like to it's of in to the point and thinking are like, you. and wondering right objectives choppy us, margins over that be versus counter to to even X% with but for guys just environment, expand long-term type your in of demand productive And -- you you remind is we we're five. company about where you do do and

Scott Santi

X% We're blended year. objectives, rates growth and using the we situation was that in of where basis these rate, estimation that two this our of half assumptions sort right is the underlying market and last of are -- an a is what our average that down think markets best market a over we're core in the to rate business now growth on time. are from a I essentially saying should X% really our the grow anywhere from the standpoint from out

essentially or whether So, a a normal, terms where it five call in you normal a of on the three long-term to three it's basis overall let's average from pick in and two GDP of, world potential view the that's we portfolio. we in this would is in what recessionary of environment And differentiated this, it think that is. for have that This long-term there's highly call way the any our expectations change industrial a company. comes nothing

from standard We've of the is at math. ourselves the talked point incremental are Investor That's there a And to to a lot innovation. we've to got we're already And got Day, on before and again, growth the more working we've this we'll get on. bottom-line point least ability simple but generate other depth position into lot at from the consistently execute some. penetration that then and the that businesses of

time potential last what take of view do conditions our a ultimately to this point company want of get the thing of us is. and we the in think long-term market So, we'd set off of is

objectives we've the continue Michael we've jump out out from I'll laid think standpoint, that to got here, of we the that past expect in got a to progress margin we've I set a -- in performance let but make again. into future

Michael Larsen

Yes.

has in terms of think the year Ross, to target said five, might five we'd of period performance This double our macro. to kind year. we've view be to ups deliver. is that margin I as five that be it not the that that XX% with in growth XX, in And you laid we everything margins expect on a three helpful, and able that an XX. out low to normal should the for digit, to comes and That's range the over going every I I know, we're mean, know we earlier. nothing grow changed three

just changed the today. in So our given those haven't macro on we're that views

Ross Gilardi

I respect five was the I margin flattish versus realize you're several ability next to markets. that was really wasn't the pick I target, with if trying to your we're getting remind your to there from end No. Thanks environment just three to your coming how you all. still a me long-term at years. on for for guys. in that trying just just much to hit -- of outgrowing to

Michael Larsen

volume you of great you execution that, here assumption And like bit get environment. there's comes Yes. measurements, very a again, with and leverage the I at earlier, leverage. example We strong the quickly. macro that saw to initiatives. look if I driver mean, a of remains you I And a continued said reasonable there little tests enterprise that. biggest going this quarter, normal on volume got We're get some think then, the

we'll and couple three And any good faster that really think that that's we five there we're what get we I five if here. get say trying average expect we'll period, that. in a than to to range, years of but over year

Ross Gilardi

economy. pickup realize Since great capital and Okay. semiconductors of you a you in us ITW guide, just but feels a you discussions for optimistic percolating it is global weren't signs bit any of seeing are up general or little any obviously CapEx Are the getting of your I any mentioned, more spending in reminded into or, your in businesses? you like anywhere picking barometer factoring the

Michael Larsen

this point. at Not No.

was QX more pretty challenging of a This think, challenging, pretty really environment, so. remains a the same. I

Ross Gilardi

it European thing are ask auto And seen just last is, now businesses. you've a of want -- couple in the your Got China then outgrowth return a Okay. it. of the for quarters and China about I to do market? feel you in kind the at the to given kind where firmly is quarter like to end to point of you're point, just does back continue the weakness feel or set of that this quarter

Scott Santi

as I drivers a China margin. wide the market think track track has very continue. have OEMs that remarks two solid. is years, the the that will we long mean, team penetration just next And by big underlying lot there and at I with the The have to in runway look record. been And of prepared think if that are there outperformance continued I projects we we're a long is said three still. a you record outgrowing confident locked in local of for a

Michael Larsen

Yes.

or It's using and in OEM the are -- a we're to terms now, issues the given bit of North what's comparison. Europe very OEM quarter. a of the I I question America, a to the sort of builds in kind on choppy think issues those the in of builds of think number and underlying gross going on quarter volatility

think at and in relative performance on Europe to North basis, way look full it's our better America. a a I year

on will provide a in that 'XX Investor Day. an position be for update We to the at

And really ability around a about basis the four points. the all the But reacting to think standpoint the different So OEMs. those penetration the reacting. per individual I some on react of the Europe -- at on, call OEMs the current OEMs to feel basis volatility medium is, only will sort those things and penetration of sort and the we our sort last we North that in each chains that the fully the track on even our some progress. of supply mucks of markets underlying through from pipeline we of good how how of a world. America of and my real expect to some see have of of, penetrate over last vehicle above with a big up ability both it on gone that some environment outgrow let's have to There's a But by minimum six to continue that of market term, quarters, projects some of two rate well point are to a

Ross Gilardi

it. Got Thanks guys.

Operator

Your comes from question Inch John next Gordon from Haskett.

Your is open. line

John Inch

X, from guys. that Michael, the announced quick repo of to going clarification, Good everybody. to or… XXX just Hi of X.XX is the morning X.X the divestitures offset a you delta is

Michael Larsen

Yes. That's correct.

a me second let on just that. So spend

the our So currently -- X.X billion, that's year allocated surplus capital repurchases. kind of for to but the for estimate share is

kind then to of million or the this EPS year. to think those offset are that extent And with core there the there divestitures. the away an And earnings -- incremental of divestitures further as the there's I those three are share that repurchases. hopefully XXX went

will We purchase share accordingly. number adjust that

what's page So on at could that's end number higher a we than today. up the

John Inch

improved Michael, doing. this Got back your bit points XXX should you enterprise presumably maintaining be how overall it. a How demand little think of other about, about might are come companies what is consistent that basis we some in say, confidence with of we level sort of would how came or think benefits actually spending feeling a past of initiatives to spending I initiative where was you the it you past things growth that? in enterprise the when contribution those EI, improvement improved because maybe from , by of the of better in mix of it, environment? growth of the the [indiscernible]… Does better because bounce little benefits suppose a back get or, an the you're issues up dolls one China probably and -- of once growth bit these begins get year is

Scott Santi

those of enterprise earlier, on point, projects, across visibility one-year at and broader things two of our what continued this are have of that discrete Yes. which that Michael company. -- the really I'll that strategic is sort of underneath XX sourcing piggyback quality so initiative around said improvement in is we strategy forward, about the is a certainly XX, the largely practice part

And sort XXXX us have as so will what end story we're here fuel saying some now that of front I continue is, if not say it. in we've to the profitability we can in certainly to confidence that got a with of additional another the But that's while. for of point

The generate the initiative. other can can accelerates. growth tell way, in best as enterprise The as way that I sort thing we of from the contribution I of XX% dollar you any of don't incremental don't organic XX% to see I contribution growth somewhere on it incremental is and organic range over above from frame every

John Inch

Oh, if back that's XXXX, a it just sort would look of But what -- what for Scott there's way Maybe are say priorities lastly, helpful. out? year personal no, accomplish? in and ITW your frame are on definitely to Michael your to Yes, we helps. you that a as top

Scott Santi

upgrade it. want individually. You asked I a to of the think Michael at say we're but don't to quality is to going CEO, he go

the or every now we've do but to of of think the certainly thinking say we AVPs and help every this to focus, biggest execution really up Interline our tell about I'd not environment, us organic continue do Vice the our to the got to been,, I company this of rate focus it's to and been Chris two accelerate standpoint. And of kind full get I an everyone that our to progress. morning see certainly our continued I get But on organic our things part from largest last, is thing hard to growth going O'Herlihy, towards Chair, potential up continue focus growth. we've thinking about, the for are to our it's can just today you Michael all that morning years our get what

the around -- I don't we're the really about and feel doing both macro things of the some think strategic for doing other give activities the at potential enterprise the there. that think a regardless you But to sure. good from momentum I initiatives that standpoint XXXX what Michael answer. the his there's moment. of Those growth level of to I structural lot the acceleration. certainly need attention continue are in is And ultimately changes of things are organic

Michael Larsen

we on Investor that progress topic give this see to organic to and grow growing going that. market. divisions if execute made steady to those share to progress growing and of above -- -- in that continue John, time that obviously a call on the we of expect XXXX Mine numbers lot you same. progress you we'll category consistently to at We're defined the going with spend make is really plans on exactly to Day, I we in XXXX. as just would focused we'll add, ready not in including, number and growth some as you'll update would you a are And of we on

really and place. To because with this give you examples is kind you taking some that's give insights those give you metrics we'll divisional growth we'll we'll getting also real to where about. organic So share and talking some work of focused whole you Scott's is March. we that in more on get what on detail rate lot the when together going The company a

John Inch

you mean, way I Instron the about time last very talked helpful. was

much. very So Thank it. very much yeah, forward very, to looking Bye. you Bye.

Operator

from question next Your Suisse. Credit Cook from comes Jamie

Your open. line is

Jamie Cook

Hi.

of think been most I questions my answered.

couldn't in guide XX, than worse to sort we or we One, the about period and how Just in wondering, side, shouldn't guess that it why clarification market XX be confidence that? think -- you seeing you I time What appreciate, growth organic your the just relative to what I be on guide, you're the saw two concerned? of give questions. welding your

your the all that then guys second margins, but improving obviously great markets declined change Thanks. you is have there think we about on how just were restructuring and your should job any given done decrementals? And sales my a the or weak assuming question, if done

Michael Larsen

Yes.

with I the that. on I'll think restructuring, maybe start

pull projects I at XXXX. we'll same last to the front year, will conditions to year forward of a the what And did initiative to in back we similar XX expect we specifically some pipeline. play these I think, how deteriorate enterprise related if we'll XX, way unfolds. market our see

business cost businesses, regardless down there. as to think difficult I us, the current XX% point. We're was run that throws And That's much plus ball this X manage know of at but better of of -- accordingly. we the don't We will and crystal of and… current XXXX you XXXX be as we in up slightly using I XXXX, rates XXXX that we in we a have and like we're estimating will it's a don't than have rates. our side we that's in in Welding, I'll comps. really, better down a all at terms other X, react might environment run in different, what know did start always look the what Like at as do. not equation welding than,

Scott Santi

of underlying amount the of… the And terrible from terms activity, in far it's

Michael Larsen

Yes.

Scott Santi

assumption I steady we're state the we're But in underlying. customers side of pullback spending in our improvement the big in consumables, sort or and reasonable other is The not input saw given assumption welding places getting from in seeing and actual going welling terms on, certainly a pretty CapEx consumption And cetera. that. the of on. our think of but et We for XX a cap think assumptions for I 'XX, of in investment

Jamie Cook

Thank let someone you. ask I'll Thanks. a question.

Operator

from Your Goldman Sachs. next Joe Richie from question comes

open. Your line is

Joe Richie

you. morning Happy everyone. Good Thank Friday.

a I trying to of your still and Since comprises question, to the would guess at bit there? you're time my what be better little first in growth it when So, margins deceleration I'm to expecting, guidance. be for understand low imply a end earnings

Michael Larsen

I do were the earlier, to environment. we in wide try pretty a we account for guidance demand range, I -- mean, scenarios. range challenging like is of a what said Well, possible And in I think

environment. factor I think the be overall demand biggest swing the will here

things a we'll further, if likely things be we'll things end. be mid high lower know, or standpoint, you where the at or, they if are And from above. end accelerate at to And slow the so be point, the demand if closer remain we'll

the the, the remainder the of think can items, you I that's initiatives. best I the give So really know, answer. you

the sight those repurchase terms -- share of we've earlier, that'll of are count rates program the and we're do. in Scott what do using, we savings. that tax all We and gave think clear generate share line as projects Currency, Those know the you. said activities I will

And around so situation those. to demand and lot think the a out. I this those there's environment swing the variation factor here near-term The sorted in China needs less -- whether overall are be is in that

keeping a we're eye that. so And on close

you. give can I best the probably that's So

Joe Richie

well. Okay. Michael. helpful is, the XXXX, That's And from progresses. -- maybe then, kind as quick from basis and How you my a I'm positive of as XXXX going then And the follow-up XXXX expectation that cadence a we both and in we margin think growth start front-end impact turns here year your growth year. about end specifically remains you're to as should perspective, thinking about XX the restructuring negative on margins, that is the guys point last front loaded,

Michael Larsen

the not plan. current That's No.

obviously the throughout we On the your I be I kind demand question. think If think of more year. spread deteriorates, restructuring, first adjust the equally can it'll environment on

So don't quarterly guidance as provide we you appreciate, anymore.

at how of out kind through historically organic year. of think and growth and EPS plays at I you margins look kind the if

If you look pretty at close historical here. reasonable averages, to you get a can scenario

around added QX, we have this uncertainty I China. think in

margins, on three QX Q see where And QX So sequentially typically to better. then year-over we'll two think some rate is -ear. gets And in have lower. you up. Q ends then see improvement the And then is margin slightly organic growth I what

Joe, I XXXX. think as I think historical you if about -- think informative you that's trends pretty you can these at So look

Joe Richie

Okay. Thank you.

Operator

comes from UBS. question Steven from next Fisher Your

Your open. is line

Steven Fisher

I quarters. morning. but business know interesting that construction on not Good biggest, some helpful of and recent Thanks. is that construction the the your had perspectives piece in you've commercial

point, this on Just what curious forward assuming what your view is going and piece. a at commercial you're seeing

Michael Larsen

Yes.

a of related little a be Really on to So projects. the quarterly can basis. commercial timing the lumpy they're business

the better quarter X% So the one certainly business. that of from in numbers was

construction commercial at look the digits. year single you down actually full low if the side the think is I and business

And to a similar XXXX. it'll so, I think we expect a in be that current runway rates,

XXXX again, what of and I X% wouldn't significant a acceleration high-end typically at the business number So QX is this at does. in expect the

Steven Fisher

And welding, follow two. outcome. run said up current again two of where you're does you're, the know helpful. a that's you just this plus is to Minus Okay, then range? rate wider you where the puts to assuming I on that of of businesses within business range

some could that there. So puts does that where be like, you additional headwinds just it it, seem and curious where -- range it because in there

relatively positive some also the that's negative. keeping So there wondering more some steady more and it are that that are of if I'm are that consumable drivers piece overall, within

Michael Larsen

try adjusted the of is to suggest I think typical for bracket for would to what answer point kind your we do XXXX, the Well, question, runway mid of seasonality.

that's So the I pro best welding. give probably can you

ratio consumable and is to XX. goods capital our welding So,

Scott Santi

you mix, I mix this different product peers space. our in the our think is quite as geographic some than know, of

the where side. represents market, So we is. you which towards North where of almost on are weighted XX% are technology more the our the weighted side. the And the That's That's to equipment know, we're more business. American higher consumable margins relative

Steven Fisher

same are And there's there. seeing end moving Any of all that any the up are no way you're within direction? in that or in driving the are that markets the that down them segment kind demand

Michael Larsen

down think, those demand I so industrial heavy No, think the more and equipment. certainly there single There's side, some contraction digits.

and I X%. more think earlier. which side, gave And businesses, this point. is oil gas smaller personal Was think at the we commercial the that's more users think I you flattish I down

I probably a welding. can give so you as much And that's as color

Steven Fisher

very Thanks Okay. much.

Operator

Our Nigel Wolfe Coe last will question from from Research. come

is open. line Your

Nigel Coe

Thanks in. guys. taking me for Thanks morning. Good

of a here. have lot think covered I ground you

kind of high So I fairly want level. to keep this

the very line successful. seems eighth we on think four of now in come three really sort the of It I in So, years. SG&A been eighth last seventh, obviously the it's initiatives and or of benefits most maybe through year like the the year of enterprise

you and You big and down below gross top more of do in XX we're take wanting other talked the going as you a that come that, year, well. on SG&A is maybe XX% will scope there's think think do to driver forward? where things a sourcing level to this a Scott the benefits about strategic now But margin line more at

Michael Larsen

see is XX little solid contributions enterprise far from I year been another like. the so sourcing But, XX, on year think I equal, what impact Well, we We'll and will as basis talked geography overall may what fairly exact we from look XXX and bit forward about the more thing have initiatives, this we see under basis VM side. go think think divided a earlier, points unfolds. the the important I the the

execute Maybe and is of identify to continues variable and in a XX little points But quarter. said, all points is the I way basis overall contribution projects, to fourth of -- what's bit more, basis like the here every range the really from at just on the side QX, look things. segment overall, XXX encouraging to XXX

that's So as, much yes… probably as

Scott Santi

L. the processes. would thing only the after I We're business simplifying is ratio going not think the We're I gets how executed. add this execute. way some on P& we improving We're

but also of standpoint we efficiency, how and the productivity from around certainly of serve terms benefits customers. In our

it of the do that none SG&A, support okay, of sort how project, these So each we, is the businesses. of is how the focus is now better individual or focus pieces of says, this do quality we

the sort think effectiveness And and me the for to your P&L, of overall this geography in of is, we're on about sense of even the so performance business. it's simplifying question hard the in where improving the of the

improve and going your and outcomes margin, on happens. really and of line, outside how have it practices terms We of here the it and up kind we're, to improve of and ultimately P&L focus is terms result. bottom-line as we it's of trying in of to it just the maybe about slice even structure, those that generate but top-line And kind ratios to of get certainly all cost I'm ratios looks adjust to better the question at sitting in not focused think further. a the is ultimately the -- on the our bottom it actually but we particular

Nigel Coe

inputs. The are coming ratios on not

And on just follow-on, is this quick inventory. that. understand definitely and then, the Mike for I a think I

adjustment, So LIFO bps correct? is that's the charge, a that XX

Michael Larsen

it's material that mark mean come costs Yes. market it's raw inventory I to the given of the really down. have --

that lower So we that's costs, adjust impact to the the as raw you're seeing. the standards reflect material lower

Nigel Coe

a me. Okay. CPA, I've inventory escape is accounting way a got but to

Michael Larsen

the of So, even we us. can satisfy lot XX-K CPAs I in should promise the most will that amongst detail a advanced provide

Nigel Coe

about they that, cost we've sort then but yes, mark through material saying at it? So, the is does of just price and market little I'm a just conceptually, year to CPA, end, simplistic in to a raw the very about line, closed is think got way that

Michael Larsen

In that's how it very Yes. works. simple terms,

Nigel Coe

Yes. Great. Mike. Thanks

Michael Larsen

right. you. All Thank

Operator

no have further turn We call closing over questions. back Ms. We the to remarks. for Fletcher

Karen Fletcher

I Thanks morning. Okay. us this know everybody. joining for it's a for day busy

If you questions, follow-up just and call. you. any out have me give reach a Thank

Operator

today's you at lines this Thank participating may in time. conference call. for All disconnect

Illinois Tool Works (ITW) 31 Jan 202019 Q4 Earnings call transcript