ITW - Earnings call transcript Q1 2020 | 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. participating one Q&A, one question those opportunity have follow-up For ask to and Instructions] in you'll the an question. [Operator if needed you. Thank

Fletcher, begin you Investor President conference. Karen may Vice of your Relations,

Karen Fletcher

morning, Thanks, Call. CFO, Santi; Michael President Conference by Vice everyone, Okay. Chris joined Good and to and Quarter I'm CEO, ITW’s and Chairman and O’Herlihy; Larsen. welcome our; Chairman, XXXX First Scott Vice Julianne. Senior

ITW’s the During as first pandemic we today's discuss quarter well and of will results business managing the financial our impact for through global XXXX on as strategy call, our it.

to May a this and for effects potential you today, in XX-K, important most This and about Slide release. reminder X could actual to more those We XXXX Form including statements. from our of the the uses measures contains the the materially a refer Form certain results expectations, is business. detail is the Form pandemic contained non-GAAP GAAP X, measures measures company's on of presentation that that on risks our presentation XX-Q filed the forward-looking press cause to differ reconciliation X-K to comparable filed COVID-XX be the

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

Scott Santi

Thank has the of first you, the changed Stating we Karen lot in and for most quarter. good obvious, relative environment a morning, everyone. operated to the

transition some pandemic response on to the leverage I pandemic our QX As a brief provide COVID-XX ITW’s company's on in result, our we will and the strengths then our opportunities challenges executing the focus this more commentary ahead. will performance, on strategy considerable to specifically, morning will strategy. and, and our to be

our much presentation. performance are conclusion results the our our the of QX of and regarding during to welcomed detail We you in ask Q&A the at quarterly questions included session have of course, appendix normal

the three I me to morning, in the Karen As to call join actions managing are our and of months over O’Herlihy as we Vice and to weeks thought how would hear challenges for is us be I've in Chris coming helpful that positioned that from and now recovery. participate Michael company we and on you asked through the of all the noted, will fully it the period this on Chairman, near-term ensure and take we're are the to containment taking the currently perspectives

ITW secret culture Before we I jump to the as colleagues rapid in the to offer to It in, ITW’s element We and often fact it world. during we times is than heartfelt our significant this core a of is who and all of are entrepreneurial change. our is decentralized our want thanks case, about talk of around sauce. more key a that never company, valuable

people that bringing changing care safe, to of doesn't the they at We is our we the excellence. expected any ITW and keeping serve with co-workers finest. of they ingenuity incredible fact colleagues continuing has teamwork, adapting and the while commitment extraordinary. all as seemingly of customers are new challenges The it and that to conditions our level less exactly team responded to make moment thank selflessness our ITW its for rapidly proactive The tackling quickly and arise daily at their would

from points basis with X.X% X% revenue Now year headwind, divestitures X.X%, organic XX impact and of a revenue PLS. first negative X% on at on to results, total quarter down year declined currency

in quarter, XX% to organic March China XX%. and year was geography, organic on of but last more flat February revenue was The North we have America weeks April. two appears By than X%, year and in saw was down the the for revenue An Europe was down where encouraging sign. majority in occurred down the decline X% bottomed of down

benefits continue we flat environment, our demand within challenging a XX.X%, segments revenues, at of margin control. in X well X a to on margins execute operating decline our expanded was X% elements the the due face quarter of Despite points invested on the In capital in the a million of tax enterprise operating conversion at basis contributed to largely and $XXX to level. cash After enterprise XXX margin which rate income. with of is from free was initiatives return XX% net flow XX%

full morning, press regarding COVID-XX suspending noted previously impact we as guidance are year given pandemic, duration and in Lastly, our of announced release uncertainties the the this for our XXXX. the

guidance more resume will the and and market stabilized clear. once becomes recovery We path

slide in pandemic. our and shift and moment, global focus Despite execute how cases gears let's continue level company. and turn we the usual degree challenges the ITW to X. unusual high discipline with across the the to unprecedented through at Please some Now talk and of about manage a we will of

As of performance, position have a in ITW progress and in today strategy dealing the the of executing is potential our the with result of work made over years a done last the significant on X the pandemic. all to path effects we enterprise our full the in strength have global we

of has long this be that businesses will company one work the its pandemic the asset well unique model critical ITW opportunity served and ever our I are centered the both we history way drives front light in to XX/XX ITW it company. proprietary no our and handful extremely before to for now. Today's on our focus time better the and in at trained aftermath. that times ITW doubt performance, than people is a is executing of significant makers, and our challenge on skill of back as and through relative and us methodology business laser powerful more have difference every a of COVID-XX the skilled and our

earlier, decentralized many developed, are mentioned operating fortunate have years. structure culture an over very that I a as and entrepreneurial addition, nurtured, we to In protected been and has

that such around none to I Our told them in people are They in these, values they even you do. our are act and unprecedented our They deeply what waiting owners. assure trained times model, be think our and and of deliver. are accountable to like an business strategy and as

addition, every company both have business across long worked hard high earnings a build In to favorable position it, deliver makes us quality tier the when resilient ITW, most today's in execution upper consistent portfolio in growth, shaping our in when and consistent that we they in and conditions cushion to driving highly diversification, periods margin not. level during term global of and are are to

attributes through strong combined capital sheet business And we it free allocation follows with our the and us our strategy, model, extremely ratings. robust balance X Tier our of flow very, from there an profile, gives cash that the strong margin unique and generate disciplined credit

and for on focus, the priorities. foundation, is pandemic our following to managing through its strategy aftermath is elements these with So the four our

First, with colleagues, company to well financial being protect third, to of participate, continue fully position our and the strengths customers in our health liquidity strength, to ITW strategic to maintain ITW and the to the serve excellence, recovery. optionality fourth, to and leverage support the to second,

some and will to give we'll for three priority it color priority Chris cover come four. your and will over will priorities And you. on one you then, additional Good back Chris. and I Michael two. morning, cover open questions, up

Chris O’Herlihy

point, this has affected. the and effects At a And community us sure is the world months with ago. that for everyone. of company Scott, as of of good to certainly ITW being the one This time ways this in you, and by continues grapple I'm just few a us, challenging global been impacted Thank is were morning, every a all as that situation, a unimaginable pandemic.

advantage protect actions or that, and to the challenge. said of divisional act take Having and which Scott necessary times particular quickly reference, to react owners, in the serve think customers, and of like our and leaders our are a company, able is significant people

safe. move developed well and practices of X. the health to deployed protect colleagues. exposure. prevent and our We keep spread The Let's to to taken of a actions number slide support, our minimize And and the COVID-XX the being were of colleagues

in have followed so. government CDC, local WHO, We guidelines and doing

infection have aggressive ITW school colleagues processes to needs, to minimize to assignments risk. who redesigned have ensure and sanitation schedules implemented Out childcare adjusted proper and due distancing closings practices, social practices, and have water colleagues new shift that production

to full providing have employees, who also quarantined. been compensation We're

addition, In the protection to heavily our of employees all protective helping team coordinating ensure the engaged businesses, procurement is our they need. in receive by sourcing strategic personal our equipment,

another, that of a point result to of to to we've of actions which locations, our been a our implement infections best containment to the to taken our a to to social this protect efforts, able as is say, to practices abilities. sound and the restrict largely pleased distancing and one testament single their minority I'm cases, have sanitation colleagues in

keep stakeholder Turning support shipped our serve our let's open have excellence. to worked to safely. and operating customers diligently our teams customers, we group slide and another to To with to X, important our factories continue how

as have to an as have governments issued of where areas businesses. critical or orders, the And essential vast really businesses and in In designated majority needed ITW they're the world around shelter operational. place been open such,

In it's our some response the because directly products COVID-XX effort. impact, cases,

For or temporary example, facilities, beds equipment. test and or medical manufacture is hospital are and build products to welding measurement equipment utilized structural laboratory products medical used to our test

Fluids our industries. critical, in our our food designated physical and & feed communities. sanitize health equipment Polymers supporting the businesses service essential people products Our workplaces. are role other is economic And serving because In vital play as a cases, they hospitals. to in They're used to and of

be our deployed global roughly manufacturing are serve our to facilities shutdowns, customers. some to capacity is Although, subject to available of currently mandatory XX%

The to and operation. for networks, our maintain segments, which performance test the we service businesses help both availability. available same continue true and particularly healthcare ensure best-in-class In facilities in order cases, essential quality and in that equipment keep and measurement, continue across fully and all we keep is product service to we for to food in can

both are scenarios managing a forward. components mitigate that wide and range to supply base going rigorously ensure and positioned for recovery Finally, our we're materials to we risk raw supplier win critical near-term in

call I'll that, to With Michael. turn the over

Michael Larsen

seven that’s highly ITW the Chris. byproduct, Okay, with events, is this such in morning, enterprise over of important good thank financial work primary And everyone. our to as if deal a of objective Well, will, years done the that disruptive position strength is an pandemic. lot global a last considerable you strategy, of you,

our times profile strategic In was recovery. the to optionality that this. for built for and And can many to foundation liquidity the we strong profitability and we through company the company like resilient strength, in our maximum participation so ways, financial ITW pandemic, leverage position will maintain financial manage the

we unprecedented level Slide is the of shock under this than global economy. resilience of due to months. kind swaths question ITW that several and financial system, to an the to the no shutdown the economy wide of X, strength complete more withstand see contraction the demand to enough in Turn experience there's has next QX, over of will resilient – global that

the out come prepared side for are we'll other We it. it. We'll get through recovery. strongly for positioned And the

As May amount there's will XX% uncertainty here quarter, but one we're estimating basis. today, month our QX a we the on into and of XX% is around a fair how to the sit view. down Obviously, revenues actually that current June play out be year-over-year

America of North would essentially have expect, are our you OEM mid-March, and given to beginning As down in production Western customers since early and Europe automotive in only to that most shut mid-May. restart been

revenues hardest automotive down with Our hit OEM year-over-year. to the XX% XX% business will be potentially

of abrupt And unprecedented. the pretty magnitude quarter decline in this is

on the it still the As billion. generate flow make QX than range, profit million of $XXX we of it more cash in $XXX if million look, ITW end cash expect plays difficult as $XXX will with way, out about that to $X.X free million may this hand and operating

to our to one play area offense Onto next way an whatever few we is slide really priority over months, that in where this helps strength our the withstand Knowing the the number becomes financial strong have profile margin our XX. And positioning recovery. comes us.

the impact pace of or divisions next shaped Under a margins of few are the year, end much. This up very paced down over XX%. recovery much still really it very half us a the XX% that margins where compete against and slow, doesn't shaped, the recovery, of fast is Yet, down for our recovery, to full XX%. we with or to U are fast less. margins V are pandemic, They're revenues XX% quarters, that Whether XX%. companies the backdrop, strong into is with ours came or at our most slower XX%

potentially As in epidemic, how significant major have it for us result, with or going concerned may are we to cushion, QX. QX margin our With can is the in recovery. to through number opportunities in better order of demand a will fairly incrementally the than We retrench share a be certain quickly be QX. recover that them to get some gain way creating a in

it we maximum that, making doesn't customers, a to in fully in affect equally the as to which are beyond their one can't, think the businesses that that who and take position sure strong of us central to in is our to an really our and from participation for begin of lot, for every share allows planning But we divisions. re imperative are recovery, accelerate, competitors, strong us pandemic long-term our a position positioned support whole response

of businesses. the position leaders respective will, our assess businesses maybe impacts in pandemic. But of do, to smartly recovery to and the the our adjustments and always in will we of We the in cut of some the slope periods, as of leave expect portfolio each course, best across businesses, they where our divisional from we need capacity manage hands their meaningful demand or and we prolonged in those cost pace decisions recovery make even permanent as structure are the

Turning to cash we our XX. end, with structure and capital on position efficiency, the financial capital very more benefits in crisis. a over into billion going have put At $X.X done of quarter than The allocation cash and years, our of strong combined has ITW strategy, this optimize equivalents to enterprise slide capital work the hand.

QX and end the of At case. still it's the

of As put, Why commercial you any have to debt. no And issued we essentially Simply have we ask? paper. because might need short-term don't we cash. not today,

here a needed as our today. undrawn facility to have credit sit available $X We if liquidity the to billion future billion bring us, we about in total $X.X

until and leverage X.X only Our earnings small, our times XXXX. and and quality is of ITW. next hallmarks are cash not pretty $XXX maturity million free September is High net strong flow of

generate significantly purposes. cash need we As for more internal we you consistently than know,

And net XXX%. above our annual conversion rate income from is consistently

through to We way be as continue the to manage case, pandemic. the our expect that we

we peer in in to the As ratings our highest that X access evidenced needed. we credit group, event Tier excellent by are continue have the that markets credit to

During also this plans, it's shape. that in mentioning remained volatility, our great pension time worth of market have

risked as Over the our our plans. de we years, plan we have funded at and U.S. is largest XXX%. today, consistently funded sit here And

XX. slide to Turning

with recognize So First, shareholders. adjust approach of during the how think pandemic? we regard allocation our We to the long importance term and capital do ITW's the to our about dividend dividend.

one of are XX increased dividend so-called of of growing We dividend XX a the as its dividend long have more group of a history, total a dividend. years. about than return shareholder companies has than And for we small with model. more years of part critical And that aristocrats, ITW's the component and XX we view

the Simply have Since we to reduce we committed growth $X.XX as to do have XXXX, we of share, to per XX%. we here dividend. dividend not increased sit $X.XX cumulative see currently per we annual dividend share from the put, strongly our rate where a scenario today, and remain a annualized would

And form a the we're assets possibility pandemic. that the with In the the sheet of capacity. might with are companies as as opportunities strength, balance that financial more terms the were result open in a of could It already certainly unique of in, well valuation emerge as of strategic opportunities to interested optionality, may position for that be pandemic. weather clearly we we ample in opportunities quality have not some strength reasonable to

to position high react capacity, strategic our a that we quality may opportunities emerge. in to Given be ample strong strength and will financial any

of we the fully expansion due that in continue in the don't criteria, next the aggregate fact have, we CapEx any near capacity several need down number and the term, to will likely quarters. We simply come fund but projects to that for internal will spend always investment our like meet projects all terms

share stabilize think, anyone as no it that end until suspended clearer. we to the becomes surprise I comes Finally, repurchases path have markets and recovery

I'll turn it back that, With over Scott. to

Scott Santi

opportunities the fully as And are be about all capture that one come a our positioned our strengths may Thank customers' make there strongly businesses that which participate begin their share you, four, to to of to serve sure leveraging to our bit well are and in is going needs short, Michael. we businesses as every priority In every prepared of be any gain recovery. way. to reaccelerate to our

year-over-year in equipment the year. organic organic basis tough up quarter. growth X% X% growth modest Food growth Equipment up service reflects contributor. quarter double-digit solid restaurants initiatives, comp had with in The points despite with growth enterprise and the X% business retail was a institutional last against of comps decline good expanded margin and XX.X% of a tough X% XX year-over-year in both Operating those. main of for to

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

face million income cash of commented in still unprecedented generate $XXX contraction the Michael the over QX, earlier, In free will flow. of million as an dollars generate in hundreds operating and in demand we

And prudently, the we the to indication recovery need have we We certainly of businesses. will some avoid doing of start before each our muscle to in discretionary expenses as and manage of but want don't cutting shape immediately. level we so, slope to

support QX. people the of benefits least compensation at that we're this end to do point, sustain And around for our of all to our colleagues all this best principle we in mind, the With through ITW going world. full to to level support of providing are and

people personal at we it a the protect uncertainty. developing of our and thing ITW because position seven to And in family do. and stress we doing great people and time also it years. it's have doing investment to a in ITW But great the great think that are significant and support right over are we're made the We past to training we leaders

a that it businesses we likely demand staffing is of the with Michael pandemic. will As make or in mentioned, of lower prolonged to need as align some our permanently some to adjustments result

adjustments being our need to and So we of of are time for committed longer-term make thoughtfully. made all worst this, there take to people the be whatever during we will to the

The second to remaining to demand. capture structure the lean in principle that incremental we're is into by invested upside going

Given the core too much our the the few being of not and our accelerates. our serve recovery needs carrying able cost turns it the bigger to months cutting profitability of or position, businesses fully and more as competitors what's our share from of ITW, we customers in for strength risk a financial need and for take out the

believe ITW. plan we be potential and of short recovery the we're Obviously, far execute for strategies accordingly. bigger And sheet recovery the our the going mistake would upside to and

But principle The the areas in strategic third that our of investment early of going strength around the to talent. as our investments we're is execution importance we initiative example, planning in sales leadership significant strategy. one that two We're ITW long-term to to of sales leverage protect excellence areas. prior strategic and in these sales all plus in to new our years the pandemic, invested included

a making short-term. the over there in capacity to margins long-term likely is focus points be our decremental on to so financial XX% QX. few a in the to XX% in the Between and And being in extra a have types to are now should going participate normal strong That range is detrimental the lot fully strategic more we're these company, ITW to position in sure recovery. worth investments. then, protect We said, long-term the of doing margin

as just and this reminder XX, best we Turning and long-term committed world's most potential priorities respected remain the slide that are continuing unchanged strategic industrial our performing, our is that of ITW companies. quest to on and establish highest sustaining to quality, ITW achieving to a performance, firmly one

our on of doing exceptional colleagues ITW to behalf team, on entire around under move world things we job they challenging let's our Michael and the circumstances. leadership wrap Once Now XX I, thank are and the again the slide for Chris, executive to most up.

there's about quickly how severe is customers ITW’s long be to our model markets in, will that the of that and or as As and deal whatever and to resilience how the business I unfold put stronger it do right recover. a company now, last, know of over position coming crisis no industrial our strength and will manufacturing way in know people an weeks us will with be, how What this will then can months.

always confidence over XXX-year that history. have the course the ITW rise I challenges to will have of we our every

out strategic strong across and path position side make continue position other Our to us our full the participate the ITW now recovery to profile financial to fully and the potential moves range to give on scenarios, margin of company ready to to ability performance. a come

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

Karen Fletcher

Okay. Thanks, Scott.

the see slide today's please reminder, appendix deck a detail for in As for quarter. segment first the usual the

open line for So the questions. up Julianne, let’s

Operator

first [Operator JPMorgan. Duignan question from Instructions] Your comes Ann from

Your open. is line

Ann Duignan

Scott, about oil cetera, maybe the are Appreciate that you your any various good Hi, morning, forward? than about permanently anticipate impaired the thinking welding, How whether just you of thinking as equipment, on you call. could and know, and being businesses be rather through look et talk et that little we gas, I'm thinking cetera. a businesses bit you and the cyclical I'm might would everybody.

Scott Santi

I'd and it's overall, just way early to tell. too say

may is see we tail the as among equipment I terms be today, of where of industry or pandemic. this it. But know, have or change probably deal sit would think, the I in that you provides the in anything There don't I would from don't as to we'll we will, anything permanent it with apparent terms of that it's sort see obvious of damage, be say support kind airline longest that if don't whole ones would in recovery. I but a division early is you this process, I see – that from

Michael Larsen

are on look specific XX% at you if in, you're the into and part enterprise that as our no you gas add side. out, oil maybe But the the Scott of might sales of what to early depending were it's might look too recovery what in and as the in if really maybe said, I XX% the year you company. level, international oil in to and path to tell welding, pointing like primarily gas, welding single-digits primarily just on Ann,

Ann Duignan

Perfect, thank you. expand hear recovery And to follow just M&A on maybe a could little on then up it to opportunities at the update participation the just that bit? and Like, strategic occurs, maximum you when you comment that? the to is interesting on

Scott Santi

think growth this certainly part nothing Well, some had incremental a no, is we is strategy. change from the some core no, in a time acquisitions as I our for of as addition I would of there characterize strategy, talked about

think as as be is relative you – going more we opportunities the a commentary anticipate availability own the it's might given enhanced at to know, from fit ability there the there not situation. be expect of I a that of either level be that at our that have sort this of of access preserve to looked would going not of going but a doesn't our matter the those is to result criteria emerge perhaps things reset one otherwise, the there but I on be looking science change not some would we out rocket things to would would that financial valuation are result that a and/or that stress there's, standpoint to its in of are

Ann Duignan

than acquisition you So that. in in a saying? and making new anything just stepping be no like the strategy, larger platform that expected a might anticipate up the opportunities Is we more? change what you're there's or That shouldn't

Scott Santi

size. based not it sure would limit I'm well, Yeah, I on

as of the criteria the it's application value the business Obviously, and big a than a saying products about kind way where that asset customers, see and that what the same a think that business will been. significant of of opportunity Whether be quality our in I'm function of we impact That's model. of their past got of with that's in talked the their to is and has of it's strategy. products size. less a I add through that ability always content stick terms or an we've the function we’ve business impact performance small, their the the high

Ann Duignan

Okay. thank I'll back you. appreciate. into I get

Operator

Inch comes from Haskett. Your John next question from Gordon

Your line is open.

John Inch

Thank you. Scott, Good Michael. Hey, morning, everybody.

Scott Santi

Good morning

John Inch

wondering, include morning. businesses no actions cost Chris, containment containment presented guys more that respective worst of are the assumptions you kind a detrimental or I'm announcing that as of given if actions scenario? that you've the And preserve Good a are today, there's cost centralized they case

Scott Santi

question. I'm trying to the interpret

I standpoint the included from think, you're if think paraphrase is a what to John, I I'm of here, going I asking, restructuring for think year? balance the

John Inch

Sure. Recognizing -- recognizing It's businesses. coming from centrally? the that you're not doing it

Chris O’Herlihy

what division-by-division, But I capacity like, until need don't think path adjustments cost, be Absolutely, and what the looks I that to might might for is, for mean, is to today, at But John, We really you restructuring appreciate, know you an going divisions Yeah. the path we educated a is. it made. be. to point. in what tell answer restructuring hope as is the the therefore, and be. have recovery and know, early chance the honest we included placeholder we're had a showing numbers that know obviously, to too you I this what have really interpret, guess what

Scott Santi

through it Yeah. – do incremental And either we do done going and to quarters spend to is it it. customers any to and opportunities recovery growth around sure articulate sort fully And this core We'll some, couple next from from adjust smartly. we're do right support the That's no we'll emerge we're planning tried always going our not I we've always on might just the going what this mandate of making that do. we've access than think phase. really to we'll position different that our the in to high we're We're cost everything structure of business-by-business.

but best potential that, my But have the as way time doesn't in of to next not are going when protect we by smart. know, over said we to building our worry is benefit cushion saying, there's the about, I can we're business very be when cut take how it we be is we through our that from difference position doesn't to something out. entry to we're our of to is to adjust to we'll greater standpoint all by really necessarily back structure plan doesn't said, margins the trying fast QX QX. that, QX. not It our normal positioned really we get we're incremental not to I way final is and cost time, see have phase The that costs have into can no see to in hard further until from now going luxury much of That play through does containment not the upside we going exist likely position this doesn't you is and to have much – comments it mean, how I us we a the and clarity The to today. the to a that down have we're do to of It's mean, this that going businesses clarity

John Inch

qualified to wanting I the – way Based to bet people is Scott on the way ITW knocking this progresses. for on of an I you going for thing going you're get very you're based awful standing doors on up set, whole you're lot your knocking, yeah, people, work was well say your to people

Scott Santi

the be to you. trying just Thank same. We’re

John Inch

not it's this but other tax. no are Well, following companies

actions, question broader get is, My this, that I of in leading no been taught centralized out. have – companies model kind hold of cost on. XXXX. other COVID, coming you have to calling out back worth it's think there's layer because don't I just So are because temporary

these going back no infer quarter higher? XX% XXXX not layer little costs you XX% a know Please in possibly that incremental centralized are to be to the XX%, even fourth we is because this, in out talked the actions, because be high don't all come incremental that detrimental temporary have in could that, if temporary. you to closer about there's Could of I assume back bit have big to coming very

Scott Santi

they wouldn't plus. normal our reason I why no be see XX

John Inch

it. Perfect. That answers you. Thank

Chris O’Herlihy

John. Thanks

Operator

from Kaplowitz Citibank. Your next comes question from Andrew

open. Your line is

Andrew Kaplowitz

Hope guys. you're morning Good well.

Chris O’Herlihy

you. to Thank you, Same Andrew.

Andrew Kaplowitz

main by the the give going in Day at ability overall more was its to in you're pandemic the us on terms of color one to about of talk that know, portfolio, topics to your you markets. Investor ITWs was canceled outgrow that As

So related, lot it auto, you're look a for when even QX, appears is businesses. about thinking at XX% but the we know XX% auto decline excluding you of rest the to in it of the XX% drop XX% and

of expected just as to by when or markets that still some businesses levered to markets simply markets these pandemic? equipment such are any or is end ITW right auto challenged really are underperform the the their has now it food So

Scott Santi

big of certainly why Well, I, back pulling sort as of and specifically have most now, certainly CapEx in future are whole a environment, right they on what and equipment One food restaurants going say things, I'd to CapEx auto QX. around sort the will until any time the what's is, hold. in more companies couple -- in would clarity of

chain, the multiplier all multiplying What both. is a I the that's would on, a supply in there's QX brakes go say certainly effect of significant is also

of the significant consumption drop. products the double-digit to in radical supportive, the are. just inventories reduction, It's reduction to related Beyond whatever

lot sure that comparisons not QX I'm market the of to and for valid there's a and So that reason.

get Let's it. through

smoke normalize starting the how to are little of any we see things in clear make bit in terms relative assessments growth. Let and before QX a

Andrew Kaplowitz

run can what’s of And then that on Scott guide that, is maybe usually kind if rates, to up -- so I maybe… and follow you

Scott Santi

We don’t we used QX to run give quit. rate

Andrew Kaplowitz

we we weaker food may understanding with that on of be So be maybe going mentioned, them any pecking food talked which know you and markets more sort is of seeing and about the then, can -- which to markets color equipment, may auto April or sort what equipment… so talk worst, in outperform you you're order, about the auto

Scott Santi

Yeah.

April and ask Michael for me Let of segment. performance QX sort address the the relative across

Michael Larsen

think, point And XX% on I as you our segment specifically drag a as overall that pointed with we're automotive is XX%. think down calling Yeah XX out out, enterprise the line. Andy, called hardest expect the out you I that might top as one hit is we to

down it'd health we're short restaurant So Food as certainly resilience XX% be businesses of businesses you the retail lot if in here to education say might more in into in to whether going side, within imagine. food challenged the that ex-auto, but XX% term, seeing range. the detail, in care you balance much institutional on side, too particularly we more on as were is of equipment the a the as side, the or -- one without well

these depend the So, but co things able terms open the in able in in you're again, to so here term, and of overall food range to up are equipment restaurants when down on probably when and in of will average, near equipment certainly be that back recovery we’re more challenge aware all than the service forth. the XX% will XX% that the to

gas in good specialties be in the challenged CapEx the with from talked their. would exposure XX% will testing and probably certainly side. of places about and XX% to lot measurements, company Welding like there's there, range. resilience Welding be on line that then pretty a and average the We probably oil the down some in down

difficult and know, of you think QX as very happened this seen that as quickly. I it So, is certainly, we've as

into point just just even are these to to be And more we profitability margins. billion double We'll I profitable. mean, at with some the overall digit I'll pre There'll have generate than back to through, going of than peers I of higher cash COVID numbers flow. enterprise level, $X.X this going went We're company. going the be our very the of situation. before operating whole, free

and, macro out we we're shock real we'll position when that with, near we'll other this much with even get a the come be through strength, stronger it's term of So the end. dealing

is tracking. detail So, that's April for little segment you. bit kind my of a of

into tracking. we to early. we a is April down thought developed -- And XX% be think April, going forecast had we XX%. we'd I

April will starting – April things There difficult some that months. May, indications to improve. will are be are and

the by China. China, down February business QX the might region, the flat in Scott XXs. in was in mentioned here think bottom of I flat probably April And mid in automotive for had so, we example, month be in a

in all situation. things with signs obviously, difficult a here But certainly and that This some highly usual have uncertain of early the there's bottomed caveats. So, we'll is April and this said May, see June. then I like

pretty is get the through the this. And going today, we're like I'd But, now. we'll sit seeing right And half in worst that here of I'm confident terms as recovery. to second of we'll see say, we of year what the look it

Andrew Kaplowitz

the Appreciate guys. color

Scott Santi

Sure, thanks.

Operator

question Cook comes from Your from Jamie next Credit Suisse.

Your line is open.

Jamie Cook

is down I Hi, Glad out sort of that's well. here. very of to on opportunity. want good morning market ask hope the coming everyone everyone healthy. and share healthy interesting, just thought turn the I the and question is

So, has certain attractive your when on your then think strategy within about be broad you historically, you view how portfolio will -- markets, more and businesses that more focused your is sort biggest gets the where that just What share you the historically? opportunities downturns of type usually Thank market how share? it that is sticky was see in market ITW in you. of based

Scott Santi

anybody's think sure. a much I'm not and of challenging perspective, this -- under relevant company ever certainly is than valid. We're my any any I I decline is -- today Certainly, Well, this element very the other been from how a in past -- And is through. different history were we more own really than prior us say, contraction. is, faster, harder, would

number able quickly sort chain, about all going through a the of own potential on of kinds the of may to from supply what way going of a robust you're there's think -- might crash to ultimately companies have capacity. not of be respond relatively recovery, have it kind impacts your So lot of to a -- do just in to to that be and the the hard standpoint the

a So of challenges be there's to around. going lot

All pace. that, recover ultimately depending in on how industries the of different and they

that every at part ripe be view of we saying we're to be and if those What to in of our seize that is going when So am going I kinds businesses others any for can't this certainly is, those I there, prepared to of one company or predict our to have to one they say more emerge. opportunities be opportunities able than stage. be particular

that's can I think all say. And I

this I to not portfolio don't say going interested We there's would on characterize I way lot want That’s a point, also it where any to we're part we've superficial of we're and it. in think that gains work interested we are in areas our is at grow I -- to already of gains not -- would done incrementally portfolio, we're in here. not the We're focused. say it. the that share

in grow trying serve way for we're markets The these our the and haul. positions to long

that's have not lot we're what of looking out right be going long through a for and not in of to area competitor we're interest quick a that's sale the So, term. bailing in exactly to us a an now, going we to those looking planning And sure make capacity opportunities, in divisions to make those but where support our that opportunities of only clarity not to is grab sure not. where to real they're they're incremental terms and the have

Jamie Cook

Okay. insights. Thank your appreciate you. I

Operator

Your from comes next question Stanley. Pokrzywinski Josh Morgan from

open. is line Your

Josh Pokrzywinski

and of Hi. Good certainly just far. approach preserving to this. earlier common, echo on base comment the we've on farsighted morning, that not as so refreshing very heard being the all employee and what wanted kind It's kind of on

Scott Santi

Thank you.

Josh Pokrzywinski

not maybe, follow as varies market capacity it gutted mean it to I that? development? probably competitors terms Yes. who able the attract I product up a by the in I It's on shares just that means is what does of guess, about I -- probably of in more is to we that being business, Jamie's business it's What terms exit. Salesforce, it you Scott, not exactly do And question there, that by when think to what raw can have you means which like said, that. does imagine probably But capacity. issue. to but

you based what do where advantage on you're biggest have the So today? doing think ITW

Scott Santi

nobody Again, the chain, scenarios, to ever down supply like it, cushion improvement sequential don't second people of harder to at a the but turn, productive kept suppliers a you think before. have that if markets XX%. I clip QX, sort can there businesses XX% the cushion we're capacity. big do down there, to sitting your characterize but haven't in have you is in ready that's in these of only part the machines yes, have about a actually where range you as capacity going to don't go, it's you think your scenario attest the a to industry quarter, think one in of in be Well, is an If a manage around, in the it's extent description I

supply deliver core ability to discount part are I those a opportunities And think so these I emerge. as where and might -- wouldn't your of

Josh Pokrzywinski

lights a closed, the weakness specifically love Equipment. Got way customers to kind you would plan today. particularly just any just on, business being so and understand maybe robust, be not three able contingency step a new of the maybe attribute that Obviously, color six just it. on improvement. might to they are people would a it's then i.e. What had when the normal, fragmented a come ago, market, additional to give or hard but visibility, of I that's of but kind percentage you a there provide. function months Food And have is but to

Chris O’Herlihy

Yes.

terms environment. would to shelter just terms deli we in higher place, are so restrictions equipment and that of comfortable Clearly, care, will with is very well. restrictions, depend shelter will the well, be So particularly Retail restaurant of the Michael The like. there additional by business, lifting counter quite what But the and difficult on. also and It's the if place a very for very, going piece, us, and but look core specifically mentioned, education in that now. the business health predict fact not of food occupancy other business somewhat to parts uncertain on of XX%, on expect. thriving about our is right recovery side you business, what our doing think of institutional XX% is doing as we the quite as typical the business, and of is

healthy. being pretty long-term put in the are installations slightly in are busy, demand so there but We to bit because they able terms are little of being a trends

Scott Santi

then And service?

Chris O’Herlihy

huge we've over we the mean organization in our to is And a where years here. we that Scott's employed investment service even keep though had a continue developed, that is term. the acknowledging down right the other the to, last force. that in service ensuring trained I taken in business point, fully And is to recover will do go, those we folks medium want let capacity highly highly now, thing service

Josh Pokrzywinski

Got it. Chris. Thanks Scott. Thanks,

Operator

question from Research. from Jeff comes Vertical next Sprague Your

Your line is open.

Jeff Sprague

you. morning, Thank Good everyone.

Scott Santi

Good morning.

Jeff Sprague

Two morning. me. Good from

time -- improvement impressive. further back the one pretty is looking let's I any right? First, forward, it board mean, down on more on revenues, across margin the before QX, actually we look just

the of really some context every kind focus electronics We around enhancement strong. to big was the portfolio. can perhaps performance Just slug know wondering shining the initiatives but business see of of is from on the or margin Perhaps I PLS this. polymers put through. across we the some where surprisingly kind a how it's division the different, margin

Michael Larsen

I talking the they quickly They reacts are in kind waiting changes Yeah. a our -- in think when of words, that I demand. was to do. Scott mean for what about around the Jeff. this react QX Thanks for is good quickly was nobody what see example team divisions somebody tell that sitting in to them

segments, X%, continues the hold of the revenues us, flat. points. flat And leverage, that enterprise some to I down initiatives years, no to And basis cost, seven-plus with an course, think issue us. in XXX margins at offset after fact margins driver for longer pretty to there be, the the so seven or five big price up meaningful headwind volume able we And were then, were for

through recovery lever QX then own go in it seen range, in last of the head a volume, and the XXX-plus in little as worst will here So than you've lower expect in it the meaningful as still continue control year less the we initiatives we contribution enterprise year. into within through QX. overall we the With and to QX go be be the a our what might but QX and

if contribution don't said, And we remains the meaningful about biggest go I is by forward. points continue to in talk that segment, want to driver we you I segment. XXX -- range that XX enterprise be to specifically. know to as anything But by basis expect initiatives like a

Jeff Sprague

Yeah.

Wouldn't some initiative. looks corporate-wide to each decrementals implying pretty organizations, or So down not and to at does here revenues of a look fully decremental then, mean, these disruptive XX% you're XX% QX. things maybe like in margins, go there's heads, not I maybe divisions it the forward they're though parent that, when XX%, discretionaries understand can just But it pretty T&E real they cleanly levers view doing roll clarity. of… may it right, you frame with doesn't I on dramatic the just be kind up they and even that But things can pull. individually, to that just cutting other some know maybe one

Scott Santi

we very And adjustments, right? decline we're Those the frame business certainly, the and said, difference it. of QX So difference handled is Michael level adjustments all between strong. magnitude revenue business magnitude decline in those can as is revenue I QX tactical of significantly up QX, X% X% in The the QX showed organic. The big let's when QX still still is ongoing. beyond about businesses, prudently, not unprecedented and what QX. to tactical reality QX But managing saying that's react talk this our we is also that in the greater. are to place. to going not That's there of -- be decline,

short-term something we've about we're not as our talked and levels company? our in in to going think But Absolutely a different going -- ourselves we've structure appropriately do Sure. here, we for conditions forward react to of overreact And right QX. not. be to at the the to we that? drive to Could wanted preserve decrementals if QX thing ability number do better that's or the

Jeff Sprague

their not business? in here to give anything damaging QX to the do actually role corporate license is divisions the So to

Scott Santi

XXX%? XXX%.

Jeff Sprague

you. Thank

Operator

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

open. is line Your

Andy Casey

your Hi, to good hear morning, and voices. nice all

Scott Santi

Andy. Good morning,

Andy Casey

you that hearing run any issues? Question about liquidity supply on suppliers may into Are the chain.

Chris O’Herlihy

Yeah.

So suppliers here. as that date and would with kind provide to stay well issue us enables XX centralized provides chain, well us supply to has it -- sell produce feel approach to we're We which the fact for issues -- the or pretty of certainly kind us us obviously, an where with We already Andy, informed react our some managing helps also served us respect we major no so the to say points, different of that closely. that of would helps touch quickly. very

but the to. we're something managing, issues now, any not seeing rigorously and we're attuned talked something right in as very So about we presentation

Scott Santi

think we've that, source-local always a I company. And been

not and risk diversity So we to source mitigation supply of base relationships dependent on shift and we've from down. that of are of finance of the go level our globally, one ability some the or standpoint that got

Michael Larsen

Right.

Andy Casey

rapid I'm you presuming we look reduction was I the channel? And how seeing think, channel. in made that's actually then distribution of, it in a Scott, inventory inventory in broadly mention reduction. If of auto, the deep speaking you your are outside

And it you when fairly market happens, suggest does does big that starts that improve? if but -- suggest knows, may who see volume to a end sequentially restock

Scott Santi

in of terms say that, how no visibility in have I been we adjusted. have would near-term, inventories almost

a distribution certainly say the their business business very that, that think managing I carefully. in safe assumption aspect anybody it's of is to

there to a sort again, magnitude other of decline there -- going magnitude companies of factors way be the here there's of that are correction ultimately, And channel the how of across our potentially are terms ability are and most in positioned are too whether at to have ultimately too handle of high to it. this we inventories businesses don't or But point. I think say still low any in

Andy Casey

Okay. And one then, if squeeze could more in. I

have weak? but it touched in talked really, really kind in specifically that? America, granular, of You stabilization. Or earlier. April, is some just weeks kind last the to seen anything equipment, outside two it's of But, end-markets, about similar North and and of companies on still have know I of it food other auto Europe you

Scott Santi

the still China in get flat. down was were in and know, on provided the you something you I stabilized are we And data I our I to XX% closest mean, were I like can were talking about think sales that points challenged. It's said, February, number the think April

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

the is then that numbers to I XX% in that company but, a higher be end choose North a America will to range. XX And be we maybe flat at here, into pick in XX, regional quarter, XX% QX, said, terms little bit of of at Europe and better, sort we not and will situation. China, probably for than down that get as like think the for lower look of to the total down

yeah, some often portfolio us certainly expected. It's are as as things customers. if of are there. some business. of would bad we've under to at but unique cases, some thinking don't a They're -- I we're of stabilizing. are not I'm But of got certainly I I all It's know want situation. in to But, that parts any our And that in we're challenge, say, And serving look elements still business not that terrible. still

get So it. through we'll

Andy Casey

much. Okay, luck. And you very thank good

Scott Santi

Thank you.

Operator

comes Joel Your BMO. next from question Tiss from

Your is line open.

Joel Tiss

it going, how's Hey, guys?

Scott Santi

morning. Good

Joel Tiss

for -- know, and I points of you I wonder know, some initiatives and what us to to, that you most of of most you're seeing little new have but or, you you evolve sort automate or, that answered, pressure further how do strength? them into sort know, of -- a this how factories rounds thing from of know, just enterprise your does like more of granularity some you the seeing turning questions wanted any, give if on execute pandemic of, opportunities been you're -- my

Scott Santi

whole don't lot. a that changes if know I

product. right in because also of automated of the to highly just for thing the company that in cost the not build the we quality the that's of are parts business need We level productivity, in terms the but certain

constrained as talked forever, investments. about of have, from been never -- We capital we have we've standpoint the

back that know have business to under front of don't of have we're -- framework going says that I in any in our shift strategy view So model. within the to I a the because pandemic, XX/XX,

business certainly, through. your think of that think will about, a the can't issues question, think anything way challenges I that us to – I I’m great as trying lot doesn't helps deal of it A our work but about come model and fine. we

Joel Tiss

I understand.

will at that in. I be level, local that given those mean, conceived for on that sense As circumstances the changes, they're were the made them environment operating divisional there depending

Scott Santi

-- the there. the was activities savings, those up the that are projects enterprise And say going initiative all Yeah. projects I and to still to add

So, from changed that nothing's you standpoint. really know,

Joel Tiss

that not little restructuring level times a fit -- everything some a a before? to maybe like good don't see make what are you kind there's of that a before Or see different need And anymore there didn't maybe that that that its decision. good not more nothing or than stresses unusual you it's and thought product reason line businesses just we

Scott Santi

a question. I the overall on answer think bit I be little the know, -- will opportunities will change profile that as some certainly have talked some I clear there's support smoke demand some some impact your divisions; lot, got about that we've we're to We’ll some that of incremental growth the have fundamental pandemic. will of some have I'm businesses sure across to that. a to XX have let there in -- others we’ll investments. here based the with don't

sitting that to we'll It's hard in all So stuff. get here – really

Michael Larsen

Historically.

Scott Santi

the clarity on given to there. We …in all going May, view that. any or early this need have

Joel Tiss

you thank much. well, very Okay,

Operator

Your next David question comes Evercore from Raso from ISI.

is Your open. line

David Raso

morning. Good Hi.

Scott Santi

morning. Good

David Raso

little in you're margin the the use a margins middle third. think I are XX, decremental decrementals well trying really better. scenario, I’m potential at the It the And recovery actually bit the for if second for quarter be be implied look it. I'm to over XX. quarter, the year, through XX% we'll sounds understand XXXX. decremental But the get scenarios to the a XXXX that will trying the And you cadence feel worst XX. the worse half. it on They're if implying implies I it's your back if saying to fourth the second of

Michael, question answer guess that you is, get the XQ? that you. placeholder it, in and the maybe Thank is the why the comp alluded is for isn't would different? the And restructuring? it And on the what's to I So mostly because worse decrementals

Michael Larsen

your answered just You own question.

right. exactly that's So

David Raso

it quantified. was to trying I have

Michael Larsen

try. nice a it's know I

David Raso

So quarter is I third mean, it's... the restructure,

Michael Larsen

maybe to investments do have have they view go company capacity -- once funding will be and our they the restructuring earlier, leadership is a try. mean is the what we and required bottoms-up need demand teams like as -- GMs just that I what yet. division plenty and this VP, of this make, we and nice that don't mean, decide of restructuring said of we that forward. some At and know company with including I clearer to the all is. the want I a we a not It’s point, picture -- for

really but -- give I you now. best that's the So, can right

David Raso

at no right, decremental. that on more least of based the quantification, heavy by it but so the fair? All Is feels XQ cadence that math

Michael Larsen

That’s fair.

math… the I think

David Raso

much. you Thank so

Scott Santi

Yeah, thank you.

David Raso

I appreciate the time. Thanks.

Michael Larsen

Bye David.

Operator

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

line Your is open.

Ross Gilardi

next is from love more me in. on to production guys well. hear are I supply Hope chain. everybody squeezing your customers saying of to view on your lot for perspective, year your in Thanks or that, I’m two just as you you of States recovery interesting. a be of economy happen could economic pace What the your would is really see to -- the enough glad international views would that a that ITWs on Just well. could western doing particularly are as just overall overall industrial actual business, the the China? difference the any onshoring hear And there make of your in onshoring in U.S., that more it? in in

Scott Santi

that largely, a we and often. that speak talked in which about that where only for can I company sell is been produce always Yeah, we we've have regard, ITW

that. the And we our where of any of we how so the where of from standpoint of footprint produce changes none of any this source impacts this and standpoint from

more the localizing all their is there talked to you production. manufacturers that movement for likely around amongst think reasons be, about certainly global directionally, I

the there's lowest and lowest resilience, standpoint are cost the certainly with be going to to from some sourcing, cost, think cost of balance the lowest both country I need low-cost, learned lessons redundancy.

play think that out. I will And itself absolutely so

globally. From our or shift points standpoint, us from that customers for of -- any that would would one standpoint, supply the I more way have know to say but serving of some those significant a result or our I any other. into don't that, our none customers certainly, We're going presents in We'll it geography less perhaps, that's affect opportunities.

Ross Gilardi

Scott. Thanks,

Operator

back Unfortunately, for out like to to we turn over the are time I'd of for today. questions closing call Fletcher remarks. Karen

Karen Fletcher

follow-up. available rest everybody for Okay. joining Thanks, to Stay want us thank to I Julianne. additional just the We're the everyone, for well of day Thank this you. morning.

Operator

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

Illinois Tool Works (ITW) 5 May 202020 Q1 Earnings call transcript