ITW - Earnings call transcript Q2 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

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

risk the our GAAP is strategy and will pandemic. to pleasure uses could This through actual business. During including second Scott results refer We Slide of those to the differ update ITW’s Company's on Chairman SEC subsequent is turn that and now we X contains Please effects call to reminder and global Form filed the XXXX measures and reconciliation financial discuss turn X. this provide cause today's for for with the our on the presentation pandemic a our COVID-XX call, important Santi. XXXX to quarter an And of CEO, the over results my a you measures presentation detail to more reports XX-K, managing statements. Slide that forward-looking about from it's to expectations, contained comparable materially in the press our release. certain the measures non-GAAP potential most

Scott Santi

selflessness and of to the colleagues for the my thanking to health proud and customers demonstrate by begin present. extremely far brought for continuing the any through circumstances pandemic. normal daily I’m I ITW from of the protecting by sincerely managing unprecedented continue how want Karen effort, while you, are our excellence. team and and our dedication they everyone. around good with challenging and world that businesses or things serve Thank the their safety the about is at Well, morning, us colleagues ITW of to

never culture while position both our during more rapid model And participate scenarios full As leveraging said performance. to of strategy ITw’s achieve continuing sustain the business significant company ITW range wide long-term and entrepreneurial power have execute potential a decentralized our and to to times I of the the are and change. valuable are to across recovery of many times, we than

the And we progress take the of has one needless world's tier and economic deliver strategy unique evidenced being as performance company that the full have is Over ways performing, years, environment. team cause ITW upper in second benefit most as seven in in executing and the support in expenses cost professionals ITW delivered in this and positioning now of full strengths to long-term leveraged and than key to every compensation best last building member, so our significant flow, participation the an from of growth clearly and $XXX operating six of and a resilience million revenues, And flexible $XXX doing in XX.X%. decline that XX% the investments seven full to made our takeout and any dedicated team imagine industrial providing highest by any XX,XXX even without reduce resiliency free unprecedented advantage In face to months over companies. us in sustaining established strategies, of by while of challenge. income, the results, enduring the to respected quality to our necessary both ago. consistent hard to for equation competitive many tested of were in Well, rising advantages to that say our second cash the more our operating recovery. quarter $XXX in million We operating margins are million corporate, centralized to structure quarter, company ITW for mandate component

focus first our earnings pandemic. our with people priorities strategy Protect during to an quarter the support recovery. and excellence, strategic for serve through company over we and execution back operating you. and for our our outlined on planning whole performance. the continue near-term them four the the four But customers call, additional Michael comprised strength These come have detail you presentation. who central me the managing over we win to and our integrated for maintain the one prong As Michael financial will optionality and our turn let every of to ITW, We'll the divisions. of our of with provide at end QX first call to

Michael Larsen

everyone. Thank morning Scott, Okay. and you, good

Slide to turned X. Let’s

maintain managing through X on just for As live quarter to we financial the we second priority Scott strength, strategic forward, that. optionality. that is going considerable the to And In pandemic mentioned, priority. will ITW’s number and continue liquidity did

As of call, swaths to foundation the of earnings last shutdown economy. we And for an and resilient contraction complete profile of organic ITW expectation declined indeed, position the shared leverage wide profitability we recovery. strong the to financial in XX%. level participation for revenues an maximum unprecedented demand On our global our unprecedented our

resilient million organic hit were further of fared OEM each. million $XXX high quality and generated foreign operating total declined with $XXX diversified reduced and level, expected, the enterprise At contributing the food year's ITW’s revenues As Nevertheless, and XX% of much currency, segments. more XXX point better, in the benefit segments automotive income enterprise performance margin for providing Other declined about revenues point. point divestitures by our XX% hardest revenues equipment than another businesses of a initiatives delivered operating expenses business proof basis as operating still XX.X% down and last portfolio.

flow cash quarter. QX million, tax from of income income. performance in flow As the delayed timing XX% $XXX net of the paid which strong U.S. cash of of million, XXX% did third expected, year-over-year increase and benefit an payments were at $XXX free was

ratings The remained the with quarter. sheet, up of more ended stepped short-term a we as throughout no liquidity in billion their norms. X facility, balance result, and the divisions total our the credit receivable continued $X.X $X.X in historical $X.X cash billion. containment efforts than billion with collection liquidity credit and essentially hand, has revolving no early remain Our on performance of phase to credit to undrawn our debt, paper, a and commercial Tier monitoring quarter And line as strong

expected, resilience shock please strength With our to at enough withstand way ITW by X, the retrospective strongly financial that through managed to As it Slide that, a more organic quarter for the and we're QX. global revenue effectively. look prepared revenue, second geography. were the starting positioned And had in We system to it, with than experienced we the today economy for recovery. for turn

demand North was Europe in as and down as their X%. note, America declined early was the On phase being down up see, XX% QX, positive Asia can was with X% global you down XX%, to after of China recovery XX%, take began As Pacific the contraction hold. a

sharing the month. revenue we're day On the of working right per average side by slide,

the acceleration and through This began see in it then we to July. a in May. in June, we we you year, experienced move As continued as and can was the sequential reopen. trend last to the quarter, economy compared has And bottom that April global

margin. on in for let's see Now, Slide most the operating affected X terms you revenue side, segments and can to segment least the performance. And left organic and of go

delivered is declines significant are operating out XX%, that of segments from margins, revenue should also year–over-year. and seven comparative that segments margins XX%, volume leverage operating X% purposes, despite on margin operating five numbers overcame these margins. I to notable not organic to the margin expand For the above point It two ranging fully-loaded negative segment actually

Slide X. to right the of side Turning

only automotive began our in of essentially most that North and OEM given June. restart expected, to America production Europe Western As mid-March customers in May, and in shutdown

Our was revenue was continuing and with bright in XX% July. June the did that is XX%, year-over-year, spot Overall X%. up in was Europe down XX% North hardest automotive a down we China significant the see down OEM hit. organic America were organic business revenues uptick although

to in serve delivery Importantly, same the and QX, our with production us. customers continue step customer manufacturing every world our to and ramp they as class that local up to to the fully come resourced the positions from close and way, quality position to continues have remain of expect in order

was XX%. being was down pushed X, America revenue with down XX% QSR some better, to prior sales about Electronics Test Electronics, COVID due more to Relatively sales retail North Equipment held hospitals and and And Measurement revenue concerns and international were XX%. XX%. out XX% were down year. declined flat Slide service second down orders about food the customers declined down & and as facilities sales including Turning Test grocery slightly with XX% retail & Organic only revenue X%. and up XX%. XX% resilient were down as hardest equipment Institutional Measurement speaking, service with was restaurants XX%. to segment XX% equipment, were declined also down and sales organic down organic surprisingly, expected healthcare not

double-digits semiconductor improved basis markets end for management CapEx initiatives operating contributors. and demand tied negative room points clean sales margin While the Equipment enterprise were as up in XX.X% healthcare main leverage, to to And excellent XXX cost volume technology. despite with and dropped

XX% was That & QX end cost resilient, margin Revenues with revenue by was and X. X% back down line as In MRO Industrial held strong Consumables with in despite the was markets hygiene was basis initiatives a down Fluids, slowed sales revenue down open XX% a margin down end trends. industrial Polymers while and said stores with management. demand significantly, XX.X% only fairly XX%. was best organic as product XX% down organic way Polymers Operating progressed. and the Auto [higher] sales XX.X%. Turning to XX%. sales health by up down tactical in were only XX%. operating XX% retail Fluids up of down markets. organic declined declined aftermarket had revenue enterprise Welding into meaningful to and performance Slide XX end by XX% Equipment improving as with quarter driven points commercial markets XX%

is Slide XX% Demand by market XX% and residential equipment organic channel. through packaging XX% international appliance consumables in Specialty a offset America side consumer restrictive down Australia the pushed organic was with was center which down to up revenue down with by packaging as and were XX, the Zealand X% in double-digits America XX%. only North reflecting lower sales X%. partially growth out were was almost double-digit Zip-Pak New the internationally up the protocol. for businesses Construction, X% our North Europe of industry. down being orders the half revenue quarantine aviation XX%, decline some North was strength the more business a as home commercial renovation into such in America with sales served and This for and segment, Moving offset down down and

offense in to accepting scenarios revenue, updating XX that caveats any in X full an financial on the strength recovery. we to priority QX our and With On shutdowns. therefore, operating call, margin will of and to financial the illustrate for a the scenarios. fact positioning Slide of move time that discussed major to update the our significant these scenarios way to i.e. provided the key over The we're for extraordinary performance this operating let's we apply number our is comes operating our the and be during and play margin withstand metrics, some So unprecedented have cost XXXX and year income. economic organic profile last QX recurrence is near-term books, three uncertainty, whatever

company. ITW’s in current the sit terms to can demand here today, year in outcomes on while mid our you the formal narrowing strong what trends of operating of operating range providing likely four is income tracking performance we the and quarter are second see, And as based guidance stands operating across out and that all are closest is not we margin. performance And we scenario. scenarios, three we're As

billion $X.X decline about the and translate should like flow. XX.X% organic in in The more into margins to XX%. XX% still this, operating than neighborhood somewhere scenario hold, second organic full of year And of in billion of income of operating free generate an is half which this revenue XX%, down $X.X would year make cash a unprecedented approximately and would we

position our support as fully As in demand businesses their to recovers, re-accelerate. a want to strong we be begin customers to

flow result, half of a cash expect million free increase $XXX in second we an working in the and As capital the about year. of therefore lower

and we're to recovery. needs, strong competitors who make Importantly, respond going our can sure both to a from throughout customers that in we're to position take share the though,

in year, will we're in second each pace currently division assess structure going the projects that of to hold fairly we call, recovery projects the cost a As of we as adjustments discussed the on last a half on make pandemic modest back the some placed of about businesses. the temporary XXXX were to for that [indiscernible] slope million and based that leaders have submitted projects better unfolded. now by and their in who planned We to had of $XX stages capacity spend chance our early already billion projected on we including $XX restructuring the respective

As about that than year. million that a about of in half payback $XX It reference, is the average spent second was restructuring worth in And be these is projects on the we of to million noting $XX XXXX. for less projected XX months. the

a on you last our changed from let our to know comments brief position allocation Finally, has capital just some call. that not

our dividend shareholders. the the to long-term regard with First recognize dividend our of to we’ve importance

model, and dividend. remain to view a continue committed it the ITW’s critical return We component shareholder to we strongly of total as

clearly liquidity open position pandemic are capacity ratings. strong We strategy. strong to that possibility sheet in strategic the opportunities and to react a we balance aligned we're as and our a optionality enterprise a emerge result in are with strategic of with that to quality and strength terms a opportunities might high remain ample of of credit In position

share suspended market stabilized, clearer. recovery and repurchases the we Lastly, becomes path end until

on to strategy. our move Scott, it XX. on Slide phase to turn I'll some thoughts you. back Scott to more to And let's So back over recovery share

Scott Santi

Michael. you, right. All Thank

the on participate performance people quality So in a that to protect to to playing class forward, us. our and leverage our contraction, fully continuing one done uncertainties end and we expect moving the the our the that over to financial defense is significant to playing market people prioritize and our our Thus our and across performance have and customers of they positioned offense recovery. job model fronts in of strongly every disruption in the Job is far, while recovery will power one ensure remain, to from superb business serve the world delivery company. businesses continue both while with strength

will two mission intensely focused on We remain imperatives. these critical

capture invested both Second, to support their businesses that remaining in gain to staff in our hard we cushion have we're as and to going ample fully lean by opportunities customers quarters upside every share support out, to demand two so the three re-accelerate to incremental anticipated to that aligned specific pandemic game emerge is with one enterprise along regard actioning we core opportunities our the In XX divisions expect process the and of identification to that the strategy. our way. share might programs planning are and long-term of recovery in that related

made leverage our will we've position the support financial advantaged of Finally, we our to sustain strategy. execution investments enterprise the to

cetera. invested, not taking executing as opportunities We Things separate about is enterprise our our is to the distress, key specific such aggressively to are progress an It pandemic. agenda, the to in the enterprise is aspects divisions et and ability customer when identifying their accelerate that from stay recovery competitors, component long-term of needs, of newer one execution strategy the due changing long effects of a It every strategy. perspective of strategy. view

we're our opportunity And themes. of in businesses. areas some already these early are of seeing In the emerging fact,

supply. disruption of ability volatility key ITW’s deliver landed supply First, significant programs based quarter, our a to million In immediate to with largely a new ability during undisrupted times is and provide worth the of tremendous handful on a these annually $XXX last combined customers asset. we and

disruptions, sourcing tariff to challenges many of localize away first and by the and effects including are and cost companies pandemic. and in now to related many customers supply Second, from strategies exposed the by our moving low chains risk country existing trade their looking of response

we customers making standing in to transition. support manufacturing sell existing produce positioned long new where uniquely has this Our and ITW local to commitment

a their one $XX businesses local was of million one of supply business more in nearly customers build awarded recently, our Just result to new of key moving capability.

And in innovation automotive already In our committed addition, this strategic very back are from to and third, them remaining OEM a supply localize support customer our regard. sales of chains we strategies in and to are strong we customers to excellence implementing their position are number benefiting a investments.

have in course customers, remain reorganizations, stay critical down by in people in, new to place the over or XX% distracted illustration, in they the ability areas are top just we downsizings, these Our the that one that serving and that not invested means the remain They up innovate. and were our seizing quarter priorities. It's continuing focused shifting opportunities, filings on new to last year. second patent mandates

leadership our doubt that quality that and business there and closing, ITW the during this seize around portfolio months team, thanks we lot our resilience ahead. always, deepest on in back model, Well, ITW’s in our high people So our period challenges. entire With but to it executive circumstances and to a strength extremely of ahead. challenge have will through Michael and our I is respond to and position that lie to we you the exceptional I'll work world the way for business that, diversified of our colleagues us especially turn unprecedented behalf opportunities and efforts the their dedication obviously to have Karen. of no well offer the

Karen Fletcher

thank up Julianne, Okay, you, Scott. let's for lines questions. the open

Operator

first Q&A for We'll compile Thank Well, Instructions] comes from question you. our moment a Andrew [Operator from the pause just Kaplowitz Citi. to roster.

open. is line Your

Andrew Kaplowitz

is Good everyone morning, Hope well. everyone.

Scott Santi

morning. Good

Michael Larsen

to you Andy. Thanks, Same

Andrew Kaplowitz

a as you Mike, in Europe, maybe QX, bit little maybe can a in more saw companies color many for little is in a in Scott us down you U.S., And region But positive and little were we the on China you turning improvement said. help faster Europe. conditions business some more. by guys encouraging,

daily about down to XX% see then July. you you talk in down in you Europe. in you terms in what about improvement maybe held and continue can average of June, were mentioned sales So you then And

of saw QX the you you as did to In month, terms rate of reason by same the recovery in July? at continue decline in

Scott Santi

Hi, you most and let’s out down Europe, decline was XX% and By as XX%. with business there represented XX% our by down XX% the at on quarter then of start as XX%. expect pointed sales far, your significant most decline so the down which automotive significant in construction question food might the specifically, saw you in year-over-year followed equipment

second to providing framework question second out kind and we environment half the we're year. lot ties second the half again, wouldn't certainly the and very encouraging out how the around sequentially have much plays might the acceleration question, bottom June. quarter first, May, trends The play half Europe that pointed how dynamics probably as and Asia America trends, XX% than of second on back and second for I look trends we're here, region, read maybe a North into that in And flat by were as your the the saw, April, was out year. anticipating, terms better A month one slightly year your into that that thinking around to continued both July. and so. of In down China – you range, Pacific too dynamic in then July the the XX% at the we those year-over-year in of in the positive which

near-term into to look that continued I half the at might this QX. this this like encouraging really that best out, kind I play you way And about demand said, is this framework a think really think as provided certainly trends of but remains how we've environment. uncertain second

Andrew Kaplowitz

of on tougher follow your there. but, auto thinking recovery one that obviously OEM, businesses about you relatively just we're up Michae, seeing quicker one how forecasting

the move But it's And You in past, harder impacting cost ITW’s business. adjust around. it your hard mentioned to base change been in pricing to that the business. shutdowns is

profitable quarter? do business what that So in in would that And turn you QX? again expect hurt the you

Michael Larsen

know, high I not the no. highly we're as in mean, benefiting think you answer diversified I really quality, I Well, this an is portfolio. company, auto half in QX second the short we're think, from

lot positive visibility. right parts know, have negative the So of going react in company. very don't have we know We read a and backlog. other as or company a you we're where don't and have we're of XXX% offsets, to we We don't get forecast to because great one much the have automotive,

feedback two but in QX. did respond we demand. automotive better then second quickly three challenging example, half we weeks just do Beyond, in in to auto certainly for transparent a the to ability than to changes very We, have expect look And the in might second demand about down with looking second -- what second we're based at current in being -- customers automotive. auto in from the XX% year trends, the quarter based like for half half on of the

lot a up of might you sense production second that how sales for that a play the but half auto the that what Of in of maybe how quickly do year, gives on course, depends out. ramps

Scott Santi

we do would intentional levels not production Due which on to knew hard that to across add this mid-May. that those where and a not were we clearly [indiscernible] take things side as demand would prior zero, I choice we over through so. our or were for the that long decimating that business days anything to the a those hardest impair were And not XX that also place and mid-March from that cost portfolio. once back would they is very stops from their expected the to ultimately was was we way certainly shutdown but going recover. And made shutdowns that Maybe

sure our side we that that. a of your the customers lost point to business to could we was that is reference money if lot But about So was, our we other that there wanted of worry were we certainly decision in concern making if of support our mitigated intention biggest some was in -- and there the ultimately, think on I have that fact that. to

Michael Larsen

beginning on we're through now based double-digit and will be This just to year. half like maybe be go to automotive. we in we will fully profitable might what seeing as -- And the the second business second asked that returning what around look margins half profitability here the the you we recovery expect in

Andrew Kaplowitz

well. Stay guys. Thanks,

Scott Santi

You too.

Operator

Jamie Credit from comes from Your next Cook question Suisse.

is open. line Your

Jamie Cook

hear Can Okay? Hi. you me?

Scott Santi

Jamie. morning, Yes. Good

Jamie Cook

talk about on business question any Can the guess hit was food just you was I auto of first just Okay, that harder. my also the question.

margin to half as guess year And sort just with you you as business. the outlook you about can you'll of about Can market question talk the conversations just So talk up that the about about we on back Thanks. be think the share follow if the sort sort is of in my trajectories is the second gain customers, then opportunity. share? think of think market you of And for sales embedded, early half that of year? able the I

Scott Santi

QX expect decline, be here being year. that from specific sort continue Yes, to unprecedented we the food, into continue QX that margins so profitable. to around looking to the we’ll We're in they on in expect hardest hit QX. business in double-digit here XX%. But we probably of territory segment back improve and at even to second where down of the were half be somewhere of being potentially And and kind with

Michael Larsen

rather that Scott of about continue divisions the second is single pointed and quarter generated to new to ability over for as that supply $XXX every which and I think business existing here degree and share themes the the deliver element, of specific we I we think for they I'd first in terms day a that that their every high of that one fact our back have of market taking talked customers go are and discussions opportunities place than confidence are the customers, share with market to our result talking of a real new about million just to customers. in and

share that's how about we market think we think the opportunities. maybe that's, I -- So

Scott Santi

Yes.

based programs the will and that are back Jamie, referenced we on up is expected that. We're not impact for but and sure. I on I think terms for the opportunities in opportunities move those that think times, in normal optimistic to only is But make some I'm that we're quick really the We're long-term trying benefit are in the I that second that of looking faster of even move sustainable opportunistic. it will the looking point to on add, just I year? balance forward. guess have the opportunities on looking ultimately, continue the for I focused hits would We're -- looking want certainly incremental that thing quarter, would pop ultimately that we we're certainly not not half, so as to

Jamie Cook

Thank the I color. appreciate you.

Operator

Your Davis Research. next from from Scott question Melius comes

open. Your line is

Scott Davis

morning, guys. good Hi,

Scott Santi

Good morning.

Michael Larsen

Good morning.

Scott Davis

guys of questions margins mix were it’s a the restructuring this? are doing mid so to margins whether really on they're strong Tests Couple have here, but localized Was mix Measurement & quite basis there? support in environment revenue on it that XXs remarkable like any a

Scott Santi

they And $XXX projects it I think half I continued a it's year. in the from to may put of enterprise initiatives including expenses -- & other and top their operating wanted some and on about think in healthcare the benefited clean line this, Test certainly thing company Yes, way in And it's good, year halt a & the I Measurements, restructuring room then technology, at we level management segments. -- talked meaningful maybe Measurement. all on every execution mentioned especially the -- I the contributing the segment, I of have a semi million front-to-back the in just than so. every resilient little Test really carryover then in the last in more other really since first tactical, of strength our was We the think total

Scott Davis

of your helpful. own couple demand follow a Okay, such businesses, then, of facilities many mean big but idle hit obviously, up, I there? in that's a running a in mean, do capacity They remain in number your how And still XXX% or and of a that say up they some most level facilities I -- of you have are shut all back are I'd just down?

Scott Santi

of customer are this serving our all and so. open divisions needs XXX% essentially are We point, at

Scott Davis

world. the Around

Scott Santi

yes. world, the Around

Scott Davis

you Thank Super. guys. Okay.

Scott Santi

you. thank right, All

Operator

from comes question next Your Haskett. from John Inch Gordon

is line open. Your

John Inch

are July And Good still in everyone. around it's kind expectations back the know definitive, going both channel and commentary have but to your sales? potential terms average I sort of Thanks. own given of morning daily exhibiting half? it restocking, Michael we did about be uptrend markets for thinking Hey, is the not for transcended way of the

Michael Larsen

your question. answer is the part, sequentially So, to July June first up from

the replenish really terms channel we're ship in inventory of think this talked are it they because order with inventory, very need up, our of backlog, we they know if today, are terms before, We has carry how little it we're what out tomorrow we to that the and They set cycle have channel, the the I we day businesses great shipping to order don't us, place really tomorrow. we we've how get John. after, about we of about short given the visibility don't inventory. the in talking

how driver sales of in it's here. a be terms So, really might reacting our big not

John Inch

construction might in that. with pre-emptive just was of something like half curious I'm build a in or obviously, have products, bit little Even but back I anticipated I or agree say been -- there if build the just you,

Michael Larsen

we answer don't run same every division to every is need construction, and segment here really so the is so, the way No, that's no.

John Inch

Okay, the about thinking we about guys comp. the revenues. of saves, didn't which is that Michael into of be cost thinking and considering and $XXX against actually this are back will that? bleeding kind then how organization you are maybe million employee impressive pretty Scott, you matched touch How

half the the check cadence So you course about you kind of of next or of are coming second of of keep sort year? those jobs the the back costs over how in thinking

Scott Santi

already planned front-to-back Yes, temporary. other but have else are everything the savings, than are the structural John, structural savings, the essentially costs out take this which those we of is that everything kind year, to

will levels majority are cost demand back with of half will recovery again. second in Certainly, divisions, temporary back and the year, come projects was in of we'll of recovers. exception to as of come XX/XX you costs our disciplined that the to as in our focused demand in take these management, costs to the And response of the continue remain essentially the so continues current hold this but terms these

John Inch

sense. you understand keep see trying sooner. I'm in that XXX we a maybe to makes trying hey, said the rest And costs might precise. to as back that of be the going start these coming -- year. for have -- not now, kind they next I just we're in That sales I'm I mean, do bit the a watermark, and of terms then mean quarter it's high of lower. to that’s little

do fall So wondering, guys just where you out?

Scott Santi

go of our how recovers. let's going in they're I on it based they'll start Well, -- think revenue margin to call -- back to given sprinkle the sort profile,

go crazy, leaning in So, the Michael doesn't I mean side investment opportunity tactical in we're of going in we levels said that response revenue into They we've the a on that all way ultimately, as come but would the some the the -- were they'll in in it with are I recovery, as things forward to said cost linear think but sort those based of I think was of -- savings revenue. assume as will profile throughout the QX redeployment third of down quarter, line linear fairly back in resources XX%.

John Inch

sense. both It very makes much. Thanks

Scott Santi

you. Thank

Michael Larsen

you. Thank

Operator

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

line Your is open.

Andy Casey

Thanks Good a lot. morning, everybody.

Scott Santi

morning. Good

Andy Casey

no really impacted non-residential is or would your QX; like hearing Within it construction, U.S. from in it there as I Welding are assume customers down well. the about some talked second getting that visible? you worse segments half? about probably change other is you What Is

Michael Larsen

commercial construction construction side, our Are you the small overall? in of on fairly portion America a which or talking business is North specifically

Andy Casey

Construction [ph] over all ex-resi

Michael Larsen

strong we QX on don't residential on do holding but the seeing we significant side. the a on we're far the improvement of to we expect well side through the the that's in on the so channel, up be seems that level home and here commercial expect second not side in near-term, fairly where saw mean center I growth think significant like here we in really Yes, said what commercial based the demand half is I construction

Andy Casey

the Okay, shorter business Did from that on thank impressive. prevalent in things cycle be -- And business $XXX wins ability Michael. deliver or what might is more pretty like auto then come was million wins? it to your you, from

Michael Larsen

XX% I'm but auto to -- of maybe trying was it. a each, of Sum

Andy Casey

Well, that's pretty good.

Okay, thanks very much.

Scott Santi

Thank you.

Operator

Your question from comes JPMorgan. next from Ann Duignan

Your is line open.

Ann Duignan

good businesses? automotive two so Hi, food for segments for service give in half contemplating the you everyone. color could the those morning, appreciate please us the and some color on on the I outlook you're that backup other directionally,

Scott Santi

don't Welding XX% about that's as these the point the to you all I better maybe ITW diversified the you that know set this challenging helpful single-digits, read little industrial is -- Specialty think have in with current all somewhere are clean there's in being backlog the around that the than that & on particularly could demand together these just advantage make all side was the the on construction room healthcare trends the laid-out that hopefully semi that. our scenarios in that transparency. and the worse terms consumer projections this in quality we side, some The packaging. those half more numbers of Polymers with XX%. of half should in and of the kind perform -- around And confidence some then in based the fairly of have we that Test in neighborhood down a still is second Measurement, additional so probably will perform & segments and two much presentation. down highly in and businesses revenues Fluids, are a businesses down have be kind and But just that because gives told around and a -- bit caveats, real year-over-year. But, half the somewhere and said, in business put lot a second room But, second terms these fact if better of with again in back strength on react. again, up have terms want as I what talked some We what expect that about I of we well the high to us bottom model of we somewhere in mid Yes, will of

Ann Duignan

everything automotive what country I gone route. directionally, locking then thought we're that OEMs quick within here understand of follow to and mentioned appreciate two you helpful or just you're not of demand, That down but OEMs thinking pursuing automotive said. decimal I just up, you it's that strategies already seeing. had And Absolutely, a more points are supply

give again to locally OEMs there source And are opportunities for of examples doing. so where maybe -- some you us could that are already not

opportunity quarter from mentioned I moving potentially as last think an Mexico OEMs might I'm to…… back just have that you or curious is considering

Scott Santi

to say to our -- our offer -- that of obviously of things probably to want need the our here think much localization I standpoint an shift. confidential. of keep from out how think area without the Europe customers from trying of interactions I standpoint But potential me with let represents about some significant

Ann Duignan

leave it I’ll there. Okay.

Scott Santi

U.S. just Not

Michael Larsen

Yes.

Ann Duignan

And in any supply relocating from chain? U.S. chapter have about just to U.S. OEMs Just from that Mexico heard or the is you comments

Scott Santi

have No. not I personally.

Ann Duignan

frequently. question quite that get we Okay,

leave Thank it appreciate So color. I I’ll your there. you.

Operator

comes from from Jeff Research. next question Sprague Vertical Your

is line open. Your

Jeff Sprague

Good Thank morning. you, everyone.

Scott Santi

Hey, Jeff.

Jeff Sprague

Hey, for me. two

even go the were of right would you on First side. eating we it, if without on a $XX times. restructuring pay-as-you interesting, probably kind it million in Certainly million, of pointing normal out basis $XX have just

or For of the for pandemic on in with kind lifetime hopefully shot businesses $XX bucks. once million a given a up goal restructuring like came

Scott Santi

that's -- about shockingly I told guess kind operating. how are laying number. not it's before us I a you've low a do. of around stuff just of testament lot businesses to what these But There's a

Jeff Sprague

back. might quickly any actions other And perspective these and pay how that and, on

Scott Santi

of A, the operating perspective I on on Well I just been think think years. and we've is sort margin for working efficiency seven -- that, comments your

we right. we're and better. every the always bit That's trying -- -- be get million, there's $XX We're better. So to little year a can

we half pandemic is the -- commentary, limited of two margin cushion, structured amount the million incremental, have back given to related have it, given said that's that's of we staying any advantage an we're in don't profile. three in is -- cash demand though, flow $XX that the of other the support The out. which to terms goes we the quarters And to what

tell to nobody's against to certainly point, not. we're I expect global long-term We when, growth economy at economy going you the exactly stay, but revert I some the can't to think betting and we're

strategy customers with invested. our divisions, to stay going on million all agreed says it on to growth predicting a to recover. making fast so recover as we've these $XX not And can just going is to and we're it's of serve saying the And businesses we focused we're that And I'm stay sure response recovery; a our necessarily eventually. into lean going I'm

Michael Larsen

the million, add, I'd maybe add thing Jeff, of that to more weighted the of that the continued and on think we're XXXX. third that point quarter. is the somewhere again to then it's a what's other XXX we a points it's, more to the I'll here, the quarter, are is I'd from payback towards -- about QX, of other months, continued these $XX where then what expect again, just projects, And maybe really projects, the be And encouraging thing modeling initiatives I XX as these which are chunk perspective it is around margin your two-thirds that, in of overall And basis saw referenced the than supports this Scott improvement XX/XX less in that which significant you in be talking front on margin enterprise driving bulk improvement. projected

Jeff Sprague

little thinking kind opportunities thinking and very kind of sitting kind And just in of outperform or you're a that of order where a saying But But, exposed as portfolio, business want clear might forward to a right to the bit positioning portfolio of that previously gain to positioning recovery. in what really pandemic look you you comes then secondly, about, this about maybe to haven't to your different kind kind direction in looking here don't more is want light even about and also [Indiscernible] weakness to of in pivot about mind share thought a at you're we if Scott. anything there that of strategic the you

Scott Santi

would perfect to be the this disclose Yes, place that.

So……..

Michael Larsen

probably auto offset dynamics food we just it's way quarter. be industry of focus the happened of the industry anything have diversified value of our, long-term I margins. the absorb if fastest And on mid-XXs our -- that last say five five -- in seven has that has before example. hit the and growth fastest similar out -- the in given our business by the support basis, and did acquisition, long-term I we for picked been of the the appreciate of quarter solid prospects. this years the I took And auto one sort we of we would I of let’s segments and growing it’s of that the portfolio one reinforcing sort a segments that sort we in best other what I question. think I growing this fact the at to that it's equipments can actually the on -- that honestly that the kind think is we seven

stay some the downs and that's allows manage based the right invested think -- to I on to want not and sort short-term of ups have invest the the that us the of stay of…. capability kind portfolio where sort we to

Scott Santi

we don't and in view are In that of we on an lot want there the a that. is industry, with, the are the guessing end started we've margins point ultimately plus ultimately, create be in shrinking sink industries. industries those And little to But those value-add or position. future XX GDP, proof our And we We can that a we of into are GDP teeth or great industries for XX us. XX when bit got businesses and can characteristics, a years for that's great that.

that in changes for would any any from problems in been we has nothing that So of created I of businesses my our don't -- has us or in mind make one way. any any our seven in terms exposed of this part things

exactly of we go [Technical way. says all on that run They difficulty] Not at pandemic to find more clearly the same well. together get eighth And businesses the -- one of we that in got pretty didn't the work point. the all same about, let's seven we out to don't affected cycles. They think about don't I some word they're one it's these. me, of by

Jeff Sprague

you. Yes, great. Thank

Michael Larsen

So, of announcement today. big that's the

Jeff Sprague

There ate you are ways there. [ph] what to

Michael Larsen

Okay.

Operator

comes from from question BMO. Your next Tiss Joel

Your open. line is

Joel Tiss

Hey.

Scott Santi

Joel. Hey,

Michael Larsen

Joel. Hey,

Joel Tiss

come priced to threw last Are a a to more anything that you like that off? or little acquisitions closer are it's something? they up popping feeling attractively getting are starting that you're time little on idea on they a do there Just follow out

Scott Santi

that this think I a you're good to not a distress in is business. these just during will business say time if time your a and I comment that is not sell times,

merits have the So of perhaps, near-term quarters out distress emerge more strategic may some over of and are relative sort less think that to with long kinds and I to opportunities financial the do that haul.

you're So, it's all you're probably again, going not we're try time right to today. to not are of where with -- spending business, now they lot numbers at a because to trying a is a good on, -- your pipeline build this if quality not sell

Michael Larsen

[Indiscernible] would way that Something be willing at my the we to thought came a was certainly fit, that to take real we it. real look serious

we of would our-- we not ownership demand. kinds things issue be It's probably an would want in it's an -- that of issue more So of The near-term. supply interested the in.

Joel Tiss

Can should you one thing a be we there of Okay, that the acting couple kind is to stay any all pieces pieces to win you've and you thinking other of for in highlights recovery. together? given a of Staying it times. ahead some of us the your on, to there of pull couple customers highlighted and about? couple benefit Are of a the curve

Scott Santi

supply there And flow your either thin. substance cash some disruption our and consistent stay the during makes then count for to broad with And strategic even pretty certainly to various that we I there's opportunities some certainly as think do talked chain localization, unable our whole those ability businesses our long-term sales to we taking fact easy to they I customers potential ought on compete the complicated course our for some stress people not think stickier -- don't opportunities may our there's do that so us. be with the us the good and as it a in us we significant where through about broad staying in to it’s A, thing kind of now and an -- supply right to and them, categories. This in this on is on is. spin-off perhaps down categories for about lot That's beyond a believe in have thick that side. are is right period programs, of Well, lot manage probably your excellence. some innovation talked we about those there's invested recovery on

Joel Tiss

these thanks. excellent during showing okay Okay, And definitely your it's is strategy times.

much. you very thank So,

Scott Santi

Thank you.

Michael Larsen

Thank you.

Operator

Wolfe Research. next question Nigel from Coe Your from comes

open. is line Your

Nigel Coe

Thanks. Good morning.

Scott Santi

Nigel.

Michael Larsen

Good morning.

Nigel Coe

Yes, from companies It's think some not of advantage we really I other about interesting. so the taking cover. that that we the is hear stress comment something

but was shortfalls just I'm really you anymore ramp perhaps, and would you curious wondering are the expecting pockets I'm to you're competitors, signs So if your be there obvious now some the just if auto color me helpful. places, equipments and with more real inability inventory in from and might or distress your the of be see food to something seeing an channel maybe that seeing up

Scott Santi

related near-term, distress, recover. not -- a the Yes, to referenced programs opportunities. my are we early. can want And volumes I to commit seeing for ultimately through us try the just I the would new I able now of are starting any business new it's delivery lot distress to in right those. that say, of the that those that think to that people list. competitor But of the we were still lot to component same the delivery, probably are competed we too commentary We're that. no there's no that There's in with Yes, a timetable there to aren't that could programs of

cash to can be people, keep ability there's would if I'm distinction impact if cash certainly gets up on mode. say going it starts make the go things working to certainly this growth I is run. of some flow, from there the to, capital accelerate. that cycle look, if rate that the constraints product to So working But of And we the and their trying standpoint in in to short as fund capital, that availability, flow the

think that's emerge. where those to start opportunities more I

Nigel Coe

it that's -- Right ROI can follow now, I kind when at look for is, your another of other then question this of that And [ph] this you year, up for framework my rather. revenues higher and but the your be on seems you about back discretionary of on these still costs imply other in have margin if have and in of side get you planning as like when lot the be that come correct half does Does the do don't your rates around Michael. for me look incremental But year, that that looks gross I XX% EF wrong am mean any back plus it that detrimental you're XX% would a well? forward plus, like the recovery? going color plus good have price savings. and more Normally or a you

Michael Larsen

Nigel, when than pick think to demand here that's ITW. think a incremental starts see a usual Yes, really recovery I up going basis, some margins year-over-year comment when you're I fair from to that the higher on

near-term. I question, the half And focused if at think just in again, look managing in decremental margin not you of terms second framework the we've on number here to provided. the really a we're

QX we question your is I positioning margin more than last little is of is back a said the result second in area. half, and when a of really low when we higher of in higher a -- as the bit we But begin then restructuring expect think do incrementals but normal for XX% in XX% of way. decrementals, the to the the in in for we like be QX to around kind most long-term, kind in XXs that meaningful accelerate call, part expect to the said, here the more as much a things important decremental on

Nigel Coe

Great, thanks very much.

Operator

comes question Nathan Your from Jones Stifel. next from

open. Your line is

Nathan Jones

everyone. morning Good

Scott Santi

morning. Good

Michael Larsen

Good morning.

Nathan Jones

ask of to wanted on just food side I question a issue. the equipment the

not quarters to You're be buy And stressed. side in have equipment to some there's Maybe closing ITW over view be equipment lower equipment on quality a amount the the could operating customers here. looking fair used the going not used even a the business the institutional capacity. the What's the market short-term in permanently in down restaurants of going that of the or high here few here? seeing whether any next at impact the likelihood on that, are your to lot market, of

Scott Santi

that us. think for at if impacted used not the equipment with, we market top product the really people It's look not I more ITW. tier, an tier issue mid compete lines Yes, much competitors to you at the and is like an

seen end there restaurants decline clearly, our question. side restaurants support near-term the the and and where think that an of part what to a make every way, step a we'll meaningful close is and that stay on open starts equipment customers. customers with important things, to QSR continue it here terms operational we've up that's do sure up? we'll I of to restaurants for including mean, in the of I side might to think back be of opening I again really these is -- it's done service to the the really the which and all service our supposed call In

think would about that's So how really that. I Nathan.

Nathan Jones

That's helpful color.

commented of time spending You the M&A pipeline building you’re at just that a moment. lot not the

the share flow, for for given, very their cash free program year. of the suspended program? about reinstating your repurchase You thoughts had cash good the What share the repurchase outlook of are strong flow the timing rest

Scott Santi

how a I that's is position it's share point, until is -- a At the stages of and reinstate question, and going is path cash of Yes, clearer recovery our wait little and company this a liquidity how strong position we're the the cash think terms free repurchases. in recovery just performance strong the flow to we it's is. still this early until the given financial bit fair

might we -- forward. kind little clearly for things now going a we've out hold remain how of play more we until on see So

Nathan Jones

Okay, thanks for taking my questions.

Operator

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

line open. Your is

Ross Gilardi

in. what up and me squeezing wondering, attractiveness M&A I'm, with food. you specifically the and to just just portfolio and will in the I just I'm most the I answer been It's your And end answered. a new markets, on current for relative various it might shifted know of about follow on as this thinking want that you add to all environment don't guys one. this mean, have of preferences Thanks, mine

like this think in happening the business, the that is to that quarter, centers type think be assumed be going from in downturn, the of investing the outside I out an to to packing cyclical consumers like there. down think rank most might us add forth. big on because to what's out so at which second lease in cyclical market most the In quarter home in a in of and the the whereas home win in third turned I is I it's area this your construction, in higher of the don't reality might areas and in most was order I'm supposed terms have so -- the future. of

-- packing all before? or So how at a you would they just is still exact have kind order the really just asking, has same relative of way the at changed look this the

Scott Santi

perspective, answered is through this -- from almost coming. time And question my which you everything I'm that nobody work absolutely not way. it said go exactly commentary Well, be sort I think will of some the the your not saw contraction, next we sure

our terms we if return every taking So we a think would certainly long-term view of seven, of so had them. And relative I businesses, given they are terms in that in adding their every to where think opportunities, on what all that the the again, about is distress. dependant in one of there right that's, we're on near-term relative attraction, margin capital of one profile the that

don't the to in scale scale way it's get in benefit be be but going don't position terms add of to we cost, wouldn't XX/XX. terms about of run we -- no need So, scale given we talk from anywhere, afraid have of to -- we size we our the to

would access only act geography, a new positions a etcetera. new of we market, to to one an So, had end our products if we really a opportunity to add differentiated market, -- new

don't we some wouldn't think higher seven. from benefit, across I So priority necessarily of lower any. rate long-term the any there but sort away priority to has I be chide

Ross Gilardi

it. got Okay,

Yes margin those costs? on into one scenario that from XX Is quick the million spend think Michael, your for one various Just your restructuring in or I million excluding $XX of analysis applied margin housekeeping the$ just scenarios your baked for scenarios XX/XX. Michael.

Michael Larsen

It is included.

adjust become you as We numbers -- here. we're don't accustomed So to.

is these really we're GAAP the that the numbers including everything on So are showing page here and is restructuring. this the included

Ross Gilardi

Thank Okay, want I just to confirm. you. that's what

Scott Santi

you. Thank

Operator

We the like Fletcher to have over no further for questions. to call remarks. turn Ms. I'd Karen closing

Karen Fletcher

stay and everybody Thanks. morning I us joining this thank want for to well. just

Operator

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

Illinois Tool Works (ITW) 31 Jul 202020 Q2 Earnings call transcript