ITW - Earnings call transcript Q3 2020 | Illinois Tool Works Inc.

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Operator

Good morning. My name is Julienne, 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. Instructions]. [Operator you. Thank President conference. Vice Relations, may you Karen of your begin Fletcher, Investor

Karen Fletcher

Okay. and our morning, third Good Vice Thank Julienne. you, Michael CFO, everyone, Scott and conference Larsen. I'm President and CEO, quarter call. welcome joined and by Chairman Santi; Senior XXXX ITW's to

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

Scott Santi

XX% everyone. Thank as the quarter, versus third progress in revenue you, evidenced markets solid sequentially saw serve by morning, Karen. the up in many being that Good recovery We second of we the our quarter. end

third delivering meaningful seven fact, Polymers Fluids Construction with in those, year levels the two and In ago in five to returned segments, quarter. of our demand levels approximating rates & growth of

delivery of customers, the by to themselves both model and to a can QX, demand team doubled from leveraging service Supported how on the our to QX ITW clearly Welding the in responding our see unfolded inherent base. to by with coworkers levels demand QX our of to on the in in acceleration to business OEM our although responsiveness demand face from and where segments, and about as versus participate cite incremental flawlessly company Across pronounced effects excellent while Auto display segments ability in improvement safe. customer their for our high people teams our continued decision the system. in in -- all provide versus refrain by did levels materially in On QX the and example attributes on QX. a was to numerous performance. be QX. examples seven executed service standpoint our We the accelerating the flip focus the Front-to-Back often pandemic side, positioning our levels operating and the sequential rapid in both talk recovery, our business early a we that the most resulted Food flexibility our around demanding pandemic, reductions sustain in rapidly demand in in of XX/XX impacted of good essentially of world responded Perhaps very segment, Equipment demand to those quality were to the fully And staffing a initiating keeping our company in and

progress segments long-term versus our opportunities performance just in quarter a towards meaningfully structure, through in remain laser-focused hold. on restructuring cost two Operating efforts beginning flexibility our our long-term a our capture items few higher that addition minutes. enterprise accelerating And our the also gain our take goals. In operating to growth These delivery detail specific that best-in-class that will to capabilities, contribute which is to aligned included more operating are meaningfully sustainable Front-to-Back strategy. are our margin showed core Michael leveraging organic operating in will XX.X% margin confident one-time provide XX/XX divisions system share our strengths QX. expenses The to I'm in on to to of our they year which leveraging ago applies with

operating highest billion, the in second we was revenue flow factors, expectations margin $XXX in history the GAAP quarter, free in of XX.X% the QX, of and third Overall, income $XXX of these quarter company. cash EPS million the Excluding into of $X.XX. the of heading exceeded pace our recovery million, delivered the $X.X as operating

the unprecedented circumstances, the enterprise fully is In competitive over the return to proud high tax managing and more team strategy XX.X%, how without long-term after key the ITW period. a enduring our performance all-time necessary serving that deliver of of thank improved addition, ITW efforts in upper that not decision and supporting our resilience company. has an on financial consistent goes excellence. to challenging In quarters capital I It be the evidence performance for both customers for the is last could invested in further our the ITW with saying operational face world the this and strategy company of through colleagues sincerely their want our executing in to remain challenges to and and and tier initiatives dedication plus economic our any And provides execution around exceptional supports invested my XX,XXX the that advantages continued I environment. few

continuing Moving execute to now strong over results focused more I'll turn performance. the our performance. our and detail full to on ITW's to forward, potential while Michael for QX we delivering call long-term Michael? achieve remain on sustain on strategy

Michael Larsen

maintaining strength, priority. a ITW's Thank you, been strategic and the everyone. Scott, has optionality Since good financial and morning, of liquidity the beginning considerable pandemic,

position only profitability QX. to offset versus And as points over recovery. for the favorable that X% expectations essentially line sequentially to leverage resilient was by the revenue The year-over-year organic year's financial basis basis, X impact. XX XX% ITW our of Product in decision last a into on the we up demand, operating almost going margin in declined key years financial XX.X%, participation only volume a foundation $XXX invested decline to QX was customer last basis the ahead results. divestitures year. QX. we points QX strong quarter, strong simplification ready our of and quarter. and we and or delivered and our X.X% Our was stay to in XXX were to to Despite of meet down profile in million compared the X.X% priorities, have the objective the impact was maximum progressed fully built recovery leverage strategic negative was was And revenue compared prior XX% currency

that a to once moment, operating one-time describe higher would enterprise basis in all impact If to of basis I will was the actually points you and XXX XXX points aside set points. items execution of X at increased XX basis Strong segments a margin year-over-year benefits contributor again range as restructuring our have delivered in big initiatives on expenses segment the XX.X%.

As expected, our margins than little normal the decremental in higher were at XX% quarter. a third

the in an just I Operating and higher decremental effective XX%, X our was been of tax Excluding and expense, XX.X%, $X.XX, line that million GAAP with margins $XXX EPS XX%. our of about income have XX.X%. mentioned items one-time was XX% significantly would restructuring historical last than to year's the with rate decrementals better

billion, conversion year-to-date the basis, compared $XXX was flow flow free last with to On XXX% expect contributed cash cash XXX% a now significantly above performance year. capital free to flow rate working to and million a $X.X $X a of of We free of rate end of Solid conversion cash XXX% income. year net billion.

X hand, cash sheet end, undrawn had billion. than on strong. no commercial ratings of credit liquidity $X.X billion $X.X we At facility, total Our a Tier $X.X of billion credit and quarter remains paper and balance more revolving

structure, in reclassification short-term as which from can months. an our long-term to simply bonds coming XX a in see is In of less terms of $XXX our debt million XXXX are debt, you than due the increase short-term

and operationally So our ahead very in progressed expectations. the recovery well a previous of summary, financially as good quarter

Moving on response at for closer look each recovery segment. by X third to the and Slide quarter a

quarter in mentioned, effectively negative to including our Scott margins segment a went every essentially operating would that volumes see revenues fact that improved few as their segment recovery the able just and days in responded OEM plus. sequentially XX% from operating or was on just to and a to Automotive highlight that double the XX I things increase demand can margin. You both

X of just was had Equipment segments operating XX%, QX we Food despite below they a segment FEG, challenging XX%. In above margins, environment. them X pretty addition, margins to not that the expect are margins, XX% in but in operating operating fact above get

at starting X, quick Slide geography. to with look revenue organic a Next by

sequential North almost you QX. improved QX Europe see, XX% down demand only XX in a America to also X%, significantly, improved declined only As customer of every in down in points. can percentage improvement X% compared region. by

hold. Specialty up Polymers as X%; quarter, recovery up this double-digits. Automotive China, In the the OEM, specifically, grew Products, to all Asia continued China Pacific positive and Fluids, standout, turned take and XX% was &

So recovery in summary, in broad-based the quarter. geographic

to which demand. was with X%, Now positive being year-over-year, XX% from quarter supply system and team and capacity improved let's at experienced full Automotive experienced shut America to had starting each quickly operating and revenue pronounced down turned sequentially responded matter North that went X%. In leveraging by one walk Overall, recovery, down was with up XX% local close the already and customers OEM. through customer meet quarter. China, most this weeks, operating ramp X% still the flexible of Europe down and up to workforce, down chains last our segment, organic also their a the

of reduction call, of in discussed we did points that to as we part XX.X%. basis to plan were operating XXXX Lastly, led few on which our a pre-pandemic initiate margins a restructuring XXX last projects our

Slide to X. Turning

Equipment from that. down declined Food segment and North Institutional XX%. were XX%, down about revenue America XX% hardest restructuring international and demand organic was significant revenue by the XX% Despite XX% rollout in service operating a organic was higher still margin including XX%. improvement, little were products. XX% than about which were Equipment down QSR, down sales and than a more more was and volume quarter down expected, grew hit On though, stores, As of was both QX. restaurants, includes as bit being positive in the a expense, negative significant note, new XX.X%. supported grocery the the retail, down leverage

almost In restructuring $XX XX.X%. with generated up most Excluding organic and X%. Electronics think been the worth only and have would revenue segment environment, impact, Measurement margins operating I Measurement noting declined & in that Test million Test the X% this income. down it's & in challenging Electronics And X%, higher

markets, demand segment considerable healthcare the end While in strength capital and remains number of semiconductor, technology. including clean for room equipment a soft, benefited from

margin potential a divestiture impact removing you XXX from basis points the from held-for-sale. from see of unfavorable XX.X% included operating footnote, assets the As reported can of

the of segment. Excluding been XX.X%, profitability have is margin this of would impact, representation this a the much accurate underlying operating which more

Given the to current environment, we for this defer now. divestiture decided simply

of and divestitures, comment me no make determined with we divest of management X enterprise efforts portfolio to revenue framework, our specifically billion. Speaking the that longer approximately let strategy fit decision broader a on $X our businesses XXXX

overall good divestitures XXXX, we are benefits we enterprise And operating margin X level expect the operating will basis XXX points We completion growth financials by these completing increase our by progress points approximately million. seeing revenues with at year, divestitures at in In and margins improve organic $XXX enterprise impact. that made including basis of basis the XX this of rate points. of our XX approximately

will has While not regarding businesses normalize. the market on fit strategy our efforts the this conditions changed. year, our a divestitures for we the view the of long-term put sale process Accordingly, these when hold remaining resume pandemic

Okay.

Welding, Slide declined year-over-year down X. to XX%. demand Turning for was equipment revenue capital In organic as

though, in resilient of business, note, positive individual organic and with XX% business about repair tire up organic users, growth down engine sales X%, more end automotive Polymers up and Fluids The was the this for at to a On XX%, in and were which strong XX.X%. XX%. was However, on and the revenue primarily commercial remarkably than record double-digit X% businesses benefited sales Operating holding Fluids with spending, quarter. products. margin, & and serves back markets. reported In XX% hygiene smaller industrial, was capital growth customers revenue accounts healthcare aftermarket grow in from quarter. of retail strong was

strong As XXX incremental operating a XX.X%. expanded margin record points a volume to by result and leverage XX%, of of margins basis the

with positive New quarter, channel had geographies and record renovation X to Zealand region, in revenues North center X% Europe by home market, in from for X%. and continued construction with first Moving positive, XX%. were offset than X% was demand X. and in with grew residential commercial remarkable Construction the growth in organic double-digit down the Australia a up up more and Nordic Slide years. of time growth the XX% the to double-digit growth All deliver strong America were benefiting

the As XX.X%. margin expanded incremental strong volume a basis to operating points XX%, a record of by result margins and leverage of XXX

XX.X% XX% QX international at demand in remained is, revenue consumer equipment was organic with included and And we the for Construction XX%, was some packaging Construction ITW a the America down certainly margins strategy of launched customer X% segment right around more by industry, Demand solid of than pretty cost-sharing the you in capital may had offset was remember one-time the XXXX, not fact in lowest enterprise down delivered good caliber. margins Specialty but but therefore, businesses. stock remarkable. lower that X%, inside the company, down settlement. margin really in ITW in and revenue X%. highest performance that the operating the when The seemingly Operating North

this XX%. Excluding have the would impact margins been operating of one-time item,

to XXXX. updated an look at year full Slide move X our for Let's

I high financial expectations into demand exceeded of As for the the updating mentioned going outlook recovery we're in year. the a end QX result, our earlier, and the as our quarter,

we the year billion billion. and for XX% full the range XX% revenue As in the we range $X.X margin to to expect be $X.X of of down operating organic be XX.X% in XX.X%, today, here to income operating to sit to

free above and mentioned, billion. strong, flow year As continues cash I the to to end we performance be expect $X well

note and QX expect that guidance QX As next that, in X a you. to when reinstate days. back QX, to year typical slightly in QX shipping is year mind early range. tax the With release versus please we be to XXXX rate With the our full year. XX% QX keep and about we to expected rate expect you Also, our to think XX% that tax results from we for seasonality QX less in higher to annual full respect outlook Karen, XXXX, has

Karen Fletcher

up let's open Okay. the lines please. Thanks, for questions, Michael. Julienne,

Operator

first Jamie from Your Cook Please Suisse. Instructions] go ahead. [Operator question Credit comes from

is line Your open.

Jamie Cook

to can some guess I the of then tailwinds? as COVID, don't guess two where speak volumes. faster can want you comping to trending? how than now do sort best we takes I good sort to you your one there market think you headwinds you help strategically just about put us incrementals people don't opportunity of had salary question, markets you opportunity grow of see of the think faster grow sort guess through which update outside advantage talk to understanding my you about positioned than outsized as the cuts that puts second where on and incrementals. right have And other yet to trying XXXX, ability the of and and of versus structuring. Is or I'm will of the be market -- I you questions, up getting or a take as the you anything that we're is to M&A with

Scott Santi

Michael I very me comment second let situation dynamic its still take is question. strategic overall would out. much your the way sort ask on questions and then this of What a to playing is maybe say Well, that's

We tactical are responding at this well certainly pretty standpoint, from point. a

seize period position opportunities on that. way. to remain serve certainly this our invested on, with mission our customers ability We in that through and we well to of Our remain that extremely are making also we sure and focused come the is focusing

really in But that to would priorities to way side refer flip our opportunity are go is But I I the with made I more that the quality to order From sort in this the sort is come quality be the We're although opportunities not and open ITW for we think have into in not the help that would up a want I a I'll to out just own companies can we the at too of availability play at solid company. is the company respond continue ability And necessarily very at is even marry to standpoint of business to this than think at it the of priority, on situation remain having said parts need as we to our and this others. opening customer real near-term sort company, perspective, long-term kind expect the can forward. in time too this focused point, of -- on It in opportunities the interested I way. is to can I into that business where sell. we bringing quarter the for in good the we've remains resulted not in strategy of we to other about third what immediate comment market what terms but past great a we to the out environment, discussed thing for clear my fact we the incremental the the point point X this this better in is it's our our divestitures, strategy this also of say of an in environment, the We're early of of of time rank think of fit M&A point particularly than from to remarks have of to a the the dynamic experience any in of company, opportunities examples back think good assets. sell. companies. view their ultimately, that segments every that those

profile big of focus a short-term, we standpoint, medium growth said not basis, in remains the the now. part it a core company. forums, right as it's and a long-term a on tactical from repeatedly to But prior So strategy have overall of

Michael Larsen

we've is bottoms-up ITW talked of we the Jamie, that before, planning much with haven't yet inside simply then on process very and as through your businesses. And process planning process, about second question, our a gotten

detail. promise really range. detail. fairly to & obvious incrementals, reasonable the is at can't when I which on point as question growth will are that, quarter, be our that of obviously around that in in And comparisons I great able significantly higher. to terms near what that say just that -- when so lot Polymers a And this to of long-term specific be in I Construction next address and to in questions both incrementals get to this growth, your ones are, And I they then tend XX% of will provide term. your in are specific Fluids guidance easy. in point call, we the earnings still the the comment we then our I'll I'll you saw organic amount XX% incremental certainly margins It's year-over-year a

of may we you some that so And into get see XXXX. for when detail

Operator

Your from Haskett. Inch next comes question ahead. Please John from go Gordon

open. is line Your

John Inch

what year? Do some Scott, toward seems cities wondering adds avoiding a couple also and and as you juice two a to more North you cyclically public you is how the during is return that of of what quarter of did creating their commented runway they kind auto And for next big this, in the are and or it you companies just beyond other much have words, sustainable a intuitive. think for potential to auto your if America I'm demand recovery on in Hey, in China backtracking? pent-up experience. think in transit mass saying growth do driving -- sort In The and think prospects pent-up team stuff to Europe? of the

Scott Santi

on the mode. is thinking would I that potentially, deep. in still say not We're particularly yet tactical Certainly, our

and do lows. on as you of own of at -- sort that we sort result that do I our how yet, on plus marketplace dealer shift think also this part the current about of that in basis of might adjust just trend don't talked we so certainly or expect process. and experience inventories of have And we I that QX January. planning that think remain think into related the There's point. our solid at long-term, have But are medium -- baked and situation plans what I our conditions this we're 'XX that that we'll you -- to want about a some at to to about that in more QX long-term. announce out looking better our we XXXX X-year then beyond we we'll be positioning when and from as talked certainly -- know thinking, just COVID sort in what early a around based the our XXXX And there, in demand to the view plans you results -- --

John Inch

and have OEs XX/XX plans? work fulfill quality you based wondering, and feed system versus auto time I perhaps workers pretty lot do creating issues of the the not And is realize it's a coming wanted lot with that and substantial got stress up of on respect guys like in context leverage lot I'm to OEs. booking what That's are drive can may the just kind firstly, right business actually, that. actually a I've supplier to own can of creating do with because program-by-program. they and quality. share doing? you it quality secondly, rework just opportunity the fact some to a also of are just this fact the seeing now, And follow auto fair. this tell A theme. with of are your with they're your just who couple And Is others supply is of that you time, ITW's an chain for stuff incremental there's to to problems over stick what I -- requirements is off with work. for me into that

why the question. asking I'm of that's kind So

or Delphi not whatever. You're

there's on there. something going -- Just

Scott Santi

programs but we of lot it's No, a not are in that in. we the program-by-program, participate sole-sourced

we the certainly talked incremental lots be certainly part auto of and that of an the chain absolutely OE you opportunity. some that of third parts quarter, expect There issues the and auto we're are certainly, were present, we that in. continue in supply So to in of don't our to participate about results overall

about there certainly, areas that relationships that serve for making position, business in back our solve So the fact stay we're been we company -- supply in that not the But to they're we that inherent to we commitments about. are that we aware thing supply way operate. position issues from sure going remain best of us, -- strong chains, laser-focused quality talked the the help new we've our long-term in the problem. some not you that them That's to flex robust talked on make very to to with in customers, strong past chain with we're And localized with remains to supply that the has this we in deal second the that's operates plan key in going throughout that suppliers. our of model a us And a our our ability, for and we to standpoint, ready sure quarter, with the a and us.

should actually also And supply our my been they've to-date. I probably so comments far, thank because opening have remarkable base in

Operator

from Please ahead. Our Julian next comes Mitchell go question from Barclays.

line open. Your is

Julian Mitchell

the for flow first question cash a Maybe just Michael, around outlook. free

looking you've or the pretty cash flow in you down in so. a million have certainly, free second should think the call step cash, robust. that mentioned on previous free half I $XXX big But QX,

now put you capital to could managing working had you're cash flow? updated of sort kind that well working pressures So just do that how on as think And the if what capital wondered the thoughts management improve? you around sales starting are of and any

Michael Larsen

And said, expect $X will similar side. end I during billion. you I historically, the credit fact you quarter. should capital result QX what see performance here given something the into into good also from Yes. quarter. efforts. our significantly at on think going recovery job the the focus It's the our of company, in at I think inside inside we cash our teams that the and Julian. did ahead with of the the remarkable. free we -- result flow collection past Like recovery the that are expected which mean quarter, but an I quite And the outside, company, in a some on if the look question, above working was our as -- performance, Early in a year say performance progressed remarkable, was that, the than the expectations $X.X significantly better as I due pretty we fourth we this, here a we're our put year-to-date, of focusing particularly receivables on line on, given pandemic And you when is look right at the the are can’t where that we we pressures excellent billion.

stay So you as above should things way -- cash expect they free we expect here the Julian well the the flow end performance, we if and to continued strong are year XXX% in fourth quarter.

Julian Mitchell

for Scott. And a perhaps follow-up, quick then just

in low mentioned inventories the Auto You vertical. OEM the very

characterize example, the partners customers channel across state you ITW, in you're businesses, looking when how do for portfolio other inventories disparate looking restocking, the much of Just general? seeing are at and the you at wondered, at

Scott Santi

past. the Yes. We've talked about this in

their inventories, reported a step auto their have and are or is a I and obviously very We visibility obviously very around visible. and that's little more certainly number there was move made approaches own dealer comment which there. is The it's

little In of there's from terms in of buffer tomorrow, today, most our us to inventory. you order of partners, channel it terms given we very ship fact that other you the

from not it's So ever. of I us the think big a really destock-restock, for factor standpoint

Operator

ahead. Please comes Casey Fargo. question from go Wells from next Andy Your

Your line is open.

Andy Casey

from $XX.X QX year’s XX% I'm Is consider But midpoint XX% I kind expected, you last about decline take imply else? should QX it math or doing something if the entirely are numbers the that to million and of QX margins the mix the outlook, if revenue of to the XX.X%. seems just last provided, on that and right, to question to both A year. we then to to flattish with

Scott Santi

Yes.

revenue major of result be X back than tends the for margin trend trends, and less in historically, are the the you underlying here went think in is you that and What a there or a I fact sit the the those October. the I in days fact QX look QX go can third the sales guidance QX improvement framework the through lower of we quarter. providing if quarter, obviously, we're as really shipping from significant really remained as in primarily we of driver -- we're -- here to standpoint, planning -- that sequential fourth have we tell that on is terms as

unusual I certainly So should it's repeat say I we then will nothing you those in fourth don't the in And Obviously, performance, -- expect pointed margin quarter. that encouraging. here there's to here items the to some one-time that's -- in quarter. third again, fourth quarter. the the

So for your we information like is But as you might our together the what's with on today sit for we've page your really put deck quarter fourth of look enough the assumptions. in what reflected provided hopefully, to current here full the year. here the view own own view

Andy Casey

last how did you share on I revenue. this so, if that to information And where you it And company to stands Okay. quarter, some the then may, gave market much? if increase win metric, Would quarter? us about by willing magnitude, share meaning annualized be benefit about past

Scott Santi

Yes.

of This certainly were a think focus couple examples we keeping all stuff customers last it I I just not major out this we results. is to that all the the as already nor I that and a company. quarter X assume guarantee our tab real we're are just play or you our running it is keeping that tracking have segments. if inside at diligently. X a list and that segments across thousands our were wouldn't of be that out what had started that to probably. broaden would gave was X it of would reporting a practical very certainly it it impossible But just -- thousands and be reporting and this on of accurate, wouldn't we point, given we be continuing would This

Operator

from Andy go Your next Kaplowitz Citigroup. question ahead. from comes Please

Your line open. is

Andy Kaplowitz

we at the are a much construction side. of as segments you or Michael, of ever in in Polymers But renovation coming Fluids, growth such couple these which auto look from helping in growth these you've know PLS is rates or aftermarket. & the done Scott of or segments, if mentioned we you quarter, instance, Construction for also the a strength, the rarely see margin in segments your lot

So recovery? Or this mean sustainability we too? in seeing could the the just growth of the in What on revenue side, labor pandemic-related segments that fruits also the for is XXXX? particular are of these

Scott Santi

businesses. Yes. of benefiting My certainly are certain sort pandemic-related two those reflect pandemic-related solid are some that talked those near-term, also both demand. the of of There the beyond growth of that within from answer Andy those of or to that the And those market is in We product about of question their sectors very overall categories profile in segments a of in posture leaders actually both and segments. benefits both improving results both. with some terms progress

Andy Kaplowitz

that, but a Scott, little more with XX%. that's color you was maybe helpful. then -- down stores about institutional could down XX% sense Food the up give in than grocery restaurant Equipment, And you mentioned more were us up was

you As few see the restaurant stays of do recovery Food the you strength can and your continue the if facing continued Equipment over next business in institutional see look weak? in portion grocery? sales And sustained to quarters, recover out you

Scott Santi

Yes.

recovery It think side probably we And will the things. that so take the a slow while. of be on will

that, recovery portfolio, detail as little And a The institutional big the did market a second end versus As quarter. obviously, Yes, will is you where probably was side, on reasons in as better. might look And little improve Restaurants, maybe was the side. segment markets. you sequentially second take the the across you the of rollout for which doing quarter part gain. expect. is then side, the part lodging Supported really the quarter. the about on it slightly that XX%, a Equipment share new bit -- give product can improvement is obvious of and the in same the I QSR longer. bit Food drag of of on healthcare terms down was Within here retail the

view above quarter ability operating they're remarkable side. be term so It's the business margin. ability that's And will of environment XX% near million the saw -- in the why our changed given attractive we and we almost hasn't $XX dealing terms this a is, attractive terms think I our think slow But do this long-term, business this here to and already today, with. think on answer margin accomplishment. our market Food in that generating so to question, very a you the both Equipment. to grow recovery this will in at your income, back in of that -- was fairly business And to retail pretty In XX% be a the sit I here at up as for of in how be

term, long-term, very near we this on So slow, bullish business. are but

Operator

Duignan ahead. Your JPMorgan. next go from from Ann comes Please question

line is Your open.

Ann Duignan

for in questions this on does I Most platforms? in RFPs future ahead for to beginning have or maybe platforms And could many I short-term coming you vehicles more I business years thought the change point. there ask what especially maybe are the Automotive within out answered of electric about And at out you're dynamics of been electric programs. Europe in terms U.S.? the bid the you know advance. see the how that of team, RFQs and seeing

Scott Santi

say Yes. of things. I'd a couple

the -- based new of pushed out activity, just got impact. terms the things program pandemic generally, certainly on In as

the participate. terms customers activity then about as nicely remain engagement our of disappeared the where opportunity EV in up of pretty so the terms second from and a overall much has ITW And the but areas us standpoint of with to -- lot. that lot their of talked profile value. a quarter third in expect, would the combustion And the internal from we've platforms EV agnostic we versus quarter for the the solutions We of on standpoint can talked we've you in add our future for of picked opportunity that types around pretty question, about in of

per is in projects curve we're as the this on you volume of big but combustion In still of certainly basis, for the EV a in fact, coming standpoint growth of from expect, the the that internal up all as the as on certainly And relative fast. it's on expect, side higher not engaging a at vehicle slightly that basis. point, would EV it's you on would projects on reasons the the number

Ann Duignan

a you're what And We Automotive read then seeing us beyond seeing going could in about on you there talk in what lot just about China China. you're segments and the through specifically? Automotive? China, other what's in But in maybe you talk

Michael Larsen

Yes.

to step maybe So back. take a just

auto second fastest-growing flat, is in down were actually X%. that the not In in you sales here, China, positive in grew to to the quarter, business first the Auto And then back XX%. & business but the specialty. here still you'd China quarter if in kind as Polymers there's third And and in range. the a so then up China. the was expect on was business up our down the Fluids side was XX% in Equipment XX%, actually year-over-year. as So continued go hold, quarter our recovery QX, as mid-single-digit slower then Food of recovery take XX% And

China. -- trends in as recovery the certainly hold take encouraging but and So continues to

Operator

ahead. Scott Melius question Davis Research. next go Please from from comes Your

Your open. line is

Scott Davis

shortages, that demand did given the assume little follow-up numbers is I overall. The results product environment. maybe on whether some of to a strong the us those guess, What been supply in And where role -- natural a color I bit might get what you and kind able obviously up price really have give put in the bit despite price results? can of you the play shortages? were a of product amazing Construction you little

Michael Larsen

Construction the of driven supply Yes. demanding our that customers And results were deal by most we ability some the with. to in

chains a really to their So operating credit as activity some team to and supply Scott ability our -- in lot there a And and meet of at credit chain, the I and strong respond own our earlier, centers. were no the said mean, think I lot shortages. of home to supply local

at business If in XX% was up almost QX. a you QX -- strong after look renovation the residential

are not They're reductions Construction, not which, record leverage things price. quarter, but like aggressive particularly, by winning the and the way, to was decision not because take and was and in enterprise -- our the recovery, way this margins, factor by ability all you're so in customers of really of And and driven volume by range The in initiatives to price focus that's and contribute continue a our big care at a -- this. do certainly helpful. back to I a so driven the what headcount I instead way, was of this seeing think and QX in initiate here said, to supply in

Scott Davis

price? kind put end it towards Or you generally of through most Is more regular the on that year, cycle of something is price the opportunistic?

Michael Larsen

offset process. The an position are -- we you -- certainly is It's there to environment. cost in raw a cycle in about material is to Scott yes. it's more that very goal It's that planned little current that very it. of Well, a -- be something tactical annual inflation any not and the

factor a so really to question, And price answer your was here. significant not,

Operator

from Your go ahead. Golden from Ritchie Joe next Please Sachs. question comes

open. Your line is

Joe Ritchie

XQ want Or account X there's implied starting about X prepared comments going that that be your growth on be XQ? less from for And days, near-term just that less does shipping Maybe that just deceleration? in the on kind to and is the think clear, thinking off is that basis? I the number. of mentioned a just Michael, days. you to versus shipping just in year-over-year really I

Michael Larsen

Yes. It's versus the third quarter.

in There XX exactly I year. And as the think that QX. in QX. set are up is there's days XX same last

very year-over-year are and the say not basis, -- typically a holiday of some shipping add, New on Year would just robust. very So no between it’s there's Christmas tactical, and those let's but days I and

So more X. think than probably I

Scott Santi

you And things Joe, implying asking certainly really decelerating? maybe, not is, are the case. are -- that's what think that you you're seeing I think I are And

to things are have seen slowing not in we think anything here fourth that I quarter. the suggest

Joe Ritchie

Got it.

the to Equipment segment dig helpful. a Okay. And Food want into then I That's second. for

business of XX%. part You mentioned your was up retail the

saw that in of what on to product by there benefit specifically more just was Food shift bit potentially a just and being for able in pent-up demand there number XX% understand was Equipment? trying some that And not color little that XQ? to I'm driven from you're love doing any rollouts. you whether I'd

Scott Santi

that. of some Yes,

difficult roll little features. a part product with products to in we Equipment this in But the was new there out added rollouts. is it with QX, annual in think cycle Food the get I of where

certainly also were of that significant in third result ask as share suggest to were And new some rolled there here so a team, being would quarter I they -- products these if think it's out. you pretty our gains the

that hopefully, question. your So answers

Operator

comes question Jeff next from Your Vertical Sprague ahead. go Research. Please from

Your line is open.

Jeff Sprague

X more short-term kind of the just around Maybe tempo.

you from dynamic But any of see it explained and everybody did effect. off a just inventory not wondering guard So that inventory of Scott, in QX. may that fact, effect like but create QX, it's be just fair sounds it just we your here you're kind on It business ground, operates. kind a per se, like the a your sense that So play move like QX really yet, but clearly And an QX? there's antenna of and you catch-up amount caught down there that how get here? in does, somewhat not snapback into looks didn't whipsaw you there's sense was any of that as kind seeing that is

Scott Santi

Jeff. but be really going hard answer, not it's to helpful to is a This tell,

well is point, unprecedented may many do economy. very It's to this from which we what's swaths our some somebody the on of here. our position within and fairly quarter position wide impossible shutdown stay is can stay completely recovery All in just in better dog. third -- to of not was a is pet the first situation be complete this All part customers so tell. -- a we're we serve a base do to unprecedented the the customer of That's can respects. control, our certainly at obviously it is factor. think But I of

earlier, the to I October, Michael we've no conditions But at I the the rule in and through out least is obviously, And they right we any above all play -- see back of said how can from of through impacting and certainly what and seen wouldn't back. tell now, out is we'll all -- you what third terms so quarter here. pulling through

Jeff Sprague

barking showing at my doing my got construction help economy, is guy to I'm Yes, him. dog you've a part up the here and

is sliding the you can The also you in here? on repurchase M&A the quarter, So like thinking? sounds your share It update on gushing. current your what's thinking is just did probably maybe obviously anything to look right. wrong, but doesn't It give us an cash I'm like

Michael Larsen

Yes.

focus this plans primary really for is our our at running the next business So together getting point, year. on and

$XXX getting our repurchases. we'll And also plans And million, focus you so suspended point year. done really we the give $XXX you -- we done give look back on buyback XXXX and running then our a And spent like, share. We’ve around somewhere on in might what business an on the together. share the is we essentially QX. for thoughts And when update of our kind at that we're

Operator

Your next Stephen question comes ahead. from Jefferies. Volkmann from Please go

line open. is Your

Stephen Volkmann

follow-ups, I Just could. of a quick couple if

too to it just is but potentially early that? the sort the wins too the to I'm able ground automotive strategy like the way recovery, of fertile fill And competitors maybe most curious as you're amongst Is to build about maybe of it for think maybe relative be terms your it -- about seems this, can't. might think win orders early historical auto to In to that possible it's increasing?

Scott Santi

think Jeff I'm -- opportunity say value I it -- last be I to equation gives our Jeff customers demonstrate one to I this the would what would an sorry, Well, Steve, think the is was here. us

from you The following -- us comprehensive the chain opportunity to -- of still a I and thin. is ability me. a thick through the value what supply auto equation think the role I is demonstrate is dog standpoint this our around Sorry, for Steve. through OEM saying ITW's to serve was The phenomenal apologies. My in

that based I secure so can expect through -- dicey. certainly bring, particular customers we including will would with ability our be to to And when the this go supply that value-add period to our full of sort experience ability on things business to as us forward of contributing range are we our the more

Stephen Volkmann

just then And enough. Fair Product. Alright. quickly on Specialty Okay.

sharing. there, cost about curious going something about mentioned any be should I'm thinking there's you Michael, anything think, just we detail I if forward?

Michael Larsen

can't it This give with that on. is for agreement reasons you I an of a ton detail one-time to customer item, a obvious a relates and

thing, important you're and to one-time a not the again. see think was I it item, this going

Operator

DeBlase Our ahead. comes go Deutsche from question from next Bank. Nicole Please

Your line is open.

Nicole DeBlase

we can the throughout cadence continued organic maybe the improvement the Did So month? the each kind you of Or quarter. see growth was across start with just quarter? similar of

Scott Santi

Yes.

I gate QX pretty trends were right in the July. think sales strong the in out of

think really on through And talked September. earnings way our August, call. about remain I we that last that

seen October. of And so far, what we've

Nicole DeBlase

Okay.

$XX noted you an I just then that given half. is And last know the that million expected of kind on top-line kind of the the in the you you it. But if can $XX update in that to in out spend around call, half? Got Okay. to back probably on restructuring. the for expect so, And than what better quarter? done plan still and in have fourth you coming XQ parse what maybe would is the second was do expected, million guys you

Scott Santi

it talked little Yes, you're right, expect about be the Nicole. now call. last that It's -- on bit to a million we lower than we the $XX

progressing from plan, first just is least at specific the doing reminder restructuring part pace the very exceeded pandemic And third essentially of the our year now -- to a are expectations. for tied this obviously, little me Let projects quarter the that reason pre-pandemic that recovery the standpoint. the if just a And at the you is, in that we're projects a like. that, there's in were that that

around year-to-date. And million done million somewhere have we the year. up expect for So end $XX full we $XX to

Nicole DeBlase

kind of to XXXX. X about impact probably payback Okay. expecting the guys X then to you means that And that we think as were

million year. suspect stock $XX I more next So fair? for is Is that the like also that

Scott Santi

I projects, are out that are of months. mean our we've these I XX think projects coming process the as talked payback, than are the and these -- on Yes. about before really less typically Front-to-Back

would assumption. that be a reasonable So

Operator

comes from ahead. Baird. Mig go Your Please next Dobre question from

is line open. Your

Mig Dobre

especially quick going a on margin here, margin Just algorithm the question sort of forward.

at leverage just margins, wondering to gross in see nice them terms volume a on of very of point see mostly here, is this a continue above Or conceptually, looking SG&A in drive to driving at margin? it exercise as to time, margin? opportunity incremental expand, XX% to again. do was I'm back I'm get some volumes, you growth gross As And we to

Michael Larsen

of on I the well we've in variable side Well, terms as last years drive cost we have record track as demonstrated to the over think improvement X on both the pretty good our in that continuing a SG&A side. structure,

expect into So -- -- mean that, And we XXX specifically, a talk about the contributed -- basis that both. I but to this they this. and about have X third as think expansion I should points basis quarter. enterprise points, upfront, lot XXXX, didn't here didn't said would we initiative we're the they and of and margin is we're begin Year-to-date, above years XXX we in

I -- in not side. so it's improvement a quarter and as the continue going also cost into on to fourth And to initiatives the of certainly these enterprise contribute into momentum lot fixed meaningful both margin positive just our but SG&A a think variable on way, year, next side

Mig Dobre

growth? there. any that here? of bottom guys some you of gave like areas going color what appreciate sense in time you're back you speaking, these could customers And we if out. this in little be wondering what of for seeing of provide my have at seeing seeing I'm might might the equipment to how then you going follow-up, and your back heavy bit I be more can such Do kind Arguably terms production point to and a progress in schedules demand segment forward. return And Welding, some

Michael Larsen

question, I -- lot as Mig, QX QX, think, look look if you at I a Well, think will probably. your will that's like QX,

the this year. And But plans point. early Welding. we together, year, I a haven't for little a segment, next including at by give color done tell next yet to we we'll get it's think too more really little you when

mean, going as the are be upfront, I So I comparisons said to year-over-year relatively easy.

we a just helpful we you But basis, that's guidance XXXX, that So as for better give on Mig, okay? think when provide next year. answer, certainly we'll about

Operator

Please ahead. Your Research. Nigel last from question Coe Wolfe comes go from

line open. Your is

Nigel Coe

restructuring. a support That some back points here. basis next did XXX this does that lot provide of for does I the year? that ground number? potential Or year, to $XX want that million to you’ve upside go covered to Obviously,

Michael Larsen

work projects year pin down to I'm that let -- contribution But the and reasonable well going done year. I think year initiatives, yet sourcing we meaningful Well, that's from work activities that because as for being on I number gone next me enterprise haven't it's side. which includes to our and specific on as through for you again a XX/XX the strategic number the assume the not next next support

year. that's the another So do meaningful right probably the now can contribution enterprise from best expect next is I initiatives

Nigel Coe

quick a right then I was And very And tools. you Obviously, limited there. performance. that's impressive channel a pro on surprised I'm have think exposure because one exclusively to in that I saying very

been all are seems what Is versus the renovation terms it So new this like new driven quite residential Renovation in by of that you still -- seems is anemic. case? would trends? And build have seeing construction.

Michael Larsen

I think change let's assumptions. your view your

exposure. of got we've lot a renovation, So

really construction And remodel so strength where our exposure was the the -- lot QX. of remodel, bolt-on in a is is the and residential strength and new

Scott Santi

exactly That's Yes. right.

also the color, activity some little picking up to your Nigel, in more other parts wait maybe Just until to in. since had add get the end a builder did question of We see you to business.

So helpful. hopefully, that's

Operator

the Karen to now Ms. like Fletcher would closing to call I remarks. any over for back turn

Karen Fletcher

for Okay. day. good Have us Thank Thanks, this you, a Julienne. everybody, morning. joining

Operator

concludes conference your for Thank This today's participation. you call.

You may now disconnect.

Illinois Tool Works (ITW) 23 Oct 202020 Q3 Earnings call transcript