ITW - Earnings call transcript Q4 2020 | Illinois Tool Works Inc.

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Operator

Good morning, my name is Julian, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. [Operator Instructions] Thank you. Karen Fletcher, Vice President of Investor Relations, you may begin your conference.

Karen Fletcher

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

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

Scott Santi

operational into you, were QX unique finish my and as for and records some XXXX. head to all Thank morning, ROIC ITW strong The and closed financial XXXX circumstances despite the was after-tax say, and year food revenues the levels Good good year-ago XX% with to solid challenges, margin that a are of unprecedented net momentum It operating pretty quarter income, performance. needless we operating and down indicates everyone. out From provided company. the highlights and perspective, another back the team QX Karen. execution got being equipment to

two options advantages provided XXXX, eight dominated our we the have enterprise that and competitive challenges us over was strategy the the it attention collection A, the honed the respond did. protect and the well built both. imperatives. customers of execution executed years health, my core continue to capabilities of our we the to in unfolded, them as to serve people, was on brought we as well-being the While Early and extremely refocused to with excellence. on in to view, the of on pandemic And our it past we that to B, and by that about pandemic only entire company with our safety

of customers our of and service there as is performance deserve customer to operations dedication XXXX priorities. was special efforts our many around extraordinary Their normal pandemic their colleagues of key ability keeping manufacturing, world while and commitment deliver their and our customers, Our continuing to result support truly efforts. to of a excellent recognition result we themselves as inspiring the and these their teams and safe leadership service for no two with in ourselves our throughout sustain key and rock-solid quality that question delivery differentiate a to

we two going stay and long-term. how react focused decisions and strength performance eight through best led Company's opportunity And did have ITW resulted a was also didn't manage old the hunker company. in we recession for pull pandemic have we're conclusion regarding We Back the that the scenarios, in years as that spring, the this down. up to ITW, the take unique of wide playbook across of to we our the strong the and as stress-tested became result, a that past our clear how a pandemic. manage advantage made should of we've key position as through thought ITW's This smartly on very very company we resilient crisis. full and through, to competitive over and the just to analyzed a to to financial range had built it we strengths And out

the leverage our that eight people. to we've built years commitment our chose strong to the we over to financial foundation reinforce last First,

by be full widespread of reason them. given know pace support for of will were us that reduction and circumstances QX any demand would by ones also the operationally, deciding These initiate the decisions And right to severe. saw benefits These given programs the that And of people when in decisions and in mandated colleagues most obvious entirety all the uncertain were I QX. believe unprecedented through but for out any that beginning ITW remember compensation our the decisions and company. pandemic turned we the that their point they XXXX. we providing enterprise-wide at were not not to recovery First, we the economic right our employment at effects

of unique by a staying Second, about What mindset strength was the the the brought Win strategy for and the agenda position did mean our course is unprecedented pandemic. to in not we of an Recovery leverage Recovery to the Recovery the global continuing and opportunistic challenges Win commitment Win across the ignore to strategy. enterprise implementing it and the us our by our not the Company. was despite execution new chose pandemic. long-term prioritize

we think through to our the react from teams key of realities mandate given investment our divisional very to are across long-term committed to of had read As the to that pandemic. always as and but leadership does situation the the strategy to and it we continue to mean supporting to do we have near-term remain company, that execution early protecting long-term we and the on, aggressive

divisions. of the every Win and serves our continues plans our posture on XX mindset as in driving theme XXXX, For central for the XXXXoperating Recovery one the

in resilience consistent performance more Between enduring are challenging any company's guidance, at agility some long-term whenever in ITW's over the of with Before The and serve we full in proof XXXX tier has all ITW they return now execute all and a the advantages, and XXXX our for for close to customers as our with me continue that taking normal somewhere on environment. of breadth and many I'm I our full and to unprecedented let that and and world to that the to to attention hopeful our for way to advantages colleagues the giving year. of will potential. provides performance capabilities you. Like by of strategy. keep of past competitive most continue another Michael our is, turn the exceptional the leverage deliver their and of around our ITW circumstances thanking Michael, point that the QX full to performance company excellence in call face sure detail to for the delivered our XXXX performance the over necessary point that a in ITW enterprise vicinity the top dedication back we competitive people safe, getting you, to

Michael Larsen

Overall, $X.X of GAAP X%. is year-over-year, improved quarter. operating days as on you $X.XX. records $XXX to by and invested QX. increase revenue the adjust Thank per progress morning, growth. was XX.X%, operating Revenue million, X% see were EPS good the of ROIC mentioned, in to third to grew down Scott, After-tax fourth up of improved many X%, we when declined increased major for quarter continue billion, evidenced China X%, of the solid income, Scott X% turn America markets revenue Europe geographies you, capital basis, from flow being serve company. million, margin of Please free The to everyone. in sequentially historically North a year-over-year of XX% when all the X% number Slide was equal bright And and X% QX, operating for we Similar delivered QX XX%. increase revenue revenue income and of with as margin day by return recovery quarter, that In International On $XXX X. fourth end we after-tax sequentially. revenue spot an versus our the our organic cash to has operating of

of before, rate flexibility quarter margin remains The display to driver quarter our XX on to GAAP Enterprise ITW in contributed XXX broad-based margin the in team up the the about projects say, is that of $XXX net that Working conversion improved Front-to-Back points. as our was on margin cost those QX operating operating by through full The in cash had same We of was talked X%, And from gains, was XXX and the XXX XX.X%, activities I to with we've basis the enterprise income income. As our which improvement solid also $XXX a margin excellent our in core $X.XXof X% the keep to company. impact points flow operating in the basis in with ever. $X.XX free XXX% operating executed segments the the range but mind, points To up history the X%, grew gains of QX. initiatives, basis as system was benefits divestitures. applies rate million, structure, biggest EPS last exclude performance sets, and operating to was fourth EPS highest Initiatives of second-highest in income. one-time QX. of capital like all XX/XX Marine performance the year operating a million was

summary, we head challenging was Finally, finish year. momentum to last year a as the down rate strong slightly into tax very effective a In from and XX.X%, good XXXX.

can call to and recovery Slide I on adaptability and We demand and with slide see to from improved the in Let's segment. margin. increase quarter's move operating and just resilience the our X updated this to to our response information both earnings segments illustrate by sequentially last that fourth a you would effectively continue respond and highlight businesses. few recovery things review our to revenue QX of

QX ago. Measurement X% than and demand segments, as three recovery relative pronounced more Polymers OEM, were three the welding segments and products. automotive QX, electronics, down X% bottom, markets, only been In rapid our specialty and year-over-year. You Fluids year higher the lower was demand in year-over-year see which in but has most that since grew our and did Test a experienced levels can XX%. & in QX in than is recovery products slightly doubled end construction of grew QX, The to while

by to of by effects the although to would XX%. year expect food ago with the can As being year-over-year are pandemic, of down seeing total some quality that fact of a segments back benefit a levels see core organically continues our essentially you sequential you the we're equipment improvement. revenue portfolio we of high impacted one despite diversified Overall, demand the having be flat and

including also the flexibility margin that side just structure about QX, can On only Food the despite page, and points of higher operating up growth fourth still the segments basis operating to cost ultimately and operating of our XXX segments almost quarter in every At you performance. talked and shows XX.X% were In and the margins. bottom, XX% year-over-year out Equipment were right back see at segment delivered solid is QX, in we our operating record margins volume how two apply XX.X% achieved to below six about XX%. seven of no I and

Slide move X% OEM. X have and year-over-year quality Let's of exceptionally performance, for customer first a highest more delivery well to quarter The QX. the since to growth that was in to at closer automotive a on In continued team demand has standpoint rate doubled with responding QX, levels organic individual look of from execute since starting XXXX. the than segment growth

America China, demand XX%. in which offset XX% flat more strong was was While in it and grew by North QX, grew than which Europe,

QX third food quarter, revenue was end and was a you QX XX%, remained America when similar look it organic QX, the and expected, was geography markets equipment at the by markets. North X%. with bit XX%. little in down better demand challenged XX% little down end down equipment was demand XX%, XX%, not in restaurants than the As service down down sales surprisingly, were more bright down to XX% was about be growth spot with Institutional of organic than throughout year, And continue that. a retail international down and the to

sluggish, Electronics end-markets, to Moving plus & semiconductor, and Measurement with QX several & while for QX tough from X% X% segment of X the revenue X% room. and organic 'XX. demand including up was for strength in Measurement remains the Slide Test considerable equipment benefited in comparison Test capital clean and down declined Electronics. against X% healthcare

million MTS's with improvement fiscal Boston. revenues growth Amphenol As have our similar complementary January The visited during business on business, you and $XXX model. in Test were outside of may XX, there Simulation with potential you & Business Simulation we to acquire our Pre-COVID highlighted Business. had of our and is has to agreement operating may Day & facility X%. MTS's have Simulation announced year some we XXXX Test of is through opportunity that Instron which application the Investor Test substantial for & margin entered seen very the we XXXX an business ITW into organic margin of

the We the end of by caliber ITW business end expect and after-tax the XX. generate by ROIC in year get year to operating generate to margins of teens five the high

in saw the very we're acquisition close welcoming and the announcement, team XXXX you & forward As the expect to of to the MTS in Test we much middle the family. Simulation ITW looking to

Slide please saw X. organic in from a down meaningful In XX% where to pickup QX in demand in improved turn being to Moving we on, revenue being X% welding, down year-over-year only QX. as

smaller businesses accounts XX% segment individual for strong and the and Our remained and commercial business revenue grew XX% which in users primarily serves year-over-year. of this

strong organic customer Overall decline Fluids activity being revenue QX third grew X% Industrial and equipment down quarter. with improved equipment growth demand XX% MRO the polymers hygiene. growth down strong Polymers year recovery automotive was and X% automotive in solid gained versus end-markets applications. with to as in flat organic up food orders aftermarket benefited XX% only X% a Our of continued delivered from much fluids & and retail sales business in strong strength. versus XX% X% healthcare QX and for demand The organic of prior signs with strong to showed in business from related with of and

the Slide North market double-digit to in growth America XX% channel represents residential of strong continues with from in Moving X%. consumer X% but North of solid, by XX%. and offset equipment by remains to North down XX%, delivered and growth about down Zealand Specialty due and for Construction across geographies to all renovation Growth down X% X% lower QX. sales. international businesses. with strong revenue in this which commercial Demand benefit revenue up the America Australia/New in construction, grew down offset capital was demand center was America only Europe home X. retail the grew demand revenue X% it was X% strong organic quarter packaging organic

with ended and is XXXX. in We you strength, to $X.X let's we as target. organic full Slide shutdowns of no times, So sheet let's results one end debt markets our our need we contribution financial down a With unprecedented we the and with Enterprise year maintain is debt times operating just down cost And XXXX ROIC the At income X.X swaths XXX $X.X our on cash and $X.X paper and was challenges balance or temporary that year-end, commentary ITW's our for the can XX.X%, basis that to our equivalents billion. segment billion included takeout we to liquidity, of across concludes and we see, of issue highly to year not XX%. cash from of total and which on billion the commercial points had above priorities on resilient optionality, Throughout was points move have year-over-year and that slightly our in hand. wide of despite strategic face liquidity. delivered Initiatives. basis summer initiatives Slide only for discussion of XX. XXXX of XX move ample any approximately operating strong X.XX Still margin XXX a guidance mandates, the in during and did XXXX. behind XXXX have and EBITDA year, us, revenue was only After-tax in strong the free of major was of pandemic, the to did XX.X% cash customer flow leverage

economic on fairly a current projecting as are the broad-based the levels based current seasonality. to outcome adjusting is of we forecast X% that our process, into of we demand of enterprise at The environment, continue in So starting demand usual levels operate Per our have our businesses. we and for typical do solid growth of organic future the them we to with in XX% level. always the of uncertain guidance caveat a that exercise

We're EPS currency to of XX% expect At of favorable total Foreign XX%. typical at costs midpoint. be to are XXX and points revenue known is closely we cost raw of XX%, resins our increases revenue margins XX%, in points the year-over-year chemicals. X% and Restructuring of forecast as key the more percentage up XX% steel, has today's are for rates $X to range cost price margin as material midpoint. Enterprise of the GAAP driver in exchange the approximately than in XXXX, range in our are Initiatives the to year-over-year. environment margin material incremental are X growth at expansion a forecasting We're points. and expected to XXX operating guidance is an which basis to a in approximately neutral commodities XXXX and raw margin at monitoring XX% expected of such improvement share, operating embedded basis $X.XX contribute the

nature to we company, for differentiated material in dollar be the of Given actions with across incremental that raw a arise XXXX the offset increases cost impact might of our basis. product any the pricing expect offerings to dollar on able

strong than core expect allocation and remains our on sustain internal growth conversion XXXX for XXX% to net of cash a XXXX. wanted rate free with organic efforts a businesses. plans our greater our Top flow support update investments income. priority to capital We provide brief I in

our critical component model. shareholder long-term the Second, as we of shareholders an dividend dividend importance recognize view return total of ITW's the and attractive to we a

point guidance XXXX. the selective do approximately reinforce today invest or After only. with growth our share surplus to enhance Test the for impact supplement a high-quality capital I and our providing priority, organic we expect line but potential. and update, acquisition shareholders MTS with is long-term & portfolio out in business the capital closes, should are to plan in a we're core acquisitions further to allocation, $X Third ITW's we'll returned repurchases billion our Simulation provide we XXXX. reinstating you not with In we that an material

tax year for XX% to to XX%. the in our expect rate be We range of the

when our activity time And and to Finally, divestiture comes it year. efforts the decided until have portfolio next recovery defer any on to we instead, focus XXXX. on management, in

expected fit more XXXX. changed, year, regarding given will that divestitures in believe the view the hasn't long-term our this also their they be remaining valuable While we strategic of performance

Let's forecast the organic for by turn growth XX to Slide segment. and

all organic segment broad-based With solid growth as forecasting finished it the competitive At ITW eight solid each levels growth XX%. our remains segment providing and continue an level, for adds to are based as is it built XXXX. we've up over wrap demand, growth execution advantages strategy. uncertain, to growth again and a of strong, past the of fairly the through improve years To caveat leverage organic the organic to on outlook we expected the are current environment challenging the every year that up, their we all capabilities to enterprise X% enterprise we fully rate and of in

in company enduring environment. any operational upper-tier has evidence and strong provided performance necessary that is XXXX Our the and that consistent competitive deliver both in a financial performance further to resilience advantages ITW

back to long-term Looking and fact XXXX, we that ahead continuing QX the on sustain strong I'll focused With and turn remain to year have results good achieve while guidance to to you. into performance. the execute ITW's reflects on from delivering Karen, potential it full our heading strategy solid that our we momentum

Karen Fletcher

let's open up questions, for Michael. please. you, Julianne, lines And Thank the Okay.

Operator

your Please Your from line ahead, is open. Andrew go first from Instructions] Citi. [Operator Kaplowitz question comes

Andrew Kaplowitz

execution usual. as Good

goal margin markets. got maybe growth see 'XX at end through so the to color still are it's now to and XX% Analyst of give and since full a you've you strategy the could you But Day, strategy. coming guidance year 'XX of your out reflecting Do thinking pandemic? and So XXX the growth your It least potential half couple is terms organic the us update improvement about per some like you're related XXXX? basis enterprise in us X% of the been enterprise job performance of in you finishing around last seems years of points that for second maybe of version how

Scott Santi

Well, I'd Andy. things, a couple say of

I throughout of eight remarkable process to opportunity First of And with all, from up the journey the where that, think one our continue of sort we I perspective further this the the years things is has slowing entire been don't see a any. into find this, to go that we more improve.

move little And better a year so were every last than focused we this to to forward year. get year, get better are on bit we continuing

ample Within and the strategy years. that the room framework remains I number of of a that we've on continue laid this, for path out think to there

have We performance there. also some out goals

it's to And on a we we been steps remain committed it's - update what those absolutely is closer two as those couple years, next right, step delivering we'll years but of track figure get when goals, and ago, we goals. and are. You're to on out the that,

Andrew Kaplowitz

the some of get about at And Thanks talked improvement lags give is right of you for projections cost, about more know for you talked, other we on generally, Michael, prices in think the I to And give that, you could that these you growth should have that you from auto Scott. OEM, see like do margin largest I you cost any then sometimes segments could us? versus with concerned the it color us, segment And 'XX? sort know all? price

Michael Larsen

every we based margin towards we XXXX, full better on performance - Scott Andy, Well, our to a little said, I'd on bit march expect we year bottoms-up as their in as process, planning every segment say, improve potential.

fact performance the businesses, segment margins is things, the goals I high we laid very you look of started eight - I has us when high-end XX% and sit remarkable food today, company. margin gives we've and is narrowed the further low-end in by delivery from in different that for have is long-term just XXs equipment confidence we the range think we the the range one ago. as the at welding this we're out And XX%, the strategy at here that think years when at how the

certainly, every remains Sourcing, from segment expect I one But and contribution make that on in will as Strategic any XX/XX broad-based big volume Enterprise out we here. a Those and more meaningful Initiatives. segment progress as than potential are the having others. go the single leverage improvement through margin we driver also year So in wouldn't

I make their of to expect continue full segments progress our all think potential. to towards we

Andrew Kaplowitz

guys. it, Appreciate

Michael Larsen

costs. Yes, and I give little Andy, a price can on you bit

I environment, raw are where our in So are chemicals, inflationary probably material monitoring like the increases, closely fluids certain we're we more construction, cost for the commodities that may and polymers we on ones steel, all increases. the ones and said, certainly, resins, the significant this seeing seeing the segments, with pressures as In by and segments, of plan dollar is is automotive, such a that basis. arise to cost year offset those know about price dollar we

in time, just so. the product little offerings segments, these nature As the takes we're to a with be confident of bit is our you a industry increases that of of that differentiated we're any longer, able each the in know, just given to price, raw going nature given process over cost that material one but automotive, offset

Operator

Your comes go Nicole from question next Deutsche Please your line ahead, open. Bank. DeBlase is from

Nicole DeBlase

context it for guess of the give case, for we think weird those but some this hiccups guidance, look we're issues said, When semiconductor And know auto start the for with auto to XX% does outlook? business, bit in maybe forecasted you the that could some of in quarterly chain are supply in that you with these Can embedded XXXX, you I just OEM? cadence about of how outlook could that quarterly talk be guys XX% seeing? about if don't that potential you I year. a And kind a of your the the little

Michael Larsen

Yes.

Nicole. So you, I... thank

Scott Santi

lot QX you going cadence on with for year tell I That's thing agree that. quarterly I this year. is thing be know last the a can one I than that one to with the sure. better

will shortage year, some the on true going the talk is, certainly January. possible, through and customers, not strong you of we a all slowdown is demand and production automotive there's space. What this we've first carried our is more QX little now I seen. this impact their a demand this the of be would issue of up on in I we of demand, to here products, about the But year. that remains pressure a so in in or momentum that we're as assume today, certainly, just the that that to the quarter. view It slowdown lot our across we in sit the auto the a and some in may think of seen OEM our as at We tell whether catch for see bit though, the QX can business businesses, of could going of semiconductor right here here timing half - put into second So

In quarterly business. auto for the cadence terms of the

think we're at the here said, that Like I to quarter, January while you results. saw X%. I the looking performance strong fourth seen we've the in down not anything up slowing suggest that demand is

to to go a little we've get organic challenging, second will and positive as might quarter. business probably more start pretty comps different the bit but off biggest how the through improvement that in can much margin as to build the be I we given quarter little numbers how by play are start give the So as you and a half, builds on good and out said, we Scott the that this QX typically planned growth first sequentially quarter a with the as bit expect, be, year. kind that's the of automotive the business

Nicole DeBlase

- that when super as to you year guidance improvement opportunities That of we you you market share the together in that about peers talking follow-up, recovery the just to organic move margin Maybe when guidance? quick just factored in really some mode, were think guys the XXXX market outgrow thanks. about into into sorry, you company and actually was full last put improvement over for No, have into XXXX, as a growth helpful. thinking back

Scott Santi

way point in the run embedded - already efforts that our it's at those is, current in made this only rates. Well, of that's have I impact factored in - it's the

normal of lot of it in any that are further the around is we a earlier, current as full-year exactly continues planning impacts from are aggressive not - projected our Michael the accelerate, we have before, but as quarter-by-quarter. embedded intention are in the organic the what recovery said normal we've run standpoint XXXX acceleration, So about growth sort talked to whatever mean doesn't seasonal baking continuing we practice, to through with - be don't what's daily our forecast run of rates rates

Operator

Sprague go ahead, Your Research. question Jeff from line from open. next comes Vertical your Please is

Jeff Sprague

thread, But rolling I of way current of know worse either kind that, trajectory. fully of one kind sense One, rate potentially positive are at when following here of or last there understand forward are we methodologies kind on that two up or astute business segments, likely with you your than be this XXXX? businesses as the kind or long exit Two questions. better look these your would the history exit suggest to and here negative

Michael Larsen A

I'm growth where is X% about and depending trying well demand of even That's XX% levels of to rate we're food that question. recovery. to penetration we the on equipment at growth Well, of opportunities obviously, vaccine year, think point obvious XXXX have. incremental The let pace alone one to to that for that sort below

that, else pace test of with that more get business, that's one and demand about and maybe investment - with level our think leverage certainly but capital question, equipment and the really businesses comfort anything so outside you future I their stand clearly the perhaps I would stimulate areas both be significant as would - confidence the So I more trajectory sectors, would is the from they the with case. measurement, welding as in the of on continued know that the broad-based in think as from would expect, the should that broad-based that I there positive would don't seeing. the more, the would that direction, things and the recovery those out, in standpoint two comfortable most are that say benefit your I continue and the think sustainability that momentum we're

Jeff Sprague

cyclical of structural kind about growth, thinking also Right. versus And Scott.

world the measurable be do to the we outgrowth grow, you there pivot don't of think but could and in the other across quite visibility and portfolio? you not ready us to the that So little the the food and kind are effort our sure Maybe of mentioned we're products a what is there. just hand know new confidence XXXX, but going equipment color provide growth, outgrowing, most segments. whole additional said, example, ones will there to I wonder for just you your you businesses, So like things growing, on in I'm

Scott Santi

that's I is what working the been Yes, the that's we've in think be on. project and where got to proof

been we've ability what it's That's all 'XX, all to about. baselines and and expect try a get I absolutely given inventory the won't - would And XXXX volatility so impacts what stuff, stuff the, that are overall aggressive all on it's chain for. almost say market sort focused what sense payoff think the any that and let's this, but levels of possible I, better growth our the but to the agenda certainly through we're I I'd in really, all to tell, just all corresponding of payoff say stay demand in and to the doing say supply on this is I of it's

this, grow point. say great I way. using I that won't you I'll the XX not stayed think have tell we're are stayed all So that you can not but things, we're that past and are position, to of focused in I our aggressive through the not ready there, divisions one them it are of put - that, way we're in I anymore. categories guarantee and that It's growing have every right well that the XX% doing all

Operator

Your from line your go Please is JPMorgan. ahead, next Ann open. Duignan question from comes

Ann Duignan

construction XXXX growth XXXX, have you regional could more for might to little helpful. a expected in just terms and been little have renovation that there be your bit organic but some a products bit the up sub-sectors, in but color strong that outlook back talk Maybe in of about just it's of perhaps on would

Scott Santi

what exactly That's EVP, I told Ann. our

you know. so Just

the starts. home the - would for given and year housing tell be comps in to have and year-over-year products. is I'd just business since the then differentiated about strength that strong the QX, up around single-digits. And encouraging obviously, a a a there construction pandemic, basis, the really low that we've expect the growth signs talked of be on some centers highly we finishing home a of X% you, portfolio of lot in are what We the that the we great So beginning centers in Ann that

in we're I So start in of here together, And as that to you to all put January, is in should be XXXX. so. good a high able I mid here think our off we view said, to the single-digits grow

Ann Duignan

And that on? you'd to any like comment regionally differentiation

Michael Larsen

- a but the North a maybe had No, are a easier point year. think basis, to. pretty I think global in I that America on little I we all it's But, really in so would really bit that's we, Europe, good comps

Ann Duignan

on follow-up Okay. question seeing welding, and And bases you’re different similar maybe will customer regions, what over. just I different as hand my then - perhaps, it

Michael Larsen

Yes.

welding, exception to to expected XX%, it's XX% industrial I'd somewhere momentum is business soft pretty to with year. all which to no of say of closer maybe good been into strong the that finish But and I and for down a the we remain as the signs is outlook gas and slowing So the year through in going end the side. solid the piece, year all probably think revenues that commercial XXXX oil markets, strong has go of XX% total the

the on in despite solid this CapEx about path put continued with in the fourth year that up clearer. what almost margin a this welding We're they business talked So as little quarter. is again is here fact expecting with Scott progress be XX% recovery the may a picking the side, up

Operator

line Inch open. John Please from from ahead, comes Gordon go your question next is your Haskett. And

John Inch

enterprise sort existing don't of that out pursued up Picking and new everything favorably of tee like ready on maybe the new for any could here, anything internal in of they've like past a of have up to call of I questions. based customer stand XXXX changes, your and on that businesses, really call line you in up minds be products this out? channel from, themes initiatives, that Do may Scott got kind new might couple the they know, initiatives them few or or Michael, it acceleration position of the customer that supply XXXX line

Scott Santi

implementing of particularly XXXX. which on we've changes environment the is you're point given of we to we're of strategic throughout in, this can't what throughout, lines the anything, really those, what throughout other entirety business think stayed about the changes, entire focused - I relevant the talking by Yes, been than talking business about along

stayed stayed what in accomplished is the if we prepared, of significant So think the we in we position ball. we 'XX anything, stayed kept I most ready, we part and moving

I of is continues dealing stayed big as if seeing so fact the as that recovery while kept forward there any in And pretty dividends, don't know I now. circumstances we significant expect set there and that as with particularly and I moving that that to right the shifts much unusual that rate on can near-term the of will point we're pay

John Inch

realignment terms have years Scott, but Like your to significant to view products overall forth of do kind inside push opportunity you new next kind what, initiative was on of going to growth? in which and this the how basically new I say, the level, of of introduction we up play a or initiative to mean share So, this right? the on? opportunity? that folks so Well, launch we for in or an the let's drive the think as centralized was going an yes as in for emphasis couple to company, of this the that don't are cost-cutting faster of stated for know recovery, take products was part to

Scott Santi

relative. Yes,

central to out as - that banging always New we certainly products year couple in business on nature year. of We're a back change our that terms Year been core - core there customer in of our strategy. it a been as thousand no patents in, are XXXX of I it's continued want innovation have model, a - has of has. out, the

technologies, know my I only innovation, or our from penetration end, there of new markets is, that our the new in I products the our That's attract inflection to capabilities over markets core here. some and in we way of is our, new products, been they to get time. service outgrow over posture ultimately from has concept don't it's our haul. change It there. long but not a believe terms the existing ability So We're in new outgrow consistently key customers, the any or driver going our view,

Michael Larsen

our priority in then And from as segment our as at you just allocation I add new organic financially of was new it to investment year standpoint, stayed we invested we've drive percentage a of for forward. a same we XXXX, investments, John, above Historically, would in capital speaking, number the that's move counting in on every product and strategies projects internal top organic we're about growth our if XXXX look product, growth. products kind market these in new point and every as achieved

John Inch

Makes sense. sneak more. could If in one I just

would consider of ESG and Like be And which just you oil are contrarian been obvious there, you aerospace, you thinkers? like because deal? - thinking considerations, perhaps gas, have to in and for guys and guys the verticals opportunities oil you M&A, challenging of would gas. Are to return an commercial aerospace terms possibly two are Are today? that M&A? don't have present off-limits going You obviously these

Scott Santi

XX/XX. time, to long-term have we're we just capital, go support kind also we have to our - has And - something of is Yes. growth to criteria. effort our, we two a for that an potential. it has that be improvement that potential investment company's that basically to I of back have accelerate and One energy, can significant to have conviction further of our terms make we in just or to going margin in if lot not to It but from - about the

you boxes. at look that both MTS If checks and of absolutely those

and in leave as on say, met have view I good particular at am more another. just that criteria super that. it that, as - but those in at also are anything we’re my will we sector or harder I'll don't I leaning one not if don't So off-limits, I

across I think we've ability demonstrated seven we talked as today. to have and before, businesses about perform execute

or than talking ultimately, about it more that outside-in the asset any of theory we to certain growth. the play characteristics to view about we're want long-term sort get growth a So a - individual for of is need of, we much of year it's end-market function

Operator

ahead, Cook line open. Please comes your Jamie Your next from Credit question is go Suisse. from

Jamie Cook

go embedded question, sort I in costs whether second chain COVID, market having managing about automotive for even demand, to Can issues One, I know is about your have one, relates talk your the your sort guess after strategy you thought? and the are line the impacting potential in just your of during what would competitors laid you I just follow-ups. as when guess it higher competitors or opportunity. downturn. you're anything share size and of you. that's what freight in supply I supply Thank supply - ramps talked XXXX do sector. my you chain two chain, I'm issue, or you some you about greater there to whether you you it's trying to that And guidance through managing potentially whatever first guess than potentially for? with out of talked thought

Michael Larsen

today. when so, we cost. seeing and where here in we Yes, of largest, look It question, is known any in we're logistics terms pressure, in the of seeing not guidance plan, one cost it are is are increases your at Jamie, increase freight freight an but on in embedded first categories our our

and were I it's to up it's in to would segments, case. now. our divisions with where able market just of that all across of been Board. to up in And they lots share of We've if segment, pick the one able as a come able quality, examples to delivery to result from being their not think talk the terms maintain is really share, be we

doing have interested the be caliber they focus short-term with and margins for these say, gains ITW be them. be at sustainable market not have to So we're to share to that I just in us pursuing would this

that can I give one. answer on best the you probably it's So

Operator

go from question is comes Mitchell Julian from Barclays. open. next your Your Please line ahead,

Julian Mitchell

in what delta suppose well? question this really as think almost CapEx we Michael capital the working of headwind $X.X understand how that substantially, of recovery outlook. cash and I Maybe guidance? to of And around billion end-point in expect we context I to was last slope relative see year, there? the XXXX. flow try down earnings XX% cash is the much first my the of What should for the here do is free year free a

Michael Larsen

Yes so, Julian.

right. You're

CapEx saying were capacity result of for the invest deciding planned anybody a as spend you This that will your the corporate is can't embedded expansions Some were obviously for global that pushed recovery progresses, business. XXXX. was these the levels, really our expansions capacity that's as divisions of in to and to as the those defer pandemic, a assumption not at XXXX out of - result return which normal

in degree of had will free the flow assumption forecast enterprise. We our also across growth we working up inventory that cash some double-digit and to build almost receivables, capital support

coming of about cash at we conversion it in $XXX is and in plus XXX% working put to a year strong you all together, here expect have included numbers from flow we and that from perspective net income. our capital deliver million So another

Julian Mitchell

end then December, follow-up the cash the of at and that flow balance maybe uses And the good cash Scott. my big maybe of for on

And today that see comments call. and Michael's placeholder Scott earnings somewhat on M&A around we sounded divestments then, buyback the reticent think heard last I you've at deferring into XXXX.

you less what just latest were or few So optimistic appetite the your ago. acquisitions on are on wondered more thoughts months if M&A a versus today

Scott Santi

of of fact that companies so good fact was times got good sell that call can quality for to really we last those time maybe them become companies, during is businesses. even what help assets and Yes. is can we disruption we're What if better that talked interested [indiscernible] that we companies in inside about help we around the the their

down, doesn't available. reticence that acquiring financial earlier of is always that meet a assets response that that adding it That go to we perspective, assets talked our fit in We and up was my an was to ITW and criteria quality a statement from the in not are reality just was So not the that interest that the interested of that kind strategy question. in are about I there. our -

we balance - issue. a cash. we just much of we so that's sheet, the cash have have capacity Yeah, timing hand, need we plenty have whether use on We whether to have

assets ability just returns, we're the buy, great have to improve disciplined. - we We we very these generate of it's also matter a the

we capacity fits, the the find think an - it's that not time opportunity what not, we it. we situation on a So to come at right is do or it - across it's ample

right our on to some been low sitting So we're going now. because standards we have cash just

back to a were in points that I is way will a best it that best same, year or to the are - was, have full think the opportunity, the say. has we what a entry time market we our fit take to in our and - business similar it's best characterize I similar very around it. it what Instron that's roughly cycle can wouldn't of compelling XXXX, we take what bought I MTS way another think I characteristics advantage matter think I terrific time that characteristics, margins hit, that's we it's couple full higher, advantage, where end MTS can are it it like year do of of the

Michael Larsen

is because comes we certainly things. ample if have looking going the are along, mean we you I that closely strong don't the coming the generating track don't Julian. fact And free of we about that consistently just clarify record want do not the buybacks we're to right strong back, I given the terms liquidity be given I here I Scott as in flow just to cash something, balance opportunity have our as I'll mean to M&A, as talked think said maybe at interpret certainly sheet, case. capacity

coming read So anything into wouldn't I buybacks back.

about We where are from standpoint, it's above. I capital really, we priorities A, D, a the in allocation do us, when - can or for the all talked fortunate position four not C it's B, of the

capacity, to above. of strength, financial the sheet have balance the We the the do all

Operator

Raso Please ahead, go line from next your is question open. Your from comes Evercore. David

David Raso

the You is people dollar mentioned dollar, helpful and on normalized the obviously for cost cost match higher cost, you'd to just margin. price, not

is naked priced actually percent your coming the margin, cost? meaning what organic prices is being full-year simply I the think when guide, X.X. the much at with X.X the that guide, of is through at How of to by So revenue

Scott Santi

Well, so don't we it look really at way, David. that

differently. So let me a try bit maybe to answer your little question,

a I So for is dollar we dollar say heard on think basis. what offset I cost increases will price material any with you

Michael Larsen

a That And clarification. plan. means then I here. That add in mean our from doesn't an think necessarily incremental

Scott Santi

Correct. Yes.

Scott Santi

That's what going you're with. we That's have. where

Scott Santi

going. So was that's where I

see dollar. will dollar incremental we through as price for the So offset with cost any that Obviously... go increases we year may be

Michael Larsen

reflects really that the And front? timing

Scott Santi

Yes.

Michael Larsen

That's the problem with delay.

Scott Santi

In the we long will. term, Yeah.

We more typically will that. catch up and we get than

in you I think does operating slightly if go what's that can not plan what year, today the dilutive you're be to in done mean if do - I'm planning and slight through the automotive, sure as so talking be a the and are challenges which about you've that any probably that's our but increases question. is dollar for that offset best margins lot we math, in talked We our the today that price can positive that's through cost cost is your of are that some we be will the ahead coming answer dollar, can about of a I lag.

David Raso

was Now just just in in But price bit incremental at impressive might it add X% a that core yes, still the margin. up, well, be we're just the guide the than curious, even are that they I a higher a incrementals, it the if Because here, was on you're saying overall way in of at revenue no growth - cost. incrementals coming still getting a go all and that's are I fashion? and XX% from was say up dilutive coming XX% in versus rate at cost or

might That's mean I at. cost. be was just given is XX% get still Just trying I there the pricing to very. all

to - trying underlying. get Just

Scott Santi

That's correct, yeah.

David Raso

the something found still obviously, it somewhat pipeline, out to all bought, so and that to business it's little that got obviously the think are the time the a can aren't the put there at are M&A facts the be margins work. the that challenging forth or that comes I that when maybe finding sales, all in little equity, you MTS less, well tremendous are there the a you've to and going more And off or this but, probably out like it fits the money radar businesses to I you mean, private you Washington just you find money with facts one

to assets Just give up them just maybe want in. people give otherwise are bidding

Scott Santi

to the ultimate is, we potential, are certainly it's pay suggesting but think have degree and so to can matter is or what quadruple is our pay market I multiple things ability that there of that time high some our financial pay the with radar. in improvement a we we off I'm competitive that multiple the triple knowing whatever our underlying certainty not competitive. The not multiple advantage the ultimately modeling. even period a Yes, can ability finding any allows then earnings of of us that margin market be certainly, a and to do are over

is for get why makes which that rate, that's, us challenging a said to from to it and - business all about advantage the years margin takes we're for fully pay or not about thing a growth you full off is it standpoint, XX competitive along right. a right going out, buying because So is all pretty we've table acquiring not return it a the interesting where

compete can the in proved it. circumstance we and we So right just

I think.

David Raso

sorry. I'm Please.

Scott Santi

ahead, go you No, please.

David Raso

seeing kind can think with margin when MTS some that of a you know it's you MTS, just I of the that do, hopefully a of for X% coming amortization and for XX. future framework are deals intangibles Well, in

first of full to the ramp we're plus the mid-year year margin for think in down all base then much and that think function the from years? might kind five it's and in the point there us 'XX, what's from How have of, for and the step modeling when been we What's the XX% off on? starting coming then say So we level the linear amortization, of in is margin a that? set the over

Scott Santi

all didn't - deal when and mid-year. and be first on hopefully do your they So close accounting the that'll and they

will detail you're we for the to And earnings lot be a of more get hopefully terms the call, that able so QX when on in give questions asking. you

and obviously with discussed. over model that we we Our have to timeframe a for the very This that not modeled pleased and and margins we time. the see we current implementation to is returns to one, what investment one. are long-term the We view then business impact - are didn't one be year takes a ITW potential get caliber going year clear we is there is buy the business the a what and in some material on of path based it

So, wait here. we detail provide but if the closed we'll you could get all until the deal and

Michael Larsen

I'll the this want is me, just year-on-year, you the help figure no you we There just steady if sequential part, is company. change. improvement with is margin like run step big which

better whatever to is is And the path that or so side. early period, starting some hockey average the helps. side X% stick model by than in point the a ITW It’s the if from just

Operator

open. Your next question comes line from Stephen Volkmann is from Jefferies. Please go ahead, your

Stephen Volkmann

that new strategy. had contracts kind of gave fitting for couple that with ago the Great, win us Scott, you a full-year in. thanks you kind XXXX? number you a to quarters some your of of update if thought won real be downturns Any quick, of me for because I'll

Scott Santi

Yes, base, on count we've can it's too we're and back what aware broad to company we something obviously of this tracking the weeks we of, visible a said point because were go that that far necessarily. specific that Michael opportunities just across point, some that of it's at was I'll into we started, are sort that not at couple were there

Stephen Volkmann

fair enough. right, And all Okay, then...

Scott Santi

volume, the given we should Nor yeah.

Stephen Volkmann

XX future? you for points Mike, run normal sort the kind said of we then And of that 'XX, foreseeable the what should in headwind isn't basis Understood. PLS I consider of rate is and think

Michael Larsen

Yes.

the had has run rate, I look points we think like I you're here. as modeled basis XX of kind this, would pretty potential, at close so still ongoing it

Stephen Volkmann

Okay, all that's I have.

Scott Santi

You're We modeled XX right. XXXX. here for correct. That's

Operator

ahead, Your next of America. Ross comes from from question your open. line go Please Gilardi Bank is

Ross Gilardi

in. for squeezing me Thanks

guiding turned a lot Just There in over on business EPS fourth to $XX of $X when normal why plus revenue end seasonality year. the you're a wouldn't I in to growth. just isn't you to $X guide, quarter, be your the clarify in wanted low the $X

you - $X on versus the meaningful guidance So second-half can an are is why taking in and like if wouldn't appropriate at being minimum half first help EPS half For how in run case, mean a a first quarterly your that's us rate? the slowdown? any looks you half? give I second

Scott Santi

in that our is in the is what the me how using really into Ross, Yes, to demand businesses. earlier in And have year. projecting one so to levels prepared that current right. we the of of We're just response in I'll let the say, topline first we're what I our I seeing modeled you're back in remarks, - second, said hope go questions

the of kind It unfolds at how earnings go a half versus second remarkably is If you first in year look half. typical ITW terms in the at consistent. the of and historically

that So I again, to of start taking a we're very that is second understand but think first maybe bit kind probably to to that's half, slow any not help you in is a to half, be going might into taking also little going our not guidance the half, unfold second of the good things how in demand are better, clear, accelerate. demand we

like demand XXXX. a where into have you for get, seasonality adjusted and it that in revenue segments, are you certainly view model that, the day what stays see can answer stays, is, extent assuming the positive but the some per you I said, of more to So we projected

Ross Gilardi

that, us Which is taking mean, you're saying mean gives quarter. Mike. $X just current fourth if I you're current just on the in demand, I it

Michael Larsen

at Yes, we'll I okay. trends, take to can you how and this have you maybe, Ross through but look historical walk the one offline

Ross Gilardi

Okay.

Michael Larsen

I'm else your answer sure question. how not to

out play if year and I'm again, you information basis. quarterly there's the things look guidance, enough think giving and giving historical out not at how I you So, quarterly trends full you we're figure a to might in

Operator

from go open. is Your Goldman last Joe line Please will come Ritchie question Sachs. from ahead, your

Joe Ritchie

we there is on from at MTS like PLFS but And revenue like like think ones we PLS details trajectory, from beginning? there, more know some me hasn't, growth will think the framework just how I the should for Two guys you get and quick be we'll you and MTS that? given think of later, about the about it then is equation part

Michael Larsen

that as the Yes. Joe, deal you significant model been provide will the of detailed component the said but more should earlier, business implementing, Again, PLS once I a we overall the so. ITW will is be update we assume closed, of has

Scott Santi

And of it first every years. dampens couple

Michael Larsen

from the way first that in the a then accelerated the PLS rate it's we higher to earlier. in two should done. now, about the gets profile years the see with there modeled you happens all growth talked It margin And first, three are

Joe Ritchie

going question, about And you the question on and don't obviously, call. But a because asked I have it rate on in and in think really the a then I segment the polymers I've to last maybe of up might good couple ask my picked for actually quarters, has last conference the outlook growth fluids XXXX. ever

segment product Just PLS new a sustainability just you bit it's either has growth maybe growth. years gone how turning it of or about little now about seems about a like and - introductions feel then the several rate given talk the through

Michael Larsen

we 'XX polymers Yes, that's were excellence. over a organic progress outlook and so doubled I is has in hygiene. I innovation, rate that continue as health think And and QX, such customer you're of percentage products. PLS about quite we terms big average framework team good focus of certainly to growth, in progress back - for markets end years, a and organic helped good fluids, and well from it think talked at the lot I areas pretty done getting on level, made on of of a in the right, in on favorable new the certainly I the the certainly strategic some we're executed at sales on the company growth get mean, lot earlier see point we've done a actually team's

will I MRO a to the too, and so the solid been We has on to automotive fluids team. in and retail seeing pass aftermarket comments polymers applications are related recovery side your

Joe Ritchie

Thank great. Okay, you.

Scott Santi

I'll question. throughout, got a they be if

Karen Fletcher

Okay.

I think time. are of out we

any So call. everybody, just I'll follow-up, if just thanks a Thank to us for you have me you. joining say give And morning. this

Operator

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

Illinois Tool Works (ITW) 5 Feb 212020 Q4 Earnings call transcript