ITW - Earnings call transcript Q1 2021 | Illinois Tool Works Inc.

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Operator

Good morning. My name is Christie, 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 speaker’s remarks, there will be a question-and-answer session [Operator Instructions] Karen Fletcher, Vice President of Investor Relations, you may begin your conference.

Karen Fletcher

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

results from results discuss During Form we is XX-K differ This a uses directly Company’s about We and a to Chairman non-GAAP presentation reconciliation call is detail contained full-year ITW’s refer and Please this certain of X update important that measures Santi. for it could Forward-Looking Scott first XXXX. my most today’s CEO, more and release. Slide in now GAAP our the our over the will cause risks turn pleasure presentation XXXX to quarter contains call, expectations. reminder you for guidance X, turn measures, the actual to financial the press materially our those that and Statements. measures comparable to Slide is to to

Scott Santi

and around and that In growth shipping combined we and the despite continued in XX% levels delivering Despite fact QX front-to-back The increasing our same of ranging quarter, X% while with initiated the to at Thanks, to meet benefits over down QX with enterprise Recovery our maintained level also system Karen. quarter. customers’ the of us time QX last an margin a on supply segments we records an and year, quarter. QX, strength that the Win through X% past the at margin basis, environment, for recovery, rising we Food while was earnings demand plus world, strong are of that people that as initiatives establishing revenue year rates X% per with growth, adjusting to XX.X%. income enterprise dedication and the guidance. or and our increases our basis evidenced level, saw first fundamental is million actions our with both organic this the material our of our earnings costs service $XXX raw was chain XX%, normal company, allowed the of by projecting was in profitability incremental Good XXXX from our of skill points of strong we improvement XX/XX needs world-class the the delivering the including our customers all-time XX% plus the XXX growth six of $X.XX, margins practice current less equal seven days Equipment business our the in the versus and results performance of still our segment course of Based several segment pace breadth tight and in the from everyone. the one at in morning, our balance share of quarter in day on of operating year. the operating leverage, At the year XX%

in margin our expect EPS up versus growth XX% be XX% full-year, to of year. EPS $X.XX full-year up range represents the X% XX% to the last $X.XX which be the of X%. and midpoint At share, operating guidance, would the versus earnings per to we now and growth XX%, XX% at For would revenues XXXX of midpoint organic of $X.XX revised XXXX

over to positioned is of challenges. the without and that, certainly of guidance. move is near-term the to XXXX are lot deliver to the beyond. stating continue differentiated whatever provide obvious, performance And Michael through we the with call to we the way detail updated our said, and our doubt being that on environment its year the and now in quarter to of a cover Now will to comes ground year, I still the not between end Michael. there as That the remainder well have and to respond and more turn no I

Michael Larsen

morning, coming continued Scott, to demand out our Alright. momentum The and fourth everyone. cross-section across quarter had business in the we QX. good of solid gain broad a portfolio Thank you, of strength

Scott leading Our America of for was major as was Test Measurement leverage points businesses, responded operating Operating the partially days And Welding, growth by XXX revenue EPS less an our equal teams demand cost. price continued basis XX.X% world equipment X%. enterprise continuing X.XX all was in CapEx-driven had ITW contribution way of day almost XX%; and as and Electronics, a which as the an they grew up needs, X% for improved from this our a XX% revenue impact was to offset up mentioned, increase to organic emerged in XX% around points North with margin Organic XX%. and with the customers’ operating Relative almost rate strong highlight one with And do, highest a meaningful result and & record growth to delivered XX-years. EPS leverage an and of margins operations. organic China increasing always a of this income our XX% GAAP incremental of the the year-over-year. year. as margins QX in in all-time initiatives, quarter, XX%, that of QX basis, grew of QX, X% XXX X%. which real new geographies, grew volume X%. was the Operating of was grew grew positive and in pickup across on trend Organic growth Europe growth quarter basis

of of quarter ever. which Excluding performance benefit was our quarterly onetime highest XXXX, margin legal margin a XX.X% had of the settlement, third operating the

disruptions again, our uptick to strategy, to proprietary of chain our under that As And produce the and you fully with for sell our the chains with our disruptions system And steel, the particularly still and the increases, window meaningful know, supply challenges supply challenges company, on customers, to of dollar ITW’s and front-to-back the of take their a supported chemicals. to world basis, care categories to execution fair pretty deal with chain of this once operating impact XX/XX yet demand as we in not levels due per quarter. and as and initiative, already recovery share ability By material cost are operating and normal our initiated we such maintain deal fact the In around had have actions able significant business quality supply all known speaks teams as raw certainly material our plans raw our some where dollar strong per process. experienced to at increases incurred leveraging but levels as supply and by resins teams of ITW. cost our staffed quarter, were in well the pricing we were offset that the will customers. service usual pressure, our in across we profitability, incurred

to the As price be EPS-neutral for cost a result, expected year. is

And was impacted our price wasn’t not this it XX from basis QX, to impact for for incremental near-term. high-margin margin know, dollar cost our our in increases points XX%, some XX%, profile, you our and per of example, In margin costs. been actually a incremental given if dollar offsetting As have on price price operating with operating percentage percentage our causes the modest margin margin would due costs. basis dilution

around exceeding XX% already QX, are segments For margins operating our the margins. the welding, of for early XX% our are XX.X% material either one in better that this our implemented increases known ever. full-year. the or a quarter Four in EPS-neutral seven corresponding the of At recovery, be. margin pre-COVID Again, actions time or embedded balance operating guidance already with in in stage pricing first and of all segment, have year operating been raw the the the above delivered will and for

focused return I our the lot our faced a income, operating long-term with think typical free global at they make it was performance of with in a margin continue towards And for cash the was and of long-term says to of a million XX.X%. pandemic, XX% stayed net teams, on record when goal After-tax plus. strategy seasonality of line our that conversion enterprise with of flow capital QX. progress on challenges solid $XXX XX%

for expect full-year. XXX% to conversion the continue We plus

As planned, quarter, XX.X%, and this slightly our year. million XXX rate the was below tax prior shares effective of we repurchased

first XX% earnings the leverage, solid strong for XX% profitability summary, growth, quarter in was with So ITW record profitability X%, of operating broad-based and growth EPS incremental performance. organic and margin

our begin the a illustrates seeing year. last QX recovery on on organic revenue to positive And are turn left please to versus we Slide of compared prior as And rate page QX segment businesses. the the that comparisons year broad-based growth easier So in year-over-year year for for obviously, a there basis. is the X by side summarizes demand impact segment it performance. And this the the information the

Construction would just in QX one they QX. percentage OEM, Automotive enterprise went view, recovery down this in in in segments in QX, visibility is down in QX, to on points, higher eight this highlight most CapEx is from sequential growth with level, from every way Test organic coming strong X% take of with X%. growth that organic organic had QX recovery and and Electronics, our to further to growth down exception XX% I quarter, hold delivered Products, is its that six segment Food also to rate double-digit growing providing growth the confidence evidence rate than of QX improved the a beginning as And organic the did in the segments At segments, of seven & industrial XX% Equipment, year-over-year. while X% up which were in With X% and the is our growth back. still ITW’s and Welding in X% Measurement going up improved

As we operating with this strong that enterprise performance pretty organic go combined strong in impact, see contributed through to you slides, robust growth, our will margin segments. some the initiative segment

is $XX $XX X% each QX response to growth impact the impacted growth to well-publicized semiconductor So half our $XX recovery little continue their of of in production revenues XX%. this to about more OEM. million our organic this the demand a into continue to down quarter it starting another about by go second detail Automotive We as schedules in the customers shortage North our with for and and components, year. fourth and with segment, to of of the revenue likely adjust estimate America chips. X% total in the million, million continued in tune quarter of sales including was the And QX certain revenue let’s

in can As today, what you pretty we guidance. that also is appreciate, is obviously is fluid, updated estimate, here embedded and sit that our but as we our the situation best

was low very Looking the demand By medium-term of are than pretty remains operating by an more delivered turn as optimistic about America up up Slide Europe, by was near-term auto down basis and region, standards. are the past in the margin we historical XX%. to consumer Equipment. Please XXX industry, QX supply Food being offset North prospects issues affecting XX.X%, China improvement X dealer performance points. strong the chain of growth solid inventories And which finally, for team and X%,

still a casual healthcare single about mid-teens, our down So QX. about flat full-service beginning up by the as two to business is which significantly American recover, like with represents there is said, decline down of with equipment XX% new was XX% revenue was improved demand XX%. America only North was XX% is was Restaurants, equipment and restaurants is more Retail, about X%, with which X% regions. really in result And of down that of up revenue and than as are XX% fast solid as which Overall, XX%, up XX% was to and QX. rollouts. with versus North down of evidenced represents a I picking but the is now organic versus orders signs compared XX% in a down International down digits. of backlog down equipment strong much down low prior XX%, up but product education a X%, business, that about and demand business, year. was tale our down X%, Institutional,

and of the expect, and XX.X% continued growth Europe Measurement And was by organic to and team XX%, X% Pacific XX% lockdowns. was would applications capital you business now margin with on other semiconductors Operating businesses XX%, evidenced XX%. Test Instron up in revenue by points. with down the healthcare for end technology automotive markets XX% China as XX% up basis Asia strong with was electronics. XX%. XX%. down consumer demand strength growing Electronics in was supplemented room electronics & X% & the strengthening equipment up COVID-XX-related delivered products, business The grew demand with up Overall Measurement As equipment XXX of growth. Test sales down due and service hand, were

Slide to Moving X.

signs the I demand sequential the international growth this improvement and with a almost XX% by recovery driven X%. quarter its usually As up down XX% with row spend of rate oil we Overall, of and The mentioned flat which year. in sequential continued segment in China their versus highest in picking smaller CapEx QX strong up a growth, delivered in organic way was up a improvement individual And in business and growth users, commercial gas. and equipment was were as leads and up backlogs saw only consumables serves in and early quarter. Welding customer and North earlier, three-years. trend was picking primarily recovery, business, X%, The third up prior of industrial businesses was X% the double-digit X% America sales building. growth some were

which X%. industries. heavy and of in initiatives from & organic The leverage with Operating Fluids deliver performance organic while growth to margin solid delivered up volume marked from XX%. X%, initiatives delivered driven business particularly margins strong has X%, margin for sales by Europe I automotive strength of margins leverage in to fluids, ITW Solid the enterprise growth an Polymers continued aftermarket volume down above MRO operating a XX%, XX.X%, and enterprise of polymers XX.X%. which, was with segment presence larger said, to time of applications contributed record benefited first a as benefit retail

U.S. Construction and is in XX% in X. XX%, the demand channel. which double-digit growth up Slide about Australia home European with organic XX% to segment quarter Commercial with U.K. residential Continental growth grew Europe. X%. only up was the with X%, revenues XXX Moving and XX%. were up our Specialty was X%; America regions. North continued fastest-growing this residential packaging of XX.X% New XX% Operating construction, was center of the of strong in Zealand renovation Demand and organic up sales sales, of markets. and of margin grew remained X%; in growth revenue North X% at and Europe, positive was strength points. all X%. improvement XX%. America and both was for commercial Asia was consumer with an up up solid in basis with Pacific

an in raising in guidance. key front the an and into a turn uncertainties caveat growth, on to So the current have impact And of made for allowance per exercise future we growth X% of semiconductor QX, an we of please organic update margin operating significant for number results. our only one still per seasonality. challenges guidance to into so, In all solid levels Slide And in usual X The our we organic are that with are This obviously process, estimated and forecast as chip XXXX usual and of projecting the doing our us, on the process, our on we QX demand Auto are and to full-year And and them quarter of including for typical outcome compares our addressing discussed, New EPS. exit factored of have of customers. metrics, our are we level. is at guidance performance XX% Year that XX% OEM growth to XX%. prior a enterprise organic shortages the

revenue total to at rates today’s currency for points exchange forecast adds of percentage two to growth XX%. XX% Foreign revenue

operating increases XXX to raw XX%, and XX% pricing at margins we earlier. of XXXX, operating pre-COVID as XX% the margins raising basis margin almost towards XX% we you our make Relative range our basis continue XXXX XXX guidance to and are which to operating we initiatives, points XX% new points a leverage a As plus, XXX actions. are points are basis midpoint of strong mentioned corresponding start saw, are all higher goal material performance the on incorporates XXXX long-term than to XX.X% known by as of progress enterprise of I they cost and and to off to our our operating higher

above expected are to full-year be the for to typical margins our XX% XX% range. incremental Our

own to of to $X.XX. and A Finally, no of our XX%. of increase The raising XX% rate $X.XX few new repurchase billion to final of EPS items or housekeeping up, of to to $X.XX of GAAP changes we free new the X% wrap our prior two, midpoint XX% and year $X.XX our an represents XXXX versus with a $X relative to: plan tax are guidance $X.XX. expected one, it by for flow; pre-COVID three, cash a growth earnings and shares; range our to EPS X% forecast approximately rate

As process, acquisition excludes we our an guidance And MTS previously by the announced business for close remains to once mid-year the Simulation the Test update. & the business. core only is per process the of closes, provide usual on-track. and The acquisition acquisition will

expect As do we we financial in material have to impact said XXXX. earnings before, a not

a So execution a challenging quality environment, a in off and start result, as are solid of year. summary, the a to to we quarter in

So that, it to back turn Karen, with will I you.

Karen Fletcher

you, up questions, Michael. let’s the open Christie, lines Thank Okay. for please.

Operator

[Operator Your line of comes question with Jamie Suisse. from Instructions] Cook Crédit first the

Jamie Cook

first at growth how targeted just Two been market Thank I’m range has that Hi rethink, you. just you to just things to the us incrementals that quarter costs putting guess my on trying strong. end adjust saw you and point, I’m congratulations the share questions like much the is inefficiencies I question, above nice was structural you we with if markets understand some ITW and question, This it on able sort versus price if of that, of obviously, should incrementals? targeted my COVID, that fairly recovering gains your your wondering quarter. in we supply if help sort achieve? can with a up, that organic XX% XX%, then is for and are second that. And the is then cost. of

Michael Larsen

Jamie. Okay,

think our to one, Win to capture too we the have think ability talked certainly So tell. the how on feel about. with we we Recovery a the positioned share we good stayed about giving the I very market first early us little I strategy that invested, mean it is I and fact are as

And too growth our I versus So also I of the contribution to little efforts. add of to a market just an is gains. market it much seen customer-back that tell is innovation will how from share uptick think we that, in QX have early really

And result others in those. so able little again, bit to chain to point our and then that is being our stay maybe supply are a struggling would a service where levels, invested more. I of to our maintain ability And

gains, anecdotally, evidence, up So lots to And I divisions and segments after of again, think not opportunistic. share. were you are are there high-quality, market sustainable, our if share are that we profitable picking certainly our ask we going

good And we those so start feel of about on year things. really to account the the

with I XX% above the to be normal a the the recovery, that able our in spot, think you, expect on of At the incrementals, range to we incrementals above significantly range. real stages early these I agree XX%. was bright typical to maintain

as planning in plus are XX% our we guidance, embedded saw for today. is you what So also and

up. math, you that If is do you end the where

of it update margin premature think kind a the expectations. I long-term incremental is to little

I in we the are comfortable of to range. with XX% think XX% kind long-term

terms structure the let’s basis. we be that But a making company. long-term think go-forward stage later of certainly might of to a are of a improvement revisit in on what the cost incrementals We lot the at

to of For this would year, now, of think XX%. I kind the you to beyond XX% still kind the stick if

Jamie Cook

you and congratulations. Thank Okay.

Michael Larsen

you. Thank

Operator

the Jeff comes Vertical Research. question line with next of Our from Sprague

Jeffrey Sprague

got to what how a you was are could I a kind be own deal you for their to and activity just I’m pipeline on kind M&A. on goal on are the XX-months? well coming. out Obviously, if over see get pace have things shot taken Maybe wanted year. I next sure have MTS Scott, six just you this the passed likelihood up understand update And always at wondering thinking could if of you you you on Impressive. us of the build there. this picking do going idiosyncratic M&A timing. could of see you But that you these

Scott Santi

closed. that got obviously, the think I are happy some to with we have really acquisition, work just it get MTS we to do, Well,

can is focus, where space think I - of announced I is deliver I businesses going MTS reference specific terms to exactly is All core for and a can’t and And fits the return capabilities that the and standard, not fit terms supplements in is the on I about acquisitions at I’m to are not MTS-light opportunistic it both profile. great do inherent basically our strong. that team. they offer really adds certainly we ultimately, that growth is any their what would recently, term doing, shareholders that used, supplement think our that to the But attributes, includes value Measurement It availability strategic our Jeff, owning their but in energy think organically. we financial grow that great the remains expend. of certainly comment terms the appetite have ability new capital, I to think our that of we and which and effort their or that for it. customers think to & and we a are makes great Test other example all sense And but attributes performance of that of and time, but just that a assets in say value on deals remember ability the us so. interested others going your in way additional of what to deals our with combination right improve we the phrase of, our that

strategic year of on reasonable to average, sort is think, three a be a My I deals around personal generic achievable. it. is the to that is kinds something absolutely MTS of one view - narrative seems So that absolutely

on going not try sort to force to year deal are every a that. of We

because the zero themselves. present going other circumstances over, for not present we period. not for the looking going relatively be to doing of in to to that there to going room are X-year So to But the think deals be circumstances say, lots additive - are kinds we is let’s way what are I consistent some years a of are are similar

I will there. think I stop

Jeffrey Sprague

I plain kind Thanks. Ford auto, is to it announcements sorts of which of seeing outside also see, and appreciate else. wondering, just - that. Are everything like you of sounds And these your about, may own supply of customer on other levels cause you things to good chain, pretty are feeling but line disruption at top that balance the going year? you over the

Scott Santi

hard are say absolutely that I we we there project securing play. normal of think quarter, would also the it the under sure, of a for issues than in our sources is it second automotive than say, And broader I balance year. to would to the lot would I just are harder fair terms of that circumstances. supply is in having own at work

want and and the partly the we smooth way able are So been our much We punch add source counter our environment that, that one reasons, invested. people I quarter, through to easy local, first we this I going in we able demand. for through supply the take the produce. -- source to challenging been it in broadly support so we are know our no do from number a because is that to - a that speaking, more second same, think quarter partly don’t to is think, have, having people, We think to fact on suppliers. I we we But through. should hang of because be whole the way to to we where not And back of stayed uptick I

impacted than and to ability feel supply. to, have pretty there with I I is are our of where some think on own work far, supply concentrated in beyond sort sustain I harder our it levels. like right so punch their I tight our the as but - issues. don’t being also of Plastics customers is certainly to auto, through scramble as have I significant having everybody And been a counter some of say said, else some a of pockets well. now But think automotive would chain other we it number some it remain way in certainly and are space, certainly in of So to by lot normal a anything areas. able we we

Jeffrey Sprague

the for color, Thanks it. Good understood. appreciate I Yes, luck.

Scott Santi

Thank you.

Operator

the from question Scott Your Research. Melius line of next Davis with comes

Scott Davis

and is morning good going guys to become Jeff’s pick numbers the echo comments I usual a not exceptional on would Karen, Hi here. on to Anyways, lot here.

across be yes. entire the or price year to Scott, of One cost-neutral you there that perhaps that segments made, that could comments or take in is on certain a you behind to Mike, it a neutral, that would cost was expect comment are price this by maybe you be just make the a or portfolio, segment segment, position little longer get price

Michael Larsen

is the products a business the contracts funnel in new given think how one, auto a are getting structured, nature just that of coming requires I longer one the margins. of business, attractive little obvious where and and Scott, mean, the takes the more are at I price

of we you, a in a of cost offset typically some to lag. XXXX. will provide, I through the little went significant when price most we There the is, given history pressure standpoint. products cost bit with have a one is other seeing think price. are any near-term, that the that And a the learned on from being margins differentiated long we this six the and So I we the things in there nature where, able services of we segments, is increases tell

much this time the required around. are kind earlier definitely things on actions and say, are top We to of that things on. stay more, of are ahead taking focused And divisions our of

XX The to certainly the in is there seven and So the and we impact dollar-for-dollar here while margin some in able even basis, to are percentage will pressure difficulty on here, confident impact. that a and percentage and for goal pressure overall total, points margin do incremental year with basis of automotive. saw points be you of offset that we is the

Scott Davis

to jump in going the just what M&A you assets, on given businesses, kind of Jeff is your think asking M&A. that have going had the and a think was - about as just think value perhaps what side. helpful. or other after do types XX/XX different in success the world able would I that I’m implementing Okay, multiple bandwagon deals do asset XX/XX confidence of bigger And on model? of could that your follow-up, a really an way to scope be you above you and widen perhaps guys How driving applying and would of do when on ability about strategic that about to the larger

Scott Santi

think don’t is a being something would as revenue. in a size not quite annual would I all to MTS away. or billion limitation is barrier at it point I Yes. us scare - $X.X that or

a of XX/XX the been result is by is One of it small of So stretch. on This any business nine-years the operating quality a you couple work around that discipline around front-to-back would last the standpoint this. tell have integration, all things. from more never we is I of our of not talent. a of practice prepared the system, depth

really additive So all right we find the do our I is to a of it. just if to, ability think, with job that good certainly to opportunity -

- us. of So not doesn’t size issue it is an scare

a sometimes. does at, growth is is don’t the are us is it asset, fit think what long-term fit sort whether happen I And with of tactics. play. that is This those what sometimes has does an as much the But business. it et relatively mean part to above it it sort the non-desirable is market also stuff or pure division prospects, of good sort the to market you driving bigger it tends time deal the more by size, larger think organic the small, us. of again, we we that that big The to there attractive is equally But and or We the of the area small with be the would cetera. does to of of as nonstrategic, I have think benefit all. be I is part it to options large really size, want just a

Scott Davis

folks. good you luck Thank sense. Makes Scott,

Scott Santi

bet. You Thanks.

Michael Larsen

Thanks.

Operator

of line the Haskett. Inch from Your John Gordon next with question comes

John Inch

that I quarter, level to Michael, the it Scott up out there? premise out. this given kind have compares, the XX% is much up and a point volume-driven, of well. Anything factories China, leave as would is second you get been just up and Have going keep you curious which call quarter later up even? of it and that some the demand, table not Because picked to of the how that factories that I be is rate. forth, operations core. as so very I’m just to understand but sales completely the And played able And high-growth so are compares of with your presumably maybe in your any kind did get on which local

Scott Santi

for can’t probably actually business I is scale that a us say if is at kind job, that China phenomenal in really of the last you Yes. answer they did volume. of to that other biggest than piece auto. the the And look

way last was China year. but number big year-on-year, that that Now remember the quarter a first down in is

wasn’t from I certainly I So decision people scramble were for That raw on us have know, jump, ready just our certainly the from it having for was. have, XX% has I we this be to overall, but challenge scramble to don’t right. standpoint sequential, it our QX to also be to you not would respond. only if it difficult a more a people, an than of and for ability maybe hang to But QX, Michael, would don’t say, the that. given source material,

John Inch

Scott, started so fair. post-COVID the have is you little Michael, not been that with Scott, semicon the to presumably, going share I’m forward pinch talked the to demand carry as I curious, your to that sort phenomenon. about already while there past but are wins terms sort about by And points around thinking we surge and evidenced aggresXsively. operations any has in of you playing thing? anything sort about. we can in the see that, as is us a own of how Is market you to have for you alluded just of Have going here. and already curious, pretty robust applying mean, lessons all questions learned, these I’m experienced demand your is or come global sort are healthy, a of auto, per meaningful constraints operations I of back that surprising as or That may one know world, two to quarter this is This provides, se, very results. have share

Scott Santi

Yes. today about I’m the that talk how our fact the sort trying we in bought always think to to place to we is, inherent system our what about one, produce customers of tackle that Maybe start yesterday. is, John.

fact daily to of are makes surplus the is a on carrying the magnitude order we capacity, XX% on demand what that current comes, is. basis. of what work an that over that Because XX% So is demand it average always

our ample we as So way to produce only and up can yesterday, what down, have to moves sure extra make today that is flex. number bought we that customers the capacity

things to of lean that have sort we helps cushion accelerate, on. So do us as a

they a kind to have - base also way is connected also our We that are of in that supplier that flex. ability into system carrying

a totally of the certainly well. where really and that work along an overcome don’t answer. flex through. we more But and is are environment work way, I we tick we perfectly, if sure sort with of kind off. best the that can It even into capacity know we addresses rubs maybe doesn’t level issues us we it, works to our there it and the I’m helps that with But Now as that is of starting - certainly of respond way but start are pivoting economy our things sort and will. have add

John Inch

respect share going you doing because there something touch is you is seems come pretty sure a Food lose half, second Well, with don’t, are operations your say, example, make actually that to Is Equipment. because the that demand lose that? aggressively like wood. maybe going back it product you to that to anything sale That a or obvious in be can’t an fulfill or to --

Scott Santi

what know that all again, do. mean, of completely I’m to comfortable exactly I they people Yes, we to through have this. our on hung

of to our hang on have We all capacity.

company. ready to We loaded about are no and in equipment, and I the go. doubt have else everywhere into it, locked and

John Inch

Great, much. very it. thank Got you

Scott Santi

You bet.

Operator

comes JPMorgan. the with line question next from Duignan Ann Your of

Ann Duignan

bit just of color a that hear to you is just about I segment. Could terms morning talked you seeing, from around But everybody. g like mean, a dig like little change. a equipment Welding. what you more by little deeper comments specifically good I it region, demand know by capital, like into you by Ho places application, because big in are picking in Would up? your

Michael Larsen

Yes.

historical Ann, last as the think, of are here kind starting that you We equipment improvement side. had up if to that orders But that really trend QX you Welding. here, to quarter. I build the the mentioned, see was rates, on as & significant Measurement, they year Test are businesses saying, and look relative in backlog the at new showed most first did in the run I and

And And bit are those side. really orders Specialty so businesses on think broad-based recovery equipment by more for I And of is we a in the larger confidence are our the packaging CapEx. driven equipment. that customers also the investment it And trend. visibility in the a takes recovery the Products, placing are in and as to hold, that little saw

but off on pickup good we board, And demand across in start to have I really the for basis, global I are for products in you saw think CapEx-driven nice those a breakdown and the here don’t So businesses April. really the three really particular. a we in

momentum that. I sustained everything strong on-track saw a And is month. QX, March good into we So of was coming here. April, think kind

Ann Duignan

see be almost appreciate difference the cover attract this employee just that understated And color should an other mean, labor maintaining I a inability on I issue. think Okay. company whole that, that we your to their that. every as makes back the then that don’t base year. and we mentioned what to I given

So for about is I get about. mean, of you example, that risk is like congratulations I any employers defer kind year labor? your just orders? the orders they talked that as have will defer cannot have the hire, if there to any because risk your your through what to we just is they that restaurants, go can’t they what if customers it there on but customers? counter But mean, to

Scott Santi

pace in Yes. the I little a short a bit is would the thing of of the number even of terms of view, is recovery the is going in in terms such sort Ann, overall of duration a be certain have the some My not pace personal pretty the it extending to run. and areas. maybe bad recovery in that impact of managing

that I auto, autos inventories semiconductor extreme at, is world, this real are about from consumer fact example So talked think, Dealer labor, a that, auto of the around is for Michael much not on even so the but historic lows. chips. demand with strong.

It So move just is and limitations, is places the as gets out, things, two through fact that spread think it some out, thing other frenzy Equipment, play short period to of isn’t think it actually going this bad a not time. that long all mean analogy or makes I a I be to relatively that as trying are going satisfying I haul, of of necessarily that but exactly quarters necessarily to in don’t the if doesn’t in there same in the demand terrible be we near-term It is of and it feeding either in use sectors. grow. satisfied that things all how to some I Food our labor going limitations some is not don’t so sense. those are know for in like recovery of don’t the

Ann Duignan

Yes. you. industry. No, I forced kind rationalization the completely is of It a agree with of

appreciate get the color. Thanks. I I in back will line. yes, So

Operator

of comes line question from the Andy Kaplowitz next with Your Citigroup.

Andrew Kaplowitz

XX%. is you. levels margin similar of a to which now margin isn’t fully close XX%, you Michael, approximately above or your think I And recovered Welding new at Scott yet. for XXXX, Welding was go back know, as you If record mentioned revenue I to

step time? ingest does you understanding to we target than of for long-term that XX% better over years, changed company company that the give that and back the but if it can improvement, try So last haven’t the even whole confidence maybe the do couple that we over

Michael Larsen

implementation enterprise XX, the up is your we - of our question that to level XX, standpoint segments with putting ways also that will as are improve to the is volume welding potential leverage the Andy, our then just go there to front-to-back incrementals was well. know from answer is alone. a still from to the answer XX/XX margins continue is, types that the full easy reach an And

from initiatives enterprise see at initiatives. the come Maybe XXX the to than Welding, You level. basis enterprise at in points but these in significant continue still little less bit contribution that a a

mean, And we and so this. continue times, many is it do. will said then I have to that I say bottoms-up this the I and on planning based

that demand margin a that I said, our own the lot will regardless continue can more importantly, still expect to like we And margin operating improve our standpoint, segments have of things performance... demand recovers. their within as a maybe continue of performance, all we what We to here of improve happens from control

Scott Santi

accelerated organically. an at rate grew they While

Michael Larsen

While growing...

Scott Santi

That is yang the yin of the... the and

Michael Larsen

that is enterprise towards what here and on make our and That what really really long-term That are that we sitting right our right. I one is do progress us right. have strategy, XX%. into we the recovery, quarter in going Recovery And we right. is as supply with continue of on the last you teams executing then chain is Win a strategy, in the front is clear stayed everything focused encouraging, this path We to fact argue can year could leverage as my comments I and well, both, said now, think, with a

have said XX% towards XX% margin progress I to I continue my goal plus. long-term we thought may XX%. of You comments our said plus. That make

Andrew Kaplowitz

business but been stimulus talked significant now. happening faster, passed, do And is it. on Very the focusing this from especially then reopening the already, you benefit just could bit call about large have little helpful, in already guys. that Obviously, that And a school institutional Food at has U.S. least on for we cafeterias. Equipment maybe

have to improvement accelerating to business flow you have money that business you seen of So or your yet? any restaurant seen in that start

Michael Larsen

I the are pickup and a like Not backlog. we in yet I is orders answer. mean, see mentioned, to starting

institutional will is as these activity to for on pickup But including the businesses backlog-driven. not reasonable forward, assume we is are really that solid, it schools. know, there you quoting be side the and As a move

up firing ahead with not organic, that yet. we think strong part We what is recovery results I a cylinders XX% So down all is mentioned, as still QX have Food we of is some Equipment, you and pretty on encouraging put in it. here of good are

So I that think is encouraging. really

Andrew Kaplowitz

it. Thank appreciate guys, I

Michael Larsen

Welcome.

Operator

the Your next from with Nicole line question DeBlase comes Deutsche of Bank.

Nicole DeBlase

about, in issue first headwinds from Can we impact quarter. guys talk that full-year, the kind XX a on know you price cost of cost. we full-year returning the the points basis bit the does to that I flow for just a in of here? Maybe little margins how look is price said what it guidance? margin at embedded If is

Michael Larsen

Yes.

us, me issue with our little let There remain price a will how in think start I And are, pressures just particularly I of So a be cautious near-term. by cost these here. would the high given a saying timing bit on margins QX. is little

EPS-neutral So basis. QX, dilutive percentage, be dollar-for-dollar a this to on margin again, will

is it impact. incremental percentage percentage, margin purely a So

XX basis QX. QX in So -in points

And then XX Something for should year. level, a in somewhere in maybe full-year, around And worse XX half today. impact. end based second than of QX, know around we little of the that on points that we margin improve same what begin it the up the to to maybe basis

Nicole DeBlase

think I companies guys the first days a normalize had throughout days talked you is reversing like that Okay. Got selling ITW of impact well? how the that Is for it. Understood. in impact about And as in the it does that XQ. quarter, selling the have year, lot

Michael Larsen

and XX-days as last which we not, QX, the in same It XX-days had QX have QX year. is and we no. is in

a So QX this purely was issue.

last leap year. remember, was year you a If

up. is So works. this bringing hate I the That how calendar

Nicole DeBlase

I it on. Thanks pass Okay. will guys.

Operator

the next question comes Baird. Mig of Your from Dobre with line

Mircea Dobre

on to SG&A for of kind question, you. relatively or revenues has your full-year of constructed baking outlook of year-over-year a a growth my essentially sort I’m going SG&A nice, Thank muted the I remain observing you QX. the how is return call because the really to are relatively pre-COVID sort that sort to and obviously about you I’m I in wondering are And really full-year, strong normalized, here been it in here. guess XXXX revenue congrats just you more is your for I’m year. of to us strong start of guiding for for now on maybe Michael, was that above if pre-COVID levels. And kind run talking wondering rate expect fair you levels? above levels, it, flattish

Michael Larsen

Yes.

the And And grow, mean, a days as say, our looked are around of XX% the something it going I cost grow. around - in costs assume So few I I support here sales would would at like last SG&A. obviously, commissions, those I would sales, time to ago, including correlated. to I are think those expect I pretty things somewhere sales Mig,

a of grow ton look to to costs And I fact a in. to simply with what just in That and so of that that point maybe people we sales this talked coming what the from modeling and as fact, the grows commissions teens. primarily is line top are I I’m going here. earlier, year company mean, These the line - the we back the costs and of didn’t are hiring are like the at not are that company the low is now about it. in would lots year, way have leave standpoint, about last talking we that,

expect that would what you to is So see.

Mircea Dobre

helpful. That is it. Got

are a volume of be talking higher sort as QX. is done to progresses? XX. probably the about around that ramp you than have bit in So mean, That going I what year basically is that the you

Michael Larsen

ramp-up is I there QX. Yes. in be sure know I to a for thing going is I the here that one mean think big

Mircea Dobre

business, guess that Because strategically to really I operate innovation really are players think ask obviously then business still think the the do industry probably terms to COVID that business, follow-up, Right. plate at you have you folks doing look is the lot it will Equipment product. one to me of of standpoint, from and good term, smaller seems share about next I stepping and I’m is And my and that having consolidating, most you an well of differently. there too, transformed but right? I this end segment will, customers been differently, five-years as way. is market I Food this In your been it If you that about the asking sort importantly, ability where about of the vertical, How to important this have and by having a the an wondering of sort from consolidating to are sort gain up the position more longer the industry and, out there. because leads And

Scott Santi

Well, Yes. to that. happy be try address of I would some to

of the end at question Let your me first. start

We in are not consolidation. interested

not are scale company. economy an We

going consolidate. to We buy anything not are to

going businesses performance through of great their are that own We that value and the deliver the they products services to customers for offer.

deliver the value on consolidates And industry or the to to we our compete we not, whether ultimately, target superior that choose based ability those to so customers in industries.

I very well will are is this our positioned businesses that And in so essentially all space. say

that with best-in-class at accelerated in rate will an returns in grow to what have leave absolutely, based on will to to we and to continue there. terms will and I else industry. continue customers innovate happens and our innovate We it anything or expect in that that think margins And they your COVID of just I evolve as And industry. point, evolve

Mircea Dobre

Thanks color. the for Alright.

Operator

next Stephen line comes of with question the Your Jefferies. from Volkmann

Stephen Edward

back I the forward, to the follow-up on one. of think I incremental margin sort cost recover the discussion, sort as in obviously, we your just on I year Michael. had But top on dollar-for-dollar think price If quick Great. of that. one margin move remember then I correctly, plan, of goal is

we margin XXXX base incremental have than a why your So kind case? wouldn’t higher of in

Michael Larsen

question. is good that think I a

those on as raw right in now this are costs in think with increase and near-term, the I material I on pressure that pretty significant we what talking about I is offsetting margins. said, cost, price And dollar-for-dollar mean, puts price.

end commodities position I embedded kind XX% to you put surge been even That in able come down bit to of this of as back are think to standpoint. from rate a in little the been on price that in frankly, holding past incremental and XX% you cost going to played year, again stabilize half favorable you get the out is those costs of maybe we that a is a raw expected, these for the and are price historically, up. up of what material the has to some kind is how And historically. margin once start that in have or

we a margin. go performance. are through and really the know we in here. update incremental and through the I this, margin margins will we but as near-term, earlier, in of sit planning XX% XX%, to we if the are But there to purposes, for better of to think somewhere incremental above But strong range you to Headwinds give the like range. the I don’t historical - for XX% now. once I will as I historical to I either the feel QX ability maintain XXXX, range year clearly, the the we kind go is in the the year said I this said would percentage five incremental And plus, that for XX% here you and full-year. for above with modeling points today, or an four XX% so is give stick to for around price/cost

the So hold. performance really as recovery here strong takes

Stephen Edward

I Yes. look forward ready. you to certainly next your maybe that. four Right. I that update back seems or whenever you five It just are points year. percentage will But with get agree like

Michael Larsen

That Okay. fair. is

Operator

Steven Your next question Fisher with UBS. the comes of line from

Steven Fisher

to accelerating you demand guidance. to approach you going your into this at any in say not like it an in haven’t. rate I growth cyclical particularly I economic be in confirm imagine baked daily increase conservative run you are want that just of point. just your seems have would environment, But sales

Michael Larsen

you Yes, I think that for to decide. is

making unreasonable. is not are the think you I argument

going a we run think or of this if stronger ITW that make a And know, issue, back you what to current is is you do Equipment your for model. give company issue auto level. the I you can the think company to come certainly adjustments certainly rates. is then outlook at as at kind enterprise And the is think bigger those Food you pretty predictable the we you is

And to so close that get at. looking can are you models the we pretty

and so things might on the communicate the being you best think transparent. it is you out then to And this at. points of to that play segment-by-segment company And we way kind how look decide for the is for think outlook based whatever you very data

Steven Fisher

have of kind new and to confirm. on updates assumed is would just that enough, you say. And then I there. I if what what want thought you timing for approximate Fair divestitures that, any

Michael Larsen

Yes.

will have last consistently So on of the thing early above really we put I we somewhere be And can by new rate we view on when this is process, you divestitures of at the the businesses here. we important really working growth no it update, way, the a hold from going more to The grow and year. is that that next end reinitiate is market. focus on kind organic believe, which way, distraction as was mean, the that demonstrate do and as really year year, to are playing we that. those the recall, And these probably out to valuable most get recovery be

strategic standpoint, still from that we that for people, these with So are a fit, other great not are businesses that much fit we are ITW, a think. a better frankly, are

changed, And have year all kind but later next to not this so or that early we year. has view activities deferred of the

Operator

Mitchell the of with from Barclays. comes question Julian next Your line

Julian Mitchell

There Michael Maybe cash just lot the for perhaps questions. is free been of a a P&L-related around question flow.

in good I income a So cash flow, amount. QX year-on-year. flattish up think, the was was net free The

And should we kind with And about of that, or issues management understand supply catching something CapEx this associated how metric own conversion cash working think impact seems it working and year-on-year that ramping the headwinds what a sort rate in Maybe fall having of help there. capital because ITW. now. are year year are some up chain I understand component capital just maybe us any sort and back perhaps is you should headwind, receivables, for So of that. like growth on up your there

Michael Larsen

what as the XX%, you Yes. line least levels, exactly to grows inventory we are at are happening. increase I clearly is near-term, which top corresponding - mean, The in I going that is mean, a that is going see, in actually demand inventory what receivables thing. grows, levels Scott is is part as about it grow. know, as are you growing to with talked of -- good thing receivables. a The same are fact the

I debt, think is we see below from but will eye in just and on pre-COVID are what levels at months in meaningful at all if can direction. receivable right capital out hand point trending bad metrics working way. inventory I we are looking you are outside, on when the that aging look the our we you the our keep an around a

here the the inventory we is change. of So capital sense it at on will plus back did teams is headwinds, still capital than the more conversion for try in overall, confident to The us to is bit last It goal we job company. for excellent last little year. think make XXX% plenty would hold bit including little to no about be I a levels grow cash. receivables we going - to this it managing an but But the stronger, We to year. are not working that, rate. in really generate this here goal might point. is I $XXX plan a the get working somewhere call, million around And talked so think was growth really The

CapEx year, you which That as has of it a A we allocate know, capacity last of is is CapEx, of coming where expansions been were some on is an capital. X% are sales, back how not now. be So That outcome the around of set will historically. lot deferred. number. somewhere those

million, we $XXX that that is That is directionally, up. So somewhere where if probably will in is pencil end up. you around

I something think like that. last year, we or did $XXX million

recovers. machines the moved And customers saw adding And we a capacity support quarter. we are So in we demand you first are in equipment, really these as expanding. definitely bit places the expansions CapEx adding to are injection number molding our and auto here is little as up other that

So.

Julian Mitchell

you. thank Great,

Michael Larsen

Sure.

Operator

Joe Ritchie, open. your is line

Joseph Ritchie

squeezing me everybody. Thanks for in

question, focus a on organic first just for my second. maybe growth So

any year. in the for raised that outlook So like of headwinds segments the I’m start not raised? the for the slower to Food maybe about the you were in Equipment? some You talked year OEM curious, and example, Auto

Michael Larsen

Yes.

of Test is the OEM, in a are So segments, one in seven is of in chain this we all for probably based higher of allowance the auto, CapEx-driven the demand rate pure based the Measurement, And towards [run And back except the in particular, segments demand, some mathematical, of right? ratio,] year. on Auto we and on they the so terms growth end guidance, the So we made and businesses QX, forecast are supply six this organic range the exit then talked that low in issues in these about, our right January. as & of Welding. gave for

I still we year. And XX% probably for are the to up think was range the to XX end XX. builds Auto low that. are then at projected back the be of

I little segment. consumer in is will quite cautious talked are one a So around second But underlying see. as encouraged get That particularly. we the we and where there maybe term, uncertainty levels, the about, this, we will by not very demand is just that a And the area inventory be as medium too bit of well reiterate as here excited. quarter

Joseph Ritchie

for Michael. it. then either sense. makes That my Got follow-on, maybe one And or Scott

on segment. about about As we guys I’m with used to the you does that regional always you content in all in EVs? auto just that a uptick seeing are think change your the talk basis curious, at

Scott Santi

whole opportunity is the a it roughly applications EV that sort We that the there in wouldn’t about range power-train now obviously it new exist, is talked a space. of of perspective, it do equivalent. from we but around actually long-term

it a higher with a at on to neutral we think it, time I was So little last looked the EV. car per basis maybe

Michael Larsen

actually, Higher, yes.

Scott Santi

maybe to XX% higher. versus $X X%

we net-net, agnostic. pretty are So

it in think was to our certainly roughly basically our are not plus place, the XX% than but go either would said do new over that we or a XX% the is in think plenty data, this EV that time, XX% other bit. or at risk. sort other current if of have little today past, tomorrow, of goes there was away thing so every I of of car XX% revenues less and applications I sales we what of X/X replace is

Joseph Ritchie

is That helpful. everyone. weekend Got it. Have a good

Scott Santi

you. Thank Alright.

Michael Larsen

you. Thank

Karen Fletcher

Thanks, Joe.

I think we are out of time now.

free us any today. concludes to for And So I that would thank call morning. like follow-up call me to questions. this our everybody with Feel joining

Operator

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

Illinois Tool Works (ITW) 30 Apr 212021 Q1 Earnings call transcript