ITW - Earnings call transcript Q2 2021 | Illinois Tool Works Inc.

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Operator

Good morning. My name is Adam, and I will be your conference operator today. At this time I would like to welcome everyone to the conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. Instructions]. [Operator you. Thank President conference. Vice Relations, may you Karen of your begin Fletcher, Investor

Karen Fletcher

Michael Thank to and and XXXX morning CFO, Chris you, him and Good call. and Adam. President Vice wish We not welcome Larsen and Vice Michael a next look to able all injury I’m recovering related and from by O'Herlihy. best forward Senior certainly Santi; seeing to Conference participate week. is the joined ITW’s sports our Scott is in today’s Chairman CEO, our Chairman, Call. Quarter Second

the During the quarter non-GAAP presentation for about this today’s SEC could update XXXX presentation subsequent and directly in release. company’s is is call with the contained results we to results guidance that risks to expectations. and the materially will measures press reminder GAAP contains cause measures discuss Form the measures, uses XX-K those Forward-Looking a two ITW’s actual that This for our from of filed to our detail Slide a financial reports differ second Statements. full certain We comparable XXXX. year important more you and most refer reconciliation

to and and to turn turn my our So please the to it’s CEO, now over slide three, call Santi. pleasure Chairman Scott

Scott Santi

our as recorded demand of conditions, held and very and close the benefit XXX% supply manufacturing one-time XXX%, in and the In Earnings leveraged with XX% saw segment and we strong up every operational world levels certainly chain approach, around this delivered up of Karen, to the supply to long per win fully second if financial strong in momentum sustain across and portfolio, Revenue We're organic digit growth to share board, the up our quarter sustain delivery quarter growth and everyone. was our businesses. order environment potential our by service double class rates tax how you, by $X.XX good quarter. Thank much In of in challenging customers, through recovery to remain XX%. staying invested recovery encouraged execution pretty ability teams and morning incremental our we world long momentum capabilities we on execute intake continue $X.XX that opportunities the exclude geography. while strategy customer saw growth the continuing positioning, across term gain in our through we face staffed continued the a organic the results. the We and and second examples full to was you ITWs invested for benefits are and achieve performance. our share our multiple pandemic providing remaining our strong resulted during and saw the fully our of differentiated to also

respond material the apart is time, there raw the deliver level for as will team my long worked no the a in continue While we We to ITW in beyond. our that to as position of the environment, at continue XX any the is and ourselves be years over execute set I to supply year that we ITW to no to differentiated customers. maybe a in are we and to hard doubt have our ITW, balance nine the environment challenging move high last and years experienced can positioned performance through as as well ability we as doubt have ever

some the second for quarter. on performance detail more our in Now

Automotive and ago XX% XX% By up this strong America our Equipment growth XX% net XX% organic OEM benefit by Pacific North tax XX%. quarter re-measurement there. up led up of way XX%, pandemic and EPS Asia statutory $X.XX was two corporate up the assets a one-time XXX% of up a the seven XX%. up tax segments. to $X.XX hit with mentioned, with with GAAP rate deferred due tax As and related up was in performance that the were I year Europe geography, segments The was in included of across was hardest and U.K. a the change to International Food the

improved with seven XXXX. $X.XX leverage, cost our this the and XX% QX initiatives. XX% increased our It XX%, Excluding impact. XXX XX% with basis volume at teams than from benefits margin of item, robust record of higher EPS XX% to Enterprise was of Operating Year-to-date grew along enterprise a inclusive margin incremental in incremental expansion QX XXX%. points and was strong on segments from for ranging was points XXX margins price income XX.X% delivered basis margin of our level. have Operating of

Speaking of quarter price percentage margin cost, cost XXX to points. price in headwind basis the was

costs While cost dollar price our to that inflation since a with due Consistent have short some the businesses cover early active result raw year. actions our impact reduced in pace cost the cost material accelerated price the increases EPS on the with a material been for goal raw in of In strategy up lags, in rising implementing raw in quarter, second we timing QX dollar just response to of quarter. net material to ended by adjustments in as $X.XXX pricing basis. and

income for for And quarter working additional earlier. price and price impact a on back cash In was expect invested was come the tax after or mentioned neutral due of strong our to return a color capital my and one-time adjusted conversion growth. organic remarks. record I a more environment EPS benefit in cost later to better was provide year, to support Free investments necessary little with the I’ll that XX.X%. on We at continue tax, $XXX capital the cost be to flow the net million XX% of on the

in to tax our quarter expect approximately the million one-time and conversion rate the this to XX.X% year. planned, full repurchased tax XXX due shares of continue for as benefit. We We XXX% our was quarter finally a

was our item, this XX%. QX Excluding tax

slide for updated to an on cost. price moving four Now

where We inflation for roughly the recovery of XXXX. cost we which from just continue anticipated at this project and categories experienced the percentage We and And such full what X material X% year, were increases, for year we well cost chemicals. resins particularly higher pace the as lot as and perspective, what XXXX actions, to experience Xx ahead raw is a of that in is some And points our began. as than in around experience inflation of a TerraCycle. material raw result in learned are now almost steel, of we price the timeliness

to on for it be actions pricing or cost costs for price year, better QX modestly a our cost than with EPS likely have go percentage, other versus dollar impact negative neutral dollar we the to before higher however full As I operating mentioned, the the will expect the we more term in QX as offsetting be Price near on saw in impact in basis. a continue starts margin impact will net way. QX to increases

will Chris Chris. we year. For from price of impact, to QX. with percentage, and basis that, deliver by ample term than cost performance us points, segment be points impact That for strong the the additional expect cost ability as end enterprise turn near price remain to the it we XX margin year full enterprise for meaningful affect margin the price being comments on where And have of of higher offset improvement leverage to provide confident I’ll about benefits is the With overall margin over basis dilutive said, and QX. we execution of were which volume that structural potential beyond the in and initiatives our XXX margin to margin our from cost we ongoing initiatives. performance some negative

Chris O'Herlihy

pace at portfolio everyone. to to businesses of has on demand good sequential the would I reason despite the of morning and well-publicized five, chips, our provided Starting Scott, segment in underlying left role Auto slide perspectives we recovery table momentum on demand, revenue you, ex-auto. from added QX in when expect semi-conductor our strong a the for the the dampened on QX. Thank and table we some growth the trends very shortage that to show been by OEM look

Our QX. our and versus QX, ex-auto versus our X%. increased X% normal basis is equal QX growth of so on Xx X%, which an QX QX QX QX day date year shipping more plus one revenue This in QX had of versus revenue seasonality ex-auto is

In addition, portfolio. of we across added Both in factors more accelerated than our QX meaningfully $XXX million demand QX. of backlog that show in these

mid-May. segment. to with more in course This Price was North little against from Europe North the most time easy for XXX%, XX% of detail when starting up XX%. basis up percentage sales long negatively We of up price impacted significant a our this recycle on Operating to more cost initiatives. recovery prior was segment, were versus shut was chips OEM. enterprise America China segment each most points XX.X% and in due was our comps in XX.X Now of by up evident leverage year Demand volume $XX of into points versus margin growth. organic was with quarter. Western in recovery XXX headwind automotive million and down mid-March year actions of a the customers let’s than about that required this America XXX% and estimate Europe a semiconductor ago the implement was to shortage go

continued product new extended organic solid and auto with by XX%, In were in the Please robust automotive strength was and Furthermore, backlog organic $XXX year margin up Equipment chip for Food with America Test slide Electronics Measurement by revenue, clear, was by rollouts. were the spend across driven this Operating in grew simply the is organic XX% XX% & North ongoing of XX%. the orders strength strength XX% Service the more Food up XX% to in board the in lost applications, hold service the record year. in at and – that into points be incremental the an solid million supply six a with not Given low is service revenue we and education the basis in of growth of beginning care semicon. original expected Food also QSR. of with XX%, continued significantly the Test automotive versus Electronics offset QX XX% versus in with record. International To the XX% benefit full XX.X% equipment with in basis Retail was at in in delayed XX% and and sales was and largest recovery to revenue continued of Pacific prior and elsewhere is Europe. electronics XX% margin about up be year-over-year up Institutional increases next now recovery QX Equipment continued up to and than taking and XXX was a in turn equipment with Restaurants with added our Electronic XX%. Asia of revenue consumer XX% and up XXX approximate expect slower lodging was to Operating mid-XXs points which growth range recovery up of up in up semiconductor customer growth in Equipment. XX%, of was growth year. & XX%, and the strong XX% Measurement mid-XXs. but large some CapEx to health impacted timing be growth lockdowns and uncertainty, was XX% year. mid-teens than up up XX%. XX%. demand rebounded Assembly. Europe grew enterprise.

XXXX. seven, the growth was XX% Equipment welding strong Revenue at time and in up in QX was since growth consumables XX%. positive also slide XX%, to territory of Moving was

CapEx growth America growth primarily growth XX%, and momentum was was margin were organic grew solid, partially oil by applications by and in increased sales. and continued enterprise with an Our driven recovery single XX% up Operating and the growth with International following European all-time heavy strong is retail XX% by led Polymers business initiatives MRO industries. spending robust in our the on the XX% quarter. business XX% XX.X% up digits. North in up Polymers price with by cost. offset in industrial XX% X% low Fluids sales aftermarket business XX% record XX%, and commercial volume gas. leverage up first of was automotive mid-teens on North up Fluids remained and customers up & America was our

XX% points comps in growth residential digit New Moving all organic to up XX% was to was Asia and and North XX% Specialty double commercial. Construction a organic margin and slide up with strength with XX% eight. with the reflected Continental grew growth easy Europe three up grew in of North Europe. with organic America Australia residential XX%, and up versus recovery in was renovation XX% commercial and up Zealand Europe in recovery strong XXX Operating XX% the in and growth basis with XX%. construction. was regions. in revenue was XX% segment growth XX% record. Pacific XX.X% up continued QX up and America UK

Our comps up digits, the majority up to XX%. than segment. Flexible it and rest the turn XX% digit up led were Packaging businesses Consumable was I'll our The against with that, by than XX%. more And sales sales equipment double Scott. up of business appliance tougher mid-single were of up back

Scott Santi

Chris. Thanks

at impact $XX.X of We XX% XX% growth QX, to to of at pricing translation increase guidance foreign for expect organic growth the of an to in an in midpoint largely full on nine one raw last now by implemented material in billion, with on revenue cost move response Let's increases. currency that the driven incremental the XXXX percentage XX% $XX.X slide plus-X%. revenue of year and QX updated to to mid-point accelerating the actions up be the at the This is year, versus of range update guidance. the end in versus year we billion full range of in impact organic provided point our

at auto accelerated supply earlier not versus point the that presentation, in significant disruptions our in of continue as customers are in chain many given otherwise. our momentum in conservative demand While time, that in and we being admittedly challenge forward QX in we guidance our projecting noted to QX this

basis benefit guidance one-time discussed earlier, XX% raising of $X.XX $X.XX The second range mid-point last XXX QX growth than the XX% in guidance the by higher EPS tax result cost would of realized over $X.XX represents [Audio incremental is that full for quarter. are expect With will a points be an again, as XX.X% XX% margin XX side in to points range We of the dilution still improvement of an And EPS price record cost the year increases versus GAAP in mid-point XXX that which we our to out to we the and more full we earnings from year points saw a margin project the XXXX year-over-year company. regard the QX Gap] of zero Factoring XX.X%, than to of to the XXX XXXX. incorporate and versus XXXX. basis tax year. for our all-time impact in to percentage basis one-time of

expect XXX half million cash conversion repurchase tax be additional the of the of one-time, non-cash, and XXX XXX% We in we factoring approximately shares have QX. to the net we to recorded of income an second repurchase impact the Through first expect million benefit in free half. our flow out

around our full rate usual of XX%. rate tax for our tax be expect XX% and in XX% to to our we second Finally range in year the half of

the guidance expect close I'll business, closes of you Once to announced MTS to acquisition excludes the Simulation previously that, this And over provide which you today’s Lastly, update. with an we Karen. that it acquisition turn year. any Test & later with impact back we’ll from

Karen Fletcher

thank lets open the Okay, for Adam, you, lines questions Scott. up please.

Operator

ma'am. with your line the Yes Kaplowitz comes Citi. first And [Operator of question from Instructions]. Andrew

Andrew Kaplowitz

to Michael! wishes Best

Scott Santi

back term short on He’s you. but be week. next IR, he’ll Thank

Andrew Kaplowitz

be into raw you these the Do pressure or material handle usual guide. of inflationary Chris, a know enough sort the inflation for cost Excellent! when you you mentioned have So as where We you the increases said can see Scott put that year. you will on stabilize the inflation. better

in talked price last QX, about the these XX% to incremental what’s then And that and so term look are sticky in you when probability confidence you that you have. at longer your pretty could quarter, ‘XX forecast. you So increases have QX exceed you XX%

Scott Santi

that, anything first the even confident this you very know be quarterly the XXXX know price $X.XXX, stabilizing have worst $X.XX ‘XX know on one quarter. incurred environment that as will whatever, sort not at been describing and would have think a subsequent may We’ve but Well, we're point, you the and cover to that think I looked to and we on you already a I all question comfortable back ultimately increases we know of and basis – back going this costs certainly on year, inflationary environments have you last the over demonstrated. been in be impacts I

whatever things impact but based that So the we're are we're normally either. might I happen not the think don't from fully assumption I – evidence to able think be comfortable for here react things as enough predict for – the to and full we’ll to year, EPS I to here on will and seeing of think that forward company we’ve reach of be I said, sure. negligible read I from to going seen are continue don't it's I’d an going stabilize that that

see. its think I wait and

Chris O’Herlihy

significant case saw in We of yeah. a pickup inflation in QX, the

Andrew Kaplowitz

that Guys question could auto the in to specific give year. the you you the sense you numbers, ask for XX% I now the us know know just maybe

this think points to basis said cost. you risk quarter price I XXX

As you catch always know before can is there there. you up lag a

that incremental getting in top still before worse of we takes So surmise business? on little risk it better should that price it how would to business, long get assume you gets margin a and costs is in

Chris O’Herlihy

of Well, a in price of you incremental the, be nature an you auto the of incremental year. XX% the half say always the of for quarter know in in XX% first versus would the cost I industry. terms is had we going know auto the second given impact to incremental, challenging in

doubt no take the a Hard will that long double, So us pricing of agreements, auto for take longer. the incrementals the to structure how there say lot but industry, catch it are up the does to with that. structure is in of it there strong no

Andrew Kaplowitz

Thanks guys.

Operator

next your of J.P. comes with line Morgan. question from And Duignan the Ann

Ann Duignan

Good Hi! morning.

Scott Santi

morning. Good

Ann Duignan

mix about Maybe you footprint. & are in from products at QX those margins about how did talk margins you be Measurement deliver those talk there said where anything you Can those sustainable result both, would in sustainable Test or forward? levels? you more and bit are a here could we a construction that or or going record QX you diminishing anything profit Was that these operating little of should delivered aware

Chris O’Herlihy

via quarters improving long in construction. We’ve the for so last are a of high in say construction been we've here margins now few very mid we’ll Yes, to and the construction and the for been sustainable. certainly the margin terms time XXs

So despite organic the in price cost seeing growth nice environment, we’re construction.

believe are nice in and the time. Surely realization level know in here price customer margins currently again that there like we’re for to we getting have of We Test and margins a long that differentiation, segment The to the sustainable. I then so high Measurement problems. it’s and been be XXs our starting expect of terms you in like

we So Test margins any or don’t in & Construction. see sustaining with either issue Measurement

Ann Duignan

Okay. [Cross Talk] Go ahead, sorry.

Scott Santi

in still across And terms to cost the got We comment run in enterprise just was going basis margins record the commentary we to I the initiative is XXX said improvement when know time there think is the Chris this made, I’ll which a think room QX time environment. I add you margin some that up QX of was price for adding benefit all quarter. points structural but I of despite I comments, seven of company. our circle reading was color segments I to and back

are better know improvements is, and performance we forward. do and continue these to we to sustainable go there certainly expect as you So

Ann Duignan

Thank I the it of there leave in it. I’ll time. Okay, you. appreciate interest

Operator

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

Stephen Volkmann

talking I I XXX the guy. think year, year? down you’ve better slow XXX you you about this quarter overachieving. Initiatives, is did reason XXX right. on I for XXX have my that the some Hey! been Last you than or a basis if over chance know Maybe for number's comment quarter, but Good those points this Did you're there morning think about Enterprise did up following just

Chris O’Herlihy

a bought we ’XX. saying think And on year. mean, will we interest I than this are I plus, there's better in on XXX our sourcing lot still initiatives XXX of and price do Yeah, so

are within working very working we of last the activities Within in of a a enterprise each are activity on. host fair know year, actually terms all with And this we You have bit segments. year these are that on been initiatives initiatives. starting there that but tailwind entered not and granular out just year, even division so of is

So we XXX would expect to a plus for sure. do

Stephen Volkmann

kind And about of here. of on like following lot feel of up curious then pushback how question, we in doesn't kind policy think touch. I there's verticals you maybe pricing just a on of mean price cost just the it the about any this that

that plus margin, know not kind of headwind? create know you $X You why why price

Scott Santi

Well, I don't know.

the earnings You percentage headwind. my a from know an it's headwind is perspective headwind, not

organically, sales don’t talk our and help certainly do we plenty services that can operationally, with but know this distraction We you sure, very long short let’s more so that created the position and is I high and I a engine up that from get have want leveraging interest make about but basically money, don't extent we to economic on most can can business as important to option. for strong that’s the next not – know incremental wanted, know technically in we is we get We grow think of into them the You all overall ought how term people go so it. and to cost to from people customers have then price term, the We incremental. job over to to that our fighting the incredibly the and translate don’t we preferred as the to we an other the that’s optimize get their profitable it a... we’ve our try do, are well. share, standpoint improve you standpoint position

Stephen Volkmann

Take thank you. point, care. Fair

Operator

the with Research. And your Sprague Jeff of questions from line next Vertical

Jeff Sprague

thanks. everyone. morning Hey, Good

Scott Santi

Jeff. morning, Good

Jeff Sprague

to where of it's the your whole cost availability just of your can down portfolio very or you're we Could your supplies, availability the in places obvious, outside visible it, issue? got but are morning. Good know you problems which obviously they you kind in clear either elsewhere We perhaps chain tied line. the is struggling about to don't meet demand a little because want side, the but of availability and supply customer there drill because of deliver, auto price feeling the they've and bit talked into on

if wonder give perspective year. us it and into what color you Just line could here of or the the any balance some any that, just in may, the if degree wondering quarter the top to on on

Scott Santi

you with other absolutely head, that our contend serving relationships we talked sort around giving for manufacturing would some give come I’ll our than that overall all maintained businesses battle in are our what some long the in most as kept supplier we things local the One doing I overall a specifics talked though is some daily the supply fact mind color him. we the customers would that that facilities, localized division as reasons: no about and pandemic. our then terms – customers. segment remarks, then world, service fact Chris if to it there's better locally. the we a we certainly we couple let for fact levels to have say, business level, that people of is of I And question is our color, of I

to scramble to We back. have people not bring

that from there's there we call big ability not It normally a it any now, boot very definitely force simple but manufacturing that’s that’s supply more, So occasional the not mean operations level our just issues automated go hearing couple sure let’s a taking can’t other you of standpoint that that I as an that supply chain $X you way. a know a saying standard than think an lot are out, chain lot supply more normally now I'm that part but side making working demand point much us very in entering, to doesn't but points operating function to would customers. service timing to – but a our for can seeing issue of beyond a our for the of but because couple the million to, but that the backlog, that auto and deliver of well. sort talked performing customer. the area And to we I’m harder I’d pretty $XXX something a are and terms comfortable supply can't of we are of also we before. not own our is of changes say another we than in a because It’s supplier lot say requirements, would things, a case, given I ultimately about I I’d practices are bracket machines up and of deliver side on we've on have know we and of is shows ultimately – orders late something, that this the

in hundred million fact analyze backlog, is today our built couple You that contention with a of – growth basically more the know the and auto the and we that own points a to of percentage that’s to but is be ability our another than for we’ll would the do – it can’t I customer backlog, that ordered of should of in quarter. organic million customers in XX $XXX $XX what see yesterday the the with it, million lot so every plus operate my we backlog delays dollar we very that's And second supply. little

would You the of [Cross it not I’m my could most bet thing… Talk] have be gone, necessarily of contending that and it know but only again, all that’s

Chris O’Herlihy

extends of results in be because simplification raw over would focus last all in this most to a supply and of it and benefit for really to work have its in that This when and for materials our comps, of our know of us Yeah, become part Obviously terms to becomes creates is strategy constrained lasting raw really, chains components streamlined it’s lot supplier thing XX of the our material the also its here are only suppliers. more to going just XX-XX, think you offerings. very we and sort cost our, and for long here of these for the partnerships and cost and worked packages that really key simplification key a is many say The strong I and our us simplified releasing important customer suppliers. it I months. years

Jeff Sprague

just And a question. second Great!

the you zone? coming obviously of in now. don't active of your is? pipeline you to us know able sense Have been M&A the maybe deal how got But kind on you you Just you the of pipeline, strike it until handicap things your have things, a the know to odds do give of some something can cultivate you've

Scott Santi

Well, MPS. I would tell you that we excited are about

to is finished pipeline hard work the will of and businesses to one we the quality I very to remain what's the certainly anyway. and you you know kind quality subject don’t the to annualized a We enough off of so so what that’s do for as want are much is of revenue, $XX all interested adding that opportunities comment while company, know high but of get little themselves. million working to present always on unnecessarily say timing in of that remain a that as

of what’s I So set is; think, going matter so there big or not much we're small more it's it’s criteria the of looking pipeline a but of than than on, a there’s quantity. of how more stuff a a function narrower the of quality lot it's the for

Jeff Sprague

Okay, thanks. on. this I’ll understood, pass

Operator

comes question Sachs. next of your Goldman Ritchie And line Joe from a from

Joe Ritchie

everyone. morning Good Thanks.

Scott Santi

Good morning Joe.

Joe Ritchie

right, in or fourth So that’s guess thinking your house, year? segments I during maybe rest a quarter. the not I thinking weak organic of don't to policy each about little guide about and I of lot you improving trends, you for know business, see sequential here, seasonality seasonally really the the a but your segments really of about us that’s when the obviously think guys think know and you've auto about know throughout the growth I from bit in business really you're just the How the given perhaps but sequentials different segments? going that, are declining guide, revenue other forward. construction your being power how We you the I the

Scott Santi

relative to that run in I run sort comments, Yeah, the we of camped have you but that you the know know know my covered rate. guidance in think terms of overall rate you down I

our Chris we a project points of organic signal to the supply you year through know X the by did the involved, there. to of growth that beyond of rates we’re that organic playing You have And to matter of the conservative. the that demand plenty supply second to with can demand. support of than customers, pretty we quarter going I balance material from saw it. the forward and because about of net our think so pace of the that ultimately talked more to risk raw chain get seasonality, know manning trends risk customers It’s out accelerate percentage is fact you There’s the do enough a basically in here

Joe Ritchie

you convert to expect are like of some Scott – in is following like you it or seeing Food Got a you're that what the that building opportunity, given it. of there now, on XXXX he And just Is business. seeing Equipment half. that, know as where you you're chain involving does that mentioned right second maybe is a like more just from had about supply the – standpoint kind backlog

Scott Santi

is of to I'd convert. say some it

that doesn’t you resolved I that know to only that's they this of back time this, But half. in you know components sort mentioned – they that dip most that of the customers XXXX backlog, million, any into one definitely I'd would probably is get things where the loan going to the can it's because convert that need, think get given you not of the I say expect the our it, look Chris other like certainly of know take rest $XXX can – soon. should and the

guide significantly That – know that's constrained and things is how from things our that doesn't of we so I know right all can't It play supply it run more how what how you guide from it issues more. than what's they they’ve well and our here know the affecting to definitely where willingness far better in know we is how the take to definitely from supply take to, and ability with rates do I us know out are now the just enough any you you ordered make terms see situation. rate you But sense doesn’t just see would sense from you until play in when the overall you border is there that to – too customers revenue simply in now. think better say It's it everyone pricing simpler forward. to is make up our know say I than out. this demand

Joe Ritchie

that's it little follow-up Okay, on a about price no, I one helpful. bit. talked maybe know – cost. guess yeah we I

to pricing XQ through get that be they’ll mention some is XQ in little worse expected put a from did because XQ. bit actions You

take bit than take So little or does for just of on to worse would the actions a this I guess XQ? pricing some this time I’m the of get why headwind wondering, hold

Chris O’Herlihy

worse we in the because on see Yeah mean little we worsening obviously a reason a I inflation a the of a increases, the little based on only is we getting in QX. pace We inflation of pace only of of know the pace significant QX lag, in base saw it’s QX, pick-up bit worsening QX. there’s see little bit of so in QX the in QX known see what a based and we in on the of today, in cost QX price increases Joe, and from

Joe Ritchie

Got it.

both. you Thank great. Okay,

Operator

the Jamie question next comes of Suisse. your And with Cook from Credit line

Jamie Cook

help sort order to of us terms segments And get customers us obviously my two particular organic following double there, happening Is seeing that's of you sort segment rate, from sort of what can growth and of associated sort know by with on. you. what questions, this you share confident are Thank revenue you just what's is outlook. out wins actually of degree percentage there you that know organic they guide up ordering to of There's stuff? increases on sustainable you more any Understanding like stronger. you’d are the of here Hey! I as you in you're that follow-up can't intake any guess is or performed know growth just then understand why concerned? worried but the question, there market one help very some guess understand I the are is these, where just are customers way sort on conservatively,

Chris O’Herlihy

are our you in So in there. And organic talked growing different about you Food we we it. all seeing know Equipment, welding we in our Test growth, in of the a you nice earlier acceleration expected going Measurement, Obviously year, & we're know it's conversation patterns have so this. months customers, electronics so faster of on – terms certainly terms the certainly know it’s order reason to know based sustainable over way, not of initiative and than work, the we’re a it acceleration know want you early and but seeing on busy it's you of talk that still the kind know to is recovery our in no already last as and with quantify factor and obviously believe know we here you XX you this winged to about

sort a is pretty feeling positioned that share and out excellent competitor of availability, is we’re that customers, and large where wins you respond service we incremental that from you equipment maintaining customer both know of enabling backed food service and into could and investments people the in to highlight ever of good and food there’s to say some, in the the serve like and in We’re very anecdotal remain would lot and a competition turning level Scott share innovation sort high supply as if and evidence certainly product gains retail. about intentionally not – chains, as there and staffed about get talked where several just we're I being gain addition how in maybe excellence suite and our level to of protect examples know fully able

will our our coupled meaningful delivery grew constrained, we mentioned we grew who sales [ph] is quarter, share getting automotive well in so means levels in service gaining have XX% that sales extending customer automotive and point share aftermarket. as association are in construction focus, on in the we’d might I way. Another of and by and chain influence, example high this in we're maintain our the differentiated XX% farmers operationally quarter be Staying certainly with in the And again commentary, innovation a times we sustain there growth been we to in supply aftermarket invested above measurements clearly and see service and roofing businesses, indicating very continue on competition in levels. and here

are of certainly making we’re products that regaining strategy, small to a our selection again, anecdotal, recovery evidence that just examples somewhat ample So early somewhat of tech we in segments. but seem these seven window the and illustrative be across share,

Jamie Cook

that just you Okay, seeing, can the segment. with you're thank if you. you by Anything order us intake on that share saw what

Scott Santi

[Cross You know I we Talk]. that saw in segments in… acceleration mentioned three the

Jamie Cook

I was numbers. just get trying to

that’s mean know you You I if can’t, fine.

Scott Santi

last actually would understand say next much – ordering good of pretty terms I but I orders our lower used us trying orders orders know the also because that in for that customers’ customers levels much that it about – said, in terms get what know Yeah, we because shipments that say what double the the they know to customers to term equalize dip shipped. you for would think we I what can’t of because can’t and be fact – hedge you our closer I service seeing more supply. day, you you I orders shipped that, say of of so we’re our would any not of are your

some terms that will wouldn’t the anything us. significant more overall of So are maybe things, they we service demand I part ordering you levels there picture normally, than they because that – – concerned about for in of know wouldn’t our a certainly would be but even be wouldn’t think

Jamie Cook

Okay, thank you.

Operator

Wolfe Nigel Coe the And your comes next with question Research. of from line

Nigel Coe

gets best Michael, wishes and speedy a morning good Thanks, recovery. hoping he to

Scott Santi

Thanks Nigel.

Nigel Coe

supply tools of terms you monitoring Illinois concerned? most okay. the thinking but you back I’m Where predictable, but which where maybe was constraint. closely know Tool which go for you most kind electronics geography most business you of thought – perhaps or to automotive with you the That’s in I to are you want are for barriers, know concerned?X and not chain, are just your, about but I most your supply are what of Works

Chris O’Herlihy

I fairly been like Test know Food would in you would The that constrains, chain will say of Measurement [inaudible] and business. general across out. has have know but impacts Equipment, electronics, electronics board in be of one so terms you the terms call in constrained, chemicals and I certainly well electronics electronics segments related obviously Yeah, and supply that resins, been steel, in steel &

Scott Santi

But there's beyond concentrates that don't really that anything think I up.

and real it’s again You know a not more now, bracket, the not it takes right a Talk] now businesses, I even different work but think dollar our significantly but again from something color a it's $X every [Cross is know know offer big you it's more you – than… It's the lot you day, it stuff. the

Nigel Coe

the I because And Xx the think address then from change wouldn’t volume it created you issue wondering two know it offices and maybe of purchases those a the two very points could betting. service plan. I’m have the just you, high best because quickly, impact so [inaudible] you but could and big for know what spot that

Scott Santi

more little Spot explain purchases, if a you can that Chris.

Chris O’Herlihy

with purchase hedges… I company think would another given some them

Scott Santi

Yeah, we it have forward don’t don’t and by. we

So the you through costs current know now, are yeah. right flushing – everything

Chris O’Herlihy

logistics logistics, with and and for the that long the freight And that so mean obviously certainly – structure what no the and the is maybe your I that second correct? had less think freight so an part to our on produce don’t the impact that but basis philosophy mitigated produce of is question see and us, than the impact sell, there's we of what and related we of on I a cost peers availability. logistics, impact I And sell we’ve of our freight some

Nigel Coe

Thanks guys.

Operator

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

Scott Davis

morning good guys. Hey,

Scott Santi

Scott. morning Good

Scott Davis

injury. There feels must story, better. good Hope backstory the sports to a Mike be

Scott Santi

tell. It’s to his

Scott Davis

only a how bring how – know sort the a he cadence MTS, size, I mean some kind through or you there Is understand? in us of XX/XX? I Anyways, disrupting you MTS. question. something, team. can over bring walk XX When just Hopefully on bring you do kind know of you You football football and one of of team playbook help do really in how it. there It’s do you have you XX/XX this join guys deal in didn’t without

Scott Santi

absolutely Scott. Yeah,

fact this divisions employed with have know process employ you our completely and XX/XX of XX the obviously on back we So that to last process the on we MTS is two across we’ve that company. exactly same will we front the the that the process reinvigorated – years

the So we what be really on really can’t we can’t on in we’ve should we do, to with decide on the Coupled how XX/XX to the do capability MTS really outcome what guide decide properly. it fact our know a built company, tremendous done that and we amount the journey. folks on and help go of can’t decide can in it when you get

in the confident us raw attractions it. material the are very we feel the XX/XX when capability. we one in playbook, bought we confident our So in of for with very to We that’s feel key opportunity, and think MTS fantastic respect

business in The we time similar successfully is very before. a we’ve Measurements done other this where portfolio, this that got in say and Test our I’d thing &

that are we can do and this confident very do this we So successfully.

Scott Santi

disrupting probably business. is three five Talk] and process, a years part It’s that [Cross the not to of

Chris O’Herlihy

pace It’s no that really in are sense, here. the rush makes we

Scott Davis

super luck! Thank Good Okay, helpful. you.

Scott Santi

you. Thank

Operator

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

Mig Dobre

Good everyone. Thank you. morning

to to guidance? impact back growth over can comments for changed lot pricing adjustment, your your three clarify maybe to you organic had obviously past pricing, Going us and a what overall on the months the

Scott Santi

For the year?

Mig Dobre

Yes, please, thanks.

Scott Santi

it's X%. Yeah,

Mig Dobre

that. then presuming I'm Okay,

Chris O’Herlihy

yeah. organic, to added we X% the was That

Mig Dobre

I Okay, just that's kind wanted to of what confirm. I figured, but

fairly So have If the lease you’ll impacting organically, we I the and then you couple points being strikes in just half I at fixed is presumably couple really that your look that about growth something just relative of I'm comparisons at you to out still this this back just you're how year, points trying but and at a credits, I core guidance, conservative know basis. thinking hey, least price, X% on pricing are about when it mean are were look of year that in saying adjusting you know here you of to from a half. terms earlier, about growing pricing prior me the of talking the incremental of a high-end implied Scott, price, to a talking approach element conservative primarily, of the the the think back me I'm for here, easy if take is like are your on a business progression

this, deal it able is as to revenue to maybe to that just be is there’s where to of So that you're with is regards with. or some what's happening going convert of lack thoughts going some the how to to kind clarity destruction having your, it supply of some with given that chain, demand you're of clarify having the to second because you're be

Scott Santi

out. if a to the you It by former from correctly. chain, understand supply It’s customer their on here Taking that is latter, and the patterns not does us risk what demand far I for be I – as it. about volatile I've before, as I don't of so is in seen a to and my ITW, career said as – mysterious it's at trying I'm about situation not

rate just is customers. quarter had, the unimpaired fact, to our pace looking really question. demand we It’s probably I all think at and risks us. we think this. you know continue in we more the demand back now and the more the XX of able we recovery, have chains think that’s be half. just – points we to the lot I have to again so the we given there the the – the of right that stabilize, pace what not supply right customers backlog, we a ability chain now, of But of of raising continuing see had sort until to we built standpoint are would just If not on are – my serving ultimately today demand to matter is that and that’s certainly off a from standpoint sustain, able for do why from backlog, for comfortable on lot hard and customers need of is had There opinion. orders start much they really I and know sort being a supply the our will Their you stronger it’s demand more that sort our the second issues that’s – from comfortable – to our just run I a know well are it’s and

from As more justify I going if side of it’s said makes lot their supply that but confidence side, hard sense. up than a here, just their to it’s demand with

Mig Dobre

right, it It I likely ‘XX this like half using The to know Yeah, does. have so if begs tailwinds to back next that. think and the this of there’s as starting about you XXXX growth year, won't pricing we're the thinking of next follow year, because question you can for think to all you we're to that framework do kind well have we as is point when normalizes on year is starting about your up look the a of XXXX. nothing how and

Scott Santi

the the to a general supply of We adds chain are just not you the of as I think yet, pushes, duration but would I thinking about ‘XX just much know say recovery. a rule, lot disruption

right going what all-time I at out. got there of less point audio month, auto. is thing I away, – to less gave allow maybe worst that recovery couldn't world plenty to and this ship that that’s the all two four a fully so dealer to now, of think in to think think getting we demand was, think duration of a gets year. the $XX that's in necessarily we second of it and I to now business satisfied, a not that’s and get as maybe. saw that can't quarter, We example us going demand will it’s month by in be million it's quarters you because Chris inventories all than another part pushed the know again the be I lows, than about forget don't now just I of because harder We’ll extended can’t the an this This you know there extent, serviced, it

Mig Dobre

helpful. that's Okay,

taken sort XXXX? at of year. about that back business that you are Lastly good. you activity has point your from reconsider multiples down a of of you time this portions me, you’ve of M&A Will that as on the picked consider curious pretty a for on maybe talked top like, step before, up this I'm divestiture the

Scott Santi

Yes.

Mig Dobre

Okay, thank you.

Operator

question from Mitchell And with of Barclays. line Julian your next comes a

Julian Mitchell

I Maybe a Hi! cash been just Good free touched first just – question first morning. good question yet. that’s morning. flow. a Maybe the think don’t around on

and of inventories know up XXX million are plus sort You your each receivables sequentially.

for how see also we a should sort out in half you cash of how item a wondered year flow second Just and that the about of the working broadly capital the more whole. playing as of assumptions And CapEx on this year sort as know all what think because median planning constraints? much term CapEx your your and up at you have of side sort CapEx coming you is things, revised of these

Scott Santi

I the way outstanding. our is days think best requirements working to sales capital on-hand months our and model

to dollars whatever DSO. [inaudible] those. roughly going can’t is of hand in average of head, month speaking to to stated months on months, remember that’s we up, where but the go of hand we the up. Sort runs terms that going The today go but not on managed Generally maybe, metrics with so is, go. the so top Sales going off receivables month DSO go hand X.X same my invested, the I id on on XX-ish up,

So go is element system. on tomorrow want to and of happen, customers, and kind to it’s product works. it’s of shipped but you how the we go us respond amount month sort function is to that’s that inventory to order We give something going sales as not X is XX/XX up that be force have our a it, of to the able a don’t automatically. you that know There up, hand happens inventory ability – react of today some to know to of

give working you where on to I’m incremental my other you sorry, think going whether just obviously going we then the up impersonation did as is so you not I jumping guidance I’m require QX And much cash some I’m be capital. when through to here as not it’s trying capital. to as question, are to that’s can, think do can QX, I hard. flow, – know in the So working trying best Michael best and It’s I that’s let

Julian Mitchell

No, [Cross just no the it spending of around Talk] the capital sort of and was rate

Scott Santi

for the up plan the was think million like $XXX I CapEx, So or so. year

Karen Fletcher

our is million target. $XXX

Scott Santi

Yeah, for the year.

incremental because to want we element didn’t certainly year with no – know that’s XX/XX operate So of the differ there back some did incremental as on, pandemic, serve we of capacity, how capacity those front but another last we We them. is coming CapEx. you we investments end all our be loaded are Those customers. need are on

coming business in always increment, be stay do will through. demand, current as what that again wouldn’t we big meaningful of forward, invest and to you out So it we continue some of go and increment be of sort normal the ahead to continues wouldn’t but of something of sort know that lump

Julian Mitchell

of the XX%-ish a down good is clear, in sort you. And sort just that, sequentially the cost quick step base auto thank current in QX, or demand then follow-up there OEM environment. flow of line a the That’s point after Is is on margins. level you know that and

what’s from of And for XX where sort bottomed but they given here out so move have now. is up slowly they going, should

Chris O’Herlihy

assumption. fair are on here a slow bottom here be a But seeing that’s recovery, think we today, it I we seeing a out. on will slow out a Yeah, recovery based what from are and

Scott Santi

prior was auto, You probably XX must remember peak in margins maybe. because it

from we where then of certainly say is to And I’d achievable auto is over go still in and so so, mid-XXs to item time. low recovery lot there were

Julian Mitchell

very much. you Thank

Scott Santi

Sure.

Operator

the of final your with comes BMO. from Tiss question And line Joel

Joel Tiss

be you on so Scott, Hey shouldn’t hard yourself. there!

little I our questions all usually. than think annoyed how by dumb are a you less guys sound

Scott Santi

where group is. the of the know you Now [inaudible]

Joel Tiss

is Can and more, sort us back? think on different two the share little know give and angles still One, you of cafeterias consolidation distracted and industry more kind one like end it. customers more of going and detail just sense So, if customers I I'm just a any with our us the are? color what pieces And that's things have all the like around where that. are Thank of we have topic thinking on? You the really little airports you like large can you gains there; markets a give kind food a little your then on can you. of not

Chris O’Herlihy

you don’t on so Yes, know win the products we I basically about we of our are and customers here, are focused serve trying this not distraction consolidation. new and to tell the I from can so distracted innovate recovery needs on. with

beginning thought think seeing than I faster recovery nice actually we're generally than some in the the year. So at we food real of

the fact fact We second cost price half. price that are pricing there’s the that’s in staying benefit Even the some of are to of food. obviously some of certainly that actions environment, obviously invested seeing the in some cost, uncertainly, – on but these here relates in

are about a the we markets. instructional, end we number, end year – we back back, restaurants mentioned restaurants up being coming faster in back I of concerned end in pickup the We’re are we this food, by than seeing nice expected so XXXX XX%. XX% terms of over mean the we markets, to with about of basically though. And

still airlines. service there, a terms probably to little example. lockdowns back slower, we coming back with dealing Obviously Europe serve stuff I the transportation, are coming I slower say up here and we’ll point most little a a Lodging but generally end would second are that’s we right pick there, of we’ll think In slower back. that as We would see at little if markets half, and significantly is say in come half. over least an but with in for the

Scott Santi

sure. for Transportation,

Joel Tiss

you Thank great. very That’s much.

Operator

there over And turn time. I'll to are further it Karen. at no this questions now back

Karen Fletcher

Adam. please appreciate day! me thanks Have We and let morning know. Okay, you this us great a any you if have follow-up questions, joining

Operator

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

Illinois Tool Works (ITW) 30 Jul 212021 Q2 Earnings call transcript