- Earnings call transcript Q3 2022

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Operator

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the ITW Third Quarter Earnings Conference Call. [Operator Instructions] Thank you. Karen Fletcher, Vice President of Investor Relations, you may begin your conference.

Karen Fletcher

Okay. Rob. you, Thank welcome and third XXXX quarter Good to call. conference morning ITW’s and by CFO, Santi joined am CEO, Michael our and I President Chairman Scott Vice and Larsen. Senior

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

Scott Santi

good and what were dynamic challenging QX morning, In Karen Thanks, very performance. we with our operating pleased remains and environment, a everyone.

On base the delivered top with revenue businesses. from growth line, XX% organic growth we our XX%

margins, and growth, actions pricing see equipment, and XX% base the auto five input margin did automotive businesses. we quarters segments our for of were inventory and drove first food With to businesses cost QX of in time in to operating in return level initiatives, appliance pace we reduction to XXX softening in in construction, point glad up in serving seven the five actions volume While the of inflation up margin organic our basis aftermarket, as our improvement and the growth, moderation a of incremental channel double-digit normal in plus XX% XX% some welding impact delivered margins see commercial some our markets, by OEM, our regard incremental led XX%. enterprise

time margin of nice stabilizes this it step XXX inflation, in inflationary first have direction QX. fully of basis rapid we We due the a points which was to period over during environment to roughly in see solid lost once recover current price/cost good to certainly that and expect

line, EPS up performance QX that and margin XX% bottom of last the includes negative currency. strong $X.XX, year GAAP of XX% impact in resulted On growth versus $X.XX of from growth and

were Excluding up XX%. currency, share per earnings

Looking current our fueling the organic of out invested it at execution during our that coming growth strong long-term decision we strategy to financial strategy quality our currently performance, of the the in are our and our and stay recovery in of team’s people and pandemic delivering. our are performance

outlook turn finish remains strong the economic very is increasingly detail strong a majority now portfolio. more will been quarter positioned has solid of as With to what a well call to across deliver our that, the becoming a guidance. on result, updated uncertain, the over who year. the to demand business is Michael? Michael company While the our I provide will And and

Michael Larsen

growth organic everyone. and $X strong contributed to good MTS X% In morning revenue. XX% QX, grew billion, XX%. of Thank to you, revenue with The Scott acquisition

an was translation GAAP a quarter. to year-over-year from foreign headwind of X% a currency Foreign was despite currency And headwind X% $X.XX headwind EPS last EPS $X.XX, of compared translation, XX%. increase

rates. return which incremental to margin Scott our Excluding as in normal base historical said, a was MTS, margin was XX%, incremental business our welcome

was performance, of record. operating $XXX XX.X%, strong Operating result enterprise margin a of of an basis basis XXX points margin leverage to was and increased As operating all-time points revenue with XX% which our almost million, initiatives. and income quarterly XXX

supply our of we to double-digit and committed key customers. conversion QX working rate basis acquisition, growth, at operating was QX the to to from is points an in versus $XXX mitigate service of impact our expanded as Free margin margin lower XX% of support risk XX.X%. solid XX% capital increase organic points typical year-over-year. million, investments cash term XX% than basis XX to intentional MTS The XXX Excluding the chain remain flow and near sustain performance levels

up Finally, Europe, share and growth the the XX% QX major tax repurchases We geographies, by North million X our OEM year. accretive and Electronics, represents up in dilutive equipment, automotive QX in that, our to XX%, led were OEM XX%. turn XX & by to in by prior up and effective by Measurement with organic XX% grew basis up food to Test growth led points sales, of Slide up China all automotive across mid-teens XX%, which income versus margin. was and by geography. led about $XXX in XX% XX%. America was was rate XX% and slightly XX%. With starting XX% let’s grew delivered and Price/cost

before, expect increases throughout should business have price job XX said teams around done offset to over pace QX. we margin cost inflation price/cost raw our in accretive cycle significant most to years. to material to to As be the in accretive slightly have continue we inflationary and of adjusting of an the And moderate, the world exceptional cost income

quarters of Scott dilution has price/cost, which eight succeeding the to As expect stabilize. inflationary after fully throughout mentioned, company cycle, basis of this input X-year absorbed impact as as unprecedented points we much margin prices to XXX six the recover from

up QX. these low a year segments. the When at to North chip from lockdown auto the mind OEM recovery in looking was the included growth led up with delivered shortage for are production. against which last point rates, sequential year-over-year up comparisons keep Europe when Moving in impact and that XX%, America QX to strong organic growth the some on XX%. XX%, XX% China Automotive of the

next expect good also X%, the to of not overall mid-XXs. OEM compared situation by to the And we year. extended the more conservative a enterprise we typical remains do of long-term a automotive which all the to approach to road, have time. And our through remain progress that assumes get segment outgrowth meaningful be to to around very organic take on market Consistent that continue to out, until year, before, supply per contributor improvement percentage levels points. X the target automotive vehicle with OEM in said margin issues meaningful the automotive continue X% chip to as resolved make as down our our well production guidance, growth returns shortage balance production And expect evidenced an in builds historical the as our line that eventually We the we year-to-date guidance positioned growth essentially this rate to impacting with of organic in X auto low of of content rate confident that for growth of as we chain we is rates plays current year. segment its automotive a period operating our

Electronics XX% grew Turning plus end growth category XX% Restaurants in growth up with North grew was most notably Growth CapEx to XX% were broad-based with several as spending the in up Slide of XX% retail revenue market. organic X%. as grew Europe and and America was categories, Electronics and and strength continued was was with around strong Test evidenced delivered strength revenue International of double-digit every growth Instron with XX%. in the by grew and X. of Measurement mid-teens. XX% as up growth organic organic XX% across lodging. XX% Test XX%, business. up Growth Food Equipment semiconductor & major growth & markets and in with Measurement institutional XX% Pacific Asia XX% in

welding was channel. in up Industrial and the standout individual was Moving with growth destocking on consumables which up business, the organic smaller organically, to users, XX%. of The and to due equipment to demand Slide the X, businesses XX% down welding XX% of sells XX%. grew lower side XX% with inventory and commercial

applications. in to improved X% the organically, Polymers XX% industrial points XX.X%, basis the oil the Polymers customers grew Fluids still America were was strength Welding grew with for gas new XX%. continued the up in due Sales on industrial quarter. However, margin Operating & a strength up to record North and segment. side, on XXX international which to and XX% grew XX%

up of line elimination prices Zealand of easy the was international against and Fluids up essentially due simplification our impact guidance. consumer aftermarket higher the international The impacted end up North demand gas was of America the X%, spend activities to Softening X% continue slowing we was X%. XX%. updated as of towards on line of product strength and automotive up XX% which reflected overall X%. Europe to grew commercial with growth and did XX%. XX% slowing, flat was and comparison. one business, of construction organic was Specialty was growth which which in see some grew that continued an signs packaging was discretionary X% down QX, in U.S. have up resulted Construction consumer in we said, businesses. North America, residential the quarter with delivered and up That is our product a in New the Australia side we expect in XX%.

segment have basis, our X%. X% geographic the down we reflected On grew North slowed, would guidance. in Demand PLS, in was components have up division which our been appliance Excluding and a X%. updated America international

our line, year on of with QX revenue. to to markets X% remains construction, Looking at the in reduce total growth about X%, current across aftermarket, XX% revenue to company X% anticipating that growth and expected businesses. we and for by will organic automotive strength update also total raising combined translation commercial most and our add The on of which projecting rates, the revenue for due XX% global starting we our to But in the the guidance currency welding an residential talked year resulting including of acquisition further year revenue to exchange XX%. top MTS is represent to strong full organic the X and end up performance Slide components, XX% levels demand, current we are about, slowing of are appliance

a XX%. are finish very a of growth EPS gain we QX, & growth and a plan Fluids the of consistent to divest we certain XX% estimated units, our well organic QX $X.XX per strong share. the of segment, business to GAAP previously about deliver with division approximately completed and within positioned after-tax strong of year with an to with In announced For sale Polymers

to for headwind to go QX quarter per we our rates, which And year versus usual guidance. gain additional exchange have year results in have currency with foreign full this our updated We our in range reflect our and included guidance. guidance prior narrowed updated current foreign one the the process,

on a as gain the is and rates, GAAP range our guidance updated $X.XX year of EPS result current updating So to guidance $X.XX. with including sale exchange full foreign

price/cost from XXX points basis basis contribution which XXX about initiatives, We from basis approximately the margin basis of from projecting about leverage negative acquisition margin points points of contribution impact estimated dilution of includes approximately year, the for XX% volume operating MTS. and XXX are full from enterprise and XX of points margin

We finally, as growth, expect free be to mitigate is of cash expected now versus plus which, service supply talked to rate customer near-term $X.XX conversion flow our intentional company’s we conversion have revenue investments XX%, million an full billion support double-digit risk levels. due share $XXX year, repurchases working that capital increase are the typical approximately and the prior of the chain sustained XXX% guidance. below And for about,

We well Looking forward, that the proven portfolio ITW’s derive business deliver challenging from as business conditions obviously and we not top-tier of But and performance company advantages in to execute depth the strategy, back macro our last this uncertainties very results over turn competitive model, proprietary level to conditions pandemic high-quality to whatever you. we team’s environment, ahead. will With challenges of prepared the high confident in in ability and that powerful at and of beyond. lie characterized differentiated in Karen, execution combination years. at emerge in that, the the XXXX to remain continue to may are very the consistently outperform the X have a that we I our have our ahead positioned the any economic through enterprise dynamic and our recovery to it the reflected immune

Karen Fletcher

lines the up open questions. Question-and-Answer let’s Session Rob for Michael. Thanks, Okay.

Operator

first Your from of Davis comes Instructions] Melius Research. the [Operator Scott question from line

is Your line open.

Scott Davis

Good and morning, Michael Scott and Karen.

Scott Santi

morning. Good

Scott Davis

I price/cost, on positive am are – through in not right? just thinking with good be that think territory your that but you am on in this it going that guidance very implies to on full actually year QX. price/cost reading at I meaningful Is I math, the

Michael Larsen

That is correct.

will as basis where that expecting known basis in going it on so realize So we are decreases we’re increases stays be margin to and – first in inflation EPS based and price/cost on a and while, and the an if on we on well. fourth based that time expect accretive that accretive also, the the is, quarter, a the price for

Scott Davis

it going we’re how guys walking you That’s mean, recession, do – – for planning helpful. and construction limit restructuring. into just seems like model mean, can you the you you’re business I ahead I do how you But how that you so to the do a do of how Okay. that, XX/XX it? you of that go It’s super given not a that bunch – And do impact you plan but get like are have? of

Scott Santi

we’ve talked before, we have elements are fundamental we Well, that a of but that flexible very about one cost XX/XX this the – is of structure.

necessarily control metal. quality-controlled don’t control do to upstream. to the the – lot all upstream elements don’t of are We to have from want standpoint of to matter of we the manufacturing have do a We really But all outsourcing delivery. We we So work. we that want bend assemble. the necessarily

that what us so we flexible structure. us fact, prefer and gets that not in cost a is ultimately And what relatively fundamentally, to, gives

we and So company. are a read react

about are before. businesses that forecasting. is lot We right a whatever don’t respond We’ve of of talked going that Our to in forward sits the demand front them. do to

our today adjustments in demand bought those place what And as We like then decline rates construction, take to time. are real yesterday. customers producing will start places

Scott Davis

guys. helpful Okay, Thank reminder. I you, it. Good a luck. that’s appreciate

Scott Santi

Thank you.

Operator

from comes the question next of Your JPMorgan. from Tami line Zakaria

Your line is open.

Tami Zakaria

are How morning. good Hi, you?

Scott Santi

morning. Good. Good

Tami Zakaria

So I two ones. quick have

are you’re slowdown? you anticipating comment implied above The Meaning about end further that hence, you and growth, quarter anticipating to first slowdown XX%? for which run-rating fourth can organic guiding one you’re markets is, currently XX% the on this but you’re

Michael Larsen

correct. that’s Yes,

not with end our has So the this been some This markets we talked is typical rate. in run adjusted about. further anticipated that slowing

Tami Zakaria

able to is? you Are current what like rate share the run

Michael Larsen

than It the XX%. is higher

Tami Zakaria

it, it. got Got

you earlier versus this third second comment the quarter? what’s the helpful. the year, can you the saw the I volume time quarter? you think guidance pickup. organic price in volume Okay, some for mentioned And Because that you raised Like Did that’s expectation last versus one, that saw you then the had in on growth volume sustain? fourth price

Michael Larsen

Yes.

you’re you in know, separately. tell growth So think the saw report we we what can and as meaningful Food is like don’t that in I including you meaningful seeing, – Test But to & particularly we not we out company, across strength you price going volume QX, volume that Tami, Auto, are if Equipment, look volume. put the from at numbers Measurement, a contribution in without

Tami Zakaria

these Got well? of as to it. And in end you quarter expect volume markets sort fourth sustain in most of the

Michael Larsen

Yes.

is offset we’re very I company. businesses think strength seeing of in the XX% slowing reason. this talked I there that’s about of about the more Obviously, some the just dynamic but the lot a that than of that environment at a is

positioned looking you digit. for So said, here really we’re well I And think a if guidance, we’re QX. double growth, implied finish we like at at strong in the organic look

basis XXX XX%, excluding GAAP that gain XX% we earlier. of divestiture the talked improvement than EPS We’re margin more about looking points, of at growth

finish been year the a strong what’s for strong to company. really a very So

Tami Zakaria

so Okay, you perfect. much. Thank

Michael Larsen

Sure.

Operator

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

Your line is open.

Andy Kaplowitz

Good morning, everyone.

Scott Santi

Hi, Andy.

Andy Kaplowitz

for focusing last XX%, about just construction you some Europe like bit American It quarter, there. North maybe a weakening. those weakness second, mentioned are Australia. Scott, potential talked up hanging of residential incremental in Obviously, little in on you seems and a

you ITW forward? for in us strong that slowing you give just that these color slowing I some have this businesses share the gains of is mentioned to up within construction? rate quarter. So late the know going more Maybe held saw

Michael Larsen

our side side, on is here Well, residential on is primarily business. quarter. slowdown our last seen about on XX% we international softening what And I a the talked call think of we’ve which about the

X%. see we And so Europe did down

Zealand UK, down. those I think start growth some Continental this difficult, point, what little here. would New expect. Europe is Australia that’s the pretty rates given get also the as come you to see at And going that’s probably comps more slowing to broad-based, of a you’re challenges, and

order I the starting to come starting obviously, on there rates And the see really bit residential still side, then of, fair quarter, in think the strength so… in business. in a we’re North to the down America, late is

Scott Santi

add Yes, the among I only that would I we markets serve. it rate-sensitive the that end is think thing interest is most

points you’re is rapid very of a things the in value just more to and up design. That’s fact data us, by – rates and the business places so point start and in it to are other trying really bite how a lot certainly just than strong, of position in the outperform pressure places, I’ll for other company profitable some starting some got diversified And portfolio the to seeing rising very remains that environment. that’s any in see we’ve pace that to going we’re interest housing that the plenty it of but the to It’s the market. ultimately we’re housing picking of to is

Andy Kaplowitz

just up, businesses. about across you of the And understand. businesses, in seen backing holding weakness a seeing facing. are any your most type Totally what talked incremental your up? you businesses? generally they consumer consumer Are industrial mean, Obviously, I then the in lot Have XX% those businesses you’re CapEx maybe

Scott Santi

Not yet.

Andy Kaplowitz

guys. Good Thanks, enough.

Operator

Goldman line next Sachs. Your Ritchie of from comes Joe the question from

is line open. Your

Joe Ritchie

Thanks. Good morning, everyone.

Scott Santi

morning. Good

Joe Ritchie

So MTS come margins to back. see the nice ex incremental

going to these you expect that inflation making positive, we’re comments price/cost to levels kind around and turning and the inflation, given holds to forward? peak margins of you’re type Just the same if closer at achieve of continue would incremental

Michael Larsen

margins range, the recovery higher reasonable that will price/cost be talked I about. a normal given our than think we on incremental little to it’s just bit assume that our

reasonable moderate, to then assuming they inflation or that things an would side Joe, from that that where a continue be again, expectation. are So stay

Joe Ritchie

maybe Michael, as in out of we rising potential obviously, and costs is already winter I the Europe, recession can have business you and how kind then color Great. on tell region. us business? you some you your your impacts anything guys else know of mentioned, around head specifically concern And of that but there the just okay. into there then a perspective, a that in that cost given Okay, that region from trend, lot energy XX% that about

Michael Larsen

Well, is Europe, if a think mean, certainly a look macro little more to I the you concerned reason picture. I about bit there be at just

is fact really level the high at a businesses think are I performing now. right our

to commentary and at XX%, only double-digit and so X%. of a if back in bit six not Europe And five just down go all so between just segments had specifically. seven and QX, And X% growing of little look you I’ll growth segments Auto. We the it’s construction on was

If you take Auto, grew XX%. out Europe still

more And bit if the maybe here parts with, I moderate more fourth the we we just in ahead. have strength I company a Europe, that’s up, of deal think Scott as maybe expect those deal softness rest with we other that’s have company, little rates kind of well But whatever how quarter. Europe we’re in in set really a the of to to world, in and obviously, the growth the positioned think like said. little is

will read react. and we So

is with to of that We will basis. will whatever us, ahead a deal continue relative but we’re we on outperform confident

Joe Ritchie

you. Thank great. Okay,

Operator

Your the of question Credit Cook next from line Jamie Suisse. comes from

open. line Your is

Jamie Cook

first a quarter. guess margin line, the a question, nice Hi, you construction. quarter. bit Congrats was I little in good on the were surprised know the in the that morning. seeing I you on top my trends addressed on I

would helpful. So I’ll... then be if provide color that, And first could you around that little a

Michael Larsen

company. Yes, Jamie, of more construction the the some in other parts in than price/cost headwind all so bit of a here it’s little

margin this shabby in that And so at XX.X% construction operating also I say too point. not is will

right. but down – price/cost you’re So the year, we’re due to still, to prior Relative dynamic.

Jamie Cook

of price how is market you provide upside. the we’re growth, but I forward? success in you as you’re the share and terms about know market gaining know answer you answer surprised want of to think you. then share in going want this the seeing thinking versus terms organic volume, seeing sustainable which of to can in is segments any And you’re there didn’t most don’t I which terms Okay. you Thank on update what on

Michael Larsen

customers. of market one-time gains terms kind portfolio Well, I was market think not across so we’re one, share strategic long-term opportunistic of that confident are only kind we from share the orders and of the – beginning in from the new the gaining and the guidance

better so pretty So serving companies we level, mean, focused best than positioning, areas. just them, XX I organic win else. are result of – enterprise hard our we’ve that as at to it’s growth point our the compare market relative overall that you that really because at quarter, recovery in as we to specific XX and customers, And on we hard the of our I the gaining other doing anybody of probably call look our XX% to But to customers it’s share. will have if divisions industrial third think well. a

Jamie Cook

thank you. Okay,

Operator

next comes of the Joe line from from Your Fargo. O’Dea Wells question

Your line is open.

Joe O’Dea

Hi, good morning.

Scott Santi

Good morning.

Joe O’Dea

and timing about talk sort of situation each the more through the in the raw waiting sourced sort anticipate with P&L? you Can then flow to those of a terms you favorable of components what start And maybe of of materials within in COGS? seeing

Michael Larsen

Yes.

understand we’re running I at X hand. if currently so months So about question, your on

levels And we going supply return in on on We’re difficult normal inventory. at that a starting and X that supply begin to chain see terms hand. of typically hand to is that to to happens months When as but signs X predict, normalize is to running see some here we’re are conditions in months exactly improving.

some will working us capital at rate about assume as is typical to and But going So It’s time get benefit I back once of over plays conditions that I we’ve to quarter. up back that from to to quarters level When again. built point, that to to great get our historical take release. on it’s customers, our And we’re a put said, it our take to in exactly for and, are all just levels not supply this chain out they come this like time one take say. is to out position period in difficult it’s like conversion we confident going think X above it years. to we added significant be mean, of going market below inventory, months obviously, It’s us eight really to X back that normalize, right risk hand. share. six mitigate serve reasonable we’ve the

Scott Santi

I cost goods, – of terms our what of those in of more think just percentage are costs. question was I the material think

Michael Larsen

Correct.

Joe O’Dea

Just kind yes. of –

So raw all this, was related will mats just that right, helpful. flow guess with And perfectly… I coming mats to through raw

Scott Santi

Okay.

I think…

Joe O’Dea

down do will I think you as that think or components you you on that get source, cost that’s dynamic? a trickier

Scott Santi

a go is factors your lot last there part Well, of that question. into of the

simple is the percentage that I of material think the let’s cost But cost structure on overall roughly X labor, as going the COGS versus as just your elements to the that freight overall XX%, XX% vary. XX%, answer is first if other the material say, helps. of an percentage –

Joe O’Dea

the XQ accurate, then wanted to quarter If I decline divestiture. XX the XQ. from but assume help of be you point revenue, ask sequential bit I there basis should Yes, decremental sequential that’s something I’m one little okay. to more favorable. a a like of And fourth can with lower about sort margin, bridge? on price/cost the getting is excluding then just

of Just items any consider bridge? in that to other kind

Michael Larsen

Yes.

that at primary QX. our you less go – quarter look I The shipping in fourth is it is historically, driver in the highest QX think just and days typically we if we is there quarter. down

really On we And is main QX. in the implied were in QX. here. quarter third in There I XX So piece. the did just that’s obviously, EPS, XX driver lower shipping the so foreign there slightly year, this than think the are what is days delta and exchange there

Joe O’Dea

Got it. Thank you.

Operator

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

Your line is open.

Steven Fisher

morning. Good Thanks.

in of piece. residential on But expected piece. the comments clarify the follow-up the slowing Just the any didn’t U.S. to on slow you wanted Is too? side I hear on to things, construction mentioned QX that commercial

Michael Larsen

is Well, indicator. usually, kind leading the residential of

So, yet. seen just haven’t we it

Scott Santi

commercial? the On

Michael Larsen

Yes.

Steven Fisher

Okay.

put businesses? through So, have I place look related that and maybe that how that, something would a to programs kind kind stimulus various analysis of guess any might to more assess up in at end that like have done you been flowing be the XXXX. to your of

Michael Larsen

haven’t we No, really.

in If front think great not read to any us well for do, over. really of in us, anyway. company. a case. you short-cycle It trying others are but But has a idea, not and our work the send going government react We for been them have what to what’s I predict is winning we equation and may

Steven Fisher

last one are And out on quarter the actually the or margins there the the direction other? that guess maybe stand in QX. Okay. I about one particular that margin question kind in fourth just any improving anticipate of clarification any or segments you

Michael Larsen

a think like organic except rates lot the the down. quarter, looks quarter fourth the I third growth coming are

And so pretty from quarter. third it’s a close to margin the standpoint,

Steven Fisher

Okay. much. very Thank you

Operator

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

Your line is open.

Stephen Volkmann

guys. Good Hey. morning

of bit declining it transportation, any seeing you energy. dead inputs of from a various in is costs of lot Sorry, maybe because I declining this right feels input actually even beating like there commodities make Are here. horse prices a a But to just wanted to sure yet? your I get

Michael Larsen

and a here see I meaningful decline in are. we QX, we in mean same thing the we saw Yes, expect from to QX. QX

Stephen Volkmann

just makes you can on sense. we just it should us curious, Okay. Is divestitures? there of here? be expecting you where more various are is whenever kind with Are you back you. kind then happens? of it And the Thank update up – or ramping That that

Michael Larsen

portfolio delivering. the the of changed and we raw views remainder to that is material our we time move the here that have with those. the order is one in a And results to to to more think in I terms now But need deliver continue whether in haven’t then are the there of type good think forward maybe we and assess potentially near-term. I will

had then kind handful a about one. Year. have just the we we divestiture. so And New reassess We and businesses in completed Maybe balance, the of to go one flagged more we for that potential of will

Stephen Volkmann

Got it. Thank you.

Operator

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

Your line is open.

Julian Mitchell

very and outlook. just Maybe the flow was good again of morning. much I Thanks into and sort around one inventories cash dial element wanted to

very your now standards. which around, I conversion high think the XX% So, is this below year, somewhere only obviously

that I as the think back flow Michael, conversion pace when you up. were of comes to guarded quite cash

pace So, within you at maybe the capital and the spending thinking about understand how you inventories us cash customer see help own inventory level, your liquidation are the how of flow.

Scott Santi

backing Yes. the seen on and I we regard will comfortable maybe that we can yet stability supply is start first that that us chain the enough haven’t inventory, with on side start to to make part off.

first our our customers. priority our serve preserve ability is So, to to

And the inventories are we are. the still in at keeping of so they point, where this mode

there, will move. things we and see in to mode reduce But we are inventories. of of become in to – let’s of – start right certainly we mood as As start consistent now, then the more, we starting not it, making call the reliable have a

Michael Larsen

obviously. Yes,

or know market from and working So, we normal we back which to levels. capital, it’s not are we gains. is committed of, to about, a not in growth intentional to going capital are share support near-term, matter That to sure absolutely down when. coming don’t are of just Scott what significant double-digit talked whether working the we inventory including benefit And

a you – free might how cash if you from changes. update that when think let we and And know what it we then will we standpoint. So, will play the flow out exactly

Scott Santi

CapEx. a there And is on question

Michael Larsen

and every I funded good I mean of always continue. going that’s I CapEx, inside think company, Well, pandemic, the the including have during project think we to

model, fortunate earlier. described asset-light really not – business, are business we are capital-intensive We that a Scott not pretty a as are we

CapEx flow. suck doesn’t significant less And of up a of our than so X% cash amount total at sales, maybe

many very are the invest we have we years, with in as including business continuing comfortable to pandemic. throughout the done for So,

Julian Mitchell

lot obviously putting that Measurement growth is you outlook in within customers growth. organic just would are you. demand & different particular and my electronics follow-up And be Electronics. of on on QX. in division, good There Thank then a but Very noise the mid-teens in at there up Test still

So, – consumer help sort again, customers think of lot terms a of at growth maybe rate? strong electronics, managing And us are this of on some in devices, what’s grow exposures that in the you to understand equipment do in semiconductor is sustainable, piece. going of you how given semi

Michael Larsen

Well, yes.

the So, think sustainable. we that is growth

down. suggest to slowing have that not it’s We anything seen

the our all think the double-digit side semi are are from I are We business, Instron you with, side familiar the with of CapEx growth seeing But big beneficiary on things. obviously we which also a on growth.

different. everybody’s I is business, bit a – the think little electronics On

think pressure-sensitive showing we growth. up contamination the I including solid look are international XX%, I really up assembly, at just businesses still the double-digit America electronic control, North there, adhesives, when in XX%.

So, there chain on job and issues, I staying gaining great of is those a supply team some is share. think still but doing the top

Measurement feel good for the Electronics we so and the Test And outlook very & business. about

Julian Mitchell

you. Thank Great.

Operator

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

is line Your open.

Mig Dobre

just we like wanted Michael, kind soundly thinking it make I midpoint year, of Yes. I said a Good bridge quarter, you. then guidance, down from implied we the back the go morning be had relative be about to quarter seems to you point curious, I this And correct. little a fourth sequentially Can as am implies? are sure you ‘XX, year we price/cost. what in Thank going as relative This to was XXX to mean are positive. more to the The hit QX. year-over-year last to have fourth be everyone. going to it specific basis

terms am sort your on the incremental curious we are also flowing think that whatever through. in how then So, bridge internal going of of initiatives and I that, is volume and about

Michael Larsen

I know, you I say don’t Mig, I can that Yes. already. tell something didn’t

goes basis year-over-year more margin guidance organic slightly another to said. XXX standpoint as basis. improved points margins have a initiatives. range, implied, little Operating incrementals on as a negative points of than our bit I positive I and from income, think of Price/cost kind also that. and growth said, if fourth XXX would full basis accretive year positive the we our to in a enterprise quarter expect higher solid XX%, you from normal maybe about from take than We

top So, are kind different not rates – those view are on is fourth on of bit quarter. a high-level our years. again, we than run have which prior we the line, adjusted And the the little in

lot for account just softness of a to the talked & that Measurement, incorporate in and are seeing conservative, Welding. XX% hopefully, of Equipment, the some we the about, businesses Test about we of company, Auto, in are also but wanting Food We including strength a be little

– quarter. And elements the of are fourth the kind so key of that’s those maybe

Mig Dobre

am your ask have looks of am raised not that. kind your also And appreciate you I I I guidance looking it, I good as at revenue No, very math. by, me, $XXX because like to it call at million. here,

margin your have more to neutral or less basis. down that’s EPS yet by income reduced operating came Net-net, bps. a You XX operating income, $X.XX on core

to that appreciation the am that’s line here for. is there on we trying full have don’t something I So, below understand going if

Michael Larsen

like always The foreign taking is this number EPS we incremental current said I headwind are Mig. down foreign I think reason rates why exchange we the do. incorporating by currency earlier,

what’s EPS So, adjustment. the for accounting that’s

Mig Dobre

you. Alright. Well, it leave there. will Thank I

Operator

And your the ISI. final Raso David question of from comes from line Evercore

is line Your open.

David Raso

you. Thank Hi.

are I capital Are close even capital yet your about of at earlier seeing would to than is budgets for you solid slowdown. spending better are we a their think where ‘XX mentioned very that not type growth, also some you conversations must getting much with visibility You time? are planning. quarter businesses had you give or ‘XX those a have assume a customers though enough that getting a supportive comment, you very XX-day businesses capital-intensive

Scott Santi

lot even ahead. ‘XX, which Go one. delivery in – we two, planning just times, in it’s David, traditional terms in to cycle CapEx number going short, relatively little our given Yes. a us the would visibility Number get forward sort say, and don’t of we I for don’t I our of say, of businesses. lead was early a are

going of terms is that’s In MO operating So, has what our to move year, going that to forecast flexibility sort outlook to say are how we to not in pessimistic, the anybody certainly in core produce getting regardless we a around. the that’s to orders of on going be going we their of number for on our and bite what sort optimistic that. – systems are have of based are we do today, on or to what our

don’t of one I lot way lot have a point. customers, input in of this and don’t – we forward, terms businesses to our have back the a we our don’t coming of other view at So, strong or points of

David Raso

And that. and M&A an Can repo? on obviously gain the I nice further versus us a update appreciate give obviously, up just you follow-up on at quick the environment, are divestitures share bumped the how you M&A I a have looking there. divestiture,

Michael Larsen

Yes.

more little high performing So, determine through. divestiture pre-enterprise spend level, a we kind potential on than I think obviously more then we significantly are year time we have that are And I going all time of to whether now is working three said have They that in there, strategy. one the businesses. we the bit at pipeline are those best sell a better and to are next that

And so timing it’s those just of a divestitures. on matter

On calls. side other we most are of sense pipeline are return generate for the have that of MTS, company, mean like model. a our for can the I has along, means I rate of I think us posture through a to we we organically extent definitely that when changed. is in over the really the aggressively of about valuation the fit on these grow mean sustained find improvement M&A we their come sense then those of talked margin think in. period lean – with opportunistic. to called And makes this, we implementation nothing we going have the can I kind just acquisitions of that they to a which business really we reasonable and did opportunities we X% that can And at time, strategically, good X% significant the

have we I like is when So, the offer. nothing we can we along, do but hard lean just MTS. are there And here those pipeline when in did going near-term lot the don’t in them, with those, come definitely a of in to see what we is

David Raso

That’s you very helpful. Thank much.

Scott Santi

of Alright. Thanks, David. End Q&A

Operator

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

Illinois Tool Works (ITW) 25 Oct 222022 Q3 Earnings call transcript