ITW - Earnings call 4 2023 | Illinois Tool Works Inc.

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Operator

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

Karen Fletcher

Thank you, Eric. Good morning, and welcome to ITW's Fourth Quarter 2023 Conference Call. President CFO, Chris Michael our Vice and by and President Larsen. joined and O’Herlihy; CEO, Senior I'm Also with as us who joined today is [ Investor team Aaron Relations last month Vice our President. Linehan, ] ITW. Aaron, welcome to

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

Christopher O'Herlihy

headwinds including channel a demand and automotive of Thank delivered QX, some we the year finish unique strike. execution to everyone. inventory a pretty reductions challenges, In and Karen, good of CapEx, face and morning, for high-quality you, from industry solid customer in slowing an

high-quality and financial the and at organic the $X.XX operational flow business was cash of strength year to team of to in basis the of result, points. Income and or growth year-over-year to XX.X% devaluation fourth both of model GAAP diversified more including Enterprise margin leverage investing growth of than basis free solid came performance, ITW essentially XX%. productivity and growth XX%, We $X.XX. XX% to deliver a our record margin almost growth an of portfolio businesses. XXX XXXX, these initiatives the and of Initiatives of operating after-tax while strong impact to accelerate growth plus a -- XXXX, resilience delivered currency. Throughout business improvement a cash top contribution of ROIC core of XXXX quarter. the profitable unfavorable and $X.XX As million our Argentine highly X% flat sustained and of and growth in $XXX continued in XXX GAAP EPS grew $X Operating organic flow our billion, the included EPS organic in XX.X% point almost Operating on XX% free X% results from of

enterprise this capabilities. is above customer-backed our par growth, Day, on key of phase at our in financial world-class outlined strength next we and we operational Investor strategy to our XXXX ITW into defining enter fueled As priority our build innovation by strategic as with organic market

$XX.XX at This to basis of midpoint margin XXX points of across along now a XXX for at terms contribution seeing seasonality. Operating adjusted demand XXXX organic our demand points meaningful partner our the XX.X% and improve basis for about portfolio, innovation. to projection midpoint initiatives. customer-back inventory continued to to channel our levels guidance range another approximately and we from on some are we projected are of Turning majority our current encouraged X% our in input of of growth reflect usual in to improvements as with Per well of by progress EPS cost what of inflation process, XXXX XX.X%. solid the as X% by levels guidance, is includes the customer enterprise and both

transition to Michael colleagues and detail guidance dedication into to and provide support our our for to role. quarter their and ITW with excellence thank XXXX, strategy turn world their to full performance I incredible I Michael? customers for more serving the extraordinary on the call year and as around for commitment the the our executing CEO want as well Before over as I my

Michael Larsen

finish and a our morning, solid soft and delivered team you, company. market we a fourth the about good CapEx everyone. to Thank earnings line, the that talked QX, into demand strong financially In for QX Starting call year on the with ITW continued operationally top quarter. Chris, for the the

addition, strike evidenced as growth a inventory into X.X%, reductions finished and QX, year-over-year to plus revenue year X.X% of on from the and and of we to with in rate per said, plus day essentially a slightly basis. That In fed by X.X%. growth compared resulting our customer our stable sales the improving by channel demand sequential growth on revenue organic industry automotive growth reduced approximately organic basis QX sequential historical

currency added a included GAAP divestitures Argentine revenue devaluation the and EPS was to currency. revenue X.X% and $X.XX $X.XX X.X%. reduced the Foreign translation from of impact by

live year than $X.X growth pre-COVID net by cash record was And On offset of operating $X as was price/cost to income see, QX and basis the inventory to line, the of margin Slide year-over-year was billion QX execution of enterprise initiatives of free XXX cash the million, a flow of bottom to revaluations inventory and as year-over-year and levels. benefit, free higher can QX, as up performance our path operating a its head $XXX record count a were flat employee-related expenses of the our Overall, [ environment. Please starting benefits, XX basis of year, a a XXX%. cash performance months and for hand one flow to challenging X, net solid on on left conversion margin points the grew in points $XXX as restructuring as flow ] as and financial to XX% turn full quarter pretty such with our million continued combination fourth with wages more income of costs billion of year-over-year. Free adds, investments, increased page. side you including well metric for highlights record operational a

excluding automotive North of growing organic Europe's over being expenses was rapidly market. Operating work in X% by growth to share margin move OEM, the the Investor which up our points starting and EV America the and despite the higher margin strike. China was due in headwind gains from the segment organic as XXX front-to-back toward down plus way Meanwhile, the led of X% to let's rate the low to driven as XX%, with to continues strong X next was mid-XXs its XX.X%, Now results, Automotive at XX% team with outlined penetration Automotive impact of X market the goal restructuring OEM XX/XX basis to years, Day. growth

grow XXXX X% organic and based growth typical in our above-market bills we X% in Looking OEM Automotive essentially year-over-year, global gains of forward, continued China. to flat plus to expect auto X% to of an assumption X% on penetration

X% restaurants service Slide Equipment Turning for mid-teens, was comparison up was institutional X% XX% of Electronics markets. growth retail Measurement X% to Europe strong, quarter. up tough to digits, and year. region, down down X% delivered very and of with Pacific X. continued plus last Food X%. By mid-single North grew organic a Asia Test and X% up in QX markets softness the single organic Equipment & grew America in against in high end the in digits. end revenue due and the both grew semiconductor-related

declined While Measurement XX%. Electronics Test grew & X%,

down points in X% an and down on North basis X. down X% margin Fluids down was with was Industrial Operating were in America Aftermarket Welding plus of declined X%. grew and high declined to & was XX.X% and down X%. down for X%. Polymers XX%. and X%. organic X% XX% tough segment. down Overall, down versus X%, XXX comparison expanded Polymers revenue all-time of Commercial organic was and X%. international was Slide Equipment X% Automotive the revenue oil X%. to sales Moving was Fluids demand Consumables resulted gas a of decline Lower an

Australia down international year. New declined X%. as XX% North was with In quarter, Products revenue was residential X%. commercial North X% were organic revenue Consumables America declined organic a and equipment International X%. Specialty market, Zealand in And markets fourth down Europe the flat construction revenue have Products, X% Turning up Slide as renovation X%, grew flat was housing to soft X. been was and and X%. and was down and Construction tough essentially down all down America X%

to an volatile the year, colleagues Moving customers a as delivering for to our XXXX X Chris our Slide said, environment. did of decisively market And around demand challenging and full job year responding results. and exceptional world and throughout the

dividends a solid than capital and with and As $X we delivered these XXXX our raised returned while more XX% repurchases. of result than growth organic We growth fully organic in in more and profitable billion after-tax accelerate of businesses. of sustain on to performance XXXX more their invested delivered shareholders X% return above-market fund core and our ITW record financial margins XX%. And than continuing of of top X% in in of form XX%, and both to on to the productivity dividend efforts, XXXX, highly growth projects share best-in-class results

earlier, and guidance headwinds challenges customer and that partner example. the certainly Slide our for about of to And cost reductions. positives for inflation year channel external But I Let's there supply input moderating move full see looking definitely terms builds environment ahead, including are we talked in from in chain, some X XXXX. inventory lower some automotive

strong to range on about line X%, XX.X% expected than of top XXX adjusted process, to plus, initiatives. XXX is invested of typical with current a points to usual organic is conversion of capital and at firmly based contribution levels to growth improve enterprise of After-tax X% we XX% basis greater exchange margin incorporate of expect on and points demand our basis guidance our flows For return by remain current growth revenue includes expected which from again for our XX.X%, net seasonality to X% is foreign and income. cash free to rates. Operating X%

range and expected the tax rate XX% to of -- $X.XX in of expense XX.X%. we're with to XX% of projecting to EPS tax interest of XX% XXXX, $X.XX $XX.XX, an GAAP headwinds For higher about range expense the $XX includes in higher of which income

XX%. expect of EPS terms and year, In typical split we half for first half, of XX% cadence our the second

XXXX our year's are Our discussed capital consistent framework long-standing Investor that Days. disciplined with allocation capital allocation plans we at last for

investments next top organic of phase with our the sustained in Our core priority businesses. the support productivity the to growth associated highly enterprise initiatives and internal strategy remains profitable

priority remains Second critical shareholder component a earnings which grows in over attractive an ITW's of with return model. time, that is line total dividend

improvement buy allocated margin our potential, our and methodology our capital. And active in plan can significant capital proprietary enhance is back acceptable as opportunity Third, ITW growth and acquisitions XX/XX of billion returns from share shareholders' ITW's $X.X shares program surplus to profitable selective long-term front-to-back risk-adjusted an we powerful of that generate own finally, to application XXXX. the have on high-quality repurchase

partially gain our performance continuous margin market unique operating midpoint, our the from levels segment factors, some contribution growing XXXX underground for satisfied X in offset improvement, of insights Specialty can that see, organic projections every XXXX of solid their are another demand, projecting you launches customer-back the divisions. Consistent segment. as last in the current and January innovation of our are new These one the divisions, mindset, our including and never from approximately with is expectations X% of associated deep Construction Slide Turning at across from organic the and planning with projecting to X of challenges And product combined slide, XX, again and the segment enterprise our by of ITW's outcome projections board. growth initiatives completed segments in by every contribution bottom-up a in to process and market Products. improve customer share efforts several we combination growth

back we're positioned emerge Karen, overall, through outperform into to XXXX. With our in that, enterprise I'll continue you. whatever the first well we phase strategy, to So conditions to year as it move next economic turn of heading

Karen Fletcher

Eric, you, can Michael. the for you open lines Thank Okay. questions. please up

Operator

o with Your Instructions] [Operator the line comes first Tami from JPMorgan. question Zakaria

Tami Zakaria

throughout for question do from at first first So deviation segment, in we annual be we improvement you segment the each about think quarter? guide the guide, any bid maybe the So annual when organic growth my and rates how similar year? first expect or should it'd quarter the is, for growth then the look that for the XXXX to

Michael Larsen

you'll typical think the rates move year-over-year kind QX as improvement of Well, get QX large, the year. easier projections comparisons growth and by the and forth. we see into here through But in from seasonality I organic so the as track

So there's there. unusual nothing really

the a from new contribution pricing, segment projection current as as the the much significant year. mind we normal to our also been at talking about talked is based products level, which well the reduction less includes all that thing from inventory enterprise we've granular about, guidance drag other The on level as it's at essentially really again in while is run rates, a more keep

And give number of segment. so a look kind really the we better as at

how think about would it. that's I So

Tami Zakaria

the helpful. is incremental high XX% very And my margin in XX, versus it. probably inside normally year right, range, like seems XX%. if to the XX% Got the the for to is it XX% then in That's math

really what's segment high overall driving So this drive to the specific want call you year? may this? Any incrementals that out for

Michael Larsen

Yes.

Tami, And are which of what contribution margin long-term we've got of here, XXXX. in use our the incremental in modest reason higher we're a than XX% The is to calling embedded still us that of enterprise modeling. points to is X%. XX%, initiatives the our would X% terms in I growth think, why I guidance incremental that from kind XXX typical revenue fairly long-term for basis give higher margins

all now a projects just XXX might And points basis described, I add, through As chance in activities to and of independent initiatives contribute of largely XXXX. volume. that part again I go that planning of the these are our we've to process had enterprise

we're what pocket is significant fairly volatile we describe here, uncertain in So certainly what regardless of would volume another seeing contribution nice does, and as your in a hip to which have still environment. thing a

Operator

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

Stephen Volkmann

initiatives we're or of be you incrementals. to you there looking the kind in must enterprise want underlying some of offsets really I something some me. bit it margin follow from the sort other that's total getting we're little for, all a XXX points maybe from that costs differently, if because basis ask question actually I enterprise the because suppose getting Michael, and We're not have if

great. So be just any on that would detail

Michael Larsen

Yes.

I the is math pretty for So XXXX. think actually simple

as some points, the XX points. maybe into initiatives point. entering got we've this about describe to we environment maybe what So that growth, volume that's cost price leverage about X% revenue at normal XXX round enterprise would X% basis just We're add numbers, a at basis

XX% in moderating is in there's headcount, that modest our that's still is add to costs, some those from wages like are to And then at though in price of employee-related approximately some benefits. on continued talked a contribution growth, offset so really cost Day. which XXXX. way Even efforts. And investments XX% And about XXX our basis target our well headwind, positive us our Investor midpoint points then the costs here including I XXXX, XXXX gets and we of might that by

Stephen Volkmann

Super.

X% comps, bottoms-up And The I food up. don't then And of outlook super Okay. an bit like a if don't of follow from maybe seems could just sort we of food guide, of to think. easy sort X% I the acceleration trends. recent have

you So market? what are in that end seeing

Christopher O'Herlihy

Yes. Sure, Steve.

So X% back on the a really few X% aspects. to growth Food on year, Equipment, different next projecting of

a the environment as short-tail it's very always, Food innovation. Firstly, Equipment, for

product So launches across all categories. new we product several see

XXXX. And We say, have also, recovery expect destocking service. equipment we channel in a less I food continued would in

that's We're recovery year And X% a much up from the in year. business COVID. still is As service we rate I is service think in growth food that food. captive recovered, manufacturer but pretty adding with that service business. next you will to of final know, to revenues only about the service and our in X/X Equipment major in is a all X% of XXXX, probably see has in recovery

Operator

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

Andrew Kaplowitz

such businesses 'XX, look your acceleration your basing nice current when run X% at down in in T&M, you for organic you're being Michael, as X% growth for saying forecast have on rate. CapEx you're a we to guidance well

it's seeing businesses improvement forecasting? did QX. Could what in color you what that's these give some forecast in you what's goes to So dialing in on in allowing instance sequential demand and obviously I'm T&M, mention you're in CapEx you're do. us more usually I for that electronics as what you some you out? -- in curious but you're just flushing semicon would to not imagine improvements

Michael Larsen

most of and and seen Well, for I year, CapEx some slowing think like in in we've really QX. said, demand we've certainly the QX

less just X% partner a we've and drag of headwind reductions in I said, were as think Chris XXXX, that go as got these customer XXXX. from into inventory we about channel

that out, around meaningful put customer-back based the have and just driving. And products, We on And together and from normal pricing. all then all given you -- from per we innovation in new think, contribution there's it that revenue have was some certainly sequential efforts to that we're I a I you think, saw day contribution QX as that you here. QX that, a increased we encouraging the point pickup tells stability

us. And headwinds some the of behind mostly are described just maybe I

we we're and these reductions levels a of through it our through still from half. headwind inventories will We own some little as the the expect in half be here our We and the first reduce same, our partners inventory here, as headwind channel inventory bit in of of year. We working of to a think the be go may it first of doing expect but XXXX. think we customers less

you So are things pretty all together, in that you're of where put stable. think I an environment

You semi, in market of X% test half. -- measurement revenues. expectation a second an it's mentioned of is here and There the our pickup less modest you than

new and in market We bit to gain was on the big environment that Automotive. expect there. But up overall, faster to of the just The from second We're launch up pick high one will economy a reiterate in share little the going This a run demand in kind or is we're digits. outlier, not recovery in grow expecting this is based than products rates. I'll current in half. single space basically XXXX build a that

that about to flat. expect be We

is has in been and And market contributor incredible which remain our growth all overall penetration so innovation in future. from for continued to will rate an Automotive the and growth gains China, the share foreseeable so and

Andrew Kaplowitz

more Specialty in the outlook what's Michael, what on Products. Doing example, or or in Chris Specialty, you're Maybe for Construction you PLS you outlook these mentioned equipment then And challenges Michael. friendly elaborate and for 'XX? seeing color, in helpful could segments? Very unique

Christopher O'Herlihy

Yes, correct, Andy. that's

heavier, than in terms Specialty for X% normally product normal that segment to position Specialty we're We're plus. pruning quite work expect would In really amount doing of of particularly, we doing portfolio strategic growth a environment. some of I there, bit line long-term on more a say, maintenance

all So On single in mean, New that's what's mid-single and that. declines housing a story. North markets pretty pleased significantly in Western year, for Zealand going much and America, Europe on progress Australia high plans and North are and digits market ANZ. main in in all the builds next very Europe XX% around obviously, Construction, forecasting I America, it's digits there, we're us, with X

So really that's construction the what's impacting business.

Operator

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

Joseph O'Dea

So I about customer you QX sales little tone to bit is the daily talked from It a rate perhaps sounds like mean getting better. QX. overall

You're where the customer better Can months last little a business? and uptick the understand over that on then talking to some the head adding within count about just head bit see you through happening count. where are expand a of conversations verticals adding you bit little several some you

Michael Larsen

cautious side we talked I I things, particularly has about. think as tone of customers on year, the from the Yes. mean been CapEx all pretty

our to about efforts our lot If you innovation drive high-quality accelerating talked by, said earlier, fueled as last customer-backed our to growth, we Day a Chris go efforts. back Investor year, above-market primarily organic

growth making our count continued those to drive and we above-market And organic progress deliver innovation, related on are capability sure marketing to resources growth the in that we adds all terms of commitments. need commercial that areas, have so the make sales and we're all head

Joseph O'Dea

bit still think relative trim just could this half things, a levels like Got during the are It they any talk about chain how you inventories? visibility that constraints, sounds now where on you customers got elevated you the to think of maybe have can channel work of supply see doing and it. to little first inventory side you you of year, And those inventory context then normal? on

Michael Larsen

Yes.

and I think by historically, go channel visibility the levels you inventory with if great had customers. back large, and we of to in our haven't the

of our in talking today our growth maybe and X.X% then headwind a certainly been we'll QX, levels, areas largely inventory back And this less as QX. Overall, and to it us. And segments, we on the think better go X% other we I an it's behind year. normal into been I of some be several given kind percentage that point QX. continued, QX point, think in all we is think It are a but I update. rate at about And few might much year. where have then give drag that a visibility of there's you for we've there was

behind to think be I we'll say completely able us. now this is

Joseph O'Dea

And no that outlook, growth so notable range? with real to headwind inventory the growth respect there's within

Michael Larsen

Well, reasonably is at rates obviously, included there's it a rates, our at expect. higher little if mean, might in what look a you I bit, level our than run we run

we gave out So the favorable that to be we just run way certainly if expect, guidance would rate the plays that you. and to the that

Operator

next of Your of Bank comes Obin question line America. Andrew with from the

Sabrina Abrams

You have Obin. Abrams Andrew on for Sabrina

any where into we the on moderate? businesses competition more As are any particular pricing there pricing competition think as or costs about XXXX, segments -- on you're seeing margin

Michael Larsen

and the Sabrina, organic price kind provide, times also think, talked central about our to I want ITW overall focus share. to around talked based strategy I lead to premium growth. customer to of That's but and we enterprise quality and gain market the maintain before. want want we Well, to uniquely is positioned on that compete just the we've this service, We about the our

price with. a So that price wave XXXX. These cost expect we increases big are us. that said, in inflation, contribution normal here inflation-driven think now behind been Input I from dealing we've

largely As here us. behind today, sit is say, we'd we

we're entering the so normal portfolio. a pricing environment across And into

I think fair statement. a that is

a essentially just margin -- now into If dynamics the XXXX. entering we're environment in look price and impact at cost that you from normal recovered we have

Sabrina Abrams

XXXX the from margins XQ? how you're thinking X% in year on reported And reacceleration growth the of in the sort segment are And as XXXX, then exiting the in where margins about in driving you follow-up is given What and in the down you there a here? Welding.

Michael Larsen

from digits. you assume assume you the minute, acceleration, normal be market the in Well, something -- on the market just market single contribution a I think, look if environment, for quickly to a counting This is low let's Welding, to and so just flat, price is -- a very new gets normal not at products clear. we're in

want around I So that. to just be clear

The to that just XX% what year-over-year bit revaluations. back expect the drop XX%. And That's we be inventory the here impact us. above in quarter we of I'd the in a to other thing the the onetime caused is fourth as inventory about below margins, kind talked say on little year-over-year margins behind first that quarter

So we -- of not we would remain their in process that kind our that expect operating planning segments are as to XXXX. performance that's plus bottom-up improve margin And of margins through in told as go XX% as XXXX. Everyone of everyone part on to I said and this us they earlier, target unusual.

Operator

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

Steven Fisher

of This price market segment of has trying growth customer-backed a here. segments, X% think there's when and asked penetration it buildup basically of through in the guess you you flat your Is the few XXXX. X% that but that about and points different But sort up, CAGR organic markets of the way about kind to and innovation. innovation? of growth really it's are dynamics all of and assuming it? couple a in think Again, about to market I like ways X% penetration the just lots roll versus context what's to been to the X% of

Christopher O'Herlihy

Yes.

And largest Day, customer-back in is of have we contribution from from you is. X% at And our a think mean, the businesses. penetration. innovation. outlined actually I that's market what say, really it calculus to in contribution our that most XXXX, across Investor I we're here seeing as X% we

first And the by way the over years, progress rigor, phase seen innovation scope years again, this we X% plus putting 'XX say on -- X% here way making of innovation, that to got front-to-back this. that targeting spending the by last X into X% the of a in it customer-backed we've Michael goal the time. We're we've that given fact ago. years that the path contributor room the have marketing very couple we this a and building the growth, to work we've it's a X% year in It's now was also to phase qualitative the into our X the to that segment, As I talking And all out given they're quite and innovation portfolio, that investments grow terms plenty has kind each in to but top to are played the now seeing strategic few capability a XX/XX and divisions in here quality and for we're of last get next 'XX growth bulk of been here of encouraged of progress, outlining innovation of about in that been certainly that XX/XX pipeline I the a we're we're And we over in applying of in phase, terms entirety ourselves the leaned its phase. across way front-to-back And of of we're about the target doing on on the think progress to the making innovation, on leaning position growth beyond. would if more are say their X% The level about strategy. That's encouraged very build, our phase. it's of that do. of But basis our in divisions on and way we on terms think innovation we last a X% think into X% where in very contributor given next that will grow our confident the to this segments. in X% XX% in next we're the would you of and the muscle across building just plus capability many I really of and is the strategy. where same

Steven Fisher

of and Europe growth sort economic America North That's follow-up, the a And increasingly. between diverging seems pace the really helpful. to macro just of be level,

China construction in sense about can that? I other on about factored economy net but 'XX, thinking some positive and different in just talked us you're a the you, about European in guess, how you how for give of So I -- side, thinking similarly companies. know and you sort maybe what you 'XX, on for you I of a China, think, are the

So about that thinking in how are 'XX? you

Michael Larsen

Yes.

our of X% geographies. overall to guidance that's find I think in the all here major where X% organic, you'll

is digit, X% low And challenges kind of Definitely, all than you half America, similar to you really North America. is And more to X% that's kind out. is So we've our China. to as some it of driven in North revenues put construction the that China But in range. the together, X% but on pointed range. Europe, positive, more single business, by Automotive which seen in that then of the side, X%

we another of China, China the that type takes business for double-digit the in So range expect mid-single-digit and XXXX. kind Auto growth in to

Operator

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

Julian Mitchell

apologies in -- on sounds it again warm somewhat and like already. ground had ] some understand revenue But because XXXX. to retrading some you just trying [ Maybe on destocking the suffered from outlook

through, assuming QX the sound that or sell sort That destocking we that suppose. on you You're continues of continue QX I speak. and you're as destocking confident seeing

sell-through guidance half. the your in second the recouples to so embeds sell-in And upwards

sell-through Just and is your you're of understand the So I sense mentioned than just thinking wanted to to now most a ago? better right you bottom-up when from make that, right months salespeople And the the sure, is work about markets of sell-through trying about few please. your that now, that thinking is of way it? that your sort in

Michael Larsen

as since same, a came a just Chris organic we delivered from 'XX might earlier. add in I -- pretty the think impact. X% a that included I environment point about semi reduction as talked drag it about. And I say Julian. up of mean we growth point in said, I'd of it's we And inventory challenging

it what X% to saying, X% don't repeat, -- you those we're quickly. then just from if go which X So is pretty

So less -- continues and destocking We the which do to in that we're not same level drag first think at what you the I said. of saying it in expect a is half. first the half, be

more than are the in certainly We comps half. are also half in challenging second said they year-over-year the first the

the every environment. being feel new confident focus we of big across on based look what in look on pricing So of are of I today. seeing inside We on driving we're look kind we at customer-backed confident at at this as when pretty products everything one growth, sit above-market organic the We going normal our that think but -- a here innovation. and because we're company, a divisions company. focus the pipeline launched on We

we said uncertain can also this things quickly. pretty is environment, a Now and volatile change

confidence so our on And read deliver of dealing go to ability performance divisions our strong and whatever and continue conditions are that through to with the have lot is react the a we XXXX. as we ground thing to

where forecast to going, trying kind just not We're on things global economy economists. the not we're our basing the we we're about. is guidance of all So talked

to So just doesn't -- and about. talked we that how that's like up seem range everything a X% to in which we XXXX, us based for X% end moonshot on

Julian Mitchell

switching line. maybe then And the away helpful. That's top from

the offsetting On reply, in an earlier investments higher initiatives. margin front, question, a of mentioned I enterprise think you sort

And R&D for any CapEx So and/or reinvestment costs, things on big big external tailwind sort then first this of increase those half seeing benchmark on a year? in a you think as a I this margins couple rate? color maybe of price year. And that on was, One we for a margin. are

to of scale wanted for that. any Just sort of sense

Michael Larsen

a kind for I on normal a to price/cost, not driver we're based a and environment think It inflation will know contribution from margins in be everything to of going standpoint. XXXX XXXX. material of we that and an EPS in a our today pricing performance. Yes, be It's modest

our costs think and here just including our geared biggest part the I to those CapEx over driving these just think, our are benefits. And equation organic every are capacity the inflation million also investments market that's based in on centered in in It's in sales growth we improvements was employee-related about around $XXX in true headwind, not of actions In growth, that our above the for XXXX and necessarily, we of but not both with manage moderate I all in divisions. And year to everybody we're investments, saw that else, XXXX margins some time, terms one investments like to the customer-back line so this taking XXXX. and of much -- of wages costs our in expect innovation. of for investments, grow true the

increased be we go going So forward. headwind as to that's not an

Operator

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

Mircea Dobre

it to outgrowth, this see maybe distributed. what I of evenly of investment sort you're have generating be seeing it topic we presumably, outgrowth else need aiming at needed X I'm like X% further points. being are What to you're we curious, the where your And portfolio, adjustments on outgrowth guess do notion percentage portions your that sounds about of or So for further you're made? portfolio need this don't looking the pace when be? year, at to you

Christopher O'Herlihy

Yes.

we're would Auto I an most across of that probably I So seeing our portfolio. would use Mig, growth say example. as

in X% it think X% Equipment. Auto to as will an talking We've in about outgrown on example. Food we're flat I historically XXXX, those

As large you in grew. with comparisons of which know, dollar if look so I market we and here on, Welding with XXXX, you the Construction, at think also some and

is So to something really think that's of across we not segment. in big news. the a to have growth to is customer-back what times some couple And in of for on enterprise over is opportunity we've of level innovation leaning next the next every at think ourselves time. grow on our opportunity we targeted resides and position basis few really plus that differentiation investments we've I driver accelerate the this respect This years over customer-back going every X% years working new few drive of much I across we phase. And a investments, the phase. And And outgrow of runway been every we've have a is customer-back as capacity the these innovation in share This the that that segment. out segment focused been said doing to the with forward. making been this for for will innovation, segment, the will

in So contribute we growth. X% plus to that every time organic meaningfully would expect segment

Michael Larsen

individual that, Yes. lot I to just about would the a We've Mig. segments today. talked add

of our highly of portfolio, high-quality working all look Automotive. you've diversified beneficiary the We're through ITW XXs. the at high I got a think to as segments with in margins

of which competitive others at to -- to puts any real and you're portfolio always so in to resilience puts gives a in and type over the But this demand going what environment perform have us level level a and we're about. relative advantage a perform high And really great takes, of a continue is us position to talking some long term.

going portfolio or this the are plus as go Now that you totality, may be, or There's in X% whatever the put of have we forward. all be trends, aerospace to the to we our said be in organic growth segments by it certain that whether but need we that, doing never firepower fastest earlier were be said to deliver it going X electrification average annual together XXXX. we this a always And as end grower. market we way, we

lose wouldn't company business this and we're I a beneficiary huge portfolio. high-quality the a So that model-centric sight of of fact diversified

Mircea Dobre

my Then on about? question about Chris. to that get you're M&A, tool as potential M&A this follow-up, how to outgrowth you Understood. thoughts this talking a on I'd love maybe maybe your generate a think using and

Christopher O'Herlihy

Yes, sure, Mig.

that the strategy, where much we are can of which find model a been lens potential kind very acquisitions we leverage business disciplined long-term improve high primary to minimum to able So That's grow are -- to is our look to acquisitions. We've growth high-quality X% the sticking portfolio effectively, we of consistent margins. quality. at plus at at interested we our certainly in them extends terms very in management

about with leverage customer now going to to of attractive on over great is years. If this few in to all an believe to execute but we points, here pretty example stuck turning lot term. X ITW improve And differentiation, for run we just owned that characteristics in to ongoing pain because model that business be acquisitions, home organic the potential solving think be we got opportunity look years, will the the of a I fact so, selective over acquisitions to at, review typical we an certainly respect we're we've we're given that basis, believe the strategic ticked long as boxes of terms on having in attraction, an the of in and next and the candidate business that margins business here MTS growth a we about opportunities terms that's on a the acquisition

So we real acquisitions about a acquisitions thinking we'd and how about going it's for be blueprint think forward. how

Operator

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

Illinois Tool Works (ITW) 1 Feb 242023 Q4 Earnings call transcript