ITW - Earnings call transcript Q3 2024 | Illinois Tool Works Inc.

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Operator

Good morning. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the ITW's Third Quarter Earnings Conference Call.

[Operator Instructions]

Thank you. of you President conference. begin Vice Linnihan, Investor may Relations, your Erin

Erin Linnihan

President O'Herlihy; you, welcome CFO, Today, Conference our and Good Michael I'm CEO, ITW's by Thank morning, XXXX Larsen. to Kathleen. President Senior and Vice Third Quarter joined and and Chris Call.

provide year During call, XXXX. and discuss on our quarter financial ITW's today's update third outlook will results we an for full

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

Christopher O'Herlihy

Erin, and good you, everyone. morning, Thank

than run seeing less the As what during $XX million release million the portfolio, or further they was or and second the revenues exiting quarter. quarter in in press Overall, record approximately $XX rate. were QX, came at held in to X That markets. came quarter, across third this construction our percentage we QX with softness environment morning, in approximately in below ] the point our X.X automotive saw moderate [ demand you continued level would third point have demand where been below the percentage said, slowdown revenue had in

year-over-year, end mid-single quarter by X segments which result, to partially our we in revenue were to segments. decline digits. organic with X markets, the X%, in low revenue declined third X% This offset believe down a compares growth As down

operational with included XX.X%, these resulted execution. $X.XX and with point As of all basis continued to navigate income XXX successfully initiatives. enterprise of challenges team have from market which in we operating a ITW strong overcome billion Those margin contribution year, the operating efforts

still the achieve points. the delivered excluding With X segment power basis regardless that margins our the speaks model. X% of little operating our operating by to EPS of XXX operating from X in and resilience the well margin, of company and our gains quarter, in way contribution grew on expansion Michael initiatives margin to increased from the for XXXX. volume in of enterprise more margin $X.XX, are it of business The resulting time, review the third is segments will detail. that of XX% three And we to divestiture operating XX% for operating notable continued above goal first our leverage, segments

EPS increase, a focused typical for enabled where continue And our raising continued $X.X Our counter -- rate than $X.XX to effectively the and range execution growth gain to persistent guidance ITW have Today, operational market increased impact headwinds announced to surplus profitability our and by dividend shares. $XX.XX we the we repurchased excellence of to full long lower X%. our and to and growing we on of our of tax projected the billion of the maximize are a dividend August invest maximize an new with year-to-date, from divestiture to to range to term. year. long-term full $XX.XX to dividend, we a attractive performance $XX.XX year by $XX.XX incorporate have outstanding more XXst capital return raising over to commitment GAAP by and shareholders X, our Consistent achieve consecutive

and to be our levels our operating operational and the year previous maintaining current guidance and be organic flat are for we revenue to of XX%. demand on margin between growth XX.X% Based for exiting QX, approximately

While importantly, this deliver more year, continue job managing ] solid perhaps to a short-term challenges the strategy commendable ITW next we phase the [ enterprise progress priorities. team did on our

a next is ago, to outlined phase performance. as our the focus year enterprise to and organic customer-backed of capabilities strategy key differentiators our the on central of As elevate and operational growth you best-in-class par ITW with we innovation high-quality financial

to of to we In This share goal. essence, grow CBI, quarter, believe the the call progress revenue consistently most our above of customer-backed innovation in gain market achieve fuels it, drive to that driver further the in ability made is and innovation, penetration as today our we strategic ability We or journey the market. customer-back revenue this impactful future.

few we've less our divisions to launched phase progress at expanding XXXX past than and approximately framework X% the from September years, our from for in we today next conference, XX X% Leadership world. around revenue on CBI made our the Over CBI

on focused each organization entire a now feel down can they at one I we front-to-back as Just division. excitement strategy momentum this successfully decade customer-back and as the And are innovation. from the team on doubling XX/XX energy, implement we our for ago, over

in and continuous serving the driving world call continued over thank In to and typical with dedication I the will and ITW build we that our on fueled I with on do we our into ITW's our customer-back efforts detail. to know progress excellence innovation organic of by above-market to what year customers our in guidance defining ITW all concluding conviction say laser Michael our discuss on I'll their strong want our With focus my a potential. full colleagues performance growth, strength. turn is QX full Michael? now path for more execution, remarks, exceptional it to

Michael Larsen

Starting Slide Thank Chris, on X. everyone. morning, good and you,

down lot third operational second looking execution Total the continued ended a revenue demand with expected, organic with declined X.X%. strong like environment. quarter quarter the As a up in X.X% moderating revenue

Pacific essentially X.X% currency down reduced increased a revenue was by Asia was in X.X%. Foreign with Europe and acquisitions basis, and revenue X% China, organic declined by translation America, geographic On revenue X.X% X% about North down flat.

the initiatives that points focus on can contributed as to level. at well driven basis ITW and X the by we control, segment between enterprise environment, by points XX segments margin, team things of enterprise operating this XXX In to XXX and basis evidenced expanding primarily X that our the and each execute continued

operating second from with margin quarter and up was quarter due sequentially Third points prior the a flat basis comparison. XX.X%, year the XX to tough

we impact to you margin last items basis insurance XX.X% on compared of As recall, year's a corporate may part points call to onetime due QX last including few the of expanded year, that in the XXX a discussed XXXX recovery. favorable

operating quarterly XXX to basis tables, operating just in expansion Excluding with line year, the those which year points increased segment at margin, is the our our included is margin prior onetime by compared on segment items basis. looking in and which margin press a last more typical release

GAAP of from and XX% $X.XX $X.XX our noncontrolling EPS [indiscernible]. gain divestiture the up in included equity was of interest

was year-over-year. of a gain, I spend used wanted an reduce previously EPS on $X.XX which million, transaction to proceeds approximately balance. increase to this $XXX costs paper The our of of announced the transaction, minute divestiture. the were net we [indiscernible] X% Excluding from commercial

shares of quarter, own taxes in by of adjusted of gain million per million, our XXst a $XXX mentioned, $XXX an the conversion share, in year And dividend net The were during repurchased XX% third resulted quarter. effective of transaction the resulted our rate payout million which annualized Free XX.X% discrete which the we our was offset we of impact in quarter capital income. our of of of rate EPS The benefit typical as gain to a raised tax than And below a the was in related more planned, of $XXX $XXX on to utilization increases. million X% favorable Chris in GAAP and to XXX% the marks range. carryforwards, tax $X.XX. by XX% tax $X consecutive loss cash pretax which income was as the flow

the in As by favorably from including you rate in the discrete the transaction. tax was see several impacted can quarter, press release, the the items Wilsonart reconciliation

items, these was core rate Excluding our discrete XX.X%. tax

the X more than inefficiencies organic on in by of X have segments due to operating And and we but performance. Slide stable quarter for third focus Food XXX we onboarding side, at performance continue to in a our from with business. the associated well service table and as lot with and technicians margin X our their the the and growth left can quarter profitability as turn year-to-date see a year-to-date accelerated second near-term is basis specifically in you segments look and the things looked execute expanded that a the investments the of points. our Please Equipment an already to business summary, margins solid to this margin control. like segment moderating, support can outlier best-in-class service on also demand new X So growth of bit

basis margin the largely current improvement basis the as includes by LIFO points in This the evidenced from points points, headwind margin XXX XXX company fairness now Equipment up Total in solid performance third is onetime but quarter. in in first quarter, basis the Food of environment. which margin still behind adjustment the segment is XXX

next outperformance similar DX Organic China declined quarter. about down in by data, segment in to in and to as X% of our the to the operating The the delivered Moving America despite to margin by outperformed the low Europe points XX.X%, volume, industry more with in continue Compared work progress down segment the were lower points Automotive expect down the third solid quarter build builds in as X% was towards revenue and North increase was the a basis quarter and fourth we automobile mid-XXs XXXX this year-to-date down. customer and operating performance to segments expect basis segment. XX we continue long-term come starting X% and OEM. the X%. also of achieving X%. down goal fourth XXX margins was builds industry rates build as year we has

X% last solid, restaurants digits X%. were and about was plus last X% the up as a to and Slide institutional equipment business being International as tough and up comp grew Food after X%. revenue year, X. North was Europe down Organic about which XX% X% was sales down with against care by down of flat Regionally, service X% X% flat was with year service, up Turning America offset was up XX%. Equipment up mid-single about health and

from the enterprise a contribution Operating and margin initiatives. improved service normalizing to basis solid XXX margin due points

mentioned was we continue in being last end Test electronics after quarter, year. last down and through we and & with margin Electronics markets. organic the only to As sensitive Measurement improve as we down to X% demand expect go CapEx stable quarter, X% revenue semiconductor,

activity, customer While this electronics in we growth marked since X% that bottom in beginning increase being down we're down the X%, was suggesting XXXX quarter, after Measurement last for end of the the Test X% to was this market. and see positive quarter quarter semiconductor the & near Electronics perhaps and are up first of

As remain when we've discussed XX.X%. XXX this by capitalize before, on the opportunities margin quarter Operating recovery we positioned happen. to inevitable space the expanded very to points does the in basis in growth well

on as solid growth to improvement second X%. the revenue in Europe Moving X. in and international China. X% X%, down America revenue and a Slide equipment declined X%, was North consumables from up declined organic meaningful but was revenue Weldings with being down quarter both X%

CBI, we illustrates of was plus the the growth. launch the gain top solid X outgrow markets. quarter how which the this is a in gives that share the products, team Chris As company end And about was the and a as examples of talking talked ability on the segments inside on at in to planning beginning just of X% line new to contribution resulted third contribution continued from about, their progress many our the Welding to year,

to which demand. down consumer discretionary again the closely geographic quarter aftermarket, up was Fluids as XX.X% X% revenue for you grew showing XX%, segment. third X%. and Operating X% international was in Automotive a with up know, record XX% quarter. spending solid the Polymers is due international Fluids X% was strength America margin of On Polymers declined basis, & to North tied a Europe, organic Welding grew and with

was in Products quarter second markets X% X% with quarter. an sizable Turning from to the as annualized as took basis down XX% construction on Construction end down housing step back down starts X. Organic Slide second the revenue new compared in a to

was XX%. another down with As with North Australia X% declined a America volume, lower was Zealand construction a New significant the of down down down [ Europe XX% was and operating for contribution commercial ] result, XX% and margin enterprise the and X%. Despite record initiatives. from X.X% residential segment

America equipment a and Finally, organic international was XXX Specialty the revenue X%. make up on of line our grew with quarter organic Products or as we consistent had points of The consumables both for in rate up Products PLS solid strength repositioning X% portfolio X%. North growth to growth. Specialty were for across quarter X%, growth product basis with above-market X% continue about as of the simplification this divisions included segment some and progress

fourth expanded We segment a expect year. flat XX.X%, quarter record low be XXX PLS basis in about and for quarter operating leverage segment the of XXX and single for will that initiatives. the Operating contributions margin basis points third digits full the to the to points with enterprise from strong up

updated Slide to our full Moving X XXXX and year guidance.

challenging business environment. year, to our at leverage to a way solid execute high and you've a a diversified the demand ITW portfolio deliver and level As results business to and continues team seen our operational very in find financial model high-quality

the environment seasonally on levels And not the of foreign currency Looking and ahead adjusted guidance do usual, expect as we is our demand near-term based improve. demand, exchange rates. fourth at to quarter, current

result, As for we're be flat the revenue projection and growth a previous maintaining year. our to approximately for organic

We're more between also XX%, at with XX.X% contributing basis guidance, the Initiatives XXX year and basis than margin maintaining points. be to improvement XXX our midpoint which of points an is full projected Enterprise operating

$X.XX you Wilson guidance rate to GAAP tax in per the of of range press as guidance the year the XX.X% we effective the raised of to EPS of full share $XX.XX saw $XX.XX release, $XX.XX share. EPS we for lower new range divestiture a a per a incorporated and $XX.XX gain As our from impact into projected to by [indiscernible]

the Excluding $XX.XX $XX.XX the share at [indiscernible] the to per or midpoint. EPS Wilson is range $XX.XX gain,

to on strengths differentiated the turn environment with And and ITW's I'll term. the So our deliver overall demand the over to laser-focused it in leveraging ability challenging near performance summary, capabilities and uncertain while Erin, remains you. pretty to back we that, unique optimize in term, long remain

Erin Linnihan

Thank open will queue Kathleen, you, please Michael. you for questions. the

Operator

[Operator Instructions]

Partners. And Jeff of Sprague of your Research Vertical first question line comes from the

Jeffrey Sprague

wanted pick don't math quarter. think decline fourth up wrong, sort the of there, up you kind revenues just you're at of where I or off the sequentially, left to X% maybe of they into is my slightly. kind sort Michael, with of when unless looking X% trends I I know normally

your the of I'm missing maybe in was saw clarify So quarter in exit kind your aggregate? Or than or early read could in we you rate there. in better September if just October, what anything

Michael Larsen

Jeff. Sure, Yes.

guidance, as So and out let don't little you trying help terms me saying, in on quarterly me to we of give do, let close start were QX, can bit. based guidance. year-to-date a to And by our you pretty performance out but figuring our full year try get

Typically, QX that's So standpoint, to high to seasonality is in I'd back lot way sequential say what looks a X we about QX a QX like from XXXX. all QX. a revenues the from a level, to at and points, improvement see X.X point going

in for in what the quarter. So day worth, easier comparisons the rates, there's at also shipping We points. point, quarter. X fourth it's we're have current do extra up an run X.X typically, And

up, So basis. we revenues you on year-over-year flat to that add about get all a

expect, improvement margin on a points our year-over-year basis. XXX about We again, of typical basis

XX%, I'm EPS that [ get guidance, that I'm which factoring is a just more XX% quarter. in the kind ] from range, kind to tax normal QX, from to then giving So contribution that us the math, that's typical another fourth And rate is range And not Initiatives. decline of strong midpoint. remains the at the in in And the for for QX main slight Enterprise driver seasonality. a you XXX the and here doing of

a on in again while about expect do fourth fourth we're demand a current add, and standpoint, which So we quarter levels quarter, in meaningful cash flow not inventory from we're some environment. is easy strong projecting our the I'll improvement free just talking the quarter, the

So hopefully, Jeff. helpful, that's

Jeffrey Sprague

Those was of interesting and there around had though. are was China just [indiscernible] of tariff anything very currents solid, just business We And give on numbers a of and That's kind just auto China helpful. given China Yes. some of of of in spat kind your there. important train But that pretty it It's And lot different Can kind what's for out of businesses, automotive welding today. view just huge. importance influence your China, just also the ugly for secondarily, you very Chris. us on auto, bigger picture or cross maybe not obviously. kind maybe all? this view then Europe, at your going in outlook is

Christopher O'Herlihy

Yes.

I So an builds China China from auto on are expected think up year standpoint, this be Jeff, auto to X%. mean I

X%. be to expect up We

successfully X%, a as of general, [ very a the the story flat all Europe, X EV in would be -- China percent the we is to our the growth. given producing been America, this say, flat businesses down sorry, especially across versus fact China. X, of bills evidenced very penetration have been much in about we ] negative part continue China be on is And to I couple strong North in up of penetrate to in we're by future. gains the China. would or In pretty obviously, But of EVs. world's in So up against geographies: making EV, expect year large as that into strength expect XX% that market but historically has auto, kind

Michael Larsen

So Chris. a color, maybe just of add little bit

at about digits, down in same single the X% I think -- quarter, and flat if Measurement some low Food & So down in Test certainly as challenges said, auto, also with look third you Equipment. we digit single

appliance Products business. So strength strength LNG our to and and transportation is welding, tied gas, oil Specialty which in some in also

a flat year-to-date, quarter, fourth strength continued in Chris the all we in you as see side, to add on So quarter, the welding. up get up, said, X% automotive we'll think pickup the about for you

be in so maybe And QX of up low up and single full that year X% should kind digit flat, range. the

feel here I today, there's good So as stimulus we talk about think about China. know of we lot sit and so pretty I a forth.

of seen haven't yet. a We lot that

sit today, that to certainly that's we about if helpful. we be here So pretty would still But as come, feel good China.

Operator

Your from Securities. Truist Jamie the next of line comes of Cook question

Jamie Cook

impressed questions. I despite lot what specialty be within PLS. -- follow-up then businesses special the headwinds there. specialty seeing you I know there's a down because growth That the just you got different that. you're of and can organic in in I two first And question, from my was segments with where One, But would I'll business, sort give of growth? break the of drove what sort after that quarter my

Christopher O'Herlihy

Yes.

I think in a specialty aerospace. good part story strength of the is

comps the to strong some, on improving specialty it is doing specialty strategic year. a us We on grower XX% our But hundred said couple And favorable segment. is of that we And that points saw, about business pockets specialty objective pretty And that. is this on seen particular like I everything do basis also this I'd in expect have think, what We single X drag, some which aerospace. a year. -- growth last long strong it's throughout segment, the been the conviction really portfolio packaging again, Areas strong. versus track it's this that's our segment, indicated, a quarter. throughout conviction packaging, we digits can bit kind belief positioning make demand, were term even say, And basis we've did consumer the to focused the doing be strengthening business we which is for saw creating in X% some that choppy, in this of equipment with year. a the full of as have strengthening in a all that all that of gives well before, we up that, as year certainly and low But of does we've here. really the Michael just potline what we involved consumer

Michael Larsen

certainly get you suddenly, XX% -- which segments add of in at what XX% the range, conviction as the plus we target at of earlier, the you're and margin happens specialty, this is just, which I'd level very enterprise XX%, the that's you gives with look in bit said get ITW, to to Jamie, if is to this X us, think not thing can that's when little and lot that performance, is that happened. I quarter a ability a is in you above first at -- unique leverage And encouraging time operating only our see

again, with leverage. And very operating that's little

also So terms into performance that's certainly in really of next continues. margin momentum of the gives pretty encouraging the as look year company the around we

Jamie Cook

for because helpful its the guys think embarrassing do. to challenging is you XX% that I plus That's

nice see Chris. follow-up, So to that. I one it's guess more

auto. You talked about market outgrowth in

service introductions about Welding product from the increased food, You the and even talked on new effort.

in You term businesses you CEO like been and to a get to for you relative you've ones, to go the more considering now you're you think over targets understanding Are difference there's of period have you're to through have, but longer ITW took how to that be any organic you're about are first any the when just portfolio there over. time. you don't CBI tough that -- with growth say thinking longer but challenged the going forever, if that is which

Christopher O'Herlihy

year, all there be and relevant think CBI, to at even around certainly pretty our grow segments. very segments comments in have that. the X indicate Investor everything we have environment, Jamie, were We're starlight and across go a the all felt that in to that so. solved. development would capability CBI is pain we've more have seen all Not today to opportunity, I terms innovation critical have into effective points With these certainly think points that XX that's capability I mobilizing innovation successful. great resources, And of on level investment exact [indiscernible] And mean we've back very innovation way of across kind starting in time CBI, to focus same way, back, a we leadership, years around that practice kind same much now ago very the with and we In higher a something we the I very approach that. plus, we different as the build if XX, that of we on the today. that customer We're are company of to think framework. the at we've seen X overt we know, lots company that believe and all, we of similar front company. X% codified our which Day the is the XX/XX segments I back And this respect very last a is was front this to to of took this. not But on

this been CBI. CBI. that of working we've terms We've of the seen years yield on on from focused for in and we've a investment in now that resources improvement seen of And couple terms in

the of So in from that path doing of every yield a there's two every that. have that's our X to at plus. and here a one segments having result north we to growing to due going somewhere I three And clear of course, today over lot very segments to will like improvement be the said, one journey ultimate one in these and improvements in of conviction

Operator

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

Andrew Kaplowitz

hopeful about you with could year. the customers much maybe electronics turn semiconductor turn more did for you've measurement I Christie, in know positive discussions see a of And mention and this positive. been

better you're for outlook the always give go segment? you you you're maybe color the conversations to obviously, us can run more as rates. a the So see But outlook, a having, going into predict do 'XX, little you on

Christopher O'Herlihy

Yes.

just we're Test ITW's characterize semi, a see based XX% to in semi the to particularly couple represents it that we're starting a bottoming customer think percent on of I is Measurement, conversations & revenues. of of having, about

bottoming here critical third have improvement I been done we had the think important this, to just similarly, that as So the which into on Test doubt a business, it in we there and think, within context. of encouraging to a & slight well. that's in is Electronics, certainly balance I Measurement, starting during And the the significantly for next while as done the solid Instron for a quarter. year us, a bellwether year. there's put business growth for kind very in bottom this saw But and of quite look quarter. no an And year is earlier then

Andrew Kaplowitz

think I hint obviously, then, in the in solid markets maybe call step Chris. I in construction Michael, Do as of back what those helpful, you mean, QX mentioned, step you towards year what the cutting the you your see end go -- That's cutting any in QX. And think led started stabilization QX changed down? businesses the versus that U.S. we cycle, markets. in to I rate you

Michael Larsen

Andy, sensitive most think, I our we're interest talking rate segment. about

business. which that. maybe similar in part business So a than I that's pointed we're I script our the New little then what teens seeing our the an a annualized mirrors of softness kind XX% in a here low meaningful better bit we're down start Zealand, North basis, of is the down to And market think is on America, being we're seeing of type kind in housing of in numbers and which Australia

think better this I that point, point at early getting things here. to are So too indicators to it's any sign or really

not in that indicator, at seen be fact Over a anything are suggest coming we've things interest the long term, that up construction point. picking certainly appear the but has leading been to down rates this to

in -- just see challenging in plus that and the certainly I that's XX% it's that up about an pretty context, this at in across company the environment the say, remarkable point -- third in and think cycle. as as we the team So here even I'll margins challenging more put of quarter

Operator

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

Tami Zakaria

It you at like in margins, in potential this question enterprise curious, point. how seems what nice very And XXXX. is quarter. performance broadly, well first more endless improvement about initiative price/cost thinking margin an was it mean and in I'm my So related on the And are I positively. the like margin almost quarter?

helpful. comments be any expecting So enterprise for what and would initiatives forward-looking next you're year about

Michael Larsen

Yes.

on of from price/cost, ahead this normalized. Let in Tami, commentary was a before, add basis 'XX. and and then, price/cost This 'XX, I positive At are modestly think it and longer can is this distraction cost said the at dollars kind as enterprise margin standpoint. on no some initiatives. But me of do you point, has Chris, a a point, as dollar back 'XX price we

particularly be other -- in also to as coming just that down, content, it pockets, are point welfare components and Now our that health leases, energy expense employee that costs seeing software electronics, in just out doesn't licenses. we're it clear, overhead costs, costs, and such have mean rental, certain labor geographies,

these So the on and to make to have pressures. be point diligent in equation. maybe continue that all very And overall, significant then price/cost on to price the initiatives, this get to offset we to sure of area we enterprise Chris. But nothing

Christopher O'Herlihy

Sure.

you Most enterprise initiatives continue you to Tami, up these couple DNA, both divisions XX/XX continuous to and how independent very initiatives meaningful improvement granular thousand this of quality initiatives talented very in in very is to are that's really be kind outcome much contributor I drives So would divisional results. ITW's And is these what really this an of practice the of that very important part an say. mindset front And are think of back they're in XX typically, to about volume. of we as and of And of said, initiatives a level. sourcing. terms have by add hundred the number. of our range divisions, when And individually. these a But these driven people at our bottom-up initiatives dollar

years, the to say the a and So these. forecast have our as they when and as is XX track lot of indicator last the these division ownership they visibility, do accountability record, divisions what over on going

divisions the mindset And is in giving. XX/XX, accountability continuous forward enterprise on that know, keeps is our confidence improvement strong an will this divisions and that really strong initiatives gift that and outcome our the to, this So of in of the really continue point. this that resides our ownership the the case as on in we that's at I refer hardware going

So we part including with an differentiated drive environment. a execution XXXX. in ongoing initiatives Enterprise that, contribution is going see certainly of from any we in And how this fundamental forward,

Tami Zakaria

strategic. And very Got it. helpful. more second my That is question is

ITW to around increase trends organically you of How power power do or opportunity a disposure an acquisitions. there's generation, So lot opportunities of these internally? forth. Do so and centers, so through the for some demand, on to maybe see assess you AI, optimism these data

some evaluate So things. the you how do of

Christopher O'Herlihy

based it relates businesses pursue standard differentiation. sustainable characteristics we that specifically, I have data center So think acquisition we as would to for on of

met not an valuation. model to all the then was and we normal could be based of business applies opportunity that the our in right business we center that above having related market, And acquire at So that criteria, on a we'd data characteristics came leverage along just and data centers. grow our everything, could can that

all So us. We on an of these equal focus their of data things attractiveness specific have we at in for a long-term don't centers. on basis look terms kind

Operator

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

Joseph O'Dea

out pretty but in think a I'm First, on I appreciating specific to you of But about quick America, better how kind hear ask activity And CapEx we there. than just and North to kind this. interested OpEx order of inquiry wanted sure versus do much activity model. book-and-ship trends. would not being see

which come some with that hear are -- some and to your to a that waiting is down, moving nearer that for degree that postelection forward you're hasn't or idea so potentially force starting getting moved there about of term? getting demand curious pent-up you and thoughts overhang think the on that folks and some some think sales customer just uncertainty forward as the tone sense that see from I you some rates And of

Michael Larsen

Joe, going. the think, here, I'd is where We're saying, by not impossible I we're not trying to Well, is the economists. predict which start economy

cycle. short more much said, you as are, We

just of great CapEx-sensitive kind we comment going businesses. on broader the saw some reading more Our in markets. what divisions do a and their on stability third to is in the I'll what's in a quarter, based which end job make respective reacting

to point Welding. I'll So

which to quoting I including and activity. up I'll and Instron meaningful way was measurement, As our year-over-year business, point a test mentioned, of kind basis and improve a on in order

TX the But that rates. based what from and were talking We're goes in with QX it maybe certainly softness some really stability And tied squares modeling run So here. where construction the current with was we'll more see customers. about. specifically automotive on you production, our with then to much customers CapEx, in and

helpful So out go maybe be based businesses little rates XXXX we'll how for seeing a they would lower, into all today, and and if on what as plays it interest we're sure. came our in we see

Joseph O'Dea

to relative can more drive to becoming wanted to just And R&D innovation, you CBI the you then on a degree we a keep ask of which sort doing we think -- similar growing levels more and it bit little color. what initiative would or R&D might as there. appreciate to we sales sort allocate of at need the I to about what and there think you're as that on about it us think means side

Christopher O'Herlihy

Yes.

of more for request spend an we basically, the or all R&D fund projects. basically good outcome is So us, innovation -- divisions. largely in

investments have We X areas innovation in focused marketing. over the years X been like and -- or making last very making strategic

on continue, projects. whatever happy teams number their not R&D in It's to to are of that we're go really And And that's was to funding that. an spent focused they're expect our of up, our market, that have. degree -- because outcome opportunities the typically there really it in focus a come are if businesses of typically good for on money XX but spend problem And we these us. key but We spend very customers. that well it's is an all

Michael Larsen

our American sales. R&D defined about I'd just spend, it we've And X.X% is the years an from of standpoint, over say, Yes. the here way

significant sales as as R&D forward. so dollar And that spend. So go will don't grow, in change foresee the we we any

divisions that project and Chris important every that's put fund put said, them. we our to really forward As forward,

an it this approach it's we of outcome process in how that's that here, Chris really so of And described. terms

Operator

of Your next America. Bank of the of Sabrina question from Abrams line comes

Sabrina Abrams

your X% CBI And on in provide targets. I color you for you journey. all segments any which maybe long-term its segment this Day, the I to you for to X% reach But commentary are of back some this at that driver and about meaningful could for think year? most contribution more on think at Are to CBI track the follow-up Investor the understand mature a relevant was question, As X framework segments. to if

Christopher O'Herlihy

Yes.

track of much So market our as launches. we're varying year, across Welding segments. our and north Welding on that welding, before indeed, We're Michael based X highlighted year, point is very new of challenges, highlighted we if of in suffering in to not with we've this I his our would beginning example, but X% the target the at some do XXXX, X% product as accomplishment we're business CBI the currently as getting that, an of we progress contribution significant end levels plus commentary, are several forecasted at to by line on making. in

Test which which & in in So new be area innovation and obviously, Welding of Electronics, our of significant attractiveness what's of will an developed, on to Measurement required be those which the tested, increasing all on testing R&D stringency markets, highlight speaks in to context own being going food of materials all I'd equipment, areas sophisticated other more then advantages. is and And requires competitive our and one quality control, in equipment. like more really the

electric the Our savings point given evidenced average. is of market the food environment, as of opportunity is And into innovation fact fertile innovation. that I by other the areas years. increased And the several one, vehicles the very is vehicle now, auto. we've that auto equipment to penetration leverage energy higher that disruptive in with course, Auto for enormous savings, sustainability vehicles right managed penetration electric particularly water a electric we're provides capitalizing than our and of nature for on to of

segments, So X highlight the we are that right feel I pretty good now. about all but those X

Sabrina Abrams

the us, business of is above-average that PLS some seems products is it growing and behind and And specialty nicely.

of of got appetite are to guys do M&A portfolio there more some rationalization, given rid some past us? is behind Wilsonart, of these this moving You divestitures

Christopher O'Herlihy

Yes.

well-defined hasn't would of fits strategy. the I our we we at outlined -- leadership We So changed disciplined our conference. got say since what clear on portfolio strategy, pretty and M&A view posture this a believe clear

And us to criteria. focused And the first long minimum That's on case grow at extend term. finding over we're our us, of right X% a opportunities. for that so it's acquisitions ability high-quality the the a

an be years The look model MTS we've the the we the to able did got acquire to our pretty a acquisition criteria. to is an our will second leverage example very for provide turning a selectable, business criteria then that of right the basis, on I could improve fulfilled but these execution review home all And And being when on base valuation acquiring basis term as a ITW criteria in a now of execution, very now point to decent business the X.X example, ago, be which long-term out an we're opportunities that's the on at in, margins. of we're thanks business strong at to to we going business. the obviously was an of MTS return We superb strong we it ongoing shareholders. long it. criteria. And And if that run selective

Operator

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

Julian Mitchell

data this dragged I one in. AI call be was hoping they but I might think got could I escape centers,

Michael Larsen

We did bring record. it up the just for

Julian Mitchell

Michael Totally fair. inventories. sort about fair. Chris, for we of or Totally just If second, a --

your Just own or customers about those of and levels distributor curious your partners.

up. X% years XX still ago, but XX% I this rate share running of own steady gradually the time, like are maybe of picks little down of as year, versus the but no, leaned you then revenue And they versus something customers? is state rightsized kind at of now from sort run it and years pretty ago, being X of dollar-wise come a X just should assess out. sort revenue generally sequentially or your pre-COVID, X your a of Are years after do play inventories here think inventories a how of over distributors as high bit good

Michael Larsen

right, think I Julian. Yes, that's

start Let's there, channel. the

-- I have are levels think those normalized. inventory

used tomorrow. inventory ship carry they're kind of to channel a our we order you lot place an doesn't Our because today, of

in us. to progress be that levels above expect was here with them just on in service, free the broadly customer no And to then good was level XXX% in of carry It I'd which and the with to meaningful quarter, into own So line from typical of levels. of more kind expect inventory. that continue And free say make pivot flow. inventory lot a again third you we to incentive cash inventory again QX on for flow. there's cash more our I is

here kind come to our additional pre-COVID reducing to hand, year. in is million X.X inventory months focus then about QX getting out of our and hand. on back of We're X, about million the levels we've on $XXX about on next we'll talked range So $XXX months that expect of that difference to into

So you do above opportunity flow the term. way company the for near to free a average we big as I view same think cash in the that drive here

And us. real started opportunity came made where here. our XX%, down, we certainly agree but levels, inventory they those down it's a I levels that which service for think want year-over-year. inventories year, there's while because we competitive Last think believe is advantage we I some I maintaining that, we some do are we've can reduce progress X% customer to --

year last fact back X.X investing our billion capital flow the the X% as dividend this, I'll all productivity, for And bit and years this and funded, cash doesn't impact thing free we're raised of growth year, say the our of maybe in than in lower shares businesses We're allocation new is all buying a that plans. we're little this in planned. products are we August, our prior

in here X our divisions here. way So we're opportunity agree every XX of that meaningful a definitely and after with in going I there's you it -- an but

Julian Mitchell

I a last about market third think said, up dollars to share good flattish in year-to-date is of pretty follow-up, year-to-date of year my versus maybe steady, then sort organic question quarter sort you very and somewhat answer. sort And that again R&D just sales of of year-on-year. flattish and customer-backed thinking innovation so the That's driving as down growth

the a for sort of R&D you're So in -- the of of of where when ask we're that context about market operating kind are businesses thinking structure of share getting letting the you and dollars. levers decentralized sort it's

versus work around decentralized nature. with us Any interplay up X share. for examples Maybe of between me of of that you're spend return examples more that sort driving dollars helpful different does that to or how X least. trying into kind get might of a How be high that give businesses at

Christopher O'Herlihy

Yes.

focused on of So years. X been higher we've rising of, innovation [indiscernible] increases I think, in in the It this spend. to that beyond double-digit comes last of would really Julian, or marketing spend and X seen and investments in of the across lot pretty a spend say, much over time I goes I has the mean level basis focus. innovation a portfolio. our But [indiscernible] down

you on doubled to think we've where can now that said, few yield it increased we XX/XX 'XX, 'XX same investing the this years in And front-to-back that seems we're see X% down for really in But already down in way ] doubling last here. it capability been was it's building time. I the we've As about and like [ about I on had, where last the X%.

So we're already seeing the investments.

at achieve segment this. in business level the this And this but both framework. really be of quality A down our is capability to divisions to the able also our to enable our build to lot comes

the innovation lot very exact that of in on it know strategy. of that make company. in took we practice that back division the this And sure resides everywhere to every a that I want XX/XX our was the same have last We've codified is approach front to we phase across in successful great We ITW.

path a on there. already we're So outcomes. seeing the We're great

starting on We CBI continuous out, in improvement contribution see from here expect every XXXX. in year to

Operator

question line of comes the of next Stifel. Jones from Your Nathan

Unknown Analyst

improvement potentially Farley I underlying see market, do on having industrial on we Adam in wanted Welding. up is maybe the This is 'XX, the for impact upcoming on What Nathan. the election you to believe postelection? follow could sentiment and an

Michael Larsen

Maybe want in? to you jump

Christopher O'Herlihy

Yes.

level, say, Nathan, company. we're a a I type short at would look, high So

of that to hearing would and election, customers kind our from related reading what's overt specific front I the reacting we're or There's say. in nothing of to we're So us.

Michael Larsen

with agree I Yes, would that.

there I there's I really it than other nothing anecdotes, that are point of some specific think And think -- leave we'll that. to. we at kind can that

Unknown Analyst

any release, Okay. press I wasn't your hurricane out your in customer called maybe there it the sites or enough. Fair know but at was impact sites?

Michael Larsen

God, on I was regions, customers impact our people side. of our thousands and in in but there in areas. all speak for our Not facilities those thank on our affected those no No. of can't

Erin Linnihan

Kathleen, call ends does for today? us the that

Operator

further in for participating today. you, questions [indiscernible]. no are there Yes, at call everyone, the this Thank time.

Illinois Tool Works (ITW) 30 Oct 242024 Q3 Earnings call transcript