ITW
#Thanks, <UNK>, and good morning, all
In the third quarter, the ITW team continued to execute at a very high level and as a result, delivered another quarter of strong financial results
Q3 earnings were $1.85 per share, which includes a $0.14 per share benefit from a favorable legal settlement that <UNK> will discuss shortly
Excluding the impact of this legal settlement, earnings per share increased 14% year-on-year, and operating margins increased 130 basis points to 24.4%, with Enterprise Initiatives contributing 110 basis points of improvement
In addition, we continue to make good headway on organic growth acceleration with continued progress on our organic growth initiatives across all seven of our segments
Year-to-date, our organic growth rate of 2.7% is more than double last year's rate despite the fact that two of our fastest-growing segments, Auto OEM and Food Equipment, are experiencing a little bit of market softness
Based on our solid Q3 results and a fairly stable near-term end market demand environment; we are increasing our full year EPS guidance as we now expect to grow full year earnings by 14% at the midpoint, and that's excluding the 17% per share full year benefit from the legal settlement
Overall, we continue to be very pleased with the progress we are making in leveraging ITW's differentiated business model and high-quality diversified business portfolio to deliver consistent top tier performance
We look forward to updating you on our strategy and long-term performance goals at our <UNK>ual Investor Day on December 1. With that, I'll turn the call over to <UNK>, who will provide you with more detail regarding our Q3 performance and 2017 forecast
Hey Andy
Well, I think overall, what I would say is we certainly are getting much better balanc across the portfolio
Keep in mind that there is – and this is just repeating something you already know, but there has been an intense focus on a lot of the restructuring initiatives going on inside the company related to our Enterprise Initiatives
85 divisions across the company all starting to make this pivot, all of them in various – in different stages in terms of making that turn
But I think the encouraging part in terms of what we see is that we're getting better balance across the portfolio
All seven of our businesses are improving in terms of their year-on-year organic growth rate
But it's not a matter of just simply flipping the switch
It is a matter of making a progress on the things that they're focused on internally and then making the shift in terms of the relative balance of effort, energy, attention and investment around growth initiatives
And those are all transitioning across again 85 different divisions across the company
So, I think as we look in terms of our progress to date, I think <UNK> talked about it, I think our – the fact that we've been able to get the organic growth rate up better than a full percentage point this year relative to last year with the two businesses that were generating the fastest organic growth for us being in ---+ experiencing some challenging near-term market conditions, I think, overall feels pretty good
And certainly, understanding what's going on inside these businesses and the kind of progress they're making in terms of this turn, I think we're set up well for another ---+ we'll talk about 2018 in December so we won't get ahead of ourselves, but we expect continued progress in 2018.
Yes, I feel confident that our ---+ we'll be able to make another step change improvement in overall organic growth rate in 2018 relative to 2017.
I think for Food Equipment, first, <UNK>, I would expect a growth rate in Q4 on a year-over-year basis that is similar to what we just had here in Q3, maybe a little bit better than Q3 based on current run rates
I think for the Automotive business, the organic growth rate in Q4, on a year-over-year basis based on current run rates should be slightly better than Q3 and also factoring in the forecast from IHS that I just went through
So, if you look at in Q4, North America is down less than it was in Q4 and the Detroit 3 are down less in Q4 than they were in Q3. So, both those businesses should be in line with Q3, maybe a little bit better on a year-over-year basis in Q4.
As the momentum is solid in the other five, that's what I would say heading into Q4.
And the European restructuring is a one-quarter event
Joe, we typically don't discuss the specifics of those projects
So, Joe, on 2018, I think we're going to have to wait until ---+ when we get together in New York in December
I think, we haven't rolled out the annual plan here yet, so I wouldn't be ---+ I really don't want to comment on 2018 yet at this point
I think what we did say on the call last time where the headwind was 50 basis points in Q2, that we expected it to get better from here on out
We just did 40 basis points in Q3. We expect it to be a little bit better than that here in Q4. And so, for the full year, it should be about 40 basis points of headwind
And I'll just ---+ to put it in context, I mean, we just took up our margin guidance for the full year
We expect to be at 24% operating margin, and that's after offsetting 40 basis points of price/cost headwind here in 2017. So, we ---+ fundamentally, nothing has changed in terms of how we look at the price/cost equation
Should get a little better in Q4 and then we'll give you an update in December when we get together in New York in terms of what it might look like for 2018.
A little better Auto
I think we’ve got to defer you to December, sorry
Our plans are still coming together
I would expect every one of our seven businesses to be better in 2018 than they were in 2017.
Organic and on margins, too
Now what exactly that looks like, we got to get through the annual plan process here and then we'll ---+ we can talk about it in December
Well, I'd make two comments
One is that ---+ one would be just to remind you that PMI was strong in 2014, 2015 and 2016 when overall organic rates in our industry were not particularly strong, so I'm not sure that, that's the best parameter necessarily
But I would say overall is we are all about what's within our control
So as <UNK> said, none of our forecast is ever related to anything other than current run rates and what we expect to do incremental beyond that
So, everything that we are committing to, everything that we are working on is all in the realm of the various areas within our control
So, pivot to organic growth is much more focused on, as we talked about, additional penetration opportunities with our biggest and best customers, a very healthy and productive new product pipeline and some combination thereof across all sets of our businesses
I think it'll ---+ it's hard to tell
It may be in line with what we're seeing this year, maybe a little bit lower than that
I'll just ---+ the PLS is a drag on organic growth rate but it is really a very positive thing for what we're trying to do from an 80/20 standpoint
It really sets up the portfolio for much stronger organic growth on a go-forward basis with best-in-class margins and returns
So, we haven't talked about it much this year
We – I mentioned it today because it was a little bit higher, it can be a little bit lumpy as we go through these projects across 85 divisions
And when we rolled it out, we were a little bit higher than the average for this year
But in 2018, we're probably going to enter into more of a maintenance mode
What that number looks like, I don't know right now but it's probably a little bit lower than what we have seen this year
Yeah, thanks
There's no impact from that
Hi, <UNK>
So, I'd say that the first point of your question was correct that you do see the impact of price/cost in gross margins
But you also see the impact of the strategic sourcing efforts in the gross margins
So really on the indirect side is not ---+ it's really primarily on the direct side
And the only point we're making, <UNK>, is if we take those ---+ if we were to report those Strategic Sourcing savings in the price/cost number as some of our peers are doing, not saying it’s good or bad, I'm just saying the way we report it looks a little bit different than some of our peers, the price/cost equation would be positive this year and it would have been positive in Q3.
Yeah, so <UNK>, let me just say first, we have more than 300 employees in Houston, 400 in Florida, 20 employees in Puerto Rico, and the most important thing as we talked about the impact of the storms is that they're all safe and we're only a small number of them are personally invited
And all of our facilities, the eight facilities in the region, we didn't have a lot of significant damage and we're back up – and they were back up and running pretty quickly
So, in terms of the results here in the near term, there were certainly some puts and takes by business, which is what you're getting at
We did see a little bit of an uptick on the welding side as well as the construction side
And that was offset actually by some Food Equipment orders that were not shipped into the region where the customer elected to defer for now
So overall, probably neutral for ITW here in terms of the third quarter
I think longer term this will probably be a net positive for some of our businesses, especially on the Construction side
But we've not put anything in the forecast at this point
It's in 2018 over 2017.
Good morning
So, if you look at, <UNK>, so there's a line in the income statement in the schedule on the back where we typically, on a quarterly basis, have $20 million of unallocated cost
That has flipped positive with the legal settlement
I would expect for next year that our corporate cost will be flat on a year-over-year basis
And so, as a result of that, you'll see – we will come back to that $20 million of unallocated cost in the income statement as we go through next year on a quarterly basis
So, don't expect any big changes from a corporate cost standpoint
It's really the majority of what we're showing there is oil and gas, so international was down
I think oil and gas international was down 11%, which is in line with the overall number for the international side
Yes
I think, Joe, if you remember last year, the Auto business in China was up 40% year-over-year, so that was – so this was a tough comp, and despite that, the business was up 10%, the Automotive business in China
When we look at China, it's – the strength is really broad-based
So, Test & Measurement, Food, Polymers & Fluids, Welding all positive, Specialty Products all positive here in the third quarter, up 13%
And on a year-to-date basis, the same is true and our businesses in China are up 15% on a year-to-date basis
Yeah, no, I think across the board really stable overall, like I said, China up 13%
Yeah, it's about two quarters until we've offset any ---+ the material cost side with price, about two quarters historically so
All right
