Q1 2023 Illinois Tool Works Inc Earnings Call

Speaker 2: Good morning, my name is Rob and I will be your conference operator today. At this time I would like to welcome everyone to the ITW First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session.

Speaker 2: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one. For those participating in the Q&A, you will have the opportunity to ask one question and if needed, one follow-up question. Thank you. Karen Fletcher, Vice President of Investor Relations. You may begin your conference.

Speaker 3: Okay, thank you, Rob. Good morning and welcome to ITW's first quarter 2023 conference call. I'm joined by our chairman and CEO , Scott Santi, and senior vice president and CFO , Michael Larson. During today's call, we will discuss ITW's first quarter financial results and provide an update on our outlook for the future.

Speaker 3: about important risks that could cause actual results to differ materially from our expectations.

Speaker 3: This presentation uses certain non-GAAP measures, and a reconciliation of those measures to the most directly comparable GAAP measures is contained in the press release.

Speaker 3: Please turn to slide three. And it's now my pleasure to turn the call over to our Chairman and CEO , Scott Santi. Thank you, Karen, and good morning, everyone.

Speaker 4: As you saw from our earnings release this morning, we delivered a solid start to the year.

Speaker 4: with results coming in largely in line with our expectations heading into the quarter.

Speaker 4: Starting with the top line, organic growth was 5% with four of seven segments delivering positive organic growth.

Speaker 4: led by food equipment up 16%.

Speaker 4: welding of 10%

Speaker 4: Automotive OEM up 8% and tested measurement and electronics up 6%.

Speaker 4: Palmer's influence was flat, construction was down 1%, and specialty was down 5%.

Speaker 4: Operating margin expanded 150 basis points to 24.2%.

Speaker 4: with 100 basis point contribution from Enterprise Initiatives.

Speaker 4: Gap earnings per share increased 10% to $2.33.

Speaker 4: which was a new Q1 record for the company.

Speaker 4: Our free cash flow conversion rate was 86% of net income, which was in line to modestly above normal Q1 levels.

Speaker 4: free cash flow conversion rate was 86% of net income, which was in line to modestly above normal Q1 levels. Looking ahead at the balance of the year,

Speaker 4: While there is of course some uncertainty with regard to the macro environment, I have no doubt that my ITW colleagues around the world will continue to read, react and execute at a high level to whatever comes our way.

Speaker 4: I will now turn the call over to Michael to discuss our Q and performance in more detail and our updated full year guidance. Michael?

Speaker 5: Thank you Scott and good morning everyone.

Speaker 5: ITW delivered another solid quarter operationally and financially, starting with organic growth of more than 5%.

Speaker 5: Foreign currency translation headwind and divestitures reduced revenue by 2% and 1% respectively.

Speaker 5: On the bottom line operating income grew 9% with incremental margins of 98%.

Speaker 5: Operating margin improved 150 basis points to 24.2%.

Speaker 5: with enterprise initiatives and price costs contributing 100 basis points and 190 basis points respectively.

Speaker 5: In addition to higher wages and benefit costs year-by-year, we are funding our growth investments, including headcount, in the areas that support our organic growth strategies and initiatives.

Speaker 5: And we still delivered 150 basis points of margin improvement in the quarter.

Speaker 5: Gap EPS grew 10% to $2.33, which included foreign currency translation headwind of $0.06, and our Q1 tax rate was 22.6%.

Speaker 5: And as Scott said, it was encouraging to see our free cash flow performance return to normal levels.

Speaker 5: Overall for Q1, excellent operational execution across the board and strong financial performance including record EPS.

Speaker 5: Please turn to slide four, starting with positive organic growth in all of our major geographies.

Speaker 5: including North America, which represents about 55% of total revenues.

Speaker 5: and grew 5% and Europe was up 6%. Asia Pacific grew 2% despite a 6% decline in China due to COVID-related headwinds in Q1.

Speaker 5: Moving on to segment results starting with automotive OEM and solid organic growth of 8%.

Speaker 5: North America was up 3% and Europe grew 16%.

Speaker 5: China was down 5% due to COVID-related headwinds in Q1, and we're seeing the expected bounceback here in Q2.

Speaker 5: In terms of automotive OEM margins, we are beginning to recover the price-cost margin impact.

Speaker 5: that has diluted margins in this segment by about 450 basis points.

Speaker 5: in this segment by about 450 basis points over the last two years.

Speaker 5: As a result, we expect price-cost margin impact to turn positive starting in Q2.

Speaker 5: which combined with positive volume leverage and contributions from enterprise initiatives

Speaker 5: lead to higher margins sequentially and year over year, starting in Q2 and for the balance of the year.

Speaker 5: Turn to slide five. Food equipment delivered another storm quarter with organic growth of 16%.

Speaker 5: as North America led the way with organic growth of 21%.

Speaker 5: Institutional end markets were up more than 50% with particular strength in education and logic.

Speaker 5: In addition, restaurants were off more than 30%.

Speaker 5: International revenue grew 9% with Europe up 11% and Asia Pacific was down 6% due to China.

Speaker 5: Strong progress on margins with Q1 operating margin of 26.7%, an increase of more than 400 basis points year-over-year.

Speaker 5: Test and measurement and electronics delivered organic growth of 6%, despite a double-digit slowdown in semiconductor-related revenues.

Speaker 5: which represent about 20% of segment revenue.

Speaker 5: On the other hand, demand for our capital equipment remained strong as evidenced by Instron, for example, which was up 22%.

Speaker 5: Overall, test and measurement grew 12% organically. Electronics was down 4%.

Speaker 5: Moving on to slide 6, welding delivered double-digit organic growth of 10% in Q1 on top of 13% in Q1 last year as equipment grew 10% and consumables were up 11%.

Speaker 5: Industrial sales remained strong with organic growth of 17% while the commercial side was down 2%.

Speaker 5: North America grew 10% and international grew 12% driven by strength in the oil and gas business.

Speaker 5: grew 10% and international grew 12% driven by strength in the oil and gas business which was up 15%.

Operating margin expanded 110 basis points to 31.9%.

Operating margin expanded 110 basis points to 31.9%, a new record for the segment and the company.

Organic growth in parmesan fluids was about flat against a difficult comparison of plus 13% last year.

automotive aftermarket was down 1%, polymers grew 1%, the fluids were also up 1%.

A geographic basis, North America grew 1% and international declined 2%.

Turn to slide 7, organic revenue and construction was down 1% against a tough comparison of plus 21% last year.

Residential construction was down 1%, and commercial construction, which represents a little less than 20% of the business in North America.

construction was down 1% and commercial construction, which represents a little less than 20% of the business in North America, was up 5%.

Europe was down 9% and Australia and New Zealand was up 3%. Finally, specialty organic revenue was down 5%.

which included three percentage points ahead when from product land simplification.

On a geographic basis, North America was down 4% and International was down 6%.

Okay, let's move to slide 8 for an update on our full year 2023 guidance.

And as you saw this morning, we raised GAAP EPS guidance by five cents to a new range of $9.45 to $9.85.

which considers the lower projected tax rate for the full year in the range of 23.5 to 24%.

Given the level of macroeconomic uncertainty going forward, we're essentially holding our operational guidance.

and adjusting EPS to reflect the lower projected tax rate.

Our organic growth projection of 3-5% reflects current levels of demand, with some risk adjustment for further slowing in certain end markets.

Combined, foreign currency translation impact at current rates and divestitures are projected to reduce revenue by 1%.

Operating margin is projected to expand by more than 100 basis points at the midpoint of our range, which includes approximately 100 basis points from enterprise initiatives and positive price cost margin impact.

Like I said, we're off to a solid start to the year with some positive momentum heading into Q2.

and we remain well positioned to continue to outperform in whatever economic conditions emerge through the balance of 2023.

With that, Karen, I'll turn it back to you. Okay. Thank you, Michael. Rob, let's open up the lines for questions, please. Certainly. At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on our telephone keypad. We'll pause for just a moment to compile the Q&A roster.

And your first question comes from a line of Andy Kaplowitz from Citigroup. Your line is open.

Good morning everyone.

mor Michael, can you give us a little more color to how you're thinking about the company's margins for the year? I know you didn't change your forecast but marginas- you was a 150 base points in Q1. I think you guide us to one hundred base points and you said ice versus ST and Q and I think you said it was hundred and 90 points. I know you're thinking about one hundred BIS points for the year, So you're thin that.

and also on free cash flow. So Q1 margins expanded 150 basis points. That's typically the low point for the year. And so if you go back and look historically, you'd expect margins to improve from here in Q2, again in Q3 and Q4. And based on our current planning, we expect...

about 100 basis points of margin improvement year over year in each one of the remaining quarters. And actually across our segments we're seeing similar trends in terms of margins.

in improving from here. We are, if you look at kind of the bridge, and we talked about this last quarter as well, we're certainly seeing some positive operating leverage from our organic growth. Please check the description for links to know more about, how the growth lowers the number ofinaudible

This year we're seeing about 100 basis points of contribution from enterprise initiatives

that's well within our own control based on projects and activities that are going on inside the company. We are starting to see price.

cost margin impact being positive. That really started in Q4 and as you said another step forward here in Q1. We expect that to remain positive for the remainder of the year.

We've diluted margins about 250 basis points at the enterprise level over the last two years and maybe we'll recover about half of that this year, so maybe a little bit.

more than 100 basis points from price cost. And then the delta is what we talked about in terms of the investments that we're making to support our organic growth.

and including in our people. And so we are certainly seeing some increases there in terms of wages and benefit increases that everybody else is seeing. So that's kind of the margin picture for the year. I hope that answers your question.

Yeah, Michael, that's helpful. And then, last quarter you said that 25% of your ITW's businesses were slowing. Is that still the case? And that those businesses end up slowing at the run rate you projected, maybe better or worse than you projected. And then Q1 was a bit higher than you predicted in terms of seasonality. Are you still thinking?

So that 49, 51% in terms of EPS breakdown for the year. Yeah, I think we're, if you look at the, what we talked about last quarter was about 25% of the company's revenues slowing down. And so just to maybe remind everybody, we're talking about residential construction, we're talking about commercial welding and the automotive aftermarket being down here in Q1 and kind of in the...

was actually in line with plan in terms of what we expected. We do expect some further slowing, primarily in this handful of businesses that I mentioned. And what I would just say. And that's not new. That's in our plan. That was in our plan, and that's included in our guidance and our plan for the rest of the year.

I would just say, you know, there's a lot of strength in other parts of the company, obviously. The vast majority of our businesses are still seeing solid demand. We're always going to have some headwind and tailwind, and it kind of all nets out to some pretty solid performance, as you saw in Q1, as you would expect.

The same for the remainder of the year. I'll just say this. I mean, the environment, obviously, this is pretty uncertain at this point. Things can change pretty quickly, but based on what we know today, we remain really well positioned to deliver.

solid performance here in Q2 and for the balance of the year. Mike, are you still thinking that 49-51 split? Yeah, from a planning standpoint, I think that's still a good assumption and in line with really what we have done historically. Thank you.

performance here in Q2 and for the balance of the year. Might be you still thinking that 49-51 split? Yeah from a planning standpoint I think that's still a good assumption and in line with really what we have done historically. Thank you. Thank you.

Your next question comes from the line of Tammy Zaccaria from JP Morgan. Your line is open.

Hi, good morning. Thank you so much for taking my question. So you mentioned sequentially we expect automotive margins to get better from here on. How about sales? Should we also expect the first quarter sales to be the lowest of the year and then build from here? Or is there some seasonality?

that we should be modeling.

I mean there's very little improvement from here on out. I think it's really the growth rates year over year are more driven by the comparisons. So if you look at Q2 last year, there was a meaningful decline or lower number in auto bills.

that's going to be higher this year, so we will see some good growth in Q2 on a year-by-year basis, but sequentially you're not going to see significant, and certainly not an assumption baked in here in terms of significant revenue growth sequentially.

Thank you so much. I will pass it on to the next person. Sure. Thanks, Tammy.

Your next question comes from the line of Jeff Sprague from Vertical Research Partners. Your line is open.

Hey, thank you. Good morning everyone. Jeff. Hey, maybe two separate topics from me. If you think about the the parts of the portfolio that are you know still resilient and you have disability, I think one of the uncharacteristic things maybe you saw in the last year or so is you know backlog build where you wouldn't typically get you know backlog

necessarily a backlog driven company.

And while backlogs have come down a little bit, they're still significantly higher today than kind of pre-COVID levels.

So maybe not running at 2, 3x, but at least 50% higher in businesses like welding and food equipment where we're still seeing a fair bit of backlog.

supply chain continues to moderate here in terms of the challenges, we're going to see backlogs come down, and that's exactly what we're seeing across the company. And I wonder if you could speak longer term to auto margins. I think you said kind of 450 basis point hit from just the price cost arithmetic and the game catch up there. Margins are down only about 300 basis points right over the last year or so. Are you actually pointing us to kind of higher structural margins in auto on the other side of this? I know we don't get it all in 2023, but are we?

Are we headed to a higher place than we were a year or two ago in auto margins? Yeah, I'm not sure Jeff the exact cop you're referring to but I think it's safe to say that the auto margins we see a

You know, a load of mid-20s business over the next two or three years. And, you know, it's a combination of great growth prospects there.

the fact that all the new programs that we add are margin positive.

And in fact, just to put in a plug for our investor day in a couple of weeks, we're going to spend some time detailing out sort of the margin path on auto and more.

substance.

Great, that would be interesting. I'll see you in Boston. Our next question comes from a line of Scott Davis from Melius. Your line is open.

Hey, good morning, Scott, Michael, and Karen. Hi, Scott.

I was wondering if you guys could give us a little bit of a window into what's going on in China. You know, I think the April PMI came in a little lighter than what folks were expecting and back down a contraction level. But they should be reopening and I think January was probably the toughest month you had in the quarter. But you've had a chance, I'm guessing by now, to see at least an early look at April . What are you seeing there?

Just from a macro perspective and perhaps into each of the businesses, if that makes sense.

All right, that's that's helpful and I'm gonna go back to Jeff's question and I don't want to blow up your your investor day So feel free to punt but what is the era of price? De-escalators or you know price downs and and and the auto contracts is that era over with and we're At least over the next five years you envision more of a flattish price Environment or is is nothing really changed and at the end of the day we're going to be back into that Kind of usual down one two percent price dynamic. Yeah, I think it's more the latter to be to be honest here I think the industry has not really changed in terms of how these contracts are Structured where you get a lot of price up front

And so the key there is to continue to innovate and solve problems for customers in ways that nobody else can. And so as you win new programs and get new content on vehicles, that has to come in at a higher price. And in terms of the structure...

of price downs every year, that has not changed at this point. Okay, thank you for the integrity of answer. I'll pass it on. Always.

Hey, can we talk about your position in the Chinese auto OEM market? There seems to be a real change that's happening there and I'm just curious, how do you think your position is today? Do you need to do anything to kind of help scale the business? Any thoughts around that would be helpful. Well I think as you'll see again at investor day, there's been a pretty dramatic shift in what's been a very successful automotive business in China. The fastest growing OEMs are the local Chinese OEMs and particularly on the EV side.

win in the Chinese automotive business. So it is a very different business from five, 10 years ago, but still very successful. And frankly, the organic growth prospects there in terms of above market organic growth are really some of the best inside the company. So we'll, you know, Joe, that's, well again, we'll spend a little more time on this at Investor Day, but we're certainly very optimistic on that business. That's great to hear. I'm looking forward to learning more about it. I guess that the follow on question, and I know we've talked a little bit about.

the margin recovery in autos and we'll get more at investor day. I'm just curious though, can you help maybe quantify how much of an impact price cost was to the margins this quarter on a year-over-year basis? And I know that you're now forecasting for sequential improvement and year-over-year improvement as the year progresses.

But how much of a benefit is it expected to be as we progress through the quarters?

Yeah, so I think it was slightly negative price-cost margin impact in automotive in Q1, and like I said, we're expecting this to begin to turn positive here in the second quarter. We are seeing overall deflation on more of the commodities, including resin, so nylon and acetal.

those more basic commodities, those prices are coming down. So that's part of what's helping us.

along with, like we said, new content coming in at higher margins. So those combined will lead to...

the beginning of cost recovery, price cost margin recovery this year. But as Scott said, this could take two to three years. This takes a little bit longer in automotive OEM than in other parts of the company. And I just point out.

Following up on Michael's comment that our auto business still outperforms You know the pure benchmarks by a margin factor of two and a half X that the returns on capital we generate are absolutely terrific and right in line with with what we do elsewhere in the company so from a Long-term standpoint, you know, these are short-term issues that will Will deal with but it's not you know, it's not terrible by any stress the business still performs Really? Well, that's true

Great, thanks guys. Your next question comes from a line of Steve Volkman from Jefferies. Your line is open. Hi, good morning everybody. Michael, you sort of answered a small part of my question, but I'll ask the broader one. I'm curious. What makes you think you're getting started?

what you're seeing across the company in terms of the cost side specifically. I think you mentioned a few of these commodities down maybe for automotive. Are there any other areas where you're seeing desolation on the cost side? And then the follow on is any risk or

you know, how do you plan that going forward relative to your price? Is there any risk that kind of price follows that back down as that goes down? Thanks. Well, so I think Steve, we're seeing, I wouldn't say we're seeing significant deflation at this point. It's just costs are not going up anymore. There's maybe a little bit of deflation, like I said, in kind of the basic commodities that we mentioned.

On components, so assembled parts, machine parts that have labor content.

I think the costs are going to be a little stickier there, again, because of the labor component.

In terms of our planning, we, you know, consistent with how we always do this, our planning assumptions are based on all known...

cost increases and decreases as well as the price that we have either implemented or announced. I think we are kind of lapping these more inflation driven price increases and we're kind of back to normal price increases.

increases and decreases as well as the price that we have either implemented or announced. I think we are kind of lapping these more inflation-driven price increases and we're kind of back to normal price increases.

In terms of will those price increases stick as material costs potentially come down? I think we have only 5% of our revenues roughly is tied to an index. The vast majority.

In terms of will those price increases stick as material costs potentially come down, I think we have only five percent of our revenues roughly is tied to an index, so the vast majority we would expect to.

certainly be able to maintain our historical price premium. And at the same time, we want to compete and we want to gain market share, which is really one of the big priorities, if not the number one priority of our enterprise strategy, which is strategic share gains to consistently grow.

organic growth above market. So that's how I would, I think we would frame that.

Great, okay, thank you. And then just a quick follow up on the construction products, Mark, were quite a bit higher than I think some of us were looking for. Anything to call out there that was kind of margin goodness and how that sort of goes going forward? Yeah, I mean when you see something really unusual, the answer is usually price-cost.

So that's another segment that's been hit really hard over the last two years, actually a little bit more than the automotive segment from a margin standpoint. And here what you're seeing is we are beginning to recover the margin impact, which is what we talked about is about to start happening in the automotive business. So that combined, so positive price cost combined with

a significant contribution from Enterprise Initiatives actually above the average of the company. I think they were the highest.

inside the company at 170 odd basis points of contribution from Enterprise Initiative. So those were the two big drivers.

in the construction business. And what's really encouraging is as we look kind of forward, this is not a one-time kind of Q1 impact. We expect to

based on what the team is telling us to sustain those margins.

in the high 20s, which is pretty remarkable when you think about where we started pre-enterprise strategy somewhere around 12%. So we expect to sustain those.

high 20 margins, certainly in the near term and medium term.

All right, I appreciate it. Thanks. Sure. Your next question comes from the line of Jamie Cook from Credit Suisse. Your line is getting open.

Hi, this is Chigusa Koutou on for Jamie. Thanks for taking my question. So on organic growth, you maintain the 3 to 5% guide, but I was just wondering if the outlook by segment shifted around at all? I think it is salad.

Actually, of course, we looked at this. I mean, I think we're very close to what we told you on our last call when we gave guidance for the full year. We are seeing a lot of strength in automotive, food equipment, test and measurement, welding.

Construction may be a little bit better than what we had planned. But overall, kind of grand scheme of things, we are right in line with the assumptions that we gave you at the enterprise level, when was that, three months ago? Yeah, last quarter.

Okay, great. Thanks. Then on price cost, so you mentioned that it was 190 points positive this quarter and you remember you expected to be positive for the remainder of the year, but I was wondering how we should think about cadence just because I thought there would probably be some puts and takes with auto.

just beginning to recover just onward. Yeah, I think, you know, 190 basis points from price-cost and that's not your normal contribution. So I think we'll have...

Based on what we know today, another similar contribution in the second quarter, and then it'll come down in the second half of the year, just as we run into some of the comparisons around price. But like I said, net, you would expect somewhere around 100 to 150 basis points over the full year.

in terms of price-cost margin impact based on what we know today, which obviously there's a fair bit of uncertainty in the environment, based on what we know today, that would be the expectation.

Okay, great. Thank you. Sure. Your next question comes from the line of Andrew Oben from Bank of America. Your line is open.

Hey, you have Sabrina Abrams on for Andrew Oben. Thanks for taking my questions. I think you guys were talking about seeing further slowing through the rest of the year is embedded in the guidance, particularly in the 25 percent of businesses that you've already pointed to slowing. Are there other areas of the business that you would flag as maybe the next shoe to drop maybe.

further slowdown in the rest of the year? I'm just wondering if there's any incremental signs of softness you're seeing in other parts of the portfolio? I think that's a simple answer. The other 75% demand rates continue to be very strong.

Yeah, I think Sabrina, the way maybe to think about it is that there's a lot of strength in the more capital equipment businesses, food equipment, testing measurement, welding. There's a lot of strength in the automotive business on the top line, which is kind of on its own.

cycle and then the more consumer oriented more interest rate sensitive and then semi is where there is some softness and we've been calling out that softness really if you go back and look I mean since last summer we start to see a slowdown in

in construction and it's played out in Q1 at least exactly like we thought it would and so far Q2 is off to a pretty good start.

Gotcha. And then you talked about reinvesting in the business. Can you talk about where adding headcount has been more of a focus?

It's really across the enterprise. So it's, we're not favoring one segment over another. Every business, every...

operating unit inside the company has significant organic growth opportunities in front of them. And they make the decisions in terms of where to allocate headcount or where to add headcount to support and support of their organic growth strategies. So there's not really...

one or two segments that are favored over another one. Every one of our 84 divisions, like I said, has significant organic growth opportunities in front of them and they're going after those by investing in innovation, commercial resources.

and capacity to support those customers.

And I'll just add that and reiterate something you said before which is in all cases those investments are self-funded i.e. margins in every segment.

will continue to go up. Yeah, I mean this is all part of our, you know, we look at our long-term incremental margins in that 35 to 40.

percent range, that's after making all the investments necessary to take full advantage of the organic growth opportunities that are in front of us.

percent range, that's after making all the investments necessary to take full advantage of the organic growth opportunities that are in front of us. Great, thanks.

all the investments necessary to take full advantage of the organic growth opportunities that are in front of us. Great, thanks. Sure.

Your next question comes from a line of Joe O'Day from Wells Fargo. Your line is open. Hi, good morning. Thanks for taking my questions. I wanted to start just on consumables trends and what you're seeing. I think if we look at sort of polymers and specialty products and construction products, those tend to have some of the relatively higher consumables exposure.

and if that is the case, any visibility on what inning we might be in terms of inventory correction? Yeah, I mean there's certainly some inventory correction going on. This quarter, last quarter we saw that. And again, it's not like we're selling directly to the consumer. These are all B2B businesses, but the end market, the end consumer.

back on the earnings cadence over the year and talking about 49-51 split, I mean it seems like it would actually imply maybe a little bit lower than normal weighting in the second quarter. Maybe the answer is, you know, you're talking about 100 bps and it's...

overly nitpicking, but just want to make sure it's not a matter. It doesn't sound like you're seeing sort of slowing relative to what you thought earlier in the year, you know, such that we wouldn't see kind of a normal-ish second quarter. No, I think last quarter on this call we talked about 49.51. I think it's still kind of in our planning assumption 49.51.

And again, I'll just reiterate that's based on what we're seeing today. You know, I think there's a fair bit of uncertainty that everybody is dealing with right now, but that's kind of our base planning assumption. And like I said, so far Q2 is off to a good start.

Thanks, good morning, thanks for the question. A couple of other ground, but I did want to dig into food equipment because that continues to just really outperform quite nicely. So just curious where we are on the post-reopening refresh cycle, upgrade cycle. Any thoughts there on sort of the install base and share gains, etc.?

Well, I think we've gained a lot of share in this business based on our ability to service and supply our customers with lead times when others maybe struggled.

I think there's really nothing unusual going on in terms of the recovery. On the equipment side, we'd say we have largely recovered.

at this point and then on the service side we're still picking up momentum maybe an area where we're a little

constrained in terms of our ability to take care of everybody on the service side but overall we are continue to see some really strong demand trends.

In this business, this is an area, you know, we talked about backlog earlier where the backlog is You know 2x our normal levels which gives us a little bit more visibility than what we're normally when we're used to terms of the end markets as you know, our Our business is more focused on the institutional side and we're seeing a lot of strength

there, whether it's healthcare or education or lodging, but also restaurants up 30% plus I think we said in this in the prepared remarks. So overall really a lot of solid momentum here. You know China was a little softer in Q1 as we talked about I think that business was down about 20% and so that's got to come back here.

just to make another plug for it. Oh, sorry Nigel. I was just gonna ask you. No, please go ahead. Go ahead. That we will be featuring food equipment as one of the segments at our investor day in a couple of weeks. Just to make another plug for that event.

That'd be great. And then just my follow-on is just going back to order margins. You've talked about price cost, I understand that. North America was you know, 3% growth, Europe was 17. Just wondering if there's a mix issue as well that maybe just, you know, accentuate that that margin to the downside. And when you talk about sequential improvement in order margins in 2Q, do you think that continues into the back half of the year? So we have a nice cadence queue.

in Q1, but as you know, we are more concentrated with the D3 auto OEMs. The bills that were up, I think about 2% in the quarter. So I don't think that has a significant margin impact necessarily.

As I think we've talked about before, our margins are pretty…

comparable across customers as well as by geography. So not a huge mixed issue if you want. Okay, that's great. Thanks very much.

And our last question comes from the line of Julian Mitchell from Barclays. Your line is open.

Good morning and thanks for squeezing me in. I just wanted to circle back to the organic sales guide for the year. Because in Q1 I think you did 5%, the year sort of guided at 4. At the midpoint the price cost tailwind shrinks through the year and I'm assuming therefore that the price...

quarter of the business that's accelerating volume-wise from Q1 to offset the 25% that's slowing more. Yeah, I think what we talked about, Julian, on the last call was our guide of three to five organic... Hi Hey.....

We expected that being organic growth in the first half of the year being closer to five and the second half closer to three. And that's really more of a comp year over year.

phenomenon than anything else. There's no assumption here built in in terms of things accelerating in the back half. Our typical seasonality is Q1 is kind of the low point from a revenue standpoint, Q2 we see a step up, and then again in Q3 and then Q4 is kind of similar.

Q3. So that's again those are the planning assumptions based on what we're able to kind of extrapolate as we sit here today.

And I would just add, they haven't changed. Q1 came in right along with our expectations.

So we're kind of still right in line with that full year plan. And is it fair to assume that sort of firm-wide that price tailwind does taper through the year just as the sort of the price cost margin tailwind tapers?

Yeah, maybe with the exception of the one business we talked a lot about today, which is the automotive OEM business that's just beginning to recover, we do expect that one to pick up here starting in the second quarter and then again in the second half of the year. That's helpful. And then just my follow up would be on the test and measurement business where I don't think there's been many questions but you know some of the peers like say a

Techtronix at 40 or something, you know, they were growing 20% plus in Q1. They're guiding to exit the year at flat. Just wondered on the sort of the core test and measurement piece, leaving aside electronics, how you're thinking about the balance of the year in terms of that rate of slowdown? Well, you know, general industrial...

demand for test and measurement equipment remains really strong. I think I mentioned Instron up 22%. Another plug for our investor today, MTS, which will give you kind of a progress report, was up 14% year over year in Q1. So those businesses are maybe more in line with some of the numbers that you were quoting.

And really the only challenges here are on the semi side, which is only about 20% of the segment. And like we said, those are the ones that are not

Semi revenues are now down in that 10 to 15% range in Q1. We expect some further softness here in Q2 in that part of the business. Overall, I mean...

I think organic growth of 6%, margins kind of in the mid-20s after digesting a lower margin acquisition and some really good progress in this segment.

That's great. Thank you. Thank you. So that wraps things up. I want to thank everybody for joining us this morning and just a reminder we look forward to seeing you at our investor day in Boston on May 18th. Thank you for participating in today's conference call. All lines may disconnect at this time.