Q2 2024 Illinois Tool Works Inc Earnings Call
Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the ITW Second Quarter Earnings Conference Call.
Operator: I would like to welcome everyone to the ITW's second quarter earnings conference call. All lines have been placed on mute to prevent any background noise.
Operator: I'd like to welcome everyone to the ITW Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star followed by the number one key again. 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. Erin Linnihan, Vice President of Investor Relations. You may begin your conference.
Operator: After the speaker's remarks, there will be a question-and-answer session. 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, press the star followed by the number one key again.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the star followed by the number 1 key again.
Operator: 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.
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.
Erin Linnihan: Erin Linnihan, Vice President of Investor Relations, you may begin your conference.
Erin Linnihan: Thank you, Audra.
Erin Linnihan, Vice President of Investor Relations. You may begin your conference.
Erin Linnihan: Good morning and welcome to ITW's second quarter 2024 conference call. Today, I'm joined by our President and CEO, Chris Oherlihy, and Senior Vice President and CFO, Michael Larsen. During today's call, we will discuss ITW's second quarter financial results and provide an update on our outlook for full year 2024. Slide 2 is a reminder that this presentation contains forward-looking statements. We refer you to the company's 2023 Form 10-K and subsequent reports filed with the SEC for more detail about important risks that could cause actual results to differ materially from our expectations. 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.
Erin Linnihan: Good morning, and welcome to ITW's second quarter 2024 conference call. Today I'm joined by our President and CEO, Christopher OHerlihy, and Senior Vice President and CFO, Michael Larsen.
Erin Linnihan: Thank you, Audra.
Speaker Change: Good morning, and welcome to ITW's second quarter 2024 conference call.
Speaker Change: Today, I'm joined by our President and CEO , Chris OHerlihy, and Senior Vice President and CFO , Michael Larsen. During today's call, we will discuss ITW's second quarter financial results and provide an update on our outlook for full year 2024.
Speaker Change: Slide 2 is a reminder that this presentation contains forward-looking statements. We refer you to the company's 2023 Form 10-K and subsequent reports filed with the SEC for more detail about important risks that could cause actual results to differ materially from our expectations.
Speaker Change: 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.
Erin Linnihan: Please turn to slide 3, and it is now my pleasure to turn the call over to our President and CEO, Chris Oherlihy.
Erin Linnihan: During today's call, we will discuss ITW's second quarter financial results and provide an update on our outlook for full year 2024. Slide 2 is a reminder that this presentation contains forward-looking statements. We refer you to the company's 2023 Form 10-K and subsequent reports filed with the SEC for more detail about important risks that could cause actual results to differ materially from our expectations. 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. Please turn to slide three, and it is now my pleasure to turn the call over to our President and CEO, Chris OHerlihy. Chris?
Speaker Change: Please turn to slide three, and it is now my pleasure to turn the call over to our President and CEO , Chris OHerlihy. Chris?
Christopher OHerlihy: Chris. Thank you, Erin, and good morning, everyone. As you saw in our press release this morning, during the second quarter, the short cycle of demand environment continued to moderate across our portfolio. At the total company level, second quarter revenues came in approximately 1 percentage point or $15 million below what they would have been had demand held at the level we were seeing exiting the first quarter. Second quarter organic revenue was done in three segments, with declines year-over-year encapsulated products such as welding, test and measurement, and construction. These declines were offset by revenue growth in four segments, resulting in overall flat, organic growth year-over-year at the total company level, as compared to our end markets, which we believe were done in the low single digits.
Christopher A. OHerlihy: Thank you, Erin, and good morning, everyone. As you saw in our press release this morning, during the second quarter, the short-cycle demand environment continued to moderate across our portfolio. At the total company level, second quarter revenues came in at approximately one percentage point, or $50 million below what they would have been had demand held at the level we were seeing exiting the first quarter. Second quarter organic revenue was down in three segments, with declines year over year in CAPEX-related products, such as welding, test, and measurement, and construction.
Christopher A. OHerlihy: These declines were offset by revenue growth in four segments, resulting in overall flat organic growth year-over-year at the total company level, as compared to our end markets, which we believe were down in the low single digits. As usual, as the quarter progressed, the ITW team executed well on all the elements within our control, as evidenced by the record second quarter operating margin, which improved by 140 basis points, 26.2%, supported by 140 basis points of benefit from Enterprise Initiatives.
Christopher A. OHerlihy: Thank you, Erin, and good morning, everyone.
Christopher A. OHerlihy: As you saw in our press release this morning, during the second quarter, the short-cycle demand environment continued to moderate across our portfolio.
Christopher A. OHerlihy: At the total company level, second quarter revenues came in at approximately 1 percentage point, or $50 million below what they would have been had demand held at the level we were seeing exiting the first quarter.
Christopher A. OHerlihy: Second quarter organic revenue was down in three segments with declines year over year in CAPEX related products such as welding, test and measurement, and construction.
Christopher A. OHerlihy: These declines were offset by revenue growth in four segments resulting in overall flat organic growth year-over-year at the total company level as compared to our end markets which we believe were down in the low single digits.
Christopher OHerlihy: As usual, as the quarter progressed, the ITW team executed well on all the elements within our control. As evidenced by record second quarter operating margin, which improved by 140 basis points, 26.2%, supported by 140 basis points of benefit from enterprise initiatives. Operating income grew 4.5% to a second quarter record of 1.05 billion, and GAAP EPS came in at $2.54, up from $2.48 last year.
Christopher A. OHerlihy: As usual, as the quarter progressed, the ITW team executed well on all the elements within our control.
Christopher A. OHerlihy: as evidenced by record second quarter operating margin, which improved by 140 basis points, 26.2%.
Christopher A. OHerlihy: supported by 140 basis points of benefit from enterprise initiatives.
Christopher A. OHerlihy: Operating income grew 4.5% to a second quarter record of $1.05 billion, and GAAP EPS came in at $2.54, up from $2.48 last year. As per normal practice, we are adjusting our full-year guidance in line with demand levels in our businesses as they exist today. Current run rates exiting Q2 projected through the remainder of the year result in about flat organic revenue for the full year. The moderating demand is partially offset by stronger margin performance, and we are raising our margin guidance to 26.5% to 27%.
Christopher A. OHerlihy: Operating income grew 4.5% to a second quarter record of $1.05 billion, and GAAP EPS came in at $2.54, up from $2.48 last year.
Christopher OHerlihy: As per our normal practice, we are adjusting our full-year guidance in line with demand levels in our businesses as they exist today. Current run rates exiting Q2 projected through the remainder of the year, results in the both flat organic revenue for the full year. The moderating demand is partially offset by stronger margin performance, and we are raising our margin guidance to 26.5% to 27%. Factoring in both of these elements, lower market demand and stronger margin performance, we are lowering the midpoint of our EPS guidance by 1% as we narrowed the range to $10.30-$10.40. While the combination of moderating manufacturing cap ex-demand and lower automotive bill forecast for the second half has us operating in a challenging near-term environment, we will continue to drive our usual high-quality execution on all the elements within our control.
Christopher A. OHerlihy: As per normal practice, we are adjusting our full year guidance in line with demand levels in our businesses as they exist today.
Christopher A. OHerlihy: Current run rates exiting Q2, projected through the remainder of the year, results in about flat organic revenue for the full year.
Christopher A. OHerlihy: The moderating demand is partially offset by stronger margin performance, and we are raising our margin guidance to 26.5 to 27%.
Christopher A. OHerlihy: Factoring in both of these elements, lower market demand and stronger margin performance, we are lowering the midpoint of our EPS guidance by 1% as we narrow the range to $10.30 to $10.40. While the combination of moderating manufacturing CapEx demand and lower automotive bill forecasts for the second half has us operating in a challenging near-term environment, we will continue to drive our usual high-quality execution on all the elements within our control, while remaining focused on managing and investing to maximize the company's growth and performance over the long term, as we build above-market organic growth fueled by customer-backed innovation into a core ITW strength.
Christopher A. OHerlihy: Factoring in both of these elements, lower market demand and stronger margin performance, we are lowering the midpoint of our EPS guidance by 1% as we narrow the range to $10.30 to $10.40.
Christopher A. OHerlihy: While the combination of moderating manufacturing CapEx demand and lower automotive bill forecasts for the second half has us operating in a challenging near-term environment,
Christopher A. OHerlihy: We will continue to drive our usual high-quality execution on all the elements within our control.
Christopher OHerlihy: While relating focused on managing and investing to maximize the company's growth and performance over the long term, as we build above-market organic growth fueled by customer-back innovation into a poor ITW strength. In this regard, we are very encouraged by the progress we are making on customer-back innovation in each of our divisions. In concluding my remarks, I want to thank all of our ITW colleagues around the world for their exceptional efforts and for their dedication to serving our customers with excellence and driving continuous progress on our path to ITW's full potential.
Christopher A. OHerlihy: while remaining focused on managing and investing to maximize the company's growth and performance over the long term as we build above-market organic growth fueled by customer-backed innovation into a core ITW strength.
Christopher A. OHerlihy: In this regard, we are very encouraged by the progress we are making on customer-backed innovation in each of our divisions. In concluding my remarks, I want to thank all of our ITW colleagues around the world for their exceptional efforts and for their dedication to serving our customers with excellence and driving continuous progress on our path to ITW's full potential. I will now turn the call over to Michael to discuss our second quarter performance in more detail as well as our updated full year guidance. Thank you.
Christopher A. OHerlihy: In this regard, we are very encouraged by the progress we are making on customer-backed innovation in each of our divisions.
Christopher A. OHerlihy: In concluding my remarks I want to thank all of our ITW colleagues around the world for their exceptional efforts and for their dedication to serving our customers with excellence and driving continuous progress on our path to ITW's full potential.
Michael Larsen: I would now turn the call over to Michael to discuss our second quarter performance in more detail, as well as our updated, full-year guidance.
Christopher A. OHerlihy: I will now turn the call over to Michael to discuss our second quarter performance in more detail as well as our updated full year guidance. Michael. Thank you, Chris, and good morning, everyone.
Michael Larsen: Michael, thank you. Chris, and good morning, everyone. In Q2, revenue declined 1% with organic revenue down 0.1%, essentially flat year-a-year, and a slight improvement from being down 0.6% in Q1. As Chris said, demand moderated sequentially as total company revenues grew 2% from the first quarter to the second quarter, a point below our historical run rate growth of 3%. Faced with moderating demand, the ITW team, as usual, did a great job in terms of reading and reacting to the environment and delivered record margin and profitability performance in the second quarter, as evidenced by 4.5% operating income growth and operating margins of 26.2%, an improvement of 140 basis points. As enterprise initiatives were, once again, the largest margin and profitability driver contributing 140 basis points to this quarter, with more to come in the second half.
Michael M. Larsen: Thank you, Chris, and good morning, everyone. In Q2, revenue declined 1%, with organic revenue down 0.1%, essentially flat year-over-year, and a slight improvement from being down 0.6% in Q1. As Chris said, demand moderated sequentially as total company revenues grew 2% from the first quarter to the second quarter, a point below our historical run rate growth of 3%. However, faced with moderating demand, the ITW team, as usual, did a great job.
Michael: In Q2, revenue declined 1% with organic revenue down 0.1%, essentially flat year-over-year, and a slight improvement from being down 0.6% in Q1.
Michael: As Chris said, demand moderated sequentially as total company revenues grew 2% from the first quarter to the second quarter, a point below our historical run rate growth of 3%.
Christopher A. OHerlihy: Faced with moderating demand, the ITW team, as usual, did a great job.
Michael M. Larsen: Reading and reacting to the environment, and delivered record margin and profitability performance in the second quarter, as evidenced by 4.5% operating income growth and operating margins of 26.2%, an improvement of 140 basis points, as enterprise initiatives were once again the largest margin and profitability driver contributing 140 basis points this quarter, with more to come in the second half. Gap EPS of $254 increased 2% or 5% excluding a 2023 one-time tax item.
Christopher A. OHerlihy: In terms of reading and reacting to the environment and delivered record margin and profitability performance in the second quarter, as evidenced by four and a half percent operating income growth.
Speaker Change: operating margins of 26.2% and improvement of 140 basis points as enterprise initiatives were once again the largest margin and profitability driver contributing 140 basis points this quarter with more to come in the second half.
Michael Larsen: Gap EPS of 254 increased 2%, or 5%, excluding a 2023 one-time tax item. Our free cash flow was 571 million, which was a 75% conversion of net income, slightly below our historical conversion in the 80% range. As we continue to focus on reducing our inventory months on hand to pre-pandemic levels without impacting customer service levels. We repurchased $375 million of our own shares during the quarter as planned, and the effective tax rate was 24.4% compared to 21.4% in the prior year, which lowered EPS by 10 cents. In addition, foreign currency translation was approximately a 5-set headwind year-over-year.
Speaker Change: Gap EPS of 254 increased 2% or 5% excluding a 2023 one-time tax item.
Michael M. Larsen: Our free cash flow was $571 million, which was a 75% conversion of net income, slightly below our historical conversion in the 80% range, as we continue to focus on reducing our inventory months on hand to pre-pandemic levels without impacting customer service. We repurchased $375 million of our own shares during the quarter as planned. And the effective tax rate was 24.4% compared to 21.4% in the prior year, which lowered EPS by 10 cents.
Speaker Change: Our free cash flow was $571 million, which was a 75% conversion of net income, slightly below our historical conversion in the 80% range, as we continue to focus on reducing our inventory months on hand to pre-pandemic levels without impacting customer service levels.
Speaker Change: We repurchased $375 million of our own shares during the quarter as planned, and the effective tax rate was 24.4% compared to 21.4% in the prior year, which lowered EPS by 10 cents.
Michael M. Larsen: In addition, foreign currency translation was approximately a five-cent headwind year-over-year. In summary, strong execution and Q2 results, as the impact of a moderating short cycle demand environment was offset by strong margin and profitability performance. Please turn to slide four for a look at Organic Growth by Geography.
Speaker Change: In addition, foreign currency translation was approximately a five-cent headwind year-over-year.
Michael Larsen: In summary, strong execution and Q2 results as the impact of a moderating, short-cycle demand environment was offset by strong margin and profitability performance.
Speaker Change: In summary, strong execution and Q2 results as the impact of a moderating short-cycle demand environment was offset by strong margin and profitability performance.
Michael Larsen: Please turn to slide 4 for a look at organic growth by geography. The 2% decline in North America was an improvement over the first quarter's 3% decline. Europe grew 1% and Asia Pacific grew 3% for China up 5. Moving on to segment results, the automotive OEM segment delivered flat, organic growth in the second quarter against the tough comparison of plus 16% in the year-ago quarter. North America was down 4%, Europe was down 2%, and China was up 7%. In the first half, automotive builds were flat, and our automotive OEM segment grew 2% above market. For the full year, we continue to expect solid above-market growth with our typical penetration gains of 2% to 3% and continued outgrowth in China.
Michael M. Larsen: The 2% decline in North America was an improvement over the first quarter's 3% decline. Europe grew 1%, and Asia Pacific grew 3%. China Up 5.
Speaker Change: Please turn to slide 4 for a look at
Speaker Change: The 2% decline in North America was an improvement over the first quarter's 3% decline. Europe grew 1% and Asia Pacific grew 3%.
Michael M. Larsen: Moving on to segmented results, the automotive OEM segment delivered flat organic growth in the second quarter against a tough comparison of plus 16% in the year-ago quarter. North America was down 4%, Europe was down 2%, and China was up 7%. In the first half, automotive bills were flat, and our automotive OEM segment grew 2% above market. For the full year, we continue to expect solid above-market growth with our typical penetration gains.
Speaker Change: With China up 5%.
Speaker Change: Moving on to segmented results, the automotive OEM segment delivered flat organic growth in the second quarter against a tough comparison of plus 16% in the year-ago quarter.
Speaker Change: North America was down 4%, Europe was down 2%, and China was up 7%.
Speaker Change: In the first half, automotive bills were flat, and our automotive OEM segment grew 2 percent above market.
Speaker Change: For the full year, we continue to expect solid above-market growth with our typical penetration gains of 2-3% and continued outgrowth in China.
Michael M. Larsen: 2-3% and continued outgrowth in China. In our guidance, we have now factored in the most recent automotive build projections, which have declined to negative two percent for the full year. As you may recall, when we issued our initial guidance in February, automotive bills were expected to be flat for the year.
Michael Larsen: In our guidance, we have now factored in the most recent automotive build projections, which have declined a negative 2% for the full year. As you may recall, when we issued our initial guidance in February, automotive builds were expected to be flat for the year. On a positive note, the segment delivered strong operating margin performance of 19.4%, a 260 basis points improvement, as we continue to work towards our goal of achieving operating margins in the low to mid 20s by 2026.
Speaker Change: In our guidance, we have now factored in the most recent automotive build projections, which have declined to negative 2% for the full year.
Speaker Change: As you may recall, when we issued our initial guidance in February , automotive bills were expected to be flat for the year.
Michael M. Larsen: On a positive note, this segment delivered strong operating margin performance of 19.4%, a 260 basis points improvement, as we continue to work towards our goal of achieving operating margins in the low to mid-20s by 2026. Turn to slide 5, Food Equipment Organic Revenue grew 2.5%, against a comparison of plus 7% in the second quarter of last year. Equipment grew 1%, and service grew 5% against the comparison of plus 16%.
Speaker Change: On a positive note, this segment delivered strong operating margin performance of 19.4%, a 260 basis points improvement.
Speaker Change: as we continue to work towards our goal of achieving operating margins in the low to mid-20s by 2026.
Michael Larsen: Turn to slide 5. Food equipment organic revenue grew 2.5% against the comparison of plus 7% in the second quarter of last year. Equipment grew 1% and service grew 5% against the comparison of plus 16% last year. By region, North America increased 2% with service up 3%. Organic growth in the institutional market was up mid single digits, and the retail market was up high single digits. International revenue was up 3.5%, led by Europe. As we talked about last quarter, the current margin performance reflects the fact that we are making focused capacity investments in the first half of 2024 to support and accelerate continued above-market organic growth in our very attractive service business.
Speaker Change: Turn to slide 5, Food Equipment Organic Revenue grew 2.5%.
Speaker Change: against a comparison of plus 7% in the second quarter of last year.
Speaker Change: Equipment grew 1% and service grew 5% against a comparison of plus 16% last year.
Michael M. Larsen: By region, North America increased 2%, with service up 3%. Organic growth in the institutional market was up mid-single digits, and the retail market was up high single digits. International revenue was up three and a half percent, led by Europe.
Speaker Change: By region, North America increased 2% with service up 3%.
Speaker Change: Organic growth in the institutional market was up mid-single digits and the retail market was up high single digits.
Michael M. Larsen: As we talked about last quarter, the current margin performance reflects the fact that we're making focused capacity investments in the first half of 2024 to support and accelerate continued above-market organic growth in our very attractive service. Looking forward, we expect margins to continue to improve sequentially as we go through the year. Turning to test and measurement and electronics, organic revenue is down 3%, with continued softness in semiconductor, electronics, and CAPEX-sensitive.
Speaker Change: International revenue was up three and a half percent led by Europe .
Speaker Change: As we talked about last quarter, the current margin performance reflects the fact that we're making focused capacity investments in the first half of 2024 to support and accelerate continued above-market organic growth in our very attractive service business.
Michael Larsen: Looking forward, we expect margins to continue to improve sequentially as we go through the year. Turning to test and measurement and electronics, organic revenue was down 3% with continued softness in semiconductor, electronics, and capex-sensitive end markets. Both tests and measurement electronics were down 3% into quarter. Moving on to slide 6, welding was down 5% in Q2, as equipment declined 5% and consumables were down 3%. By region, North America declined 6% with industrial sales, down 7%, and the commercial side down 6%. International grew 3% with some strength in Europe. Operating margin was 32.9% with a solid contribution from enterprise initiatives.
Speaker Change: Looking forward, we expect margins to continue to improve sequentially as we go through the year.
Speaker Change: Turning to test and measurement and electronics, organic revenue is down 3% with continued softness in semiconductor, electronics, and CAPEX sensitive end markets.
Michael M. Larsen: We're down 3% in the quarter. Moving on to slide six, welding was down 5% in Q2 as equipment declined 5% and consumables were down 3%. By region, North America declined 6%, with industrial sales down 7% and the commercial side down 6%.
Speaker Change: By region, North America declined 6% with industrial sales down 7% and the commercial side down 6%.
Michael M. Larsen: International grew 3% with some strength in Europe. Operating margin was 32.9% with a solid contribution from Enterprise Initiatives. Organic revenue in polymers of fluids increased 3%, led by polymers of 10%; fluids was up four percent. Automotive aftermarket was down 2% in the quarter. On a geographic basis, North America declined 4% and international grew 13%. Operating margin of 28.2% improved more than 200. Turn to slide seven.
Speaker Change: International grew 3% with some strength in Europe .
Michael Larsen: Organic revenue and problems of fluids increased 3%, led by polymers of 10%, and fluids was up 4%. Automotive aftermarket was down 2% in the quarter. On a geographic basis, North America declined 4% and an international grew 13%. Operating margin of 28.2% improved more than 200%.
Speaker Change: Organic revenue in polymers of fluids increased 3% led by polymers of 10%.
Speaker Change: and Fluids was up 4%.
Michael Larsen: to the point. Turn to slide seven. Demand trends in construction products continue to be challenging on a global basis as organic revenue declined 4% in Q2. In a market that we believe is down in the mid to high single digits. North America was down 2% as the residential and renovation business was down 2%, and commercial was down 9%. International markets remained soft as Europe was down 7% and Australia and New Zealand were down 4%. Finally, specialty products had a strong quarter with organic revenue growth of 7% due to significant strength in our aerospace equipment division, as well as pockets of increased demand across our portfolio.
Speaker Change: operating margin of 28.2% improved more than 200 basis points.
Michael M. Larsen: Demand trends in construction products continue to be challenging on a global basis as organic revenue declined 4% in Q2 in a market that we believe is down in the mid to high single digits. North America was down 2% as the residential and renovation business was down 2% and commercial was down 9%. International markets remain soft as Europe was down 7% and Australia and New Zealand was down 4%.
Speaker Change: Turn to slide 7.
Speaker Change: Demand trends in construction products continue to be challenging on a global basis as organic revenue declined 4% in Q2 in a market that we believe is down in the mid to high single digits.
Speaker Change: North America was down 2% as the residential and renovation business was down 2% and commercial was down 9%.
Speaker Change: International markets remain soft as Europe was down 7% and Australia and New Zealand was down 4%.
Michael M. Larsen: Finally, specialty products had a strong quarter with organic revenue growth of 7% due to significant strength in our aerospace equipment division, as well as pockets of increased demand across our portfolio. As a result, international was up 10%, and North America was up 5%. As previously discussed, results can be a bit choppy as we continue to work to reposition the specialty segment for consistent, above-market organic growth, including strategic portfolio work and more significant product line simplification, which included 230 basis points in Q2. Operating margin improved 590 basis points to 31.9% with strong contributions from enterprise initiatives and the Operating Lever. With that, let's move to slide eight for an update on our full year 2024 guide.
Speaker Change: Finally, Specialty Products had a strong quarter with organic revenue growth of 7% due to significant strength in our Aerospace Equipment Division as well as pockets of increased demand across our portfolio.
Michael Larsen: As a result, international was up 10%, and North America was up 5%. As previously discussed, results can be a bit choppy as we continue to work to reposition the specialty segment for consistent above-market organic growth, including strategic portfolio work and more significant product line simplification, which included 230 basis points in Q2. Operating margin improved 590 basis points to 31.9% with strong contributions from enterprise initiatives and operating leverage.
Speaker Change: As a result, international was up 10% and North America was up 5%.
Speaker Change: As previously discussed, results can be a bit choppy as we continue to work to reposition the specialty segment for consistent, above-market organic growth, including strategic portfolio work and more significant product line simplification, which included 230 basis points in Q2.
Speaker Change: Operating margin improved 590 basis points to 31.9%, with strong contributions from enterprise initiatives.
Michael Larsen: With that, let's move to slide 8 for an update on our full year 2024 guidance. Despite a challenging first half macro demand environment, the ITW team found a way to deliver solid operational financial results, and excluding one-time items, we grew operating income 4% in the first half as margins improved by 130 basis points to 25.8%, with 140 basis points from enterprise initiatives. Gap EPS was up 10%, up 5% excluding one-time items. Looking ahead to the second half in our updated guidance, we do not expect the short cycle demand environment to improve. Per usual process, we are adjusting our full year guidance in line with conditions on the ground as exist today.
Speaker Change: and Operating Leverage.
Speaker Change: With that, let's move to slide 8 for an update on our full year 2024 guidance.
Michael M. Larsen: Despite a challenging first half macro demand environment, the ITW team found a way to deliver solid operational and financial results. And excluding one-time items, we grew operating income 4% in the first half as margins improved by 130 basis points to 25.8% with 140 basis points from Enterprise Initiatives. Gap EPS was up 10%, up 5% excluding one-time items.
Speaker Change: Despite a challenging first half macro demand environment, the ITW team found a way to deliver solid operational and financial results.
Speaker Change: And excluding one-time items, we grew operating income 4% in the first half as margins improved by 130 basis points.
Speaker Change: to 25.8% with 140 basis points from Enterprise Initiatives.
Michael M. Larsen: Looking ahead to the second half of our updated guidance, we do not expect the short cycle demand environment to improve. As a result, as per usual process, we are adjusting our full year guidance in line with conditions on the ground as they exist today. Current run rates exiting Q2 adjusted for typical seasonality and the most recent automotive build forecast projected through the remainder of the year would result in approximately flat organic growth for the year in markets that we believe are down in the low single digits.
Speaker Change: Looking ahead to the second half in our updated guidance, we do not expect the short cycle demand environment to improve.
Speaker Change: Per usual process, we are adjusting our full year guidance in line with conditions on the ground as they exist today.
Michael Larsen: Current run rates exiting Q2, adjusted for typical seasonality and the most recent automotive build forecast projected through the remainder of the year, would result in approximately flat organic growth for the year. In markets that we believe are down in the low single digits. This compares to a prior organic growth guidance of 1% to 3% and impact EPS by approximately 25 cents. The lower top line guidance is partially offset by stronger margin and profitability performance, which is expected to continue into the second half, including a significant contribution of more than 100 basis points from enterprise initiatives.
Speaker Change: Current run rates exiting Q2 adjusted for typical seasonality and the most recent automotive build forecast projected through the remainder of the year would result in approximately flat organic growth for the year.
Michael M. Larsen: This compares to a prior organic growth guidance of 1-3% and impacts EPS by approximately 25%. The lower top line guidance is partially offset by stronger margin and profitability performance, which is expected to continue into the second half, including a significant contribution of more than 100 basis points from enterprise initiatives. As a result, we raised margin guidance to 26.5 to 27%. We continue to make solid progress towards our goal of a 30% operating margin by 2030.
Speaker Change: in markets that we believe are down in the low single digits.
Speaker Change: The lower top line guidance is partially offset by stronger margin and profitability performance.
Speaker Change: which is expected to continue into the second half including a significant contribution of more than 100 basis points from enterprise initiatives.
Michael Larsen: As a result, we raised margin guidance to 26.5 to 27% as we continue to make solid progress towards our goal of 30% operating margin by 2030. The higher margins impact EPS favorably by about 10 cents. The net of these two factors, as you saw this morning, is that we lowered the top end of the range of our full year gap EPS guidance to a new range of 1030 to 1040, which is a reduction of 15 cents or 1% at the midpoint from 1050 to 1035, with 6 months to go in the year. To wrap things up, we delivered a solid Q2 at first half in a challenging demand environment, and we've updated our full year guidance per usual process to reflect current levels of demand.
Speaker Change: As a result, we raised margin guidance to 26.5% to 27%.
Speaker Change: as we continue to make solid progress towards our goal of 30% operating margin by 2030.
Michael M. Larsen: The higher margins impact EPS favorably by about 10%. The net of these two factors, as you saw this morning, is that we lowered the top end of the range of our full-year gap EPS guidance to a new range of 1030 to 1040, which is a reduction of 15 cents or 1% at the midpoint. 1050 to 1035 with six months to go in the year. To wrap things up, we delivered a solid Q2 and first half in a challenging demand environment, and we've updated our full year guidance, as per our usual process, to reflect current levels of demand.
Speaker Change: The higher margins impact EPS favorably by about 10 cents.
Speaker Change: The net of these two factors, as you saw this morning, is that we lowered the top end of the range of our full-year gap EPS guidance to a new range of 1030 to 1040, which is a reduction of 15 cents or 1% at the midpoint from 1050 to 1035, with six months to go in the year.
Speaker Change: To wrap things up, we delivered a solid Q2 and first half in a challenging demand environment and we've updated our full year guidance per usual process to reflect current levels of demand.
Michael Larsen: Grant. Given the strength of our competitive advantages, the resilience of the ITW business model, and our diversified high-quality portfolio, we're well positioned for whatever economic conditions emerge through the second half of the year.
Michael M. Larsen: Given the strength of our competitive advantages, the resilience of the ITOB business model, and our diversified, high-quality portfolio, we're well-positioned for whatever economic conditions emerge through the second half of the year. With that, Erin, I'll turn it back to you.
Speaker Change: Given the strength of our competitive advantages, the resilience of the ITW business model,
Speaker Change: and our diversified high-quality portfolio, we're well-positioned for whatever economic conditions emerge through the second half of the year.
Erin Linnihan: With that, Erin, I'll turn it back to you. Thank you.
Erin Linnihan: Thank you. Audra, will you please open the line for questions?
Erin Linnihan: Audrey, will you please open the line for questions? Thank you. At this time, I would like to remind everyone to ask a question, press star, and then number one on your telephoto pad.
Speaker Change: With that, Erin, I'll turn it back to you. Thank you. Audra, will you please open the line for questions?
Operator: Thank you. At this time, I would like to remind everyone to ask a question, press start and the number 1 on your telephone pad. We'll go first to Andy Kaplowitz at Citigroup.
Audra: Thank you. At this time I would like to remind everyone to ask a question, press start and the number 1 on your telephone pad.
Andy Kaplowitz: We'll go first to Andy Kaplowitz at Citigroup. Hey, good morning, everyone.
Andrew Alec Kaplowitz: Hey, good morning everyone. Good morning.
Speaker Change: We'll go first to Andy Kaplowitz at Citigroup.
Andy Kaplowitz: You continue to have unusually strong results and specialty products in Q2 after I think you said in Q1 that it was a bit unusual and Q2 would normalize. I know you mentioned aerospace. I don't think I've heard that particular business mentioned before.
Christopher A. OHerlihy: Christopher, Michael, you continue to have unusually strong results in specialty products in Q2 after I think you said in Q1 that it was a bit unusual and Q2 would normalize. I know you mentioned aerospace. I don't think I've heard that particular business mentioned before. So, could you give us more color on what's going on there and what is the probability that that segment could continue?
Andrew Alec Kaplowitz: Hey, good morning, everyone. Good morning.
Andrew Alec Kaplowitz: Christopher and Michael, you continue to have unusually strong results in specialty products in Q2 after I think you said in Q1 that it was a bit unusual and Q2 would normalize. I know you mentioned aerospace. I don't think I've heard that before.
Christopher OHerlihy: Could you give us more color on what's going on there and what is the probability that segment could continue to outperform? Yeah, so Andy, we've had a, as you've outlined, a very solid half one here in specialty. There's a few different things going on. I think strength and aerospace has been a feature throughout the first half. There's some auto pockets; a strong demand elsewhere. Obviously, we had favorable comps and specialty, and we also benefited from the timing of some orders, particularly in Q1 for some of our European equipment businesses. This is a segment that we've got some strategic portfolio repositioning going on, a bit more than the normal kind of PLS that you'd see, more than maintenance, much more strategic.
Andrew Alec Kaplowitz: [inaudible]
Christopher A. OHerlihy: Yeah, so Andy, we've had a, as you've outlined, a very solid half one here in specialty. There are a few different things going on.
Speaker Change: Yeah, so Andy, we've had a, as you've outlined, a very solid half one here in specialty. There's a few different things going on. I think strength in aerospace has been a feature, you know, throughout the first half. There's some other pockets of strong demand elsewhere.
Christopher A. OHerlihy: I think strength in aerospace has been a feature, you know, throughout the first half. There are some other pockets of strong demand elsewhere. Obviously, we had favorable comps in specialty, and we've also benefited from the timing of some orders, particularly in Q1 for some of our European equipment businesses. This is a segment that, you know, we've got some strategic portfolio repositioning going on, a bit more than the normal kind of PLS that you'd see, you know, more than maintenance, much more strategic.
Speaker Change: Obviously, we had Fayetteville Compton specialty and we've also benefited from the timing of some orders, particularly in Q1 for some of our European equipment businesses. This is a segment that we've got some strategic portfolio repositioning going on, a bit more than the normal kind of PLS that you'd see.
Christopher OHerlihy: It's going to be a bit of a drag and revenue for the full year, we would say. We probably expect specialty to be just above flat, maybe flat, the low single digits for the full year. But the important thing here is that we're the strong work that we are doing to really make this segment a 4% grower in the long term. And based on the progress that we've seen this year, we certainly believe we can do that.
Christopher A. OHerlihy: It's going to be a bit of a drag on revenue, you know, for the full year, we would say. We probably expect specialty to be up, you know, just above flat, maybe flat to low single digits for the full year. But the important thing here is that we do the strong work that we are doing to really make this segment a four percent grower in the long term. And based on the progress that we've seen this year, we certainly believe we can do that.
Speaker Change: you know more than maintenance much more strategic uh it's going to be a bit of a drag on revenue you know for the full year we would say we probably expect specialty to be up you know
Speaker Change: just above flat, maybe flat to low single digits for the full year, but the important here is that we're, the strong work that we are doing to really make this segment a 4% grower in the long term, and based on the progress that we've seen this year, we certainly believe we can do that.
Michael Larsen: Very helpful. Chris or Michael, you mentioned that demand continues to moderate in Q2, but could you get some more color regarding the cadence of the demand you saw? As the demand stabilizes at lower levels, across your short-sighted businesses, or would you say it's still getting worse? And then, with the understanding that you're forecasting the exit rate of Q2, you do have much easier comps than the second half.
Christopher A. OHerlihy: Very helpful. And then Chris and Michael, you mentioned that demand continues to moderate in Q2, but could you give us a little more color regarding the cadence of the demand you saw? Has demand stabilized at lower levels across your short cycle businesses, or would you say it's still getting worse? And then, with the understanding that you're forecasting the exit rate for Q2, you do have much easier confidence in the second half. So just at the enterprise level, are you digging in any conservatism? Or is it really just on the run? Well, so I think in terms of the case.
Speaker Change: Very helpful. And then Chris or Michael, you mentioned that demand continues to moderate in Q2, but could you give us a little more color regarding the cadence of the demand you saw? Has demand stabilized at lower levels across your short cycle businesses, or would you say it's still getting worse? And then, with the understanding that you're forecasting the exit rate of Q2, you do have much easier comms in the second half, so just at the enterprise level, are you digging in any conservatism, or is it really just on run rates?
Michael Larsen: So just at the enterprise level, are you big in any conservatism? Was it really just on run rates? Well, so I think in terms of the cadence, I think we saw, as we were going through the quarter, that demand continued to moderate as the quarter progressed. And by segment, definitely auto as auto builds came down, the CAPX businesses that Chris mentioned, test and measurement and welding, were maybe a little bit more impacted than some of the other businesses. I think on a positive note, I just might add that June also had really strong margin performance.
Michael M. Larsen: Well, so I think in terms of the cadence, I think we saw as we were going through the quarters that demand continued to, you know, moderate as the quarter by the quarter progressed. And, you know, by segment, definitely auto, as auto builds came down, the CapEx businesses that Chris mentioned, test and measurement, and welding, you know, were maybe a little bit more impacted than some of the other businesses.
Speaker Change: Well so I think in terms of the cadence I think we saw as we were going through the quarter is that demand continued to you know moderate as the the quarter by
Speaker Change: As the quarter progressed and you know by segment, you know Definitely auto as auto builds came down
Speaker Change: The CAPEX businesses that Chris mentioned, test and measurement and welding.
Michael M. Larsen: You know, on a positive note, I just might add that June also had really strong margin performance. So, I think we have some good margin momentum heading into the second half. In terms of the back half of the year, as we said, per our typical process, this is based on, you know, current levels of demand that we're seeing in these businesses adjusted for seasonality. We do have, as you recall, some more favorable comparisons here in the second half of the year. If you look at last year, we were up, you know, 4% in the first half of 23, and we're flat in the second half of 23. So, the comparisons definitely get easier.
Speaker Change: were maybe a little bit more impacted than some of the other businesses.
Michael Larsen: So I think we got some good margin momentum heading into the second half. In terms of the back half of the year, as we said per our typical process, this is based on current levels of demand that we're seeing in these businesses, adjusted for seasonality. We do have, as you recall, some more favorable comparisons here in the second half of the year. If you look at last year, we were up 4% in the first half of 23 and we're flat in the second half of 23. So the comparisons definitely get easier. We also have the benefit of two additional shipping days in the back half, one in Q3 and one in Q4.
Speaker Change: You know, I think on a positive note, I just might add that, you know, June also had really strong margin performance. So, I think we've got some good margin momentum heading into the...
Speaker Change: The second half. In terms of the back half of the year, as we said, per our typical process, this is based on, you know, current levels of demand that we're seeing in these businesses.
Speaker Change: Adjusted for Seasonality. We do have, as you recall, some more favorable comparisons here in the second half of the year. If you look at last year, we were up
Speaker Change: 4% in the first half of 23, and we're flat in the second half of 23. So the comparisons definitely get easier. We also have the benefit of...
Michael M. Larsen: We also have the benefit of two additional shipping days in the back half, one in Q3 and one in Q4. And then the last thing I would add is we have updated the automotive build forecast, as we saw a decline there from previously about flat for the year to down 2%. And we expect to outgrow that by our typical, you know, 2% to 3%, and we continue to outgrow by a little bit more than that in China, as we've talked about previously.
Speaker Change: Two additional shipping days in the back half, one in Q3 and one in Q4. And then the last thing I would add is we have updated the automotive build forecast.
Michael Larsen: And then the last thing I would add is we have updated the automotive build forecast as we saw a decline there from previously about flat for the year to down 2%. And we expect to outgrow that per typical 2% to 3%, and we continue to outgrow by a little bit more than that in China, as we've talked about previously. So those are all the elements that kind of went into the top line guidance. I might just add, if you look at the reduction 1 to 3 organic now to about flat, and you look at kind of the flow through on that, that's about a 20% decremental just given how strong the margin performance is and how flexible our cost structure is so that we can continue to kind of read and react to whatever demand environment we're dealing with in the in the second half.
Speaker Change: as we saw a decline there from previously about flat for the year to down 2%.
Speaker Change: And we expect to outgrow that per a typical, you know, two to three percent and we continue to.
Michael M. Larsen: So, those are all the elements that kind of went into the top-line guidance. I might just add, if you look at the, you know, reduction, from 1% to 3% organic now to about flat, and you look at kind of the flow-through on that, that's about a 20% decline, just given how strong the margin performance is and how flexible our cost structure is. We continue to kind of read and react to whatever demand environment we're dealing with in the second half.
Speaker Change: Outgrow by a little bit more than that in China, as we've talked about previously. So those are all the elements that kind of went into...
Speaker Change: The top-line guidance, I might just add, if you look at the, you know, reduction, you know, 1 to 3 organic now to about flat, and you look at kind of the flow-through on that, that's about a 20% decremental, just given how strong the margin performance is and how flexible our cost structure is so that we can
Speaker Change: You know, continue to kind of read and react to whatever demand environment we're dealing with in the second half.
Michael Larsen: Jeff, appreciate all the color. Sure.
Scott Reed Davis: We'll move next to Scott Davis at Mellius Research.
Scott Davis: We'll move next to Scott Davis at Melius Research. Hey, good morning, guys. Good morning.
Speaker Change: Appreciate all the color. Sure.
Speaker Change: We'll move next to Scott Davis at Mellius Research.
Christopher A. OHerlihy: Hey, good morning, guys. Morning. Morning. Yes, I know I probably asked this in prior quarters, but... M&A is, I assume, no change in strategy there, more bolt-ons, or, you know, we have heard of some larger assets that are going to become available. Would you guys be comfortable casting a wider net there?
Scott Reed Davis: Hey, good morning, guys. Morning.
Christopher OHerlihy: I know I probably asked this in prior quarters, but M&A is, I assume, no change in strategy there, more bold times, or we have heard of some larger assets that are going to be going to come available. Would you guys be comfortable casting a wider net there? Yes, Scott, I think our posture on M&A hasn't changed much. I mean, as we shared at our investor day, we were pretty disciplined portfolio management strategy, and we're certainly staying consistent to that. From our standpoint, we have a pretty clear and well-defined view of what fits our strategy and our financial criteria.
Scott Reed Davis: Um...
Scott Reed Davis: Yes, I know I probably asked this in prior quarters, but...
Scott Reed Davis: M&A is, I assume, no change in strategy there. More bolt-ons or, you know, we have heard of some larger assets that are going to become available. Would you guys...
Christopher A. OHerlihy: Yeah, Scott, I think our posture on M&A hasn't changed much. I mean, as we shared at our investor day, we have a pretty disciplined portfolio management strategy, and we're certainly staying consistent with that. From our standpoint, we have a pretty clear and well-defined view of what fits our strategy and our financial criteria. So, you know, for us, it's a case of just finding the right opportunities, very much focused on high-quality acquisitions that can extend our long-term growth potential by growing at a minimum of 4% plus at high quality.
Speaker Change: Comfortable Casting a Wider Net there.
Speaker Change: Yeah, so Scott, I think our posture on M&A hasn't changed much. I mean, as we shared at our investor day, we've...
Speaker Change: pretty disciplined portfolio management strategy and we're certainly staying consistent to that. You know from our standpoint we have a pretty clear and well-defined view of what fits our strategy and our financial criteria so you know for us it's a case of just finding the right opportunities.
Christopher OHerlihy: So, if you know for us, it's a case of just finding the right opportunities. Very much focused on high quality acquisitions that can extend our long-term growth potential, growing at a minimum of 4% plus at high quality. You'll always be able to leverage the business model to improve margins. So we review opportunity, certainly on an ongoing basis, pretty selective given what we believe to be pretty compelling organic growth potential that we have in our core businesses. And if I go back to the DMPS acquisition from a couple of years ago, that was certainly an acquisition that ticked all the boxes, and only a couple of years in here and already turning on to be a great idea of your business.
Speaker Change: very much focused on high-quality acquisitions that can extend our long-term
Christopher A. OHerlihy: We've been able to leverage the business model to improve margins. So, we review opportunities certainly on an ongoing basis, but we are pretty selective given what we believe to be pretty compelling organic growth potential that we have in our core businesses. And if I go back to the DMTS acquisition from a couple of years ago, that was certainly an acquisition that ticked all the boxes and, only a couple of years in, is already turning out to be a great ITW business. So, to the extent that we can find acquisitions like that, then, you know, we'd certainly be very active.
Speaker Change: growth potential growing at a minimum of 4% plus at high quality. You know, we've been able to, you know, to leverage the business model to improve margins. So we review opportunities certainly on an ongoing basis.
Speaker Change: We're pretty selective given what we believe to be pretty compelling organic growth potential that we have in our core businesses.
Speaker Change: Go back to the DMTS acquisition from a couple of years ago, that was certainly an acquisition that ticked all the boxes, and only a couple of years in here and already turning out to be a great ITW business. So to the extent that we can find acquisitions like that, then we'd certainly be very active.
Scott Davis: So, to the extent that we can find acquisitions like that, then we certainly be very active. Okay. Fair enough, Chris.
Christopher A. OHerlihy: Okay. Fair enough, Chris. And then I was just looking back at your investor deck and your growth, your long-term growth targets, the four to seven, two to three points of that were coming from customer-backed innovation, and you did mention that in your prepared remarks, but are you still confident that you can drive that kind of growth from customer-backed innovation? It seems like a lot to me, but you guys would have a better feel for that.
Christopher OHerlihy: And then I was just looking back at your investor deck, when your growth, your long-term growth targets, the 4-7, two to three points of that were coming from customer back innovation, and you did mention that in your prepared remarks. But are you still confident that you can drive that kind of growth from customer back innovation? It seems like a lot to me, but you guys would have a better feel for that.
Speaker Change: Okay, fair enough, Chris. And then I was just looking back at your investor deck and your growth, your long-term growth targets, the four to seven, two to three points of that were
Speaker Change: Coming from customer-backed innovation, and you did mention that.
Speaker Change: in your prepared remarks. But are you still confident that you can drive that kind of growth from customer-backed innovations?
Christopher A. OHerlihy: Yeah, I would say, Scott, that we're even more confident now than we were yesterday. Our confidence has certainly continued to grow.
Christopher OHerlihy: Yeah, I was just glad that we're even more confident, no, than we were at an investor day. Our confidence has certainly continued to grow. We're very encouraged by what we're seeing in our businesses. It's one of the reasons that we believe that we're outperforming our end markets right now. And our view on customer back innovation is that we're going to lean into customer back innovation in the same way with a similar approach that we utilized in reinvigorating front to back 80-20 in the last phase of our enterprise strategy in terms of our intention around it, in terms of the rigor and capability build that's going on all over this company right now.
Speaker Change: It seems like a lot to me, but...
Speaker Change: you guys would have a better feel for it.
Speaker Change: for that.
Speaker Change: Yeah, I would say, Scott, that we're even more confident now than we were at Investor Day. Our confidence has certainly continued to grow. We're very encouraged by what we're seeing in our businesses.
Christopher A. OHerlihy: We're very encouraged by what we're seeing in our businesses. It's one of the reasons that we believe that we are outperforming our end markets right now. And our view on customer-backed innovation is that we're going to lean into customer-backed innovation in the same way as we have with a similar approach that we utilized in really reinvigorating front-to-back 80-20 in the last phase of our enterprise strategy, in terms of our intention around it, in terms of the rigor and capability build that's going on all over this company right now.
Speaker Change: It's one of the reasons that we believe that we're outperforming our end markets, you know, right now. And our view on customer-backed innovation is that we're going to lean into customer-backed innovation.
Speaker Change: In the same way, with a similar approach that we utilized in really reinvigorating front-to-back 80-20 in the last phase of our enterprise strategy in terms of our intention around it, in terms of the rigor and capability build that's going on all over this company right now.
Christopher A. OHerlihy: And in doing so, increase our contribution from what was approximately 1% in 2019 to north of 2% today and what will be north of 3% in the not too distant future. So everything we see on Customer Back and the work we're doing in our divisions gives us an even stronger sense of confidence that this is going to be really impactful in terms of our ability to grow 4% plus in the long term.
Christopher OHerlihy: And in doing so, increase our contribution from what was approximately 1% in 2019 to north of 2% today, and what will be north of 3% in the not-too-distant future. So everything we see on customer back and the work we're doing in our divisions gives us an even stronger sense of confidence that this is going to be a really impactful in terms of our ability to go 4% plus in the long term.
Speaker Change: And in doing so, increase our contribution from what was approximately 1% in 2019 to north of 2% today, and what will be north of 3% in the not too distant future. So everything we see on customer back and the work we're doing in our divisions gives us an even stronger sense of confidence that this is going to be a, you know, a success.
Christopher OHerlihy: Okay.
Christopher A. OHerlihy: Thank you, Chris. I'll pass it on. I appreciate it. Sure, Scott. Thank you.
Scott Davis: Thank you, Chris. I'll pass it on. Appreciate it. Sure.
Speaker Change: really impactful in terms of our ability to grow four percent plus in the long term.
Operator: Thank you.
Tammy Zakaria: Next we'll move to Tammy Zacharia at JP Morgan.
Speaker Change: Okay. Thank you, Chris. I'll pass it on. Appreciate it. Sure, Scott.
Tami Zakaria: Hi, good morning. Thank you so much.
Tammy Zakaria: Hi. Good morning. Thank you so much.
Speaker Change: Next we'll move to Tami Zakaria at J.P. Morgan.
Michael Larsen: And my first question is morning. So my first question is North America saw a negative, I think it's a 2% organic growth, while other regions are positive. Are you still seeing these sucking headwinds in North America or any other region, or is the market softening now more a function of just demand rather than. Yeah, I think it's more the latter, Tammy, that the demand is a function of where we are in the economic cycle. And so destocking, which was a headwind all the last year, is no longer a significant factor at this point. I think if you look at just North America, down 2% was really driven by welding, down 6.
Tami Zakaria: Hi, good morning. Thank you so much.
Tami Zakaria: And my first question is...
Tami Zakaria: Good morning. So my first question is, North America saw negative, I think you said 2% organic growth, while other regions are positive. Are you still seeing beef stocking headwinds in North America or any other region, or is,
Speaker Change: The market's softening now more a function of just demand rather than de-stocking.
Michael M. Larsen: Yeah, I think it's more the latter, Tami, that, you know, demand is a function of where we are in the economic cycle. And so, destocking, which was a headwind all last year, is no longer a significant factor at this point. I think if you look at just North America, down 2% was really driven by welding, you know, down 6%, and then auto, auto, polymers, and fluids down 4%, and then some positive momentum in food equipment up 2% and specialty up 5%. But again, that's really more a reflection of kind of where we're at in the cycle versus anything going on from a destocking standpoint.
Speaker Change: Yeah, I think it's more the latter, Tami, that demand is a function of where we are in the economic cycle.
Speaker Change: de-stocking which was a headwind you know all the last year is no longer a significant factor at this point. I think if you look at just North America
Michael Larsen: And then the auto, pommas, and fluids down 4. And then some positive momentum in food equipment up to and specialty up 5. But again, that's really more a reflection of kind of where we're at in the cycle versus anything going on from a destocking standpoint.
Speaker Change: you know, down 2% was really driven by welding, you know, down 6%, and then the auto, auto, polymers and fluids down 4%, and then some positive momentum in food equipment up 2%, and specialty up 5%. But again, that's really more reflection of kind of where we're at in the...
Michael M. Larsen: Got it, that's helpful. And then just a bit of clarity on the new operating margin guide. So operating margin is expected to be up about 165 basis points on slattish organic growth. Can you help me understand that 165 basis points? How much of that is enterprise initiatives versus the 140 you saw in the first tab? And then is there any price, cost, or volume or anything else that's adding to that 165 basis points year over year? Yeah,
Speaker Change: cycle versus anything going on from a de-stocking standpoint.
Tammy Zakaria: Got it, that's helpful.
Michael Larsen: And then just a bit of clarity on the new upper margin guide. So upper margin expected up about 165 basis points on flatish organic growth. Can you help me understand that 165 basis points, how much of that is enterprise initiatives versus the 140 you saw in the first tab. And then, is there any price, cost, or volume, or anything else that's adding to that 165 basis points? Yeah, I think not a lot of volume leverage, obviously, as we're guiding to about flat growth for the year. The biggest driver continues to be the enterprise initiatives. You know, we, as you said, we've got 140 basis points in the first half.
Speaker Change: Got it. That's helpful. And then just a bit of clarity on the new operating margin guide. So operating margin expected up about 165 basis points on slattish organic growth.
Speaker Change: Can you help me understand that 165 basis points, how much of that is enterprise initiative versus the 140 you saw in the first tab? And then is there any price, cost, or volume or anything else that's adding to that 165 basis points year over year?
Michael M. Larsen: Yeah, I think not a lot of volume leverage, obviously, as we're guiding to about flat growth for the year. The biggest driver continues to be the enterprise initiatives. You know, as you said, we've got 140 basis points in the first half. The roll-up for the second half looks really good.
Speaker Change: Yeah I think not a lot of volume leverage obviously as we're guiding to about flat growth for the year. The biggest driver continues to be the enterprise initiatives you know we as you said we got a hundred and forty basis points in the first half.
Michael Larsen: The roll up for the second half looks really good. As we said today, more than 100 basis points. And so somewhere I would say between 100 and 140 is maybe a reasonable estimate, and then price cost. You know, a modest contribution. We're kind of back to a normal price cost environment. And so that's not a significant driver. Really, the big driver here, as I think you pointed out, are the enterprise initiatives that, independent of volume, continue to contribute in a meaningful way. Which is a great position to be in, you know, in a given where we are in the cycle in a pretty challenging and uncertain environment.
Michael M. Larsen: As we said today, more than 100 basis points, and so somewhere, I would say between 100 and 140 is maybe a reasonable estimate. And then price-costs, you know, a modest contribution. We're kind of back to a normal price-cost environment, and so that's not a significant driver. Really, the big driver here, as I think you pointed out, are the enterprise initiatives that, independent of volume, continue to contribute in a meaningful way, which is a great position to be in, you know, given where we are in the cycle, in a pretty challenging and uncertain environment, and without giving too much away, as we kind of look into the future beyond this year, we'd expect another solid contribution in 2025 and beyond.
Speaker Change: The roll-up for the second half looks really good.
Speaker Change: As we said today, more than 100 basis points, and so somewhere I would say between 100 and 140.
Speaker Change: is maybe a reasonable estimate. And then price-costs, you know, a modest contribution. We're kind of back to a normal price-cost environment. And so that's not a significant driver. Really, the big driver here, as I think you pointed out, are the.
Speaker Change: The enterprise initiatives that independent of volume, you know, continue to contribute in a meaningful way, which is a great position to be in, you know, in a, you know, given where we are in the cycle, in a pretty challenging and uncertain environment.
Michael Larsen: And that, without giving too much away as we kind of look into the future beyond this year, we'd expect another solid contribution in 2025 and beyond.
Speaker Change: And without giving too much away, as we kind of look into the future beyond this year, we'd expect another solid contribution in 2025 and beyond.
Tammy Zakaria: Understood. Thank you.
Michael M. Larsen: Understood, thank you. Sure.
Michael Larsen: Sure.
Joseph Alfred Ritchie: We'll go next to Joe Ritchie at Goldman Sachs.
Joe Richie: We'll go next to Joe Richie at Goldman Sachs.
Speaker Change: Understood. Thank you. Sure.
Joe Richie: Hey, good morning, everybody. Morning, Joe.
Speaker Change: We'll go next to Joe Ritchie at Goldman Sachs.
Joseph Alfred Ritchie: Hey, good morning, everybody. Good morning, Joe.
Christopher OHerlihy: Can we go back to specialty for a second? You guys talked about the strategic positioning efforts there. And when I think about that business, it's a hot podge of a bunch of different businesses that seemingly don't have a lot to do with each other. And so I'm just trying to understand like what's the what's the kind of like overall strategy with the with the with the businesses within specialty. And then what are you, what are you guys really doing to kind of drive this margin expansion sustainably higher over the long term? Yeah, so Joseph, specialty is indeed, as you said, you know, a collection of a quite quality high margin, you know, businesses.
Christopher A. OHerlihy: Can we go back to specialty for a second? You guys talked about the strategic positioning efforts there. And when I think about that business, it's a hodgepodge of a bunch of different businesses that seemingly don't have a lot to do with each other. And so, I'm just trying to understand, like, what's the kind of, like, overall strategy with the businesses within specialty, and then what are you guys really doing to kind of drive this margin expansion sustainably higher over the long term?
Joseph Alfred Ritchie: Hey, good morning everybody. Morning Joe.
Joseph Alfred Ritchie: Can we um, can we go back to specialty for a second? You guys talked about the strategic positioning efforts there and when I when I think about that business It's it's a hodgepodge of a bunch of different businesses that Seemingly don't have a lot to do with each other
Speaker Change: And so, I'm just trying to understand, like, what's the kind of, like, overall strategy with the businesses within specialty? And then what are you guys really doing to kind of drive this margin expansion sustainably higher over the long term?
Christopher A. OHerlihy: Yeah, so Joseph, specialty is indeed, as you said, you know, a collection of high quality, high margin, you know, businesses. There is a concentration around consumer packaging, both on the equipment side, on the consumable side, there's also a bit of a concentration around appliance components, and then there's a collection of smaller businesses, one of which is primarily lined up alongside aerospace, that are very effective and certainly capable of growth. So we're going through, you know, a strategic repositioning of some of those businesses in terms of heavier leaning on PLS, you know, we haven't seen much growth in specialty over the last few years, as you know, that's what caused us to really look at the portfolio, but we feel very good about the progress we're making in terms of, there's a lot of highly differentiated product lanes in that segment, and you know, this repositioning will put us in a position where we accentuate the growth of those, we resource those, and we maybe de-resource some other ones that are not in a position to grow, but overall I would say it's a nice portfolio of businesses with a strong differentiation lineage running through it, and as I say we are well positioned to grow to 4% plus in the long term.
Speaker Change: Yes, so Joseph, Specialty is indeed, as you said, a collection of high quality, high margin businesses.
Christopher OHerlihy: And there is a concentration around consumer packaging, both on the equipment side and the consumables side. There is also a bit of a concentration around a plane's components. And then there's a collection of smaller businesses, one of which is primarily and lined up alongside aerospace that are very effective and certainly capable of growth. So we're going through, you know, a strategic repositioning of some of those businesses in terms of heavier leaning on PLS. You know, we haven't seen much growth in specialty over the last few years. As you know, that's what causes three to look at the portfolio.
Speaker Change: There is a concentration around consumer packaging, both on the equipment side and on the consumable side. There's also a bit of a concentration around appliance components. And then there's a collection of smaller businesses, one of which is primarily lined up alongside aerospace.
Speaker Change: that are very attractive and certainly capable of growth. So we're going through a strategic repositioning of some of those businesses in terms of heavier leaning on PLS.
Speaker Change: We haven't seen much growth in specialty over the last few years, as you know, so that's what caused us to really look at the portfolio. But we feel very good about the progress we're making in terms of there's a lot of highly differentiated product lanes in that segment. And, you know, this repositioning will put us in a...
Christopher OHerlihy: But we feel very good about the progress we're making in terms of there's a lot of high differentiated product lanes in that segment. And, you know, this repositioning will put us in a position where we accentuate the growth of those we resource; those, and we maybe do resource some other ones that are not in a position to grow. But overall, I would say it's a nice portfolio of businesses with a strong differentiation lineage running through it. And as I say, we are well positioned to grow as a 4% plus in a long time.
Speaker Change: in a position where we accentuate the growth of those, we resource those, and we maybe de-resource some other ones that are not in a position to grow. But overall I would say it's a nice portfolio of businesses with a strong differentiation lineage running through it, and as I say, we are well positioned to grow to some 4% plus in the long term.
Christopher OHerlihy: Okay, great, Chris, and then maybe just to follow up to that is, you know, sometimes, you know, companies will go through this, you know, addition by subtraction exercise, and it sounds like you guys are in the process of improving the margins. The margins are already good.
Christopher A. OHerlihy: Okay, great, Chris. And then maybe just to follow up on that, sometimes, you know, companies will go through this, you know, addition by subtraction exercise, and it sounds like you guys are in the process of improving the margins. The margins are already good. But it also kind of seems like there's an opportunity for you guys to potentially divest some of those assets going forward, whether it's in this specialty business or beyond and the rest of your portfolio. How are you guys thinking about that? Yes, so we look at our portfolio on an ongoing basis.
Speaker Change: Okay, great, Chris. And then maybe just a follow-up to that is,
Speaker Change: You know, sometimes, you know, companies will go through this, you know, addition by subtraction exercise and it sounds like you guys.
Speaker Change: are in the process of improving the margins. The margins are already good. But it also kind of seems like there's an opportunity, then, for you guys to potentially divest some of those assets going forward.
Speaker Change: Whether it's in the specialty business or beyond in the rest of your portfolio, how are you guys thinking about that equation and the divestiture side?
Christopher A. OHerlihy: Yes, so we look at our portfolio on an ongoing basis. You know, we believe we've got a very high-quality portfolio, and if the opportunity comes to divest, we would certainly do that. I would say that, as we think about portfolio management today, it's more likely to be in the realm of product-line pruning as opposed to divestitures. Now, that could change, but as we look at it today, it's much more along the lines of pruning within businesses as opposed to divestiture of businesses.
Joe Richie: Yeah, so we look at our portfolio on an ongoing basis. You know we believe we got a very high quality portfolio, and if the opportunity comes to the best, we would certainly do that. I would say that as we think about portfolio management today, it's more likely to be in the realm of product lane pruning as opposed to the vestures. Not that could change, but as we look at it today, it's much more along the lines of pruning within businesses as opposed to the vestiture of business. This is, I would say. Okay, thank you.
Speaker Change: Yes, so we look at our portfolio on an ongoing basis. We believe we've got a very high quality portfolio and if the opportunity comes to the best, we would certainly do that. I would say that as we think about portfolio management today, it's more likely to be...
Speaker Change: the realm of product lane pruning as opposed to divestiture. Now that could change but as we look at it today it's much more along the lanes of pruning within businesses as opposed to divestiture of businesses I would say.
Julian C.H. Mitchell: We'll move next to Julian Mitchell at Barclays.
Julian Mitchell: We'll move next to Julian Mitchell at Barclays. Hi, good morning. Maybe just a question around the free cash flow conversions because I think it's sort of 67% in the first half.
Speaker Change: Okay, thank you.
Speaker Change: We'll move next to Julian Mitchell at Barclays.
Julian C.H. Mitchell: Hi, good morning. Maybe just a question around the free cash flow conversions, because I think it's sort of 67% in the first half, and the year's guided 100 plus. Doesn't seem like there should be a lot of working capital liquidation in the second half, because the quarterly revenue run rate is kind of stable at $4 billion. So maybe just to flesh out the confidence in the cash conversions, step up, please. Yeah, sure
Speaker Change: Right.
Julian C.H. Mitchell: Hi, good morning. Maybe just a question around the free cash flow conversions, because I think it's sort of 67% in the first half.
Michael Larsen: The year is guided 100 plus doesn't seem like there should be a lot of working cap liquidation in the second half because the quarterly revenue run rate is kind of stable at 4 billion so it's maybe a fresh out the confidence in the cash conversion step up please. Yeah, sure, Julian. I mean, I think you're right; we are slightly below our typical conversion range here for the first half, and I think on the last call we talked about our focus. At the divisional level on reducing our inventory months on hand from, you know, we're right around 3.1 right now as compared to pre-COVID, two and a half or even a little bit lower than that in some of our segments. So we've made some progress.
Julian C.H. Mitchell: The Year's Guide at 100+, doesn't seem like there should be a lot of working cap liquidation in the second half because the quarterly revenue run rate is kind of stable at $4 billion. So maybe just to flesh out the confidence in the cash conversion, step up please.
Michael M. Larsen: Yeah, sure, Julian. For the first half, and I think on the last call, we talked about our focus at the divisional level on reducing our inventory amounts on hand from, you know, we're right around 3.1 right now compared to pre-COVID, two and a half, or even a little bit lower than that in some of our segments. So, we've made some progress. Inventory is down double-digits on a year-over-year basis.
Julian C.H. Mitchell: Yeah, sure, Julian. I mean, I think you're right. We are slightly below our typical conversion range here for the
Speaker Change: For the first half, and I think on the last call, we talked about our focus at the divisional level.
Speaker Change: on reducing our inventory months on hand from, you know, we're right around 3.1 right now.
Speaker Change: as compared to pre-COVID, two and a half or even a little bit lower than that in some of our segments. So we've made some progress. Inventory is down a double digit on a year-over-year basis.
Michael Larsen: Yes, you know inventory is down double digit on a year of a year basis, but I would agree with you that we can definitely do better. We fully expect to take advantage of this opportunity in the second half to reduce inventory levels and generate above average. Free cash flow while, as I said, maintaining our typical ITW Calvert customer service level. So, big focus on this in the second half and just giving our track record around kind of do what we say execution, we feel like we're really well positioned to generate above average free cash flow in the second half.
Michael M. Larsen: But I would agree with you that we can definitely do better. We fully expect to take advantage of this opportunity in the second half to reduce inventory levels and generate above average free cash flow while, as I said, maintaining our typical ITW-Calver customer service levels. So big focus on this in the second half. And just given our track record around kind of do what we say execution, we feel like we're really well positioned to generate above average free cash flow in the second half.
Speaker Change: But I would agree with you that we can definitely do better. We fully expect to take advantage of this opportunity in the second half to reduce inventory levels and generate above-average
Speaker Change: free cash flow while as I said maintaining our
Speaker Change: our typical ITW CalVar customer service level. So big focus on this in the second half and just given our track record around kind of do what we say execution we feel like we're really well positioned to generate above-average free cash flow in the second half.
Michael Larsen: That's helpful, thank you. And then just my second question would be around the sort of it looks like, you know, the second half run rate on the total company sales and margins very similar to Q2 as you, you know, normally died. It's sort of 26% margin for billion revenue or quarter you mentioned, Michael, the day sales effect in Q3 Q4, but just wondered anything else in terms of seasonality for total company you remind us of for the third versus the fourth quarter and any big moving parts on the segment. And marginality step into the back half. I think specialty of talked about polymer and fluid. I'm also curious about the margin outlook there please.
Michael M. Larsen: That's helpful, thank you. And then just my second question would be around the sort of, it looks like the second half run rate on total company sales and margins is very similar to Q2, as you normally guide, with sort of 26% margin and $4 billion revenue a quarter. You mentioned, Michael, the day sales effect in Q3, Q4, but just wondered, anything else in terms of seasonality for the total company you'd remind us of for the third versus the fourth quarter? and any big moving parts on the segment's margins as well, in the back half. I think the specialty you've talked about, polymer and fluid.
Speaker Change: That's helpful, thank you. And then just my second question would be around the sort of, it looks like, you know, the second half run rate on the total company sales and margins, very similar to Q2, as you normally guide.
Speaker Change: with sort of 26% margin, $4 billion.
Speaker Change: revenue a quarter.
Speaker Change: You mentioned, Michael, the day sales effect in Q3, Q4, but just wondered, anything else in terms of seasonality for total company you'd remind us of for the third versus the fourth quarter?
Speaker Change: and any big moving parts on the segment margin as we step into the back half. I think specialty you've talked about, polymer and fluid, I'm also curious about
Michael M. Larsen: I'm also curious about Origin Outlook. Yeah, yeah. I think all good questions, Julian.
Michael M. Larsen: I mean, Q3 looks a lot like Q2, I would say. We typically see a modest increase in revenues from Q3 to Q4, and the emphasis is on modest. And we also typically see a modest improvement in operating margins as we go through the year, you know, from Q2 to Q3 and then into Q4. And so there's really nothing unusual going on there.
Michael Larsen: Yeah, yeah, I think all good questions, Julian. I mean Q3 looks a lot like Q2, I would say. We typically see a modest increase in revenues from Q3 to Q4, and with emphasis on modest, and we also see typically a modest improvement. In operating margins as we go through the year, you know in from Q2 to Q3 and then into Q4, and so there's really nothing unusual going on there. We do, as you pointed out, we do benefit from having a couple of extra days here in the second half, and then like I said, more favorable comparisons. You know the other thing that it would not be in the run rates is what Chris talked about earlier, which is this increased contribution from a new product coming in at higher margins. But we feel like we've really maybe taken a not just an approach that's consistent with kind of how we've done a historic in terms of guidance, but a fairly conservative approach going into the second half. Certainly, things can change quickly; you know things can improve, but they can also deteriorate.
Speaker Change: Margin Outlook then.
Speaker Change: Please.
Speaker Change: Yeah, yeah, I think all good questions, Julian. I mean, Q3 looks a lot like Q2, I would say. We typically see...
Speaker Change: increase in revenues from Q3 to Q4 and with emphasis on modest and we also see typically a modest improvement
Speaker Change: in operating margins as we go through the year.
Speaker Change: from Q2 to Q3 and then into Q4.
Michael M. Larsen: We do, as you pointed out, benefit from having a couple of extra days here in the second half and, like I said, more favorable comparisons. You know, the other thing that would not be in the run rates is what Chris talked about earlier, which is this increased contribution from new products coming in at higher margins. But we feel like we've really maybe taken a not just an approach that's consistent with kind of how we've done it historically in terms of guidance, but a fairly conservative approach going into the second half.
Speaker Change: And so there's really nothing unusual going on there. We do, as you pointed out, we do benefit from having a couple of extra days here in the second half and then, like I said, more favorable comparisons.
Christopher A. OHerlihy: The other thing that would not be in the run rates is what Chris talked about earlier, which is this increased contribution from new products coming in at higher margins. But we feel like we've really maybe taken a...
Christopher A. OHerlihy: Not just an approach that's consistent with how we've done it historically in terms of guidance, but a fairly conservative approach going into the second half.
Michael M. Larsen: Certainly, things can change quickly. Things can improve, but they can also deteriorate. And hopefully, kind of parsing out for you the impact here in Q2 in terms of what a point of revenue growth sequentially means or decline means, the $50 million at the decrement that we talked about, I think gives you a way to kind of further risk adjust your numbers. Or if you are more optimistic, you can certainly make those adjustments as well. But that's kind of how we think about the guidance here for the second half.
Michael Larsen: And hopefully you know, kind of parsing out for you the impact here in Q2 in terms of what a point of revenue growth sequentially means or decline means. You know, the 50 million at the decremental that we talked about, I think gives you a way to kind of further risk adjust your numbers, or if you are more optimistic, you can certainly make those adjustments as well. But that's kind of how we think about the guidance here for the second half.
Chris OHerlihy: [inaudible]
Speaker Change: In terms of what a point of revenue growth sequentially means, or decline means, you know, the $50 million at the decremental that we talked about, I think gives you a way to kind of further risk adjust your numbers or...
Chris OHerlihy: If you are more optimistic, you can certainly make those adjustments as well. But that's kind of how we we think about the guidance here for the for the second half.
Julian Mitchell: Great. Thank you.
Operator: You're welcome.
Walt Liptak: And we'll take our final question from Walt Liptak at C-Port Research. Thanks, Chris and Mike. I wanted to ask a follow-up on the guidance and just a comment that you made on the first question. It sounds like June might have gotten a little bit better for some of the capital goods businesses like welding or maybe the others. I wonder if you can talk about that, that some of that, you know, macro industrial weakness, you know, start to get better. Well, yeah, I think, well, June was, you know, things continue to moderate; particularly, automobiles were softer in June.
Walt Liptack: And we'll take our final question from Walt Liptack at Seaport Research.
Speaker Change: Great. Thank you. You're welcome.
Speaker Change: And we'll take our final question from Walt Wiptak at Seaport Research.
Walt Liptack: Thanks Chris and Mike. I wanted to ask a follow-up question on the guidance and just a comment that you made on the first question about it sounds like June might have gotten a little bit better for some of the capital goods businesses like welding or maybe some others. I wonder if you can talk about that, as some of that macro industrial weakness starts to get better.
Walt Wiptak: Thanks, Chris and Mike.
Walt Wiptak: I wanted to ask a follow-up on on the guidance and just a comment that you made on the first question.
Walt Wiptak: It sounds like June might have gotten a little bit better for some of the capital goods businesses like welding or maybe some others. I wonder if you can talk about that, that some of that macro-industrial weakness starts to get better.
Michael M. Larsen: Well, yeah, I think June was, you know, things continued to moderate, particularly auto builds were softer in June. And then on the CAPEX side, welding, I think consistent with commentary you may have heard from some of our peers in the welding space. And then test and measurement, I think, while we have not seen... a pickup in semiconductor or electronics or CapEx, I would say semi also has not gotten worse.
Speaker Change: Well, yeah, I think, um, well, the...
Speaker Change: June was, you know, things continued to moderate, particularly auto builds were softer in June . And then on the CAPEX side, welding, I think consistent with commentary you may have heard from some of our peers.
Walt Liptak: And then on the CapEx side, welding, I think consistent with commentary you may have heard from some of our peers in the welding space. And then test and measurements, I think while we have not seen a pickup in semiconductor or electronics or CapEx, I would say Semi also has not gotten worse. So it's kind of bumping along. And I would just add that we remain like really well positioned for the inevitable recovery down the road. And I think if you look at, you know, some of the segments with positive organic growth here in Q2, so you get specialty, you look at polymers of fluids, the operating leverage that we generate a fairly modest organic growth is pretty remarkable.
Speaker Change: in the welding space, and then test and measurement.
Speaker Change: I pick up in semiconductor or electronics or capex. I would say semi also has not gotten worse, so it's kind of bumping along. And I would just add that we remain like really well positioned for the
Michael M. Larsen: So it's kind of bumping along. And I would just add that we remain really well positioned for the inevitable recovery down the road. And I think if you look at, you know, some of the segments with positive organic growth here in Q2, so you look at specialty, you look at polymers of fluids, the operating leverage that we generate is fairly modest. However, organic growth is pretty remarkable. So we're really well positioned for that.
Speaker Change: inevitable recovery down the road. And I think if you look at, you know, some of the segments with positive organic growth here in Q2, so you look at specialty, you look at polymers and fluids, the operating leverage that we generate are fairly modest.
Michael Larsen: So we are really well positioned for that. We continue to invest a lot of focus on new products, but we've not seen a pickup in those markets yet. But again, really well positioned for the inevitable recovery down the road here whenever that may happen.
Michael M. Larsen: We continue to invest, with a lot of focus on new products, but we've not seen a pickup in those markets yet. But again, really well positioned for the inevitable recovery down the road here, whenever that may happen.
Speaker Change: Organic growth is pretty remarkable. So we're really well positioned for that. We continue to invest, a lot of focus on new products, but we've not seen a pickup in those markets yet. But again, really well positioned for the inevitable recovery down the road here, whenever that may happen.
Michael M. Larsen: Okay, yeah, totally agree with that. On one of the segments that's doing, that's growing, food equipment, you guys sounded kind of upbeat about the retail chain. Despite some of the bankruptcies that have been going on, I wonder if you could talk about maybe in a little bit more detail how that retail part of the business is doing.
Michael Larsen: Okay, yeah, totally agree with that. I'm one of the segments that's doing the scrolling food equipment. You guys sounded kind of upbeat about kind of the retail chain despite some of the bankruptcies that have been going on. I wonder if you can talk about maybe a little bit more detail how that retail is. Yeah, I mean, I think the retail growth similar to in the first quarter, I think up 9% here in the second quarter. And it's all driven by new products. So this is all way and wrap equipment and new product rollouts. And our customer base is not part of the population that you may be alluding to that's having trouble financially.
Speaker Change: Okay, yeah, totally agree with that. On one of the segments that's doing, that's growing, food equipment, you guys sounded kind of upbeat about kind of the retail chain.
Speaker Change: Despite some of the bankruptcies that have been going on, I wonder if you can talk about, maybe in a little bit more detail, how that retail part of the business is doing.
Michael M. Larsen: Yeah, I mean, I think the retail growth is similar to in the first quarter, I think up 9% here in the second quarter, and it's all driven by new products. So this is all about wrap equipment and new product rollouts. And I'd say our customer base is not part of the population that you may be alluding to that's having trouble financially. I mean, these are all the The big, you know, grocery store, retailers, chains, chains that you would expect. And so we're not seeing any impact there from them being in trouble financially, quite the contrary.
Speaker Change: Yeah, I mean, I think the retail growth is similar to in the first quarter, I think up 9% here in the second quarter, and it's all driven by new products.
Speaker Change: So this is all way and wrap equipment and new product rollouts and our I'd say our customer base is not part of the population that you may be alluding to that's having trouble financially. I mean these are all the...
Michael Larsen: I mean, these are all the big grocery stores, retailers, chains that you would expect. And so we're not seeing any impact there from them being in trouble financially; quite the contrary. Okay, great.
Speaker Change: The big, you know, grocery store, retailers, chains, chains that you would expect. And so we're not seeing any impact there from them being in trouble financially, quite the contrary.
Walt Liptack: Okay, great. Okay, congratulations on that. Thanks.
Michael Larsen: Congratulations for that.
Operator: All right, thank you.
Speaker Change: Okay, great. Okay, congratulations for that. Thanks. All right, thank you.
Operator: That concludes the question-and-answer session. Thank you for participating in today's conference call. All lines may disconnect at this time. Thank you.
Operator: That concludes the question and answer session. Thank you for participating in today's conference call. All lines may disconnect at this time.
Speaker Change: That concludes the question and answer session. Thank you for participating in today's conference call. All lines may disconnect at this time.