Q4 2024 Illinois Tool Works Inc Earnings Call
Good morning, My name is tamika and that'll be a conference operator today at this time I would like to welcome everyone to the Itw's fourth quarter earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd 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 Star followed by the number one.
For those participating in the Q&A you will have the opportunity to ask one question and if needed one follow up question. Thank you.
Linehan: Linehan Vice President of Investor Relations you May begin your conference.
Speaker Change: Thank you Tamika, good morning, and welcome to Itw's fourth quarter 'twenty 'twenty four conference call I'm joined by our President and CEO, Christal, Herlihy, and senior Vice President and CFO Michael Larsen.
Speaker Change: During today's call, we will discuss Itw's fourth quarter and full year 2024 financial results and provide guidance for full year 2025.
Speaker Change: Slide two is a reminder, that this presentation contains forward looking statements. Please refer 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.
Speaker Change: 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's now my pleasure to turn the call over to our President and CEO Christopher Herlihy, Chris.
Thank you Erin and good morning, everyone.
Speaker Change: As you saw on our press release this morning, and Q4 ITW delivered a solid finish to the year, we outperformed our underlying end markets would organic growth turning positive excluding product line simplification.
Speaker Change: And we continue to execute well controlling the controllable.
Speaker Change: Expand operating margins and free cash flow to record levels.
Speaker Change: GAAP EPS improved 7% to $2 54.
Speaker Change: In end markets that we believe were down in the low to mid single digits fourth quarter organic revenue declined half a point, which was a point better than the one 4% decline in Q3.
Speaker Change: Excluding the impact of product line simplification, primarily due to strategic repositioning for growth in our specialty product segment organic revenue growth was positive 0.4%.
Speaker Change: Overall demand was steady in Q4 with some improvement relative to demand levels going into the quarter as revenue came in approximately two percentage points or $70 million above what they would have been had demand held at the levels. We were seeing exiting the third quarter.
Speaker Change: In addition to performing our end markets. The ITW team did a solid job executing operationally, resulting in operating income of 1.03 billion an increase of 4%.
Speaker Change: Total revenues that were down more than 1%.
Speaker Change: Record operating margin of 26, 2% with an increase of 140 basis points with a 120 basis point contribution from enterprise initiatives.
Speaker Change: As a result of strong working capital management, primarily around inventory free cash flow increased 10% with the conversion to net income of 133%.
Speaker Change: Looking back on 2024, the ITW team delivered another year of solid operational and financial performance achieving record financial results, including EPS margins and returns as we consistently outperformed underlying end markets, particularly evident in segments, such as automotive OEM and construction.
Speaker Change: <unk>.
Speaker Change: <unk> made continued progress on our next phase key strategic priorities.
Speaker Change: In 2025, we will build on this momentum and remain laser focused on building above market organic growth fueled by customer back innovation into defining itw's strengths.
Speaker Change: On par with our world class financial and operational capabilities.
Speaker Change: And deliver differentiated performance in whatever environment, we face.
Speaker Change: Yeah.
Speaker Change: We still have some work ahead of us as we positioned the company to deliver 3% plus CPI CBA yield by 2030.
Speaker Change: But we're pleased with achieving 2% in 2024 more than double our historical pre COVID-19 levels.
Furthermore, I'm, particularly encouraged by the progress we're making on our key leading indicator of CBA yield patent filings, which increased by 18% in 2024.
Speaker Change: Turning to our guidance, we are very well positioned to continue to execute at a very high level again in 2025 on both the top and bottom line.
Speaker Change: Per our usual revenue guidance approach organic growth projection of 1% to 3%, excluding pls reflect current levels of demand adjusted for seasonality.
Speaker Change: Although there are certainly some positive signals in our businesses. The current reality is that we are not yet seeing these reflected in orders.
Speaker Change: Having said that we are very well positioned to capitalize on an improving demand environment, if it should materialize.
Speaker Change: Our EPS guidance midpoint of $10 35 reflects the fact that we were faced with non operational headwinds, including a foreign currency translation impact of 30.
Speaker Change: Our expected operating margin improvement of 100 basis points is powered by another solid contribution from enterprise initiatives independent of volume.
Speaker Change: In concluding my remarks. This morning, I again want to wish to extend my sincere gratitude to our global colleagues for their unwavering dedication to serving our customers and executing our strategy with excellence.
Speaker Change: Now, let's turn the call over to Michael to provide more detail on the quarter and full year performance as well as our guidance for 2025.
Michael Larsen: Thank you, Chris and good morning, everyone.
In Q4, GW team delivered a solid finish operationally and financially to our record year.
Michael Larsen: Starting with the topline organic growth was down <unk>, 5%, which included a 0.9% revenue reduction from strategic product line simplification.
Michael Larsen: Foreign currency translation reduced revenue by 1% and two acquisitions earlier in the year added 0.2% total.
Michael Larsen: Total revenues was down one 3%.
Michael Larsen: Sequentially revenue growth of plus three 7% from Q3 to Q4 compared favorably to our historical sequential growth of plus one 5%.
Michael Larsen: On a geographic basis organic revenue decline of about one 5% in North America, Europe was down 3% and Asia Pacific was up 5% with China up 9%.
Michael Larsen: On the bottom line the ITW team continued to focus and execute well on the things within our control.
Michael Larsen: As evidenced by operating margin of 26, 2% an increase of 140 basis points year over year, driven by enterprise initiatives, which contributed 120 basis points.
Michael Larsen: Six of our seven segments expanded operating margin driven primarily by strong execution on enterprise initiatives that contributed between 70 and 190 basis points to each segment.
Michael Larsen: In summary for Q4, we outperformed our underlying end markets with positive organic growth ex Pls achieved record margin performance with a strong contribution from enterprise initiatives and generated record free cash flow and record GAAP EPS of $2 54.
Michael Larsen: Please turn to slide four.
Michael Larsen: Operating cash flow was $1 1 billion and free cash flow increased 10% to a quarterly record of $1 billion with a conversion to net income of 133%.
Michael Larsen: Strong working capital management, including inventory was a meaningful driver of the strong cash performance in Q4 with further targeted inventory reductions. This year as we project free cash flow conversion of greater than 100% for 2025.
Michael Larsen: Now, let's move to the segment results, starting with automotive OEM, where organic revenue declined 2% in the fourth quarter against the tough comparison of plus 8% in Q4 23.
Michael Larsen: On a regional basis, North America was down 5%, while Europe was down 10%.
Michael Larsen: It's a tough comparison of plus 11%.
China grew 8% despite a comparison of plus 31% as our China team continues to drive customer back innovation and gain market share, including in the rapidly growing <unk> market.
For the full year compared to the industry build data this segment outperformed relevant bills by our typical two to 300 basis points and we expect similar outperformance in 2025, as we project that automotive OEM will grow zero to 2%, 1% to 3%, excluding pls with auto builds.
Michael Larsen: And relevant markets that are projected to be down in the low single digits.
Michael Larsen: On the bottom line for the full year automotive OEM improved margins by 230 basis points to 19, 6%.
Michael Larsen: In this segment remains firmly on track to achieve its goal of low to mid twenties operating margin over the next couple of years.
Michael Larsen: Turning to slide five food equipment delivered organic growth of almost three 5% as.
Michael Larsen: As equipment grew 3% and service grew 5%.
Michael Larsen: As the growth investments made in the first half of 2024 to expand capacity and support long term above market growth in this very attractive service business are paying off.
Michael Larsen: By region.
Michael Larsen: <unk> North America grew 2% with institutional end markets up in the high single digits and restaurants essentially flat.
Michael Larsen: Our international business was strong with growth of 5% with Europe up 4%.
Michael Larsen: In Asia Pacific was up 11% due to strong equipment sales.
Michael Larsen: Test and measurement and electronics organic revenue turned positive at positive for the first time in five quarters up 2% with test and measurement essentially flat.
Michael Larsen: As electronics grew 6% the highest growth rate since the fourth quarter of 2022.
Michael Larsen: As semiconductor and electronics activity started to pick up.
Michael Larsen: As we have talked about before because of our focus growth investments, including customer back innovation through the cycle, we remain very well positioned capital to capitalize on a long list of attractive growth opportunities as the semi electronics recovery begins to take shape.
Michael Larsen: Operating margins expanded by 170 basis points in the quarter to 27%.
Michael Larsen: Moving on to slide six organic growth in welding.
Michael Larsen: Improved as organic revenue was essentially flat after five subsequent quarters of year over year declines.
Michael Larsen: Equipment was flat and consumables were down 1%.
While North America was down 2% International grew 9% with strong growth in China as a result of some very targeted customer back innovation efforts.
Michael Larsen: Throughout 2020 for the welding team continued to benefit from a strong pipeline of new products, which contributed more than 3% to growth.
Michael Larsen: In our view this is a great example of how our strategic CBI efforts and.
Michael Larsen: And the adoption of our next phase CBI framework gives our divisions the ability to gain share and outgrow end markets on a consistent basis.
Michael Larsen: Operating margin of 31, 2% was 160 basis point improvement over the prior year.
Michael Larsen: Polymers <unk> fluids organic revenue grew 1% with polymers up 5% and fluids up 1%.
Michael Larsen: Automotive aftermarket, which tends to be more correlated to consumer discretionary spending was down 1% was about two points ahead of end market growth with relevant point of sale data, indicating a market that was down 3%.
Michael Larsen: On a geographic basis, North America declined 4% and.
Michael Larsen: And international grew 8% with Europe, again, showing solid demand.
Turning to slide seven and our most interest rate sensitive segment construction products organic growth was down 4%.
Michael Larsen: In a tough market as new housing starts were down about 7% globally in Q4.
Michael Larsen: In North America construction products was down 4% approximately three points ahead of the market that was down about 7%.
Michael Larsen: The residential renovation down, 3% and commercial construction down 9%.
Michael Larsen: Europe was down 3% in Australia, New Zealand was down 8%.
Michael Larsen: The 2025 outlook for the construction market globally remains uncertain with new housing starts in the U S expected to be down in the low to mid single digits with that as backdrop, we expect construction products to be about flat in 2025, as we are well positioned to outperform end markets.
Michael Larsen: With the launch of new products and market share gains.
Michael Larsen: Yes.
Michael Larsen: Operating margin of 28% improved 110 basis points with another significant contribution from strong execution on enterprise initiatives.
Michael Larsen: As expected.
Michael Larsen: Specialty products organic revenue was down 4% with a planned 5% reduction in revenue from strategic Pls as the team continued to take the necessary actions to strategically reposition the segment for consistent above market growth.
Michael Larsen: While the work is not complete the progress so far has been encouraging with 2024 organic growth of more than 3%.
Michael Larsen: And margin improvement of 380 basis points.
Michael Larsen: Which gives you a sense of the strategic and financial value, we derive from Pls.
Michael Larsen: Operating margin was a record 28, 4% for the quarter.
Michael Larsen: Moving to slide eight and full year 2024 results is used as you've seen from ITW all year.
Michael Larsen: Our colleagues around the world continue to execute at a high level for our customers and for the enterprise.
Michael Larsen: As a result of their efforts ITW consistently outperformed and markets and delivered record results on key performance metrics, such as earnings operating margin and after tax return on capital.
Michael Larsen: Throughout 2024, we remain focused on maximizing our growth and performance over the long term as we invested in projects that accelerate above market organic growth and sustained productivity.
Michael Larsen: In our highly profitable core businesses.
Michael Larsen: Raised our dividend for the 60 <unk> consecutive year by 7% as we returned more than $3 2 billion to shareholders in the form of dividends and share repurchases.
Michael Larsen: Moving to slide nine for an update on one of our key strategic priorities.
Michael Larsen: As we've talked about before a customer back innovation is the most impactful driver of our ability to consistently grow revenue above market.
Michael Larsen: The CVI revenue of today fuels, our ability to drive market penetration and share gains in the future and over the past few years, we've expanded our CBI revenue yield from less than a percent pre COVID-19 to 2% in 2024.
Michael Larsen: We're well positioned for further improvement in 2025 based on the recent launch of our next phase CVI framework.
Speaker Change: We can feel the energy and excitement from our divisional teams as they implement the framework and their divisions and as Chris said, we're particularly pleased with the 18% increase in patent filings in 2024.
Speaker Change: Because every one of those patents is tied to a known customer pain points and represents a high quality growth opportunity for ITW.
Speaker Change: In 2025, we will continue to work on fully adopting our new CBI framework in each one of our divisions consistent with the pace required to deliver CBI yield of 3% plus by 2030.
Speaker Change: Let's move to slide 10, and our guidance for full year 2025.
Speaker Change: As you can see ITW is once again, well positioned to execute at a high level and outperform our end markets in any scenario as we aim to improve margins by approximately 100 basis points with another strong contribution from enterprise initiatives.
Speaker Change: For our usual process, our organic growth projection of zero to 2% or 1% to 3%, excluding strategic pls of a percentage point.
Speaker Change: Is based on current levels of demand adjusted for typical seasonality.
Speaker Change: Foreign currency translation at current rates represents a 3% top line headwind.
Speaker Change: In terms of profitability operating margin is expected to improve by about 100 basis points to a range of $26 5 million to 27, 5%, which includes approximately a 100 basis points contribution from projects related to enterprise initiatives that are independent of volume and.
Speaker Change: And range from 60 to 170 basis points in each segment.
Speaker Change: We are projecting GAAP EPS in the range of 10 to 15 to $10 55.
Speaker Change: Which includes a longer list unusual of nonoperational headwinds, including 30 of unfavorable foreign currency translation impact.
Speaker Change: And 15% to 20 from increased restructuring expenses tied to ongoing 80 20 front to back projects.
Speaker Change: And higher income tax expense with an expected tax rate in the range of 24 to 24, 5%.
Speaker Change: Excluding the 30 <unk> of non operational headwind from foreign currency.
Speaker Change: EPS would be $10 65 at the midpoint, an increase of 5% versus last year.
Speaker Change: In terms of cadence for the year, we expect a first half second half EPS split.
Speaker Change: Of about 47, and 53% as compared to our usual 49, 51, which is due to increased restructuring expenses in the first half of the year.
Speaker Change: Combined with a typical sequential step down in revenues from Q4 to Q1, we therefore expect Q1 EPS to contribute about 22% of the year's EPS slightly below our typical 23% to 24%.
Speaker Change: As I mentioned, we expect strong free cash flows with conversion greater than net income and our disciplined capital allocation framework surplus capital is allocated to an active share repurchase program as we plan to buyback $1 $5 billion of our own shares in 2025.
Speaker Change: Our guidance does not account for any pricing adjustments made in response to the implementation of tariffs.
Speaker Change: Itw's produce where we sell strategy largely mitigates potential tariff impact and we're comfortable that once again, we're positioned to read and react as necessary by adjusting price in response to higher costs as a result of terrorists.
Based on our past experience. Most recently in 2017 2018, and our strong operational capabilities. We believe that the price cost equation is manageable for ITW across a wide range of scenarios.
Speaker Change: Turning to our last slide slide 11 for a 2025 organic growth projections by segment.
Speaker Change: As you can see six of our seven segments are projecting positive organic growth based on current run rates adjusted for typical seasonality.
Speaker Change: Every segment is well positioned to outperform the end markets again in 2025 and consistent with our continuous improvement never satisfied mindset. Every segment is also projecting margin improvement with another solid contribution from enterprise initiatives and.
Speaker Change: In summary, our segments are heading into 2025, well positioned to execute again as they continue to outperform the underlying end markets and improved margins and profitability.
Speaker Change: With that Aaron I'll turn it back to you.
Aaron: Thank you Michael.
Speaker Change: Meager please open the line for questions.
Speaker Change: At this time.
Speaker Change: Mike.
Speaker Change: Great question Press Star one on your telephone keypad.
Speaker Change: I would like to withdraw your question Press Star one we'll pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question is from the line of Stephen Volkmann with Jefferies.
Stephen Volkmann: Great. Thanks, Good morning, everybody. Thanks for taking the question. Good morning couple of things here, Michael I think you gave a range of enterprise initiative benefits various segments.
Speaker Change: Susan.
Speaker Change: But can you just made.
Speaker Change: Maybe call out where this.
Speaker Change: Kind of.
Great.
Speaker Change: Yes.
Speaker Change: The largest impact as you might expect I think I said 190 basis points.
Speaker Change: It would be in our automotive OEM segment, we've talked about the margin improvement plan there.
Going back to Investor day.
Speaker Change: In 2023, and so that's where the largest opportunity probably resides.
Speaker Change: And then at the lower end you would expect segments that are already operating at margins in the low thirties, maybe something like welding would be in that maybe 60 basis points plus range. So thats kind of I think the important point is that every one of our segments has opportunity for further improvement.
Speaker Change: And margins driven by enterprise initiatives, which as you know are independent of <unk>.
Speaker Change: Volume, which is a great place to be going into.
Speaker Change: A pretty uncertain 2025.
Speaker Change: Got it okay, great and then maybe just bigger picture.
Speaker Change: CBRE.
Speaker Change: One I think it's tough for us to kind of explain.
Speaker Change: I'm wondering if there is a segment or.
Speaker Change: Steven.
Speaker Change: Specific projects that you can call out.
Speaker Change: Australia.
Speaker Change: Hi.
Speaker Change: Yes, so Steve I would say that.
Speaker Change: CBI is well represented across all seven segments.
Speaker Change: Every division is working on this in a very intentional aware and we have a great pipeline of new products right across the company, but it is call. It one where we've seen some very.
Speaker Change: Steady impact in 2020 for welding, obviously, we've called out to you on a few different calls here.
Speaker Change: As having made great progress in what has been a very difficult market in welding, we certainly mitigated that market condition by basically coming towards the 3% innovation contribution from welding in.
Speaker Change: In 2024 more to come in 2025, but nice increase across the portfolio did increase you see going into 2025 is broad based and will impact every segment, but I call a welding specifically in 2024.
Speaker Change: Your next question comes from the line of Scott Davis.
Speaker Change: This research.
Speaker Change: Yes.
Speaker Change: Hey, good morning, guys, Hey, good morning, Scott.
Speaker Change: I am.
Speaker Change: I'm just kind of amazed that you can increase margins in a down volume environment.
Speaker Change: I mean, it just doesn't happen very often in our world.
Speaker Change: Unless youre coming off like a really big restructuring or something which is not really the case for you guys.
Speaker Change: Help us understand let's just take auto as an example, when when you when you look at.
Speaker Change: Actual performance in auto.
Speaker Change: As you know.
Speaker Change: Can you kind of parse it down to mix benefit new product benefit youre getting better price and margin with new products.
Speaker Change: Or are you are you more efficient with your labor or your fixed assets.
Speaker Change: If theres any way to kind of break down how.
Speaker Change: This kind of special sauce is working I think it would be.
Speaker Change: Paul.
Speaker Change: Yeah, So Scott I would say in auto specifically and we kind of call it somewhat at Investor day in terms of demand.
Speaker Change: The main drivers of margin improvement in auto we're going to be volume recovery, obviously, we're not getting a whole lot of that at the moment, but the other main components were enterprise initiatives and then higher margin on CVI and Thats really whats driving the margins in auto.
Enterprise initiatives, just kind of how we think about those and obviously we've been delivering on those across the enterprise now for a while.
Speaker Change: But really and to continue to be an important contributor to results.
Speaker Change: Really these initiatives, which as we called out our independent of volume are really an outcome of what we consider to be very very strong continuous improvement mindset thats very much part of Itw's DNA.
Speaker Change: Really drives the visual quality of practice in areas like 80, 20 front to back and strategic sourcing.
Speaker Change: These are very much bottom up initiatives driven by our talented people in our divisions at a very granular level most of these projects.
Speaker Change: Our less than a half million dollars individually, but when you have 84 divisions, they add up to a real meaningful number here. So we have a lot of visibility ownership and accountability in our divisions are on these initiatives and has a track record as indicated here with respect to enterprise initiatives over the last 11 years. We've our divisions are very much doing what they said they would do so.
Speaker Change: We believe these are all sustainable.
Speaker Change: On the back of this ownership and accountability and it's fundamental to our culture strong continuous improvement mindset that we would say there is no hard wired into our divisions.
Speaker Change: And in the case of 80 20 front to back is as you've heard us say on many occasions.
Speaker Change: It's something that we'll never be done with the gift that keeps on giving so so with that we see this contribution continuing.
Speaker Change: Obviously mitral is called called it out again as 100 basis points in 2025, but it's ultimately that that's what makes it sustainable is continuous improvement mindset that exists across all of our businesses not just in overall in auto we also have as.
Speaker Change: As we do elsewhere, the whole impact of higher margin impact of.
Speaker Change: Of CBI and the other.
Speaker Change: Aspect, that's fundamental to enterprise initiatives is pls, which we've called out.
Speaker Change: <unk> of this call is being fundamentally valuable to us not just from a growth standpoint in terms of clarifying where to grow simplifying our portfolio and simplifying the allocation of resources, but also in terms of the margin path that we get from enterprise initiatives.
Speaker Change: Our own Pls and a lot of those projects have a payback of EUR less.
Speaker Change: Okay. That's helpful and guys you didn't mentioned M&A in your prepared remarks.
Speaker Change: This stuff can be a little lumpy, but.
Speaker Change: Happened to have a view that you guys can be arguably.
Speaker Change: Our core best owner for a loss of <unk>.
Speaker Change: Different steps because you've been successful in the past and running lots of different widget businesses.
Speaker Change: At that scale seems to be transferable I would think but maybe maybe I'm overstating that it's still a little color on what's holding you back on M&A is it price is it the opportunity set is it.
Speaker Change: I would think you'd have a fair amount of confidence in the organization that you could integrate in.
Speaker Change: And win with with a pretty wide side I guess is kind of my point, yes, I think as we've outlined basically we remain pretty disciplined in terms of M&A in terms of our portfolio management strategy.
Speaker Change: We certainly have a clear we would say a clear and well defined view of what fits our strategy and our financial criteria. So it really is a question was finding the right opportunities.
Speaker Change: We're focused on high quality acquisitions that would extend our long term growth potential minimum 4% plus growth at high quality, and then being able to leverage the business model to improve margins. So I would say we review opportunities on an ongoing basis, we are very selective.
Speaker Change: Given all the organic growth potential we have in our core businesses.
Speaker Change: But we are pretty active in terms of reviewing opportunities and to the extent that we find the right opportunities.
Speaker Change: And we'll be appropriately aggressive in pursuing them and I would say going back to the MTS example of an opportunity that really ticked all the boxes for us.
Speaker Change: Although in two years in here. We are this is turning out to be homerun for us and that was largely on the basis that it.
Speaker Change: <unk> met all the characteristics that we look at but rest assured we're pretty active we just need to find the right opportunities.
Andrew: Your next question is from the line of Andrew <unk> with Citigroup.
Andrew: Hey, guys close enough how are you doing.
Andrew: Yeah.
Speaker Change: So Christian Mike I know you are forecasting your segments based on current run rates for 25, and Chris mentioned that orders haven't picked up yet, but I was intrigued by your commentary that your sequential growth from Q3 to Q4 was three 7% in a greater than one 5% historical so did you see through the end of the year or better yet through January any pickup in sales momentum.
Speaker Change: It's worth calling out you did call out semi recovery at the beginning within test and measurement do you forecast that to continue is there anything else you are seeing.
Speaker Change: Yes, I think it's a little too early probably Andy to call a recovery here for sure. We are seeing some positive signs we called out semi electronics.
Speaker Change: Going through the fourth quarter we.
Speaker Change: We saw a pretty solid December but we usually do.
Speaker Change: And so I think we don't want to get too far ahead of ourselves here at this point so we've modeled.
Speaker Change: As we always do based on run rate and if.
Speaker Change: Certainly if if market conditions.
Speaker Change: Improve if demand picks up in the second half I should say.
Speaker Change: Some external indicators that would suggest that that.
Speaker Change: As a possibility, we're really well positioned to take advantage of those.
Speaker Change: Growth opportunities.
Speaker Change: And if that turns out to be the case.
Speaker Change: Our 1% to 3% organic ex pls.
Speaker Change: Would be on the conservative side.
Speaker Change: But we don't want to get too far ahead of ourselves.
Speaker Change: We're focused on the things that we can control, we just talked about the margin improvement from enterprise initiatives.
Speaker Change: And when the inevitable recovery happens.
Speaker Change: We're going to be in a great position to continue to outgrow the underlying markets. So that's kind of how we've positioned us.
Speaker Change: That's helpful. Mike on could you give us some more color on your ability to continue to outperform in China I mean, it's been very professional.
Speaker Change: Very impressive obviously focused on China automotive.
So maybe just talk about that I think you already said that you expect similar levels of outperformance.
Speaker Change: In $25 24 in China automotive, we're not a move in general, but maybe talk about what youre doing there and is it really CVI, that's helping you or something else.
Andrea: Yes, so andrea.
Speaker Change: Performance and outperformance in China relative to automotive has been going on for quite a window and it really speaks to the quality of the team that we built in China. The investments we've made in China over many years and you're right <unk> is a large part of this particularly are.
Speaker Change: Our growth in <unk> in China has been significant you saw it again this year, where we outperformed builds in China by about 800 basis points.
Speaker Change: We expect similar performance in China next year in automotive really on the back of.
Speaker Change: The resource base the investments that we've made the really best in class innovation.
Speaker Change: And business model application that we see in China, and Thats put us in a position not just outperform on revenues, but even from a margin standpoint, our margins in China are pretty much similar to what they are.
Speaker Change: Elsewhere in the world So.
It's really a factor of the organization organizational capabilities, we've built across the business model innovation and growth in China.
Speaker Change: I appreciate the color guys.
Speaker Change: Thanks Amy.
Speaker Change: Your next question is from the line.
Speaker Change: Yes, baidu with vertical research.
Speaker Change: Hey, Thank you good morning, everyone.
Speaker Change: Hey, I just wanted to think about the.
Speaker Change: And our relationship with Pls and CVI.
Speaker Change: Right, regardless of how good your margins are right. There is always going to be a 'twenty in your construct so should we think of.
Speaker Change: CBI also just kind of constantly reloading the pls opportunities set.
Speaker Change: If that's the case should we just kind of be thinking about I don't know a secular 1% headwind on pls indefinitely as the CVI benefits kind of build on the other side of that equation.
Speaker Change: Yes, So let me just refresh I think in terms of our philosophy and how we think about propping certification and the value that accrues for us So I would say Jeff.
Speaker Change: Pls for US is very much an essential part of the ongoing strategic review and portfolio pruning.
Speaker Change: That goes on really is a critical part of the implementation of 80 20 front to back and all of our divisions and we got pretty much a tried and trusted methodology around this that's.
Speaker Change: <unk> embedded and very well understood.
Speaker Change: Certainly requires discipline.
Speaker Change: But there is a lot of benefit that are benefits that our divisions get from proper pls implementation and.
Speaker Change: And even though there is a short term kind of revenue impact here. This has always been positive for us in the long term from a growth standpoint.
Speaker Change: And that Pls provides strategic clarity, which ultimately will help CBOE for sure.
Speaker Change: But not just clarity, but also execution.
Our divisions, most critical customers and products.
Speaker Change: And effective resource deployment around that again, which all indirectly helps CBS CVI and then from a margin improvement standpoint of course, we get the cost savings from Pls, which ultimately are a meaningful component of the enterprise initiatives.
Speaker Change: And so I would say with pls.
Speaker Change: There is no doubt that.
Speaker Change: In the specific way that we execute pls.
Speaker Change: It's very much an ongoing kind of value creating activity for us in our divisions.
Speaker Change: And like I say, we have a lot of positive experience and expertise on this and we saw this very much so, especially this year, but on our overall business on an ongoing basis, but the clarity that comes out of Pls ultimately will be.
Speaker Change: Be an enabler on CVI.
Jeff: And Jeff if I may just add.
Jeff: Pls was a little higher in 2024 than kind of our normal maintenance run rate of about half a point, which was entirely driven by the.
Jeff: The work that was done in specialty products and I talked a little about the outcomes.
Jeff: And the momentum going into 2025 in that segment.
Jeff: Little bit higher this year.
Jeff: As well a point.
Jeff: Primarily in automotive construction and then more work to do in specialty products I think it's too early to tell whether this is kind of a new I think you called it a secular kind of now the run rate is about a point I think it's a little too early to say let's.
Jeff: Let's get through this year, and then we'll kind of see what it rolls up to next year, but I think the important thing is as Chris said. This is an outcome of how we run these businesses, we're not trying to manage.
Jeff: The Pls number because we know the strategic and financial value that we derive from from from doing Pls.
Jeff: In our businesses.
Jeff: Great. Thanks for that perspective, and then maybe just.
Jeff: Little tactical one on auto right in region for region, but.
Jeff: Even in region rate U S, Canada, Mexico should be a lot of scrambling going on in the supply chain, maybe a reprieve here this week.
Jeff: But.
Jeff: Are you seeing any unusual change in order patterns people trying to.
Jeff: To get in front of maybe just so the exploration of this 30 day cooling off period.
Jeff: Just any other kind of tariff related noise that you might be seeing would be interesting.
Yes, Jeff to be honest I would say, it's too early to tell I mean, obviously, it's been a pretty choppy week on the tower front, but look all I would say is that we're really well positioned here to read and react.
Jeff: Whatever comes along and we're confident that this is not really affect EPS for us this year right.
Jeff: Assets in all of these geographies, we're uniquely positioned to take care of customers.
Jeff: And thats going to be our priority as we as we manage through this.
Jamie Cook: Your next question is from the line of Jamie Cook with <unk> Securities.
Jamie Cook: Good morning, I guess, just two questions.
Jamie Cook: One of the keys back on auto again. Another question, just obviously auto it's been a great.
Jamie Cook: Content story for you.
Speaker Change: If we shift back more to IC E versus EV, just wondering what the potential headwind could be for the auto business given the shift in such a great growth driver and then my second question Christa you.
Speaker Change: You know under <unk> seems to be I don't want to say more important but its definitely getting more press or you're talking about it more I would say relative to your predecessors.
Speaker Change: But just trying to think about the 30% plus margin target, we do get some.
Speaker Change: Criticism that that might be too high or maybe it gets pushed out as we're focused on CVI. So just anything you can say about your confidence level. There and is it just a function of volumes or anything you want to say on that target. Thank you.
Speaker Change: Yes, So let me salary with the CBI and margin impact for Jamie if I could.
Speaker Change: We would say is that actually see a CBA is likely to be an enabler on margins because ordinarily when we invent.
Speaker Change: Differentiated new products margins tend to be higher and with respect to the <unk>.
Speaker Change: Organic growth versus margin question I think you are pausing.
Speaker Change: From our perspective, our organic growth and margin go hand in hand, and I would even say that historically, our fastest growing businesses have often been our highest margin businesses.
Speaker Change: And I think we also demonstrated coming out of the pandemic, where we had both healthy growth and margin expansion.
Speaker Change: Going over that period, we are investing in a very focused way and resources like innovation and strategic marketing to position us to grow at foreclose.
Speaker Change: <unk> in the long term.
Speaker Change: So for US I mean, it really comes down to as we often talk about <unk> 19 of the quantity of organic growth. The fact that we can deliver organic growth at these high Incrementals, which is really a natural outcome of applying our business model to this high quality portfolio of businesses.
Speaker Change: So the math is pretty simple you know given our March 26% with growth at 30% plus Incrementals, then we expand margin and in fact, the path to 30% as we have pointed out is much more paved with operating leverage and structural cost reduction and this is why effectively.
Speaker Change: Since our primary row to 30% in 2030.
Speaker Change: Given the high levels of differentiation in our portfolio. We are very healthy gross margins just provides more than of investment firepower to appropriately invest in our businesses to help drive CBI and growth, while still delivering very healthy incremental margins and on the back of that of course continued expansion in operating margins.
Jamie Cook: And then I think Jamie you asked about kind of the transition the pace of the transition from ice to EV.
Speaker Change: I think for us at this point our content.
Speaker Change: Per vehicle ice versus EV is about the same our margin profile is about the same and so we are fairly agnostic.
Speaker Change: Any mix in ice versus EV at this point obviously.
Speaker Change: We've been as we've talked about many times on this call are really well positioned particularly in China, where the growth has been.
Speaker Change: Our content per vehicle growth has been really terrific. So at this point, we don't see this as a major issue for the company.
Speaker Change: Thank you.
Speaker Change: Sure.
Speaker Change: Your next question is from the line of Joe Ritchie with Goldman Sachs.
Joe Ritchie: Hey, guys. Good morning, good morning.
Speaker Change: Sure.
Speaker Change: Hey.
Speaker Change: I'm just talking about pls.
Speaker Change: And customer back innovation I guess on the Pls side, how much is pls, how much has that been contributing to the margin expansion like how much. They contributed in 2024 and the expectation for 2025.
Speaker Change: And then your commentary on <unk>.
Speaker Change: <unk> is very interesting I'm, just curious like which segments are furthest maybe behind or in the earlier stages of implementing it.
Speaker Change: Yes, so the generic answer to your question in terms of the contribution margin contribution pls in the overall context of enterprise initiatives. It varies from year to year, Joel, but I would say directionally. Its in the 50 50 range I would say.
Speaker Change: On CBOE like I said, we have broad based kind of improvement in CBOE across the portfolio. All seven segments are working on this and making improvements if I was to call out ones that are probably further ahead I referenced welding already automotive.
<unk> necessarily so given the level of disruption that we see in automotive markets right now are food equipment, obviously, a very FERC.
Speaker Change: Space for innovation on the back of energy and water savings and then test <unk> measurement electronics and other area where.
Speaker Change: Significant change in those end markets are one increasing stringency in innovation standards in quality control standards, obviously, new materials being developed require new test methods. So thats another area, where we've had.
Speaker Change: <unk> had a lot of early success I would say, but but rest assured all seven segments, we'll see an improvement in innovation contribution as we go forward.
Yeah.
Speaker Change: That's helpful. Chris if I could maybe just follow up with one more.
Speaker Change: Recognize youre planning to do 1 billion and a half in buyback. This year you can take a look at your balance sheet right now it's in a good position. If you wanted to lever up for another turn would be pretty easy for you to do a more aggressive buyback I'm just curious like under under what scenario would you maybe consider doing maybe maybe a little bit more it would be a little.
Speaker Change: A bit more aggressive buying back the shares.
Speaker Change: Yes, Joe so the $1 5 billion.
Speaker Change: We've penciled in for this year is our best estimate of what the surplus capital is going to be for the company. This year. So.
Speaker Change: Once we have fully funded our internal investments for growth and productivity.
Speaker Change: Once we've.
Speaker Change: Pay the dividend.
Speaker Change: Any acquisitions and then what's left is allocated to share repurchases and obviously to the extent that the performance of the company.
Speaker Change: Exceeds kind of the guidance, we gave you today, whether it's top line or margins or.
Speaker Change: We still have opportunity on working capital as I said in my remarks.
Speaker Change: And then $1 5 billion.
Speaker Change: It goes higher than.
Speaker Change: Typically what we would do is allocate that excess surplus capital also to the share buyback program. So maybe one way to think about the $1 $5 billion as it is at least $1 5 billion.
Speaker Change: To the extent the company performs better than what we laid out for you today, the number could be higher than that.
Speaker Change: In terms of capital structure.
Speaker Change: If I may without getting too technical here I think we've made some.
Speaker Change: Really good adjustments over the last few years in response to a higher interest rate environment.
Speaker Change: And I'll just point to our interest rate our interest expense in the fourth quarter being down year over year, our projection for 2025.
Speaker Change: Flat to maybe even down slightly.
Speaker Change: Despite the fact that interest rates are significantly higher and I think if you just look at kind of what other peers are talking about I think that would compare pretty favorably.
Speaker Change: And so in terms of capital structure, we would we.
Speaker Change: We would say we're in a pretty optimal place at this point in time.
Speaker Change: And do not foresee any major changes in terms of capital structure or capital allocation for that matter as we enter into 2025.
Speaker Change: Yeah.
Yeah.
Speaker Change: Your next question is from the line of Tami Zakaria with Jpmorgan.
Speaker Change: Yeah.
Speaker Change: Hi, Good morning, Thank you Scott.
Speaker Change: Okay.
Speaker Change: Hi, sorry, getting back on the tariff topic I appreciate that it's too early to tell.
Speaker Change: But can you remind us of your exposure.
Speaker Change: Direct imports from countries like Mexico, and also the EU and Canada.
Speaker Change: Reason I asked last time in 2018, you did provide some numbers around imports from China, and how that would impact the P&L.
Speaker Change: That's very helpful to any enabled.
Speaker Change: Does there now.
Speaker Change: Yes, I think with all the usual caveats I'll just I'll give you a kind of a way to think about this tammy.
Speaker Change: The combined imports from China, Canada, and Mexico accounted for less than 10% of our <unk>.
Speaker Change: Domestic spend here in the U S.
Speaker Change: <unk>.
Speaker Change: China, it's kind of in the mid single digit 5%, 6% range.
Speaker Change: Canada, 2%.
Speaker Change: Mexico, 2% so.
Speaker Change: And then obviously Europe slightly different equation, there, but thats for those three.
Speaker Change: So you add that up.
Speaker Change: And do kind of backup that's just pick China for a moment okay.
Speaker Change: So roughly $250 million of imports.
Speaker Change: From China, 10% increase is $25 million, which means we have to go get price of at least $25 million.
Speaker Change: And probably a little bit more than that to recover the margin impact as well so.
Speaker Change: I think this is a $16 billion company, so I think thats kind of why.
Speaker Change: Combined with our produce where we sell strategy.
Speaker Change: Any to read and react at the divisional level.
Speaker Change: We feel like as we sit here today, we this as a manageable.
Speaker Change: Equation and we've got a game plan in place that will cover.
Speaker Change: Tariff related material cost inflation with price actions.
Speaker Change: Based on.
Speaker Change: Some pretty positive experience doing the same thing coming out of 17 to 18 and by the way a very inflationary period coming out of Covid.
Speaker Change: Even the differentiated nature of our businesses, our ability to execute and take care customers. We feel very good about our ability to offset those.
Speaker Change: Those tariff tariff related cost increases so.
Speaker Change: Pretty much in any scenario that we can think of as we sit here today, we feel like we're in a good spot.
Speaker Change: Got it so a quick follow up.
Speaker Change: Minus any tariff related noise.
Speaker Change: What is the expectation for price cost for this year, that's embedded in the guidance yes.
Speaker Change: Yes, I think Tim you were kind of back in kind of a normal.
Speaker Change: Price cost environment historically.
Speaker Change: We have offset cost increases with with price on a dollar basis. It also.
Speaker Change: Ben.
Speaker Change: Slightly favorable from a margin standpoint as well so.
Speaker Change: Keep in mind that given.
Speaker Change: Our.
Speaker Change: Performance and the value of the products and services that we offer.
Speaker Change: We're in it.
Speaker Change: Good positioning here too.
Speaker Change: Get price to offset any any potential cost increases.
Speaker Change: Yes.
Your next question comes from the line of Julien Michelle Barclays.
Speaker Change: Hey, Julien.
Julien: Hi, good morning, maybe.
Speaker Change: Maybe just a first question around.
Speaker Change: The top line sort of cadence.
Speaker Change: Understood Michael what you said about Q1 first half share of earnings.
Speaker Change: You would call out on the sort of topline movement through the year.
Speaker Change: And anything on sort of any segments, we should bear in mind when looking at the slide 11.
Speaker Change: Yes, I think I think Julien typically.
Speaker Change: I'll refer to kind of the typical seasonality and so what usually happens from Q4 to Q1.
Speaker Change: Revenues sequentially declined by 3% ish was a little bit more than that last year in 'twenty four and 'twenty three.
Speaker Change: That happens.
Speaker Change: It's about a little over $100 million, that's organic growth that's down about 1%.
Speaker Change: And then foreign currency.
Speaker Change: With rates as we sit here today.
Speaker Change: Adds another three points of pressure. So now you've got revenues kind of down in that three to five range.
Speaker Change: Margins typically start out at the at the lower end in.
Speaker Change: In Q1 and kind of progress from there as we go through the year just like top line by the way goes up Q1 to Q2 two.
Speaker Change: Q3 is about flat and then there is another pick up again from Q3 two.
Speaker Change: Q4, and then we have these.
Speaker Change: Non operational headwinds beyond currency <unk>.
Speaker Change: Including.
Speaker Change: Somewhat higher restructuring in the first half.
2025.
Speaker Change: All related to 800000 front to back projects. These are.
Speaker Change: <unk> less than a year payback that are feeding the enterprise savings to margin improvement that we are putting up.
Speaker Change: Good quarter.
Speaker Change: That will be more weighted towards.
Speaker Change: The first and the second quarter, and we have a little bit of headwind on the tax rate as well in the first half. So you add all that up.
Just.
Speaker Change: Relative to Q4, EPS $2 54.
Speaker Change: Revenues probably 10.
Speaker Change: EPS headwind going into Q1, and then maybe another <unk> <unk> headwind from the combination of higher restructuring expense and a higher tax rate. So that's that 22% of the full year.
Speaker Change: A number that we gave you for the first quarter. So hopefully that's helpful.
Speaker Change: Okay. That's great. Thank you Michael and maybe just.
Speaker Change: I wanted to focus perhaps on the specialty.
Speaker Change: Products for a second that was one segment that definitely caught the eye. The first few quarters of last year.
Speaker Change: It seems to be.
Speaker Change: Normalizing somewhat on sales in the fourth quarter.
Speaker Change: So how are we thinking about margins in specialty for the year ahead, there's a lot going on there with pls.
Speaker Change: Restructuring or reorganization there it looks like maybe maybe just kind of flesh out what the plan is in specialty.
Speaker Change: And any more details on the year ahead there please.
Speaker Change: So as you pointed out Julien very solid year in specialty in 2020 for some strength in areas like aerospace and then strong demand in areas like food and beverage packaging equipment and so on and as we as we called out through the year. This has all been done at a time when we were doing some strategic portfolio repositioning for long term growth.
That certainly was a significant impact in Q4 as you saw about 400 basis points to some carryover on this in 2025.
Speaker Change: But we expect.
Growth, especially in 2000 and prior year. Despite the Pls, we also expect margin improvement in specialty in 2025.
Speaker Change: And the objective here is to make this segment to 4% grower in the long term and based on 2022 24 performance, we're certainly well on our way to doing that.
Speaker Change: Great. Thank you.
Speaker Change: Sure.
Speaker Change: Your next question is from the line of Nigel Coe Wolfe.
Speaker Change: Research.
Speaker Change: Oh good morning, Thanks for the question.
Speaker Change: I just wanted to talk about the 90 bps of margin expansion at the midpoint ex items.
Speaker Change: I know you don't provide margin guidance by segment, but if you could just make any comments in general sense on where you see the best opportunities for <unk> and <unk>.
Speaker Change: Those below the bar and then particular I just wanted to try and dig into the auto.
Speaker Change: Margins just given.
Speaker Change: First half relatively depressed.
Speaker Change: And then the extra rate post claim sense I'm, just wondering what you're seeing in auto specifically.
Speaker Change: Yes so.
Speaker Change: Nigel you are right, we don't really give margin guidance by segment, but what I can tell you is that we expect based on kind of the bottom up projection that we received.
Speaker Change: From our segments I plan time, we expect every one of our segments too.
Improved margins in in.
Speaker Change: In 2025, and Thats based on what they told us not what Chris and I would like to see.
Speaker Change: I think obviously the businesses that are the segments that are a little further along in terms of the journey towards 30%. So if you think about welding I think dose.
Speaker Change: It can be a little bit more challenging.
Speaker Change: Without getting too detailed just look at the growth at 35% to 40% Incrementals you get less of margin improvement and welding than you do for example.
Speaker Change: In automotive now in automotive you're right, we're not counting on a lot of lift here from in fact, we're counting on.
Speaker Change: Market, that's down in the low single digits and the big driver here.
Speaker Change: In 2025 is the enterprise initiatives and so that's really that's what's.
Speaker Change: Fueling the margin improvement in that.
Call It 100 basis points of margin improvement in automotive in in.
Speaker Change: In 2025, so we still.
Speaker Change: We've got a lot of things that are still within our control.
Speaker Change: From a margin improvement standpoint independent of volume Thats, a great place to be we'd love to see some operating leverage and if you just look at it as well.
Speaker Change: We tried to call out specialty products.
Speaker Change: 3% growth in semi margins are up more than 300 basis points in the.
Speaker Change: The incrementals when this growth starts to come through.
Speaker Change: At least in the near term are going to be quite a bit higher than our kind of historical 35% to 40% increase.
Speaker Change: Incremental margins and Thats really from there that's where the.
Speaker Change: The margin improvement really accelerates so hopefully that's helpful. Nigel It is Michael Yeah, Thanks, and just I just wanted to double click into that that one key restructuring.
Speaker Change: 15th I think it's 55 $6 million pre tax.
Speaker Change: Our investments.
Speaker Change: Just given that you don't disclose restructuring by size and any any help in terms of where you see the heavier impacts across the portfolio.
Speaker Change: I'd, rather not get into that level of detail Nigel what we'll call. It out when we report Q1 youll be able to see kind of we've got that schedule in the back of the press release that lays out the restructuring.
Speaker Change: Suffice it to say that there is opportunity for <unk>.
Speaker Change: Further.
Speaker Change: Margin improvement.
Speaker Change: And every one of these segments and.
Speaker Change: I'd, rather not get into the specifics.
Speaker Change: In terms of by segment for the for the first half now just to be clear.
Speaker Change: The EPS headwind.
Speaker Change: On a year over year basis that we called out from restructuring and the tax rate was 15% to 20.
Speaker Change: <unk> per share about half of that.
Speaker Change: As tax and the other half is restructuring and 80% of that restructuring.
Speaker Change: Has gone as planned for the first half of 2025, so it'll be a little bit of a challenging start.
Speaker Change: Two the year in terms of the headline numbers.
Speaker Change: And we will help with calling out Canada.
Speaker Change: Those non operational headwinds as we go through the year, but just from a modeling standpoint, we want to make sure everybody was kind of clear on how the year might unfold.
Speaker Change: Yes.
Speaker Change: Your next question is from the line of Joe O'dea with Wells Fargo.
Joe O'dea: Hi, good morning.
Speaker Change: Alright.
Speaker Change: Michael your comment about how you're positioned to take advantage of an inevitable recovery is encouraging.
Speaker Change: Just curious as you look at the end markets and you think about kind of volumes in cycles.
Speaker Change: What youre looking at whether it whether it's kind of region or whether its end market and segment, but where.
Speaker Change: Where do you think youre going to see things get better earliest and and any perspective from a from a volume standpoint in terms of how depressed some of these markets are.
Speaker Change: Yes, Joe I wish I could help you there I think I think my my Crystal ball is not any better than yours.
Speaker Change: I think the reference to.
Speaker Change: Taking advantage of the recovery was specific to what we're seeing in semi and electronics.
Speaker Change: I think if you look at some of them.
Speaker Change: So that's one cycle that certainty for two years has been.
Speaker Change: Pretty challenged I think the same could be said for some of our capex driven businesses test and measurement.
Speaker Change: The instron business positive growth in.
Speaker Change: In Q4, but not the typical kind of 567 organic that you would expect in that business over the long run.
Speaker Change: Welding certainly encouraged that the business is now.
Speaker Change: Flat.
Speaker Change: Ish in Q4 and down low single digits for the full year. That's a cycle typically those cycles last six to eight quarters, and that's kind of where we're at right now so.
Speaker Change: The only thing I can just give you. These are just kind of anecdotal.
Speaker Change: On where things go from here.
Speaker Change: But things change quickly.
Speaker Change: We're operating at a pretty fluid.
Speaker Change: And pretty dynamic demand environment with.
Speaker Change: Change pretty quickly here.
Speaker Change: We as you know are more.
Speaker Change: Short cycle oriented so our focus is really on how do we make sure we position ourselves for long term above market organic growth in these businesses continue to invest through these cycles leveraging our financial.
Speaker Change: Positioned to do so.
Speaker Change: And then when these recoveries come we're going to be in a great spot to two <unk>.
Speaker Change: Compete and gain share and grow with new products. So that's really the focus.
Speaker Change: That we're talking about.
Speaker Change: No I appreciate the color I appreciate that color and then.
Speaker Change: On on tariffs and pricing and how you manage the uncertainty and the question is just.
Speaker Change: How quickly you can implement pricing through the system and I'm sure. That's not a one size fits all kind of answer but living in an environment, where you can have such headline whiplash kind of how how you approach that and how long it takes to get pricing in response to what you would anticipate tariffs.
Speaker Change: Yes, so Joe you're correct, it's not really a one size fits all answer because we are obviously 84 divisions in 84 different kind of circumstances and opportunity profiles around pricing, but what I can assure you is that given the decentralized nature of the company given the fact that decisions are made very close to our customers than our nimbleness means that we are quicker.
Speaker Change: To read and react more than more so so theres not a huge lag with us for that reason, there's not a whole lot of approvals that are needed to implement pricing. It's done underground in the division close to the customer relative to the circumstantial opportunity propane that the division sees.
Speaker Change: Your next question is from the line of Andrew <unk> with Bank of America.
Speaker Change: Yes, good morning, good morning.
Speaker Change: Just a follow up on short cycle industrial names so just.
Speaker Change: And while doing so just to confirm we're not modeling any ramp.
Speaker Change: Organic growth this year.
Speaker Change: Structurally it once again just to confirm a PMI is sustainably over 50.
Speaker Change: Fast can these businesses grow and should we thing sort of high single digits as possible and our robust cyclical recovery.
Speaker Change: I think Andrew that's that it's in.
Speaker Change: Possible to answer that question I mean I think.
Speaker Change: We have we have modeled.
Speaker Change: Just on current levels of demand, we are not modeling a recovery.
Speaker Change: In any of these end markets, including welding and test and measurements.
Speaker Change: If if that indeed happens we will take full advantage of the growth opportunities.
Speaker Change: <unk> coming out of cycles like this you it's not uncommon to see.
Speaker Change: The quarterly growth rates and kind of the mid maybe even high single digits, but.
Speaker Change: Every recovery as you know is different than.
Speaker Change: So we'd like to say, we're not economists here.
Speaker Change: So there is no incentive for us to try to forecast.
Speaker Change: Where things go.
Speaker Change: Just given the short cycle nature of our businesses. So I'm, sorry, I can't help you there.
Speaker Change: That's a great answer thank you and just on quarter equipment.
Speaker Change: Solid growth in fourth quarter, right, 3% plus of our decline in third quarter guide is for 1% to 3% organic growth. So why would things decelerate from the fourth quarter are you seeing pressure anywhere.
Speaker Change: No we're not seeing pressure its basically again base based on.
Speaker Change: Sequential run rates over time, not just not just the fourth quarter.
We are very encouraged about food generally I would say.
Speaker Change: <unk> seen this continued recovery in service.
Speaker Change: So not quite back at pre pandemic levels here.
Speaker Change: Just to refresh we are the only major manufacturer with a captive service business, it's a real.
Speaker Change: <unk> unit for us.
Speaker Change: There continues to be a very firsthand innovation environment in food equipment as I said earlier around things like water and energy savings.
Speaker Change: And we see continued end market strength in areas like institutions, and then geographically I think China and Latin America are expected to be solid geographically, but that's the kind of the view on food equipment, we expect a solid 2020.
Speaker Change: Five on the back of a solid 124, so Andrew I would say we share your optimism and we will pass that onto the team that runs the business okay.
Speaker Change: We will see how they do this year, but one to three further margin improvement. The service business is really performing at a at a good level now given the investments that we talked about and so.
Speaker Change: We're really feeling good about how we're positioned going into 2025 and food equipment.
Speaker Change: Great and thank you everyone for your time today.
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker Change: Yes.
Speaker Change: Okay.
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