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MARKETS LIVE BLOG:

STOCKS JUMP AFTER U.S. INFLATION REPORT RELEASE

Roundhill Magnificent Seven ETF hits all-time high on Wednesday

Illinois Tool Works Inc (ITW) Q1 2024 Earnings Call Transcript Highlights: Key Financial ...

GuruFocus Research
·4 min read

  • Organic Growth: Down 0.6%, with 5 of 7 segments declining.

  • Operating Income: Grew 4%, excluding a one-time item.

  • Operating Margin: Expanded 120 basis points to 25.4%.

  • GAAP EPS: Increased 17% to $2.73.

  • Adjusted EPS: Grew 5% to $2.44, excluding a one-time item.

  • Free Cash Flow: $494 million, with a conversion rate of 68%.

  • Share Repurchases: $375 million during the quarter.

  • Inventory Accounting Change: Transition from LIFO to FIFO, favorable pretax impact of $117 million.

  • Full Year Guidance: Organic growth of 1% to 3%, operating margin improvement of 140 basis points.

  • GAAP EPS Guidance for Full Year: Raised to $10.30 to $10.70, including $0.30 from Q1 inventory accounting change.

Release Date: April 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Q & A Highlights

Q: My first question on the Food Equipment side, I think, Michael, you noted some positive order activity in North America. If you could just speak to what you're seeing there? And then how much of a margin headwind was the capacity investments that you spoke about? A: Michael M. Larsen - Illinois Tool Works Inc. - Senior VP & CFO: In North America, the order activity grew double digit in the first quarter, which supports our expectation of returning to typical growth rates. The margin impact from capacity investments in Food Equipment was about 100 basis points in Q1 and Q2, aimed at capitalizing on growth opportunities in our service business.

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Q: And then my follow-up question, just on Specialty. I know you spoke to taking portfolio actions in PLS. If you could just give a little more color there, where are you taking actions? And how much is PLS, I guess, a headwind to organic growth within Specialty for the year? A: Michael M. Larsen - Illinois Tool Works Inc. - Senior VP & CFO: The organic growth rate in Specialty was driven by large equipment orders in Europe. We expect meaningful product line simplification (PLS) as we reposition this business for consistent growth. The guidance for Specialty was initially to be down 1% to 3%, and we still expect a meaningful impact from PLS.

Q: First off to Karen, I'll definitely miss you, but I wish you all the best of luck. And welcome aboard, Erin. Looking forward to working with you. A: Karen A. Fletcher - Illinois Tool Works Inc. - VP of IR: Thanks, Tami.

Q: Of course. So my first question is, just wanted to get a little color here. I think you expect organic growth to be positive throughout the balance of the year. Does that mean you expect 2Q organic growth to be within that full year range of 1% to 3% growth? A: Michael M. Larsen - Illinois Tool Works Inc. - Senior VP & CFO: We don't provide quarterly guidance, but you can expect a modest improvement in Q2, with more significant growth in the second half of the year as year-over-year comparisons ease.

Q: Can I ask a little bit about China? That seemed to be a bit of an outlier there. I guess, quite a bit of that automotive, but even without that, things seem to be relatively good. Any color you can give us on that? A: Michael M. Larsen - Illinois Tool Works Inc. - Senior VP & CFO: China showed strong performance across several segments, not just Automotive OEM. We expect this to be sustainable into Q2 and the full year, with growth in the mid- to high-single digits.

Q: Great. Karen, I can add my congratulations, and we will miss you. And Erin, welcome. And I'm impressed that you already have Karen's cadence down so well. A: Karen A. Fletcher - Illinois Tool Works Inc. - VP of IR: Thank you.

Q: And then a follow-up is on Automotive margins. Obviously, going well there, and I think you said 200 basis points or better than 200 basis points of enterprise there. And I'm just trying to get a sense of how we should think of the cadence in auto margins as the year progresses. And I don't know, maybe the exit rate or the total year enterprise something? A: Michael M. Larsen - Illinois Tool Works Inc. - Senior VP & CFO: Expect Automotive margins to remain sustainable around 19%-plus for the year, with potential slight improvement in the back half depending on build assumptions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.