Illinois Tool Works Inc. (NYSE:ITW) Q2 2023 Earnings Call Transcript

Illinois Tool Works Inc. (NYSE:ITW) Q2 2023 Earnings Call Transcript August 1, 2023

Illinois Tool Works Inc. misses on earnings expectations. Reported EPS is $2.37 EPS, expectations were $2.39.

Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the ITW Second 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. [Operator Instructions] Thank you. Karen Fletcher, Vice President of Investor Relations, you may begin your conference.

Karen Fletcher: Thanks, Rob. Good morning, and welcome to ITW’s second quarter 2023 conference call. I’m joined by our Chairman and CEO, Scott Santi; and Senior Vice President and CFO, Michael Larsen. During today’s call, we’ll discuss ITW’s second quarter financial results and provide an update on our full year 2023 outlook. Slide 2 is a reminder that this presentation contains forward-looking statements. We refer you to the company’s 2022 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 3, and it’s now my pleasure to turn the call over to our Chairman and CEO, Scott Santi.

Scott Santi: Thanks, Karen, and good morning, everyone. As you saw from our earnings release this morning, the ITW team delivered another quarter of strong operational execution and financial performance. Quarterly operating income grew 9% and exceeded $1 billion for the first time in ITW’s history. Operating margin expanded 170 basis points year-on-year to 24.8%, a second quarter record with a 130 basis point contribution from enterprise initiatives. Operating margins for the company are now solidly above 2019 levels. And with a normalizing price/cost environment, we are back to making progress toward our 2030 goal of 30%. With regard to revenues, organic growth was 3% as stable underlying demand in many of ITW’s industrial end markets was partially offset by inventory reductions at our end customers and channel partners in response to stabilizing supply chain performance.

We estimate that this impacted organic growth by 1 point to 1.5 points in the quarter. GAAP EPS of $2.48 was also a Q2 record for the company and excluding one-off tax items in both years, grew – EPS grew 9%. Looking ahead, while customer and channel inventory normalization will continue to be a factor for the next several quarters at least, we expect stable underlying demand and continued strong margin and profitability performance through the balance of the year. As a result, we are raising our full year 2023 EPS guidance by $0.10 at the midpoint. I’ll now turn the call over to Michael to discuss our Q2 performance and full year guidance in more detail. Michael?

Michael Larsen: Thanks, Scott, and good morning, everyone. Q2 revenue grew by 2% with organic growth of 3%, and divestitures reduced revenue by 1%. Foreign currency translation impact was neutral and not a headwind for the first time since the third quarter of 2021. Underlying demand remains stable across the majority of our end markets with some softness in about 25% of our portfolio. As Scott mentioned, our businesses estimate that inventory reduction efforts by our end customers and channel partners reduced organic growth by 1% to 1.5% at the enterprise level. By geography, North America was flat, Europe grew 5%, Asia Pacific grew 11%, with China up 22%. On the bottom line, operating income grew 9%, exceeding $1 billion for the first time ever.

Operating margins were a real highlight this quarter as they improved to a new Q2 record of 24.8% with Enterprise Initiatives contributing 130 basis points. Price/cost margin impact contributed 260 basis points in Q2, while higher wages and benefit costs lowered margins by around 100 basis points. In addition, we continue to fund our growth investments, including headcount additions to support our organic growth strategies and initiatives. All in, we delivered 170 basis points of margin improvement in the quarter, with margin expansion in six of our seven segments, three of them, welding, food equipment and construction products, recorded all-time highs. GAAP EPS was $2.48, an increase of 5%, and excluding one-time tax items in both years, EPS grew 9%.

Our cash performance was strong as free cash flow grew 68% to $705 million, a new Q2 record. Free cash flow was 94% of net income, about 10 percentage points above our historical Q2 average, helped by an inventory reduction of 6% since year-end. Like our end customers and channel partners, our divisions are also beginning to reduce inventory levels as supply chains normalize. That being said, we added almost $1 billion of inventory over the last two years to mitigate supply chain challenges and it would likely take us until the first half of next year to get our inventory levels from currently 3.2 months on hand back to our normal months on hand levels of about two. We expect that it will be much the same for many of our channel partners and customers.

Overall, for Q2, excellent operational execution and financial performance across the board, including record operating income, operating margin and GAAP EPS. Turning to Slide 4. We wanted to spend a minute on ITW’s operating margin performance in Q2. Like I said, one of the highlights of the quarter. Not only did margins significantly expand year-over-year and quarter-over-quarter, but at 24.8% margins and are now also solidly above pre-pandemic levels, and we are back on track in terms of making progress towards our goal of 30% in 2030. Let’s move to the segment results, starting with automotive OEM, which led the segments with strong organic growth of 16% and positive growth in all regions. North America was up 3% and Europe grew 18%.

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China grew 51%. Operating margin expanded 250 basis points to 16.8%, and price/cost margin impact turned positive for the first time in more than three years as this segment continues on the margin recovery and improvement path that we laid out at our 2023 Investor Day. As a reminder, we’re executing a plan to get auto OEM margins solidly back into the 20s over the next three years. Organic growth in this segment in the second half reflects some tougher comparisons, and we expect continued meaningful sequential improvement in operating margins in Q3 and Q4. Turning to Slide 5. Food equipment also delivered strong organic growth of 7% with North America up 8%. Institutional end markets were up 13%, with continued strength across the board.

International revenue grew 5%, with Europe up 5% and Asia Pacific up 2%. A real highlight was service revenue, which grew 16%, the ninth quarter in a row with double-digit growth as we continue to support existing customers, new product installations and gain market share. Operating margin expanded 310 basis points to 27.8%, an all-time record for the food equipment segment. Test and measurement and electronics delivered positive organic growth of 1%. The slowdown in semiconductor-related revenues, which represent about 20% of the segment, reduced the segment growth rate by 6 percentage points. Test and measurement grew 10% with continued strong demand for capital equipment as evidenced, for example, by Instron, which grew 30%. Electronics declined 13% on semiconductor softness, which is, however, beginning to show some signs of bottoming out.

Moving on to Slide 6. Welding delivered 1% organic growth against a tough comparison of plus 22% in the prior year. Equipment revenue was essentially flat and consumables were up 2%. Industrial sales were really solid with organic growth of plus 5% on top of 27% in the prior year, while the commercial side was down 9%, about as expected against the comparison of 19% last year. North America revenue was flat and international grew 5%. This quarter’s highlight was definitely operating margin expansion of 460 basis points to 33.9%, a new record for the segment and for the company. And the fact that our highest margin segment continues to improve margins and not just by a little bit, is a good example of the never satisfied continuous improvement mindset and is so core to the ITW culture and mindset across the company.

Polymers and fluids organic revenue was down 1% against a difficult comparison of plus 10% last year. Divestitures impacted revenue by 6%. Automotive aftermarket was up 1%, polymers down 2% and fluids down 1%. On a geographic basis, North America grew 1% and international declined 3%. Turning to Slide 7. Organic revenue in construction was down 6% against a comparison of plus 15% last year. North America was down 3% with U.S. residential construction down 2% and commercial construction, which represents about 15% of the region, down 5%. Europe was down 14%, and Australia and New Zealand was down 4%. Despite some challenging end market conditions, operating margin expanded 170 basis points to 29.3%, an all-time record for the Construction Products segment.

Finally, Specialty organic revenue was down 4%, which included 1 point of headwind from product line simplification and an estimated 3 percentage points from end customer and channel inventory reduction efforts. North America was down 7% and international grew 4%. Equipment revenue, which represents about 20% of the segment, was up 23%, and consumables were down 9%. With that, let’s move to Slide 8 for an update on our full year 2023 guidance. As you saw this morning, we raised our GAAP EPS guidance by $0.10 with a new midpoint of $9.75 based on our strong first half performance with record first half GAAP EPS of $4.81 and the expectation for stable underlying demand and continued strong margin and profitability performance through the balance of the year.

Our organic growth guidance of 3% to 5% includes our expectation that end customer and channel inventory normalization activities will continue to modestly impact overall demand through at least the balance of the year. Operating margin is projected to expand by more than 100 basis points at the midpoint of our range of 24.5% to 25.5%, which includes a contribution of more than 100 basis points from enterprise initiatives. We’re also projecting strong free cash flow performance with a conversion of over 100% of net income. Finally, on the tax rate, our first half rate was 22%, and we expect our typical 24% in the second half for an expected full year rate of around 23%. In summary, a strong first half, both operationally and financially. And as we head into the second half, we are in a strong position to continue to deliver differentiated performance through the balance of the year.

With that, Karen, I will turn it back to you.

Karen Fletcher: All right. Thank you, Michael. Rob, can you please open up the lines for questions?

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Q&A Session

Operator: [Operator Instructions] And our first question comes from the line of Jeffrey Sprague from Vertical Research. Your line is open.

Jeffrey Sprague: Thank you. Hello everyone.

Scott Santi: Hello Jeff.

Jeffrey Sprague: Yes hi, thank you. I wonder if we could address Michael, just kind of the price-cost algorithm for the remainder of the year now. You are up 260 bps in the Q2. I know you still got some more work to do there, particularly in Automotive. So maybe you could address that on a total ITW basis? And how do you see Automotive margins progressing into the back half of the year towards that two handle on margins there?

Michael Larsen: Yes, sure, Jeff. So I think overall, on price-cost, we’d say we’re on track to recover the margin impact from a period over the last two years of unprecedented inflation, which has now stabilized. So, in the first quarter, price-cost was positive 190 basis points, Q2 260 basis points and for the balance of the year, we’re looking at a more normalized 130 to 150 basis points range. And for the full year, we should recover somewhere around 150 to 200 basis points at the enterprise level. I think what was encouraging is every segment is now margin positive, including Automotive OEM and we expect that for [indiscernible] your question specifically to remain the case for the back half of the year. And combined with enterprise initiatives, we expect sequential improvement in Q3 and Q4 in the Automotive segment, and we should end up somewhere in the high teens as we exit 2023.

We’re still a long way to go over the next two to three years to get back to kind of the low to mid-20s, which is the path that we laid out at Investor Day.

Jeffrey Sprague: Great. And your comments about the supply chain normalization and everything were pretty clear, but I just wonder if you could give us some perspective on your backlogs, right? Typically, you don’t have big backlogs, but you got to kind of 2x normal in a number of your businesses. Where are we at the ITW level and kind of getting things back to the normal run rate?

Michael Larsen: Yes, I think, similar to what we talked about on the last call, supply chain performance continues to improve. And as that happened, our backlogs are also starting to come down. And at this point, we’re still above our normal levels. If you look at the businesses where we do carry some backlog Food Equipment, for example, we’re running at 2x normal levels, and the same is true in Welding. But as I said, those backlogs are coming down pretty quickly as supply chain performance improves.

Jeffrey Sprague: Thank you very much.

Michael Larsen: Sure.

Operator: Your next question comes from the line of Jamie Cook from Credit Suisse. Your line is open.

Jamie Cook : Hi, good morning. Two questions. A follow-up on the inventory reductions from your customers and channel partners. Exactly what’s embedded in the back half of the year, is it another visit 1 to 1.5 points and in the guide in the back half of the year? And then as a follow-up to that, you are maintaining your revenue guide despite this, so what’s doing better than expectations? And sort of my last question is Construction margins were very impressive considering the sales decline. So any color on that? Thank you.

Michael Larsen: Yes. I think the inventory reduction impact that we saw here in Q2 is now embedded in our run rates, and therefore, embedded in our guidance for the balance of the year. Actually, if you look at our Q2, it came in right in line with run rate except for these – the inventory impact that we estimate at 1 point to 1.5 points. And underlying demand, as we said, is really stable, if not strong in places like Auto and Food Equipment. So we feel really good about our assumptions here going into the back half of the year. Your question specifically on Construction, I agree with you, that’s some pretty impressive performance given the challenging end markets, particularly if you look at Europe. The big drivers here continue to be enterprise initiatives, which has been called the gift that keeps on giving.

Scott Santi: By you.

Michael Larsen: By me.

Scott Santi: Yes.

Michael Larsen: Yes, if I may say so. And I think total company, the Enterprise initiative impact ranged from 70 to 200 basis points by segment with Construction at the very high end of that at about 200 basis points impact. And then certainly, there’s still some catch-up on price/cost. Construction was a segment that was hit harder than the average in 2021 and 2022. And so price/cost did contribute in a meaningful way. We do expect that, just like we do for the rest of the Enterprise to begin to normalize here in the back half, like I said in response to Jeff’s question, but we’re still going to see positive price/cost impact, including Construction in the second half.

Jamie Cook : Thank you.

Michael Larsen: Sure.

Operator: Your next question comes from the line of Joe O’Dea from Wells Fargo. Your line is open.

Joe O’Dea : Hi, good morning.

Scott Santi: Good morning.

Joe O’Dea : I guess I wanted to sort of extend that a little bit in terms of the comment around underlying demand being sort of stable to strong and sort of calling out Auto and Food Equipment. But anything from sort of a regional or end market perspective that you’re watching most closely on end market demand and sort of considerations on kind of prospects for slowing anymore?

Scott Santi: I think overall, it’s been remarkably stable. If anything, we saw some firming up in the second quarter based on some trends in the first quarter that we talked about relative to 25% of our portfolio. I think the one place we saw things continue to weaken was in Europe on Construction between Q1 and Q2, but for the rest of the portfolio, I think, at this point, the best description is pretty firm.

Joe O’Dea: Got it. And then also just the margin strength in the quarter and thinking about the back half of this year, I think, the midpoint for the full year would suggest something like a 25.5% margin in the back half. I think you’ve talked about sort of continued progress on Auto. Just anything else that you think to be the more notable contributors to that sequential improvement?

Michael Larsen: Yes, I mean the big driver continues to be the Enterprise initiatives. The work around eighty-twenty front-to-back and strategic sourcing efforts, we expect at least 100 basis points of contribution there in the second half. And then price-cost, we still expect a meaningful contribution as we talked about a few minutes ago. So, all of that means that as we look at kind of the second half, we expect margins to continue to improve sequentially from Q2 to Q3 and from Q3 to Q4, maybe somewhere around 50 to 60 basis points each quarter of sequential improvement. I think we talked in the past about 100 basis points of improvement year-over-year. That’s still looking very good. So, like I said in the prepared remarks, we’re really well positioned here in terms of our margin and profitability performance through the balance of the year and frankly into next year. So, I’ll leave it at that.

Joe O’Dea: Thank you.

Operator: And your next question comes from the line of Tami Zakaria from JPMorgan. Your line is open.

Tami Zakaria: Hi, good morning.

Scott Santi: Good morning.

Tami Zakaria: Thank you so much for taking my questions. So, my first question is on Food Equipment. I think I saw on your slide, it grew 3%, while services were up 15%. So for the Equipment portion, is that entirely pricing-driven? Was there any volume growth in the quarter on the Equipment side?

Michael Larsen: So, I think you know this, Tami, we don’t break out price and volume. And I’d say both elements contributed and it’s a little different equipment versus service, but certainly some really strong activity. North America, I think, we said up 8%, that has Equipment up 5%, services up 15%, by end market institutions up 13%, health care up 18%, restaurants, still really strong performance there. Retail a little softer. That can be a little lumpy, international side, up 5%. So, I think really strong quarter by Food Equipment and actually looking really good for Q3. I think that they should be putting up another really strong quarter. There might be a little bit of – if you go back and look, the comparisons are a little bit challenging on a year-over-year basis. But overall, the underlying demand in food equipment remains really healthy and really well positioned again for the second half.

Tami Zakaria: Got it. That’s very helpful color. And if I can ask a follow-up about your Welding segment, I thought the results there were very interesting. Operating margin was up 460 basis points even though organic growth was about 1%. So, what’s driving this very strong operating margin leverage? Is it purely price/cost, or is there something else going on in there?

Michael Larsen: There is something else going on in there, Tami. So, it’s a similar answer to what I said for Construction. I mean I think there is a healthy dose of enterprise initiatives. And then we’re still recovering the margin impact on price/cost. So, those are the main drivers here. And like I said, I mean, price/cost, we expect that to normalize in the second half, but the Enterprise initiatives and we expect that to continue into the – through the balance of the year and into next year.

Tami Zakaria: Perfect, thank you.

Operator: Your next question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.

Andy Kaplowitz: Hey, good morning everyone.

Michael Larsen: Good morning.

Andy Kaplowitz: So you mentioned you thought electronics-related markets look like they may be bottoming out. Could you give us more color into what you’re seeing here prompted you to say that? And then stepping back and focusing on the 25% of the business, including Electronics, that has been weak, would you say that like Electronics, you are seeing the bottoming in many of these markets, maybe outside of European Construction, which you already mentioned? Or was that [indiscernible] just focused on Electronics?

Michael Larsen: So let me do the semi portion first. I mean, I think, there has been this view that the second half would be a step-up from the first half. Really, we talked about this going into the year.

Scott Santi: Mostly from what we’re hearing from our customers.

Michael Larsen: And I was going to say, the customer feedback has now become even more supportive of that view along the lines of get ready for orders to come back here in the second half and make sure you have the capacity to support us, which, of course, we do. So, that’s kind of the color commentary around semi. And similar to what you’re hearing from other…

Scott Santi: We’re not baking any of that into our back half…

Michael Larsen: That’s a good point. None of that is baked in. So I think that’s…

Scott Santi: We’ll take them when we see it.

Michael Larsen: Exactly like we normally do; none of that would be in our run rates, obviously. And so we’d be happy to see that here late Q3, Q4, if we get those – if that really comes to fruition. On the 25% of the portfolio, I think maybe to give you a little bit more detail, I think what was really encouraging this quarter is if you look at the performance of those businesses, and there are some puts and takes. There are some businesses that are no longer slowing, that have moved out and others, I think Construction Europe was an example that maybe have moved in, but it’s still about 25% of the company. Those businesses were down 7% year-over-year in the first quarter, and they were only down 3% in the second quarter.

And actually, if you look at it sequentially, the businesses as a group improved 2% sequentially. And that includes in that 25% is also at least a portion of our semi revenues. So I think that’s certainly encouraging as we look to the back half of the year.

Andrew Kaplowitz: Michael, that’s really helpful. And then I just want to go back to your commentary on regional demand. You mentioned China was up 22% in the quarter, which I think you expect did. And obviously several of your peers have talked about seeing some incremental weakness in China moving forward. Do you still feel well positioned there, maybe given your China auto exposure, you still expecting kind of Food Equipment markets to improve? Any color would be helpful.

Michael Larsen: Yes. I think, Andy, the big driver for us in China is auto, and that’s our largest businesses. We talked about this on the last call, we expected a strong Q2 in China. Based on some of the COVID-related slowing in the first quarter, we bounced back in the second quarter with auto up more than 50% in Q2 and all of China up 22%. I think a better way to look at China is maybe if you look at the first half, our China business was up 7% on a year-over-year basis, and that’s maybe a more accurate representation of kind of the underlying levels of demand. And so for the second half, we’d expect something kind of in the mid-single digits out of that region. But again, it’s all driven by the auto business that’s doing a phenomenal job frankly, gaining share and launching new products particularly on the EV side with domestic local Chinese OEMs that are winning big time, as we talked about at Investor Day.

So really well positioned, not just for the second half but for many, many years to come here in our China business and in auto particularly.

Andrew Kaplowitz: Appreciate all the color.

Michael Larsen: Sure.

Operator: Your next question comes from the line of Joe Ritchie from Goldman Sachs. Your line is open.

Joe Ritchie: Hey guys. Good morning.

Scott Santi: Good morning.

Joe Ritchie: Can we maybe just double-click a little bit on the longer-term service opportunity in Food Equipment? Clearly, 16% growth in that business is very robust, and I’m sure it carries a pretty good margin for you guys as well. Can you just maybe kind of talk a little bit about how you’re increasing the growth rate today and then what the expectations are going forward?

Michael Larsen: Yes. I mean I think the service business we’ve talked about this for a long-time now in terms of long-term organic growth potential. It is a huge differentiator with us – for us in the market. We are the only OEM that has service capabilities, and it gives us all kinds of advantages in terms of our ability to install, service, maintain and then capture replacement down the line. So we think there’s a lot more to come on the service side. We’re obviously still, to some extent recovering from COVID. If you actually look at the Equipment side has now fully recovered to 2019 levels. The Service side is still catching up, and so we expect that there’s still a lot of runway particularly with our installed base.

Scott Santi: I was going to say that I’m not current on the exact – what our businesses estimate is our share of our installed base, but last time I had the conversation I think it was sort of well into the low-20s at best maybe and don’t sort of take that as possible, but at the point is that we have a lot of room to grow within – with just doing – giving more penetration with our current installed base globally.

Joe Ritchie: Got it. That’s helpful. Maybe, I don’t know if there’s an opportunity to elaborate on that point, Scott. I think you guys called out the service business being roughly, what 30% of the Food Equipment segment. So are you – do you have to invest more in your service capabilities or getting feed on the street to improve the penetration there?

Scott Santi: Yes. And that’s been an active strategy for the last – really coming – really from before COVID. So some of it is coverage, some of it is programming. When you actually service the equipment you sell, we have lots of opportunity to integrate service offerings at the point we sell the equipment, which is part of the – why we think this is a big competitive advantage for us. So it’s essentially all of the above, but there’s no way to do service remotely. So we got to have service techs on the street. We’ve got, I think, north of 1,500 in North America and the same in Europe. And given the profitability of the business and how much runway we have we’ll certainly continue to invest. That’s part of what Michael talked about; continue to invest in our organic growth strategies that’s certainly a good example.

Joe Ritchie: Yes. Okay. Great. And then maybe one last question just on M&A. Just any comments around the pipeline today, what you’re seeing and whether there’s been any movement since you last updated at Investor Day?

Scott Santi: Yes, I’d say that there’s been no change. We continue to get sort of apple flow in terms of people wanting us to take a look at things. And as we’ve talked about for a long time and certainly updated at our Investor Day, the aperture through which we will strike on those opportunities is pretty narrow given all the potential in our core business, but we’ve done MTS recently, and we will continue to opportunistically be aggressive. But from the standpoint of overall flow, is it up or down, I’d say it’s been pretty stable.

Joe Ritchie: Okay. Great. Thank you.

Operator: And your final question comes from the line of Julian Mitchell from Barclays. Your line is open.

Julian Mitchell: Thanks. Good morning. Maybe a question first off, just around the cadence of sort of Q3 versus Q4; anything to call out there when you’re thinking about margins or the top line, particularly in the context of that destocking that you mentioned? Thank you.

Michael Larsen: Yes. I think, Julian, I think I said this earlier, we do expect as we typically do, if you look at our historical sequential lift from Q2 to Q3 of about 1%. The thing to keep in mind is that Q3 has one less shipping day relative to prior year and relative to Q2, so that is going to have a little bit of an impact. So don’t expect a big jump here in Q3. But certainly based on current run rates, some progress on the top line, progress on the bottom line with margin expansion. I think we talked about that somewhere along the lines of 50 plus basis points from Q2 to Q3. And I might just add that in terms of our typical cadence kind of first half, second half, if you look at our full year EPS, we’re typically 49% to 51%, and we are – as we see today, right in line with that, based on our – if you look at our $4.81 GAAP EPS for the first half the midpoint of our guidance of $9.75, you can calculate what’s left to go, and you’ll see it’s a lift from the first half to the second half.

That’s right in line with our historical averages, which gives us a lot of confidence as we head into the second half here.

Julian Mitchell: Thanks very much, Michael. And maybe just my second question or follow-up would just be around when you’re thinking about the sort of market share gain efforts across the company. Volume growth year-to-date very muted or negative; do you still think you’re getting some share? Or was the sort of the share gain maximized really two, three years ago when competitors were supply constrained and now we’re in a normal supply chain environment, the sort of share gains have dried up largely? Thank you.

Michael Larsen: Well, so Julian, I wouldn’t agree with how you characterize this in terms of no volume gains year-to-date. I think we have a lot of confidence that we continue to take market share not just as we talked about through the pandemic. But on an ongoing basis, I mean, I think if you look at our organic growth rates relative to peers in these – in some of these segments, you’ve got some good comps. You can certainly take a look at that. And I think we’re continuing to invest here in all of our organic growth strategies and efforts, including headcount to continue to take market share. So we have a high degree of confidence that we continue to take share.

Scott Santi: And it’s not something you measure in a quarter or two.

Julian Mitchell: No, I think these…

Scott Santi: I think the long view, we’ve committed to organic growth in our organic growth goals in our – in the Investor Day we just did, and those are organic growth goals that are going to be well above underlying market growth at 4 to 5 and in that case by definition we will continue to take share.

Michael Larsen: Yes. And I think the other thing, I mean, the biggest driver as we talked about at Investor Day, Julian, I think you were there is going to be our customer-back innovation efforts. We’re signing a bright light on our CBI efforts, and we’re – the whole company is focused on continuing to drive up the contribution to organic growth from our innovation efforts. And so you put all of that together we’re highly confident we can deliver our long-term kind of 4% plus organic, which is given our high levels of profitability, that’s all we need to grow, EPS kind of high-single digit, low-double digit. You add an attractive dividend yield on top of that, and you’re getting that 11 to 13 TSR over the long-term, not every year, this year, yes, but not every year. That’s what you should expect from ITW. And it’s much more about that than it is a quarterly market share number, which is, I think, what you’re asking about.

Julian Mitchell: That’s very helpful. Thank you.

Michael Larsen: Sure. You’re welcome.

Operator: And thank you for participating in today’s conference call. All lines may now disconnect at this time.