Organic Growth: Down 0.6% with five of seven segments declining in a challenging demand environment.
Operating Income: Grew 4% excluding a one-time inventory accounting item; operating margin expanded 120 basis points to 25.4%.
GAAP EPS: Increased 17% to $2.73; EPS excluding the one-time item grew 5% to $2.44.
Free Cash Flow Conversion Rate: 68%, in line with typical Q1 levels.
Future Guidance
Organic Growth: Expected to be 1% to 3% for the full year, with confidence in achieving full-year performance targets.
Operating Margin: Projected to improve by 140 basis points at the midpoint to a range of 26% to 27% for the full year; this includes contributions from enterprise initiatives and a one-time item in Q1.
GAAP EPS Guidance: Raised to a new range of $10.30 to $10.70, including $0.30 of EPS from the Q1 inventory accounting change.
Key Segments: Automotive OEM segment expected to continue solid above-market growth with usual penetration gains. Food Equipment expected to improve margins sequentially throughout the year. Specialty Products segment is undergoing strategic portfolio adjustments for consistent growth, though a slowdown in growth is expected as part of a strategic repositioning.
Trends, Market Conditions, Sentiment
Demand Environment: The majority of ITW’s segments faced a tough demand environment, with expectations for improvement as the year progresses.
Inventory Accounting Change: Transitioned from LIFO to FIFO inventory accounting method for U.S. businesses for more consistent and straightforward inventory valuation across operations.
Market Recovery: Positive growth expected internationally, with particular strength noted in China, despite challenges in Construction Products on a global basis.
Strategic Investments: Investments in Food Equipment services are targeted towards exploiting growth opportunities, impacting margins in the short term but expected to pay off in the long run.
Portfolio Adjustments: Specialty Products segment to undergo further product line simplification and strategic repositioning to align with growth objectives.
Notable Quotes
Chris O’Herlihy, President and CEO: “We remain solidly on track to deliver on our 2024 performance targets.”
Michael Larsen, Senior Vice President and CFO: “Despite an organic revenue decline of 0.6%,…our margin and profitability performance continues to be strong, and we’re solidly on track to deliver on our guidance.”
On the transition to FIFO inventory accounting: “In Q1, we made the decision to transition from the LIFO to FIFO inventory accounting method for all of our U.S. businesses.”
Farewell to Karen Fletcher: “Over the last 6 years, Karen has been instrumental in articulating ITW’s unique and differentiated competitive advantages…we position ITW as one of the world’s highest quality, best performing, and most respected industrial companies.”
