Illinois Tool Works Inc.

Welcome, and thank you for joining ITW's 2018 Fourth Quarter Earnings Call. My name is Cheryl, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Please note, today's conference is being written of investor relations. You may begin.

Thank you, Cheryl. Good morning, everyone, and welcome to ITW's fourth quarter 2018 conference call. I'm joined by our chairman and CEO, Scott Santee, along with Senior Vice President and CFO, Michael Larson. During today's call, we will discuss fourth quarter and full year 2018 financial results, and we'll update you on our 2019 outlook. Slide two is a reminder that this presentation contains our financial forecast for the first quarter and full year 2019, as well as other forward-looking statements identified on this slide. We refer you to the company's 2017 Form 10-K and subsequently filed Form 10-Qs for more detail about important risks that could cause actual results to differ materially from our expectations. Also, this presentation uses certain non-GAAP measures, and the reconciliation of those measures to the most comparable GAAP measures is contained in the press release. As a reminder, in 2017, we disclosed a $95 million favorable legal settlement and recorded a one-time tax charge in the fourth quarter. Therefore, we provided you with two tables on slides three and four that summarize key financial measures for fourth quarter and full year on a GAAP basis, as well as on an adjusted basis, excluding the legal settlement and tax charge. For the rest of this conference call, our comments and variances exclude these two items, these two one-time items from 2017. So, with that, we can move to slide five, and I'll now turn the call over to our chairman and CEO, Scott Santee.

Scott Santee Thanks, Karen, and good morning, everyone. Greetings from the epicenter of the polar vortex. In the fourth quarter, the ITW team delivered solid earnings growth and margin expansion. Fourth quarter EPS was in line with the midpoint of our guidance and increased 8%, 10% excluding currency, with operating margin up 70 basis points to 24%, and after-tax return on invested capital up 320 basis points to over 27%. For the full year, the ICW team delivered high-quality earnings growth of 15%, record operating income, record operating margin, and record return on invested capital. Cash flow was up 10%, and in addition, we returned more than $3 billion to shareholders in the form of dividends and share repurchases. Throughout 2018, we continued to make significant progress on the execution of our enterprise strategy. as evidenced by 110 basis points of margin improvement from our enterprise initiatives over the course of the year. And we made really good progress on organic wealth acceleration in better than half of our operating divisions. As we discussed at our investor day back in December, our focus now is on getting the other 36 of our divisions that are not yet growing to their potential moving more briskly down that path. And it's a major focus for us in the next couple of years. There's no doubt that 2018 had its challenges, raw material cost inflation, tariff uncertainties, decelerating auto production, and currency headwinds in the back half of the year. Our ability to power through these challenges and deliver another year of record results is evidence of the performance power of the ITW business model and the resilience of our high-quality, diversified business portfolio. As we head into 2019, I'm confident that we are well positioned to deliver another year of meaningful progress down the path to ITW's full potential and to our 2023 performance goals. Before I turn the call over to Michael, let me conclude by recognizing and thanking my ITW colleagues around the world for the great job that they continue to do in serving our customers and executing our strategy with excellence.