Illinois Tool Works Inc.

Welcome and thank you for joining ITW's 2019 second quarter earnings call. My name is Cheryl and I will be your conference operator today. At this time, all participants have been placed in a listen-only mode. After the speaker's remarks, there will be a question and answer session. For those participating in the Q&A, you will have the opportunity to ask one question and, if needed, one follow-up question. As a reminder, this conference call is being recorded. I will now turn the call over to Karen Fletcher, Vice President of Investor Relations. Karen, you may begin.

Thanks, Cheryl. Good morning and welcome to ITW's second quarter 2019 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 second quarter financial results and provide an update on our 2019 full-year outlook. Slide 2 is a reminder that this presentation contains our financial forecast for the remainder of the year, as well as other forward-looking statements identified on this slide. We refer you to the company's 2018 Form 10-K for more detail about important risks that could cause control results to differ materially from our expectations. Also, this presentation uses certain non-GAAP measures, and a reconciliation of those measures to the most comparable GAAP measures is contained in the press release. So with that, I'll turn the call over to our Chairman and CEO, Scott Santee.

Thank you, Karen, and good morning. As you saw in our report this morning, during the second quarter, we experienced a deceleration in demand across our portfolio. At the total company level, second quarter revenues came in two percentage points or approximately $85 million below what they would have been had demand helped at the level we were seeing exiting Q1. Q2 revenues were down across all seven of our segments versus Q1 run rates, with higher declines in CapEx-related products, such as welding equipment. EPS came in at $1.91, down from $1.97 last year. In addition to external market factors, known headwinds, primarily foreign currency translation and accelerated restructuring expense, reduced EPS by 8% year-over-year in the quarter. Excluding the impact of these headwinds and a couple of small divestitures this quarter, EPS would have been $2 or an increase of 2%. As usual, as the quarter progressed, the ITW team executed well on the elements within our control, operating margin held solid at 24.1%, supported by more than 100 basis points of benefits from enterprise initiatives. Negative volume leverage and excluding 30 basis points of restructuring impact, operating margin improved 10 basis points year on year. The team also managed working capital well as we delivered a 14% increase in free cash flow this quarter. And after-tax return on invested capital was 28.6%. Based on the data available to us and the fact that we've only seen these slowing conditions for a couple of months, It is difficult to draw any conclusions as to whether this is a pause related to some near-term business tentativeness or something that may turn out to be more protracted. And in terms of visibility for us, keep in mind that as a result of the service levels that we provide to our customers, the majority of our divisions are order today, ship tomorrow businesses. And as a result, we carry very little backlog across the company. That said, we have had contingency planning discussions with our segment leadership as to the adjustments that need to be made to our plans for the remainder of the year in light of the current operating environment. And as we always do, we are adjusting our full year guidance in line with conditions on the ground as they exist today. Current run rates exiting Q2 projected through the remainder of the year would result in an organic revenue decline of 1 to 3% for the full year. And as a result, we are reducing our full-year EPS guidance by 4% at the midpoint. All other assumptions are essentially unchanged, and we continue to expect a stronger second half on a relative basis as first-half headwinds from foreign currency translation and higher restructuring expenses dissipate. While the combination of a declining global auto market, slowing manufacturing capex spending, and significant business uncertainty has us operating in a challenging macro environment near term, our efforts over the last seven years have been focused on leveraging the strength and resilience of the ITW business model to position the company for long term through the cycle performance. To that end, I would point out that despite the external challenges of the moment, In Q2, we delivered the third highest quarterly EPS in the 107-year history of the company. Looking ahead to the remainder of the year, while we will be prudent in making appropriate adjustments based on the near-term demand environment and continue to drive quality execution on the elements within our control, we remain focused on managing and investing to maximize the company's growth and performance over the long term. Our teams are Executing aggressively on our finish-the-job strategy agenda, and we continue to make solid and consistent progress in positioning the company to achieve our 2023 enterprise performance goals. With that, I'll now turn the call back over to Michael to give you more detail on our quarter.