Illinois Tool Works Inc.

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. For those participating in Q&A, you will have the opportunity to ask one question and, if needed, one follow-up question. Thank you. Karen Fletcher, Vice President of Investor Relations, you may begin your conference.

Okay. Thank you, Julianne. Good morning, everyone, and welcome to ITW's third quarter 2020 conference call. I'm joined by our Chairman and CEO, Scott Santee, and Senior Vice President and CFO, Michael Larson. During today's call, we will discuss ITW's third quarter 2020 financial results and provide an update on our strategy for managing through the global pandemic. Slide two is a reminder that this presentation contains forward-looking statements. We refer you to the company's 2019 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. including the ongoing effects of the COVID-19 pandemic on our business. 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. Please turn to slide three, and it's now my pleasure to turn the call over to our Chairman and CEO, Scott Santee.

Thank you, Karen, and good morning, everyone. We saw solid recovery progress in many of the end markets that we serve in the third quarter, as evidenced by our revenue being up 29% sequentially versus the second quarter. In fact, demand levels returned to rates approximating year-ago levels in five of our seven segments, with two of those, construction and polymers and fluids, delivering meaningful growth in the third quarter. On the flip side, Demand levels in our food equipment and welding segments continue to be materially impacted by the effects of the pandemic, although we did see good sequential improvement in both in Q3 versus Q2. You know, we talk often about the flexibility and responsiveness inherent in our 80-20 front-to-back operating system, and those attributes were clearly on display in our Q3 performance. Supported by our decision early on as the pandemic unfolded to refrain from initiating staffing reductions and to focus on positioning the company to fully participate in the recovery, our people around the world responded to a rapid acceleration in demand by leveraging the ITW business model to provide excellent service to our customers while keeping themselves and their coworkers safe. Perhaps the most pronounced example was our auto OEM segment, where our team executed flawlessly from both a quality and delivery standpoint in responding to demand levels that essentially doubled in Q3 versus Q2 and with a very demanding customer base. Across all seven of our segments, our teams can cite numerous examples of how our ability to sustain high levels of service in the face of rapidly accelerating demand resulted in incremental business for the company in Q3. In addition to leveraging our best-in-class delivery capabilities, our divisions remain laser-focused on leveraging our strengths to capture sustainable share gain opportunities that are aligned with our long-term enterprise strategy. These efforts are just beginning to take hold, and I am confident that they will contribute meaningfully to accelerating our progress towards our long-term organic growth goals. The operating flexibility that is core to our 80-20 front-to-back operating system also applies to our cost structure, which showed through in our operating margin performance in Q3. Operating margin of 23.8% in the quarter included meaningfully higher restructuring expenses versus a year ago, and two segment-specific one-time items, which Michael will provide more detail on in a few minutes. Excluding these factors, operating margin was 25.3% in Q3, the second highest in the history of the company. Overall, the pace of recovery in the third quarter exceeded our expectations heading into the quarter as we delivered revenue of $3.3 billion, operating income of $789 million, free cash flow of $631 million, and gap EPS of $1.83 million. In addition, after-tax return on invested capital improved to 29.6%, an all-time high for the company. It goes without saying that I could not be more proud of how the ITW team is managing through this challenging period, and I want to sincerely thank my 45,000-plus ITW colleagues around the world for their continued exceptional efforts and dedication in serving our customers and executing our strategy with excellence. In the face of unprecedented challenges and circumstances, our operational and financial performance over the last few quarters supports our decision to remain fully invested in the key initiatives supporting the execution of our long-term enterprise strategy and provides further evidence that ITW is a company that has both the enduring competitive advantages and the resilience necessary to deliver consistent upper-tier performance in any economic environment. Moving forward, we remain focused on delivering strong results while continuing to execute on our long-term strategy to achieve and sustain ITW's full potential performance. I'll now turn the call over to Michael for more detail on our Q3 performance. Michael? Thank you, Scott, and good morning, everyone.