Illinois Tool Works Inc.

investor relations, you may begin your conference.

Thank you, Lacey. Good morning and welcome to ITW's first quarter 2025 conference call. Today I'm joined by our President and CEO, Chris O'Harely and Senior Vice President and CFO, Michael Larson. During today's call, we will discuss ITW's first quarter financial results and provide an update on our outlook for full year 2025. Slide two is a reminder that this presentation contains forward-looking statements. We refer you to the company's 2024 Form 10K 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 is contained in the press release. Please turn to slide three and it's now my pleasure to turn the call over to our President and CEO, Chris O'Harely. Chris?

Thank you, Erin, and good morning, everyone. As you saw in our press release this morning, ITW delivered a solid start to the year as we outperformed our underlying end markets with flat organic growth on an equal days basis in a steady demand environment. We continued to execute well in controlling the controllables as enterprise initiatives contributed 120 basis points to operating margins of 24.8%. In addition, GAAP EPS of $2.38 came in ahead of our planned expectations. Importantly, we continue to make progress on our next phase key strategic priorities as we remain laser focused on building above market organic growth fueled by customer-backed innovation into defining ITW strength on par with our world-class financial and operational capabilities. As we've said many times before, ITW is built to outperform in uncertain and volatile environments because of the unique advantages that we derive from our powerful ITW business model, our diversified portfolio of differentiated products and services, our decentralized close to the customer structure, and our considerable financial strength. In addition, when it comes to tariffs, we believe that ITW is better positioned than most as the tariff impact is largely mitigated by our 90% plus -we-sell manufacturing strategy. That said, ITW is obviously not immune to tariffs, and our people are reading and reacting rapidly and decisively, working closely with our suppliers and customers to mitigate the impact of tariff increases. These strategic adjustments and ongoing pricing actions are projected to offset the cost impact of tariffs and therefore be EPS neutral or better by year end. Looking forward and based on what we know today, we are maintaining our EPS guidance for the year without incorporating the upside from our first quarter results and more favorable foreign exchange rates. Where the impact of tariffs and customer demand is obviously not known at this stage and uncertainties remain, we will continue to leverage our financial strength to remain invested in the focused execution of our long-term strategy. In concluding my remarks, I extend my sincere gratitude to our global ITW colleagues for their unwavering dedication to serving our customers and executing our strategy with excellence. Now I'll turn the call over to Michael to provide more detail on the quarter as well as our guidance for 2025. Michael.

Thank you, Chris, and good morning,

everyone.

In Q1, the ITW team delivered a solid start to the year, both operationally and financially. Starting with the top line, organic growth was down 1.6 percent as expected. On an equal day's basis, organic revenue was flat to the prior year, which had one additional shipping day. Foreign currency translation reduced revenue by 1.8 percent and total revenue was down 3.4 percent. Product line simplification reduced revenue by 50 basis points in the quarter. Of note, did not experience a meaningful impact from customers pulling forward orders from Q2 into Q1. On the bottom line, the ITW team continued to focus and execute well on the things that we can control as evidenced by enterprise initiatives, which contributed 120 basis points, and free cash flow of 496 million with a conversion rate of 71 percent. The operating margin was 24 percent as enterprise initiatives were offset by operating leverage, higher restructuring expenses related to 80-20 -to-back projects, and other one-time items. The margin declined -over-year was due primarily to the non-repeat of a 300 basis points LIFO inventory accounting benefit last year. We are projecting that margins continue to improve sequentially from here in every segment and at the enterprise level as we go through the year, which is in line with our historical pattern and supported by meaningful contributions from enterprise initiatives that are volume independent. In summary, demand remains steady in Q1 as we continue to outperform our underlying end markets, delivering flat organic growth on an equal basis, solid margins of 24.8 percent, free cash flow of approximately 500 million, as well as gap EPS of $2.30, which was ahead of our planned expectations, primarily due to a lower effective tax rate in the quarter. Please turn to slide four for a look at organic growth by geography. And on a geographic basis, organic revenue declined about 3 percent both in North America and Europe, while Asia Pacific was up 7 percent, with China up 12 percent, driven in part by continued strong performance in the automotive OEM business. As you can see, China represents about 7 percent of total company revenues, and China grew 9 percent, even when excluding the 14 percent growth in automotive OEM. Let's move to the segment results, starting with automotive OEM, where organic revenue declined 1 percent in the first quarter, as product line simplification or PLS efforts reduced revenue by 1 percent. On a regional basis, North America was down 6 percent, as D3 customer builds were down 10 percent. Europe was down 6 percent, while China grew 14 percent, against a tough comparison of plus 23 percent last year, as our local team continues to innovate and gain market share, particularly in the rapidly growing EV market. We expect this strong growth momentum to continue through the balance of 2025, partially offsetting expected weakness in North America. For the full year, and compared to industry build data, we expect that this segment will outperform relevant builds by the usual 200 to 300 basis points, as we continue to grow our content per vehicle. We have incorporated recently revised order builds forecasts into our guidance, as worldwide order builds are projected to be down low single digits, with North American builds down high single digits, Europe down low single digits, and partially offset by China. Overall, our relevant markets are expected to be down in the mid-single digits in 2025, which compares to a plan of down low single digits going into the year. On the bottom line, the automotive OEM segment delivered operating margin of 19.3 percent in Q1, which included 80 basis points of restructuring headwind. In other words, margins were 20.1 percent, excluding restructuring. And it is worth noting that the tariff-related costs and margin impacts in this segment are relatively insignificant, primarily because of our produce where we sell manufacturing footprint, and we remain confident that we will continue to expand margins as we go through the year. Turning to slide five, food equipment, organic growth was up a little more than 1 percent and up 3 percent on an equal day's basis. Equipment was flat and service grew 3 percent. By region, North America grew 1 percent with in institutional end markets, which were up double digits. Our international business was up 2 percent, Europe was up 2 percent, and Asia Pacific was up 1 percent. In test and measurement and electronics, organic revenue was down 5 percent, due primarily to tough comparisons in the MTS business, which grew 23 percent in the year ago quarter and was down 19 percent this quarter. Excluding MTS, this segment was down 2 percent. Overall, test and measurement declined 9 percent, with about half of that decline due to MTS. While on a positive note, electronics was up 3 percent, with some encouraging signs as semi-related orders were up double digits in the quarter. Operating margin of 21.4 percent declined 200 basis points due primarily to negative operating leverage, as well as a headwind from higher restructuring costs of 60 basis points. Moving on to slide six, organic growth in welding was essentially flat and up 2 percent on an equal day's basis. Equipment increased 1 percent, which marked the first positive growth rate in equipment in two years. Consumables were down 2 percent, while industrial sales declined 1 percent, and the commercial side was down 6 percent. Overall, North America was down 2 percent, offset by international, which was up 14 percent, driven primarily by more than 30 percent growth in China as a result of the success of new product introductions targeted at the energy space. Operating margin of 32.5 percent was essentially flat year over year. Polymers and fluids organic revenue grew 2 percent, with polymers up 6 percent. Both fluids and automotive aftermarket were flat. On a geographic basis, North America was flat, and international grew 5 percent. Operating margin improved 70 basis points to 26.5 percent. Turning to slide seven, construction products organic growth was down 7 percent in tough end markets. In the U.S., annualized new housing starts were down double digits compared to year end, and we estimate that international markets were down in the high single digits. As a result, North America was down 10 percent, with residential renovation down 12, while commercial construction was up

2 percent.

In the first quarter, Europe was down 2 percent, and Australia and New Zealand was down 9 percent. Operating margin of 29.2 percent was essentially flat with another significant contribution from enterprise initiatives. Specialty products organic revenue was up 1 percent against a comparison of plus 6 percent in the year ago period, with North America up 2 percent and international down 1 percent. The reduction in revenue from strategic PLS was 130 basis points. Of note, equipment orders were up double digits with continued strength in the aerospace and packing equipment businesses. Operating margin improved 120 basis points to 30.9 percent, with another solid contribution from enterprise initiatives. With that, let's turn to our slide eight for an update on our full year 2025 guidance, which is unchanged. Looking ahead to the balance of the year, we firmly believe that we're better positioned than most, as the impact of tariffs is largely mitigated by our 90 percent produced where we sell manufacturing strategy and our unmatched ability to read and react in our highly decentralized operating culture. We're well positioned to outperform our end markets and deliver organic growth of 0 to 2 percent based on our usual top line guidance process, which is based on current levels of demand adjusted for typical seasonality, the incremental pricing associated with tariffs, and updated for the most recent automotive bill projections that we talked about earlier. As you saw in our press release this morning, we're maintaining our previous guidance, including gap EPS in the range of 1015 to 1055. And given the uncertainty in the global demand environment, we decided to not incorporate the EPS upside from our above plan results in Q1, as well as approximately 30 cents of tailwind from foreign exchange at current rates. We fully expect to continue to execute at a high level on the most important profitability drivers that are within our control, such as our ongoing pricing and supply chain actions that, as Chris said, projected to offset tariff costs and therefore be EPS neutral or better, as well as our enterprise initiatives, which we now expect will contribute 100 basis points or more of margin expansion independent of volume. So to wrap things up, we're confident that the strength and resilience of the ITW business model, our high quality diversified business portfolio, and our people put us in a position to deal decisively and effectively with the effects of the announced tariffs. However, they play out from here while remaining focused on executing our long term enterprise strategy. So with that, Erin, I'll turn it back to you.

Thank you, Michael. Lacey, will you please open the lines for questions?

Yes, ma'am. At this time, I would like to remind everyone, as a question, please press star then the number one on your telephone keypad. We will pause for just one moment to compile the Q&A roster. Okay. Your first question comes from the line of Vlad Bistryki. You may go ahead.

Good morning, guys. Thanks for taking my questions here.

Morning.

So I know you talked about offsetting potential tariff headwinds with pricing. I guess, can you just talk about any color and how you're thinking about overall pricing expectations for the year now versus coming into 25? And then just along with that, I know historically you've looked to offset inflationary pressures on a dollar for dollar basis, but you're maintaining the margin outlook here. So is there some different approach this time around?

Yeah. So that I would say at a high level, the strategy is to offset tariffs with appropriate pricing. We're, as we've said on many occasions, we're able to get pricing due to high levels of differentiation across our business. So we expect the price-cost equation to be pretty manageable based on what we know today. We expect the tariff cost impact to be EPS neutral or better. I would say that pricing in general, I mean, any comments that we make on pricing should be considered in the context that we have 84 different divisions. And obviously the context is different in each one, but overall we expect the price-cost impacts with tariffs to be EPS neutral or better. We do a lot better than that in some businesses. We allow our businesses who are very close to their customers to make these decisions with some overarching guidance from us. But businesses are close to their customers. They know their customers very well. They understand the competitive intensity and the price volume dynamics relative to their particular markets. And these are decisions that are taken in our businesses on an ongoing basis, not just in response to a tariff environment. So there's a lot of market-specific expertise within our divisions as to how to get price and where to get price. But in general, as I said, we sell differentiated products and services. We get paid for our value. And I would say so far, we're also a very good start in terms of getting price based on the tariffs that were introduced in early March.

That's helpful, Chris. Appreciate it. And then just stepping back, can you talk about how you're thinking about potential contingency plans if we see the demand environment materially slow over the course of 25? And I recall in the COVID and post-COVID era, you were very focused on winning the recovery. So can you talk about how you're thinking about a potential recession and recovery playbook today?

Sure. So I would say that in terms of contingency, obviously, we are in the fortunate position that we have, I would say, a lot of self-help in the context of enterprise initiatives in the first instance. Divisions, in the spirit of continuous improvement, our divisions are always looking at supply chains, alternative suppliers as a matter of course that's very much consistent with our continuous improvement approach. From a recession kind of posture response standpoint, clearly, it's a pretty fluid environment. But I would say that our overall posture in a short-term recession would be to wherever possible stay invested in our growth initiatives and these really highly profitable businesses. We're a long-term focused company. We have the financial resources to do that. Obviously, during the pandemic or when the recovery approach helped us, number one, take care of customers, number two, gain share. And so we'd look at taking a somewhat similar approach. And again, I come back to the point that we set up enterprise initiatives, which would certainly help us protect margins in a downturn. The other point I would make that's pretty specific to ourselves is that, as we've often noted, a fundamental element of 80-20 is that we've got a very flexible cost structure. And we typically engage in the higher value added parts of the manufacturing process and outsource those other parts that may be lower on the value chain. So this makes the cost structure for us very flexible. And this would be a real benefit in a recessionary scenario. I'd appreciate it, Chris. Thanks. Sure, Vlad.

Thank you. Your next question comes from the line of Tammy Zaccaria with JP Morgan. You may go ahead.

Hey, good morning. Thank you so much. Good morning. My question is on pricing. So the organic growth guide 0% to 2%. I think I heard you say it includes some pricing action. So are you assuming the pricing gain will be offset by some volume decline? And that's why you're leaving the full year organic growth guide intact?

So Tammy, this is Michael. So the organic growth guidance of 0% to 2% is based on kind of our typical run rates or current levels of demand. We have added to that incremental pricing, which is associated with tariffs. And then we also updated the forecast for the lower projected auto build forecasts. And I think that your question around could this incremental price be offsetting volume, I think is kind of how we think about it. While we haven't seen a slowdown in our businesses today, certainly the uncertainty, it's not unreasonable to imagine that things could slow a little bit in the second half. And if that's the case, that volumes come down, then that will be offset by the higher level pricing that we're getting right now in our businesses to help offset the tariff impact.

Understood. That's very helpful. And so a quick follow up on that is, have you already taken pricing in response to tariffs or you're waiting to take the pricing when tariffs become effective on May 2 or whatever the latest date is from the administration?

You know, I think as Chris said, this is 84 different discussions, but what I can tell you, you know, every division has a slightly different timeline, but I can also tell you everybody impacted by tariffs has already taken, you know, decisive action on pricing, as Chris said, based on the announcements that were made back in March. And some of them have taken action already based on the announcements that were made early April. And so this is kind of an ongoing process. I think what's really encouraging, if you look back at kind of how this played out in 2017 and 18, how it played out in an inflationary environment coming out of COVID, I think we've demonstrated we have ample pricing power in these highly differentiated businesses. And so that's what gives us the confidence to say that, you know, our pricing actions, along with some of other supply chain actions we talked about will enable us to offset the impact of tariffs and be EPS neutral or better by year end.

That's wonderful to hear. Thank you. Sure.

Your next question comes from the line of Julian Mitchell with Barclays. You may go ahead.

Hi, good morning. Just wanted to start off the food equipment business. You know, it's one that doesn't get a lot of air time, but you get a very good update on auto and test measurement. And just asking on food equipment because we've seen some fairly lackluster updates from some larger customers, you know, in that sort of quick serve channel, whether it's Starbucks or KFC or whoever in the last 24 hours. Wondered if you're seeing any shift in customer behavior in food equipment yourself and what's your confidence in the sort of continued spending by those customers in the balance of the year?

Yeah, so Julian, overall, I think our confidence in food equipment is very high. This is a highly differentiated business for us. It also contains about one third of the business is service related. And that's very unique because we are the only major equipment manufacturer with that captive service business. And as you've seen from what Michael reported earlier, the service business continues to grow nicely. On the equipment side, given the end market split, we are about 40, 40% of our business goes to institutional customers. And that continues to be very strong for us. Food equipment in the aggregate is an extremely fertile innovation environment. We have new product launches in all product categories this year. In food, there's some real tangible things to innovate around like energy and water savings, which really matter to our customers. So we feel very good about food equipment. It's a very fertile innovation space because of our end market mix being more skewed towards institutional that is helping us now. And obviously, we have the big service business, which is a huge differentiator for us. So we see broad based strength in food equipment, North America, China, and Latin America also expected to be strong geographically.

That's very helpful. Thank you. And then just to understand, on the tariff points from a sort of segment standpoint and phasing through the year, is the assumption that all segments should be sort of tariff dollar neutral for 2025 as a whole? And is there any kind of pressure in a given quarter for ITW enterprise wide from tariffs in terms of EBIT dollars or EBIT margin rate that you'd highlight to us?

Well, Julian, historically, if you go back to 2017-18, there was a little bit of a lag between when tariffs were enacted and when pricing kicked in. I think we've learned some things. I think we've become faster in terms of reacting to these tariff increases. And so we really don't expect a whole lot of quarterly impact here in the short term. From a lag between price cost, I think all segments have, I'd say the tariff impact is pretty broad based, a little bit less in automotive, which is a good thing. Because as you know, it takes a little bit longer to get priced there, but everywhere else, all of our divisions, all segments are working actively on offsetting these tariff costs with supply chain and pricing actions. And ultimately, that's what's going to enable us to be EPS neutral or better by the time we get to year end. But there really shouldn't be a lot of pressure here in the short term. That's great.

Thank you.

Sure.

Your next question comes from the line of Stephen Vultman with Jeffery. You may go ahead.

Good morning, guys. Thank you. Julian kind of teed me up here. I was just going to ask if Michael, if there's anything you want to say relative to the second quarter that might be different than normal seasonality, just as we modeled this out?

Well, so obviously, I'll just say this, we're operating in a pretty uncertain environment, as you know. We had a pretty solid finish to Q1. We had a pretty good start. April is not completely done yet, but things are tracking pretty good. So what I'll maybe offer is that typically from Q1 to Q2, we see about a 2% top line, sequential growth. We also benefit from having one more day in Q2 than we did in Q1. So if you model that out, you'll see that revenues are about flat from an organic growth standpoint on a -over-year basis. Pricing may help out a little bit, but that's kind of the base assumption that the top line is flat -over-year. Margins, we should see a significant meaningful step up from Q1, primarily as a result of some of these one-time items not recurring. And so solid margin improvement from Q1 to Q2. And then on a -over-year basis, margins about flat-ish and EPS also about flat. So that would put, I think last year we did 254. So if you believe what I just said, that would put EPS kind of in the mid-250s. You add our Q1, 238 on top of that. And then for the first half, you'll get to somewhere around 490-ish, which would be 48% of the full year EPS guidance if you look at it in terms of the midpoint. And that's pretty close to kind of our historical cadence, 49, 51. It's a little bit lower this year as a result of slightly higher restructuring tied to our 80-20 -to-back projects. But overall, this seems like a pretty reasonable way to think about Q2, first half, second half. And I'll just, in case it wasn't clear, if you go back to our last call when we gave guidance, we highlighted 30 cents of currency headwind. That's no longer the case based on current rates. As you may recall, we don't hedge, so these currency moves favorable in this case flow through pretty quickly given the short-cycle nature of our business. So that's maybe a way to think about Q2 and the balance up here.

Great. Very thorough, and I definitely do believe you. Just anything on the tax rate, I know that was a little benefit in the first quarter.

Yeah, so I think this was a pretty standard kind of tax transaction. And so we are modestly lowering our guidance for the full year for the tax rate to 24%. I think it was .25% prior to that. And that's, if you do the math, that's about 5 cents. And typically, what we would have done in a normal environment is flow through the benefit of the lower tax rate and current foreign exchange rates. And just given the environment that we're in, we decided to not do that. And so to some extent, we've de-risked our guidance for the full year. Whether that'll be enough or not remains to be seen, as I said earlier. Things can change quickly. We're operating in a pretty uncertain environment. And we'll just go back to what Chris said, is that we really believe we're about to see a change in the tax rate. And that's not just a matter of volatility and uncertainty.

Thank you very much.

Sure.

Your next question comes from the line of Jamie Cook with Truist Security. You may go ahead.

Hi, good morning. Just a question on, I think last quarter you had a slide in there on CBI and the contribution to revenue for 2025. Supposed to contribute 2.3 to 2.5 percent of growth. And I'm just wondering, did we take that slide out for a reason or in this environment, who knows?

Just

kind of think through that. And then just my last follow-up question, PLS, is that just still assumed one point headwind? Thank you.

Yeah. So on CBI, Jamie, we're very encouraged by the progress that we're making across the business. Great pipeline of new products, every segment contributing. This is one of the reasons we would say we're outperforming our end markets, right? Several product launches across the business this year, again, across all segments. And I would say that with respect to our target of 2.3 to 2.5 for the full year in terms of CBI contribution, then we are well on track to do that based on our performance here in Q1.

Yeah. And I think what

we'd rather not do, Jamie, and it's a fair question, is kind of give you an update on what the CBI number is every quarter. It can be a little lumpy, but as Chris said, we are definitely tracking it. And based on what we've seen so far, we are on track to deliver on our full year target. In terms of PLS, we're still targeting 100 basis points of PLS, primarily in the specialty products segment, in the automotive segment, as well as on the construction side. So those are kind of the three larger ones. And again, this is all kind of strategic repositioning of these businesses to improve the growth rate on a go-forward basis. So that's all on track.

Your next question comes from the line of Joe O'Day with Wells Fargo. You may go ahead.

Hi. Good morning. Good morning. Just looking to understand the tariff price cost dynamic a little bit more. I think, you know, Michael, last quarter, he talked about 250 million of imports roughly from China. If you just run math on that and 145% tariff and take like three quarters of the year, you're going to need maybe one and a half points of price to offset it. And then we have some of the reciprocal tariffs as well. And so not sure if 2% price is a reasonable kind of benchmark to be thinking about required to offset cost and be dollar neutral, but really just any color you can provide on the costs associated with the different tariffs that are in

place. Yeah, I think Joe, the kind of the back of the envelope math you're doing is not completely unreasonable. I mean, as you said, we talked about this on our last call in terms of the imports into the US from China being about 5% of our total domestic spend. So, you know, as you can tell from that, the smaller number is we've never pursued a low cost country or low cost, you know, manufacturing strategy. It's always been kind of produced where we sell. As you said, that 250 million, that's an annualized number. Once we get through inventory, we're almost halfway through the year. So the potential impact is for the full year 25 is less than that. You know, as Chris said, actively working to offset, you know, the impact with supply chain actions, pricing actions, and therefore EPS neutral better, which is exactly what we did the last time around in 17 and 18 as well as post COVID. So, you know, we're confident we can do that. And, you know, I'll just say it again, I think we believe we're better positioned here than most. And like we said on the call last time, we think these tariffs from a cost standpoint are certainly manageable. Obviously, what's unknown at this point is what the impact might be from a the visibility we have, we feel like we're in a really good spot. Let's get through Q2. And then we'll kind of update all the analytics and we'll give you an update in terms of how we view the year on our next call.

And then just in terms of the contingency that's embedded within the guide, if we approach tariffs as price cost neutral, and then the FX, I think the revenue guide for the year now embeds a less bad FX environment, but that didn't flow through, that 30 cents didn't flow through. And so is that kind of the contingency versus the unknown on the macro or just, you know, how you're approaching embedding kind of contingency?

Yeah, yeah. So we updated the revenue number, but we didn't update EPS. So that's a good way to look at it. It's part of the contingency, if you want to call it that, for what might happen to volume in the back half of the year, even though we haven't really seen it yet. And in automotive, we have already factored that into our guidance as we sit here today based on the most recent bill projections, which by the way, is really more of a North America challenge at this point. I think we feel very good about our China business being able to sustain the type of growth rates that they're putting up. You know, that's really driven mostly by the EV market and production growing at some pretty staggering numbers in China, which is projected to continue as we go through the year. And then Europe, as we see it today, is kind of down low single digits with auto bills. And all of that is, like I said, factored into the updated guidance that we're giving you here

today. And so just a big picture when you think about the elevated uncertainty we're dealing with, which parts of the business are you watching most closely for vulnerabilities? Which parts of the business are you looking at most insulated from some of those vulnerabilities?

Yeah, so I'd say at a high level in terms of uncertainty overall, we always say we're built for uncertainty based on a number of attributes that we have across the company. I think you know, the resilience provided by our diverse portfolio across the seven segments, we're always going to have a mixture of headwinds and tailwinds, but with little or no concentration risk. The fact that the portfolio is very much built around sustainable differentiation, this provides a really strong ability to recover price. I think it's a strength of the business model to help us control the controllables and provide self-help opportunities, like enterprise initiatives. And then I think the very important one is the nimbleness of our decentralized, close to the customer structure, which really enables our ability to read and react to whatever we can control so we can mitigate the impact. And I think all of these attributes position ITW to outperform particularly well in certain environments. If we're to hit at any particular segment, I think we've seen some challenges for a long time now in terms of the capex markets, likely to continue obviously with the interest rate environment being kind of where it is. A bit of uncertainty in automotive, but some of that's already baked in. We've, you know, based on the bill numbers coming down. But I'd say that, you know, across the company, we're pretty well positioned based on the overall posture and attributes that we have to really help us manage these uncertain times.

I appreciate it.

Thank you. Sure.

Our next question comes from the line of Avi Yuraslawitz. You may go ahead.

Hi, good morning, guys. Good morning. Just as we think about the margin progression for the rest of the year, I know you expect margins improve as the year goes on. But what are you expecting price cost would be most favorable? Would it be like Q2 with higher pricing coming in sooner than when the cost fit or would pricing be in line with the cost as your progress is?

Yeah, so you were breaking up a little bit, but if I understood your question correctly, I'd say we went into the year kind of assuming a normal price cost environment, which for us typically is slightly favorable to margins. We are not expecting anything unusual on a earlier about the potential lag between price and cost, and we feel like we're better positioned this time around. So, you know, I think what always happens down the road, most good companies will recover their margin impact, whether that happens by year end or into next year, that remains to be seen. But if there is some pressure, it's short term. And we say it's manageable.

So. Okay, got it. And it's possible you already addressed this to some extent. But just as you think about the kind of risk to potential demand weakening, would you expect that to be more from a weaker macro impacting end markets or more from higher prices and price sensitivity there?

It would be all end market related. You know, I think you've got to factor in that our divisions, their competitors are dealing with the same challenges that we are, and they are less favorably positioned than we are, I think is a fair comment. So in terms of driving above market organic growth, you know, with the new product pipeline, with the share gain opportunities in front of us, and you are seeing that in a number of places. And so you can look at, you know, complete segments, whether it's food equipment or welding, where there are, you know, compares, comparables out there, or even automotive, you know, where we are outgrowing underlying markets by two to three on our basis points. So this is going to be all about end market demand. And we're confident that we'll continue to outperform these underlying end markets as we go through the remainder of the year.

Okay, that makes sense. Appreciate the time. Sure.

Your final question comes from the line of Nicole de Blais with Deutsche Bank. You may go ahead.

Yeah, thanks. Good morning, guys. Good morning. Just with respect to the mechanics of the price increases, I'm sorry to beat this like a dead horse, but are you guys going after this with more of like a surcharge mentality where the pricing would then come off if tariffs were to go away? Or is it an actual list price increase, which is obviously more sticky?

Yeah, so Nicole, it's very much a mixture of both. And again, it comes back to the individual circumstance in each business, the relative competitive intensity, I would say that the price volume dynamics that are going on in all these businesses. So that's a decision that we allow businesses to make, whether it's surcharge or price increase. Obviously, there's a lot of, as I said before, market specific expertise in these businesses as to how to get price, whether it's surcharge or increase, and where to get it. But in general, I think the level of differentiation that we have really enables us to do it. But these are decisions that are taken at the division level, like I say, and it's a mixture of both surcharge and price increase.

Okay, understood. And then with respect to the restructuring actions that you guys are taking this year, has there been any shift in the total amount of restructuring, especially considering a weaker volume environment? And do you still expect to incur 80% of those charges in the first half?

Yes, Nicole, that's still the case. I think these are the restructuring projects that are being done are all tied to our 80-20 front to back process and are identified kind of going into the year as part of the plan process. And obviously, we'll see kind of how things play out from here, but it's still the same assumption for the full year and still assuming that about 80% of the total spend this year will happen in Q1 and Q2. Got it. Thank you. All right. Thank you.

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