Illinois Tool Works' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Illinois Tool Works (ITW)

Q1 2012 Earnings Call

April 24, 2012 10:00 am ET

Executives

John L. Brooklier - Vice President of Investor Relations

David B. Speer - Chairman and Chief Executive Officer

Ronald D. Kropp - Chief Financial officer and Senior Vice President

Analysts

Alan Fleming - Barclays Capital, Research Division

Robert Wertheimer - Vertical Research Partners Inc.

Jamie L. Cook - Crédit Suisse AG, Research Division

John G. Inch - BofA Merrill Lynch, Research Division

Ann P. Duignan - JP Morgan Chase & Co, Research Division

Deane M. Dray - Citigroup Inc, Research Division

Henry Kirn - UBS Investment Bank, Research Division

Andrew M. Casey - Wells Fargo Securities, LLC, Research Division

Ajay Kejriwal - FBR Capital Markets & Co., Research Division

Nigel Coe - Morgan Stanley, Research Division

Presentation

Operator

Welcome, and I would like to thank you all for holding [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect. I'd now like to turn with John Brooklier. Sir, you may begin.

John L. Brooklier

Thank you, Ed. Good morning, everyone, and welcome to our first quarter 2012 conference call. As is our normal practice, our CEO, David Speer; and CFO, Ron Kropp, have joined me to discuss our first quarter financial results, as well as our 2012 earnings forecast.

Here's the agenda for today's call. David will provide some brief commentary on 3 important long-term initiatives we have launched in the company, as well as discuss some first quarter highlights. Ron will then cover our Q1 financial results in much more detail. I'll come back and talk about our first quarter geographic and segment results, and then Ron will cover our 2012 Q2 and full year forecast. Finally, we will open the call to your questions. [Operator Instructions] We've scheduled 1 hour for today's call.

A couple of housekeeping items first. This presentation contains our financial forecast for 2012 second quarter and full year, as well as other forward-looking statements identified on Slide 2. We refer you to the company's 10-K for 2011 for more detail about the important risks that could cause actual results to differ materially from our expectations. Also, this presentation uses certain non-GAAP measures. Reconciliation of the non-GAAP measures to the most comparable GAAP measures is contained in the Appendix and also on our website at www.itw.com.

Finally, telephone replay for this conference call is (866) 365-2451. No pass code is necessary. Playback number will be available until 12 midnight on May 8, 2012.

Now let me introduce David Speer. David?

David B. Speer

Thank you, John. Before we address our first quarter results, let me make some brief comments on 3 very important long-term company initiatives that we've recently undertaken.

We've received a number of investor questions on these topics over the past few months, and we want to share with you what we can at this point. The 3 areas of focus include: our business structure simplification initiative, our strategic sourcing initiative and our portfolio management initiative.

First of all, our business structure simplification initiative will essentially result in generally large-scale businesses within our decentralized operating structure. These are businesses, in most cases, with similar customers, markets and products where we can improve, focus, while driving better operating efficiencies and lowering overhead costs. As this process unfolds, you should expect to see larger ITW businesses of roughly $100 million annual revenues. Internally, we're referring to this as our own 80/20 review of our business structure. We're excited about its long-term benefits for ITW, but we'll move cautiously to ensure we maintain our strong customer and market interfaces that have been a hallmark of our success.

Secondly, we have hired an experienced consultant to help us develop approaches to better leverage our opportunities for strategic sourcing initiatives across the company. We're in the later stages of gathering data, and we believe this ongoing initiative will add significant value in terms of how we purchase key raw materials such as steel, resins and chemicals, as well as services such as energy, transportation and logistics and other major cost categories.

Finally, our portfolio management initiative is built around our long-term strategy to divest assets that we no longer consider core and will allow us to focus on key core business opportunities, with strong growth and returns that will help us maximize our long-term returns.

The April sale of our $375 million finishing businesses to Graco is the most recent example of our commitment to proactive portfolio management. I would like to add that our management team and company are fully committed to all these initiatives. These are multi-year programs that will enhance our decentralized operating structure. We expect the associated strategic benefits and savings from these initiatives will be significant, and we anticipate communicating some reasonable details around these initiatives before the end of 2012.

Now moving on to the first quarter. We believe we delivered very solid results, especially in light of the uneven macro environment. As you will see, our North American businesses produced strong results, while international businesses reflected slower market conditions, primarily in Europe and Asia.

It's worth noting that Europe end-market conditions have met our expectations for the first quarter. It's also notable that both our EPS performance and operating margins exceeded our expectations. Congratulations to our people for a job well done in the quarter.

Now let me turn it over to Ronald Kropp, who will discuss the recent quarter in greater detail. Ron?

Ronald D. Kropp

Thank you, David. Good morning, everyone. Here are the highlights for the first quarter.

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