Michael M. Larsen - Illinois Tool Works, Inc. Ernest Scott Santi - Illinois Tool Works, Inc..

Andrew Kaplowitz - Citigroup Global Markets, Inc. Scott R. Davis - Barclays Capital, Inc. Joe Ritchie - Goldman Sachs & Co. Nigel Coe - Morgan Stanley & Co. LLC Andrew M. Casey - Wells Fargo Securities LLC Mig Dobre - Robert W. Baird & Co., Inc. Ann P. Duignan - JPMorgan Securities LLC Stephen E.

Volkmann - Jefferies LLC Joel Gifford Tiss - BMO Capital Markets (United States) Steven Michael Fisher - UBS Securities LLC Jamie L. Cook - Credit Suisse Securities (USA) LLC Joseph John O'Dea - Vertical Research Partners LLC.

Thank you for standing by and welcome to ITW's Q1 2017 Earnings Conference. At this time, all participants will be on a listen-only mode until the question-and-answer session. Today's call is being recorded. If you have any objections, you may disconnect at this point. Now, I'll turn the meeting over to your host, Mr.

Michael Larsen, Senior Vice President and Chief Financial Officer. Sir, you may now begin..

All right. Thank you, Andrew. Good morning, and welcome to ITW's first quarter 2017 conference call. I am Michael Larsen, ITW's Senior Vice President and CFO. Joining me this morning is our Chairman and CEO, Scott Santi. During today's call, we will discuss our first quarter financial results and update you on our 2017 earnings forecast.

Before we get to the results, let me remind you that this presentation contains our financial forecasts for the second quarter and full year 2017 as well as other forward-looking statements identified on this slide.

We refer you to the company's 2016 Form 10-K 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 while we use very few non-GAAP measures, a reconciliation of those non-GAAP measures to the most comparable GAAP measures is contained in the press release. With that, I'll turn the call over to Scott..

Thanks, Michael, and good morning. Overall, we're off to a good start in 2017. Organic growth improved to 3.5% in Q1 due to a combination of improving end market conditions in our Welding and Test & Measurement and Electronics segments and continued progress on our pivot to growth efforts across all seven of our segments.

We were able to leverage this improving organic growth performance into very strong earnings growth, with EPS up 19% year-on-year in the quarter, 21% excluding the impact of foreign currency translation.

Operating margins of 23.3% were up 120 basis points and were the highest in the history of the company, despite 50 basis points of margin dilution from the EF&C acquisition. After-tax return on invested capital improved 260 basis points to 23.8%.

As you saw based on our Q1 performance, we are increasing our full year EPS guidance by $0.20 at the midpoint and raising our full year organic growth rate forecast to a range of 2% to 4%. Overall, our Q1 performance reflects another solid step forward for the company.

And I would like to once again thank all of my ITW colleagues around the world for all their hard work and their deep commitment to serving our customers and executing our strategy with excellence.

As a result of their ongoing efforts, I have no doubt that we will continue to make strong progress on the path to ITW's full potential through the balance of 2017 and beyond. With that, I'll turn the call back over to Michael, who will provide you with more detail regarding our Q1 performance and 2017 forecast.

Michael?.

Thank you, Scott. Starting with slide 3, GAAP EPS increased 19% to $1.54, 21% excluding the effects of currency translation. As Scott noted a minute ago, organic growth was 3.5% in the quarter. Total revenue was $3.5 billion, an increase of 6%. Six of our seven segments had positive organic growth and Welding improved to flat.

Organic growth was positive in all major geographies, with North America up 1.4% and International up 6.4%, driven primarily by Europe, which was up 6% and China, which was up 19%. We increased operating margin 120 basis points over last year, which was driven by continued progress on our enterprise strategy initiatives and volume leverage.

Enterprise initiatives contributed 100 basis points of margin expansion. The 2016 acquisition of EF&C diluted margin by 50 basis points. So on an apples-to-apples basis, operating margin improved 170 basis points. Six of seven segments increased operating margin. And excluding the EF&C margin impact and Auto OEM, all segments improved.

Operating income grew 12% to $809 million, the highest quarterly total in the company's 105-year history. Our effective tax rate was 28.3% in the first quarter, which was in line with our expectations as we adopted new FASB guidance for stock-based compensation effective January 1.

The new guidance requires that the income tax effects associated with the settlement of stock-based awards be recognized through income tax expense rather than equity. Free cash flow of $399 million was 74% of net income, which is in line with typical seasonality.

That said, in Q1, free cash flow was impacted by the timing of some tax and pension items. Adjusted for these items, free cash flow conversion would have been even better at 91%. On slide 4, you can see that we achieved an all-time record for operating margin in the quarter.

This was largely driven by the continued strong execution on our enterprise initiatives and volume leverage. Enterprise initiatives contributed 100 basis points of structural margin improvement and volume leverage contributed 80 basis points. As expected, price/cost was slightly unfavorable in Q1 due primarily to higher steel prices.

At current raw material costs and with our 2017 price adjustments, we expect that price/cost for the full year will be positive in dollar terms and slightly unfavorable 10 to 30 basis points to margin percentage. As we've discussed before, we don't expect that price/cost will have a material impact on our results in 2017.

Turning to slide 5, on the left side of the page, overall organic growth in Q1 improved 1.5 percentage points versus Q4 due to meaningful improvement in end market conditions in our Welding and Test & Measurement and Electronics segments, continued strong and above plan organic growth from our Auto OEM segment, and continued progress on our pivot to growth efforts across all seven of our segments.

I'll now discuss the segment results in a little more detail, starting with Automotive OEM, which delivered another strong quarter with above plan organic revenue growth of 9%, 300 basis points above global car builds.

In North America, 4% organic growth exceeded auto builds of 3% overall and 1% for the Detroit 3 where we have relatively higher content. Outside North America, growth continued to be very strong, with Europe up 12% or 600 basis points above market.

China was up 29%, significantly above market as we continue to increase our content per vehicle, particularly with domestic OEMs. Despite the strong performance in Q1 and a positive outlook for Q2 for our Auto OEM business, IHS is still forecasting a decline in domestic auto builds in the second half.

Our full year guidance incorporates the IHS forecast as it currently stands, which results in full-year organic growth for our Auto OEM business of approximately 3%. Turning to slide 6. Food Equipment was up 2% organically. North America was up 1%, with stable demand for equipment up 2%. Internationally, both equipment and service were up 3%.

Operating margin improved 60 basis points to 25.1%. We had a strong quarter in Test & Measurement and Electronics, both businesses grew organic revenue by 6%, with strong demand in semiconductor-related end markets.

In Test & Measurement's Instron business, where demand is tied more closely to business investment, organic growth was up 5%, which is certainly an encouraging sign. Operating margin improved 450 basis points to 20%. The 20% includes 350 basis points of the non-cash expense associated with amortizing acquisition-related intangible assets.

Turning to slide 7, Welding organic growth was flat in Q1, which is a significant improvement versus down 8% in Q4. Excluding normal seasonality, demand improved 3% sequentially from Q4 to Q1. Year-over-year, equipment was up 1% and consumables were down 1%.

By geography, North America, which is approximately 80% of our business, was up 2%, driven by our commercial equipment business. Our commercial equipment business, which sells through distribution to construction, light fabrication, and farm and ranch customers, was up 4% year-on-year in Q1.

Our industrial equipment business, which sells primarily to manufacturing, including automotive and heavy equipment, was down 1% in the quarter. Operating margin performance was the highest in the company at 27.7%. Polymers & Fluids delivered another solid quarter of positive organic revenue growth of 2%.

Bulk (09:51) Fluids, which primarily sells highly engineered lubricants and cleaners into industrial and commercial end markets and automotive aftermarket, grew 2%. Polymers, which primarily sells adhesives and sealants for industrial MRO and other OEM applications, was essentially flat.

Operating margin was 20.6%, which includes 420 basis points of non-cash expense associated with amortizing acquisition-related intangible assets. On slide 8, Construction Products was up 3% organically, despite a challenging comparison. Demand in North America was solid with organic growth down 2% compared to up 11% in Q1 last year.

Commercial was down 1% and residential was down 2%. And as we've discussed before, the quarterly revenue numbers here can be a little lumpy. International growth was strong, with Europe up 8% and Asia Pacific up 5%. Operating margin improved 150 basis points to 22.5%.

Finally, in Specialty Products, organic revenue was up 1%, with strong organic growth of 8% in our consumer packaging businesses. Operating margin was 26.9%, an increase of 80 basis points. Turning to slide 9 and our updated guidance for 2017.

As a result of our strong Q1 results and assumptions for the balance of the year, we're raising our full year earnings guidance by $0.20 to a new EPS range of $6.20 to $6.40. The $0.20 raise is essentially $0.10 from the first quarter beat, plus $0.06 from higher organic growth, and $0.04 from a slightly lower tax rate of 29%.

At current levels of demand, we now expect higher organic growth of 2% to 4%, which, as mentioned previously, includes the IHS forecast for North American Automotive business in the second half of the year.

For the full year, we continue expect that operating margin will exceed 23.5%, with 100 basis points of structural margin improvement from our enterprise initiatives. Finally, for the second quarter, our EPS guidance is $1.55 to $1.65 with organic growth of 2% to 4%. With that, we'll now open the call to your questions..

Thank you. We will now begin the question-and-answer session. Our first question comes from the line of Mr. Andrew Kaplowitz from Citi. Your line is now open, sir..

Morning guys. Nice quarter..

Good morning..

Good morning..

Can you give us a little more color on your Welding business? You had forecast it to be down, I think, low single-digits for this year. It was flat at 1Q as you said. Comparisons, I think, get easier as the year goes on.

So would you expect it to grow now? And then maybe more interestingly, I don't know if I remember a time when your Welding margins have been higher than 27.7%. You did almost 400 basis points higher margins this year versus last year on similar demand.

So how do we think about Welding? Could you potentially do 400 basis points higher than the last peak in 2014, which was about 26%? Where is the peak here?.

Well, I don't know if we can give you a peak. What I can tell you is, relative to where margins peaked that you referenced in terms of the, I think you said 2014, certainly, the impact of the enterprise initiatives that we have been implementing across the company have been taking place in Welding right along with the rest of the company.

So what you're seeing in terms of improved margin performance is starting to turn the corner, obviously, in terms of demand and revenue, and the benefits of those enterprises initiatives are now starting to come through in a little bit more of a visible way, let's say, relative to an environment where we're down mid to high single digits.

So they've done a lot of really strong work despite a very tough environment over the last three or four years in terms of the enterprise initiatives. And I think as Michael noted in terms of the demand environment, we were certainly encouraged by some noticeable improvement primarily in the commercial end of our equipment business.

But even the industrial down, I think, 1% in Q1 was a noticeable improvement in terms of what we've been seeing over the last six quarters or so. So things appear to be stabilizing there, getting better on the commercial end.

And if we continue on this path, obviously, it will have some pretty good impact in terms of our performance through the balance of the year..

Okay. Thanks for that, Scott. And then, look, I mean, you had over 40% incrementals in the quarter and that was despite dilution from EF&C and you mentioned price/cost being a drag. I think at the Analyst Day, you mentioned variable margin at 50% in ITW.

So is it reasonable to assume that if organic growth stays toward the higher end of your new range that you could do incrementals well over your normal 35% target?.

So Andrew, incremental margins, as you pointed out of – if you look straight off the P&L, we're 44%, certainly, really solid performance. If you add back the impact of EF&C, we are in the 77% range for incrementals.

We talked about this on the call last time that, in the short term, we could see incremental margins above our long-term average of 30% to 35% until investments in overhead and other areas catch up to support the growth.

Our view, long term, is we would still expect to be in that 30% to 35% range for incremental margins, but certainly well above that here in the near term..

But Michael, you don't have any new investments that you're making this year versus what you did in the first quarter, right, and pretty much steady as she goes?.

Yeah. No, we're always investing and the levels we're investing at now are similar to what we have been doing in prior years..

Thanks, guys..

Thank you. Your next question comes from the line of Mr. Scott Davis from Barclays. Sir, your line is now open..

Thanks. Good morning, guys..

Hi, Scott. Good morning..

Trying to get a sense, one of the things that was encouraging that you said was around the Test & Measurement business recovering, and organic growth up 6% is a real encouraging number.

And can you give us a little bit of color behind that? I mean, are you seeing customers really responding with some CapEx spend? Is there some pent-up demand, is there – was there any business pushed from 2017 – I'm sorry, from 2016 budgets into 2017 budgets that can account for that or – been trying to see if there's a real recovery here that you're seeing or something more short term in nature..

Well, I think it's – from my perspective, Scott, it's hard to tell at this point. I think the overall order – we typically operate with very little backlog, very little forward visibility. The uptick in demand in Test & Measurement is certainly encouraging at this point but it's only a quarter.

I think we have a general view, that I think many people share, that the overall business investment climate has been very depressed for the last six to eight quarters that, as a result, there is some pent-up demand that should conditions overall – the economy overall begin to improve even modestly that that will be a stimulus in terms of bringing some more comfort around investment back into the picture.

So we're certainly hopeful that this is the start of something – a more positive turn in that direction, but I think after one quarter, I don't think we're ready to call it that yet..

Fair enough. And then just as a follow-on, I mean you have a bit of a "high quality problem", if you want to call it that, of you're going to generate an awful lot of cash in 2017 even if 1Q is seasonally weaker, it's going to start piling in.

Is there a appetite for higher level of buybacks, if there's anything out there that – would your appetite for M&A go up a tad with this increased cash?.

I think, (18:42) Scott, nothing's really changed in terms of how we look at capital allocation. You're right that we're fortunate that we have a strong balance sheet and we generate free cash flow well above net income on an annual basis.

In terms of the buybacks specifically, we have planned for $1 billion of buybacks in 2017 starting with $250 million. In the first quarter we have done that and certainly we're on track to execute on that program.

To the extent that there is surplus capital, we'll address that as we go through the quarter and we'll update you on the earnings calls if that number can go higher from here. But certainly, we're off to a good start on free cash flow. I'd say on the M&A environment, we've talked about this on prior calls, our views haven't really changed.

And just because we're sitting on more cash, doesn't mean that we will not be disciplined in terms of how we look at M&A..

No, I understand. Nicely done. I normally don't say this, guys, but boy, you're really executing. In the couple years I've covered your stock, it's been pretty amazing, so keep up the good work..

Thank you..

Thank you. Our next question comes from the line Joe Ritchie from Goldman Sachs. Sir, your line is now open..

Thank you, and good morning, guys..

Good morning, Joe..

Good morning..

Look, hard to not like this quarter. It was a very strong quarter. I guess the question I have, to start off, maybe on price/cost, you mentioned that you were going to start to put through some pricing increases.

So maybe, Michael, if you can talk about the cadence and when you start to expect to see some of the benefit from those pricing increases, that would be helpful..

Yes. So those price increases, Joe, have largely been done already. So that's based on what's been implemented year-to-date. So there's really nothing major outstanding from a price standpoint..

And so was that kind of across the portfolio? And specifically, I guess I'm thinking about Welding, one of your competitors had talked about positive pricing in an earlier report. And so I was just wondering whether you're able to see some price impact there as well..

Yes, we're seeing positive price increases in all of our segments..

Okay, helpful. And then I guess just maybe some additional color on the thoughts on Auto. I know that you're baking in 3%. If I want to be clear here, I guess is 3% market or is that 3% growth in your numbers for 2017? And....

Yeah, that's 3% in our business, Joe..

That's 3% in your business. Okay. Got it. So there's some – perhaps some opportunity there. And, I guess, lastly, maybe just a little bit more color on Welding. Clearly, things got – things are seemingly getting better with the flat growth number this quarter.

Maybe talk a little bit more about the trends that you're seeing across the different end markets I caught that industrial was down slightly, but helpful to get additional color there..

Yeah, I think I'd just go back to what I said earlier that – and this is, at least in terms of our sort of past history, this is what we're seeing in the first quarter, the normal signs of a recovery in the welding space.

The commercial end for us of the equipment space typically leads the turn, if you will, and so the commercial business was up 4% in the quarter, which was a nice improvement in terms of uptick relative to not just percentage growth but on a sequential basis, up noticeably from Q3. So things are setting up for a nice turn in the marketplace.

But again, I think after one quarter, we're – what I would say, not to sound like the pessimist here, but we've been here before a few times, right? With a reasonable start to the year over the last two or three years and then things in terms of the overall economic environment kind of have petered out.

So I think that experience has us a little cautious in terms of posture, but I would say that we're certainly seeing some signs, even in those prior periods that we didn't see before, that give us some level of hope or optimism that we're seeing some broader based recovery than maybe we have in the past that hopefully will sustain itself as we continue to move through this year and beyond..

Got you. Okay, great. Thanks, guys..

Thank you..

Thank you. Our next question comes from Morgan Stanley, Nigel Coe..

Thanks. Good morning, guys..

Morning..

Morning..

Just, obviously, a very strong quarter. 2Q, your range for $1.55 – $1.65 on 2% to 4% organic. In my model, that implies that you're embedding a much flatter margin than what we've seen recently.

Anything to think about there or is it just you just want to be conservative?.

I think it's primarily, Nigel, the comp to last year, we had a really strong Q2 last year and that's really the main driver here..

Okay, okay. And then, obviously, within that Auto, we saw the 2 points or so from EF&C.

Should we then think about 2Q Auto similar to 1Q and a bit of pressure year-over-year, and then as we get to the second half of the year, more of a normalized comp?.

Yeah, I think that's a reasonable assumption. I think the plus 9% organic in Q1, we may not get all the way there in Q2. But certainly, we feel good about the second quarter..

Great. And then just finally, on Electronics, obviously, there's a pretty volatile pattern quarter-to-quarter there, and you got a strong 6% in 1Q. We are seeing semi CapEx pretty strong this year.

Would you expect that kind of performance to continue through the year?.

When we look at the full year in Test & Measurement, we're looking at growth in the low single-digit range. So part of what you see in Q1 is also a fairly easy comparison on a year-over-year basis. So certainly encouraging what we've seen.

I'd point to Instron and the businesses tied to business investment as really the more meaningful data point here in Q1. Semiconductor as you know, is really hard to forecast, but we feel good about where we are right now..

Okay. Thanks for taking the call..

Through Q2 we... (25:24).

Through Q2, yes, on the semi-con side. Yes..

Great. Thanks, guys..

Thank you. Our next question comes from the line of Andy Casey from Wells Fargo Securities. Your line is now open.

Thanks a lot. Good morning, everybody..

Morning..

Hey, Andy..

Just a question on kind of the mix. In the past, you've talked about consumer being 60%, industrial being 40%. We're starting to see some of the consumer markets see a relatively slower growth potential going forward. And I'm just wondering, some of the pushback we get on the stock is related to that historical 60-40 comment.

Could you help us understand whether this split is kind of migrating closer to 50-50 and could be less of a drag on growth?.

Near term, I think the sort of macro, from my standpoint, is we are – the industrial side, given the very sluggish business investment environment, has been the slower growing part of the company. That is seeming to improve. Obviously, if that continues, that will adjust that mix a percentage point or two over time.

But I don't see it shifting dramatically off of that 60-40 mix. I think the most – beyond the end market recovery, the other thing I'd point to, as we've talked before, is we've got plenty of room to grow.

In all seven of our businesses, we are continuing to make good progress in terms of the work we need to do on that pivot, and so consumer or industrial, all of our seven businesses have plenty of room to run in terms of ability to drive above-market organic growth from here forward..

Okay. Thank you, Scott. And then on the Welding, we compare the Welding segment to some of your external competitors, the margin continues to be quite a premium to what those external competitors are generating. But this quarter the organic growth was a little lighter.

I'm just wondering, should we look at the mix a little bit closer, your segment versus the competition, or said differently, do you feel that Welding – and I know it's one quarter, but....

You know the answer before you're going to ask it..

That's why I'm qualifying it..

Yeah, I appreciate the point. What we have said, I think, on numerous occasions is quarterly comps, particularly given some of the differences in relative product positions between us and the other great companies in this space, I think are really not particularly meaningful.

We don't take credit for them when they work in our favor and in cases where they don't, I wouldn't read too much into what I think the overall – I think it's a fair comparison on an annual basis, certainly not one that's particularly valid in my mind on a quarter-to-quarter basis.

And even on an annual basis, there are still big differences in terms of relative product mix across all the different parts of the Welding portfolio. So you'll have to draw your own conclusions on that.

But I think quarter-to-quarter, there's just too much stuff that is individually impacting all the various companies in different ways that makes it less relevant, I think, to add it up as a – in the aggregate sense. And again, I think we're as consistent about saying that when it works in our favor as it does when it – as we are when it doesn't..

Okay. Thank you very much..

Thank you. Next question comes from the line of Mig Dobre from Baird. Your line is now open..

Yes. Good morning, gentlemen. I guess, maybe looking at 1Q, very good performance. You beat your guidance by $0.10.

I'm wondering, as you look internally versus your initial projections, what were some of the more notable variances? And how did these variances at segment level play out in the way you adjusted full year guidance?.

Well, I think we've talked about it, Mig. The big delta was the organic growth rate and the drivers of that delta in terms of organic growth rate were Automotive, Test & Measurement, Welding.

And based on – we've talked before about the fact that we forecast based on current run rates, so our balance of the year forecast does reflect those improvements that we saw in Q1 in those businesses. Auto was a bit of an exception, as Michael talked about earlier. I think we're taking a very conservative approach.

We understand that there're some issues out there in North America on the back half of the year that may or may not impact demand for our products. But we're using the data that we have externally and fully baking that in. But beyond that, everything else is run rated through the balance of the year based on the exit rate in the first quarter..

All right.

So maybe ask this differently, have you changed your margin assumptions for Welding for the full year?.

No, we have not..

Okay. Then my follow-up is on Food Equipment. Maybe a little more color as to what you're seeing in North America here.

Any split that you can point to in terms of your restaurant versus your commercial customers, refrigeration versus cooking, et cetera?.

Yeah, I don't think a lot has changed. What I would say is that we did have some – a few good sized project pushout into Q2. So, in terms of Q1 growth rate, it was a little light relative to what we thought it was going to be heading into the quarter but not by much.

We're still expecting, on a global basis, 3% to 4% organic growth in Food Equipment for the year. And we've talked before, we got a really strong new product pipeline.

We are making great progress across the business both in North America, in Europe and in Asia in terms of driving those new products and our other pivot to growth penetration efforts and feel really good about the balance of the year there. So, no big changes in terms of end market demand color..

All right. Thank you..

Thank you. Our next question comes from JPMorgan, we have Ann Duignan..

Hi, good morning..

Morning..

Good morning..

We've seen the results of the French elections overnight, and I'm just curious if any of your businesses in Europe and/or in particular in France, so was there any hesitation in spending by customers into the election and whether you feel there might be any pent-up demand that are going into Q2 or the back half of the year just a kind of a relief rally, if you like?.

We're still trying to figure out who they voted for..

Yeah. They voted for the right one (32:48) so far..

Yeah. Ann, so how I would maybe put this in context, our sales in France represent about 5% of our overall sales. And we were actually up 3% in the first quarter, really driven by Construction and Automotive primarily. And so I think it's a little too early to tell whether anything has changed at this point.

We still feel good about the outlook for Europe..

And you didn't feel – I guess, my point was more Europe broadly, you didn't feel there was any hesitation in spending in other countries?.

No, we didn't see anything like that..

Okay. And I just wanted to follow up on your outlook for Automotive. I mean, you noted a few times that your forecast is based on IHS, but you seemed a little skeptical of their outlook.

What are you hearing from your customers? I mean, are you – do you feel that IHS may be a little bit low?.

No, I wouldn't say that. Our visibility is about a quarter ahead, so for now, what we see is second quarter is set up pretty well. Beyond that, we're just reacting to an IHS forecast that says that there's – I think the number's negative 10 for the Big 3 in the back half of the year.

And that's some production – that's some extended shutdowns due to some model changeovers and things – all those things may be very valid. So we are trying to incorporate the best data that we have. I don't mean to sound skeptical at all. If I did, that's my mistake.

But I think what we're trying to convey is that we've got that all baked in, in terms of our balance of the year organic growth forecast, and still expect the overall company to be better than we did heading into the year..

Okay. I appreciate the color on that. I'll leave it there. Thanks..

Thank you..

And our next question comes from the line of Steve Volkmann from Jefferies. Your line is now open..

Hi, good morning, guys. I just wanted to come back to Welding one more time, I apologize in advance.

But I'm curious if you would mind sharing – you mentioned commercial up stronger, what's sort of the mix in commercial and industrial in that business? And would there be a margin mix issue where, I assume, maybe the commercial might have a little bit higher margins or maybe not?.

I think the mix is roughly 50-50. It's close to that. And from a margin standpoint, I think they're also pretty comparable. So no, shouldn't have any material mix impact on margin..

Great. That's helpful. And then maybe on Test & Measurement and Electronics, in the past, you've had an occasional quite large customer who would occasionally come up with big new product launches that would be reflected in your sales of equipment of that kind..

Who shall remain nameless?.

Yes..

Who shall remain nameless. See, I'm doing a good job here.

Should we be thinking about that in the second half of the year? Is that still an issue?.

No, not an issue certainly in the Q1 performance and not one we expect to be an issue through the balance of the year..

Okay. All right. Great. Thank you..

Good or bad..

Thank you. And our next question comes from the line of Joel Tiss from BMO. And your line is now open..

Hey, guys. A lot's been answered, I just wanted to just squeeze one more in.

Can you give us a little sense in the Food business? What's the opportunity that you guys see? What areas are really growing, and maybe are there niches that you're not really participating in? Just, you've been kind of growing a little bit slower than some of the other areas, it seems, for a couple of years..

Well, I think how I would answer that is we're pretty focused on dishwashing, refrigeration, cooking and scales in the retail sector. We have really strong positions – relative share position in service – don't let me leave out service, is the other big opportunity.

I'm not going to give you our assessment of our global share, but let's just say, we got plenty of room to grow in those areas. So from the standpoint of, is the growth going – as our focus in terms of go forward growth around getting it to new areas, that's not a big focus for us.

Our focus is on really leveraging the full potential of the really strong positions that we already have..

So just more of a service focus and just kind of a little bit of increased penetration?.

Service, warewash, refrigeration, cooking..

Okay. All right. Thank you..

Thank you..

And our next question comes from the line of Steven Fisher from UBS. Your line is now open..

Thanks, good morning..

Morning..

Morning..

Just wanted to come back to the margin question that was asked earlier. I would have thought that the organic beat and raise would have driven a margin guidance raise, but you did keep the margin guidance.

So just wondering if there was some caution there or if there's some upside that's likely to unfold later in the year?.

I think the only thing I'd point to is on the price/cost side, we are a little cautious given what we saw in Q1, and so that's why we didn't take the margin guidance up..

But Michael did add a bold (38:44) point to the plus. Maybe you didn't catch that in there..

Yeah. Yeah, no, I noticed. Okay. Great. And then, just – I know you mentioned you have about a quarter of visibility on some of your businesses or maybe across the business in general.

When do you expect to generate that other dime of earnings? Is it balanced across the rest of the year or does the one quarter visibility weight that to Q2 leaving you some further upside potential later in the year?.

I'd say it's pretty balanced. Actually, if you look at our Q1 EPS and you add the midpoint of our guidance for Q2, we're exactly at 50% of the year from a full year EPS standpoint. So that's – historically, that's what we've been doing for a long time. So it's pretty even..

Okay. Thank you..

And our next question comes from the line of Ms. Jamie Cook from Credit Suisse. Your line is now open..

Hi, good morning. Nice quarter..

Morning..

Good morning..

I guess, two questions. One, was there anything unusual about the cadence of sales throughout the first quarter? Did it follow the typical seasonal trend and sort of what you're seeing into April? And then my second question within Construction, Europe saw some pretty nice growth, and I know that's a business that you guys have been restructuring.

So was that – did you grow in line with the market, above market? I'm just wondering whether we're starting to see the benefits from your organic growth initiatives. Thanks..

I can share that the (40:17) monthly, the cadence, this was a pretty typical quarter. There was really nothing unusual there. Construction Europe, we certainly benefited from some end market lift, being up 8% in Europe. I think there's still some work to do, as you know, from a simplification standpoint.

But overall, encouraged by the progress in our Construction business in Europe..

And sorry, any commentary on April, if that's falling in line with seasonal trend or...?.

We're right on track with the guidance we're giving you today..

Okay. Thanks. I'll get back in queue..

Thank you. And next question, we have, Joe O'Dea from Vertical Research. Your line is now open..

Hi, good morning..

Morning..

Just on the Auto outgrowth considerations into the back half of the year, if you think about mix effect with declines potentially in North America, and you think about some of the Europe outgrowth you've been posting recently, and I think that picked up in the back half of the year, but just how we should be thinking about that.

If North America's down, of course that means (41:23) a little bit of a mix benefit to outgrowth, but I don't know if Europe gets harder on tougher comps..

Yeah, I think what I would say is we expect overall, globally, to outgrow the market 200 to 400 basis points, consistent with what we have said in the past. Exactly how that plays out in the back half, we'll have to see. Clearly, in Europe, we're running above that rate; and China, significantly above that average penetration rate.

And then we're a little bit lower in North America, because of the starting point. Our content per vehicle in North America is still significantly above where we are outside the U.S..

Okay. Thanks. And then on the price/cost front, just a clarification, I think that you said, you had announced and implemented pricing, and that's what's reflected in the current guide in your outlook.

So just to confirm, based on where commodity prices currently are, that doesn't require any additional actions moving forward this year to hit your price/cost targets..

That is correct..

Okay. Thanks a lot..

Thank you..

Thank you. And speakers, at this time, we don't have any questions on queue. Back to you..

Okay. Great. Well, thank you very much for joining us today, and have a great day..

And that concludes today's conference. Thank you all for participating. You may now disconnect..