Welcome, and thank you for joining ITW's 2018 First Quarter Earnings Call. At this time all participants will be in a listen-only mode until the question-and-answer session of the call. Today's conference is being recorded. Any objections, you may disconnect at this time. Now I'd like to turn over the meeting to Karen Fletcher, Vice President of Investor Relations. You may begin.

Thanks, Angela. Good morning and welcome to ITW's first quarter 2018 conference call. This morning I'm joined by our Chairman and CEO, Scott Santi, along with Senior Vice President and CFO, Michael Larsen. During today's call, we will discuss first quarter financial results and update you on our second quarter and full year 2018 outlook. Before we get to the results, let me remind you that this presentation contains our financial forecast for the second quarter and full year 2018, as well as other forward-looking statements identified on this slide. We refer you to the company's 2017 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 a reconciliation of those measures to the most comparable GAAP measures is contained in the press release. With that, I'll turn the call over to our Chairman and CEO, Scott Santi.

Thank you, Karen. Good morning, everyone. Got off to a solid start in 2018 with revenue up 8% and earnings per share up 23%. The ITW team continues to execute at a high level in the quarter as the combination of continued progress in implementing our enterprise initiatives, disciplined price/cost management, and in improving demand environment resulted in strong overall operating performance, with operating income of $903 million, up 12%; operating margin of 24.1%, up 90 basis points; and after-tax return on invested capital of 27.7%, up 400 basis points. Despite lower-than-expected global auto builds impacting our Auto OEM segment in the quarter, we delivered 3% organic growth, and all seven business segments and major geographies were up year-on-year. CapEx-related demand continues to strengthen in a number of our end markets, which is driving accelerated organic growth in our Test & Measurement and Electronics and Welding segments. Overall, based on our Q1 results, positive underlying demand trends across many of our businesses and a strong pipeline of projects and activities supporting our enterprise initiatives, we are raising our full year EPS guidance by $0.15 at the midpoint. I'll now turn the call over to Michael to provide you with more detail on the quarter and our updated guidance. Michael?

Thanks, Scott. Let's start with chart number 3 and I'll add some color on our financial performance. As Scott mentioned, revenue was up 8%, with pretty solid demand trends and positive organic growth in all segments led by Welding and Test & Measurement and Electronics, both up 8%. Operating margin improved by 90 basis points to 24.1%. After-tax return on invested capital was 27.7%, up 400 basis points, with the new U.S. tax legislation and our lower tax rate a key driver. Free cash flow was $444 million, up 11% versus prior year, and was 68% of net income, which is in line with typical seasonality. We expect 100% conversion or better for the full year. To-date, we have repatriated over $1 billion in cash and expect to bring back another $1 billion by year-end. We accelerated our planned share repurchases to $500 million in the quarter. You will note that the tax rate was 23.2% in the quarter, slightly below our guidance midpoint of 25%, primarily as a result of the Q1 cash repatriation and a $14 million foreign tax credit benefit that resulted from that. We now expect a slightly lower tax rate for the year relative to guidance, between 25% and 26% in quarters two through four, and a full-year average tax rate of 24.5% to 25.5%. And we continue to assess and clarify the provisions of U.S. tax reform, which could further impact our tax rate and future discrete items. Moving to chart number 4 and operating margin, operating margin was 24.1%, up 90 basis points versus prior year and a new Q1 record. Five years into our current enterprise strategy, we're still generating 110 basis points of savings from the strong execution on our 80/20 Front to Back Process and strategic sourcing initiatives. As per…

Okay. Thanks, Michael. So, Angela, let's open up the lines for questions.

Thank you. We will now begin a question-and-answer session. One moment, please, for the first question. The first question comes from Joe Ritchie with Goldman Sachs. Your line is open. Joe Ritchie - Goldman Sachs & Co. LLC: Hi. Good morning, guys.

Good morning.

Good morning. Joe Ritchie - Goldman Sachs & Co. LLC: So I want to start first on the operating margins, on segment margins specifically. So the segment margins were up about 40 basis points this quarter on a year-over-year basis, but there hasn't been any change to your operating margin guidance for the year. So my question is, how much of that improvement is coming from, like, lower corporate versus you expect to see an improvement on the year-over-year segment margins as we progress through the year and what's driving that?

So, Joe, we expect every segment to improve operating margin for the full year, like I said, ranging from 80 basis points to 130 basis points. And the biggest driver there is the continued execution on the enterprise initiatives, as well as volume leverage, as all of our businesses are going to grow on a year-over-year basis. What you're seeing in Q1 is primarily the impact of price/cost in these segments and the lag we've talked about in the past from when the material cost inflation shows up and the price actions actually are realized. And so that's the 50 basis points of price/cost headwind that you saw here in the first quarter at the enterprise level, which, as I said, we expect Q2 to look similar, and then we would expect it to get better from there through the second half of the year, again, as these price actions take hold and offset the known material cost inflation as we sit here today. Joe Ritchie - Goldman Sachs & Co. LLC: Got it. Michael, maybe focusing on price/cost for a second, specifically as it relates to Welding. The Welding margins were flat year-over-year. One of your large competitors talked about getting some pretty significant pricing increases this quarter. Probably that hasn't flowed through results yet. Talk to me a little bit about the operational leverage in that specific segment. Just given growth is better, pricing seems to be pretty disciplined.

Yeah. I think what you are seeing, Joe, is similar to what I just described, which is this lag between when the price actions that have been announced, and there have been a number, as you know, offset the inflation that we're seeing primarily on steel on the Welding side. Again, I'll just point to Welding operating at 27.7% operating margin, the highest inside of the company, and we expect to continue to expand margins from here based on what we know today. Joe Ritchie - Goldman Sachs & Co. LLC: Okay. Got it. And maybe one last one. Just shifting to growth a little bit and focusing specifically on Auto OEM. You've got a pretty decent ramp on the organic growth side to hit your full year number. Just maybe talk a little bit about – this is one area where you have a little bit more visibility than some of your other segments. Maybe talk about what your expectation is based on wins you already have as you progress through the year.

Yeah. I think things were a little softer from the standpoint of global builds in Q1 than it looked like they were going to be in Q4, but certainly as we've moved through Q1, the build picture in terms of input from our customers and some of the public data that you can see, builds for the balance of the year has firmed up. As Michael talked about in his commentary, second quarter builds are projected to be up 5%. That's usually a pretty reliable number, given the timing. And then through the balance of the year, things seem to be firming up. I would also point out – I think I saw this today. Maybe it was GM that reported some pretty good sales. So I think things are firming up there demand-wise and the overall production scenario, as we look through the balance of the year, is pretty solid. Joe Ritchie - Goldman Sachs & Co. LLC: Okay. Fair enough. I'll get back in queue.

The next question comes from Andy Kaplowitz with Citigroup. Your line is open.

Hey. Good morning, guys.

Good morning, Andy.

Scott and Michael, I know you just talked about Auto OEM, but maybe you could step back and tell us what you saw as the core evolved here and also here in April. You guys aren't alone, but I think at the beginning of the quarter we kind of thought that you might get closer to your high end for the year and through the 4% organic guidance. And then you had a couple of businesses, specifically Specialty Products, maybe Polymers & Fluids, which slowed down a bit, but you got your longer cycle CapEx businesses continuing to improve. And I know that speaks to ITW's balance, but when you look going forward, is it going to be more of these longer cycle businesses carrying the torch here? And I know you changed your forecast a little bit for Welding – for Specialty Products, but is there a chance that Welding continues to outperform and maybe that's what sort of balances out, and Specialty Products is a little slower?

Well, Andy, the delta in Q1 was what Scott just talked about, on a global basis the forecast that we use, and we talked about this in the past put our guidance together, projected a 1% increase in global builds for Q1 and ended up at being down 1%. If you look at specifically North America, which is our largest end markets and highest concentration for vehicle, North America builds were down 3%. And, as Scott said, if you read some of the headlines, I think March was probably a little bit lower than what people expected. That number goes from down 3% projected to be up 3% in Q2, and overall North America expects to be positive for the year, which is quite an improvement from last year. So we fully expect Auto to deliver 4% to 5% organic growth. We have really good visibility to the content per vehicle growth that gets us from the auto build number to 4% to 5%. In addition to that, you're right, continued strong momentum and acceleration on the Welding side. We have it pegged at 5% to 6%. Hopefully, that will turn out to be a conservative number. And then Test & Measurement, as well as the equipment side within Specialty Products, continue to be really strong in terms of order intake and the backlog for the rest of the year. You talk about FEG. FEG should improve from here as the comps get easier, but there's also a nice product – new product rollout cadence here for the balance of the year. And so other than retail, which has kind of put a little bit of pressure on the growth in Food this year, we feel very good overall about growth rates improving from Q1 through the balance of the year.

Great. And, Mike, I wanted to ask you about the guidance increase in the context of, obviously, you beat in the quarter $0.05 versus the middle of the range and, obviously, a little bit lower tax rate. Maybe if you can give us a little more color on the rest of the guidance increase. You talked about currency. You got a lower share count, but you also mentioned a better operating environment and you talked specifically about projects that ITW has. So if I look at the balance of the year, is this just more blocking and tackling? I remember you had some contingency in for this year, maybe on $0.15. Are you using some of that to raise the guidance?

Just for the record, I don't recognize the $0.15 you're talking about, but the $0.15 guidance increase today is basically the $0.05 beat from Q1. Like we always do at this point, we update our assumptions for current foreign exchange rates. We have a slightly lower share count, given some of the acceleration here in Q1, and in the plan we still have $1 billion for the year for share repurchases. And then the balance in that $0.05 to $0.10 is really better demand and stronger operations, so that's what's driving the $0.15 raise today.

Yeah. The contingency was around price versus cost, Michael. You had talked about it. You guys were pretty conservative at the Analyst Day. Just wondering what happened to that. It's getting absorbed with the higher material cost.

We're using that up given the cost environment.

Yeah.

Yeah. I mean, if you look at relative to December, I mean, that's one of the variables that's changed, right? So price/cost maybe there was an assumption would be more favorable and maybe a more conservative view today, so.

Thanks, guys.

Our next question comes from Ross Gilardi with Bank of America Merrill Lynch.

Yeah. Thanks, guys. Good morning.

Morning.

Just a couple of questions. Just on food and beverage, I mean, I think you said institutional and chain restaurants up 7%, which seems like a pretty big number, given the environment. So how sustainable is that? What do you think is going on there? Is that your new products getting good reception, or is it CapEx picking up, or is it a timing issue?

Yeah. It's really CapEx and stronger demand on the institutional side, I think education specifically. And then on the restaurant side, quick service was also very strong. So that's certainly -- if you look at the core equipment business inside of – core food service equipment inside of the Food Equipment business, we were up 7% in the quarter, which is certainly encouraging. And those trends look good for the balance of the year with good orders and backlog, and now you have the new product rollouts coming in as well.

And clearly you seem pretty positive on your ability to offset the higher input costs with pricing. Can you shed any light on what you're actually assuming in your forecast for steel? Do you just sort of mark-to-market where we are now to the balance of the year? Are you forecasting things to come down at all in the second half?

Yeah. We'll leave the forecasting to other people. We're basically taking what we're seeing in our businesses today in terms of inflation on steel, chemicals, resins, as well as the demand picture. And all of that is included into our guidance today. So...

Just to clarify, that's already absorbed and also announced, so there are certainly things out there that we're not seeing the full impact of yet, but we've already accounted for those in the guide, and likewise have taken pricing actions on those. But it is all based on known. No forecast.

Correct. Yeah, there's no forecast.

Thanks. And then just lastly, M&A, can you comment on the pipeline at all and likelihood of maybe at least some smaller-to-midsize deals this year?

No. We remain very focused on executing our current strategy, getting our businesses up to full potential from an operational perspective. And we've talked about a long-time accelerating organic growth, and so that remains the focus. It doesn't preclude anything that might come our way opportunistically, but we don't have a particularly active agenda right now in that regard.

Thanks very much.

Our next question comes from Ann Duignan with JPMorgan. Your line is open.

Hi. Good morning, everybody.

Good morning.

If you could just talk a little bit about the trends you're seeing in Europe across your broad portfolio, I'd appreciate it. There's some questions out there about PMI slowing, particularly in Germany. The strength of the euro, whether that's beginning to hurt it. Just curious with your breadth of portfolio, what you guys are seeing in Europe specifically.

We haven't seen any slowdown. We were up a little bit less in the first quarter due to a tough comp. In the first quarter last year we were up 6% in Europe. We're up 1% here in the first quarter, but for the full year we expect to be up in that 3% to 4% range in Europe, and we haven't really seen anything slow down at this point.

Based on sequential run rates.

Right, that's based on current levels of demand. That's right.

Okay. Thank you. I appreciate the color. And then, can you just talk about – when you talk about price increases, I just want to be clear, are all your businesses implementing price increases as opposed to surcharges? And should we consider backlogs not included or dates when price increases will specifically be implemented? I just want to get a sense of – I know you talked about Q2 being similar to Q1,but if you could just talk us through the details, that would be great.

Yeah. These are primarily price increases and, as you know, we are not a backlog-driven company, so our businesses tend to be fairly short-cycle, and so these will go into effect relatively quickly.

But we do have notification provisions and other elements in terms of how we transact with our customers that are all applied here. We're not breaking those. We're not trying to waive anything in terms of surcharges. I think it's the part of your question, Ann. So there is some cycle in terms of timing and working our way through it.

And any particular segments where it might be more difficult to get pricing in this environment, or are customers broadly acceptant of price increases, which...

I think everybody gets it, and I think we're having price discussions everywhere across the company. As you know, Automotive can be a little bit more challenging, but we're working through that with our customers as well.

Okay. And just a quick clarification on Automotive. Are you more leveraged or less leveraged to cars versus SUVs, or is there anything in the mix that's changing out there in the industry that we should consider going into maybe next year? Maybe not this year, but Ford made the big announcement yesterday about cutting back on cars.

Our highest content, Ann, is on SUVs and trucks.

Okay, great. Thank you. I appreciate it.

Our next question comes from David Raso with Evercore ISI. Your line is open.

Hi. Good morning. You mentioned in the second quarter each business segment would have faster organic growth than the first quarter. And I was just curious. The comp does get easier for second quarter and third quarter. Are the businesses – or which businesses do you actually feel are truly accelerating and how much is it just simply the comp eases the next two quarters?

I mean, these are all based on current levels of demand, current run rates, so not – other than Automotive, which we talked about. So we're not counting on an acceleration. So what you're seeing, David, is the comps easier, as you point out, in Q2 and Q3, and then a little bit more challenging in Q4.

Yeah. And the demand environment is pretty good. I mean, order books are good. I think some of these quarter-to-quarter comparisons, there's so much that goes on that's sort of just circumstantial. And I think there can be a little bit of an over-indexing on a particular quarter-to-quarter comp, but I think from a sequential demand standpoint, the overall environment right now is firm to improving.

Yeah. I guess we're trying to figure is, is it truly improving, is it just the comp, and I appreciate the way you try to guide, just current rates, but trying to be a little more thoughtful about actual trends, not just current rate run forward. Maybe to ask another way, if you look at the first quarter organic for each business segment, then you put it up against the full year guide, there's obviously some that are in a lot better shape and other ones that are definitely dragging behind the full year. Can you just maybe quick rattle through the segments, where are the ones that you feel, yeah, maybe that one's a little hard to get to the low end, and that's another one that, sure, the way we're running now, maybe a better chance at the higher end? Just to give us a little play on maybe we're running ahead, we're running behind.

Well, I think the obvious ones to point to are the CapEx-related businesses that we've certainly seen some really good acceleration in Welding, Test & Measurement, and even the equipment side of Specialty. I think that part – if you were looking for where there might be some additional upside, it all depends. I think we've gone through – my perspective on that is two-and-a-half or three years of pretty tamped down business investment, so there is some fair amount of pent-up demand there. And the momentum in terms of order rate seem to be pretty good. I think the rest of them – the consumable business order rates are not bad. They're certainly not as cyclical as the CapEx parts of the portfolio. But I can't think of any place where we're seeing – we've got concerns going forward about whether we're going to generate a reasonable amount of growth, given the consumable demand...

Yeah. I think the interplay is that those CapEx businesses are running at 7.5% plus in the first quarter. You'd like to think there's a chance they can do better than the 4% to 5% in Test & Measurement and 5% and 6% in Welding. And they usually bring decent incrementals. At the same time, Polymers, actually I'm scratching my head a little bit why we started that slowly. I mean, that's at 0.3% and the full-year guide's 2.5%. Food full year guide's 2.5%. We started at 0.4%. But those business don't have quite the same incrementals usually, at least as a base case. So we just kind of do the interplay of what's above, what's below, and so – okay, so nothing stands out in particular.

Yeah. We interact with the leaders of all seven of our businesses every quarter. So I think the overall picture that I would give you is everybody's feeling pretty good about the balance of the year from a demand standpoint.

So none of them were thinking of taking down the full year guide on the organic. Let me – said more blatantly, there wasn't any heavy discussion on Polymers or Food to take it down or...

That's correct, other than the adjustment in Specialty we made. Yeah.

Yeah, the Specialty tweak. Okay. Thanks. I appreciate it.

Sure.

Our next question comes from Nathan Jones with Stifel. Your line is open. Nathan Hardie Jones - Stifel, Nicolaus & Co., Inc.: Good morning, everyone.

Good morning. Nathan Hardie Jones - Stifel, Nicolaus & Co., Inc.: Back to the price/cost a little bit here. You guys are saying you're going to have a headwind here in 2Q and you think it will flatten out in 3Q. I know you're not guiding for any more raw material inflation, but we are continuing to see raw material inflation. I'm wondering why you're not maybe taking a little bit more conservative approach to the back half or at least the third quarter on the price/cost dynamic.

Well, what we're telling you, Nathan, is what we really think is going to happen here based on the actions that we've taken and the raw material inflation that we've seen so far. So Q2 we expect – let's do the margin impact first – to look a lot like Q1, and then a little bit better than that in the back half of the year. Let me just point out, again, like dollar-for-dollar we are positive on price/cost. So there's no negative EPS impact here from what we're seeing. So we were positive in Q1. We expect to be positive in Q2 in terms of price/cost dollars. And if you extrapolate from what I said, we'd expect to be even more positive than that in Q3 and Q4 based on the price increases that we've announced, so. Nathan Hardie Jones - Stifel, Nicolaus & Co., Inc.: And, I guess, that then leads to the 110 basis points of sourcing savings that you got this quarter. Are there actions you can take on the sourcing front to accelerate the savings out of that? Are there other initiatives that you can accelerate to reduce the cost to try and further offset some of this inflation we're seeing out there in the market?

No. I mean, that's not what we're trying to do here. Let me just clarify a few things. So the 110 basis points that you're referring to, like I said in my remarks, is a combination of two enterprise initiatives, one around our 80/20 Front to Back Process, and the other one around projects, more strategic sourcing, structural savings that have nothing to do with price costs. And the point that we were trying to make is that if you were to include those more structural cost savings from a sourcing perspective in the price/cost equation, we would actually be positive. Now, that's not the way we report it. Other people may have reported that way, and so just for comparison purposes to make it easier we broke it out for you this quarter. But we are feeling very good about what we're doing here in terms of price/cost, and we're reporting EPS up 23%, up 17% for the year. There's no need to overreact and do a lot more than what we're doing today.

From a price/cost perspective.

From a price cost standpoint, so. Nathan Hardie Jones - Stifel, Nicolaus & Co., Inc.: Okay. Quick one on tax. You repatriated the $1 billion. You're talking about repatriating another $1 billion. The $1 billion in the first quarter led to a tax credit. Is it possible you could get further tax credits for that? Was that specific to one country that maybe you brought cash back from? And then, I think, the guilty tax was one of the things you were waiting for clarification on. Have you got anything on that yet or still waiting?

Yeah, there's no clarification on the so-called guilty tax. In terms of further repatriation, what happened in Q1 was very specific to where those funds came from. It's possible that there might be further discrete items as we go through the year, but that's all encompassed in the guidance that we're giving you today in terms of our tax rate and the midpoint of 25%. So that's what I would use for your model. Nathan Hardie Jones - Stifel, Nicolaus & Co., Inc.: Okay. Thanks very much.

Sure.

Our next question comes from Andy Casey with Wells Fargo Securities. Your line is open.

Thanks a lot. Good morning.

Andy, good morning.

I wanted to first go back to David's question on the organic guidance, and specifically on Polymers & Fluids. I'm just wondering if you could give a little more color on what's driving the organic reacceleration moving from flat to the 2% to 3%, because the back half comps look a little more challenging than, let's say, the second quarter. Is that all pricing?

That is a part of it. The other part is there is some seasonality related to the Automotive aftermarket business, and so that business was flat in the quarter, and typically based on historical run rates, including seasonal trends, we see an improvement in the Automotive aftermarket business.

Okay. Thanks, Michael. And then if I could ask a little bit of a longer term question, stepping back from the quarter. In between the Investor Day and now you've had the tax reform change. Does that impact how you look at the longer-term total annual shareholder return at all?

I'd say the obvious one is the lower tax rate, obviously, is contributing 5 percentage points of EPS growth. So in terms of earnings growth and the associated cash that comes with that, that's certainly a positive. I think there's a broader question around being able to access global cash more easily on a go-forward basis. That certainly strengthens our balance sheet and provides more cash available in the U.S., including distribution to shareholders and then what you saw when we talked about in December, and then the plans that we accelerated last quarter around the significant increase in our dividend payout ratio from currently about 43% of free cash flow to 50% of free cash flow. You do the math on that, that's a sizable dividend increase that's coming subject to board approval in August. So those are just a couple of the big items here, but overall...

Doesn't change the core strategy in terms of where we're going with the business nor how we allocate capital.

Right. Strategically, yeah, that's right, there's no change. There's certainly a lot of positives for shareholders.

Okay. Thank you very much.

Our next question comes from Jamie Cook with Credit Suisse. Your line is open. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Hi. Good morning. I guess two follow-up questions. One, some other industrial companies have pointed to increased labor costs or supplier constraints, sort of inefficiencies in the channel. Are you seeing any of that and has that impacted earnings in the quarter? And then my second question relates to, you highlighted the issue with auto build in the first quarter for your segment, but did any of that indirectly impact the weaker Auto? Did any of that indirectly impact the other segments? Because I do know you have some auto exposure in some of the other segments outside of Auto specifically. Thanks.

Yeah. So on the second, nothing material that I could think of in terms of any bleed over from Auto into the other segments. And then from the standpoint of your first question, we are not experiencing any supply constraints. We're certainly keeping a closer eye on that, but from the standpoint of where we are today, we seem to be managing through that well. And I think the other question...

The labor cost.

Yeah. I think we're – other than our normal annual pay raises, I think we're right in line with where we expected to be on that at this point. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Okay. Thank you. I'll get back in queue.

Our next question is from Joel Tiss with BMO. Your line is open.

Hey, guys.

Morning.

A lot has already been asked, so I just wondered if you could spend a minute going through some of the pieces of the construction market. Just trying to get a sense of if there's any inflection point or anything changing from interest rates rising.

No, we really haven't seen – we continue to see strong growth on the residential side, which includes our renovation/remodel business up in the high single digits, and looks really good for the balance of the year. Then the commercial side continues to be a little more lumpy and kind of flattish, and really no change in trend in either one of those.

And then is there any way that you could give us more specifically in the $0.15 guidance increase, how much is from tax rate and lower share count or you just want to leave that fuzzy?

I'd rather leave it the way I said it. But basically the way I think about it is $0.05 is the Q1 beat, which certainly tax played a role. And then the balance is really a combination of currency is a little bit better, the share count is a little bit lower, you can do the math on that. It's the acceleration into Q1 of another $250 million, and the balance is really from the operating side and the confidence that we have that our teams will continue to execute on their plans for the year.

All right. That's great. Thank you very much.

Sure.

Next question comes from Steven Fisher with UBS. Your line is open.

Thanks. Good morning.

Morning.

Morning.

On your Auto business, just wondering how you're thinking about the gap between your growth rate and the market over the next year or so. You are out-growing by 3 points in Q4. This quarter was about 2 points. I imagine there's probably some normal quarter-to-quarter variation there, but just wanted to see if you have any particular expectations about that degree of outgrowth over the next year or so.

Yeah, and nothing's really changed. Steve, I mean, it's an area, as you know, inside the company where we have great visibility to above-market growth. Historically, we've been in that 2 to 4 percentage point range. It can be. It can vary a little bit on a quarterly basis. For the year, we're saying 4% to 5% organic growth in automotive builds. Globally it's supposed to – expected to be up 2%. And that's really how we think about this on a long-term basis for the foreseeable future. Given the orders we took two/three years ago or longer, we expect to outgrow the market by 2 to 4 percentage points, so that hasn't changed.

And the new programs we have in the pipeline, which is significant.

Right.

Okay. And then I wonder if you could just make sure I'm thinking about this correctly on your operating margin improvement expected during the year. I think you're looking for about 150 basis points of margin improvement year-over-year for the full year. And it sounds like Q2 is going to be similar to the 90 basis points you had in the first quarter, if I heard that correctly. And then, does that mean, though, with the price lag that you are anticipating benefiting you in the second half, you're looking for close to 200 basis points or so in the second half? Is that the right way to think about it?

No, not quite. So what I can tell you is that, Q1 is probably the low point in terms of operating margins. So typically, margins will go up in Q2 and Q3 from Q1. In terms of the enterprise initiatives, they come in on a pretty even 100 basis points a quarter. If you look at the organic growth guidance, we should get a decent volume leverage again Q2, Q3, Q4. And then we talk about price/cost and how that might change as we go through the year. And so those are the big pieces here that get you to the overall expected margin improvement, which, as you say, is more than 100 basis points for the full year.

Okay. So the acceleration, though, for the 90 basis points will be more in the second half than it is in the second quarter?

All-in, yes, because of price/cost.

Yeah. The drag on price/cost will be less in the second half than in the first half, all else – based on what we know today.

Okay. I'll follow-up. Thanks.

Next question comes from Walter Liptak with Seaport Global. Your line is open.

Hi. Thanks. Good morning.

Good morning.

Hoping to just ask a follow-on on the Food Equipment segment, and you called out the QSR business picking up. So it seems like after the last year or so that's a little bit of an inflection. I wonder if you could provide some color. Was it from international markets that picked up, or was it to the general market, or was it large QSR chains? Where did the business start to pick up?

That's a domestic number.

Okay. But was it to the general market do you think, or was it to the larger chains?

So we typically don't break that out. I'm not sure I have that right in front of me. We typically don't do a lot with the really big players here for a number of reasons.

In terms of chains.

In terms of chains, but quick serve overall was up double-digit for us in the quarter.

Okay. Great. In this segment, foreign currency was a pretty big impact to the reported revenue number. Are you doing exports out of the U.S. or why is foreign currency such a...

No, the differences are really some businesses have more overseas sales than others. Food Equipment has, as you know, a big business overseas, and so they are seeing a little bit more impact than Welding, for example, which is where 80% of the business is North America.

Okay. Got it. And if I could switch over to Electronics, the organic growth really strong here, but you kept the organic guide at 4% to 5%. Is there a lumpiness to this business? And, I guess, thinking about it in the light of some volatility in semiconductors this quarter and Samsung calling out some consumer electronics weakness, how you're thinking about second quarter and the back half?

Yeah. No, orders and backlog look really good here. You just run into some tougher comps particularly in Q4 in that business, but there's nothing to suggest that on a run rate basis things are slowing down.

Okay, great. And the margin pickup, that's 80/20 related and volume leverage?

That's right, yeah. Really strong execution on the initiatives, and then combined with the volume leverage.

Okay, great. Okay. Thank you.

Our next question comes from Mig Dobre with Baird. Your line is open. Mircea Dobre - Robert W. Baird & Co., Inc.: Great. Thanks for fitting me in. Good morning. I want to go back to these pricing questions, follow-up on that. I know you have a pretty short cycle business, but I'm wondering how quickly and how often can you change pricing through the year, how many bites of the apple, if you would. And is there any way to differentiate between your segments vis-à-vis your flexibility in changing price in a given year?

There's no structural impediment. I think the environment is – I think Michael said it this way earlier. I think everybody knows it's pretty apparent if you are in a product that's using silicones or steel or a number of other commodities, there are some significant changes in input cost. I don't think there's any impediments. I would also point out that we are operating now only in spaces where the product performance really matters to the customer. So I think these are all actionable and reasonable actions to take from the perspective of not only our investors, but I would say from the marketplace and our customers. The issue is really, from the standpoint of some of the short-term impacts are really related to timing. We have relationships with a number of our customers, where we've agreed to either 60-day or 90-day. And I'm summarizing, Mig, over hundreds of different markets and customers, but there are things that we have to go through to implement these things that are just part of the process. But again, when we're talking about overall margins up 90 basis points in this kind of environment, I think the sum total of the enterprise initiatives, our ability to recover cost dollar-for-dollar, I think we're in good shape here. Based on what we know today baked into our guidance, we're pretty comfortable in terms of what we've got in there around price/cost. And if there are some additional downstream increases in costs that occur, we certainly have the ability to respond to those as they arise. And again, it'll have in some cases a similar month or two lag, but ultimately nothing that would present any sort of big game changing structural barriers to continue to perform the way we are expecting to perform this year. Mircea Dobre - Robert W. Baird & Co., Inc.: I see. Really, the nature of my question was when I was thinking about this issue with other companies in my coverage, what I've heard is, hey, I can increase prices maybe once, twice a year, and if there is a mismatch in the meantime, I really have to work on the cost side. And I didn't know if that's kind of how you guys operated as well, and maybe this price/cost guidance that you provided contained a maybe more meaningful cost management on your part to address this than is fully appreciated at this point.

Yeah. I mean, it's a tough question to answer, Mig, because what we're talking about here is the roll-up from 85 divisions and hundreds of end markets and thousands of customers and pricing decisions being made. I think based on that roll-up and based on our strategy, we're very comfortable with where we're at on price/cost for the year and we'll be able to respond if things change, so.

But we're not limited to only two a year or something like that.

No. Mircea Dobre - Robert W. Baird & Co., Inc.: Okay. Thank you. Appreciate it.

Our last question comes from Joe O'Dea with Vertical Research Partners. Your line is open.

Hi. Good morning.

Good morning, Joe.

First question on the international Welding side and seeing some stabilization maybe there. Is that a reflection of stabilization primarily in offshore? And with that, I mean, any confidence building that the bottom is kind of in there?

As you know, I mean, the bulk of our international business is oil and gas, and it's certainly encouraging after a pretty significant down cycle here that the business is starting to stabilize and we're not calling the bottom, but it certainly feels better than it has in prior quarters.

But it's not just offshore. It's oil and gas related more broadly. So I don't...

Right.

Okay.

I don't have in front of me what the offshore piece was specifically in the quarter, so I don't know that we can...

Okay.

Maybe a specific comment, but maybe you can follow-up with Karen.

And then on Specialty, with the guidance, it looks like the lower organic growth in the quarter was more a blip and that you get right back on track. Any additional details around what was happening on the consumables side of the business within the quarter?

No, the business can be lumpy. I mean, we've seen this before. If you look at Q4, the business was up 5%, and then up 1% here in Q1. We can point to couple of specific things internally that should get better from here based on run rates and backlogs, but that's probably as much as I can give you. As you know, marginally we tweak the organic growth rate for the segment a little bit, but there's nothing really specific to point to.

Okay. And just last one for you on pricing and timing sensitivity here. Was pricing raised during the first quarter , or is it that those letters have gone out? Over the course of the second quarter, prices are going up, so you get partial realization, and then back half the anticipation of full realization?

All of the above.

Yeah. Okay.

Some of all, yeah.

Appreciate it. Lots of business. All right. Thanks a lot.

All right. Thanks, Joe.

Thank you.

Okay. Since there aren't any further questions, I'd like to turn it over to Scott just to close the call out.

Just want to say thanks to everybody for joining on the call. We are, as we have discussed, well-positioned as we look at the back half of the year and certainly expect to continue to execute and deliver on our now revised and updated guidance. And we'll talk to you after the end of Q2. Thank you.

Great. If you have any follow-up, feel free to give me a call or email. Thanks, everybody.

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