Hello, and welcome to ITW's 2018 Third Quarter Earnings Call. My name is Ian and I will be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today's conference is being recorded. At the end of today's presentation, we will conduct a question-and-answer session It is now my pleasure to turn today's program over to Karen Fletcher, Vice President of Investor Relations. Karen, the floor is yours.

Okay. Thank you, Ian. Good morning and welcome to ITW's third quarter 2018 conference call. 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 third quarter financial results and provide guidance for the fourth quarter. Slide number 2 is a reminder that this presentation contains our financial forecast for the fourth 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 and subsequently filed Form 10-Qs 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. Turning to slide 3. Today, we're announcing the date and location for ITW's Investor Day. We hope you can join us on Friday, December 7 in New York City, at which time we'll provide updates on our long-term strategy as well as guidance for 2019. If you plan to attend, we ask that you please register on our Investor website. Moving on to slide 4, as a reminder, in the third quarter of 2017, we disclosed an $80 million favorable legal settlement. This table summarizes key financial measures on a GAAP basis and on an adjusted basis that excludes the legal settlement. Going forward, in our presentation this morning, our comments and variances exclude the legal settlement. I will now turn the call over to our Chairman and CEO, Scott Santi.

Thanks, Karen, and good morning, everyone. The ITW team delivered a solid quarter with 11% earnings growth and EPS at the high end of our guidance range. We improved operating margin by 30 basis points to 24.6% and increased free cash flow by 17%. In the quarter, pricing actions more than offset material cost inflation on a dollar-for-dollar basis and price/cost-related margin percentage dilution showed sequential improvement versus the second quarter. In Q3, we delivered on our earnings commitment with top-tier margins and returns despite more challenging end-market conditions than we anticipated as we headed into the quarter in a few places. North America remained solid with 4% organic growth, while demand in international markets was mixed as auto production in Europe and China and demand levels in several international markets served by our Specialty Products and Polymers & Fluids segments softened. Michael will walk you through the details in a few minutes, but at a high level, the pullback in auto production in Europe and China and the softening that we saw in the two segments I mentioned internationally negatively impacted the company's overall organic growth rate by approximately 2 percentage points in Q3 versus what it would have been had demand in those sectors stayed even the second quarter run rates. In addition, and as expected, ongoing Product Line Simplification activities reduced organic growth by 70 basis points in the quarter. Our proprietary business model continues to generate strong free cash flow with 116% conversion in the quarter, supporting our ability to raise our dividend 28% to an annualized $4 a share and repurchased $500 million of our shares in the third quarter. While we expect that near-term market challenges will continue in the fourth quarter, we're narrowing our guidance range and reaffirming the midpoint of our 2018 EPS guidance at $7.60 per share, which represents 15% growth. Our ability to deliver consistent strong results across a wide range of economic and end-market scenarios is a direct reflection of the resilience of our high-quality diversified business portfolio, the strength of ITW's proprietary business model and our team's focused execution of ITW's long-term strategy. Before I turn the call over to Michael to provide more detail on the quarter, I'd like to again thank our more than 50,000 ITW colleagues around the world for their efforts in executing our strategy and serving our customers with excellence each and every day. Michael, over to you?

Thanks, Scott. Let's recap some of the highlights on slide 5. Year-over-year earnings growth in the quarter was 11% or 13%, excluding $0.03 of unfavorable currency translation impact. Despite the more challenging end-market conditions in a few places that Scott talked about, we delivered earnings per share of $1.90, at the high end of our guidance range. Organic revenue growth increased a solid 4% in North America, offset by a 1% decline in Europe and a 2% decline in Asia-Pacific. China was down 2% in the quarter, but we remain on track for mid-single-digit growth in 2018 after being up 13% last year. Operating margin was 24.6%, an improvement of 30 basis points year-over-year and versus the second quarter. I will go into more detail on margin on the next slide. After-tax return on invested capital was 28%, an improvement of 400 basis points, resulting primarily from the new U.S. tax rules and regulations. Effective tax rate in the quarter was 23.7% due to a net discrete tax benefit of $15 million in the quarter. Free cash flow was strong at $743 million, an increase of 17%, and in the quarter, we repurchased $500 million of our shares and raised our annual dividend 28%. Moving to slide 6 and our operating margin. Operating margin at 24.6% was a new record when you exclude the favorable legal settlement last year. Our strong execution on Enterprise Initiatives continue to contribute in a meaningful way with 100 basis points in the quarter. Our price actions are catching up to raw material cost inflation as price/cost margin dilution impact in the third quarter improved to 60 basis points from 70 basis points in the second quarter. And in addition, price more than offset raw material costs on a dollar-for-dollar basis this quarter. The other…

Okay. Thanks, Michael. Ian, let's go ahead and open up the lines for questions.

Your first question comes from the line of Joe Ritchie, Goldman Sachs. Your line is open. Joe Ritchie - Goldman Sachs & Co. LLC: Thank you. Good morning everyone.

Good morning. Joe Ritchie - Goldman Sachs & Co. LLC: Maybe just kind of starting out, just a clarification on the Auto OEM growth. So, saw organic growth was down 5% this quarter. When I do the regional builds, the plus 7% North America, minus 6% Europe, flat China, something just – I don't know, the math isn't really working out for me. A bit curious, like, are you guys disproportionately greater in Europe than you are in North America? I thought North America was a larger geography.

So, I don't know what data you're looking at Joe, but we are overweight in North America, followed by Europe and then China. Joe Ritchie - Goldman Sachs & Co. LLC: Okay. Yeah – and okay. Maybe I can follow-up offline. It's just that the minus 5% number versus the regional builds looks a little bit odd. I guess maybe just sticking with organic growth for a second. If you think about the fourth quarter, 1% to 2%, pretty similar to 3Q. But the comps get tougher on a 2-year basis, I guess just from an underlying perspective, what do you guys expect to be better in 4Q versus 3Q?

Yeah. Joe, so we just hit a $1.90 EPS. The midpoint for Q4 is $1.83. The revenue is expected to be fairly similar at current levels of demand. The mix is going to be a little bit better by segment. So, some of our higher margin businesses such as Food, Specialty Products should improve.

Construction.

And Construction and even Polymers & Fluids, their growth rates should improve in Q4 relative to Q3, offset by Auto which is really at this point one of the lower-margin businesses inside the company. So, that's really on the revenue side, 1% to 2% organic. We expect to expand margins year-over-year, as we've done every quarter this year. Price/cost turned positive on a dollar basis in Q3 versus neutral for the first half. Currency headwind is a little bit lower in Q4 than in Q3. The share count's a little bit lower. The tax rate's a little difficult to call. There's some new guidance expected here in Q4. But overall, we've got a solid path here to our guidance. And I may be just point to our track record over the last five years. Joe Ritchie - Goldman Sachs & Co. LLC: Okay. And then just maybe specifically, just on organic growth for Auto OEM in the fourth quarter. Are you expecting that to improve at all in 4Q versus 3Q?

If anything, we expect it to get a little bit worse than Q3. Joe Ritchie - Goldman Sachs & Co. LLC: Okay. Good enough. I'll get back in queue. Thanks, guys.

Sure.

Your next question comes from the line of Ann Duignan, JPMorgan. Your line is open.

Hi. Just taking your comments there on revenue Q4 versus Q3, and knowing the way that you guys guide, kind of at your current run rate. That would imply that 2019 revenue would come in around $14.4 billion, if I just took Q4 and multiplied it by 4, which you know...

You mean for 2018, Ann, or – you said 2019, you mean 2018?

Well, I was going to start like in a 2019, because you'll guide for that in December. But my point being that that would be well below your long-term target of 3% to 5% organic growth. I mean, is that – am I missing something or is that the way we should be thinking about it that the fourth quarter run rate will be what you build off of for organic growth for next year? Or is there anything new or different?

Too early to say. We're going through our planning process right now. And so, we'll update you in December in terms of our view on a go-forward basis. But beyond the macro, we are working on, as we have been for the last five years, repositioning of our businesses really on two levels as we've talked about for a while now. One is that we've got a lot of work to do in terms of operational excellence reapplying 80/20. And once we get there, getting those businesses to leveraging their growth potential – realizing their organic growth potential, we're today at about 50% there in terms of the divisions that I would say have – are operating sort of within the range of their potential, both from the standpoint of 80/20 and from the standpoint of their organic growth, where the combined organic growth year-to-date of those 51% of our divisions is about 7.5% year-to-date. So, part of our growth over next year is certainly beyond the macro is the continued improvement in the underlying performance of those other 49% of our businesses. We're going through the planning process now. So, there's a number of different things beyond just the macro that are going to affect our organic growth rate. But I think we're pretty encouraged by the progress that we've generated in the 50% of the divisions that are largely there. And as I said, 7.5% year-to-date on a combined basis is pretty good and speaks a lot to the potential to continue to move down that path at the entire company level.

Okay. That's useful color. I didn't realize there were so many still to be realized, just with the potential. And just a follow-up on, you noted that in Food Equipment margin was down on mix. Is that because it was more equipment and less service? Is that the right way to think about that? And then, what's the outlook there for the mix?

It's really more related to what's going on, on the retail side of the business being down in a pretty significant way.

Okay. And the outlook there for retail continued weakness?

Certainly, in the near term, we don't expect any improvement on the retail side here...

Through Q4.

...through Q4. I think when you look at the balance of the year, the momentum going into Q4 in food specifically looks good. We'd expect a slight improvement in the growth rate in Q4 relative to Q3. And I'd just point, margins, you're right, the mix did have an impact on a year-over-year basis. Sequentially, they were up over 100 basis points.

Okay. I'll leave it there and get back in queue. I appreciate the color.

Sure.

Our next question comes from the line of Andrew Kaplowitz, Citi. Your line is open.

Hey. Good morning, guys.

Good morning.

Scott or Michael, can you give us a little more color into your margin performance in terms of the sustainability of that performance into 2019? Again, I know you'll talk about this more in December. But if I look at the quarter, enterprise strategy tailwind was still solid, and volume was a little less of a tailwind. But the other headwind was half of what it was last quarter. I know you didn't break out growth this time. Price versus cost is a little better. So as you look in 2019, do you have decent visibility at this point that your enterprise strategy could still be a 50 basis point to 100 basis point tailwind? You already talked about price versus cost and that other doesn't creep back up, so you still see good margin expansion next year.

Yeah. I think, Andy, it's a little early here. We haven't gone through the plans for 2019 yet. Just on other specifically, this is kind of our normal run rate, if go back and look where – it's in that 20 basis points to 30 basis points range, may move around a little bit, but I think that's a pretty safe assumption on a go-forward basis. At Investor Day, we'll lay out specifically the finish the job agenda. And what we're trying to accomplish for the next two years, including continued margin expansion, and as we've said in the past, we certainly expect a positive impact from the Enterprise Initiatives next year. But I can't give you the number as we sit here, simply because we haven't gone through the plans and we haven't looked at the projects and activities and the carryover that will get us to a solid number for 2019.

But we'll lay it out in December.

Right.

Okay, Michael, that's helpful. And just the comment that you just made about 50% of the businesses still have potential for pivot to growth. I guess my understanding was that 2018, for you kind of was a pivotal year for you guys in terms of this pivotal – pivot to growth. And when we think about what growth is going to come in at for this year, it's probably going to be less than 2017. And again, I know that some of the markets have turned down. But when you look at businesses like Construction or Specialty Products, Polymers & Fluids, how much of the – in growth weakness is maybe that these businesses aren't performing yet to the potential that they can versus just simple market weakness?

Well, it's certainly some of both. I think what I can tell you is that inside the company, this is not a sector issue in terms of Polymers & Fluids versus Automotive, or any of our other segments. This is 87 divisions that operate inside in each of those seven segments and we're at about the 51%, as I said earlier, in terms of businesses that are both operating at the level of excellence that they're capable of from an operational standpoint, application of 80/20, and are driving organic growth at a range that is within what we believe their potential is. And the other 50%, we've got more work to do. And those are pretty equally spread across all seven segments, so there's no particular tilt. I certainly expect that we would have put some better overall progress on the board have we not had auto pullback, like it's pulling back in the second half of the year. It's been our fastest-growing segment. So, we're giving up a little bit in the near term. But our focus is on getting this company to its full potential. We think we've got about two years left to run in terms of getting all the way there. I don't want to steal the story from December, but that's what Michael's alluding to and we've got plenty of more room to go on both from an operational margin standpoint, and certainly, we've got to get the other 49% of our divisions moving faster on organic. And it's not that they have under-executed, it's that they've started from further back, they've had more work to do to get there. And I think – our plan at this point is to tell you that in some pretty specific detail at the December Investor Day. So, you'll have a good view of what we think (30:33) and what the processes will look like over the next couple of years to do it.

Scott, real simply, do you think that 2019, you could actually have more outperformance versus market than 2018? Is that sort of the plan as we sit here today?

I think, give us a chance to run through all the operating plans. We're right in the middle of that process now. I don't mean to be evasive at all. But I think the December Investor Day is in December for a reason, because it gives us a chance to go through in detail. But what I would say is, we will have a plan for, of the 49% of our divisions that are not there yet, how many of them are we going to get there in 2019 and what kind of help that's going to provide.

Thank you.

Your next question comes from the line of Ross Gilardi, Bank of America Merrill Lynch. Your line is open.

Thank you. Good morning.

Good morning.

Just curious, how are you going to think about the IHS forecast into next year's initial – into initial 2019 guide for auto? I mean, they continue to forecast 2% global production growth in 2019, I believe. I mean with China up 4%, the U.S. kind of flattish, Europe up a little bit. So, I mean, you can't help but wonder, obviously, if there's downward bias based on all the profit warnings we're seeing in the global auto space. So, are you going to abandon pegging your outlook to IHS and take a more conservative approach or how are you going to think about that?

Well, I think certainly over the last couple of quarters, the facts are that the backward look IHS in terms of what production actually was is pretty good. The forward looks have not been so good. So, obviously, we're going to think – we'll probably take a more ITW-specific view based on own experience as we think about 2019 for auto.

Okay. Thanks. And then in Test & Measurement, I think last quarter you had attributed some of the slowdown in organic to delivery timing. But the organic seem to slow down even further. Was there an underlying slowdown that was stronger than expected in any of your business? And there certainly seems to be a lot of negative headlines on semis. You said your semi-related business was stable. So, could you still have a softening there still ahead of you or are you just positioned in a part of the market that's going to be immune from some of these broader pressures?

No, I think semi, as we said, was fairly stable here in Q3, which means positive growth, although at a lower rate than what we've seen in the first half of the year. That was as expected. We do expect it to slow a little bit further here in Q4 and that's included in our guidance. The other thing to keep in mind for Test & Measurement is you're running up against a difficult comp here in Q4. On a year-over-year basis, that segment was up 9% last year. And even though Test & Measurement was up 7% with a lot of strength in Instron here in Q3, the growth rate year-over-year is probably going to slow a little bit, just based on the comp. But the underlying demand trends in Test & Measurement and Electronics broadly are very solid.

Okay. Thanks. And just the last one on Polymers & Fluids. I mean some of the global peers in that market seem to be getting squeezed pretty hard by raw material cost, but your margins actually surprise to the upside. I mean, is there a cost pressure still on the comm in that segment? Or do you think you've just adjusted prices faster than anybody else?

I can't really comment on everybody else. I can tell you what we're doing. We are seeing a fair amount of cost pressure, other than auto, it's the second highest in terms of price/cost impact. But they've done a great job really reacting on the pricing side and more than offsetting those cost increases on a dollar-for-dollar basis.

And as we said before, we don't hedge so we have been incurring those costs as they are happening.

Yeah. I think that's a good point. I mean relative to others, and this is true, and maybe to expand a little bit is, not just on raw materials, but also on currency, because we do not hedge currency and raw material costs, maybe they show up faster at ITW and gives our businesses a real-time view of what's going on and then they can react maybe faster on the pricing side. So...

Got it. Okay. Thanks very much, guys.

Your next question comes from the line of John Inch, Gordon Haskett. Your line is open.

Going back, Michael, to the semi exposure, can you just remind us how much of Test, Measurement, Electronics is semi? And I think to that last question, is there something about the nature of your exposure that's allowed you to outperform?

It's about $200 million. I can't really comment specifically on why we're outperforming. Like I said, we've certainly benefited from strong growth over a long period of times. The growth rate slowed a little bit here in Q3, as expected. And we expect it to slow a little bit further here in Q4. How that compares to everybody else, I'm not sure I can give you a good view.

No, no. That's fine. So, auto's – globally, you guys continue to outperform in North America and China. Last couple of quarters you've had slightly below build average results in Europe. And I'm wondering is that tied to the WLTP emission stuff with respect to your portfolio, are you positioned – like, are you doing to some PLS work there, which is what may be or may not be going on in Europe?

Yeah. I think, John, it's more related to the fact that sort of inventory levels are getting adjusted to these lower build rates. We have a lot of confidence based on new programs that we've added and are continuing to add that we are still getting penetration gains in Europe, and it's just a matter of those are being offset by our customers pulling inventory down. Their requirements are less because they're producing less. But you'll see it go back to positive, certainly, over the next couple of quarters depending on how – where the overall production rates go.

Yes. No, that makes sense. Maybe one more. So, thinking about Polymers & Fluids and then Specialty, other aspects of your portfolio over the last few years have grown more rapidly than these businesses, pretty strong performance, relatively strong competitive positionings. And then as Europe's obviously softened, you've got elements of these portfolios on, I think, the consumable side weakening. So, I'm curious, Scott, does this – it's one of those things where they – I'm sure they're all good businesses, but they're not necessarily performing as resiliently as some of your other segments. Does this suggest that maybe there's a lot more PLS work to do or, perhaps, even may be make some select divestitures on, I don't know, some of these consumable elements of both of those segments.

Well, I think what I can say for sure is, in both cases, for slightly different reasons, they are – the starting point, it was certainly further back in the pack in terms of just the kind of complexity. Polymers & Fluids was a complete acquisition built segment. So, we just had a lot more – we've had a lot more stuff to deal with there in terms of getting them positioned to do what we've been capable of. That's sort of where I sit today, I think we've got another couple of years to get this whole company where we think it can be. And in those two, I'd say, parts of Specialty and a lot of Polymers & Fluids, it's just a matter of the starting point was further back, if you will, in terms of making the kind of transformation that we're in the process of making. Both are highly differentiated. Look at the margin rates, they're really solid, positions inside some really strong niches. So, I think we like the competitive position, overall, but they have to grow faster, there's no doubt.

Well, maybe...

And if we determine that they can't at some point, then I think your logic is not unreasonable. But I think we've got some more room to go before we are ready to make a call on that.

Maybe just one last one on that point. Is there any kind – I realize there's a lot of niche business in here. Is any of this pertaining to scale? So, in other words, maybe instead of looking at divestitures, maybe it might make sense to add to those portfolios in some manner to beef-up scale to kind of push it further over the goal line, if you will? Again, it's...

Yeah. I think, all of that, across the whole portfolio, is stuff – those are sort of options that are certainly both valid and really interesting. I think, just given the level of performance, the profitability, and what we think the core growth potential is, I think, what – our focus is – let's get what we have in full potential position and not try to fix our problems. Let's address it with the businesses by operating the business we own to their full potential. And from that view then, we can look at how we might supplement or perhaps organize ourselves differently.

Yeah. Makes perfect sense. Thanks very much.

Thank you.

Your next question comes from the line of Steve Volkmann, Jefferies. Your line is open.

Good morning. Thank you. Just a couple of clarifications, if I might. I guess, we had a little bit of sequential improvement in sort of the price/cost headwind on margins. And I assume your goal is still to sort of fully offset that over time. Is the 10 basis point sequential improvement the right way to think about kind of the path to get there or can you do it more quickly?

I think what's encouraging is that the margin impact, specifically year-over-year, seems to have stabilized. And certainly, it's encouraging to see an improvement in Q3 relative to Q2. This is not going to be a quick fix. I mean, we do expect, between raw materials and tariffs, we're going to have to continue to work the price lever, which we are. And the other piece of the equation is, we were favorable, price dollars were significantly higher than the cost dollars here in Q3, relative to the first half where were neutral. So, that's – when we talk about things beginning to improve, that's really what we're talking about. But obviously, we're in a pretty dynamic environment here in terms of raw material costs and tariffs. And I just want to be a little bit cautious in terms of saying that all of this is all behind us. We're going have to continue to work this really hard, but certainly encouraged by what we've seen here in the near term.

Okay. All right. Thanks, Michael. And then, just a quick follow-up, and I apologize to keep beating on Auto. But I think you had mentioned in your comments that there was a fair amount of restructuring and integration expense. And I think you said margins would have been up without that. And I'm just curious sort of where are we in that process. How long does that continue? As we get further down the road, when does that headwind sort of fade, if it does?

Yeah. We're making really good progress there. We're in the year three of basically a five-year process, and we're talking specifically about EF&C that we added.

Right.

And so, the things are certainly progressing, I would say, at this point, ahead of plan. It's a great business. We've added some great team members and progress is really good. And I think some of the quarterly timing in terms of restructuring is also – I don't think it's a particularly big headwind for margin in auto on an annual basis. It does jump out in the quarter based on timing of when we're actually implementing certain things. And I think that was probably more of the case.

Yeah. I think that the impact in Q3 here was 40 basis points. We laid out a plan, Steve – 5-year plan to get margins to 20% and really a steady 200 basis points improvement every year. And that's what we've delivered so far. But it's not a one-time, it's really more of an ongoing program. No rush to do this, but we're definitely on the right track here.

Okay, great. And then, just one final knit, if I could. The destocking that you're seeing in European auto, I guess, we had sort of heard through the channel that that was somewhat short term in nature. And I guess, you're sort of saying that's going to continue. But at some point, I suppose that that headwind goes away as well.

Well, we think – from what we're hearing, the biggest factor is new emission standard, and there has been a lot of, let's call them, bottlenecks in terms of our customers getting their vehicles through that process. And to the extent, I – it's not something that we control, nor is it something that we have either direct input from our customers on or a point of view in terms of where that bottleneck clears and things, let's say, normalize. But that was a big factor in Europe in terms of the reduction – the decline in production in Q3. That's certainly going to continue to be there in Q4. We will hope to have a look into 2019 by December in terms of – at least, give you our view of how that will play out. And the other part of Europe was also the softer demand in China. The fair amount of auto production in Europe is exported to China and, ultimately, have demand there. There being China on a go-forward basis will also have an impact. But right now, we're calling this Q4 and we're not expecting any change.

I appreciate it. Thank you.

Your next question comes from the line of Andy Casey, Wells Fargo Securities. Your line is open.

Thanks a lot. Good morning, everybody.

Good morning.

I'm trying to understand some of the patterns that seem to be appearing in the results on that, it seems a little sporadic by region, but industrial seems like it's reasonably strong, but some of the consumer-oriented stuff seems to be softening. Is that consistent with how you're looking at the portfolio? And if so, outside of international auto, can you talk about whether you're seeing any of your channel partners destock?

We talked a little bit about destocking on the Construction side, really into the big-box retailers here in Q3. That's really more of a near-term impact. You're correct, I mean, the industrial side continues to be very solid. And then, on the consumer side, we are seeing some slightly lower growth rates on a year-over-year basis. I think on a geographic basis, like we talked about, I mean, North America continues to be really solid, up in the mid-single digits year-to-date and for the year. And really, what changed here in Q3 versus Q2 is what we talked about in terms of the international side of the business. Now when you look at it by geography, it's hard to say that there are any real trends.

It's pretty narrow in terms of the impact that we saw in auto and a couple of spots and pockets.

It's a couple of pockets of – offset by strength in other pockets. So, we're not making any regional calls here in terms of what's going on from a macro standpoint. We saw some challenges in a few end markets, but there was also strength in other markets in that same region. So, we're not making a region call here.

Okay. Thank you. And then, separately, on Food Equipment, within your prepared remarks, you mentioned retail was weak. Can you give a little bit more color on that?

Yeah. So, I'd rather not go into too much detail here. I'm sorry, Andy. I mean, what I can tell you is it's been pretty challenged for a year now. The comps are going to get easier, but really last year we saw the beginning of a slowdown in investment...

This is grocery stores.

...in grocery stores, as it relates to our products around – these are scales, weigh/wrap equipment. We also had a major new roll out of product last year that didn't repeat this year. And we'll see when we do the plans here in a couple of weeks with the Food Equipment team what to expect for next year. But for Q4, in the near term here, we're expecting that things do not get better on the retail side. And it's really a strength outside of retail what we call foodservice on the equipment side, particularly on the institutional side, where our business is up in the mid-teens with a lot of strength, as we talked about, on the healthcare, education, lodging, those trends certainly look really good.

Okay. Thanks. And if I could squeeze a clarification, and that 2019 $60 million headwind from tariff impact, does that include the anticipated 25% List 3 increase next year?

Yes, it does.

Okay. Thank you.

Your next question comes from the line of Scott Davis, Melius Research. Your line is open.

Hello?

Scott Davis, your line is open.

Want to move? Next call?

Beth, let's take the next call.

Your next question comes from the line of Mig Dobre, Robert W. Baird. Your line is open.

Okay, Beth, keep moving.

Your next question comes from the line of Jamie Cook, Credit Suisse. Your line is open. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Hi. Can you hear me?

Hey, there. Okay, good. Go ahead. Jamie L. Cook - Credit Suisse Securities (USA) LLC: All right. It's working. Just a couple of quick follow-up questions. One, John sort of asked you about portfolio optimization, either divestures or acquisitions, whether you need scale or – to help the organic growth story. But how much is the macro sort of impacting your view of being more opportunistic on the M&A front, if multiples come down at all? And then, my second question, just clarification. I think you said in response to one of the questions, in the fourth quarter, sequentially, you expect Polymers and – P&F and the Specialty division to improve sequentially, just was there anything specific driving that? Thank you.

I'll take the first one and I'll let Michael take the second one. And I, again, don't mean to be evasive, but I think in December we'll give you a fulsome update on our thinking with regard to portfolio and how we're thinking about it and how we will go forward.

Yes. And specifically on the Polymers & Fluids and Specialty, our guidance is based on the current level of demand, current run rates in those businesses. We've factored in the comps on a year-over-year basis. And based on that, the year-over-year organic growth rate in Q4 is expected to be better than the equivalent in Q3. So, there's nothing specific other than based on current run rates, factoring in the comps. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Okay. And then just follow-up question. Some other companies or investors have been concerned that with trade war talk, et cetera, and price increases that there has been any sort of pull forward in the demand, which is why some companies might be seeing good strength in the beginning of the year, and then things sort of deteriorating in the back half. I mean, do you get a sense for any of that as you can you talk to your customer base?

No. We're a book and bill. I mean, you order it today, we ship it tomorrow. We've not seen any pull forward that I can think of. I'm sort of running my head through the portfolio here. In fact, we've sort of given our delivery performance incentive by the opposite. Jamie L. Cook - Credit Suisse Securities (USA) LLC: Okay. Great. Thank you. I'll get back in queue.

Your next question comes from the line of Joel Tiss, Bank of Montreal. Your line is open.

Hey, guys. How is it going?

Good morning.

I wonder, is there any – you guys have been at this a long time. Are there any signals from your earlier cycle businesses that give you any sort of insight into what could be happening in the later cycle businesses further down the road?

I can't really – we're looking at each other here and shaking our heads. We can't really think of anything, Joel, in terms of short cycle being leading indicator. Like we said, this was – other than auto and a few end markets internationally in the two segments we talked about, the performance is pretty good. And we're certainly not seeing anything that underlying demand trends are beginning to slow here.

Okay. Good. And then can we just spend a minute going through the different pieces inside the Construction business? We haven't talked about that very much. You mentioned big-box retail was destocking a little bit, but can you just talk about some of the other trends you're seeing there, please?

Yes. I think that was really the big one that we called out. I mean I think, overall, 1% organic growth in the quarter. Europe really good, up 4%. Australia may be slowing just a little bit. In North America, the residential side was down and that's really more of a comp issue. We had – there's the hurricane impact in Q3.

It was a factor this year versus last.

Yeah. So hurricane impact last year, business was up 7%. Sequentially, on a run-rate basis, the underlying demand is still very good. The business is up 4% on a year-to-date basis. Q4 looks to be in line with that and the full year should be up in that 4% to mid-single digit range on the residential side. Commercial is a smaller part of our business. It can be a little lumpy. It's been flattish for a while here. We're up 5% in the quarter. I wouldn't get too excited about that, to be honest with you. I mean I think this is a more of a low-single digit type growth rate on the commercial side. And even with this slowdown, some pressure on the cost side, the fact that the business improved operating margin 40 basis points is pretty good.

All right. Great. Thank you.

Sure.

Your next question comes from the line of the Steven Fisher, UBS. Your line is open.

Thanks. Good morning.

Good morning.

Good morning. Talking about international Welding, some nice strength there. Can you just talk about where that strength internationally is coming from, which markets and what visibility you have to kind of continuation of that?

Yeah, I think really what we saw was a pickup. So, most of our international businesses, as you remember, is oil and gas related. So, we saw a pretty nice recovery. Europe up 10%, a little bit more than that, 11% in the quarter, on the Welding side. China up 15%. So, the majority of that is really driven by oil and gas, which overall was up double digits. You saw the pickup also in consumables, I think up 12% in the quarter here. So, those are kind of the big – and just in terms of the sustainability, we haven't seen anything to suggest that things are slowing.

Okay, that's helpful. And then, in terms of organic growth fourth quarter, kind of number of positive segments versus the number of negative. Obviously, we had a few, three that turned to the negative side in Q3. And as you've talked about, some of the comps get tougher in Q4. Anyway that – and we can also get to that 1% to 2% organic growth for the fourth quarter in a variety of different ways, though, I'm just curious if you think the number of segments that are going to be negative in the fourth quarter are going to be more than what we've seen here in the third quarter?

No.

We expect it to be less, and it's really just – the one that stands out is Auto, even though Auto was about flat this – here in Q3. In our guidance and based on what we're seeing, we're planning for a little bit worse in that segment. The other segments should be positive. And for the full year, even Auto is going to be very close to positive in all segments, even including Auto.

Terrific. Thank you.

Sure.

Your next question comes from the line of Nicole Deblase, Deutsche Bank. Your line is open.

Yeah. Thanks. Good morning.

Good morning.

If I could just ask a little bit of a more detailed question around price/cost. So, just compared to the headwind that you guys have had over the past several quarters, what's the expectation that's baked into the fourth quarter guidance?

So, we're assuming pretty similar Q4 to what we saw in Q3. It's like we said earlier, I mean, on the cost side, this is a pretty dynamic environment. Even though certain of the raws may, looking back, have stabilized, there are others where that's not the case. And so, it's hard to call, but we're expecting that Q4 is similar to Q3. And I think that's, hopefully, a pretty conservative assumption, but it's hard to tell.

Okay. Got it. That's helpful. And then, on Specialty Products, that was kind of a big negative surprise for us this quarter. If you could just give us some color on what drove the pretty big swing to the organic decline and if that continues into the fourth quarter?

Yeah, it was really the three divisions internationally that we talked about, so the marking and coding business, the graphics business, and then the appliance business, which – so we sell components into appliance customers. And then, a fair bit of PLS as well, particularly on the international side. So, those were the key drivers. I think what's – it masks a little bit of this really solid performance on the consumer packaging side, which – up 5%, the equipment side up 7%.

Which is the biggest in the segment.

Right. And so, it was really just a couple of divisions on the international side that drove the negative organic growth rate here in Q3.

Got it. Thanks.

Your next question comes from the line of Seth Weber, RBC Capital Markets. Your line is open.

Okay. Beth, we're at the end of the hour. Why don't we take maybe one more and we'll end the call.

Your next question comes from the line of Josh Pokrzywinski, Morgan Stanley. Your line is open. Joshua Charles Pokrzywinski - Morgan Stanley & Co. LLC: Hi. Good morning. Thanks for taking my question.

Good morning. Joshua Charles Pokrzywinski - Morgan Stanley & Co. LLC: Just to follow-up quickly on the last question on price/cost and how that layers in from here? I get that 4Q maybe doesn't look a lot different, but tariffs ramp up again to start the year. Is there a potential for that 60 basis points to actually get a little worse before it gets better? I'm not trying to put too finer point on or getting to 2019 guidance. It's just kind of an earmark date on the calendar that I want to understand a little bit better.

Yeah, I mean, Josh, the best I can give you is – we gave you what we think the impact of tariffs is going to be for 2019 at that $60 million compared to $30 million this year. That's a meaningful number, but nothing insurmountable here, certainly manageable as we continue to work the price side of things. But beyond that, I can't really tell you until we've gone through the detailed plans here with everybody. Just to be clear, the $60 million includes, I think we said this earlier, List 3 increase from 10% to 25%. And so, that's an all-in number, based on what we know today, but it's a pretty dynamic environment.

And everybody's going through it. So, the only thing I would add is that the pricing reaction of this in the marketplace has been going on all year, will continue to go on, not just by ITW, but you're hearing it from, I'm sure, all of other industrial companies that you cover. And so, I think the environment is one that, I think, we've got a good view as to how costs are going to continue to escalate in terms of what's known. We've got to continue to see and we're certainly not anticipating them to go the other way anytime soon. So I think from the standpoint of attention and focus and our ability to continue to respond as necessary and as appropriate, I think we're pretty comfortable with where we sit. Joshua Charles Pokrzywinski - Morgan Stanley & Co. LLC: Got it. That's helpful. And then just one quick one, I know we've talked a lot about destocking in European Auto, but was there any restock that you guys saw in North America Welding? I've heard some of that comment in the channel. Just curious if it impacted you at all.

No. No, we didn't see that, Josh. Joshua Charles Pokrzywinski - Morgan Stanley & Co. LLC: Okay. Appreciate the time.

Okay. Thanks, everybody, for joining us today. If you have any follow-up questions, just reach out and we're happy to help you after the call. Thank you.

Thank you. This concludes today's conference call. You may now disconnect. Have a good day.