Good morning, my name is Julian, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. [Operator Instructions] Thank you. Karen Fletcher, Vice President of Investor Relations, you may begin your conference.

Okay. Thank you, Julianne. Good morning and welcome to ITW's Fourth Quarter 2020 Conference Call. I'm joined by our Chairman and CEO, Scott Santi; and Senior Vice President and CFO, Michael Larsen. During today's call, we'll discuss ITW's fourth quarter and full-year 2020 financial results and provide guidance for full-year 2021. Slide 2 is a reminder that this presentation contains forward-looking statements. We refer you to the Company's 2019 Form 10-K and subsequent reports filed with the SEC for more detail about important risks that could cause actual results to differ materially from our expectations, including the ongoing effects of the COVID-19 pandemic on our businesses. This presentation uses certain non-GAAP measures and a reconciliation of those measures to the most directly comparable GAAP measures is contained in the press release. Please turn to Slide 3, and it's now my pleasure to turn the call over to our Chairman and CEO, Scott Santi.

Thank you, Karen. Good morning, everyone. The ITW team closed out 2020 with another quarter of strong operational execution and financial performance. From my perspective, the highlights are the Q4 revenues got back to year-ago levels despite food equipment being down 17% and net operating income, operating margin and after-tax ROIC were all Q4 records for the company. It was a pretty solid finish to the year that needless to say, provided some unique and unprecedented circumstances and challenges, and indicates good momentum as we head into 2021. While it was the challenges brought about by the pandemic that dominated our attention in 2020, it was the collection of capabilities and competitive advantages that we have built and honed over the past eight years through the execution of our enterprise strategy that provided us with the options to respond to them as we did. Early on as the pandemic unfolded, we refocused the entire company on only two core imperatives. A, to protect the health, safety and well-being of our people, and B, to continue to serve our customers with excellence. And in my view, we executed extremely well on both. Our manufacturing, operations and customer service teams around the world deserve special recognition for their extraordinary efforts and leadership in support of these two key pandemic priorities. Their dedication and commitment to keeping themselves and their colleagues safe while continuing to deliver excellent service to our customers was truly inspiring and there is no question that we differentiate ourselves with many of our key customers, as a result of our ability to sustain our normal rock-solid quality and delivery performance throughout 2020 as a result of their efforts. We also did our best to take full advantage of ITW's position of strength as we've thought through, how we should…

Thank you, Scott, and good morning, everyone. Please turn to Slide 4. In the fourth quarter, we continue to see solid recovery progress in many of the end markets that we serve as evidenced by our revenue being up sequentially 5% versus the third quarter. The increase is 8% when you adjust for equal number of days when historically our revenue per day has increased by 1% from Q3 to Q4. Overall, we delivered revenue of $3.5 billion, operating income of $883 million, an increase of 7% year-over-year, operating margin of 24.4%, free cash flow of $705 million, and GAAP EPS of $2.02. After-tax return on invested capital improved to 32%. And as Scott mentioned, operating income, operating margin and after-tax ROIC were fourth quarter records for the company. Revenue in all major geographies improved sequentially. On a year-over-year basis, North America organic revenue declined 3%, International revenue grew 1%, Europe was down 2%. Similar to Q3, China was the bright spot with 11% growth. As we've talked about before, the operating flexibility that is core to our 80/20 Front-to-Back operating system also applies to the cost structure, which was on full display through our operating margin performance in Q4. We improved operating margin by 170 basis points to 25.4%, the second-highest margin rate in a quarter in the history of the company. And like I say, grew operating income 7% to $883 million, the highest fourth quarter ever. The biggest driver of our margin improvement remains our enterprise initiatives, as the ITW team executed on projects and activities that contributed 130 basis points in Q4. The impact was broad-based with all segments delivering enterprise initiatives benefits in the range of 80 to 170 basis points. GAAP EPS was $2.02, up 2%, but keep in mind, the Q4 last year…

Okay. Thank you, Michael. And Julianne, let's open up the lines for questions, please.

[Operator Instructions] Your first question comes from Andrew Kaplowitz from Citi. Please go ahead, your line is open.

Good execution as usual. So it's been a couple of years now since your last Analyst Day, so maybe you could update us and you are in terms of the goal of finishing the job related to enterprise strategy. It seems like your performance in the second half of '20 and the 7% to 10% growth guidance you've got for '21 is reflecting full organic growth potential versus your end markets. But maybe give us some color around that and how you're thinking about enterprise strategy coming out of the pandemic? Do you still see 100 basis points of margin improvement per year through at least 2023?

Well, I'd say a couple of things, Andy. First of all, this has been a process throughout the entire journey where the sort of further we go with that, the more opportunity we find to continue to improve. And I think one of the remarkable things from our perspective is eight years into this, I don't see that slowing up any. And so we are focused on continuing to move forward to get better every year, get a little bit better this year than we were last year. Within the framework of this, the strategy that we've laid out and I think there remains ample room to continue on that path for a number of years. We also have some performance goals out there. You're right, it's been a couple of years, but two years ago, it's when we update those goals, and we remain absolutely on track and committed to delivering on those goals. And as we get closer to that, we'll figure out what the next step is - steps are.

Thanks for that, Scott. And then is it right to think that generally, you should see more margin improvement from the segment with the largest growth projections for '21? And could you give us, I know you talked, Michael, I know you talked about price versus cost, you sometimes have sort of these lags in some of the segments like auto OEM, do we get concerned about that at all? And any other color on [prices cost] [ph] you could give us?

Well, I'd say, Andy, we - based on our bottoms-up planning process, we expect every segment to improve on their margin performance in 2021, as Scott said, a little bit better every year as we march towards our full potential. I think one of the remarkable things, when you look at the margin performance by segment is how the range has narrowed and we're - as we sit here today, the low-end is food equipment at 22% and the high-end is welding at 29%, very different range from when we started this strategy eight years ago. And I think the fact that we have businesses, delivery margins in the high 20s just gives us further confidence in the long-term goals that we've laid out for the company. So the big driver in 2021 remains Enterprise Initiatives. Those are broad-based in every segment will make progress on 80/20 and Strategic Sourcing, and certainly, we expect that also a meaningful contribution from volume leverage as we go through the year here. But I wouldn't single any segment out as having more margin improvement potential than others. I think we expect all of our segments to continue to make progress towards their full potential.

Appreciate it, guys.

Yes, Andy, and I can give you a little bit on price costs. So certainly, like I said, we are closely monitoring the raw material cost environment, we are seeing inflationary pressures in commodities such as steel, resins, certain chemicals, by segments, automotive, construction, and polymers and fluids is probably where we're seeing the more significant increases. In all of our segments, the plan is to offset those cost increases, the ones that we know about and the ones that may arise this year with price on a dollar for dollar basis. As you know, in automotive, just given the nature of the industry that is a process that takes a little bit longer, but we're confident that over time, we're going to be able to offset any raw material cost increases with price, just given the differentiated nature of our product offerings in each one of these segments, so.

Your next question comes from Nicole DeBlase from Deutsche Bank. Please go ahead, your line is open.

Can we just start with the outlook for auto OEM? When you think about the 14% to 18% that you forecasted for 2021, how does that look in the context of some of these semiconductor supply chain issues that we're seeing? And I guess are some of those hiccups embedded in your outlook? And with that said, if you could talk maybe a little bit about the potential quarterly cadence for the auto business, I know you guys don't give quarterly guidance, but in this case, it could be kind of a weird year.

Yes. So thank you, Nicole. I...

I can tell you one thing on the quarterly cadence that Q2 is going to be a lot better this year than with last year. That's the one thing I know for sure. I agree with that.

So just on the - there's a lot of talk about the shortage of semiconductor in the automotive OEM space. What I can tell you is, and this is true across all of our businesses, we've not seen a slowdown in demand and strong momentum going into the year, certainly carried through January. It is possible, though, that we may see some production slowdown here in Q1 at some of our customers, whether that will impact the demand, their demand for our products, I think remains to be seen. We view this right now as more of a timing issue and so certainly, this could put a little bit of pressure on the auto business here in the first quarter. But as we sit here today, we would assume that we're going to catch that up in Q2 or the second half of the year. In terms of the quarterly cadence for the auto business. I think you saw the strong performance here in the fourth quarter, up 8%. Like I said, we've not seen anything to suggest that that demand is slowing down while we're looking at the January results. So we expect, given how we've planned the business to be off to a pretty good start with positive organic growth and margin improvement in the first quarter that typically sequentially that builds as we go through the year. Q2 will be, as Scott said, the biggest quarter and the second half, the comps start to get a little bit more challenging, the build numbers are a little bit different but that's probably as much as I can give you on the automotive business and kind of how this might play out by quarter.

No, thanks. That was actually super helpful. Maybe just as a quick follow-up, when you think about the guidance that you put together for just the full company organic growth in 2021, thinking back to last year when you guys were really talking about opportunities to outgrow as we move into recovery mode, have you factored in some of that margin improvement into - sorry, market and market share improvement over peers into the 2021 guidance?

Well, I - the only way that it's - that's factored in at this point is, it's embedded in the impact of those efforts have already made in our current run rates. So we are not baking in any further acceleration, it doesn't mean that we don't have a lot of intention around continuing to as we've talked about before, be aggressive as the recovery continues to accelerate, but from the standpoint of our normal planning practice, we are - what's embedded in our organic growth forecast is exactly what Michael said earlier, the current run rates - daily run rates projected through full-year 2021 with whatever the normal sort of seasonal impacts are quarter-by-quarter.

Your next question comes from Jeff Sprague from Vertical Research. Please go ahead, your line is open.

Two questions. One, kind of following up on that last thread, fully understand your methodologies here kind of this rolling forward current trajectory. But when you look at the segments, are there one or two kind of either way positive or negative that, I know your astute business sense and long history with these businesses would suggest are likely to be potentially better or worse than kind of the exit rate here as we exit 2020?

Well, I'm trying to think about that question. The obvious one to point to is food equipment that depending on sort of pace of vaccine penetration and recovery. That's obviously, where even at that 8% to 12% growth rate for the year, we're well below 2019 levels of demand let alone incremental growth opportunities we have. So that from the standpoint of the one with the most outside leverage that's clearly the case. I don't know that there is anything else that I would say would really stand out, I think the capital equipment business, as you would expect, so welding and test and measurement, that as businesses get more comfortable with both the pace and trajectory and sustainability of the recovery that their comfort level with investment would - and our confidence in the future would certainly stimulate more, perhaps more demand in those sectors, maybe as I think about your question, but I think that would be the two areas that, should things continue on in the positive direction, they are the significant benefit from continued broad-based - the broad-based momentum that we're seeing.

And also thinking about kind of cyclical versus structural growth, Scott. Right. So the effort to kind of pivot the businesses, the whole ready to grow, but not growing, and the ones that we're outgrowing, do you think there will be measurable outgrowth across most of the portfolio? So like you said, we don't know quite what the world is going to hand us in 2021, but I just wonder your confidence and visibility on our growth, you mentioned new products and food equipment for example, I'm sure there are things in other segments. Maybe you could just provide a little additional color there.

Yes, I think that's where the proof is got to be in the project and that's what we've been working on. And so I, certainly in 2020 and '21, I think to try to get any sense of sort of what the market baselines are given the - just the overall volatility in all the, let's say the corresponding supply chain impacts on demand and inventory levels and all that stuff, it's really, it's almost possible to tell, but I would absolutely expect that our ability to stay focused and aggressive on the growth agenda through all of this, I won't say a better payoff but I'd say it's payoff is what we're all about. That's what we've been doing all this stuff for. So I won't tell you that every one of our 83 divisions are all the way there, but I guarantee you that I can say that 90% of them are in great position, are doing all the right things, have stayed focused and have stayed aggressive through this, we're not in that, we're not using the ready to grow and not growing categories anymore. I'll put it that way. It's - I think we're well past that point.

Your next question comes from Ann Duignan from JPMorgan. Please go ahead, your line is open.

Maybe you could talk a little bit about your outlook for construction products that might have expected organic growth to have been up a little bit more in 2021 but perhaps it's just on the back of strong renovation in 2020, but just some color there in terms of regional and sub-sectors, that would be helpful.

That's exactly what I told our EVP, Ann. Just so you know. So what I'd tell you, Ann is that obviously, a strong year for the construction business and finishing Q4, up 8% on a year-over-year basis, a lot of strength in the home centers that we've talked about really since the beginning of the pandemic, and we expect that to be just given the comps that the growth in the home centers would be in the low single-digits. We - there are some encouraging signs around housing starts. And then we have a great portfolio of highly differentiated products. So you put all of that together, I think our view is we should be able to grow in the mid to high single-digits here in 2021. And as I said, we're off to a good start here in January, so.

And any differentiation regionally that you'd like to comment on?

No, I think it's pretty - I think the comps are a little bit easier in Europe, maybe in North America but we, really on a global basis, we had a good year. But, so that's really all that I would point to.

Okay. And then as my follow-up perhaps, similar question on welding, just different customer bases and maybe different regions, what you’re seeing - I will hand it over.

Yes. So I think welding, strong finish to the year good momentum going into 2021 and I'd say a pretty solid outlook for all end markets, maybe with the exception of the oil and gas piece, which is somewhere in the 15% to 20%, it's probably closer to 15% of total revenues that is expected to remain soft as we go through the year. But the commercial business has been strong all year and no signs of that slowing down the industrial side. So this is what Scott talked about with CapEx may be picking up as this recovery path is a little clearer. We're expecting a solid year in the welding business with again continued progress on the margin side, despite the fact that they put up almost 29% here in the fourth quarter.

And your next question comes from John Inch from Gordon Haskett. Please go ahead, your line is open.

Picking up on a couple of the themes of the past few questions. Do any of the businesses, Scott and Michael, stand out based on call it internal changes, they may have pursued in 2020 that position them in your minds really favorably for 2021 and this could be everything from, I don't know, like acceleration of enterprise initiatives, new products line up that they've got ready to kind of tee up here, maybe new customer sort of supply line or existing new customer channel initiatives or anything like that that you might call out?

Yes, I can't really think of anything, particularly given the environment we're in, other than point to what we've been talking about throughout, which is we stayed focused on implementing those, the relevant changes, strategic changes business by business along the lines of what you're talking about throughout this entire - throughout the entirety of 2020. So I think if anything, the most significant part of what we accomplished in '20 is we stayed ready, we stayed prepared, we stayed in position and we kept moving the ball. And so I don't know that there is any big shifts that I can point to as much as the fact that we stayed in there and kept moving forward while dealing with the pretty unusual set of near-term circumstances and I expect that that will pay significant dividends, particularly if the rate of recovery continues on as we're seeing right now.

Well, Scott, how significant as we think in the next couple of years in recovery, are new products or the introduction of new products going to play in terms of the drive to faster growth? Like was this an opportunity? I mean we don't have a view inside the company, right? So, was this an opportunity for yes to do realignment cost-cutting and so forth up to the centralized level, but for the folks to basically say, you know what, let's push on this initiative for that initiative or launch that as part of kind of your overall emphasis to take share which was stated kind of going on?

Yes, relative. New products are core - it's a core I want to - of our business model, customer back innovation we have been - there has been no change in terms of the central nature of that as our strategy. We're banging out a couple of thousand patents a year. Year in, year out, that certainly continued on in 2020 as it always has. So I don't know that there has been any inflection or change in terms of our posture there. It is, in my view, it's the only way we outgrow our markets over the long haul. We're going to get some penetration from our service capabilities from our ability to attract new customers, but in the end, innovation, new products, new technologies, or existing products is the key and core driver ultimately of our, I believe they outgrow our markets consistently over time. That's not a new concept here.

And I would just add financially speaking, John, our internal investments, new product, our top priority from a capital allocation standpoint, then if you look at our new product investment in 2020, it was the same number as in 2019 as we stayed invested in these projects and strategies to drive above market organic growth. Historically, we've achieved about a percentage point of organic growth every year for new products and that's kind of we're counting on in every segment as we move forward.

Makes sense. If I could just sneak in one more. You return to M&A, the two obvious challenging verticals have been commercial aerospace, and oil and gas. Are there, like - are you guys perhaps thinking you guys are contrarian thinkers? Are these possibly going to present opportunities for M&A? Like would you consider an aerospace deal? And in terms of oil and gas, would that be off-limits just because of ESG considerations, which you obviously don't have today?

Yes. I just go back to our, basically two criteria. One is that we - It has to - we have to - if we're going to make that kind of an investment in terms of not just to our capital, but our time, effort and energy, it has to be in something that we have a lot of conviction about that can support or further accelerate the company's long-term growth potential. And we have to also have significant potential for margin improvement from 80/20. If you look at MTS and that absolutely checks both of those boxes. So I don't - we don't have anything that in my view as off-limits, if those criteria are met and I'll just leave it at that. I am not good at that, but I will also say, as more we’re leaning in super harder on one particular sector or another. I think as we've talked about before, we have demonstrated ability to perform and execute across seven businesses today. So ultimately, it's much more a function of the individual characteristics of the asset that we're talking about than it is any sort of outside-in view of, we want to - we need to get growth year or play for a certain theory about long-term end-market growth.

Your next question comes from Jamie Cook from Credit Suisse. Please go ahead, your line is open.

I guess just two follow-ups. One, I know you talked about sort of supply chain and as it relates to the automotive sector. I guess one, do you have anything in your guidance embedded for supply chain, potentially higher freight costs or whatever that's - you're managing for? And I guess my second question, when you first laid out your strategy in 2020 to go after market share during COVID, you talked about potentially your competitors having issue, there is demand, ramps or even managing through the downturn. Can you talk about whether some of the supply chain issues are impacting your competitors and whether it's sort of in line with what you thought greater than what you would thought? I'm just trying to size that potential opportunity. Thank you.

Yes, so, Jamie, on your first question, we are seeing an increase in freight cost. It is not one of the largest, categories when we look at where we're seeing cost pressure, but it is any known increases in terms of freight and logistics are embedded in our plan, in our guidance here today. I think in terms of market share, as a result of being able to maintain delivery and quality, if we were to talk to our segments, they would all be able to come up with lots of examples from their divisions where that is the case. And it's not just in one segment, it's really across the Board. We've been able to pick up share now. So I would just say, we're not doing this with the short-term focus that these have to be sustainable market share gains and they have to be at ITW caliber margins for us to be interested in pursuing them. So it's probably the best answer I can give you on that one.

Your next question comes from Julian Mitchell from Barclays. Please go ahead, your line is open.

Maybe my first question really for Michael around the free cash flow outlook. CapEx was down substantially, I think almost 30% in 2020. What slope of recovery do we see there? And how much of a working capital headwind should we expect as well? I suppose the end-point here is to try and understand relative to that $2.6 billion of free cash last year, what the delta is this year in the context of the earnings guidance?

Yes so, Julian. You're right. Some of the capacity expansions that were planned for 2020 were obviously pushed out as a result of the global pandemic, not as a result of anybody at corporate saying you can't invest in your business. This was really our divisions deciding to defer these capacity expansions and as the recovery progresses, those - that CapEx spend will return to normal levels, which is the assumption that's embedded for 2021. We also had in our free cash flow forecast and assumption that we will build up some degree of inventory receivables, working capital to support almost double-digit growth across the enterprise. So we have about $125 million of working capital coming in and that is included in our numbers here and you put it all together, we expect to deliver another strong year from a cash flow perspective at 100% plus conversion from net income.

And then maybe my follow-up on the uses of that good cash flow and the big cash balance at the end of December, maybe for Scott. I think Scott you've sounded somewhat reticent on M&A at the last earnings call. And then, today we see that buyback placeholder and heard Michael's comments around deferring divestments into 2022. So just wondered what your latest thoughts were on the M&A appetite if you are more or less optimistic on acquisitions today versus a few months ago.

Yes. What we talked about last call was really around the fact that what we're interested in is quality assets that we can help good companies, so we can help become even better companies and the fact is that during times of maybe disruption that those good companies if we got inside of [indiscernible] time for them to sell their businesses. So the reticence was not from a financial perspective, it was just a statement of reality that the kind of assets that we are interested in acquiring are not available. We - our interest in adding quality assets to ITW that fit our strategy and that meet the criteria that I talked about that was in my response to an earlier question. That doesn't go up and down, that is always there. We have plenty of capacity whether we have cash on hand, whether we have - we need to use the balance sheet, that's just a timing issue. Yeah, we have so much cash. We have the ability to improve these assets we buy, we generate great returns, it's just a matter of the - we're also very disciplined. So we find - we come across an opportunity that we think fits, it's not a situation on what - is it the right time or not, it's at the ample capacity to do it. So we're going to just low our standards because we have been sitting on some cash right now. I think that's the best way I can characterize it. MTS is a compelling hit, it has characteristics that are very similar to our Instron business that we bought back in 2005, entry margins are roughly the same, I think it's around to a couple of points higher, similar end market characteristics, it's a terrific fit that it wouldn't matter what time - what year - where we were in the cycle or what time of year it was, we have another MTS like opportunity, we will take full advantage, do our best to take full advantage of it and that's the best way I can I think say.

And maybe I'll just clarify something, Julian. I mean I think given our track record here as we just talked about in terms of consistently generating strong free cash flow given the strong balance sheet, I don't want you to interpret the fact that the buybacks are coming back, as we don't have capacity to do M&A, because that is certainly not the case. I mean we have ample liquidity as Scott said if the right opportunity comes along, we're going to be certainly looking closely at things. So I wouldn't read anything into buybacks coming back. We are in the fortunate position where - when I talked about the four priorities from a capital allocation standpoint, for us, it's not A, B, C or D, it's really, we can do all of the above. We have the capacity, the financial strength, the balance sheet to do all of the above.

Your next question comes from David Raso from Evercore. Please go ahead, your line is open.

You mentioned on normalized cost, you'd match the higher cost dollar for dollar, just obviously price, people and cost is not helpful to the margin. So when I think at the full-year guide, the revenue guide, the organic is to 8.5. How much of that is actually coming through with your margin, meaning what percent of the 8.5 prices is simply priced being naked at by cost?

Well, so we don't really look at it that way, David. So let me try to answer your question, maybe a little bit differently. So I think what I heard you say is we will offset any material cost increases with price on a dollar for dollar basis.

And then I think add a clarification. That means an incremental from here. That doesn't mean necessarily in our plan.

Correct. Yes.

That's what we have. That's where you're going with.

So that's where I was going. So any incremental cost increases that we may see as we go through the year will be offset with price dollar for dollar. Obviously...

And that really reflects the timing front?

Yes.

That's the problem with delay.

In the long term, we will. Yeah. We will catch up and we typically get more than that. I think what you're talking about is that in the - if that does mean if you do the math, which I'm sure you've done that can be slightly dilutive to operating margins as we go through the year, but that's not what's in our planning today and our plan today is we are positive price ahead of cost and any cost increases that are coming through will be offset dollar for dollar, that can be a slight lag. We talked a lot about some of the challenges in automotive, so that's probably the best I can answer your question.

Now just well, the incrementals are still impressive at 40% and I was just - that's in the guide and I was just curious, are they even higher than that in a way or in a core fashion? Because say 2% of the revenue growth was coming in it at no incremental rate coming at a price versus cost. But overall you're saying add it all up, we're still getting 40% incrementals, if cost go up from here, yes, that might be a bit dilutive on the margin. Just given there might be just pricing cost. That's all I was trying to get at. I mean the 40% is still very. Just trying to get - underlying.

That's correct, yeah.

And when it comes to the M&A pipeline, I mean, obviously, all the facts that are out there and the money in Washington private equity, the MTS business that you bought, somewhat you found something that fits well obviously the margins aren't tremendous but, I think you've probably got it at one time or less, the sales, are you finding with all the facts out there and so forth that you can still find businesses like this that are maybe a little off the radar or it's just going to be a little more challenging to put the money to work. Just give them maybe people are bidding up assets otherwise want to just give in.

Yes, I think it's not a matter of finding things that are off the radar. The ultimate advantage we have even in a competitive market is the margin improvement potential, so that our ability to pay whatever the multiple is, there are certainly our financial modeling. I'm not suggesting we can pay any multiple but certainly, our ability to pay market multiple and then triple or quadruple the underlying earnings and knowing that we can do that with a high degree of certainty over some period of time is ultimately what allows us to be competitive. So that's, why we've said all along is we're not going to pay for a full - buying or acquiring a fully margin business is not interesting for us because it takes that competitive advantage off the table and from a return standpoint, it makes it all about where you right about the growth rate, 10 years out, which is a pretty challenging thing to get right. So we can compete in the right circumstance and we just proved it. I think.

I'm sorry. Please.

No, you go ahead, please.

Well, just seeing for MTS, and I know it's kind of a framework for hopefully future deals you can do, when you think some amortization of the intangibles that are coming in that 6% margin of MTS with a 19. So we think the margin might have been down in '20, what's the level set for us when we think of modeling that say from mid-year and on? What's the starting point for all in the margin amortization, the base we're coming off of and then the ramp to the 20% plus over five years? How much is there a step function in the first full year and then it's kind of, linear from that?

So they didn't close on the deal first and they do all your accounting and when - and hopefully that'll be mid-year. And so when we get on the earnings call, hopefully for Q2 will be able to give you a lot more detail in terms of the questions that you're asking. Our current view based on what we are - what we have modeled is that there is not going to be a material impact in year one, and then the implementation of the business model takes some time. We didn't buy the business obviously for the potential year one. This is a long-term investment and one we are very pleased with and we see a clear path to get it to ITW caliber margins and returns over the timeframe that we discussed. So, but if you could wait until we get the deal closed and we'll provide all the detail here.

I'll help you with this part, if you want me, which is just figure the margin is steady sequential improvement year-on-year, just like we run the company. There is no big step change. And so the path from 6% or whatever the starting point is to the ITW average is side by side. It’s just a better model than some hockey stick in the early period, if that helps.

Your next question comes from Stephen Volkmann from Jefferies. Please go ahead, your line is open.

Great, thanks for fitting me in. I'll be real quick, Scott, if you gave us a couple of quarters ago a number that you thought you had won some new contracts because of your win with downturns kind of strategy. Any update to that kind of for the full-year 2020?

Yes, I'll go back to what Michael said that at that point we can count on because that was we've just started, we are a couple of weeks into and there were some obviously visible specific opportunities that we were aware of, at this point, it's far too broad base, it's not something that we're sort of tracking across the company necessarily.

Okay, all right, fair enough. And then...

Nor should we given the volume, yeah.

Understood. And then Mike, I think you said PLS is 50 basis points of headwind in '21, isn't that kind of what we should consider sort of normal and the run rate for the foreseeable future?

Yes. I think like I would look at this, it has still potential, we had modeled 30 basis points as kind of the ongoing run rate, so you're pretty close here.

Okay, that's all I have.

You're right. We modeled 50 here for 2021. That's correct.

Your next question comes from Ross Gilardi from Bank of America. Please go ahead, your line is open.

Thanks for squeezing me in. Just on the EPS guide, I wanted to clarify why wouldn't the low end be $8 plus when you just turned over $2 in the fourth quarter, you're guiding to $9 to $12 revenue growth. There isn't a lot of seasonality in your business in a normal year. So why wouldn't $2 at a minimum being like an appropriate quarterly run rate? For EPS in the first half and if that's the case, are you taking in a meaningful second-half slowdown? I mean any help you can give us on how your guidance is - looks first half versus second half?

Yes, so Ross, let me say, first I hope you're right. And second, I'll just go back to what I said in the prepared remarks, in response to one of the questions earlier is that how we have modeled the topline is really using current levels of demand in our - in what we're seeing in our businesses. We're projecting that into the year. If you go and look at kind of historically how a typical year unfolds at ITW in terms of the earnings in the first half versus the second half. It is remarkably consistent. So I think that's probably a good start to help you maybe understand a little bit better, how the things might unfold kind of first half, second half, but to be very clear, again, we are not taking into any of our guidance that demand is going to slow in the second half, we're also not taking in that demand is going to accelerate. So to the extent you have a more positive view in some of the segments, you can certainly model that and see what answer you get, but we are assuming that, like I said, the demand stays, revenue per day stays where it is, adjusted for seasonality projected into 2021.

Which is on that, Mike. I mean, if you're saying you're just taking current demand, I mean it just gives us current $2 in the fourth quarter.

Yes, but you have to look at maybe, Ross we'll take this one offline and I can walk you through how the historical trends, okay.

Okay.

I'm not sure how else to answer your question. So, and again, I'm not giving you quarterly guidance, we're giving you full year and I think there's enough information if you look at the historical trends to figure out how things might play out in a quarterly basis.

Your last question will come from Joe Ritchie from Goldman Sachs. Please go ahead, your line is open.

Two quick ones from me and I know we'll get more details on MTS later, but just given the PLS is part of the framework and equation for you guys like it hasn't, we think about MTS is like revenue trajectory, will there be some PLFS you think at the beginning? And then growth from there, like how should we think about that?

Yes. Again, Joe, as I said earlier, we will provide more of the detailed update once the deal has been closed, but you should assume the PLS is a significant component of the overall ITW business model that we will be implementing, so.

And it dampens every first couple of years.

It happens in the first, the way it's modeled in the first two to three years all the PLS gets done. And then from there are now, you should see the accelerated growth rate with a higher margin profile that we talked about earlier.

And then maybe my last question, I might actually going to ask about it because I don't think I've ever asked the question on polymers and fluids on a conference call. But the growth rate has really picked up in the segment in the last couple of quarters, and obviously, you have a good outlook for 2021. Just maybe talk a little bit about how you feel about the - either new product introductions or sustainability about growth rate just given the segment has gone through several years of PLS and then it seems like it's now a turning growth.

Yes, I think you're right, I mean, we've done a lot of - team's done a lot of PLS over the years, a big focus on organic growth, we continue to see certainly good progress in terms of new products. I talked earlier about on average at the company level, we get a percentage point from customer back innovation, we're actually getting rate that's doubled at in polymers and fluids, so certainly the team has executed well on the organic growth framework and made progress on strategic sales excellence. And I think it certainly helped that some of the end markets were quite favorable in Q4, and the outlook for '21 is pretty good in areas such as health and hygiene. We are seeing a recovery in MRO applications and the retail side related to automotive aftermarket has been solid too, so I will pass on your comments to the polymers and fluids team.

Okay, great. Thank you.

I'll be throughout, if they got a question.

Okay. I think we are out of time. So I'll just say to everybody, thanks for joining us this morning. And if you have any follow-up, just give me a call. Thank you.

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