Michael M. Larsen
Senior Vice President and Chief Financial Officer at Illinois Tool Works
Thank you, Chris, and good morning, everyone. In Q1, we delivered a solid start to the year with some high quality execution in a pretty challenging demand environment as expected. Despite an organic revenue decline of 0.6%, operating income grew 4% and operating margin improved 120 basis points to 25.4% as enterprise initiative contributed 140 basis points. EPS increased 5% to $2.44, excluding a onetime item. Our free cash flow was $494 million, and we repurchased $375 million of our own shares during the quarter as planned. GAAP EPS increased 17% to $2.73 and operating margin expanded 420 basis points to 28.4%.
As you saw this morning, our GAAP results include a onetime LIFO inventory accounting change that resulted in a favorable pre-tax impact of $117 million to cost of revenue equal to $0.29 per share. In Q1, we made the decision to transition from the LIFO to FIFO inventory accounting method for all of our US businesses because it is a more consistent and simpler method for valuing inventory across our operations.
In summary, Q1 results were as expected in the current environment, and growth rates are projected to improve as we go through the balance of the year. Our margin and profitability performance continues to be strong, and we're solidly out on track to deliver on our guidance, which I will discuss in a few slides.
Please turn to Slide 4 for a look at organic growth by geography. As you can see, the 4% decline in North America was partially offset by positive growth internationally as Europe grew 1% and Asia Pacific grew 6%, led by China up 15%. Excluding the 23% growth rate in our Chinese automotive OEM business, organic growth in China was still up 7%. For the full year and per our usual process which is based on current levels of demand, we expect organic growth of 1% to 3% in both North America and Europe, with Asia Pacific up in the mid-single digits, led by China.
Moving on to segment results and starting with the automotive OEM segment, which delivered solid organic growth of 3% despite North America being down 6% as Europe grew 2% and China grew 23%, driven by continued strong penetration and market share gains. For the full year, we continue to expect solid above market growth with our typical penetration gains of 2% to 3% and continued outgrowth in China.
Margin and profitability performance was strong as margins improved by 370 basis points to 19.8% and enterprise initiatives contributed more than 200 basis points. We continue to make solid progress on the margin enhancement plan in this segment, and we are firmly on track to deliver margins in the low to mid 20s by 2026, which you will recall is what we said we would do at our Investor Day last year.
Turning to Slide 5. Food Equipment organic revenue declined 1% as expected against a tough comparison of plus 16% in the first quarter last year. Equipment was down 4%, and service grew 3%. And by region, North America declined 2% due to a particularly difficult comparison of plus 21%. On a positive note, the retail business was up 10%, fueled by new product launches and overall North America order activity in Q1 was pretty encouraging across the board. International revenue was flat with Europe in 1% and Asia Pacific up 6%.
While five of our seven segments improved their margins in Q1, Food Equipment margins declined modestly to 26% as a result of focused capacity investments to support and accelerate continued above-market organic growth in our very attractive service business. Looking forward, we expect margins to continue to improve sequentially as we go through the year.
Turning to Test & Measurement and Electronics. Organic revenue was down modestly as Test & Measurement grew 2% despite a tough comparison of plus 12%. Electronics was down 8% due to challenging near-term demand trends in electronic assembly. The recent MTS acquisition continues to perform well and grew more than 20%. With margins that are improving, but still in the midteens, this created a mix headwind for this segment and diluted segment margins by about 250 basis points. Looking ahead, we expect Test & Measurement and Electronics margins to improve from here as we go through the balance of the year.
Moving on to Slide 6. And as expected, Welding faced a tough demand environment and year-over-year comparison of plus 10%, which resulted in a decline of 3% in Q1. Equipment declined 2% and Consumables were down 6%. Industrial sales declined 1% versus an 18% comparison and the commercial side was down 6%. By region, North America declined 3% against the comparison of plus 10% and International declined 8%. On a positive note, operating margin improved 80 basis points to 32.7% with a solid contribution from enterprise initiatives.
Organic revenue in Polymers & Fluids declined modestly as automotive aftermarket was down 2%, and both Fluids and Polymers were essentially flat in the quarter. On a geographic basis, North America declined 5% and International grew 5%, led by China. Operating margins improved 104 basis points to 25.8%.
Turning to Slide 7. Near-term demand trends in Construction Products continue to be challenging on a global basis as organic revenue declined 7% in Q1. North America was down 3% as the residential and renovation business was down 1%. And international markets remained soft as Europe was down 11% and Australia and New Zealand was down 12%. On a positive note, operating margin improved 190 basis points to 29.4%, driven primarily by another solid contribution from enterprise initiatives.
Finally, Specialty Products. Organic revenue growth was up 6% due primarily to the timing of large equipment orders in two European businesses. As a result, International was up 19% and North America was down 1%. As we have talked about before, we're working to reposition the Specialty segment for consistent above-market organic growth, which involves some strategic portfolio work and more significant product line simplification as we go forward. Operating margin improved 410 basis points to 29.7%, driven by operating leverage and a solid contribution from enterprise initiatives.
With that, let's move to Slide 8 for an update on our full year 2024 guidance. With Q1 results that were right in line with our expectations, we're solidly on track to deliver on our 2024 performance targets and guidance. Looking ahead and starting with the top line, we do see some positives in terms of stable demand, more favorable comparisons year-over-year as we move forward, a normalized pricing and inflationary environment, new product launches and no meaningful headwind from inventory destocking. Per our usual process, our organic growth guidance of 1% to 3% is based on current run rates adjusted for typical seasonality. Operating margin is expected to improve by 140 basis points at the midpoint to a range of 26% to 27%, which includes more than 100 basis points contribution from enterprise initiatives, and 50 basis points from the one-time item in Q1.
As I mentioned on our last call, every segment is projecting to improve their operating margin performance again in 2024 with another solid contribution from enterprise initiatives across the board. After-tax return on capital is expected to remain firmly above 30%, and we expect strong free cash flows again with conversion greater than net income.
As you saw this morning, we raised our full year GAAP EPS guidance to a new range of $10.30 to $10.70, which now includes $0.30 of EPS from the Q1 inventory accounting change. Setting that item aside, our operational guidance remains essentially unchanged as we expect a combined headwind of about $0.30 from higher interest expense, currency and income taxes with an expected tax rate in the range of 24% to 24.5%.
In terms of cadence for the year, we expect our first half, second half EPS split to be about 50-50 this year as we factor in the one-time item in the first quarter which compares to our typical split of 49-51, so slightly less back-end loaded than usual. To wrap things up, as expected, the ITW team continues to execute at a very high level in a challenging near-term demand environment, which we anticipate will improve as we go through the balance of the year based on current levels of demand and more favorable comparison. In addition, our first quarter results came in as expected, and we are solidly on track to deliver on our 2024 guidance. On a separate note, today is Karen Fletcher's last ITW earnings call. Over the last six years, Karen has been instrumental in articulating ITW's unique and differentiated competitive advantages and our plan to leverage them to their full potential to you the investment community in a clear and compelling manner. In doing so, she has helped us position ITW as one of the world's highest quality, best performing and most respected industrial companies. Please join Chris and me in thanking Karen, for her many contributions to ITW and wishing her all the best in retirement.
