Michael M. Larsen
Senior Vice President and Chief Financial Officer at Illinois Tool Works
Thank you, Chris, and good morning, everyone. In Q2, revenue declined 1%, with organic revenue down 0.1%, essentially flat year over year and a slight improvement from being down 0.6% in Q1. As Chris said, demand moderated sequentially as total company revenues grew 2% from the first quarter to the second quarter, a 0.1% below our historical run rate growth of 3%. Faced with moderating demand, the ITW team as usual did a great job in terms of reading and reacting to the environment and delivered record margin and profitability performance in the second quarter, as evidenced by 4.5% operating income growth and operating margins of 26.2%, an improvement of 140 basis points as enterprise initiatives where once again the largest margin and profitability driver contributing 140 basis points this quarter with more to come in the second half. GAAP EPS of $2.54 increased 2% or 5%, excluding a 2023 one-time tax item. Our free cash flow was $571 million, which was a 75% conversion of net income, slightly below our historical conversion in the 80% range as we continue to focus on reducing our inventory months on hand to pre-pandemic levels without impacting customer service levels.
We repurchased $375 million of our own shares during the quarter as planned, and the effective tax rate was 24.4% compared to 21.4% in the prior year, which lowered EPS by $0.10. In addition, foreign currency translation was approximately a $0.05 headwind year-over-year. In summary, strong execution and Q2 results as the impact of a moderating short cycle demand environment was offset by strong margin and profitability performance.
Please turn to Slide 4 for a look at organic growth by geography. The 2% decline in North America was an improvement over the first quarter's 3% decline. Europe grew 1% and Asia Pacific grew 3%, with China up 5%.
Moving on to segment results. The automotive OEM segment delivered flat organic growth in the second quarter against a tough comparison of plus 16% in the year ago quarter. North America was down 4%, Europe was down 2% and China was up 7%. In the first half, automotive bills were flat and our automotive OEM segment grew 2% above market. 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.
In our guidance, we have now factored in the most recent automotive bill projections, which have declined to negative 2% for the full year. As you may recall when we issued our initial guidance in February, automotive bills were expected to be flat for the year. On a positive note, this segment delivered strong operating margin performance of 19.4%, a 260 basis points improvement as we continue to work towards our goal of achieving operating margins in the low to mid 20s by 2026.
Turning to Slide 5. Food Equipment organic revenue grew 2.5% against the comparison of plus 7% in the second quarter of last year. Equipment grew 1% and service grew 5% against the comparison of plus 16% last year. By region, North America increased 2%, with service up 3%. Organic growth in the institutional market was up mid-single digits and the retail market was up high single digits. International revenue was up 3.5%, led by Europe.
As we talked about last quarter, the current margin performance reflects the fact that we're making focused capacity investments in the first half of 2024 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 3%, with continued softness in semiconductor, electronics and capex-sensitive end markets. Both Test & Measurement and Electronics were down 3% in the quarter.
Moving on to Slide 6. Welding was down 5% in Q2 as equipment declined 5% and Consumables were down 3%. By region, North America declined 6% with industrial sales down 7% and the commercial side down 6%. International grew 3% with some strength in Europe.
Operating margin was 32.9%, with a solid contribution from enterprise initiatives. Organic revenue in Polymers & Fluids increased 3%, led by Polymers, up 10% and Fluids was up 4%. Automotive aftermarket was down 2% in the quarter. On a geographic basis, North America declined 4% and international grew 13%. Operating margin of 28.2% improved more than 200 basis points.
Turning to Slide 7. Demand trends in Construction Products continue to be challenging on a global basis as organic revenue declined 4% in Q2 in a market that we believe is down in the mid-to-high single digits. North America was down 2% as the residential and renovation business was down 2% and commercial was down 9%. International markets remained soft as Europe was down 7% and Australia and New Zealand was down 4%.
Finally, Specialty Products had a strong quarter with organic revenue growth of 7% due to significant strength in our Aerospace Equipment division as well as pockets of increased demand across our portfolio. As a result, International was up 10% and North America was up 5%.
As previously discussed, results can be a bit choppy as we continue to work to reposition the Specialty segment for consistent above-market organic growth, including strategic portfolio work and more significant product line simplification, which included 230 basis points in Q2. Operating margin improved 590 basis points to 31.9%, with strong contributions from enterprise Initiatives and operating leverage.
With that, let's move to Slide 8 for an update on our full year 2024 guidance. Despite a challenging first half macro demand environment, the ITW team found a way to deliver solid operational and financial results, and excluding onetime items, we grew operating income 4% in the first half as margins improved by 130 basis points to 25.8% with 140 basis points from enterprise Initiatives. GAAP EPS was up 10%, up 5%, excluding onetime items.
Looking ahead to the second half in our updated guidance, we do not expect the short cycle demand environment to improve. Per usual process, we are adjusting our full year guidance in line with conditions on the ground as they exist today. Current run rates exiting Q2, adjusted for typical seasonality and the most recent automotive build forecast projected through the remainder of the year would result in approximately flat organic growth for the year, in markets that we believe are down in the low single digits.
This compares to a prior organic growth guidance of 1% to 3% and impacts EPS by approximately $0.25. The lower top line guidance is partially offset by stronger margin and profitability performance, which is expected to continue into the second half, including a significant contribution of more than 100 basis points from enterprise initiatives. As a result, we raised margin guidance to 26.5% to 27% as we continue to make solid progress towards our goal of 30% operating margin by 2030.
The higher margins impact EPS favorably by about $0.10. The net of these two factors, as you saw this morning, is that we lowered the top end of the range of our full year GAAP EPS guidance to a new range of $10.30 to $10.40, which is a reduction of $0.15 or 1% at the midpoint, from $10.50 to $10.35 with six months to go in the year.
To wrap things up, we delivered a solid Q2 and first half in a challenging demand environment, and we've updated our full year guidance per our usual process to reflect current levels of demand. Given the strength of our competitive advantages, the resilience of the ITW business model and our diversified high-quality portfolio, we're well positioned for whatever economic conditions emerge through the second half of the year.
With that, Erin, I'll turn it back to you.
