Michael M. Larsen
Senior Vice President & Chief Financial Officer at Illinois Tool Works
Thank you, Scott, and good morning, everyone. The demand growth that we've experienced all year continued into the fourth quarter as revenue grew 8% with organic growth of 12%. On an equal days' basis, organic growth was 14% as the fourth quarter of this year had one less shipping day compared to prior year. We finished the year with strong growth momentum as evidenced by our sequential organic revenue growth of plus 4% from Q3 into Q4 on a sales per day basis as compared to our historical sequential of plus 2%.
By geography, every major region grew double-digit with North America up 13%, Europe up 11% and China up 10%. Foreign currency translation headwind reduced revenue by 5% and the net impact from acquisitions and divestitures was plus 1%. GAAP EPS grew 53% to $2.95 and included $0.61 gain from two divestitures, which I'll provide more detail on in a moment. Excluding those gains, EPS increased 21% to $2.34, which included $0.12 of EPS headwind from foreign currency translation. So, on an apples-to-apples basis, eliminating both divestiture gains and currency headwind, EPS increased 27%.
On the bottom line, operating income grew 18% with strong incremental margin performance of 52% and operating margin improved 210 basis points to 24.8%. Operating margin in our base businesses excluding MTS was 25.2%. In the fourth quarter, we achieved favorable price/cost margin impact of 70 basis points and as Scott said, this was the first quarter with favorable margin impact from price/cost since the third quarter of 2020.
Enterprise initiatives contributed 110 basis points. As you saw in the press release, we completed two divestitures in the fourth quarter, resulting in a combined pre-tax gain on sale of $197 million recorded in non-operating income, and an EPS impact of $0.61. By utilizing capital loss carryforwards to offset taxes on the divestiture gains, the overall tax rate for the company was 19.1%. So, overall, for Q4, excellent operational execution across the board, strong financial performance in what remains a pretty uncertain and volatile environment.
Okay. Please turn to Slide 4, starting with our progress on organic growth. And as you know, we have been aggressively executing a very focused growth strategy to build consistent, above market organic growth into a core ITW strength on par with our operational 80/20 Front-to-Back capabilities. As you can see from the data on the left side of the slide, ITW's 12% organic growth rate for each of the last two years compares favorably to our proxy peers at about 9% both years. Suggesting that while we're not there yet in terms of realizing ITW's full potential organic growth performance, we're making some very solid progress.
Moving on to the segment results starting with Automotive OEM, which led the way with organic growth of 20%. Year-on-year revenue growth was, of course, helped by supply chain challenges in the industry last year. North America was up 15% and Europe grew 23%. China was up 17%, with particularly strong growth in electric vehicles. On a full year basis, ITW Automotive OEM revenues were up 12% versus 6% growth in car builds. Looking forward, we expect Automotive OEM to grow 5% to 7% in 2023 based on a risk adjusted auto build assumption in the low single-digits plus our typical penetration gains of 2% to 3%.
Turning to Slide 5. Food Equipment delivered another very strong quarter with organic growth of 17%. North America grew 25% with double-digit growth in all major categories and end-markets. Institutional was up more than 40% with strength across the board. Restaurants were up 30% and retail grew 20%. International revenue grew 7% with Europe up 9% and Asia Pacific was flat with some near-term softness in China. The Food Equipment team also delivered excellent progress on margins with Q4 operating margin of 27.6%, an increase of almost 500 basis points year-over-year.
So, obviously, strong momentum in this segment and we expect Food Equipment to grow 8% to 10% in 2023. Test & Measurement and Electronics revenue grew 15%, with organic growth of 10%. Test & Measurement grew 12% organic, excluding the acquisition of MTS with continued strong demand for capital equipment as evidenced by Instron, which grew 24%. Electronics was up 7%. While our semi-related businesses, which represent combined annual revenues of about $550 million or approximately 20% of the segment grew 17% in the quarter. We are beginning to see a slowdown in demand after three years of very strong growth. So, embedded in our 2023 organic growth projection of 2% to 4% for this segment is anticipated further slowing in semi-related end-markets.
Moving on to Slide 6. Welding delivered strong organic growth of 15% in Q4 with Equipment up 17% and Consumables up 13%. Industrial sales remained very strong with organic growth of 25%. On the commercial side, which is more consumer-oriented, demand continued to slow and organic growth was down 1%. On a geographic basis, North America grew 15% and International grew 17% driven by strength in the oil and gas business up 19%. Operating margin was up 160 basis points to 31.6%, a new record for the segment and for the company.
Looking-forward, we expect Welding to grow 5% to 7% in 2023, which include some anticipated further slowing on the commercial welding side. Polymers & Fluids delivered organic growth of 11% with the Automotive Aftermarket business up 13% with some seasonal strength in wiper blades. Polymers grew 11% with continued strength in industrial applications and Fluids was up 5%. North America grew 11% and International was up 10%. Looking-forward, we expect Polymers & Fluids to grow 3% to 5% in 2023, which is based on current levels of demand and anticipated further slowing in the more consumer-oriented Automotive Aftermarket business.
Turning to Slide 7. Overall demand in construction slowed to an organic growth rate of plus 4%. North America was still up 9% with residential up 11% and commercial construction was down 6% due to a tough comparison of plus 21% last year. Europe was up 3% and Australia New Zealand was down 4%. As you know, construction is our most interest-rate sensitive segment and we are projecting further slowing in 2023 and the negative organic growth rate of minus 5% to minus 3%. Specialty organic growth was 3% as supply chain shortages eased up in Q4 and the equipment businesses had a strong finish to the year with organic growth of 8%. Consumables were up 2% and on a geographic basis, North America grew 1% and International grew 7%.
Looking forward, we expect specialty organic revenue of negative 1% to plus 1% in 2023, which is based on current levels of demand and anticipated further slowing in the appliance components business.
So let's turn Slide 8 for a recap of a very strong 2022. As throughout the year our teams around the world did an exceptional job of delivering for our customers by responding quickly and decisively to rapidly rising input costs, navigating supply chain disruptions and aggressively executing our Win the Recovery strategy. As a result for the full year, ITW grew organic revenue by 12% with double-digit growth in five of seven segments. And despite significant price/cost margin pressures and thanks in part to 90 basis points contribution from our enterprise initiatives, our base business has expanded operating margin by 30 basis points to 24.4%.
GAAP EPS of $9.77 was a record for ITW with EPS growth of 15% on top of 28% EPS growth in 2021. Excluding divestiture gains and negative negative currency translation impact, EPS grew 12% in 2022 on an apples-to-apples basis. In 2022, we also invested more than $700 million to accelerate organic growth and to sustain productivity in our highly profitable core businesses. Raised our dividend 7%, marking the 59th year of consecutive increases, returned $3.3 billion to shareholders in the form of dividends and share repurchases and made solid progress on the integration of a very high quality acquisition in the MTS' Test & Simulation business. And most importantly, we delivered these results while continue having meaningful progress on our path to ITW's full potential through the execution of our long-term enterprise strategy.
So, let's move to Slide 9 for an update on our full year 2023 guidance. And while we certainly see some positives in terms of supply chains easing and moderating input costs inflation, there's also no doubt that the economic outlook and demand picture is becoming increasingly uncertain. On our last Q3 earnings call, we pointed to pockets of slowing demand in approximately 20% of our business portfolio, and today, we would add semiconductor related end-markets to the mix, bringing the total to about 25% of ITW's portfolio. In our view, it therefore made sense to take a more cautious approach to our top line guidance this year by basing it not just on current levels of demand adjusted for seasonality as we typically do, but rather anticipating further slowing in end-markets related to construction, commercial welding, auto aftermarket, appliances and semiconductor. As a result, our organic growth rate projection for 2023 of 3% to 5% is lower than our typical run rate approach.
Operating margin is expected to improve by 100 basis points or more to a range of 24.5% to 25.5%. This includes approximately 100 basis points contribution from enterprise initiatives and positive price/cost margin impact based on all known and implemented price and cost actions. After-tax return on invested capital should improve to 30% plus and we expect strong free cash flow with conversion greater than net income. For 2023, we expect GAAP EPS in the range of $9.40 to $9.80, which also includes $0.15 to $0.20 of higher interest expense on our short term debt and $0.25 of increased income tax expense as our tax rate will revert to our normal approximately 24% versus 22% in 2022 excluding the tax impacts from our divestitures
In terms of cadence for the year, we're now back to our typical first half, second half EPS split of 49% and 51%. Our capital allocation plans for 2023 are consistent with our longstanding disciplined capital allocation framework. Our top priority remains internal investments to support our organic growth initiatives and sustain our highly profitable core businesses. The second priority is an attractive dividend that grows in line with earnings over time, which remains a critical component of ITW's total shareholder return model. Third, selective, high-quality acquisitions such as MTS that enhance ITW's long-term profitable growth potential, that have significant margin improvement potential from the implication of our proprietary 80/20 Front-to-Back methodology and can generate acceptable risk adjusted returns on our shareholders' capital. And finally, surplus capital will be allocated to an active share repurchase program and we expect to buy back approximately $1.5 billion of our own shares in 2023.
Turn to our last slide, Slide 10 for our 2023 organic growth projections by segment, and you can see that we're expecting solid to mid -- solid mid-to-high single digit organic growth in four of our seven segments offsetting some lower growth rates in Test & Measurement and Electronics, which is due to semiconductor demand as well as in construction and specialty, resulting in an overall organic growth rate at the enterprise level of 3% to 5%, which is on top of 12% organic growth in each of the last two years.
Overall, we're heading into 2023 with strong momentum and we're very well positioned to continue to outperform in whatever economic conditions emerge as we move through 2023. So with that, Karen, I'll turn it back to you.
