Michael M. Larsen
Senior Vice President and Chief Financial Officer at Illinois Tool Works
Thank you, Chris, and good morning, everyone.
Organic growth in the third quarter was essentially flat and plus 2% on an equal days basis as Q3 this year had one less shipping day compared to Q3 last year. Foreign currency translation impact was favorable by 1.5% and divestitures reduced revenue by 1.2%. The net result was revenue growth of 0.5%. Third quarter operating margin was 26.5%, an increase of 200 basis points year-over-year as enterprise initiatives contributed 140 basis points and price cost margin impact was positive 210 basis points. GAAP EPS of $2.55 was up 9% and included $0.07 net of favorable corporate items on a year-over-year basis starting with unallocated expense, which improved by $43 million due to lower employee related expenses, including health and welfare and a one-time insurance recovery. This favorable item was partially offset by $16 million of lower other income, primarily due to lower investment income. As I said, the net effect of these two items was favorable $0.07 net per share.
Free cash flow grew 40% to $856 million, with a conversion to net income of 111% as we continue to make solid progress on returning to our normal historical inventory levels. We repurchased $375 million of our shares this quarter and raised our dividend by 7% to an annualized payout of $5.60 per share, which marks our 60th year of raising the dividend. In summary, Q3 was another quarter of strong operational execution and financial performance.
Turning to slide four, organic revenue growth by geography. As you can see, North America was down 2%, Europe was about flat, and Asia-Pacific was up 6%, with China up 8%, driven by the Automotive OEM segment. Excluding auto, China was down 1%.
Moving to the segments and starting with our Automotive OEM, organic growth was 4%. North America was down 5%, Europe was up 5% and China was up 18%. There was essentially no impact on Automotive OEM segment revenues from the auto strike in Q3. But as Chris noted, that will not be the case in Q4. As a reminder, our North American Automotive OEM business represents approximately 40% of total segment revenues. And within that 40%, approximately two-thirds of our annual sales are tied to D3 automotive customers. Included in our updated earnings guidance today is our estimate that the impact of the auto strike will reduce our Q4 earnings by $0.12 per share, which is essentially based on October D3 domestic production levels continuing through the remainder of the quarter.
Turning to slide five. Food Equipment delivered solid organic growth of 6% as Equipment was up 5% and Service grew 9%. North America grew 10%, with institutional sales up in the mid-teens, restaurants up high single digits and retail up in the high teens on the back of new product rollouts. Europe, however, was flat and Asia-Pacific was up 6%. In Test & Measurement and Electronics, organic revenue was down 4%, weighed down 6 percentage points by semiconductor-related demand, which represents about 15% of segments and for context, only 3% of ITW revenues. Overall, Test & Measurement grew 2% as demand for capex slowed in the quarter and Electronics declined 13%.
Moving on to slide six. Welding's organic revenue declined 2%, as Equipment revenue was down 3% on the back of softer demand for capex. Consumables were down 1% as industrial sales declined 9% versus a tough comparison of plus 30% last year. Commercial, however, was up 6% against an easier year-over-year comparison of down 10%. Overall, though North America revenue was down 3% and international was essentially flat. Polymers & Fluids, organic revenue grew 3% as automotive aftermarket grew 10% due to the launch of new products. Polymers was down 1% and Fluids was down 4%. Margins were solid as operating margin improved 280 basis points to 28.1%.
Turning to slide seven, organic revenue in Construction was down 2%, as North America grew 2%, with residential up 2% with some strength on the residential renovation side, which was up 7%. Commercial construction was down 2%. International markets were soft, with Europe down 8% and Australia-New Zealand down 4%. Margins were solid as operating margin improved 420 basis points to 29.9% with strong contributions from enterprise initiatives and price cost. Finally, Specialty Products, organic revenue was down 6%. North America was down 9% and international grew 1%. Consumables were down 9% and Equipment revenue, which represents about 20% of the segment, was up 9%.
Moving to slide eight and our updated full year 2023 guidance. As you saw this morning, we are narrowing the range of our GAAP EPS guidance to a new range of $9.65 to $9.85, which, as I mentioned earlier, includes a $0.12 adjustment for the estimated auto strike impact in Q4. Based on current levels of demand exiting Q3, including the estimated impact of the auto strike, we're projecting organic growth of 2% to 3% for the full year. We are raising our full year operating margin guidance to 25% to 25.5%, to reflect our stronger margin performance exiting the third quarter, and we expect that margins for the full year will improve by 150 basis points at the midpoint, including a contribution of more than 100 basis points from enterprise initiatives. We are projecting free cash flow conversion of more than 100% of net income for the year.
So while the overall demand environment clearly has some uncertainties in the near-term, inventory normalization, elevated interest rates, increasing capex caution and the auto strike just to mention a few, the entire team at ITW remains focused on leveraging ITW's unique strengths and capabilities to optimize our ability to continue to deliver differentiated long-term performance.
With that, Karen, I'll turn it back to you.
