Michael M. Larsen
Senior Vice President and Chief Financial Officer at Illinois Tool Works
Thank you, Scott, and good morning, everyone. The strong growth momentum that we experienced in the third quarter continued into the fourth quarter as revenue grew 5.9% year-over-year to $3.7 billion with organic growth of 5.3%. The MTS acquisition added 1.3% and foreign currency translation impact reduced revenue by 0.7%. Sequentially, organic revenue accelerated by 6% from Q3 into Q4 on a sales per day basis as compared to our historical sequential of plus 2%.
By geography, North America grew 9% and International was up 1%. Europe declined 2% while Asia Pacific was up 7% with China up 2%. GAAP EPS of $1.93 included $0.02 of headwind from the MTS acquisition and related transaction costs. Operating margin was 22.7%, 23.1% excluding MTS. As expected in the fourth quarter, we experienced price cost margin headwinds of 200 basis points, the same as in the third quarter. Our businesses continue to respond appropriately and decisively to rising raw material costs and in the fourth quarter and the full year, we were positive on a dollar-for-dollar basis. Overall, for Q4 excellent operational execution across the board and strong financial performance in what remains a pretty uncertain and volatile environment.
Okay. Let's go to Slide 4 for segment results starting with Automotive OEM. As expected, organic revenue was down 16% with North America down 12%, Europe down 29%, and China down 3%. Despite these near-term pressures on the topline, operating margin was resilient and remain solidly in the mid-teens. While supply chain challenges continue to persist for the industry in the near term, we are confident that the inevitable recovery of the auto market will be a major contributor to organic growth for ITW over an extended period of time as these issues ultimately get resolved.
Food Equipment led the way this quarter with the highest organic growth rate inside the company at 21%. North America was up 22%, with equipment up 26% [Phonetic], and service up 15%. Institutional growth of 28% was particularly strong in education, and restaurants were up around 50%. International growth was strong and on par with North America at 20%, mostly driven by Europe up 23% with Asia Pacific up 9%. Both equipment and service grew 20%.
Turning to Slide 5 for Test & Measurement and Electronics. Organic growth was 11% with Electronics up 4%, and Test & Measurement up 17% driven by continuous strong demand for semiconductors and capital equipment as evidenced by organic growth rate of 17% in our Instron business. Scott said in December we closed on the MTS acquisition, which we're excited about as it's a great strategic fit for ITW and highly complementary to our Instron business. We acquired Instron in 2006 and today it is a business growing consistently at 6% to 7% organically with operating margins well above the company average. We're confident that MTS has the potential to reach similar levels of performance over the next five to seven years through the application of the ITW business model.
Moving to Slide 6. Welding delivered broad-based organic revenue growth of 15% with 30% operating margin in Q4. Equipment revenue grew 14% and consumables were up 16%. Industrial revenue grew 18% and the commercial business grew 8%. North America was up 15% and International growth was 14% driven by 18% growth in oil and gas. Polymers & Fluids organic growth was 3% with 8% growth in polymers with continued strength in MRO and heavy industry applications. Fluids was down 5% against the tough comp of plus 16% last year when demand for industrial hygiene products surged. Automotive aftermarket grew 4% with continued strength in retail.
On to Slide 7. Construction organic revenue was up 12% as North America grew 22% with residential renovation up 23% driven by continued strength in the home center channel. Commercial construction, which is about 20% of our business was up 21%. Europe grew 2% and Australia and New Zealand was up 10%. Specialty organic growth was strong at 7% with North America up 10% and International up 2%.
With that, let's go to Slide 8 for a summary of 2021. Operationally, the teams around the world continue to execute with discipline in a challenging environment as they sustain world-class customer service levels, implemented timely price adjustments in response to rapidly rising raw material costs, and executed on our Win the Recovery initiatives to accelerate organic growth across the portfolio. As a result, revenue grew 15% to $14.5 billion with broad-based organic growth of 12%, 14% if you exclude Auto OEM where growth was obviously very constrained due to component shortages at our customers.
Operating income increased 21% and operating margin was 24.1%. Incremental margin was 32%, which is below our typical 35% to 40% range due to price cost. Excluding the impact of price cost, incremental margin was 40%. GAAP EPS increased 28% and after-tax ROIC improved by more than 300 basis points to 29.5%. Free cash flow was $2.3 billion with a conversion rate of 84% of net income, which is below our 100%-plus long term target for free cash flow due to higher working capital investments to support the company's 15% revenue growth and the strategic decision that we have made to increase inventory levels on select key raw materials, components, and finished goods to help mitigate supply chain risks and sustain service levels to our key customers.
Moving to Slide 9 for our full year 2022 guidance. So we're heading into 2022 with strong momentum and the company is in a very good position to deliver another year of strong financial performance with organic growth of 6% to 9% and 10% to 15% earnings growth. Per our usual process, our organic growth guidance is established by projecting current levels of demand into the future and adjusting them for typical seasonality. As you can see by segment on the next page, every segment is positioned to deliver solid organic growth in 2022 with organic growth of 6% to 9% at the enterprise level. Our total revenue growth projection of 7.5% to 10.5% includes a 3% contribution from MTS partially offset by 1.5% of foreign currency headwind at today's exchange rates. Specific to MTS, guidance includes full year revenue of $400 million to $450 million the expectation that margins are dilutive at the enterprise level by approximately 50 basis points and finally, consistent with what we've said before, EPS neutral.
Operating margin excluding MTS is forecast to expand by about 100 basis points to 24.5% to 25.5% as enterprise initiatives contribute approximately 100 basis points. We expect price cost headwind of about 50 basis points. Incremental margin is expected to be about 30% including MTS and our core incremental margin excluding MTS is in our typical 35% to 40% range. We expect GAAP EPS in the range of $8.90 to $9.30, which is up 10% to 15% excluding one-time tax items from last year. The tax rate for 2022 is expected to be 23% to 24% as compared to 19% in 2021. We are forecasting solid free cash flow with a conversion rate of 90% to 100% of net income with further working capital investments to support the company's growth, mitigate supply chain risks, and sustain service levels to our key customers as needed.
Our capital allocation plans for 2022 are consistent with our longstanding disciplined capital allocation framework. Priority number one remains internal investments to support our organic growth efforts and sustain our highly profitable core businesses. Second, an attractive dividend that grows in line with earnings over time 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, have significant margin improvement potential from the application of our proprietary 80/20 front-to-back methodology and can generate acceptable risk-adjusted returns on our shareholders' capital.
Lastly, we allocate surplus capital to an active share repurchase program and we expect to buy back $1.5 billion of our own shares in 2022. In addition, we have reactivated our previously announced divestiture plans, and in 2022, we will reinitiate divestiture processes for five businesses with combined annual revenues of approximately $500 million. While these businesses are performing quite well coming out of the pandemic, they operate in markets where growth expectations are not aligned with ITW's long-term organic growth goals. When these divestitures are completed over the next 12 to 18 months, we expect approximately 50 basis points of lift to ITW's organic growth rate, and operating margins. Given the timing uncertainties associated with these divestiture transactions, 2022 guidance assumes we own them for the full year.
Finally, last slide is Slide 10 with the organic growth projections by segment. You can see that based on current run rates, we are expecting some solid organic growth rates in every one of our seven segments with organic growth of 6% to 9% at the enterprise level. For Automotive OEM, our guidance of 6% to 10% is based on a risk-adjusted forecast of automotive production in the mid-single digits plus our typical penetration gains of 2% to 3%.
With that, Karen, I'll turn it back to you.
