Michael M. Larsen
Senior Vice President and Chief Financial Officer at Illinois Tool Works
Thank you, Scott, and good morning, everyone. In Q3, revenue grew 13% to $4 billion with strong organic growth of 16%. The MTS acquisition contributed 3% to revenue. Foreign currency translation was a 6% headwind compared to a 4% headwind last quarter. And despite $0.13 of year-over-year EPS headwind from foreign currency translation, GAAP EPS was $2.35, an increase of 16%. Excluding MTS, incremental margin in our base business was 39% which as Scott said was a welcome return to our normal historical incremental margin rates. As a result of our strong revenue and margin performance, operating income increased 16% to $983 million which was an all-time quarterly record.
Operating margin was 24.5% with operating leverage of almost 300 basis points and a 110 basis points of enterprise initiatives. Excluding 60 basis points of margin impact from the MTS acquisition, operating margin expanded 130 basis points to 25.1%. Free cash flow was solid at $612 million, an increase of 46% versus Q2 and 12% year-over-year. The conversion rate of 84% is lower than our typical Q3 performance as we remain committed in the near-term to intentional working capital investments to support double-digit organic growth, mitigate supply chain risk and sustained service levels to our key customers. Finally, share repurchases in Q3 were $500 million. And our effective tax rate was 24% versus 21% in the prior year.
With that, let's turn to Slide 4 and starting with organic growth by geography, we delivered growth in the mid-teens across all major geographies led by North America up 17%. Europe, which represents about 23% of our sales, grew 14% led by automotive OEM up 26% and food equipment up 15%. China grew 15% led by test and measurement and electronics up 32%. And automotive OEM was up 29%. Price-cost was accretive to income in Q3 and slightly dilutive by 40 basis points to margin. As we've said before, our business teams around the world have done an exceptional job of adjusting price to offset cost increases throughout the most significant inflationary cycle in over 40 years. And should the pace of raw material cost inflation continue to moderate, we expect price-cost to be accretive to income and slightly accretive to margin in Q4. As Scott mentioned throughout this unprecedented 2-year inflationary cycle, the company has absorbed as much as 250 basis-points of margin dilution impact from price-cost, which we expect to fully recover in the succeeding six to eight quarters after input prices stabilize.
Moving on to the segments. Automotive OEM delivered strong organic growth of 25% with North America up 21% and Europe up 26%. China was up 29% which included some sequential recovery from the lockdown impact in Q2. When looking at these year-over-year growth rates, keep in mind that the comparisons are against the Q3 last year when the chip shortage led to a low point for auto production. We continue to make-good progress on our content per vehicle growth as evidenced by our year-to-date organic growth rate of 9% compared to auto builds of 7% in line with our long-term market outgrowth target of two to three percentage points.
Consistent with our guidance all year, we do not expect a meaningful improvement in the chip shortage situation impacting automotive production until next year and we continue to take a more conservative approach to our guidance which assumes that automotive production essentially remains around current levels through the balance of this year. And as we've said before, as supply-chain issues eventually get resolved down the road, we remain confident that the automotive OEM segment is well positioned to be a very meaningful contributor to the overall organic growth rate of the enterprise for an extended period of time. And as that plays out, we also expect the utomotive OEM segment returns to its typical historical operating margin rates in the low-to mid 20s.
Turning to Slide 5. Food equipment delivered strong organic growth of 23% as North America grew 30% with double-digit growth in every major category and end market. Growth in institutional markets was 50% plus with strength across several categories, most notably lodging. Restaurants were up around 40% and retail growth was in the mid-teens. International revenue grew 14% with Europe up 15% and Asia-Pacific up 9%. Test and measurement and electronics revenue grew 29% with organic growth of 17% as test and measurement grew 20% and electronics was up 14%. Growth was broad based with continued strength in semiconductor and capex spending as evidenced by organic growth of 13% in the Instron business.
Moving on to Slide 6. Welding grew 14% organically with equipment up 13% and consumables up 15%. Industrial was the standout with organic growth of 32%. The commercial side of the welding business which sells to smaller businesses and individual users was down 10% due to lower demand and inventory destocking in the channel. However, due to the strength of the industrial side, North America still grew 14% and international grew 12%. Sales to oil and gas customers were up 12% in the quarter. Operating margin improved 150 basis points to 31.5%, which was a new record for the welding segment.
Polymers & Fluids grew 8% organically with polymers up 21% on continued strength in industrial applications. Softening demand due to higher gas prices and the impact on consumer discretionary spend impacted the automotive aftermarket business which was up 2%. Fluids was up 5% and overall North America grew 5%, international was up 14%. Construction delivered organic growth of 17% with continued strength in North America which was up 35%. U.S. residential grew 42% and commercial was up 17%. That said, we did see some signs of slowing towards the end of the quarter and we expect that to continue in Q4 which we have reflected in our updated guidance.
International side of construction is slowing with Europe down 1%. Australia and New Zealand was up 7% against an easy comparison. Specialty growth was essentially flat as product line simplification activities resulted in the elimination of a product line in one of our consumer packaging businesses. Excluding PLS, the segment would have been up 3%. Demand in our appliance components division slowed which we have reflected in our updated guidance.
On a geographic basis, North America was down 2% and international grew 4%.
Okay, let's turn to Slide 8 for an update on the year, and starting with the top-line, we're raising our full-year organic growth guidance to 11% to 12% due to the strength of our Q3 organic growth performance. And projecting current levels of demand which remained strong across most of our businesses. But we are also anticipating further slowing in the end markets we talked about including global residential construction, automotive aftermarket, commercial welding and appliance components that combined represent about 20% of total company revenue.
The MTS acquisition is expected to add 3% of revenue and at current exchange rates, currency translation will reduce revenue by 5%, resulting in total revenue for the year up 9% to 10%.
For Q4, we're well positioned to deliver a strong finish to a very strong year with organic growth of approximately 10% and GAAP EPS growth of about 40%. In Q4, and consistent with our previously announced plan to divest certain business units, we completed the sale of a division within the Polymers & Fluids segment with an estimated after tax gain of $0.45 per share. We have included this Q4 gain in our updated full-year guidance. And per our usual process, we have narrowed the range for the year with one quarter to go and updated our guidance to reflect current foreign exchange rates, which resulted in additional foreign currency headwind versus our prior guidance.
So as a result of including the gain on sale and updating guidance with current foreign exchange rates, our updated full-year GAAP EPS guidance range is USD9.45 to USD9.55. We are projecting operating margin of approximately 24% for the full year which includes. Approximately 100 basis points contribution from enterprise initiatives, about 200 basis points contribution from volume leverage, an estimated 100 basis points of negative margin impact from price-cost and about 50 basis points of margin dilution from the acquisition of MTS.
We expect free cash flow conversion of approximately 80% which as we've talked about is below our typical 100% plus conversion rate due to the intentional near-term working capital investments that support the company's double-digit revenue growth, mitigate supply chain risks and sustain customer service levels.
And finally, share repurchases are now expected to be $1.75 billion for the full year, an increase of $250 million versus prior guidance. Looking forward, we're obviously not immune to the macro challenges and uncertainties that may lie ahead. But through the execution of our enterprise strategy, we've positioned this company to deliver top-tier results in any environment as reflected in our differentiated performance at the depth of the pandemic and in a very dynamic and challenging conditions that have characterized recovery over the last two years.
We remain confident that the combination of the powerful competitive advantages we derive from ITW's proprietary business model, our high-quality business portfolio and our team's proven ability to consistently execute at a very high level help us well prepared to continue to outperform in whatever economic conditions emerge in 2023 and beyond.
With that Karen, I'll turn it back to you.
