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CST: 19/08/2019 09:45:09   

ITW Delivers $1.81 Earnings per Share

116 Days ago

Reaffirms FY 2019 EPS Guidance of $7.90 to $8.20

GLENVIEW, Ill., April 25, 2019 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its first-quarter 2019 results including earnings per share (EPS) of $1.81 compared to $1.90 in the first quarter of 2018.  As expected, unfavorable foreign currency translation impact, higher restructuring costs and a higher effective tax rate reduced EPS by a combined $0.16 year-over-year.

“ITW had a solid start to 2019. We expanded operating margin to 24.3 percent, excluding the impact from accelerated restructuring, as enterprise initiatives contributed 100 basis points and price/cost was more favorable than expected.  We grew Free Cash Flow 21 percent, with conversion of 90 percent, well above our seasonal average.  After a slow start in January, sales trends improved across the board as the quarter progressed,” said E. Scott Santi, Chairman and Chief Executive Officer.  “Looking ahead, our view that continued contributions from enterprise initiatives, improving price/cost dynamics, restructuring benefits, more favorable sales and foreign currency comparisons, and stabilizing auto production in Europe and China will all contribute to a stronger operating environment in the back half of the year is unchanged.  As a result, we remain firmly on track to deliver on our full year EPS guidance.  As the ITW team continues to execute on our ‘Finish the Job’ agenda, I am confident that we will continue to deliver differentiated financial performance in 2019 and beyond.”

Revenue of $3.6 billion was down five percent, with an unfavorable foreign currency translation impact of 3.4 percent and organic revenue down 1.5 percent.  Excluding the impact of one less shipping day in the quarter, organic revenue was flat.  Organic revenue growth by segment was as follows:  Welding grew three percent, Food Equipment grew two percent; Test & Measurement/Electronics, Polymers & Fluids and Construction Products were down one percent, Specialty Products down two percent, and Automotive OEM down six percent.  As expected, the company’s ongoing Product Line Simplification (PLS) activities reduced organic revenue growth by 70 basis points.

Operating margin was 23.6 percent, as compared to 24.1 percent in the prior year.  Excluding 70 basis points of unfavorable margin impact due to higher restructuring expenses, operating margin improved 20 basis points to 24.3 percent. Strong execution on enterprise initiatives contributed 100 basis points of margin improvement and price/cost diluted margin by 10 basis points.  Free Cash Flow increased 21 percent to $539 million, with 90 percent conversion, and the company repurchased $375 million of its own shares.  After-tax return on invested capital was 27.7 percent.

2019 Guidance
The company is reaffirming its full-year EPS guidance of $7.90 to $8.20 per share, which represents four to eight percent growth year over year. Factoring in the slower start to the year, organic revenue growth is expected to be in the range of 0.5 to 2.5 percent. The company expects full-year operating margin to improve by approximately 100 basis points with enterprise initiatives contributing 100 basis points. Free cash flow is expected to be above 100 percent of net income, and the company is on pace to repurchase approximately $1.5 billion of its shares in 2019. The effective tax rate is expected to be 24.5 to 25.5 percent.

Non-GAAP Measures
This earnings release contains certain non-GAAP financial measures.  A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule.

Forward-looking Statement
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding diluted earnings per share, foreign exchange rates, total and organic revenue growth, operating margin, economic and regulatory conditions in various geographic regions, price/cost impact, restructuring expenses, free cash flow, effective tax rate, after-tax return on invested capital, and timing and amount of share repurchases.  These statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated.  Such factors include those contained in ITW's Form 10-K for 2018.

About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.8 billion in 2018. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW has approximately 48,000 dedicated colleagues in operations around the world who thrive in the company’s unique, decentralized and entrepreneurial culture.        www.itw.com

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)

  Three Months Ended
  March 31,
In millions except per share amounts 2019   2018
Operating Revenue $ 3,552     $ 3,744  
Cost of revenue 2,059     2,181  
Selling, administrative, and research and development expenses 611     612  
Amortization and impairment of intangible assets 43     48  
Operating Income 839     903  
Interest expense (63 )   (66 )
Other income (expense) 14     12  
Income Before Taxes 790     849  
Income Taxes 193     197  
Net Income $ 597     $ 652  
       
Net Income Per Share:      
Basic $ 1.82     $ 1.92  
Diluted $ 1.81     $ 1.90  
       
Cash Dividends Per Share:      
Paid $ 1.00     $ 0.78  
Declared $ 1.00     $ 0.78  
       
Shares of Common Stock Outstanding During the Period:      
Average 327.3     340.2  
Average assuming dilution 329.6     342.8  


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millions March 31,
2019
  December 31,
2018
Assets      
Current Assets:      
Cash and equivalents $ 1,755     $ 1,504  
Trade receivables 2,715     2,622  
Inventories 1,346     1,318  
Prepaid expenses and other current assets 259     334  
Total current assets 6,075     5,778  
       
Net plant and equipment 1,765     1,791  
Goodwill 4,621     4,633  
Intangible assets 1,044     1,084  
Deferred income taxes 547     554  
Other assets 1,274     1,030  
  $ 15,326     $ 14,870  
       
Liabilities and Stockholders' Equity      
Current Liabilities:      
Short-term debt $ 1,760     $ 1,351  
Accounts payable 568     524  
Accrued expenses 1,228     1,271  
Cash dividends payable 326     328  
Income taxes payable 79     68  
Total current liabilities 3,961     3,542  
       
Noncurrent Liabilities:      
Long-term debt 5,981     6,029  
Deferred income taxes 727     707  
Noncurrent income taxes payable 495     495  
Other liabilities 962     839  
Total noncurrent liabilities 8,165     8,070  
       
Stockholders’ Equity:      
Common stock 6     6  
Additional paid-in-capital 1,255     1,253  
Retained earnings 21,488     21,217  
Common stock held in treasury (17,911 )   (17,545 )
Accumulated other comprehensive income (loss) (1,642 )   (1,677 )
Noncontrolling interest 4     4  
Total stockholders’ equity 3,200     3,258  
  $ 15,326     $ 14,870  


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended March 31, 2019
 Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
 Automotive OEM $ 806   $ 167      20.6 %
 Food Equipment 518   129   24.9 %
 Test & Measurement and Electronics 524   126   24.1 %
 Welding 427   120   28.1 %
 Polymers & Fluids 416   89   21.3 %
 Construction Products 401   87   21.7 %
 Specialty Products 465   123   26.5 %
 Intersegment (5 )   %
 Total Segments 3,552   841   23.7 %
 Unallocated   (2 ) %
 Total Company $ 3,552   $ 839   23.6 %


Q1 2019 vs. Q1 2018 Favorable/(Unfavorable)
 Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and Electronics
Welding Polymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
 Organic      (6.4 )%      1.7  %      (0.5 )%      2.8  %    (0.8 )%     (1.4 )%    (1.5 )%    (1.5 )%
 Acquisitions/
 Divestitures
 %  %  % (0.5 )% (0.9 )%  %  % (0.2 )%
 Translation (4.1 )% (3.4 )% (3.1 )% (1.3 )% (4.3 )% (4.9 )% (2.8 )% (3.4 )%
 Operating Revenue (10.5 )% (1.7 )% (3.6 )% 1.0 % (6.0 )% (6.3 )% (4.3 )% (5.1 )%


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q1 2019 vs. Q1 2018 Favorable/(Unfavorable)
 Change in
 Operating Margin
Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
Welding Polymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
 Operating Leverage  (100) bps  40 bps  (10) bps  60 bps  (20) bps  (40) bps  (30) bps  (30) bps
 Changes in Variable
 Margin & OH Costs
 (60) bps  70 bps  100 bps  (30) bps  70 bps  60 bps    50 bps
 Total Organic  (160) bps  110 bps  90 bps  30 bps  50 bps  20 bps  (30) bps  20 bps
 Acquisitions/
 Divestitures
       10 bps  10 bps      
 Restructuring/Other  (190) bps  (80) bps  (20) bps    (20) bps  (70) bps  10 bps  (70) bps
 Total Operating
 Margin Change
 (350) bps  30 bps  70 bps  40 bps  40 bps  (50) bps  (20) bps  (50) bps
                 
 Total Operating
 Margin % *
20.6 % 24.9 % 24.1 % 28.1 % 21.3 % 21.7 % 26.5 % 23.6 %
                 
 *Includes unfavorable
 operating margin
 impact of
 amortization expense
 from acquisition-
 related intangible
 assets
 50 bps  70 bps  260 bps  30 bps  360 bps  40 bps  110 bps  130 bps **
 ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.10) on GAAP earnings per share for the first quarter of 2019.


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

  Three Months Ended
  March 31,
Dollars in millions 2019   2018
Operating income $ 839     $ 903  
Tax rate 24.4 %   24.8 %
Income taxes (205 )   (224 )
Operating income after taxes $ 634     $ 679  
       
Invested capital:      
Trade receivables $ 2,715     $ 2,874  
Inventories 1,346     1,335  
Net plant and equipment 1,765     1,829  
Goodwill and intangible assets 5,665     6,021  
Accounts payable and accrued expenses (1,796 )   (1,905 )
Other, net (509 )   (382 )
Total invested capital $ 9,186     $ 9,772  
       
Average invested capital $ 9,160     $ 9,797  
Adjusted return on average invested capital 27.7 %   27.7 %


A reconciliation of the first quarter 2018 effective tax rate excluding the first quarter discrete tax benefit related to foreign tax credits is as follows:

  Three Months Ended
  March 31, 2018
Dollars in millions Income Taxes   Tax Rate
As reported $ 197     23.2 %
Discrete tax benefit 14     1.6 %
As adjusted $ 211     24.8 %


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

In millions Twelve Months
Ended

December 31,
2018
Operating income $ 3,584  
Tax rate 24.9 %
Income taxes (893 )
Operating income after taxes $ 2,691  
   
Invested capital:  
Trade receivables $ 2,622  
Inventories 1,318  
Net plant and equipment 1,791  
Goodwill and intangible assets 5,717  
Accounts payable and accrued expenses (1,795 )
Other, net (519 )
Total invested capital $ 9,134  
   
Average invested capital $ 9,533  
Adjusted return on average invested capital 28.2 %


A reconciliation of the full year 2018 effective tax rate excluding the third quarter net discrete tax benefit is as follows:

  Twelve Months Ended
  December 31, 2018
In millions Income Taxes   Tax Rate
As reported $ 831     24.5 %
Net discrete tax benefit 15     0.4 %
As adjusted $ 846     24.9 %


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

FREE CASH FLOW (UNAUDITED)

  Three Months Ended
  March 31,
In millions 2019   2018
Net cash provided by operating activities $ 616     $ 538  
Less: Additions to plant and equipment (77 )   (94 )
Free cash flow $ 539     $ 444  
       
Net income $ 597     $ 652  
Free cash flow to net income conversion rate 90 %   68 %


Media Contact                                                       Investor Relations
Illinois Tool Works                                                   Illinois Tool Works
Trisha Knych                                                           Karen Fletcher
Tel: 224.661.7566                                                   Tel: 224.661.7433
mediarelations@itw.com                                         investorrelations@itw.com

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