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CST: 20/10/2019 21:27:35   

ITW Reports Second Quarter 2019 Results

86 Days ago

GLENVIEW, Ill., July 26, 2019 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its second-quarter 2019 results including GAAP earnings per share (EPS) of $1.91 compared to $1.97 in the second quarter of 2018. Revenue of $3.6 billion was down 5.8 percent with organic revenue down 2.8 percent and unfavorable foreign currency translation impact of 2.7 percent. Operating margin was 24.1 percent.

“In the second quarter, we experienced a deceleration in demand across our portfolio relative to the demand levels we were seeing exiting the first quarter. On a sequential basis, second quarter organic revenue declined approximately two percentage points versus first quarter run rates,” said E. Scott Santi, Chairman and Chief Executive Officer.

“In this more challenging demand environment, the ITW team executed well on the elements within our own control and delivered solid financial results. Operating margin improved year-over-year to 24.4 percent, excluding higher restructuring impact of 30 basis points, as enterprise initiatives contributed 110 basis points. The combination of unfavorable foreign currency translation, higher restructuring expenses and a small loss on two divestitures reduced EPS by $0.09 year-over-year. Excluding these three items, EPS would have increased two percent to $2.00. Free cash flow increased 14 percent year-on-year.”

“We are updating our full year guidance to reflect current levels of demand. All other assumptions remain essentially unchanged. We continue to expect a stronger second half on a relative basis, as known headwinds from foreign currency and higher restructuring expenses dissipate. We expect continued strong contributions from enterprise initiatives, positive price/cost margin dynamics, and strong free cash flow as we progress through the balance of the year. While we will be prudent in making appropriate adjustments due to the near-term demand environment, we remain focused on managing and investing to maximize ITW’s performance over the long term. The highly differentiated nature of ITW’s core competitive advantages and the strength and resilience of our proprietary business model and diversified portfolio position us well for strong financial performance across a wide range of economic scenarios,” Santi concluded.

Revenue of $3.6 billion was down 5.8 percent with organic revenue down 2.8 percent, unfavorable foreign currency translation impact of 2.7 percent, and divestiture impact of 0.3 percent. As expected, the company’s ongoing Product Line Simplification (PLS) activities reduced organic growth by 70 basis points. 

Operating margin was 24.1 percent. Excluding 30 basis points of unfavorable margin impact from higher year-over-year restructuring expenses, operating margin improved 10 basis points to 24.4 percent. Free Cash Flow increased 14 percent and the company repurchased $375 million of its own shares. After-tax return on invested capital was 28.6 percent.

2019 Full-Year Guidance
Current levels of demand, adjusted for normal seasonality, project full year organic revenue to be down one to three percent. As a result, the company is updating its full year GAAP EPS guidance to a range of $7.55 to $7.85, which includes approximately $0.25 of headwind from foreign currency translation and higher restructuring expenses. Operating margin is forecast to be flat to up 50 basis points, largely due to strong contributions from enterprise initiatives of 100 basis points, partially offset by 25 basis points of higher restructuring expenses. 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. The effective tax rate for the full year is expected to be in the range of 24 to 25 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   Six Months Ended
  June 30,   June 30,
In millions except per share amounts 2019   2018   2019   2018
Operating Revenue $ 3,609     $ 3,831     $ 7,161     $ 7,575  
Cost of revenue 2,099     2,231     4,158     4,412  
Selling, administrative, and research and development expenses 598     620     1,209     1,232  
Amortization and impairment of intangible assets 41     48     84     96  
Operating Income 871     932     1,710     1,835  
Interest expense (55 )   (64 )   (118 )   (130 )
Other income (expense) 9     26     23     38  
Income Before Taxes 825     894     1,615     1,743  
Income Taxes 202     228     395     425  
Net Income $ 623     $ 666     $ 1,220     $ 1,318  
               
Net Income Per Share:              
Basic $ 1.92     $ 1.98     $ 3.74     $ 3.90  
Diluted $ 1.91     $ 1.97     $ 3.72     $ 3.87  
               
Cash Dividends Per Share:              
Paid $ 1.00     $ 0.78     $ 2.00     $ 1.56  
Declared $ 1.00     $ 0.78     $ 2.00     $ 1.56  
               
Shares of Common Stock Outstanding During the Period:              
Average 324.8     336.7     326.0     338.5  
Average assuming dilution 326.6     338.9     327.9     340.8  
                       

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

In millions June 30, 2019   December 31, 2018
Assets      
Current Assets:      
Cash and equivalents $ 1,677     $ 1,504  
Trade receivables 2,629     2,622  
Inventories 1,256     1,318  
Prepaid expenses and other current assets 288     334  
Assets held for sale 439      
Total current assets 6,289     5,778  
       
Net plant and equipment 1,717     1,791  
Goodwill 4,503     4,633  
Intangible assets 928     1,084  
Deferred income taxes 516     554  
Other assets 1,234     1,030  
  $ 15,187     $ 14,870  
       
Liabilities and Stockholders' Equity      
Current Liabilities:      
Short-term debt $     $ 1,351  
Accounts payable 512     524  
Accrued expenses 1,207     1,271  
Cash dividends payable 323     328  
Income taxes payable 53     68  
Liabilities held for sale 93      
Total current liabilities 2,188     3,542  
       
Noncurrent Liabilities:      
Long-term debt 7,809     6,029  
Deferred income taxes 683     707  
Noncurrent income taxes payable 462     495  
Other liabilities 950     839  
Total noncurrent liabilities 9,904     8,070  
       
Stockholders’ Equity:      
Common stock 6     6  
Additional paid-in-capital 1,270     1,253  
Retained earnings 21,788     21,217  
Common stock held in treasury (18,276 )   (17,545 )
Accumulated other comprehensive income (loss) (1,697 )   (1,677 )
Noncontrolling interest 4     4  
Total stockholders’ equity 3,095     3,258  
  $ 15,187     $ 14,870  
               

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Three Months Ended June 30, 2019
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 788   $ 174   22.1 %
Food Equipment 548   140   25.6 %
Test & Measurement and Electronics 533   131   24.5 %
Welding 422   122   28.8 %
Polymers & Fluids 427   97   22.8 %
Construction Products 424   106   25.0 %
Specialty Products 473   124   26.1 %
Intersegment (6 )   %
Total Segments 3,609   894   24.8 %
Unallocated   (23 ) %
Total Company $ 3,609   $ 871   24.1 %
                 


Six Months Ended June 30, 2019
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 1,594   $ 341   21.4 %
Food Equipment 1,066   269   25.3 %
Test & Measurement and Electronics 1,057   257   24.3 %
Welding 849   242   28.5 %
Polymers & Fluids 843   186   22.1 %
Construction Products 825   193   23.4 %
Specialty Products 938   247   26.3 %
Intersegment (11 )   %
Total Segments 7,161   1,735   24.2 %
Unallocated   (25 ) %
Total Company $ 7,161   $ 1,710   23.9 %
                 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Q2 2019 vs. Q2 2018 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
Welding Polymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic (7.1 )% 1.7 % (1.3 )% (2.4 )% 0.1 % (0.7 )% (6.4 )% (2.8 )%
Acquisitions/
Divestitures
% % % (0.8 )% (0.8 )% % (0.8 )% (0.3 )%
Translation (3.3 )% (2.7 )% (2.3 )% (1.0 )% (3.2 )% (3.8 )% (2.1 )% (2.7 )%
Operating Revenue (10.4 )% (1.0 )% (3.6 )% (4.2 )% (3.9 )% (4.5 )% (9.3 )% (5.8 )%
                                 


Q2 2019 vs. Q2 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 (120) bps 40 bps (40) bps (40) bps 10 bps (20) bps (130) bps (60) bps
Changes in Variable Margin & OH Costs 90 bps 90 bps 10 bps 170 bps 60 bps (50) bps 60 bps
Total Organic  (30) bps  40 bps  50 bps  (30) bps  180 bps  40 bps  (180) bps
Acquisitions/
Divestitures
20 bps 20 bps 30 bps 10 bps
Restructuring/Other (10) bps (20) bps 50 bps (40) bps (40) bps 10 bps (50) bps (30) bps
Total Operating Margin Change  (40) bps  20 bps  100 bps  (50) bps  160 bps  50 bps  (200) bps  (20) bps
                 
Total Operating Margin % * 22.1 % 25.6 % 24.5 % 28.8 % 22.8 % 25.0 % 26.1 % 24.1 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  50 bps  70 bps  220 bps  30 bps  350 bps  30 bps  100 bps  120 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.09) on GAAP earnings per share for the second quarter of 2019.
 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

1H 2019 vs 1H 2018 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
Welding Polymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic (6.7 )% 1.7 % (0.9 )% 0.2 % (0.4 )% (1.0 )% (4.1 )% (2.2 )%
Acquisitions/
Divestitures
% % % (0.7 )% (0.9 )% % (0.4 )% (0.2 )%
Translation (3.7 )% (3.0 )% (2.7 )% (1.1 )% (3.7 )% (4.4 )% (2.4 )% (3.1 )%
Operating Revenue (10.4 )% (1.3 )% (3.6 )% (1.6 )% (5.0 )% (5.4 )% (6.9 )% (5.5 )%
                                 


1H 2019 vs. 1H 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 (110) bps 40 bps (30) bps 10 bps (10) bps (10) bps (90) bps (40) bps
Changes in Variable Margin & OH Costs 20 bps 40 bps 100 bps (10) bps 120 bps 50 bps (10) bps 50 bps
Total Organic  (90) bps  80 bps  70 bps  110 bps  40 bps  (100) bps  10 bps
Acquisitions/
Divestitures
20 bps 20 bps 20 bps 10 bps
Restructuring/Other (100) bps (50) bps 10 bps (20) bps (30) bps (30) bps (30) bps (50) bps
Total Operating Margin Change  (190) bps  30 bps  80 bps  100 bps  10 bps  (110) bps  (30) bps
                 
Total Operating Margin % * 21.4 % 25.3 % 24.3 % 28.5 % 22.1 % 23.4 % 26.3 % 23.9 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  50 bps  70 bps  240 bps  20 bps  350 bps  30 bps  100 bps  120 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.19) on GAAP earnings per share for the first half 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   Six Months Ended
  June 30,   June 30,
Dollars in millions 2019   2018   2019   2018
Operating income $ 871     $ 932     $ 1,710     $ 1,835  
Tax rate 24.5 %   25.5 %   24.5 %   25.2 %
Income taxes (213 )   (238 )   (418 )   (462 )
Operating income after taxes $ 658     $ 694     $ 1,292     $ 1,373  
               
Invested capital:              
Trade receivables $ 2,629     $ 2,878     $ 2,629     $ 2,878  
Inventories 1,256     1,320     1,256     1,320  
Net assets held for sale 346         346      
Net plant and equipment 1,717     1,783     1,717     1,783  
Goodwill and intangible assets 5,431     5,852     5,431     5,852  
Accounts payable and accrued expenses (1,719 )   (1,847 )   (1,719 )   (1,847 )
Other, net (433 )   (407 )   (433 )   (407 )
Total invested capital $ 9,227     $ 9,579     $ 9,227     $ 9,579  
               
Average invested capital $ 9,206     $ 9,675     $ 9,182     $ 9,724  
Adjusted return on average invested capital 28.6 %   28.7 %   28.1 %   28.2 %
                       

A reconciliation of the tax rate for the six month period ended June 30, 2018 excluding the first quarter 2018 discrete tax benefit related to foreign tax credits is as follows:

  Six Months Ended
  June 30, 2018
Dollars in millions Income Taxes   Tax Rate
As reported $ 425     24.4 %
Discrete tax benefit 14     0.8 %
As adjusted $ 439     25.2 %
             

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

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

Dollars 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
Dollars 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   Six Months Ended
  June 30,   June 30,
Dollars in millions 2019   2018   2019   2018
Net cash provided by operating activities $ 685     $ 620     $ 1,301     $ 1,158  
Less: Additions to plant and equipment (77 )   (87 )   (154 )   (181 )
Free cash flow $ 608     $ 533     $ 1,147     $ 977  
               
Net income $ 623     $ 666     $ 1,220     $ 1,318  
Free cash flow to net income conversion rate 98 %   80 %   94 %   74 %
                       

ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

  Three Months Ended
  June 30, 2019
As reported $ 1.91  
Foreign currency translation 0.06  
Higher restructuring expenses 0.02  
Loss on divestitures 0.01  
As adjusted $ 2.00  
       


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

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