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CST: 18/11/2019 17:52:43   

ITW Reports Third Quarter 2019 Results

24 Days ago

  • GAAP EPS of $2.04, +7% year-over-year
  • Operating Margin of 25.0%, +40 bps
  • Free Cash Flow +12%, 126% of net income
  • After-tax ROIC of 29.2%, +120 bps
  • Maintaining full-year EPS guidance range of $7.55 to $7.85

GLENVIEW, Ill., Oct. 25, 2019 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third-quarter 2019 results including GAAP earnings per share (EPS) of $2.04 compared to $1.90 in the third quarter of 2018. Foreign currency had a $0.05 negative impact to earnings per share versus the prior year.

“While the demand environment continued to moderate across a broad cross section of our portfolio, we delivered another solid quarter with excellent operational execution,” said E. Scott Santi, Chairman and Chief Executive Officer. “Our ability to overcome near-term macro challenges and deliver seven percent earnings per share growth, expand margins to 25 percent, and grow free cash flow by 12 percent is a direct result of our high quality business portfolio, the performance power of the ITW Business Model, and focused execution by our team of dedicated ITW professionals around the world,” Santi concluded.

Revenue of $3.5 billion was down 3.7 percent with unfavorable foreign currency translation impact of 1.8 percent and a decline in organic revenue of 1.7 percent.  The company’s ongoing Product Line Simplification (PLS) activities reduced organic growth by 60 basis points.  The third quarter 2019 benefited from one extra shipping day versus the prior year.  Adjusting for this impact, organic revenues declined 3.2 percent on an equal day basis versus a decline of 2.8 percent in the second quarter.

Operating margin was 25.0 percent as enterprise initiatives contributed 120 basis points.  Price/cost was favorable 20 basis points.  Free Cash Flow was $830 million, an increase of 12 percent versus the prior year and 126 percent of net income. In the quarter, the company repurchased $375 million of its own shares and raised its dividend seven percent to an annualized $4.28 per share.

After-tax return on invested capital was 29.2 percent, an improvement of 120 basis points.  The effective tax rate in the third quarter was 21.6 percent, and benefited from a $21 million or $0.07 EPS adjustment to the company’s estimated U.S. federal tax liability for tax year 2018.

2019 Full-Year Guidance

The company is maintaining its full-year GAAP EPS guidance of $7.55 to $7.85 per share, as compared to GAAP EPS of $7.60 in 2018.  Year-over-year headwinds from foreign currency translation impact and higher restructuring expenses are expected to impact 2019 EPS by approximately $0.30. The company expects organic revenue down one to three percent, and operating margin of approximately 24 percent.  Free cash flow is expected to exceed 100 percent of net income and the company is on pace to repurchase approximately $1.5 billion of its shares.

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   Nine Months Ended
  September 30,   September 30,
In millions except per share amounts 2019   2018   2019   2018
Operating Revenue $ 3,479     $ 3,613     $ 10,640     $ 11,188  
Cost of revenue 2,007     2,096     6,165     6,508  
Selling, administrative, and research and development expenses 566     581     1,775     1,813  
Amortization and impairment of intangible assets 38     47     122     143  
Operating Income 868     889     2,578     2,724  
Interest expense (52 )   (64 )   (170 )   (194 )
Other income (expense) 26     10     49     48  
Income Before Taxes 842     835     2,457     2,578  
Income Taxes 182     197     577     622  
Net Income $ 660     $ 638     $ 1,880     $ 1,956  
               
Net Income Per Share:              
Basic $ 2.05     $ 1.91     $ 5.79     $ 5.81  
Diluted $ 2.04     $ 1.90     $ 5.76     $ 5.77  
               
Cash Dividends Per Share:              
Paid $ 1.00     $ 0.78     $ 3.00     $ 2.34  
Declared $ 1.07     $ 1.00     $ 3.07     $ 2.56  
               
Shares of Common Stock Outstanding During the Period:              
Average 322.3     333.3     324.8     336.7  
Average assuming dilution 324.0     335.3     326.6     339.0  
                       


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

In millions September 30, 2019   December 31, 2018
Assets      
Current Assets:      
Cash and equivalents $ 1,825     $ 1,504  
Trade receivables 2,499     2,622  
Inventories 1,209     1,318  
Prepaid expenses and other current assets 292     334  
Assets held for sale 420      
Total current assets 6,245     5,778  
       
Net plant and equipment 1,693     1,791  
Goodwill 4,430     4,633  
Intangible assets 890     1,084  
Deferred income taxes 479     554  
Other assets 1,223     1,030  
  $ 14,960     $ 14,870  
       
Liabilities and Stockholders' Equity      
Current Liabilities:      
Short-term debt $     $ 1,351  
Accounts payable 493     524  
Accrued expenses 1,229     1,271  
Cash dividends payable 344     328  
Income taxes payable 61     68  
Liabilities held for sale 96      
Total current liabilities 2,223     3,542  
       
Noncurrent Liabilities:      
Long-term debt 7,643     6,029  
Deferred income taxes 716     707  
Noncurrent income taxes payable 462     495  
Other liabilities 946     839  
Total noncurrent liabilities 9,767     8,070  
       
Stockholders’ Equity:      
Common stock 6     6  
Additional paid-in-capital 1,286     1,253  
Retained earnings 22,104     21,217  
Common stock held in treasury (18,632 )   (17,545 )
Accumulated other comprehensive income (loss) (1,798 )   (1,677 )
Noncontrolling interest 4     4  
Total stockholders’ equity 2,970     3,258  
  $ 14,960     $ 14,870  
               


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

Three Months Ended September 30, 2019
Dollars in millions Total Revenue Operating Income Operating Margin
Automotive OEM $ 744   $ 164   22.1 %
Food Equipment 551   152   27.5 %
Test & Measurement and Electronics 512   130   25.6 %
Welding 402   113   28.2 %
Polymers & Fluids 418   101   24.1 %
Construction Products 416   105   25.1 %
Specialty Products 441   116   26.2 %
Intersegment (5 )   %
Total Segments 3,479   881   25.3 %
Unallocated   (13 ) %
Total Company $ 3,479   $ 868   25.0 %


Nine Months Ended September 30, 2019
Dollars in millions Total Revenue Operating Income Operating Margin
Automotive OEM $ 2,338   $ 505   21.6 %
Food Equipment 1,617   421   26.0 %
Test & Measurement and Electronics 1,569   387   24.7 %
Welding 1,251   355   28.4 %
Polymers & Fluids 1,261   287   22.8 %
Construction Products 1,241   298   24.0 %
Specialty Products 1,379   363   26.3 %
Intersegment (16 )   %
Total Segments 10,640   2,616   24.6 %
Unallocated   (38 ) %
Total Company $ 10,640   $ 2,578   24.2 %


Q3 2019 vs. Q3 2018 Favorable/(Unfavorable)
Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW
Organic (2.3 )% (0.7 )% (3.3 )% (1.6 )% 2.8 % (0.7 )% (4.7 )% (1.7 )%
Acquisitions/
Divestitures
% % % (0.8 )% 0.1 % % (0.8 )% (0.2 )%
Translation (2.4 )% (2.0 )% (1.4 )% (0.6 )% (2.1 )% (2.9 )% (1.6 )% (1.8 )%
Operating Revenue (4.7 )% (2.7 )% (4.7 )% (3.0 )% 0.8 % (3.6 )% (7.1 )% (3.7 )%


Q3 2019 vs. Q3 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 (40) bps (20) bps (100) bps (40) bps 60 bps (20) bps (100) bps (40) bps
Changes in Variable Margin & OH Costs 110 bps 80 bps 210 bps 20 bps 170 bps (40) bps 20 bps 80 bps
Total Organic 70 bps 60 bps 110 bps (20) bps 230 bps (60) bps (80) bps 40 bps
Acquisitions/
Divestitures
20 bps 10 bps
Restructuring/Other (10) bps 30 bps (20) bps (30) bps (10) bps 10 bps
Total Operating Margin Change 60 bps 90 bps 90 bps 200 bps (70) bps (60) bps 40 bps
                 
Total Operating Margin % * 22.1 % 27.5 % 25.6 % 28.2 % 24.1 % 25.1 % 26.2 % 25.0 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps 60 bps 180 bps 20 bps 360 bps 30 bps 100 bps 110 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.09) on GAAP earnings per share for the third quarter of 2019.


YTD 2019 vs YTD 2018 Favorable/(Unfavorable)
Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW
Organic (5.4 )% 0.9 % (1.7 )% (0.4 )% 0.7 % (0.9 )% (4.3 )% (2.0 )%
Acquisitions/
Divestitures
% % % (0.7 )% (0.6 )% % (0.6 )% (0.2 )%
Translation (3.3 )% (2.7 )% (2.3 )% (1.0 )% (3.2 )% (3.9 )% (2.0 )% (2.7 )%
Operating Revenue (8.7 )% (1.8 )% (4.0 )% (2.1 )% (3.1 )% (4.8 )% (6.9 )% (4.9 )%


YTD 2019 vs. YTD 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  10 bps  (50) bps  (10) bps  10 bps  (20) bps  (80) bps  (40) bps
Changes in Variable Margin & OH Costs  50 bps  50 bps  130 bps  140 bps  20 bps  (20) bps  60 bps
Total Organic  (50) bps  60 bps  80 bps  (10) bps  150 bps  (100) bps  20 bps
Acquisitions/
Divestitures
 20 bps  10 bps  20 bps
Restructuring/Other  (70) bps  (20) bps  (10) bps  (20) bps  (20) bps  (10) bps  (30) bps
Total Operating Margin Change  (120) bps  40 bps  80 bps  140 bps  (20) bps  (90) bps  (10) bps
                 
Total Operating Margin % * 21.6% 26.0% 24.7% 28.4% 22.8% 24.0% 26.3% 24.2%
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  50 bps  70 bps  220 bps  20 bps  350 bps  30 bps  100 bps  120 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.28) on GAAP earnings per share for the first nine months 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   Nine Months Ended
  September 30,   September 30,
Dollars in millions 2019   2018   2019   2018
Operating income $ 868     $ 889     $ 2,578     $ 2,724  
Adjusted tax rate 24.1 %   25.5 %   24.3 %   24.7 %
Income taxes (210 )   (227 )   (628 )   (674 )
Operating income after taxes $ 658     $ 662     $ 1,950     $ 2,050  
               
Invested capital:              
Trade receivables $ 2,499     $ 2,777     $ 2,499     $ 2,777  
Inventories 1,209     1,338     1,209     1,338  
Net assets held for sale 324         324      
Net plant and equipment 1,693     1,799     1,693     1,799  
Goodwill and intangible assets 5,320     5,785     5,320     5,785  
Accounts payable and accrued expenses (1,722 )   (1,844 )   (1,722 )   (1,844 )
Other, net (535 )   (494 )   (535 )   (494 )
Total invested capital $ 8,788     $ 9,361     $ 8,788     $ 9,361  
               
Average invested capital $ 9,007     $ 9,470     $ 9,083     $ 9,634  
Adjusted return on average invested capital 29.2 %   28.0 %   28.6 %   28.4 %


A reconciliation of the tax rate for the three and nine month periods ended September 30, 2019 excluding the third quarter 2019 discrete tax benefit of $21 million is as follows:

  Three Months Ended   Nine Months Ended
  September 30, 2019   September 30, 2019
Dollars in millions Income Taxes   Tax Rate   Income Taxes   Tax Rate
As reported $ 182   21.6 %   $ 577   23.5 %
Discrete tax benefit 21   2.5 %   21   0.8 %
As adjusted $ 203   24.1 %   $ 598   24.3 %


A reconciliation of the tax rate for the three and nine month periods ended September 30, 2018 excluding the third quarter 2018 net discrete tax benefit of $15 million is as follows:

  Three Months Ended   Nine Months Ended
  September 30, 2018   September 30, 2018
Dollars in millions Income Taxes   Tax Rate   Income Taxes   Tax Rate
As reported $ 197   23.7 %   $ 622   24.1 %
Net discrete tax benefit 15   1.8 %   15   0.6 %
As adjusted $ 212   25.5 %   $ 637   24.7 %


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

Dollars in millions Twelve Months Ended
December 31,
2018
Operating income $ 3,584  
Adjusted 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 2018 net discrete tax benefit of $15 million 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 %
           


FREE CASH FLOW (UNAUDITED)

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
Dollars in millions 2019   2018   2019   2018
Net cash provided by operating activities $ 920     $ 844     $ 2,221     $ 2,002  
Less: Additions to plant and equipment (90 )   (101 )   (244 )   (282 )
Free cash flow $ 830     $ 743     $ 1,977     $ 1,720  
               
Net income $ 660     $ 638     $ 1,880     $ 1,956  
Free cash flow to net income conversion rate 126 %   116 %   105 %   88 %


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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