ITW Reports Record Third Quarter 2016 Financial Results
October 20 2016 - 8:00AM
Illinois Tool Works Inc. (NYSE:ITW) today reported third quarter
2016 diluted earnings per share (EPS) of $1.50, an 8% increase
compared to the year-ago period. Currency translation reduced EPS
by $0.02 in the quarter. Operating margin increased 40 basis points
to 23.1%, including 80 basis points of margin dilution from the
third quarter 2016 acquisition of Engineered Fasteners &
Components (EF&C). Excluding the EF&C dilution impact,
third quarter operating margin was 23.9%. Operating income of $808
million was up 6%, and after-tax return on invested capital
increased by 140 basis points to 23%. Organic revenue increased 2%
and the company’s ongoing Product Line Simplification (PLS)
activities reduced organic revenue growth by approximately 1
percentage point.
"The ITW team delivered another quarter of quality execution and
earnings growth marked by all-time record operating income and
continued strong margin expansion driven by our Enterprise Strategy
initiatives. In addition, continued progress in executing our pivot
to growth in combination with our diversified portfolio of seven
highly differentiated businesses allowed us to deliver positive
organic growth in the third quarter despite a macro environment
that remains challenging,” said E. Scott Santi, Chairman and Chief
Executive Officer.
Third Quarter Highlights
- Total revenue was $3.5 billion, an increase of 4%. Organic
revenue grew 2% with 1% growth in North America and 3% in
International.
- Operating margin improved 40 basis points to 23.1%, an all-time
record for the company, as enterprise initiatives contributed 120
basis points. The acquisition of EF&C diluted operating margin
by 80 basis points. Excluding the EF&C dilution impact, third
quarter operating margin was 23.9%.
- Operating income grew 6% to an all-time quarterly record of
$808 million.
- GAAP EPS of $1.50 increased 8% due to strong margin
performance. Currency translation reduced EPS by $0.02 in the
quarter.
- After-tax return on invested capital was 23%, an all-time high
and an increase of 140 basis points.
- Free cash flow was solid at 101% of net income. Share
repurchases totaled $500 million and the company announced an 18%
dividend increase on August 5, 2016.
- Six of seven segments achieved positive organic revenue growth
as Automotive OEM and Test & Measurement/Electronics both grew
7%, Construction Products grew 2%, Polymers & Fluids and Food
Equipment Group both grew 1% and Specialty Products grew
0.1%. Welding declined by 9%.
- All seven segments achieved operating margin at or above 21%
with Food Equipment at 27.4%, Welding at 26.5%, Specialty Products
at 26.1%, Automotive OEM at 21.8% (25.5% excluding EF&C),
Construction at 22.6%, Test & Measurement/Electronics and
Polymers & Fluids both at 21%.
2016 Guidance
ITW is raising its 2016 full-year GAAP EPS guidance range to
$5.56 to $5.66, a year-over-year increase of 9% at the mid-point.
Consistent with prior guidance the full-year organic growth
forecast is 1 to 2% and includes approximately 1 percentage point
of PLS impact. Operating margin is forecast to exceed 22.5%.
For the fourth quarter 2016, the company expects GAAP EPS to be
in a range of $1.31 to $1.41, an increase of 11% at the mid-point.
Organic revenue is forecast to be 0 to 2%, and operating margin to
be approximately 21.5%. Guidance is based on current foreign
exchange rates.
Forward-looking StatementThis 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, organic revenue growth, the impact of product line
simplification activities and enterprise initiatives, operating
margin, after-tax return on invested capital and the expected
impact of acquisitions on financial results. 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 2015 and Form 10-Q for the second quarter of 2016.
About ITWITW (NYSE:ITW) is a Fortune 200 global
multi-industrial manufacturing leader with revenues totaling $13.4
billion in 2015. 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 more
than 51,000 dedicated colleagues in operations around the world who
thrive in the company’s unique decentralized and entrepreneurial
culture. To learn more about the company and the ITW Business
Model, visit 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 |
2016 |
|
2015 |
|
2016 |
|
2015 |
| Operating Revenue |
$ |
3,495 |
|
|
$ |
3,354 |
|
|
$ |
10,200 |
|
|
$ |
10,130 |
|
| Cost of revenue |
2,027 |
|
|
1,953 |
|
|
5,890 |
|
|
5,947 |
|
| Selling, administrative, and
research and development expenses |
604 |
|
|
581 |
|
|
1,818 |
|
|
1,819 |
|
| Amortization and impairment of
intangible assets |
56 |
|
|
59 |
|
|
170 |
|
|
176 |
|
| Operating Income |
808 |
|
|
761 |
|
|
2,322 |
|
|
2,188 |
|
| Interest expense |
(58 |
) |
|
(59 |
) |
|
(174 |
) |
|
(168 |
) |
| Other income (expense) |
13 |
|
|
23 |
|
|
34 |
|
|
65 |
|
| Income Before
Taxes |
763 |
|
|
725 |
|
|
2,182 |
|
|
2,085 |
|
| Income Taxes |
228 |
|
|
214 |
|
|
654 |
|
|
636 |
|
| Net Income |
$ |
535 |
|
|
$ |
511 |
|
|
$ |
1,528 |
|
|
$ |
1,449 |
|
| |
|
|
|
|
|
|
|
| Net Income Per
Share: |
|
|
|
|
|
|
|
| Basic |
$ |
1.51 |
|
|
$ |
1.40 |
|
|
$ |
4.28 |
|
|
$ |
3.92 |
|
| Diluted |
$ |
1.50 |
|
|
$ |
1.39 |
|
|
$ |
4.25 |
|
|
$ |
3.90 |
|
| |
|
|
|
|
|
|
|
| Cash Dividends Per
Share: |
|
|
|
|
|
|
|
| Paid |
$ |
0.55 |
|
|
$ |
0.485 |
|
|
$ |
1.65 |
|
|
$ |
1.455 |
|
| Declared |
$ |
0.65 |
|
|
$ |
0.55 |
|
|
$ |
1.75 |
|
|
$ |
1.52 |
|
| |
|
|
|
|
|
|
|
| Shares of Common Stock
Outstanding During the Period: |
|
|
|
|
|
|
|
| Average |
353.5 |
|
|
365.1 |
|
|
357.3 |
|
|
369.3 |
|
| Average assuming dilution |
355.5 |
|
|
367.1 |
|
|
359.3 |
|
|
371.6 |
|
| |
| ILLINOIS TOOL WORKS INC. and
SUBSIDIARIES |
| STATEMENT OF FINANCIAL POSITION
(UNAUDITED) |
| |
| In
millions |
September 30, 2016 |
|
December 31, 2015 |
|
Assets |
|
|
|
| Current Assets: |
|
|
|
| Cash and equivalents |
$ |
2,299 |
|
|
$ |
3,090 |
|
| Trade receivables |
2,496 |
|
|
2,203 |
|
| Inventories |
1,167 |
|
|
1,086 |
|
| Prepaid expenses and other current
assets |
223 |
|
|
341 |
|
| Total current assets |
6,185 |
|
|
6,720 |
|
| |
|
|
|
| Net plant and
equipment |
1,702 |
|
|
1,577 |
|
| Goodwill |
4,711 |
|
|
4,439 |
|
| Intangible assets |
1,480 |
|
|
1,560 |
|
| Deferred income
taxes |
467 |
|
|
346 |
|
| Other assets |
1,164 |
|
|
1,087 |
|
| |
$ |
15,709 |
|
|
$ |
15,729 |
|
| |
|
|
|
| Liabilities and
Stockholders' Equity |
|
|
|
| Current
Liabilities: |
|
|
|
| Short-term debt |
$ |
1,364 |
|
|
$ |
526 |
|
| Accounts payable |
582 |
|
|
449 |
|
| Accrued expenses |
1,180 |
|
|
1,136 |
|
| Cash dividends payable |
228 |
|
|
200 |
|
| Income taxes payable |
132 |
|
|
57 |
|
| Total current liabilities |
3,486 |
|
|
2,368 |
|
| |
|
|
|
| Noncurrent
Liabilities: |
|
|
|
| Long-term debt |
6,329 |
|
|
6,896 |
|
| Deferred income taxes |
131 |
|
|
256 |
|
| Other liabilities |
970 |
|
|
981 |
|
| Total noncurrent liabilities |
7,430 |
|
|
8,133 |
|
| |
|
|
|
| Stockholders’
Equity: |
|
|
|
| Common stock |
6 |
|
|
6 |
|
| Additional paid-in-capital |
1,174 |
|
|
1,135 |
|
| Income reinvested in the
business |
19,223 |
|
|
18,316 |
|
| Common stock held in treasury |
(14,147 |
) |
|
(12,729 |
) |
| Accumulated other comprehensive
income (loss) |
(1,468 |
) |
|
(1,504 |
) |
| Noncontrolling interest |
5 |
|
|
4 |
|
| Total stockholders’ equity |
4,793 |
|
|
5,228 |
|
| |
$ |
15,709 |
|
|
$ |
15,729 |
|
|
|
| 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 |
|
Twelve Months
EndedDecember 31, |
| |
September 30, |
|
September 30, |
|
| Dollars in
millions |
2016 |
|
2015 |
|
2016 |
|
2015 |
|
2015 |
| Operating income |
$ |
808 |
|
|
$ |
761 |
|
|
$ |
2,322 |
|
|
$ |
2,188 |
|
|
$ |
2,867 |
|
| Tax rate |
30.0 |
% |
|
29.6 |
% |
|
30.0 |
% |
|
30.5 |
% |
|
30.1 |
% |
| Income taxes |
(243 |
) |
|
(225 |
) |
|
(697 |
) |
|
(668 |
) |
|
(864 |
) |
| Operating income after
taxes |
$ |
565 |
|
|
$ |
536 |
|
|
$ |
1,625 |
|
|
$ |
1,520 |
|
|
$ |
2,003 |
|
| |
|
|
|
|
|
|
|
|
|
| Invested capital: |
|
|
|
|
|
|
|
|
|
| Trade receivables |
$ |
2,496 |
|
|
$ |
2,339 |
|
|
$ |
2,496 |
|
|
$ |
2,339 |
|
|
$ |
2,203 |
|
| Inventories |
1,167 |
|
|
1,153 |
|
|
1,167 |
|
|
1,153 |
|
|
1,086 |
|
| Net plant and equipment |
1,702 |
|
|
1,601 |
|
|
1,702 |
|
|
1,601 |
|
|
1,577 |
|
| Goodwill and intangible assets |
6,191 |
|
|
6,088 |
|
|
6,191 |
|
|
6,088 |
|
|
5,999 |
|
| Accounts payable and accrued
expenses |
(1,762 |
) |
|
(1,635 |
) |
|
(1,762 |
) |
|
(1,635 |
) |
|
(1,585 |
) |
| Other, net |
393 |
|
|
313 |
|
|
393 |
|
|
313 |
|
|
280 |
|
| Total invested
capital |
$ |
10,187 |
|
|
$ |
9,859 |
|
|
$ |
10,187 |
|
|
$ |
9,859 |
|
|
$ |
9,560 |
|
| |
|
|
|
|
|
|
|
|
|
| Average invested
capital |
$ |
9,973 |
|
|
$ |
10,038 |
|
|
$ |
9,821 |
|
|
$ |
10,039 |
|
|
$ |
9,943 |
|
| Adjustment for
Wilsonart (formerly the Decorative Surfaces segment) |
(116 |
) |
|
(121 |
) |
|
(114 |
) |
|
(126 |
) |
|
(123 |
) |
| Adjusted average
invested capital |
$ |
9,857 |
|
|
$ |
9,917 |
|
|
$ |
9,707 |
|
|
$ |
9,913 |
|
|
$ |
9,820 |
|
| |
|
|
|
|
|
|
|
|
|
| Adjusted return on
average invested capital |
23.0 |
% |
|
21.6 |
% |
|
22.3 |
% |
|
20.5 |
% |
|
20.4 |
% |
| FREE CASH FLOW |
| |
|
|
|
| |
Three Months Ended |
|
Nine Months Ended |
| |
September 30, |
|
September 30, |
| Dollars in
millions |
2016 |
|
2015 |
|
2016 |
|
2015 |
| Net cash provided by
operating activities |
$ |
624 |
|
|
$ |
706 |
|
|
$ |
1,638 |
|
|
$ |
1,596 |
|
| Less: Additions to
plant and equipment |
(81 |
) |
|
(62 |
) |
|
(202 |
) |
|
(209 |
) |
| Free cash flow |
$ |
543 |
|
|
$ |
644 |
|
|
$ |
1,436 |
|
|
$ |
1,387 |
|
| |
|
|
|
|
|
|
|
| Net income |
$ |
535 |
|
|
$ |
511 |
|
|
$ |
1,528 |
|
|
$ |
1,449 |
|
| Free cash flow to net
income conversion rate |
101 |
% |
|
126 |
% |
|
94 |
% |
|
96 |
% |
| |
| ILLINOIS
TOOL WORKS INC. and SUBSIDIARIES |
| SEGMENT DATA
(UNAUDITED) |
| |
| Three Months Ended September 30,
2016 |
|
Dollars in millions |
Total Revenue |
Operating Income |
Operating Margin |
|
Automotive OEM |
$ |
765 |
|
$ |
166 |
|
21.8 |
% |
|
Food Equipment |
544 |
|
149 |
|
27.4 |
% |
|
Test & Measurement and Electronics |
516 |
|
108 |
|
21.0 |
% |
|
Welding |
361 |
|
95 |
|
26.5 |
% |
|
Polymers & Fluids |
422 |
|
89 |
|
21.0 |
% |
|
Construction Products |
415 |
|
94 |
|
22.6 |
% |
|
Specialty Products |
477 |
|
125 |
|
26.1 |
% |
|
Intersegment |
(5 |
) |
— |
|
— |
% |
|
Total Segments |
3,495 |
|
826 |
|
23.7 |
% |
|
Unallocated |
— |
|
(18 |
) |
— |
% |
|
Total Company |
$ |
3,495 |
|
$ |
808 |
|
23.1 |
% |
| Nine Months Ended September 30,
2016 |
|
Dollars in millions |
Total Revenue |
Operating Income |
Operating Margin |
|
Automotive OEM |
$ |
2,091 |
|
$ |
512 |
|
24.5 |
% |
|
Food Equipment |
1,578 |
|
405 |
|
25.7 |
% |
|
Test & Measurement and Electronics |
1,487 |
|
274 |
|
18.4 |
% |
|
Welding |
1,125 |
|
282 |
|
25.1 |
% |
|
Polymers & Fluids |
1,283 |
|
266 |
|
20.7 |
% |
|
Construction Products |
1,223 |
|
278 |
|
22.7 |
% |
|
Specialty Products |
1,429 |
|
373 |
|
26.1 |
% |
|
Intersegment |
(16 |
) |
— |
|
— |
% |
|
Total Segments |
10,200 |
|
2,390 |
|
23.4 |
% |
|
Unallocated |
— |
|
(68 |
) |
— |
% |
|
Total Company |
$ |
10,200 |
|
$ |
2,322 |
|
22.8 |
% |
| ILLINOIS
TOOL WORKS INC. and SUBSIDIARIES |
| SEGMENT
DATA (UNAUDITED) |
| |
| Q3 2016 vs. Q3 2015
Favorable/(Unfavorable) |
|
Operating Revenue |
Automotive OEM |
Food Equipment |
Test & Measurement and
Electronics |
Welding |
Polymers & Fluids |
Construction Products |
Specialty Products |
Total ITW |
|
Organic |
6.6 |
% |
0.7 |
% |
6.6 |
% |
(8.5 |
)% |
0.8 |
% |
1.5 |
% |
0.1 |
% |
1.6 |
% |
|
Acquisitions/Divestitures |
19.2 |
% |
— |
% |
— |
% |
— |
% |
— |
% |
(0.2 |
)% |
— |
% |
3.5 |
% |
|
Translation |
(1.0 |
)% |
(2.0 |
)% |
(1.3 |
)% |
(0.4 |
)% |
(0.8 |
)% |
0.3 |
% |
(0.7 |
)% |
(0.9 |
)% |
|
Operating Revenue |
24.8 |
% |
(1.3 |
)% |
5.3 |
% |
(8.9 |
)% |
— |
% |
1.6 |
% |
(0.6 |
)% |
4.2 |
% |
| Q3 2016 vs. Q3 2015
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 |
90 bps |
10 bps |
190 bps |
(160) bps |
20 bps |
30 bps |
|
- |
|
30 bps |
|
Changes in Variable Margin & OH Costs |
(60) bps |
110 bps |
230 bps |
290 bps |
120 bps |
110 bps |
180 bps |
100 bps |
|
Total Organic |
30 bps |
120 bps |
420 bps |
130 bps |
140 bps |
140 bps |
180 bps |
130 bps |
|
Acquisitions/Divestitures |
(370) bps |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
(80) bps |
|
Restructuring/Other |
(20) bps |
(10) bps |
20 bps |
40 bps |
60 bps |
(190) bps |
30 bps |
(10) bps |
|
Total Operating Margin Change |
(360) bps |
110 bps |
440 bps |
170 bps |
200 bps |
(50) bps |
210 bps |
40 bps |
|
|
|
|
|
|
|
|
|
|
|
Total Operating Margin % * |
|
21.8 |
% |
|
27.4 |
% |
|
21.0 |
% |
|
26.5 |
% |
|
21.0 |
% |
|
22.6 |
% |
|
26.1 |
% |
|
23.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
*Includes unfavorable operating margin impact of amortization
expense from acquisition-related intangible assets |
80 bps |
80 bps |
360 bps |
60 bps |
430 bps |
60 bps |
140 bps |
170 bps |
| |
| ILLINOIS
TOOL WORKS INC. and SUBSIDIARIES |
| SEGMENT
DATA (UNAUDITED) |
| |
| YTD 2016 vs YTD 2015
Favorable/(Unfavorable) |
|
Operating Revenue |
Automotive OEM |
Food Equipment |
Test & Measurement and
Electronics |
Welding |
Polymers & Fluids |
Construction Products |
Specialty Products |
Total ITW |
|
Organic |
4.4 |
% |
2.8 |
% |
2.5 |
% |
(9.4 |
)% |
1.1 |
% |
3.1 |
% |
1.2 |
% |
1.2 |
% |
|
Acquisitions/Divestitures |
6.1 |
% |
— |
% |
— |
% |
— |
% |
(0.3 |
)% |
(0.2 |
)% |
— |
% |
1.1 |
% |
|
Translation |
(1.3 |
)% |
(1.8 |
)% |
(1.3 |
)% |
(1.0 |
)% |
(2.8 |
)% |
(1.7 |
)% |
(1.1 |
)% |
(1.6 |
)% |
|
Operating Revenue |
9.2 |
% |
1.0 |
% |
1.2 |
% |
(10.4 |
)% |
(2.0 |
)% |
1.2 |
% |
0.1 |
% |
0.7 |
% |
| YTD 2016 vs YTD 2015
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 |
60 bps |
60 bps |
70 bps |
(190) bps |
40 bps |
80 bps |
20 bps |
20 bps |
|
Changes in Variable Margin & OH Costs |
20 bps |
100 bps |
190 bps |
180 bps |
20 bps |
200 bps |
210 bps |
120 bps |
|
Total Organic |
80 bps |
160 bps |
260 bps |
(10) bps |
60 bps |
280 bps |
230 bps |
140 bps |
|
Acquisitions/Divestitures |
(140) bps |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
(10) bps |
|
- |
|
(20) bps |
|
Restructuring/Other |
10 bps |
40 bps |
|
- |
|
(80) bps |
10 bps |
10 bps |
40 bps |
|
- |
|
|
Total Operating Margin Change |
(50) bps |
200 bps |
260 bps |
(90) bps |
70 bps |
280 bps |
270 bps |
120 bps |
|
|
|
|
|
|
|
|
|
|
|
Total Operating Margin % * |
|
24.5 |
% |
|
25.7 |
% |
|
18.4 |
% |
|
25.1 |
% |
|
20.7 |
% |
|
22.7 |
% |
|
26.1 |
% |
|
22.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
*Includes unfavorable operating margin impact of amortization
expense from acquisition-related intangible assets |
40 bps |
80 bps |
390 bps |
90 bps |
430 bps |
60 bps |
150 bps |
170 bps |
| Total ITW Operating Revenue |
|
Operating Revenue |
YTD 2016 |
Full Year 2015 |
Favorable/(Unfavorable) |
|
Organic |
1.2 |
% |
(0.4 |
)% |
160 bps |
|
Acquisitions/Divestitures |
1.1 |
% |
(0.2 |
)% |
130 bps |
|
Translation |
(1.6 |
)% |
(6.8 |
)% |
520 bps |
|
Operating Revenue |
0.7 |
% |
(7.4 |
)% |
810 bps |
Investors Contact: Mike Drazin 224.661.7433 mdrazin@itw.com
Media Contact: Mallory Ramp 224.661.7431 mramp@itw.com
Illinois Tool Works (NYSE:ITW)
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