ITW Reports Third Quarter 2019 Results
October 25 2019 - 8:00AM
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 WorksITW (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
SUBSIDIARIESSTATEMENT 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
SUBSIDIARIESSTATEMENT 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
SUBSIDIARIESSEGMENT 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
SUBSIDIARIESGAAP 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 EndedDecember
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 RelationsIllinois Tool WorksKaren
FletcherTel: 224.661.7433investorrelations@itw.com |
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