ITW Reports Third Quarter 2020 Results
October 23 2020 - 8:00AM
Illinois Tool Works Inc. (NYSE: ITW) today reported its third
quarter 2020 results.
“We saw solid recovery progress in many of the
end markets we serve in the third quarter as evidenced by our
revenue being up sequentially 29 percent versus second
quarter. Our people around the world responded by leveraging
our proprietary business model to provide excellent service to our
customers while keeping themselves and their co-workers safe.
These efforts and our third quarter financial results support the
decisions we made early in the pandemic to provide full
compensation and benefits support to all of our ITW team members,
to focus on positioning the company for full participation in the
recovery, and to remain invested in the key initiatives supporting
the execution of our long-term enterprise strategy,” said E. Scott
Santi, chairman and chief executive officer. “I am very proud
of how the ITW team is managing through this challenging period,
and I thank all of my ITW colleagues around the world for their
continued exceptional efforts and dedication.”
“In the face of the unprecedented challenges and
circumstances brought about by the global pandemic, our strong
operational and financial performance over the last several
quarters provides further evidence that ITW is a company that has
both the enduring competitive advantages and the resilience
necessary to deliver consistent upper tier performance in any
economic environment. Looking ahead, we remain focused on
delivering strong results across a range of economic scenarios
while continuing to execute on our long-term strategy to achieve
and sustain ITW’s full-potential performance,” Santi concluded.
Third Quarter
ResultsThird-quarter revenue of $3.3 billion declined 4.9
percent compared to the prior year period as organic revenue
declined 4.6 percent. Divestitures reduced revenue by 1.0
percent, partially offset by a foreign currency translation benefit
of 0.7 percent. Product Line Simplification reduced revenue
by 30 basis points.
Operating margin was 23.8 percent compared to
25.0 percent in the prior year period as the lower volume impact
and higher restructuring expenses were partially offset with
benefits from Enterprise Initiatives of 120 basis points. Six
of seven segments delivered operating margin above 20 percent.
GAAP earnings per share was $1.83 compared to
$2.04 in the prior year period. Free cash flow was $631
million, 108 percent of net income. After-tax return on
invested capital improved to 29.6 percent compared to 29.2 percent
in the prior year period. The effective tax rate was 21.3
percent.
On May 5, 2020, ITW suspended annual guidance
for 2020 due to uncertainties regarding the duration and severity
of the COVID-19 pandemic. On August 7, 2020, ITW raised its
dividend seven percent to an annualized $4.56 per share.
Non-GAAP MeasuresThis 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 StatementThis
earnings release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements may include, without limitation, statements
regarding the potential effects of the COVID-19 pandemic, related
government actions and the Company’s strategy in response thereto
on the Company’s business, the anticipated duration of the
Company’s COVID-19 containment and recovery phases, the Company’s
fiscal 2020 financial performance projections and ranges, expected
access to liquidity sources, expected capital allocation, diluted
earnings per share, foreign exchange rates, total and organic
revenue, operating margin, economic and regulatory conditions in
various geographic regions, expected dividend payments, price/cost
impact, restructuring expenses, expected adjustments to capacity
and cost structure, free cash flow, effective tax rate, after-tax
return on invested capital, timing and amount of share repurchases,
if any, potential acquisitions and dispositions and related impact
on financial results, and plans regarding the issuance of
guidance. These statements are subject to certain risks,
uncertainties, assumptions 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 2019
and subsequent reports filed with the SEC.
About Illinois Tool WorksITW
(NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing
leader with revenues totaling $14.1 billion in 2019. 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’s approximately 45,000 dedicated
colleagues around the world thrive in the company’s 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 |
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Operating Revenue |
$ |
3,307 |
|
|
|
$ |
3,479 |
|
|
|
$ |
9,099 |
|
|
|
$ |
10,640 |
|
|
|
Cost of revenue |
1,910 |
|
|
|
2,007 |
|
|
|
5,375 |
|
|
|
6,165 |
|
|
|
Selling, administrative, and research and development expenses |
560 |
|
|
|
566 |
|
|
|
1,606 |
|
|
|
1,775 |
|
|
|
Amortization and impairment of intangible assets |
48 |
|
|
|
38 |
|
|
|
119 |
|
|
|
122 |
|
|
|
Operating Income |
789 |
|
|
|
868 |
|
|
|
1,999 |
|
|
|
2,578 |
|
|
|
Interest expense |
(52 |
) |
|
|
(52 |
) |
|
|
(154 |
) |
|
|
(170 |
) |
|
|
Other income (expense) |
2 |
|
|
|
26 |
|
|
|
35 |
|
|
|
49 |
|
|
|
Income Before Taxes |
739 |
|
|
|
842 |
|
|
|
1,880 |
|
|
|
2,457 |
|
|
|
Income Taxes |
157 |
|
|
|
182 |
|
|
|
413 |
|
|
|
577 |
|
|
|
Net Income |
$ |
582 |
|
|
|
$ |
660 |
|
|
|
$ |
1,467 |
|
|
|
$ |
1,880 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share: |
|
|
|
|
|
|
|
|
Basic |
$ |
1.84 |
|
|
|
$ |
2.05 |
|
|
|
$ |
4.63 |
|
|
|
$ |
5.79 |
|
|
|
Diluted |
$ |
1.83 |
|
|
|
$ |
2.04 |
|
|
|
$ |
4.61 |
|
|
|
$ |
5.76 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends Per Share: |
|
|
|
|
|
|
|
|
Paid |
$ |
1.07 |
|
|
|
$ |
1.00 |
|
|
|
$ |
3.21 |
|
|
|
$ |
3.00 |
|
|
|
Declared |
$ |
1.14 |
|
|
|
$ |
1.07 |
|
|
|
$ |
3.28 |
|
|
|
$ |
3.07 |
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock Outstanding During the Period: |
|
|
|
|
|
|
|
|
Average |
316.5 |
|
|
|
322.3 |
|
|
|
316.9 |
|
|
|
324.8 |
|
|
|
Average assuming dilution |
317.9 |
|
|
|
324.0 |
|
|
|
318.3 |
|
|
|
326.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESSTATEMENT OF FINANCIAL POSITION
(UNAUDITED)
|
In millions |
September 30, 2020 |
|
December 31, 2019 |
|
Assets |
|
|
|
|
Current Assets: |
|
|
|
|
Cash and equivalents |
$ |
2,169 |
|
|
|
$ |
1,981 |
|
|
|
Trade receivables |
2,494 |
|
|
|
2,461 |
|
|
|
Inventories |
1,149 |
|
|
|
1,164 |
|
|
|
Prepaid expenses and other current assets |
219 |
|
|
|
296 |
|
|
|
Assets held for sale |
— |
|
|
|
351 |
|
|
|
Total current assets |
6,031 |
|
|
|
6,253 |
|
|
|
|
|
|
|
|
Net plant and equipment |
1,736 |
|
|
|
1,729 |
|
|
|
Goodwill |
4,591 |
|
|
|
4,492 |
|
|
|
Intangible assets |
814 |
|
|
|
851 |
|
|
|
Deferred income taxes |
509 |
|
|
|
516 |
|
|
|
Other assets |
1,259 |
|
|
|
1,227 |
|
|
|
|
$ |
14,940 |
|
|
|
$ |
15,068 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
Current Liabilities: |
|
|
|
|
Short-term debt |
$ |
353 |
|
|
|
$ |
4 |
|
|
|
Accounts payable |
521 |
|
|
|
472 |
|
|
|
Accrued expenses |
1,263 |
|
|
|
1,217 |
|
|
|
Cash dividends payable |
361 |
|
|
|
342 |
|
|
|
Income taxes payable |
42 |
|
|
|
48 |
|
|
|
Liabilities held for sale |
— |
|
|
|
71 |
|
|
|
Total current liabilities |
2,540 |
|
|
|
2,154 |
|
|
|
|
|
|
|
|
Noncurrent Liabilities: |
|
|
|
|
Long-term debt |
7,592 |
|
|
|
7,754 |
|
|
|
Deferred income taxes |
671 |
|
|
|
668 |
|
|
|
Noncurrent income taxes payable |
413 |
|
|
|
462 |
|
|
|
Other liabilities |
1,027 |
|
|
|
1,000 |
|
|
|
Total noncurrent liabilities |
9,703 |
|
|
|
9,884 |
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
Common stock |
6 |
|
|
|
6 |
|
|
|
Additional paid-in-capital |
1,346 |
|
|
|
1,304 |
|
|
|
Retained earnings |
22,833 |
|
|
|
22,403 |
|
|
|
Common stock held in treasury |
(19,652 |
) |
|
|
(18,982 |
) |
|
|
Accumulated other comprehensive income (loss) |
(1,837 |
) |
|
|
(1,705 |
) |
|
|
Noncontrolling interest |
1 |
|
|
|
4 |
|
|
|
Total stockholders’ equity |
2,697 |
|
|
|
3,030 |
|
|
|
|
$ |
14,940 |
|
|
|
$ |
15,068 |
|
|
|
|
|
|
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESSEGMENT DATA (UNAUDITED)
|
Three Months Ended September 30, 2020 |
|
Dollars in millions |
Total Revenue |
Operating Income |
Operating Margin |
|
Automotive OEM |
$ |
714 |
|
|
$ |
149 |
|
|
20.8 |
% |
|
Food Equipment |
449 |
|
|
88 |
|
|
19.6 |
% |
|
Test & Measurement and Electronics |
489 |
|
|
116 |
|
|
23.7 |
% |
|
Welding |
346 |
|
|
96 |
|
|
27.9 |
% |
|
Polymers & Fluids |
438 |
|
|
116 |
|
|
26.6 |
% |
|
Construction Products |
456 |
|
|
128 |
|
|
28.1 |
% |
|
Specialty Products |
420 |
|
|
106 |
|
|
25.2 |
% |
|
Intersegment |
(5 |
) |
|
— |
|
|
— |
% |
|
Total Segments |
3,307 |
|
|
799 |
|
|
24.2 |
% |
|
Unallocated |
— |
|
|
(10 |
) |
|
— |
% |
|
Total Company |
$ |
3,307 |
|
|
$ |
789 |
|
|
23.8 |
% |
|
Nine Months Ended September 30, 2020 |
|
Dollars in millions |
Total Revenue |
Operating Income |
Operating Margin |
|
Automotive OEM |
$ |
1,771 |
|
|
$ |
266 |
|
|
15.0 |
% |
|
Food Equipment |
1,268 |
|
|
236 |
|
|
18.6 |
% |
|
Test & Measurement and Electronics |
1,429 |
|
|
354 |
|
|
24.8 |
% |
|
Welding |
1,016 |
|
|
269 |
|
|
26.5 |
% |
|
Polymers & Fluids |
1,185 |
|
|
291 |
|
|
24.6 |
% |
|
Construction Products |
1,222 |
|
|
309 |
|
|
25.3 |
% |
|
Specialty Products |
1,221 |
|
|
313 |
|
|
25.7 |
% |
|
Intersegment |
(13 |
) |
|
— |
|
|
— |
% |
|
Total Segments |
9,099 |
|
|
2,038 |
|
|
22.4 |
% |
|
Unallocated |
— |
|
|
(39 |
) |
|
— |
% |
|
Total Company |
$ |
9,099 |
|
|
$ |
1,999 |
|
|
22.0 |
% |
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESSEGMENT DATA (UNAUDITED)
|
Q3 2020 vs. Q3 2019 Favorable/(Unfavorable) |
|
Operating Revenue |
Automotive OEM |
Food Equipment |
Test & Measurement and Electronics |
Welding |
Polymers & Fluids |
Construction Products |
Specialty Products |
Total ITW |
|
Organic |
(4.8) |
% |
(19.5) |
% |
(2.4) |
% |
(10.0) |
% |
5.8 |
% |
7.6 |
% |
(4.7) |
% |
(4.6) |
% |
|
Acquisitions/Divestitures |
— |
% |
— |
% |
(3.0) |
% |
(4.3) |
% |
— |
% |
— |
% |
(0.8) |
% |
(1.0) |
% |
|
Translation |
0.7 |
% |
0.9 |
% |
1.1 |
% |
0.3 |
% |
(1.0) |
% |
2.0 |
% |
0.7 |
% |
0.7 |
% |
|
Operating Revenue |
(4.1) |
% |
(18.6) |
% |
(4.3) |
% |
(14.0) |
% |
4.8 |
% |
9.6 |
% |
(4.8) |
% |
(4.9) |
% |
|
Q3 2020 vs. Q3 2019 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 |
(490) bps |
(60) bps |
(180) bps |
130 bps |
150 bps |
(100) bps |
(100) bps |
|
Changes in Variable Margin & OH Costs |
120 bps |
(120) bps |
(140) bps |
120 bps |
150 bps |
180 bps |
(90) bps |
40 bps |
|
Total Organic |
30 bps |
(610) bps |
(200) bps |
(60) bps |
280 bps |
330 bps |
(190) bps |
(60) bps |
|
Acquisitions/Divestitures |
— |
— |
30 bps |
60 bps |
— |
— |
20 bps |
10 bps |
|
Restructuring/Other |
(160) bps |
(180) bps |
(20) bps |
(30) bps |
(30) bps |
(30) bps |
70 bps |
(70) bps |
|
Total Operating Margin Change |
(130) bps |
(790) bps |
(190) bps |
(30) bps |
250 bps |
300 bps |
(100) bps |
(120) bps |
|
|
|
|
|
|
|
|
|
|
|
Total Operating Margin % * |
20.8% |
19.6% |
23.7% |
27.9% |
26.6% |
28.1% |
25.2% |
23.8% |
|
|
|
|
|
|
|
|
|
|
|
*Includes unfavorable operating margin impact of amortization
expense from acquisition-related intangible assets |
50 bps |
80 bps |
440 bps |
10 bps |
310 bps |
20 bps |
90 bps |
150 bps ** |
|
** Amortization expense from acquisition-related intangible assets
had an unfavorable impact of ($0.11) on GAAP earnings per share for
the third quarter of 2020. |
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESSEGMENT DATA (UNAUDITED)
|
YTD 2020 vs. YTD 2019 Favorable/(Unfavorable) |
|
Operating Revenue |
Automotive OEM |
Food Equipment |
Test & Measurement and Electronics |
Welding |
Polymers & Fluids |
Construction Products |
Specialty Products |
Total ITW |
|
Organic |
(23.3) |
% |
(21.2) |
% |
(5.5) |
% |
(14.7) |
% |
(4.0) |
% |
(0.5) |
% |
(9.9) |
% |
(12.7) |
% |
|
Acquisitions/Divestitures |
— |
% |
— |
% |
(3.0) |
% |
(3.9) |
% |
— |
% |
— |
% |
(0.9) |
% |
(1.0) |
% |
|
Translation |
(0.9) |
% |
(0.4) |
% |
(0.4) |
% |
(0.2) |
% |
(2.0) |
% |
(1.0) |
% |
(0.7) |
% |
(0.8) |
% |
|
Operating Revenue |
(24.2) |
% |
(21.6) |
% |
(8.9) |
% |
(18.8) |
% |
(6.0) |
% |
(1.5) |
% |
(11.5) |
% |
(14.5) |
% |
|
YTD 2020 vs. YTD 2019 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 |
(530) bps |
(580) bps |
(150) bps |
(280) bps |
(90) bps |
(20) bps |
(220) bps |
(300) bps |
|
Changes in Variable Margin & OH Costs |
(180) bps |
(150) bps |
120 bps |
(10) bps |
230 bps |
100 bps |
30 bps |
30 bps |
|
Total Organic |
(710) bps |
(730) bps |
(30) bps |
(290) bps |
140 bps |
80 bps |
(190) bps |
(270) bps |
|
Acquisitions/Divestitures |
— |
— |
40 bps |
70 bps |
— |
— |
50 bps |
20 bps |
|
Restructuring/Other |
50 bps |
(10) bps |
— |
30 bps |
40 bps |
50 bps |
80 bps |
30 bps |
|
Total Operating Margin Change |
(660) bps |
(740) bps |
10 bps |
(190) bps |
180 bps |
130 bps |
(60) bps |
(220) bps |
|
|
|
|
|
|
|
|
|
|
|
Total Operating Margin % * |
15.0% |
18.6% |
24.8% |
26.5% |
24.6% |
25.3% |
25.7% |
22.0% |
|
|
|
|
|
|
|
|
|
|
|
*Includes unfavorable operating margin impact of amortization
expense from acquisition-related intangible assets |
60 bps |
80 bps |
270 bps |
20 bps |
340 bps |
20 bps |
90 bps |
130 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 2020. |
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESGAAP to NON-GAAP RECONCILIATIONS
(UNAUDITED)
AFTER-TAX RETURN ON AVERAGE INVESTED
CAPITAL (UNAUDITED)
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
September 30, |
|
September 30, |
|
Dollars in millions |
2020 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Operating income |
$ |
449 |
|
|
$ |
789 |
|
|
$ |
868 |
|
|
$ |
1,999 |
|
|
$ |
2,578 |
|
|
Tax rate |
21.3 |
% |
|
21.3 |
% |
|
24.1 |
% |
|
22.0 |
% |
|
24.3 |
% |
|
Income taxes |
(96) |
|
|
(168) |
|
|
(210) |
|
|
(439) |
|
|
(628) |
|
|
Operating income after taxes |
$ |
353 |
|
|
$ |
621 |
|
|
$ |
658 |
|
|
$ |
1,560 |
|
|
$ |
1,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invested capital: |
|
|
|
|
|
|
|
|
|
|
Trade receivables |
$ |
2,156 |
|
|
$ |
2,494 |
|
|
$ |
2,499 |
|
|
$ |
2,494 |
|
|
$ |
2,499 |
|
|
Inventories |
1,167 |
|
|
1,149 |
|
|
1,209 |
|
|
1,149 |
|
|
1,209 |
|
|
Net assets held for sale |
181 |
|
|
— |
|
|
324 |
|
|
— |
|
|
324 |
|
|
Net plant and equipment |
1,711 |
|
|
1,736 |
|
|
1,693 |
|
|
1,736 |
|
|
1,693 |
|
|
Goodwill and intangible assets |
5,244 |
|
|
5,405 |
|
|
5,320 |
|
|
5,405 |
|
|
5,320 |
|
|
Accounts payable and accrued expenses |
(1,508) |
|
|
(1,784) |
|
|
(1,722) |
|
|
(1,784) |
|
|
(1,722) |
|
|
Other, net |
(636) |
|
|
(527) |
|
|
(535) |
|
|
(527) |
|
|
(535) |
|
|
Total invested capital |
$ |
8,315 |
|
|
$ |
8,473 |
|
|
$ |
8,788 |
|
|
$ |
8,473 |
|
|
$ |
8,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average invested capital |
$ |
8,431 |
|
|
$ |
8,394 |
|
|
$ |
9,007 |
|
|
$ |
8,536 |
|
|
$ |
9,083 |
|
|
Return on average invested capital |
16.8 |
% |
|
29.6 |
% |
|
29.2 |
% |
|
24.4 |
% |
|
28.6 |
% |
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 related to a
U.S. federal provision to return adjustment 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 |
% |
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESGAAP to NON-GAAP RECONCILIATIONS
(UNAUDITED)
FREE CASH FLOW (UNAUDITED)
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
Dollars in millions |
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Net cash provided by operating activities |
$ |
683 |
|
|
$ |
920 |
|
|
$ |
2,034 |
|
|
$ |
2,221 |
|
|
Less: Additions to plant and equipment |
(52) |
|
|
(90) |
|
|
(168) |
|
|
(244) |
|
|
Free cash flow |
$ |
631 |
|
|
$ |
830 |
|
|
$ |
1,866 |
|
|
$ |
1,977 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
582 |
|
|
$ |
660 |
|
|
$ |
1,467 |
|
|
$ |
1,880 |
|
|
Free cash flow to net income conversion rate |
108 |
% |
|
126 |
% |
|
127 |
% |
|
105 |
% |
| |
|
|
| 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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