ITW Reports Second Quarter 2020 Results

• Total revenue of $2.6 billion as organic revenue declined 27%
• Operating margin of 17.5%
• Operating income of $449 million
• GAAP EPS of $1.01
• Free cash flow of $681 million, 213% of net income

GLENVIEW, Ill., July 31, 2020 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. ITW today reported its second quarter 2020 results.

"Our performance in the second quarter clearly demonstrates that the progress we have made on executing our long-term enterprise strategy has put ITW in a position of considerable strength in managing through the effects of the global pandemic," said E. Scott Santi, chairman and chief executive officer.  "Our powerful ITW Business Model and decentralized, entrepreneurial culture are never more valuable than during times of significant and rapid change, and I want to thank all of my ITW colleagues around the world for their incredible care and commitment to keeping their co-workers safe while continuing to serve our customers with excellence.  Our people responded to an unprecedented health crisis and a 29 percent decline in revenues and still delivered $449 million in operating income, $681 million in free cash flow, and operating margin of 17.5 percent.  Strong proactive divisional leadership and our flexible cost structure allowed us to reduce operating expenses by over $140 million in the quarter despite the fact that we made the decision to provide full compensation and benefits support to every ITW team member for the entirety of the second quarter."

"Looking forward, while significant end-market disruption and uncertainties remain, we will continue to leverage our financial strength and ample liquidity to prioritize playing offense in the recovery over playing defense in the contraction and to ensure that every one of our businesses is strongly positioned to fully participate in the recovery.  Despite the near-term challenges of the moment, we remain deeply committed to achieving and sustaining ITW's full-potential performance, and we will utilize our financial strength and flexible cost structure to protect investments in areas of strategic importance to the execution of our long-term strategy.  I am confident that the strength and resilience of the ITW Business Model, our high-quality diversified business portfolio, and our people put us in a strong position to deal decisively and effectively with the effects of the pandemic however it plays out from here while remaining focused on executing our long-term enterprise strategy," Santi concluded.

Second Quarter Results

Second-quarter revenue of $2.6 billion declined 29 percent with organic revenue down 27 percent.  Foreign currency translation and divestitures reduced revenues by 1.5 percent and 1.0 percent, respectively.  Revenues improved sequentially as the quarter progressed.

Operating margin was 17.5 percent compared to 24.1 percent in the prior year period as the lower volume impact was partially offset by benefits from Enterprise Initiatives of 100 basis points.  GAAP earnings per share (EPS) were $1.01 compared to $1.91 in the prior year period.  Free cash flow increased 12 percent to $681 million with a 213 percent conversion rate.  After-tax return on invested capital was 16.8 percent.  The effective tax rate for the second quarter was 21.3 percent.

At quarter end, ITW had approximately $1.8 billion in cash and cash equivalents on hand, essentially no short-term debt and a revolving credit facility in place that could provide additional liquidity of up to $2.5 billion, if needed.

On May 5, 2020, ITW suspended annual guidance for 2020 due to uncertainties regarding the duration and severity of the COVID-19 pandemic.

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. 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 financial scenario planning and estimates, 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 Works
ITW 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

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