Market Overview

ITW Delivers $1.97 Earnings per Share, up 17%

Share:
  • Total revenue was $3.8 billion, an increase of 7%; organic growth was 4%
  • Operating margin was 24.3%, an increase of 10 bps, 50 bps excluding 2017 legal settlement
  • Operating income was up 7% to $932 million, up 9% excluding the legal settlement
  • Full year guidance adjusted to reflect impact of currency translation in the second half 2018 based on current exchange rates.  Expect EPS in the range of $7.50 to $7.70 per share, up 15% versus prior year at the midpoint

GLENVIEW, Ill., July 23, 2018 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported second quarter 2018 GAAP earnings of $1.97 per share, a 17 percent increase compared to the year ago period.  As previously disclosed, the company recorded an EPS benefit of $0.03 per share related to a legal settlement in the second quarter of 2017.  Excluding this item, earnings per share increased 19 percent.  In addition, currency had a $0.03 negative impact to earnings per share versus guidance provided for the second quarter.

"ITW delivered another strong quarter with good growth momentum and excellent operational execution," said E. Scott Santi, Chairman and Chief Executive Officer.  "The company's ability to overcome near-term inflationary and currency challenges and generate four percent organic revenue growth, core operating earnings growth of nine percent, core EPS growth of 19 percent, and continue to expand margins is a direct result of the strength and resilience of the ITW Business Model and the dedicated team of ITW professionals around the world who leverage it to serve our customers and execute our strategy with excellence each and every day."       

Revenue was up seven percent with four percent organic growth. Operating income was $932 million in the quarter, an increase of seven percent, and operating margin was 24.3 percent, an increase of 10 basis points.  Excluding the second quarter 2017 legal settlement, operating income was up nine percent and operating margin increased 50 basis points.  Enterprise Initiatives contributed 110 basis points of margin improvement, more than offsetting 70 basis points of unfavorable price/cost impact.  Year-to-date on a dollar-for-dollar basis, pricing actions essentially offset the impact of raw material cost inflation.

All seven of the company's business segments delivered positive year on year organic revenue growth, led by Welding with 13 percent.  Organic growth of four percent was driven by five percent growth in North America.

After-tax return on invested capital was 28.7 percent, an improvement of 440 basis points, of which 400 basis points resulted from new U.S. tax rules and regulations.

In the second quarter, Free Cash Flow was $533 million, an increase of 38 percent. The company repurchased $500 million of its own shares.

2018 Guidance
Based on current foreign exchange rates, second half earnings per share are projected to have a $0.12 negative currency impact versus prior guidance.  ITW adjusted 2018 full-year EPS guidance to reflect this impact, and expects earnings in a range of $7.50 to $7.70 per share, or 15 percent growth at the midpoint.  The company also revised its outlook for operating margin to a range of 24 to 25 percent reflecting price/cost related margin dilution.  The company continues to expect to recover the impact of raw material cost increases through price actions on a dollar for dollar basis for the full year and as a result, expects the full year price/cost impact on the company's earnings per share to be neutral (as it was in the first half of 2018).  The company continues to expect organic growth of three to four percent, free cash flow at or above 100 percent of net income, and an effective tax rate of approximately 25 percent for the year.  The company now expects to repurchase $1.5 billion of its own shares in 2018.

For the third quarter 2018, the company expects earnings to be in the range of $1.80 to $1.90 per share, with revenue up two to three percent and organic growth of three to four percent.  As a reminder, prior year third quarter GAAP EPS of $1.85 included a $0.14 benefit from a legal settlement.  Excluding this item, adjusted EPS was $1.71 per share.

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, organic revenue growth, operating margin, price/cost impact, 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 2017 and subsequently filed Form 10-Qs.

About Illinois Tool Works
ITW (NYSE:ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.3 billion in 2017. 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 50,000 dedicated colleagues in operations around the world who thrive in the company's unique, decentralized and entrepreneurial culture.

www.itw.com

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


 
 
 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
 
  Three Months Ended   Six Months Ended
  June 30,   June 30,
In millions except per share amounts 2018   2017(1)   2018   2017(1)
Operating Revenue $ 3,831     $ 3,599     $ 7,575     $ 7,070  
Cost of revenue 2,231     2,087     4,412     4,090  
Selling, administrative, and research and development expenses 620     603     1,232     1,211  
Legal settlement (income)     (15 )       (15 )
Amortization and impairment of intangible assets 48     52     96     105  
Operating Income 932     872     1,835     1,679  
Interest expense (64 )   (65 )   (130 )   (129 )
Other income (expense) 26     12     38     18  
Income Before Taxes 894     819     1,743     1,568  
Income Taxes 228     232     425     445  
Net Income $ 666     $ 587     $ 1,318     $ 1,123  
               
Net Income Per Share:              
Basic $ 1.98     $ 1.70     $ 3.90     $ 3.25  
Diluted $ 1.97     $ 1.69     $ 3.87     $ 3.23  
               
Cash Dividends Per Share:              
Paid $ 0.78     $ 0.65     $ 1.56     $ 1.30  
Declared $ 0.78     $ 0.65     $ 1.56     $ 1.30  
               
Shares of Common Stock Outstanding During the Period:              
Average 336.7     344.7     338.5     345.4  
Average assuming dilution 338.9     347.5     340.8     348.3  

(1) The three and six months ended June 30, 2017 have been restated to reflect the adoption of new accounting guidance in 2018 which resulted in the presentation of $2 million and $4 million, respectively, of other net periodic benefit income in Other income (expense) rather than in Operating Income, with no change in Net Income.

 
 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
 
In millions June 30, 2018   December 31, 2017
Assets      
Current Assets:      
Cash and equivalents $ 1,628     $ 3,094  
Trade receivables 2,878     2,628  
Inventories 1,320     1,220  
Prepaid expenses and other current assets 293     336  
Total current assets 6,119     7,278  
       
Net plant and equipment 1,783     1,778  
Goodwill 4,675     4,752  
Intangible assets 1,177     1,272  
Deferred income taxes 595     505  
Other assets 1,174     1,195  
  $ 15,523     $ 16,780  
       
Liabilities and Stockholders' Equity      
Current Liabilities:      
Short-term debt $ 1,350     $ 850  
Accounts payable 623     590  
Accrued expenses 1,224     1,258  
Cash dividends payable 262     266  
Income taxes payable 88     89  
Total current liabilities 3,547     3,053  
       
Noncurrent Liabilities:      
Long-term debt 6,069     7,478  
Deferred income taxes 704     164  
Noncurrent income taxes payable 561     614  
Other liabilities 854     882  
Total noncurrent liabilities 8,188     9,138  
       
Stockholders' Equity:      
Common stock 6     6  
Additional paid-in-capital 1,231     1,218  
Retained earnings 20,633     20,210  
Common stock held in treasury (16,555 )   (15,562 )
Accumulated other comprehensive income (loss) (1,530 )   (1,287 )
Noncontrolling interest 3     4  
Total stockholders' equity 3,788     4,589  
  $ 15,523     $ 16,780  
 


 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
 
Three Months Ended June 30, 2018
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 879   $ 198   22.5%  
Food Equipment 553   140   25.4%  
Test & Measurement and Electronics 554   131   23.5%  
Welding 440   129   29.3%  
Polymers & Fluids 445   95   21.2%  
Construction Products 444   109   24.5%  
Specialty Products 522   146   28.1%  
Intersegment (6 )   —%  
Total Segments 3,831   948   24.7%  
Unallocated   (16 ) —%  
Total Company $ 3,831   $ 932   24.3%  


Six Months Ended June 30, 2018
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 1,780   $ 415   23.3%  
Food Equipment 1,080   270   25.0%  
Test & Measurement and Electronics 1,097   258   23.5%  
Welding 863   246   28.5%  
Polymers & Fluids 887   187   21.1%  
Construction Products 872   204   23.3%  
Specialty Products 1,007   276   27.4%  
Intersegment (11 )   —%  
Total Segments 7,575   1,856   24.5%  
Unallocated   (21 ) —%  
Total Company $ 7,575   $ 1,835   24.2%  


Q2 2018 vs. Q2 2017 Favorable/(Unfavorable)
                 
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and Electronics
Welding Polymers &
Fluids
Construction
Products
Specialty
Products
Total
ITW
Organic 2.8%   1.6%   3.9%   13.3%   0.9%   1.7%   4.0%   3.7%  
Acquisitions/
Divestitures
—%   —%   —%   —%   —%   —%   (0.1)%   —%  
Translation 4.4%   3.2%   2.8%   1.0%   0.8%   2.7%   2.6%   2.8%  
Operating
Revenue
7.2%   4.8%   6.7%   14.3%   1.7%   4.4%   6.5%   6.5%  


 
 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
 
Q2 2018 vs. Q2 2017 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 30 bps 100 bps 200 bps 20 bps 40 bps 70 bps 70 bps
                 
Changes in Variable
Margin & OH Costs
(40) bps (90) bps 120 bps (70) bps 20 bps (130) bps (60) bps
Total Organic  (60) bps  220 bps  200 bps  (50) bps  60 bps  (60) bps  10 bps
Acquisitions/
Divestitures
Restructuring/Other 20 bps (40) bps (60) bps 10 bps 30 bps (10) bps 40 bps
Total Operating
Margin Change
 20 bps  (100) bps  160 bps  210 bps  (20) bps  50 bps  (20) bps  10 bps
                 
Total Operating
Margin % *
22.5% 25.4% 23.5% 29.3% 21.2% 24.5% 28.1% 24.3%
                 
*Includes unfavorable
operating margin
impact of
amortization expense
from acquisition-
related intangible
assets
 50 bps  70 bps  270 bps 30 bps  370 bps  40 bps  100 bps  130 bps
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.11) on GAAP earnings per share for the second quarter of 2018.


1H 2018 vs 1H 2017 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
Welding Polymers &
Fluids
Construction
Products
Specialty
Products
Total ITW
Organic 1.9%   1.1%   5.7%   10.4%   0.6%   2.3%   2.3%   3.2%  
Acquisitions/
Divestitures
—%   —%   —%   —%   —%   —%   (0.2)%   —%  
Translation 6.1%   4.3%   4.1%   1.4%   2.1%   4.0%   3.6%   3.9%  
Operating
Revenue
8.0%   5.4%   9.8%   11.8%   2.7%   6.3%   5.7%   7.1%  


 
 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
 
1H 2018 vs. 1H 2017 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 30 bps 20 bps 150 bps 160 bps 20 bps 60 bps 50 bps 70 bps
Changes in Variable
Margin & OH
Costs
(60) bps (90) bps 110 bps (50) bps (50) bps (40) bps (90) bps (30) bps
Total Organic  (30) bps  (70) bps  260 bps  110 bps  (30) bps  20 bps  (40) bps  40 bps
Acquisitions/
Divestitures
Restructuring/Other 30 bps (10) bps (10) bps 40 bps (20) bps 20 bps 10 bps
Total Operating
Margin Change
 (80) bps  250 bps  110 bps  10 bps  (20) bps  50 bps
                 
Total Operating
Margin % *
23.3% 25.0% 23.5% 28.5% 21.1% 23.3% 27.4% 24.2%
                 
*Includes unfavorable
operating margin
impact of
amortization expense
from acquisition-
related intangible
assets
 50 bps  70 bps  270 bps  30 bps  370 bps  50 bps  110 bps  130 bps
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.21) on GAAP earnings per share for the first half of 2018.
 


 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
 
ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
 
  Three Months Ended   Six Months Ended   Twelve Months
Ended
  June 30,   June 30,   December 31,
Dollars in millions 2018   2017   2018   2017   2017
Operating income(1) $ 932     $ 872     $ 1,835     $ 1,679     $ 3,485  
Less: Legal settlement income     (15 )       (15 )   (95 )
Adjusted operating income 932     857     1,835     1,664     3,390  
Tax rate(2) 25.5 %   28.4 %   25.0 %   28.4 %   28.3 %
Income taxes (238 )   (243 )   (459 )   (472 )   (958 )
Operating income after taxes $ 694     $ 614     $ 1,376     $ 1,192     $ 2,432  
                   
Invested capital:                  
Trade receivables $ 2,878     $ 2,629     $ 2,878     $ 2,629     $ 2,628  
Inventories 1,320     1,199     1,320     1,199     1,220  
Net plant and equipment 1,783     1,726     1,783     1,726     1,778  
Goodwill and intangible assets 5,852     6,041     5,852     6,041     6,024  
Accounts payable and accrued expenses (1,847 )   (1,754 )   (1,847 )   (1,754 )   (1,848 )
Other, net (407 )   488     (407 )   488     21  
Total invested capital $ 9,579     $ 10,329     $ 9,579     $ 10,329     $ 9,823  
                   
Average invested capital $ 9,675     $ 10,105     $ 9,724     $ 9,942     $ 10,005  
Annualized return on average invested capital 28.7 %   24.3 %   28.3 %   24.0 %   24.3 %

(1) The 2017 results have been restated to reflect the adoption of new accounting guidance in 2018 related to the presentation of net periodic benefit costs. The adoption of this guidance resulted in the presentation of $9 million, $4 million and $2 million of other net periodic benefit income in Other income (expense) rather than in Operating Income for the full year 2017, first half 2017 and second quarter 2017, respectively, with no change in Net Income.

(2) The tax rate for the six months ended June 30, 2018 represents the estimated effective tax rate for the full year of 2018. The tax rate for the twelve months ended December 31, 2017 excludes the impact of the $658 million discrete tax charge related to the 2017 U.S. tax legislation.

ROIC for the three months ended June 30, 2018 was 28.7%, an improvement of 440 basis points, of which 400 basis points related to the new U.S. tax rules and regulations. ROIC for the six months ended June 30, 2018 was 28.3%, an improvement of 430 basis points, of which 380 basis points related to the new U.S. tax rules and regulations.

 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
 
FREE CASH FLOW (UNAUDITED)
 
  Three Months Ended   Six Months Ended
  June 30,   June 30,
Dollars in millions 2018   2017   2018   2017
Net cash provided by operating activities $ 620     $ 464     $ 1,158     $ 927  
Less: Additions to plant and equipment (87 )   (77 )   (181 )   (141 )
Free cash flow $ 533     $ 387     $ 977     $ 786  
 

IMPACT OF THE "TAX CUTS AND JOBS ACT" AND LEGAL SETTLEMENT ON 2017 RESULTS

Following the passing of the "Tax Cuts and Jobs Act" in the U.S., ITW recorded a one-time tax charge of $658 million in the fourth quarter of 2017. Additionally, as previously disclosed, ITW entered into a confidential legal settlement, resulting in a favorable one-time benefit of $95 million, of which $15 million was recognized in the second quarter of 2017 and $80 million was recognized in the third quarter of 2017. The following schedules illustrate the impact of these items on the Company's full year, first half and second quarter 2017 financial results:

 
    Full Year 2017
Dollars in millions   As
Reported(1)
Legal
Item
Tax
Charge
Ex. Items
Total Revenue   $14,314 $14,314
Operating Income   3,485 +$95 3,390
Operating Margin   24.3% +60 bps 23.7%
Tax Rate   48.4% +20.1%-pts 28.3%
Net Income   $1,687 +$59 ($658) $2,286
EPS   $4.86 +$0.17 ($1.90) $6.59


    First Half 2017   Second Quarter 2017
Dollars in millions   As
Reported(1)
Legal
Item
Ex. Legal
Item
  As
Reported(1)
Legal
Item
Ex. Legal
Item
Total Revenue   $7,070 $7,070   $3,599 $3,599
Operating Income   1,679 +$15 1,664   872 +$15 857
Operating Margin   23.7% +20 bps 23.5%   24.2% +40 bps 23.8%
EPS   $3.23 +$0.03 $3.20   $1.69 +$0.03 $1.66

(1) The 2017 results have been restated to reflect the adoption of new accounting guidance in 2018 related to the presentation of net periodic benefit costs. The adoption of this guidance resulted in the presentation of $9 million, $4 million and $2 million of other net periodic benefit income in Other income (expense) rather than in Operating Income for the full year 2017, first half 2017 and second quarter 2017, respectively, with no change in Net Income.

Primary Logo

View Comments and Join the Discussion!