25/04/2019 13:00:00

ITW Delivers $1.81 Earnings per Share

GLENVIEW, Ill., April 25, 2019 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its first-quarter 2019 results including earnings per share (EPS) of $1.81 compared to $1.90 in the first quarter of 2018.  As expected, unfavorable foreign currency translation impact, higher restructuring costs and a higher effective tax rate reduced EPS by a combined $0.16 year-over-year.

“ITW had a solid start to 2019. We expanded operating margin to 24.3 percent, excluding the impact from accelerated restructuring, as enterprise initiatives contributed 100 basis points and price/cost was more favorable than expected.  We grew Free Cash Flow 21 percent, with conversion of 90 percent, well above our seasonal average.  After a slow start in January, sales trends improved across the board as the quarter progressed,” said E. Scott Santi, Chairman and Chief Executive Officer.  “Looking ahead, our view that continued contributions from enterprise initiatives, improving price/cost dynamics, restructuring benefits, more favorable sales and foreign currency comparisons, and stabilizing auto production in Europe and China will all contribute to a stronger operating environment in the back half of the year is unchanged.  As a result, we remain firmly on track to deliver on our full year EPS guidance.  As the ITW team continues to execute on our ‘Finish the Job’ agenda, I am confident that we will continue to deliver differentiated financial performance in 2019 and beyond.”

Revenue of $3.6 billion was down five percent, with an unfavorable foreign currency translation impact of 3.4 percent and organic revenue down 1.5 percent.  Excluding the impact of one less shipping day in the quarter, organic revenue was flat.  Organic revenue growth by segment was as follows:  Welding grew three percent, Food Equipment grew two percent; Test & Measurement/Electronics, Polymers & Fluids and Construction Products were down one percent, Specialty Products down two percent, and Automotive OEM down six percent.  As expected, the company’s ongoing Product Line Simplification (PLS) activities reduced organic revenue growth by 70 basis points.

Operating margin was 23.6 percent, as compared to 24.1 percent in the prior year.  Excluding 70 basis points of unfavorable margin impact due to higher restructuring expenses, operating margin improved 20 basis points to 24.3 percent. Strong execution on enterprise initiatives contributed 100 basis points of margin improvement and price/cost diluted margin by 10 basis points.  Free Cash Flow increased 21 percent to $539 million, with 90 percent conversion, and the company repurchased $375 million of its own shares.  After-tax return on invested capital was 27.7 percent.

2019 Guidance

The company is reaffirming its full-year EPS guidance of $7.90 to $8.20 per share, which represents four to eight percent growth year over year. Factoring in the slower start to the year, organic revenue growth is expected to be in the range of 0.5 to 2.5 percent. The company expects full-year operating margin to improve by approximately 100 basis points with enterprise initiatives contributing 100 basis points. Free cash flow is expected to be above 100 percent of net income, and the company is on pace to repurchase approximately $1.5 billion of its shares in 2019. The effective tax rate is expected to be 24.5 to 25.5 percent.

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 Works

ITW (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 SUBSIDIARIES

STATEMENT OF INCOME (UNAUDITED)

 

Three Months Ended

 

March 31,

In millions except per share amounts

2019

 

2018

Operating Revenue$3,552  $3,744 
Cost of revenue2,059  2,181 
Selling, administrative, and research and development expenses611  612 
Amortization and impairment of intangible assets43  48 
Operating Income839  903 
Interest expense(63) (66)
Other income (expense)14  12 
Income Before Taxes790  849 
Income Taxes193  197 
Net Income$597  $652 
    
Net Income Per Share:   
Basic$1.82  $1.92 
Diluted$1.81  $1.90 
    
Cash Dividends Per Share:   
Paid$1.00  $0.78 
Declared$1.00  $0.78 
    
Shares of Common Stock Outstanding During the Period:   
Average327.3  340.2 
Average assuming dilution329.6  342.8 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millions

March 31,

2019

 

December 31,

2018

Assets

   
Current Assets:   
Cash and equivalents$1,755  $1,504 
Trade receivables2,715  2,622 
Inventories1,346  1,318 
Prepaid expenses and other current assets259  334 
Total current assets6,075  5,778 
    
Net plant and equipment1,765  1,791 
Goodwill4,621  4,633 
Intangible assets1,044  1,084 
Deferred income taxes547  554 
Other assets1,274  1,030 
 $15,326  $14,870 
    

Liabilities and Stockholders' Equity

   
Current Liabilities:   
Short-term debt$1,760  $1,351 
Accounts payable568  524 
Accrued expenses1,228  1,271 
Cash dividends payable326  328 
Income taxes payable79  68 
Total current liabilities3,961  3,542 
    
Noncurrent Liabilities:   
Long-term debt5,981  6,029 
Deferred income taxes727  707 
Noncurrent income taxes payable495  495 
Other liabilities962  839 
Total noncurrent liabilities8,165  8,070 
    
Stockholders’ Equity:   
Common stock6  6 
Additional paid-in-capital1,255  1,253 
Retained earnings21,488  21,217 
Common stock held in treasury(17,911) (17,545)
Accumulated other comprehensive income (loss)(1,642) (1,677)
Noncontrolling interest4  4 
Total stockholders’ equity3,200  3,258 
 $15,326  $14,870 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended March 31, 2019

 Dollars in millions

Total

Revenue

Operating

Income

Operating

Margin

 Automotive OEM$806 $167    20.6%
 Food Equipment518 129 24.9%
 Test & Measurement and Electronics524 126 24.1%
 Welding427 120 28.1%
 Polymers & Fluids416 89 21.3%
 Construction Products401 87 21.7%
 Specialty Products465 123 26.5%
 Intersegment(5) %

 Total Segments

3,552

 

841

 

23.7

%

 Unallocated (2)%

 Total Company

$

3,552

 

$

839

 

23.6

%

Q1 2019 vs. Q1 2018 Favorable/(Unfavorable)

 Operating Revenue

Automotive

OEM

Food

Equipment

Test &

Measurement

and Electronics

Welding

Polymers

& Fluids

Construction

Products

Specialty

Products

Total ITW

 Organic     (6.4)%     1.7 %     (0.5)%     2.8 %   (0.8)%    (1.4)%   (1.5)%   (1.5)%
 Acquisitions/

 Divestitures

 % % %(0.5)%(0.9)% % %(0.2)%
 Translation(4.1)%(3.4)%(3.1)%(1.3)%(4.3)%(4.9)%(2.8)%(3.4)%

 Operating Revenue

(10.5

)%

(1.7

)%

(3.6

)%

1.0

%

(6.0

)%

(6.3

)%

(4.3

)%

(5.1

)%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q1 2019 vs. Q1 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 40 bps (10) bps 60 bps (20) bps (40) bps (30) bps (30) bps
 Changes in Variable

 Margin & OH Costs

 (60) bps 70 bps 100 bps (30) bps 70 bps 60 bps  50 bps

 Total Organic

 (160) bps

 110 bps

 90 bps

 30 bps

 50 bps

 20 bps

 (30) bps

 20 bps

 Acquisitions/

 Divestitures

    10 bps 10 bps   
 Restructuring/Other (190) bps (80) bps (20) bps  (20) bps (70) bps 10 bps (70) bps

 Total Operating

 Margin Change

 (350) bps

 30 bps

 70 bps

 40 bps

 40 bps

 (50) bps

 (20) bps

 (50) bps

         

 Total Operating

 Margin % *

20.6

%

24.9

%

24.1

%

28.1

%

21.3

%

21.7

%

26.5

%

23.6

%

         

 *Includes unfavorable

 operating margin

 impact of

 amortization expense

 from acquisition-

 related intangible

 assets

 50 bps

 70 bps

 260 bps

 30 bps

 360 bps

 40 bps

 110 bps

 130 bps **

 ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.10) on GAAP earnings per share for the first quarter of 2019.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

 

Three Months Ended

 

March 31,

Dollars in millions

2019

 

2018

Operating income$839  $903 
Tax rate24.4% 24.8%
Income taxes(205) (224)
Operating income after taxes$634  $679 
    
Invested capital:   
Trade receivables$2,715  $2,874 
Inventories1,346  1,335 
Net plant and equipment1,765  1,829 
Goodwill and intangible assets5,665  6,021 
Accounts payable and accrued expenses(1,796) (1,905)
Other, net(509) (382)
Total invested capital$9,186  $9,772 
    
Average invested capital$9,160  $9,797 
Adjusted return on average invested capital27.7% 27.7%

A reconciliation of the first quarter 2018 effective tax rate excluding the first quarter discrete tax benefit related to foreign tax credits is as follows:

 

Three Months Ended

 

March 31, 2018

Dollars in millions

Income Taxes

 

Tax Rate

As reported$197  23.2%
Discrete tax benefit14  1.6%
As adjusted$211  24.8%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

In millions

Twelve Months

Ended

December 31,

2018

Operating income$3,584 
Tax rate24.9%
Income taxes(893)
Operating income after taxes$2,691 
  
Invested capital: 
Trade receivables$2,622 
Inventories1,318 
Net plant and equipment1,791 
Goodwill and intangible assets5,717 
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 capital28.2%

A reconciliation of the full year 2018 effective tax rate excluding the third quarter net discrete tax benefit is as follows:

 

Twelve Months Ended

 

December 31, 2018

In millions

Income Taxes

 

Tax Rate

As reported$831  24.5%
Net discrete tax benefit15  0.4%
As adjusted$846  24.9%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

FREE CASH FLOW (UNAUDITED)

 

Three Months Ended

 

March 31,

In millions

2019

 

2018

Net cash provided by operating activities$616  $538 
Less: Additions to plant and equipment(77) (94)
Free cash flow$539  $444 
    
Net income$597  $652 
Free cash flow to net income conversion rate90% 68%

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 logo

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