ILLINOIS TOOL WORKS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - July 22, 2015

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Exhibit 99.1
                               
ITW Reports Second Quarter 2015 Financial Results
•
Diluted EPS of $1.30, up 7 percent
•
Record operating margin of 21.3 percent, up 80 basis points; Enterprise Initiatives contributed 100 basis points
•
Company raises full-year guidance to $5.07 to $5.23 per share, up 10 percent at the midpoint

GLENVIEW, Ill., July 22, 2015 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported second quarter 2015 diluted earnings per share (EPS) from continuing operations of $1.30, a 7 percent increase compared to the year-ago period. Excluding the $(0.12) impact of currency translation, EPS would have been up 17%. Organic revenue growth was up slightly in the quarter as continued strong organic growth performance in our Automotive OEM and Food Equipment segments along with improving demand trends in our Construction Products business were offset by the impact of the soft capital spending environment on our Welding and Test & Measurement and Electronics segments. In addition, the implementation of the company’s ongoing product line simplification (PLS) initiative reduced enterprise-level organic revenue growth by 1 percentage point in the quarter.

"ITW continues to execute very well in the face of an external operating environment that remains challenging on a number of levels. In the second quarter, the company delivered solid EPS growth with record operating margin of 21.3 percent and after-tax return on invested capital above 20 percent," said E. Scott Santi, chairman and chief executive officer. "Consistent with our strategy and despite the challenging near-term macro environment, we continue to focus on and invest in executing the steps necessary to position the company to deliver solid above-market organic growth. As we transition into the back-half of our current five-year Enterprise Strategy, we remain firmly on track to achieve our 2017 and beyond organic growth target of 200 basis points or more above global GDP."

Second quarter 2015 enterprise highlights*
•
Organic revenue was up slightly for the total company. Growth was positive for both North America and International, with Europe up 2 percent. As expected, the ongoing PLS activities associated with the portfolio management component of ITW's Enterprise Strategy reduced organic revenue growth by approximately 1 percentage point. Total revenues of $3.4 billion were down 8 percent due to the impact of foreign currency translation.
•
Operating margin increased 80 basis points to a record 21.3 percent. Enterprise Initiatives contributed 100 basis points.
•
After-tax return on invested capital also improved 80 basis points to 20.3 percent.





Second quarter 2015 segment performance*
•
Construction Products organic revenue increased 6 percent in the quarter driven by 15 percent growth in North America. Operating margin was up 170 basis points to 19.9 percent.
•
Automotive OEM organic revenue growth of 6 percent outpaced flat second quarter worldwide auto builds. Organic revenue increased 10 percent in Europe, 5 percent in North America and 8 percent in China. Operating margin of 24.5 percent was up 80 basis points.
•
Food Equipment organic revenue increased 4 percent, due largely to 9 percent growth in North American equipment sales. Operating margin of 22.0 percent was an increase of 250 basis points.
•
Welding organic revenue declined by 6 percent while Test & Measurement and Electronics fell 5 percent (Test & Measurement platform down 7 percent) due to the soft capital spending environment and oil and gas end markets.

Guidance
The company is raising its 2015 full-year EPS guidance by $0.05 at the midpoint to reflect second quarter results and current exchange rates. The updated EPS range is $5.07 to $5.23, an increase of 10 percent at the $5.15 midpoint. Excluding the negative currency impact, full-year EPS would be up 18 percent at the midpoint. Organic revenue growth for the year is projected to be approximately 1 percent, which includes 1 percentage point of impact from PLS. Operating margin is projected to exceed 21 percent, an increase of more than 100 basis points year-over-year, largely driven by Enterprise Initiatives. The company expects this strong margin performance to offset modestly lower revenue expectations through the balance of the year. For the third quarter 2015, the company is expecting EPS to be in a range of $1.32 to $1.40 and operating margin to be approximately 22 percent. Third quarter organic revenue is forecast to be flat to up 1 percent.

*All comparisons are to the prior year period.

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 organic and total revenue growth, impact of foreign currency translation, operating margins and diluted income per share from continuing operations. 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 2014 and Form 10-Q for the first quarter 2015. The attached tables include a calculation of ROIC, a non-GAAP measure.







About ITW
ITW is a Fortune 200 global diversified industrial manufacturer of value added consumables and specialty equipment with related service businesses. The Company focuses on solid growth, improving profitability and strong returns across its worldwide platforms and divisions. These divisions serve customers and markets around the globe, with a significant presence in developed as well as emerging markets. ITW's revenues totaled $14.5 billion in 2014.


 







ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
 
Three Months Ended
 
Six Months Ended
In millions except per share amounts
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Operating Revenues
$
3,434

 
$
3,719

 
$
6,776

 
$
7,288

Cost of revenues
2,024

 
2,219

 
3,994

 
4,377

Selling, administrative, and research and development expenses
622

 
677

 
1,238

 
1,359

Amortization of intangible assets
58

 
60

 
117

 
122

Operating Income
730

 
763

 
1,427

 
1,430

Interest expense
(55
)
 
(64
)
 
(109
)
 
(128
)
Other income (expense)
21

 
7

 
42

 
16

Income from Continuing Operations Before Income Taxes
696

 
706

 
1,360

 
1,318

Income Taxes
216

 
212

 
422

 
396

Income from Continuing Operations
480

 
494

 
938

 
922

Income from Discontinued Operations
—

 
998

 
—

 
1,043

Net Income
$
480

 
$
1,492

 
$
938

 
$
1,965

 
 
 
 
 
 
 
 
Income Per Share from Continuing Operations:
 
 
 
 
 
 
 
Basic
$
1.31

 
$
1.22

 
$
2.53

 
$
2.23

Diluted
$
1.30

 
$
1.21

 
$
2.51

 
$
2.22

Income Per Share from Discontinued Operations:
 
 
 
 
 
 
 
Basic
$
—

 
$
2.47

 
$
—

 
$
2.52

Diluted
$
—

 
$
2.45

 
$
—

 
$
2.50

Net Income Per Share:
 
 
 
 
 
 
 
Basic
$
1.31

 
$
3.69

 
$
2.53

 
$
4.76

Diluted
$
1.30

 
$
3.66

 
$
2.51

 
$
4.72

 
 
 
 
 
 
 
 
Shares of Common Stock Outstanding During the Period:
 
 
 
 
 
 
 
Average
366.2

 
404.7

 
371.4

 
413.3

Average assuming dilution
368.4

 
407.6

 
373.8

 
416.3


FREE OPERATING CASH FLOW (UNAUDITED)
 
Three Months Ended
 
Six Months Ended
In millions
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net cash provided by operating activities
$
448

 
$
573

 
$
890

 
$
887

Less: Additions to plant and equipment
(64
)
 
(78
)
 
(147
)
 
(146
)
Free operating cash flow
$
384

 
$
495

 
$
743

 
$
741









ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions
 
June 30, 2015
 
December 31, 2014
Assets
 
 
 
Current Assets:
 
 
 
Cash and equivalents
$
2,858

 
$
3,990

Trade receivables
2,412

 
2,293

Inventories
1,191

 
1,180

Deferred income taxes
185

 
212

Prepaid expenses and other current assets
387

 
401

Total current assets
7,033

 
8,076

 
 
 
 
Net plant and equipment
1,636

 
1,686

Goodwill
4,543

 
4,667

Intangible assets
1,679

 
1,799

Deferred income taxes
298

 
301

Other assets
1,159

 
1,149

 
$
16,348

 
$
17,678

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
819

 
$
1,476

Accounts payable
533

 
512

Accrued expenses
1,147

 
1,287

Cash dividends payable
178

 
186

Income taxes payable
61

 
64

Deferred income taxes
8

 
8

Total current liabilities
2,746

 
3,533

 
 
 
 
Noncurrent Liabilities:
 

 
 
Long-term debt
6,994

 
5,981

Deferred income taxes
363

 
338

Other liabilities
939

 
1,002

Total noncurrent liabilities
8,296

 
7,321

 
 
 
 
Stockholders’ Equity:
 
 
 
Common stock
6

 
6

Additional paid-in-capital
1,113

 
1,096

Income reinvested in the business
17,755

 
17,173

Common stock held in treasury
(12,526
)
 
(10,798
)
Accumulated other comprehensive income
(1,046
)
 
(658
)
Noncontrolling interest
4

 
5

Total stockholders’ equity
5,306

 
6,824

 
$
16,348

 
$
17,678





ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
 
Three Months Ended
 
Six Months Ended
Dollars in millions
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Operating income
$
730

 
$
763

 
$
1,427

 
$
1,430

Tax rate
31.0
%
 
30.0
%
 
31.0
%
 
30.0
%
Income taxes
(226
)
 
(229
)
 
(443
)
 
(429
)
Operating income after taxes
$
504

 
$
534

 
$
984

 
$
1,001

 
 
 
 
 
 
 
 
Invested capital:
 
 
 

 
 
 
 
Trade receivables
$
2,412

 
$
2,598

 
$
2,412

 
$
2,598

Inventories
1,191

 
1,305

 
1,191

 
1,305

Net plant and equipment
1,636

 
1,700

 
1,636

 
1,700

Goodwill and intangible assets
6,222

 
6,780

 
6,222

 
6,780

Accounts payable and accrued expenses
(1,680
)
 
(1,961
)
 
(1,680
)
 
(1,961
)
Other, net
480

 
(69
)
 
480

 
(69
)
Total invested capital
$
10,261

 
$
10,353

 
$
10,261

 
$
10,353

 
 
 
 
 
 
 
 
Average invested capital
$
10,062

 
$
11,504

 
$
10,138

 
$
11,815

Adjustment for Wilsonart (formerly the Decorative Surfaces segment)
(120
)
 
(157
)
 
(127
)
 
(159
)
Adjustment for Industrial Packaging
—

 
(409
)
 
—

 
(771
)
Adjusted average invested capital
$
9,942

 
$
10,938

 
$
10,011

 
$
10,885

Annualized adjusted return on average invested capital
20.3
%
 
19.5
%
 
19.7
%
 
18.4
%









ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
For the Three Months Ended June 30, 2015
% F(U) vs. prior year
(Dollars in millions)
Total Revenue
Operating Income
Operating Margin
 
Total Revenue
Organic Revenue
Operating Margin
Automotive OEM
$
649

$
159

24.5
%
 
(3.4
)%
6.0
 %
0.8
 %
Test & Measurement and Electronics
496

79

16.1
%
 
(11.0
)%
(4.9
)%
0.9
 %
Food Equipment
518

114

22.0
%
 
(3.6
)%
4.2
 %
2.5
 %
Polymers & Fluids
446

94

20.9
%
 
(11.9
)%
(1.6
)%
1.3
 %
Welding
426

111

26.1
%
 
(9.4
)%
(6.0
)%
(0.2
)%
Construction Products
419

84

19.9
%
 
(5.7
)%
5.8
 %
1.7
 %
Specialty Products
486

115

23.5
%
 
(9.9
)%
(3.4
)%
(0.7
)%
Intersegment
(6
)
—

—
%
 
—
 %
—
 %
—
 %
Total Segments
3,434

756

22.0
%
 
(7.6
)%
0.2
 %
1.0
 %
Unallocated
—

(26
)
—
%
 
—
 %
—
 %
—
 %
Total Company
$
3,434

$
730

21.3
%
 
(7.6
)%
0.2
 %
0.8
 %

For the Six Months Ended June 30, 2015
% F(U) vs. prior year
(Dollars in millions)
Total Revenue
Operating Income
Operating Margin
 
Total Revenue
Organic Revenue
Operating Margin
Automotive OEM
$
1,302

$
322

24.8
%
 
(2.7
)%
6.3
 %
1.3
%
Test & Measurement and Electronics
979

150

15.4
%
 
(9.0
)%
(3.0
)%
1.6
%
Food Equipment
1,013

226

22.3
%
 
(3.4
)%
4.1
 %
3.2
%
Polymers & Fluids
887

182

20.5
%
 
(10.0
)%
(1.0
)%
2.4
%
Welding
859

228

26.5
%
 
(8.0
)%
(4.6
)%
0.5
%
Construction Products
800

147

18.3
%
 
(7.0
)%
4.2
 %
1.8
%
Specialty Products
948

219

23.1
%
 
(10.6
)%
(4.5
)%
0.5
%
Intersegment
(12
)
—

—
%
 
—
 %
—
 %
—
%
Total Segments
6,776

1,474

21.7
%
 
(7.0
)%
0.4
 %
1.6
%
Unallocated
—

(47
)
—
%
 
—
 %
—
 %
—
%
Total Company
$
6,776

$
1,427

21.1
%
 
(7.0
)%
0.4
 %
1.5
%



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