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| 8-K - 8-K - ILLINOIS TOOL WORKS INC | itw8k2q16.htm |
Exhibit 99.1
ITW Reports Record Second Quarter 2016 Financial Results
• | GAAP EPS of $1.46 +12%, $0.07 above guidance mid-point |
• | Record quarterly performance for operating margin (23.1%), operating income ($792 million), and after-tax ROIC (22.9%) |
• | Organic revenue +1%, +2% excluding Product Line Simplification |
• | Raising full-year 2016 GAAP EPS guidance by $0.10 |
GLENVIEW, Ill., July 20, 2016 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported second quarter 2016 diluted earnings per share (EPS) of $1.46, a 12% increase compared to the year-ago period. Operating margin increased 180 basis points to 23.1%, operating income of $792 million was up 8%, and after-tax return on invested capital increased by 260 basis points to 22.9%. Second quarter results for all three of these key metrics were all-time highs for the company. Organic revenue increased 2% excluding Product Line Simplification (PLS) as six of the company’s seven segments delivered positive year on year growth, while the overall demand environment in the Welding segment remained challenging with revenue down 11% in the quarter. The company’s ongoing PLS activities reduced overall organic revenue growth by approximately 1 percentage-point resulting in net organic growth for the company of 1% in the quarter.
"I am very pleased with ITW’s performance in the quarter. The fact that we achieved best ever operating income, operating margin, and return on invested capital performance reinforces both our conviction in the strength of the differentiated performance potential that resides within the ITW Business Model and the excellent progress that our ITW colleagues around the world continue to make in positioning the company to leverage it to its full potential.” said E. Scott Santi, Chairman and Chief Executive Officer. "I am also pleased with the progress that our segments are making in executing our framework for accelerated organic revenue growth, as evidenced by the fact that six of our seven segments delivered positive year on year organic growth in the quarter. As a result, we were able to overcome the continued challenging demand environment in our Welding segment and deliver 12% earnings per share growth.”
Second Quarter Highlights
• | GAAP EPS of $1.46 increased 12%, $0.07 above guidance mid-point. |
• | Operating margin increased 180 basis points to an all-time quarterly record of 23.1%. Enterprise Initiatives contributed 120 basis points. |
• | Operating income was up 8% to an all-time quarterly record of $792 million. |
• | Total revenue was $3.4 billion, down 0.1%. Currency translation reduced revenue by 1.3%. |
• | Organic revenue grew 1.2%, as North America grew 0.4% and International grew 2.2%. |
• | After-tax return on invested capital improved 260 basis points to an all-time record of 22.9%. |
• | Free cash flow was up 23% compared to the year-ago period and conversion of 90% of net income was in line with normal seasonality. |
• | The company repurchased shares for $500 million and paid $198 million in dividends. |
• | Six of seven segments achieved positive organic revenue growth as Food Equipment grew 5%, Automotive OEM grew 4%, Test & Measurement/Electronics and Construction Products both grew 3%, Polymers & Fluids grew 2% and Specialty Products grew 0.3%. Welding declined by 11%. |
• | Five of seven segments improved operating margin with Construction Products up 440 basis points to 24.3%, Food Equipment up 300 basis points to 25.0%, Test & Measurement/Electronics and Specialty Products up 250 basis points to 18.6% and 26.0% respectively, and Automotive OEM up 130 basis points to 25.8%. Polymers & Fluids was unchanged at 20.9% and Welding declined 120 basis points to 24.9%, both due to higher restructuring. |
2016 Guidance
ITW is raising its 2016 full-year GAAP EPS guidance range by $0.10 to $5.50 to $5.70, a year-over-year increase of 9% at the mid-point. The company is also narrowing its full-year organic growth forecast to 1 to 2% (prior forecast of 1 to 3%) as a result of the lingering difficult market conditions being experienced by the Welding segment. Consistent with prior guidance, the forecast includes approximately 1%-point of PLS impact. Operating margin is expected to exceed 22.5% for the full year. Guidance is based on current foreign exchange rates and includes the expected impact of the Engineered Fasteners & Components (EF&C) acquisition.
On July 1, 2016, the Company completed the acquisition of EF&C for approximately $450 million. In the second half of 2016, EF&C is expected to add revenues of approximately $220 to $240 million. After acquisition accounting, EF&C is expected to have no EPS impact in the second half of 2016.
For the third quarter 2016, the company expects GAAP EPS to be in a range of $1.42 to $1.52, and operating margin to be approximately 23%. Organic revenue is forecast to be up 1 to 3%.
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, organic revenue growth, the impact of product line simplification activities and enterprise initiatives, operating margin, after-tax return on invested capital and the expected impact of acquisitions on financial results. 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 2015 and Form 10-Q for the first quarter of 2016.
About ITW
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $13.4 billion in 2015. 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 nearly 50,000 dedicated colleagues in operations around the world who thrive in the company’s unique decentralized and entrepreneurial culture. To learn more about the company and the ITW Business Model, visit www.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 | 2016 | 2015 | 2016 | 2015 | |||||||||||
Operating Revenue | $ | 3,431 | $ | 3,434 | $ | 6,705 | $ | 6,776 | |||||||
Cost of revenue | 1,967 | 2,024 | 3,863 | 3,994 | |||||||||||
Selling, administrative, and research and development expenses | 617 | 622 | 1,214 | 1,238 | |||||||||||
Amortization and impairment of intangible assets | 55 | 58 | 114 | 117 | |||||||||||
Operating Income | 792 | 730 | 1,514 | 1,427 | |||||||||||
Interest expense | (58 | ) | (55 | ) | (116 | ) | (109 | ) | |||||||
Other income (expense) | 17 | 21 | 21 | 42 | |||||||||||
Income Before Taxes | 751 | 696 | 1,419 | 1,360 | |||||||||||
Income Taxes | 226 | 216 | 426 | 422 | |||||||||||
Net Income | $ | 525 | $ | 480 | $ | 993 | $ | 938 | |||||||
Net Income Per Share: | |||||||||||||||
Basic | $ | 1.47 | $ | 1.31 | $ | 2.76 | $ | 2.53 | |||||||
Diluted | $ | 1.46 | $ | 1.30 | $ | 2.75 | $ | 2.51 | |||||||
Cash Dividends Per Share: | |||||||||||||||
Paid | $ | 0.55 | $ | 0.485 | $ | 1.10 | $ | 0.97 | |||||||
Declared | $ | 0.55 | $ | 0.485 | $ | 1.10 | $ | 0.97 | |||||||
Shares of Common Stock Outstanding During the Period: | |||||||||||||||
Average | 356.6 | 366.2 | 359.3 | 371.4 | |||||||||||
Average assuming dilution | 358.5 | 368.4 | 361.2 | 373.8 | |||||||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions | June 30, 2016 | December 31, 2015 | |||||
Assets | |||||||
Current Assets: | |||||||
Cash and equivalents | $ | 2,355 | $ | 3,090 | |||
Trade receivables | 2,413 | 2,203 | |||||
Inventories | 1,145 | 1,086 | |||||
Prepaid expenses and other current assets | 254 | 341 | |||||
Total current assets | 6,167 | 6,720 | |||||
Net plant and equipment | 1,580 | 1,577 | |||||
Goodwill | 4,466 | 4,439 | |||||
Intangible assets | 1,441 | 1,560 | |||||
Deferred income taxes | 466 | 346 | |||||
Other assets | 1,102 | 1,087 | |||||
$ | 15,222 | $ | 15,729 | ||||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 864 | $ | 526 | |||
Accounts payable | 519 | 449 | |||||
Accrued expenses | 1,116 | 1,136 | |||||
Cash dividends payable | 195 | 200 | |||||
Income taxes payable | 130 | 57 | |||||
Total current liabilities | 2,824 | 2,368 | |||||
Noncurrent Liabilities: | |||||||
Long-term debt | 6,300 | 6,896 | |||||
Deferred income taxes | 149 | 256 | |||||
Other liabilities | 999 | 981 | |||||
Total noncurrent liabilities | 7,448 | 8,133 | |||||
Stockholders’ Equity: | |||||||
Common stock | 6 | 6 | |||||
Additional paid-in-capital | 1,158 | 1,135 | |||||
Income reinvested in the business | 18,916 | 18,316 | |||||
Common stock held in treasury | (13,664 | ) | (12,729 | ) | |||
Accumulated other comprehensive income (loss) | (1,470 | ) | (1,504 | ) | |||
Noncontrolling interest | 4 | 4 | |||||
Total stockholders’ equity | 4,950 | 5,228 | |||||
$ | 15,222 | $ | 15,729 | ||||
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 | 2016 | 2015 | 2016 | 2015 | 2015 | ||||||||||||||
Operating income | $ | 792 | $ | 730 | $ | 1,514 | $ | 1,427 | $ | 2,867 | |||||||||
Tax rate | 30.0 | % | 31.0 | % | 30.0 | % | 31.0 | % | 30.1 | % | |||||||||
Income taxes | (238 | ) | (226 | ) | (454 | ) | (443 | ) | (864 | ) | |||||||||
Operating income after taxes | $ | 554 | $ | 504 | $ | 1,060 | $ | 984 | $ | 2,003 | |||||||||
Invested capital: | |||||||||||||||||||
Trade receivables | $ | 2,413 | $ | 2,412 | $ | 2,413 | $ | 2,412 | $ | 2,203 | |||||||||
Inventories | 1,145 | 1,191 | 1,145 | 1,191 | 1,086 | ||||||||||||||
Net plant and equipment | 1,580 | 1,636 | 1,580 | 1,636 | 1,577 | ||||||||||||||
Goodwill and intangible assets | 5,907 | 6,222 | 5,907 | 6,222 | 5,999 | ||||||||||||||
Accounts payable and accrued expenses | (1,635 | ) | (1,680 | ) | (1,635 | ) | (1,680 | ) | (1,585 | ) | |||||||||
Other, net | 349 | 437 | 349 | 437 | 280 | ||||||||||||||
Total invested capital | $ | 9,759 | $ | 10,218 | $ | 9,759 | $ | 10,218 | $ | 9,560 | |||||||||
Average invested capital | $ | 9,768 | $ | 10,021 | $ | 9,698 | $ | 10,099 | $ | 9,943 | |||||||||
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) | (112 | ) | (120 | ) | (112 | ) | (127 | ) | (123 | ) | |||||||||
Adjusted average invested capital | $ | 9,656 | $ | 9,901 | $ | 9,586 | $ | 9,972 | $ | 9,820 | |||||||||
Adjusted return on average invested capital | 22.9 | % | 20.3 | % | 22.1 | % | 19.7 | % | 20.4 | % | |||||||||
FREE CASH FLOW (UNAUDITED)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
Dollars in millions | 2016 | 2015 | 2016 | 2015 | |||||||||||
Net cash provided by operating activities | $ | 535 | $ | 448 | $ | 1,014 | $ | 890 | |||||||
Less: Additions to plant and equipment | (64 | ) | (64 | ) | (121 | ) | (147 | ) | |||||||
Free cash flow | $ | 471 | $ | 384 | $ | 893 | $ | 743 | |||||||
Net income | $ | 525 | $ | 480 | $ | 993 | $ | 938 | |||||||
Free cash flow to net income conversion rate | 90 | % | 80 | % | 90 | % | 79 | % | |||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended June 30, 2016 | ||||||||
Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||
Automotive OEM | $ | 670 | $ | 173 | 25.8 | % | ||
Food Equipment | 535 | 134 | 25.0 | % | ||||
Test & Measurement and Electronics | 507 | 94 | 18.6 | % | ||||
Welding | 375 | 94 | 24.9 | % | ||||
Polymers & Fluids | 443 | 93 | 20.9 | % | ||||
Construction Products | 424 | 103 | 24.3 | % | ||||
Specialty Products | 484 | 126 | 26.0 | % | ||||
Intersegment | (7 | ) | — | — | % | |||
Total Segments | 3,431 | 817 | 23.8 | % | ||||
Unallocated | — | (25 | ) | — | % | |||
Total Company | $ | 3,431 | $ | 792 | 23.1 | % | ||
Six Months Ended June 30, 2016 | ||||||||
Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||
Automotive OEM | $ | 1,326 | $ | 346 | 26.1 | % | ||
Food Equipment | 1,034 | 256 | 24.8 | % | ||||
Test & Measurement and Electronics | 971 | 166 | 17.1 | % | ||||
Welding | 764 | 187 | 24.4 | % | ||||
Polymers & Fluids | 861 | 177 | 20.6 | % | ||||
Construction Products | 808 | 184 | 22.8 | % | ||||
Specialty Products | 952 | 248 | 26.0 | % | ||||
Intersegment | (11 | ) | — | — | % | |||
Total Segments | 6,705 | 1,564 | 23.3 | % | ||||
Unallocated | — | (50 | ) | — | % | |||
Total Company | $ | 6,705 | $ | 1,514 | 22.6 | % | ||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q2 2016 vs. Q2 2015 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | 4.2 | % | 4.7 | % | 2.8 | % | (11.3 | )% | 1.9 | % | 3.1 | % | 0.3 | % | 1.2 | % |
Divestitures | — | % | — | % | — | % | — | % | — | % | (0.2 | )% | — | % | — | % |
Translation | (0.7 | )% | (1.2 | )% | (0.8 | )% | (0.9 | )% | (2.7 | )% | (1.7 | )% | (0.7 | )% | (1.3 | )% |
Operating Revenue | 3.5 | % | 3.5 | % | 2.0 | % | (12.2 | )% | (0.8 | )% | 1.2 | % | (0.4 | )% | (0.1 | )% |
Q2 2016 vs. Q2 2015 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 | 60 bps | 110 bps | 90 bps | (220) bps | 50 bps | 70 bps | 10 bps | 10 bps |
Changes in Variable Margin & OH Costs | 40 bps | 80 bps | 160 bps | 240 bps | 20 bps | 300 bps | 230 bps | 160 bps |
Total Organic | 100 bps | 190 bps | 250 bps | 20 bps | 70 bps | 370 bps | 240 bps | 170 bps |
Restructuring/Other | 30 bps | 110 bps | — | (140) bps | (70) bps | 70 bps | 10 bps | 10 bps |
Total Operating Margin Change | 130 bps | 300 bps | 250 bps | (120) bps | — | 440 bps | 250 bps | 180 bps |
Total Operating Margin % * | 25.8% | 25.0% | 18.6% | 24.9% | 20.9% | 24.3% | 26.0% | 23.1% |
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 10 bps | 80 bps | 370 bps | 60 bps | 420 bps | 60 bps | 160 bps | 160 bps |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
FY 2015 vs FY 2014 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | 5.8 | % | 3.4 | % | (5.2 | )% | (7.6 | )% | (2.0 | )% | 3.7 | % | (2.3 | )% | (0.4 | )% |
Divestitures | (0.2 | )% | — | % | — | % | (0.1 | )% | (1.0 | )% | (0.5 | )% | — | % | (0.2 | )% |
Translation | (8.0 | )% | (7.1 | )% | (5.5 | )% | (3.1 | )% | (8.2 | )% | (10.2 | )% | (6.0 | )% | (6.8 | )% |
Operating Revenue | (2.4 | )% | (3.7 | )% | (10.7 | )% | (10.8 | )% | (11.2 | )% | (7.0 | )% | (8.3 | )% | (7.4 | )% |
1H 2016 vs 1H 2015 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | 3.4 | % | 4.0 | % | 0.5 | % | (9.9 | )% | 1.2 | % | 4.0 | % | 1.7 | % | 0.9 | % |
Divestitures | — | % | — | % | — | % | — | % | (0.5 | )% | (0.2 | )% | — | % | (0.1 | )% |
Translation | (1.5 | )% | (1.8 | )% | (1.4 | )% | (1.2 | )% | (3.7 | )% | (2.8 | )% | (1.2 | )% | (1.8 | )% |
Operating Revenue | 1.9 | % | 2.2 | % | (0.9 | )% | (11.1 | )% | (3.0 | )% | 1.0 | % | 0.5 | % | (1.0 | )% |