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| 8-K - 8-K - ILLINOIS TOOL WORKS INC | itw8k3q17.htm |
Exhibit 99.1
ITW Reports Third Quarter 2017 Results
Delivers strong financial results and raises earnings guidance for 2017
Third-Quarter Highlights:
• | GAAP EPS of $1.85 includes $0.14 benefit from a favorable legal settlement; excluding this item EPS was $1.71, an increase of 14% |
• | Total revenue of $3.6 billion, an increase of 4% |
• | Operating margin of 26.6% includes 220 basis points benefit from the legal settlement; excluding this item operating margin was 24.4%, an increase of 130 bps |
• | Updated 2017 full-year outlook: GAAP EPS of $6.62 to $6.72, an increase of $0.25 at the mid-point |
GLENVIEW, Ill., Oct. 23, 2017 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third-quarter 2017 results.
Third-quarter revenue grew 4% to $3.6 billion as organic revenue and foreign currency translation each increased revenue by 2% in the quarter. GAAP EPS of $1.85 includes a $0.14 benefit from a previously disclosed favorable legal settlement. Excluding this item, EPS increased 14% to $1.71. Operating margin was 26.6% and includes a 220 basis point benefit from the settlement. Excluding this item, operating margin was 24.4%, an increase of 130 basis points, with enterprise initiatives contributing 110 basis points of margin improvement.
“In the third quarter, the ITW team continued to execute at a high level and, as a result, delivered another quarter of strong financial results,” said E. Scott Santi, Chairman and Chief Executive Officer. “I continue to be very pleased with our progress in positioning the company to leverage ITW’s differentiated business model and high quality diversified business portfolio to deliver consistent top tier performance.”
Organic revenue growth was positive in six of seven segments led by Specialty Products (+5%), Welding (+4%) and Construction (+4%).
As previously disclosed, the company entered into a confidential legal settlement in 2017, resulting in a favorable pre-tax impact of $80 million on the third quarter 2017 results. The following schedule illustrates the impact of this item on the company’s reported third quarter 2017 financial performance.
$ Millions | Q3’16 As Reported | Q3’17 As Reported | Legal Settlement | Q3’17 Ex Settlement | Change year-on-year |
Total Revenue | $3,495 | $3,615 | - | - | +4% |
Operating Income | $808 | $961 | +$80 | $881 | +9% |
Operating Margin | 23.1% | 26.6% | +220 bps | 24.4% | +130 bps |
EPS | $1.50 | $1.85 | +$0.14 | $1.71 | +14% |
After-tax ROIC | 23.0% | 26.3% | +220 bps | 24.1% | +110 bps |
Full-Year and Fourth Quarter 2017 Guidance
ITW is raising its 2017 full-year GAAP EPS guidance by $0.25 at the mid-point to a range of $6.62 to $6.72. The company expects full-year organic revenue growth of 2 to 3% and operating margin of approximately 24.5%.
For the fourth quarter 2017, the company expects GAAP EPS to be in the range of $1.55 to $1.65 and organic growth of 2 to 3%.
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, organic revenue growth, operating margin, free cash flow, effective tax rate and after-tax return on invested capital. 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 2016.
About ITW
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $13.6 billion in 2016. 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 more than 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 | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions except per share amounts | 2017 | 2016 | 2017 | 2016 | |||||||||||
Operating Revenue | $ | 3,615 | $ | 3,495 | $ | 10,685 | $ | 10,200 | |||||||
Cost of revenue | 2,094 | 2,027 | 6,185 | 5,890 | |||||||||||
Selling, administrative, and research and development expenses | 589 | 604 | 1,795 | 1,818 | |||||||||||
Legal settlement (income) | (80 | ) | — | (95 | ) | — | |||||||||
Amortization and impairment of intangible assets | 51 | 56 | 156 | 170 | |||||||||||
Operating Income | 961 | 808 | 2,644 | 2,322 | |||||||||||
Interest expense | (65 | ) | (58 | ) | (194 | ) | (174 | ) | |||||||
Other income (expense) | 10 | 13 | 24 | 34 | |||||||||||
Income Before Taxes | 906 | 763 | 2,474 | 2,182 | |||||||||||
Income Taxes | 266 | 228 | 711 | 654 | |||||||||||
Net Income | $ | 640 | $ | 535 | $ | 1,763 | $ | 1,528 | |||||||
Net Income Per Share: | |||||||||||||||
Basic | $ | 1.86 | $ | 1.51 | $ | 5.12 | $ | 4.28 | |||||||
Diluted | $ | 1.85 | $ | 1.50 | $ | 5.07 | $ | 4.25 | |||||||
Cash Dividends Per Share: | |||||||||||||||
Paid | $ | 0.65 | $ | 0.55 | $ | 1.95 | $ | 1.65 | |||||||
Declared | $ | 0.78 | $ | 0.65 | $ | 2.08 | $ | 1.75 | |||||||
Shares of Common Stock Outstanding During the Period: | |||||||||||||||
Average | 343.4 | 353.5 | 344.7 | 357.3 | |||||||||||
Average assuming dilution | 346.0 | 355.5 | 347.5 | 359.3 | |||||||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions | September 30, 2017 | December 31, 2016 | |||||
Assets | |||||||
Current Assets: | |||||||
Cash and equivalents | $ | 2,785 | $ | 2,472 | |||
Trade receivables | 2,672 | 2,357 | |||||
Inventories | 1,225 | 1,076 | |||||
Prepaid expenses and other current assets | 230 | 218 | |||||
Total current assets | 6,912 | 6,123 | |||||
Net plant and equipment | 1,759 | 1,652 | |||||
Goodwill | 4,732 | 4,558 | |||||
Intangible assets | 1,319 | 1,463 | |||||
Deferred income taxes | 473 | 449 | |||||
Other assets | 1,119 | 956 | |||||
$ | 16,314 | $ | 15,201 | ||||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 698 | $ | 652 | |||
Accounts payable | 585 | 511 | |||||
Accrued expenses | 1,231 | 1,202 | |||||
Cash dividends payable | 267 | 226 | |||||
Income taxes payable | 86 | 169 | |||||
Total current liabilities | 2,867 | 2,760 | |||||
Noncurrent Liabilities: | |||||||
Long-term debt | 7,439 | 7,177 | |||||
Deferred income taxes | 112 | 134 | |||||
Other liabilities | 870 | 871 | |||||
Total noncurrent liabilities | 8,421 | 8,182 | |||||
Stockholders’ Equity: | |||||||
Common stock | 6 | 6 | |||||
Additional paid-in-capital | 1,207 | 1,188 | |||||
Retained earnings | 20,553 | 19,505 | |||||
Common stock held in treasury | (15,336 | ) | (14,638 | ) | |||
Accumulated other comprehensive income (loss) | (1,407 | ) | (1,807 | ) | |||
Noncontrolling interest | 3 | 5 | |||||
Total stockholders’ equity | 5,026 | 4,259 | |||||
$ | 16,314 | $ | 15,201 | ||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended September 30, 2017 | ||||||||
Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||
Automotive OEM | $ | 795 | $ | 172 | 21.6 | % | ||
Food Equipment | 549 | 150 | 27.3 | % | ||||
Test & Measurement and Electronics | 525 | 127 | 24.1 | % | ||||
Welding | 378 | 100 | 26.6 | % | ||||
Polymers & Fluids | 434 | 90 | 21.0 | % | ||||
Construction Products | 440 | 112 | 25.4 | % | ||||
Specialty Products | 498 | 138 | 27.7 | % | ||||
Intersegment | (4 | ) | — | — | % | |||
Total Segments | 3,615 | 889 | 24.6 | % | ||||
Unallocated* | — | 72 | — | % | ||||
Total Company | $ | 3,615 | $ | 961 | 26.6 | % | ||
Nine Months Ended September 30, 2017 | ||||||||
Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||
Automotive OEM | $ | 2,443 | $ | 556 | 22.7 | % | ||
Food Equipment | 1,575 | 414 | 26.3 | % | ||||
Test & Measurement and Electronics | 1,524 | 337 | 22.1 | % | ||||
Welding | 1,150 | 312 | 27.2 | % | ||||
Polymers & Fluids | 1,297 | 272 | 21.0 | % | ||||
Construction Products | 1,260 | 303 | 24.0 | % | ||||
Specialty Products | 1,451 | 401 | 27.6 | % | ||||
Intersegment | (15 | ) | — | — | % | |||
Total Segments | 10,685 | 2,595 | 24.3 | % | ||||
Unallocated* | — | 49 | — | % | ||||
Total Company | $ | 10,685 | $ | 2,644 | 24.7 | % | ||
* Unallocated includes the favorable impact from the legal settlement.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q3 2017 vs. Q3 2016 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | 1.3 | % | (0.4 | )% | 0.8 | % | 3.9 | % | 1.0 | % | 3.5 | % | 4.5 | % | 1.9 | % |
Acquisitions/Divestitures | — | % | — | % | — | % | — | % | — | % | — | % | (1.2 | )% | (0.2 | )% |
Translation | 2.8 | % | 1.5 | % | 1.0 | % | 0.9 | % | 1.6 | % | 2.5 | % | 1.3 | % | 1.8 | % |
Operating Revenue | 4.1 | % | 1.1 | % | 1.8 | % | 4.8 | % | 2.6 | % | 6.0 | % | 4.6 | % | 3.5 | % |
Q3 2017 vs. Q3 2016 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 | 60 bps | 20 bps | 90 bps | 90 bps | 50 bps |
Changes in Variable Margin & OH Costs | (40) bps | 20 bps | 240 bps | 20 bps | — | 40 bps | 140 bps | 300 bps |
Total Organic | (10) bps | 20 bps | 260 bps | 80 bps | 20 bps | 130 bps | 230 bps | 350 bps |
Acquisitions/Divestitures | — | — | — | — | — | — | 30 bps | — |
Restructuring/Other | (10) bps | (30) bps | 50 bps | (70) bps | (20) bps | 150 bps | (100) bps | — |
Total Operating Margin Change | (20) bps | (10) bps | 310 bps | 10 bps | — | 280 bps | 160 bps | 350 bps |
Total Operating Margin % * | 21.6% | 27.3% | 24.1% | 26.6% | 21.0% | 25.4% | 27.7% | 26.6% |
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 50 bps | 70 bps | 300 bps | 40 bps | 400 bps | 50 bps | 120 bps | 150 bps** |
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.10) on GAAP net income diluted earnings per share for the third quarter of 2017. | ||||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
YTD 2017 vs YTD 2016 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | 4.7 | % | 0.7 | % | 3.5 | % | 2.2 | % | 0.5 | % | 2.7 | % | 3.1 | % | 2.7 | % |
Acquisitions/Divestitures | 12.2 | % | — | % | — | % | — | % | — | % | — | % | (1.1 | )% | 2.3 | % |
Translation | — | % | (0.9 | )% | (1.0 | )% | 0.1 | % | 0.5 | % | 0.3 | % | (0.5 | )% | (0.2 | )% |
Operating Revenue | 16.9 | % | (0.2 | )% | 2.5 | % | 2.3 | % | 1.0 | % | 3.0 | % | 1.5 | % | 4.8 | % |
YTD 2017 vs.YTD 2016 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 | 80 bps | 20 bps | 110 bps | 40 bps | 10 bps | 70 bps | 70 bps | 50 bps |
Changes in Variable Margin & OH Costs | (50) bps | 20 bps | 230 bps | 80 bps | 70 bps | — | 100 bps | 180 bps |
Total Organic | 30 bps | 40 bps | 340 bps | 120 bps | 80 bps | 70 bps | 170 bps | 230 bps |
Acquisitions/Divestitures | (160) bps | — | — | — | — | — | 30 bps | (40) bps |
Restructuring/Other | (50) bps | 20 bps | 30 bps | 90 bps | (50) bps | 60 bps | (50) bps | — |
Total Operating Margin Change | (180) bps | 60 bps | 370 bps | 210 bps | 30 bps | 130 bps | 150 bps | 190 bps |
Total Operating Margin % * | 22.7% | 26.3% | 22.1% | 27.2% | 21.0% | 24.0% | 27.6% | 24.7% |
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 60 bps | 80 bps | 320 bps | 40 bps | 410 bps | 60 bps | 130 bps | 160 bps** |
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.31) on GAAP net income diluted earnings per share for the first nine months of 2017. | ||||||||
Full Year 2016 vs Full Year 2015 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | 5.1 | % | 2.8 | % | 1.8 | % | (9.1 | )% | 1.3 | % | 3.0 | % | 1.2 | % | 1.2 | % |
Acquisitions/Divestitures | 9.7 | % | — | % | — | % | — | % | (0.2 | )% | (0.2 | )% | (0.1 | )% | 1.7 | % |
Translation | (1.5 | )% | (2.1 | )% | (1.5 | )% | (0.9 | )% | (2.3 | )% | (1.4 | )% | (1.1 | )% | (1.5 | )% |
Operating Revenue | 13.3 | % | 0.7 | % | 0.3 | % | (10.0 | )% | (1.2 | )% | 1.4 | % | — | % | 1.4 | % |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended | Twelve Months Ended | ||||||||||
September 30, | December 31, | ||||||||||
Dollars in millions | 2017 | 2016 | 2016 | ||||||||
Operating income | $ | 961 | $ | 808 | $ | 3,064 | |||||
Tax rate | 29.3 | % | 30.0 | % | 30.0 | % | |||||
Income taxes | (282 | ) | (243 | ) | (919 | ) | |||||
Operating income after taxes | $ | 679 | $ | 565 | $ | 2,145 | |||||
Invested capital: | |||||||||||
Trade receivables | $ | 2,672 | $ | 2,496 | $ | 2,357 | |||||
Inventories | 1,225 | 1,167 | 1,076 | ||||||||
Net plant and equipment | 1,759 | 1,702 | 1,652 | ||||||||
Goodwill and intangible assets | 6,051 | 6,191 | 6,021 | ||||||||
Accounts payable and accrued expenses | (1,816 | ) | (1,762 | ) | (1,713 | ) | |||||
Other, net | 487 | 393 | 223 | ||||||||
Total invested capital | $ | 10,378 | $ | 10,187 | $ | 9,616 | |||||
Average invested capital | $ | 10,354 | $ | 9,973 | $ | 9,780 | |||||
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) | — | (116 | ) | (91 | ) | ||||||
Adjusted average invested capital | $ | 10,354 | $ | 9,857 | $ | 9,689 | |||||
Adjusted return on average invested capital | 26.3 | % | * | 23.0 | % | 22.1 | % | ||||
FREE CASH FLOW (UNAUDITED)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
Dollars in millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net cash provided by operating activities | $ | 780 | $ | 624 | $ | 1,707 | $ | 1,638 | |||||||
Less: Additions to plant and equipment | (78 | ) | (81 | ) | (219 | ) | (202 | ) | |||||||
Free cash flow | $ | 702 | * | $ | 543 | $ | 1,488 | $ | 1,436 | ||||||
Net income | $ | 640 | $ | 535 | $ | 1,763 | $ | 1,528 | |||||||
Free cash flow to net income conversion rate | 110 | % | * | 101 | % | 84 | % | 94 | % | ||||||
* Excluding the impact of the confidential legal settlement in 2017, ROIC would have been 24.1% and free cash flow would have been $637 million (or 108% of net income) for the three months ended September 30, 2017.