ILLINOIS TOOL WORKS INC - FORM 8-K - EX-99.1 - April 30, 2021

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8-K - 8-K - ILLINOIS TOOL WORKS INCitw-20210430.htm

Exhibit 99.1
ITW Reports Record First Quarter 2021 Results

•Total revenue of $3.5 billion, an increase of 10%
•Organic growth of 6%, 8% on an equal days’ basis
•Record Q1 financial performance:
–Operating income of $905 million, an increase of 19%
–Operating margin of 25.5%, an increase of 190 basis points
–GAAP EPS of $2.11, an increase of 19%
–After-tax ROIC of 32.1%
•Raising full year GAAP EPS guidance by $0.60 to a range of $8.20 to $8.60 per share

GLENVIEW, IL., April 30, 2021 - Illinois Tool Works Inc. (NYSE: ITW) today reported its first quarter 2021 results.

“We saw continued improvement in the demand environment across a broad cross section of our business portfolio in the first quarter and our teams around the world responded,” said E. Scott Santi, Chairman and Chief Executive Officer. “The combination of the ‘Win the Recovery’ actions we initiated over the course of the past year, the foundational strength of ITW’s 80/20 front-to-back business system, and our continuing progress in executing our long-term enterprise strategy allowed us to meet our customers’ increasing needs while delivering excellent profitability leverage, as evidenced by our 19 percent earnings growth, 45 percent incremental margins, and 120 basis points of margin benefit from enterprise initiatives in the quarter. While a number of significant issues and uncertainties remain on the path to recovery from the COVID-19 pandemic globally, I am confident that ITW is well-positioned to both seize the opportunities and deal with the challenges that lie ahead as we move through the balance of 2021.”

First Quarter 2021 Results
First quarter revenue of $3.5 billion increased 10 percent versus the prior year period, as organic revenue grew six percent, or eight percent when equalizing for one less shipping day in 2021 versus 2020, and foreign currency translation impact was favorable by four percent. Product Line Simplification (PLS) activities reduced organic revenue growth by 20 basis points.

GAAP EPS of $2.11 increased 19 percent. Operating income increased 19 percent to $905 million. Operating margin was 25.5 percent, an increase of 190 basis points with enterprise initiatives contributing 120 basis points. Free cash flow was $541 million, 81 percent of net income and in line with typical seasonality. After-tax return on invested capital improved to 32.1 percent compared to 27.0 percent in the prior year period. The effective tax rate for the first quarter was 22.4 percent.

Six of our seven segments delivered strong organic growth in the quarter, led by Construction Products which was up 13 percent. Test & Measurement and Electronics was up 11 percent, Polymers & Fluids up nine percent, Automotive OEM up eight percent, Specialty Products up seven percent, and Welding up six percent. While organic revenue in Food Equipment was down ten percent in Q1, we saw meaningful improvement in demand trends sequentially versus the 19 percent decline the business experienced in the fourth quarter of 2020.

2021 Guidance
Projecting full year results based on demand rates exiting the first quarter, the company now expects full year GAAP EPS of $8.20 to $8.60 per share, an increase of 27 percent at the midpoint. Organic growth is expected to be in the range of 10 to 12 percent. Revenue is expected to grow in the range of 12 to 14 percent as foreign currency translation at current exchange rates is projected to increase revenue by approximately two percent. PLS impact is forecasted to be approximately 50 basis points. Operating margin is expected to be in the range of 25 to 26 percent, with enterprise initiatives contributing approximately 100 basis points. Free cash flow is expected to be greater than 100 percent of net income. The company plans to repurchase approximately $1 billion of its shares and expects an effective tax rate of 23 to 24 percent. Guidance excludes any impact from the previously announced acquisition of the MTS Test & Simulation business.

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. The estimated guidance of Free Cash Flow conversion rate is based on assumptions that are difficult to predict, and a reconciliation of estimated Free Cash Flow to the most directly comparable GAAP measure has been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of availability of reliable forward-looking cash flow and operating information.



Forward-looking Statement
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding the duration and potential effects of the COVID-19 pandemic, related government actions and the company’s strategy in response thereto on the company’s business, expected impact of tariffs and raw material inflation, product line simplification activities and enterprise initiatives, future financial and operating performance, free cash flow, organic and total revenue, operating margin, price/cost impact, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation, after-tax return on invested capital, effective tax rates, exchange rates, expected access to liquidity sources, expected capital allocation, expected timing and amount of share repurchases, end market economic and regulatory conditions, potential acquisitions and dispositions and related impact on financial results, including statements with respect to the anticipated acquisition of the MTS Test & Simulation business, and the company’s 2021 guidance. These statements are subject to certain risks, uncertainties, assumptions 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 2020.

About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $12.6 billion in 2020. 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’s approximately 43,000 dedicated colleagues around the world thrive in the company’s 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 amounts20212020
Operating Revenue$3,544 $3,228 
Cost of revenue2,039 1,871 
Selling, administrative, and research and development expenses566 560 
Amortization and impairment of intangible assets34 36 
Operating Income905 761 
Interest expense(52)(51)
Other income (expense)12 25 
Income Before Taxes865 735 
Income Taxes194 169 
Net Income$671 $566 
Net Income Per Share:
Basic$2.12 $1.78 
Diluted$2.11 $1.77 
Cash Dividends Per Share:
Paid$1.14 $1.07 
Declared$1.14 $1.07 
Shares of Common Stock Outstanding During the Period:
Average316.6 318.3 
Average assuming dilution317.9 319.7 



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millionsMarch 31, 2021December 31, 2020
Assets
Current Assets:
Cash and equivalents$2,484 $2,564 
Trade receivables2,662 2,506 
Inventories1,292 1,189 
Prepaid expenses and other current assets266 264 
Total current assets6,704 6,523 
Net plant and equipment1,746 1,777 
Goodwill4,632 4,690 
Intangible assets747 781 
Deferred income taxes519 533 
Other assets1,315 1,308 
 $15,663 $15,612 
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt$350 $350 
Accounts payable589 534 
Accrued expenses1,261 1,284 
Cash dividends payable360 361 
Income taxes payable120 60 
Total current liabilities2,680 2,589 
Noncurrent Liabilities:
Long-term debt7,599 7,772 
Deferred income taxes637 588 
Noncurrent income taxes payable413 413 
Other liabilities1,058 1,068 
Total noncurrent liabilities9,707 9,841 
Stockholders' Equity:
Common stock6 6 
Additional paid-in-capital1,378 1,362 
Retained earnings23,425 23,114 
Common stock held in treasury(19,897)(19,659)
Accumulated other comprehensive income (loss)(1,638)(1,642)
Noncontrolling interest2 1 
Total stockholders' equity3,276 3,182 
 $15,663 $15,612 



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Three Months Ended March 31, 2021
Dollars in millionsTotal RevenueOperating IncomeOperating Margin
Automotive OEM$783 $189 24.1 %
Food Equipment451 96 21.2 %
Test & Measurement and Electronics552 157 28.4 %
Welding401 121 30.3 %
Polymers & Fluids435 112 25.7 %
Construction Products469 130 27.6 %
Specialty Products457 126 27.6 %
Intersegment(4)— — %
Total Segments3,544 931 26.3 %
Unallocated— (26)— %
Total Company$3,544 $905 25.5 %




ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q1 2021 vs. Q1 2020 Favorable/(Unfavorable)
Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Organic7.6 %(9.6)%10.7 %6.2 %8.8 %12.8 %7.3 %6.1 %
Acquisitions/
Divestitures		— %— %— %— %— %(0.2)%— %— %
Translation5.0 %3.1 %3.3 %1.3 %1.9 %7.6 %3.1 %3.7 %
Operating
Revenue		12.6 %(6.5)%14.0 %7.5 %10.7 %20.2 %10.4 %9.8 %

Q1 2021 vs. Q1 2020 Favorable/(Unfavorable)
Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage 130 bps  (260) bps  260 bps  100 bps  200 bps  260 bps  140 bps  120 bps
Changes in Variable Margin & OH Costs 170 bps  (50) bps  70 bps  20 bps  (10) bps  170 bps  50 bps  70 bps
Total Organic 300 bps  (310) bps  330 bps  120 bps  190 bps  430 bps  190 bps  190 bps
Acquisitions/Divestitures————————
Restructuring/
Other		 20 bps ——— 20 bps  (10) bps  (60) bps —
Total Operating Margin Change 320 bps  (310) bps  330 bps  120 bps  210 bps  420 bps  130 bps  190 bps
Total Operating Margin % *24.1%21.2%28.4%30.3%25.7%27.6%27.6%25.5%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps  70 bps  170 bps  10 bps  290 bps  20 bps  80 bps  100 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the first quarter of 2021.



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended
March 31,
Dollars in millions20212020
Operating income$905 $761 
Tax rate22.4 %23.0 %
Income taxes(203)(175)
Operating income after taxes$702 $586 
Invested capital: 
Trade receivables$2,662 $2,424 
Inventories1,292 1,185 
Net assets held for sale— 181 
Net plant and equipment1,746 1,704 
Goodwill and intangible assets5,379 5,237 
Accounts payable and accrued expenses(1,850)(1,593)
Other, net(488)(590)
Total invested capital$8,741 $8,548 
Average invested capital$8,740 $8,677 
After-tax return on average invested capital32.1 %27.0 %


FREE CASH FLOW (UNAUDITED)
Three Months EndedTwelve Months Ended
March 31,December 31,
Dollars in millions202120202020
Net cash provided by operating activities$609 $614 $2,807 
Less: Additions to plant and equipment(68)(60)(236)
Free cash flow$541 $554 $2,571 
Net income$671 $566 $2,109 
Free cash flow to net income conversion rate81 %98 %122 %


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