Attached files
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| 8-K - 8-K - ILLINOIS TOOL WORKS INC | itw8k2q17.htm |
Exhibit 99.1
ITW Reports Second-Quarter 2017 Results
Delivers record financial results and raises earnings guidance for 2017
Second-quarter highlights:
• | GAAP EPS of $1.69, an increase of 16% |
• | Total revenue of $3.6 billion, an increase of 4.9%; organic growth of 2.6% |
• | Operating margin of 24.3%, an increase of 120 bps and an all-time record for the company |
• | Company now expects 2017 earnings to be in the range of $6.32 to $6.52 per share |
GLENVIEW, Ill., July 24, 2017 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its second-quarter 2017 results.
Second-quarter GAAP earnings were $1.69 per share, an increase of 16% versus the second quarter of 2016. Revenue grew 4.9% to $3.6 billion. Organic revenue increased 2.6% while the 2016 acquisition of Engineered Fasteners & Components (EF&C) added 3.5% to revenue. Foreign currency translation reduced revenue by 1.2%.
Operating income of $874 million for the second quarter was up 10% and was the highest quarterly income total in the company’s history. Operating margin for the quarter was 24.3%, an increase of 120 basis points. Excluding the margin impact from EF&C, operating margin was 24.9%, an increase of 180 basis points year-on-year with 100 basis points of structural margin improvement from Enterprise Initiatives. After-tax return on invested capital was 24.8%, an improvement of 190 basis points. Second-quarter net income was $587 million.
“Our second quarter performance reflects continued progress in our focus on leveraging ITW’s differentiated business model and diversified high-quality business portfolio to full potential,” said E. Scott Santi, Chairman and Chief Executive Officer. “I once again thank the entire ITW team for the great job that they continue to do in serving our customers and executing our strategy with excellence. Due to their efforts, ITW is well-positioned to continue to deliver differentiated performance through the balance of 2017 and beyond.”
Organic revenue growth was positive in six of seven segments: 4% in Automotive OEM, 4% in Test & Measurement/Electronics, 4% in Specialty Products, 3% in Welding, 2% in Construction Products, and 1% in Food Equipment. Polymers & Fluids was down 1%.
During the second quarter, the company recorded an EPS benefit of $0.03 per share related to a legal settlement. Excluding this item, second quarter earnings were $1.66 per share, an increase of 14% versus the prior year.
Full-Year and Third Quarter 2017 Guidance
As a result of the company’s strong second quarter results, ITW is raising its 2017 full-year EPS guidance by $0.12 at the mid-point. The company now expects earnings to be in the range of $6.32 to $6.52 per share, up from prior guidance of $6.20 to $6.40 per share, with organic revenue growth of 2 to 4%. ITW expects operating margin of approximately 24% and free cash flow to exceed 100% of net income. The company expects an effective tax rate of approximately 29%.
For the third quarter 2017, the company expects earnings to be in the range of $1.57 to $1.67 per share with organic growth of 1 to 3%.
The company’s third quarter and revised full-year EPS guidance does not include any EPS benefit from the previously disclosed legal settlement beyond the $0.03 per share recorded in the second quarter.
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 | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
In millions except per share amounts | 2017 | 2016 | 2017 | 2016 | |||||||||||
Operating Revenue | $ | 3,599 | $ | 3,431 | $ | 7,070 | $ | 6,705 | |||||||
Cost of revenue | 2,087 | 1,967 | 4,091 | 3,863 | |||||||||||
Selling, administrative, and research and development expenses | 586 | 617 | 1,191 | 1,214 | |||||||||||
Amortization and impairment of intangible assets | 52 | 55 | 105 | 114 | |||||||||||
Operating Income | 874 | 792 | 1,683 | 1,514 | |||||||||||
Interest expense | (65 | ) | (58 | ) | (129 | ) | (116 | ) | |||||||
Other income (expense) | 10 | 17 | 14 | 21 | |||||||||||
Income Before Taxes | 819 | 751 | 1,568 | 1,419 | |||||||||||
Income taxes | 232 | 226 | 445 | 426 | |||||||||||
Net Income | $ | 587 | $ | 525 | $ | 1,123 | $ | 993 | |||||||
Net Income Per Share: | |||||||||||||||
Basic | $ | 1.70 | $ | 1.47 | $ | 3.25 | $ | 2.76 | |||||||
Diluted | $ | 1.69 | $ | 1.46 | $ | 3.23 | $ | 2.75 | |||||||
Cash Dividends Per Share: | |||||||||||||||
Paid | $ | 0.65 | $ | 0.55 | $ | 1.30 | $ | 1.10 | |||||||
Declared | $ | 0.65 | $ | 0.55 | $ | 1.30 | $ | 1.10 | |||||||
Shares of Common Stock Outstanding During the Period: | |||||||||||||||
Average | 344.7 | 356.6 | 345.4 | 359.3 | |||||||||||
Average assuming dilution | 347.5 | 358.5 | 348.3 | 361.2 | |||||||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions | June 30, 2017 | December 31, 2016 | |||||
Assets | |||||||
Current Assets: | |||||||
Cash and equivalents | $ | 2,496 | $ | 2,472 | |||
Trade receivables | 2,629 | 2,357 | |||||
Inventories | 1,199 | 1,076 | |||||
Prepaid expenses and other current assets | 246 | 218 | |||||
Total current assets | 6,570 | 6,123 | |||||
Net plant and equipment | 1,726 | 1,652 | |||||
Goodwill | 4,675 | 4,558 | |||||
Intangible assets | 1,366 | 1,463 | |||||
Deferred income taxes | 488 | 449 | |||||
Other assets | 1,097 | 956 | |||||
$ | 15,922 | $ | 15,201 | ||||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 691 | $ | 652 | |||
Accounts payable | 582 | 511 | |||||
Accrued expenses | 1,172 | 1,202 | |||||
Cash dividends payable | 224 | 226 | |||||
Income taxes payable | 157 | 169 | |||||
Total current liabilities | 2,826 | 2,760 | |||||
Noncurrent Liabilities: | |||||||
Long-term debt | 7,360 | 7,177 | |||||
Deferred income taxes | 121 | 134 | |||||
Other liabilities | 841 | 871 | |||||
Total noncurrent liabilities | 8,322 | 8,182 | |||||
Stockholders’ Equity: | |||||||
Common stock | 6 | 6 | |||||
Additional paid-in-capital | 1,196 | 1,188 | |||||
Retained earnings | 20,180 | 19,505 | |||||
Common stock held in treasury | (15,095 | ) | (14,638 | ) | |||
Accumulated other comprehensive income (loss) | (1,516 | ) | (1,807 | ) | |||
Noncontrolling interest | 3 | 5 | |||||
Total stockholders’ equity | 4,774 | 4,259 | |||||
$ | 15,922 | $ | 15,201 | ||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended June 30, 2017 | ||||||||
Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||
Automotive OEM | $ | 820 | $ | 182 | 22.3 | % | ||
Food Equipment | 529 | 139 | 26.4 | % | ||||
Test & Measurement and Electronics | 519 | 114 | 21.9 | % | ||||
Welding | 385 | 105 | 27.2 | % | ||||
Polymers & Fluids | 437 | 94 | 21.4 | % | ||||
Construction Products | 425 | 102 | 24.0 | % | ||||
Specialty Products | 490 | 139 | 28.3 | % | ||||
Intersegment | (6 | ) | — | — | % | |||
Total Segments | 3,599 | 875 | 24.3 | % | ||||
Unallocated | — | (1 | ) | — | % | |||
Total Company | $ | 3,599 | $ | 874 | 24.3 | % | ||
Six Months Ended June 30, 2017 | ||||||||
Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||
Automotive OEM | $ | 1,648 | $ | 384 | 23.3 | % | ||
Food Equipment | 1,026 | 264 | 25.8 | % | ||||
Test & Measurement and Electronics | 999 | 210 | 21.0 | % | ||||
Welding | 772 | 212 | 27.4 | % | ||||
Polymers & Fluids | 863 | 182 | 21.0 | % | ||||
Construction Products | 820 | 191 | 23.3 | % | ||||
Specialty Products | 953 | 263 | 27.6 | % | ||||
Intersegment | (11 | ) | — | — | % | |||
Total Segments | 7,070 | 1,706 | 24.1 | % | ||||
Unallocated | — | (23 | ) | — | % | |||
Total Company | $ | 7,070 | $ | 1,683 | 23.8 | % | ||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q2 2017 vs. Q2 2016 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | 4.4 | % | 0.6 | % | 4.3 | % | 3.3 | % | (1.0 | )% | 1.6 | % | 3.9 | % | 2.6 | % |
Acquisitions/Divestitures | 19.0 | % | — | % | — | % | — | % | — | % | — | % | (1.4 | )% | 3.5 | % |
Translation | (1.2 | )% | (2.0 | )% | (1.8 | )% | (0.4 | )% | (0.3 | )% | (1.2 | )% | (1.4 | )% | (1.2 | )% |
Operating Revenue | 22.2 | % | (1.4 | )% | 2.5 | % | 2.9 | % | (1.3 | )% | 0.4 | % | 1.1 | % | 4.9 | % |
Q2 2017 vs. Q2 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 | 70 bps | 10 bps | 120 bps | 60 bps | (20) bps | 40 bps | 80 bps | 50 bps |
Changes in Variable Margin & OH Costs | (70) bps | 90 bps | 200 bps | 10 bps | 100 bps | (140) bps | 100 bps | 110 bps |
Total Organic | — | 100 bps | 320 bps | 70 bps | 80 bps | (100) bps | 180 bps | 160 bps |
Acquisitions/Divestitures | (270) bps | — | — | — | — | — | 30 bps | (60) bps |
Restructuring/Other | (80) bps | 40 bps | 10 bps | 160 bps | (30) bps | 70 bps | 20 bps | 20 bps |
Total Operating Margin Change | (350) bps | 140 bps | 330 bps | 230 bps | 50 bps | (30) bps | 230 bps | 120 bps |
Total Operating Margin % * | 22.3% | 26.4% | 21.9% | 27.2% | 21.4% | 24.0% | 28.3% | 24.3% |
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 50 bps | 80 bps | 320 bps | 40 bps | 400 bps | 60 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 second quarter of 2017. | ||||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
1H 2017 vs 1H 2016 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | 6.7 | % | 1.3 | % | 4.9 | % | 1.5 | % | 0.2 | % | 2.2 | % | 2.4 | % | 3.0 | % |
Acquisitions/Divestitures | 19.2 | % | — | % | — | % | — | % | — | % | — | % | (1.1 | )% | 3.6 | % |
Translation | (1.7 | )% | (2.2 | )% | (2.0 | )% | (0.4 | )% | 0.1 | % | (0.7 | )% | (1.3 | )% | (1.2 | )% |
Operating Revenue | 24.2 | % | (0.9 | )% | 2.9 | % | 1.1 | % | 0.3 | % | 1.5 | % | — | % | 5.4 | % |
1H 2017 vs. 1H 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 | 90 bps | 20 bps | 140 bps | 40 bps | — | 50 bps | 60 bps | 60 bps |
Changes in Variable Margin & OH Costs | (50) bps | 40 bps | 250 bps | 110 bps | 110 bps | (20) bps | 90 bps | 110 bps |
Total Organic | 40 bps | 60 bps | 390 bps | 150 bps | 110 bps | 30 bps | 150 bps | 170 bps |
Acquisitions/Divestitures | (270) bps | — | — | — | — | — | 30 bps | (60) bps |
Restructuring/Other | (50) bps | 40 bps | — | 150 bps | (70) bps | 20 bps | (20) bps | 10 bps |
Total Operating Margin Change | (280) bps | 100 bps | 390 bps | 300 bps | 40 bps | 50 bps | 160 bps | 120 bps |
Total Operating Margin % * | 23.3% | 25.8% | 21.0% | 27.4% | 21.0% | 23.3% | 27.6% | 23.8% |
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 60 bps | 80 bps | 340 bps | 50 bps | 410 bps | 60 bps | 130 bps | 150 bps ** |
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.21) on GAAP net income diluted earnings per share for the first half 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 | Six Months Ended | Twelve Months Ended | |||||||||||||||||
June 30, | June 30, | December 31, | |||||||||||||||||
Dollars in millions | 2017 | 2016 | 2017 | 2016 | 2016 | ||||||||||||||
Operating income | $ | 874 | $ | 792 | $ | 1,683 | $ | 1,514 | $ | 3,064 | |||||||||
Tax rate | 28.4 | % | 30.0 | % | 28.4 | % | 30.0 | % | 30.0 | % | |||||||||
Income taxes | (248 | ) | (238 | ) | (477 | ) | (454 | ) | (919 | ) | |||||||||
Operating income after taxes | $ | 626 | $ | 554 | $ | 1,206 | $ | 1,060 | $ | 2,145 | |||||||||
Invested capital: | |||||||||||||||||||
Trade receivables | $ | 2,629 | $ | 2,413 | $ | 2,629 | $ | 2,413 | $ | 2,357 | |||||||||
Inventories | 1,199 | 1,145 | 1,199 | 1,145 | 1,076 | ||||||||||||||
Net plant and equipment | 1,726 | 1,580 | 1,726 | 1,580 | 1,652 | ||||||||||||||
Goodwill and intangible assets | 6,041 | 5,907 | 6,041 | 5,907 | 6,021 | ||||||||||||||
Accounts payable and accrued expenses | (1,754 | ) | (1,635 | ) | (1,754 | ) | (1,635 | ) | (1,713 | ) | |||||||||
Other, net | 488 | 349 | 488 | 349 | 223 | ||||||||||||||
Total invested capital | $ | 10,329 | $ | 9,759 | $ | 10,329 | $ | 9,759 | $ | 9,616 | |||||||||
Average invested capital | $ | 10,105 | $ | 9,768 | $ | 9,942 | $ | 9,698 | $ | 9,780 | |||||||||
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) | — | (112 | ) | — | (112 | ) | (91 | ) | |||||||||||
Adjusted average invested capital | $ | 10,105 | $ | 9,656 | $ | 9,942 | $ | 9,586 | $ | 9,689 | |||||||||
Adjusted return on average invested capital | 24.8 | % | 22.9 | % | 24.3 | % | 22.1 | % | 22.1 | % | |||||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
FREE CASH FLOW (UNAUDITED)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
Dollars in millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net cash provided by operating activities | $ | 464 | $ | 535 | $ | 927 | $ | 1,014 | |||||||
Less: Additions to plant and equipment | (77 | ) | (64 | ) | (141 | ) | (121 | ) | |||||||
Free cash flow | $ | 387 | $ | 471 | $ | 786 | $ | 893 | |||||||
Net income | $ | 587 | $ | 525 | $ | 1,123 | $ | 993 | |||||||
Free cash flow to net income conversion rate | 66 | % | * | 90 | % | 70 | % | * | 90 | % | |||||
* Excluding $115 million related to an additional discretionary pension contribution, the free cash flow to net income conversion rate for the three months ended June 30, 2017 would have been 85%. Excluding $160 million of discretionary pension contributions for the six months ended June 30, 2017 as compared to the prior year period, the free cash flow to net income conversion rate would have been 84%.
Three Months Ended | Six Months Ended | ||||||
June 30, | June 30, | ||||||
Dollars in millions | 2017 | 2017 | |||||
Free cash flow | $ | 387 | $ | 786 | |||
Pension contribution adjustment | 115 | 160 | |||||
Adjusted free cash flow | $ | 502 | $ | 946 | |||
Net income | $ | 587 | $ | 1,123 | |||
Adjusted free cash flow to net income conversion rate | 85 | % | 84 | % | |||