ITW Reports Third Quarter 2015 Financial Results

  • EPS of $1.39, up 9 percent; up 18 percent excluding $(0.12) of currency headwinds
  • Record operating margin of 22.7 percent, up 180 basis points; Enterprise Initiatives contribute 110 basis points
  • Strong free cash flow conversion at 126 percent of net income
  • Record after-tax return on invested capital of 21.5 percent

GLENVIEW, Ill., Oct. 21, 2015 (GLOBE NEWSWIRE) — Illinois Tool Works Inc. (NYSE:ITW) today reported third quarter 2015 diluted earnings per share (EPS) from continuing operations of $1.39, a 9 percent increase compared to the year-ago period. Organic revenue was down 1.7 percent in the quarter as continued solid organic growth performance in Automotive OEM, Food Equipment and Construction Products was offset by deteriorating end market trends in Welding and Test & Measurement and Electronics. In addition, the company’s ongoing Product Line Simplification (PLS) activities reduced organic growth by 1 percentage-point.

“ITW delivered another strong quarter of margin expansion and earnings per share growth,” said E. Scott Santi, chairman and chief executive officer. “In the quarter, ITW set new all-time records for operating margin and after-tax return on invested capital and grew EPS by 9 percent. In addition, free cash flow conversion was very strong at 126 percent.  Due to ITW’s unique business model and proven track record of operational execution, the company is well positioned to continue to deliver differentiated performance in both the current environment and over the long-term.”   

Third quarter 2015 enterprise highlights*

  • EPS increased 9 percent to $1.39.  Excluding $(0.12) impact from foreign currency headwinds, EPS would have been up 18 percent.
  • Operating margin increased 180 basis points to a record of 22.7 percent as Enterprise Initiatives contribute 110 basis points.
  • Free cash flow was $644 million, 126 percent of net income.
  • After-tax return on invested capital improved 140 basis points to a record of 21.5 percent.
  • Total revenues of $3.4 billion were down 9 percent primarily due to the impact of foreign currency translation.

Third quarter 2015 segment performance*

  • Automotive OEM organic revenue growth of 5 percent outpaced flat worldwide auto builds. Organic revenue increased 12 percent in Europe, 5 percent in North America and declined 5 percent in China.  Operating margin of 25.4 percent was up 200 basis points.
  • Construction Products organic revenue increased 4 percent driven by 7 percent growth in North America and 5 percent growth in Asia Pacific.  Record operating margin of 23.1 percent was up 420 basis points.
  • Food Equipment organic revenue increased 3 percent due to 6 percent growth in North America.   Record operating margin of 26.3 percent was an increase of 320 basis points.
  • Facing challenging year-over-year comparisons and significant end market weakness, organic revenue in Welding and Test & Measurement and Electronics declined by 10 percent and 11 percent, respectively.

Guidance

The company is reducing its 2015 full-year EPS guidance by $0.05 or 1 percent at the midpoint to reflect current demand levels. The updated EPS range of $5.05 to $5.15 is a year-over-year increase of 9 percent at the midpoint.  Excluding the negative currency impact, full-year EPS would be up 18 percent at the midpoint. Organic revenue for the year is projected to be down 1 percent to flat, which includes the expected 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.  For the fourth quarter 2015, the company is expecting EPS to be in a range of $1.15 to $1.25 and operating margin to be approximately 21 percent.  Fourth quarter organic revenue is forecast to be down 1 to 2 percent, in line with current demand levels.

*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 second quarter of 2015. The attached tables include a calculation of ROIC, a non-GAAP measure.

About ITW

ITW (NYSE:ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.5 billion in 2014. The Company’s seven industry-leading businesses 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   Nine Months Ended
In millions except per share amounts September 30,   September 30,
  2015   2014   2015   2014
Operating Revenues $ 3,354     $ 3,692     $ 10,130     $ 10,980  
Cost of revenues 1,953     2,182     5,947     6,559  
Selling, administrative, and research and development expenses 581     675     1,819     2,034  
Amortization of intangible assets 57     60     174     182  
Impairment of goodwill and other intangible assets 2     3     2     3  
Operating Income 761     772     2,188     2,202  
Interest expense (59 )   (68 )   (168 )   (196 )
Other income (expense) 23     20     65     36  
Income from Continuing Operations Before Income Taxes 725     724     2,085     2,042  
Income Taxes 214     217     636     613  
Income from Continuing Operations 511     507     1,449     1,429  
Income from Discontinued Operations     24         1,067  
Net Income $ 511     $ 531     $ 1,449     $ 2,496  
               
Income Per Share from Continuing Operations:              
Basic $ 1.40     $ 1.29     $ 3.92     $ 3.51  
Diluted $ 1.39     $ 1.28     $ 3.90     $ 3.49  
Income Per Share from Discontinued Operations:              
Basic $     $ 0.06     $     $ 2.62  
Diluted $     $ 0.06     $     $ 2.60  
Net Income Per Share:              
Basic $ 1.40     $ 1.35     $ 3.92     $ 6.14  
Diluted $ 1.39     $ 1.34     $ 3.90     $ 6.09  
               
Shares of Common Stock Outstanding During the Period:              
Average 365.1     394.0     369.3     406.8  
Average assuming dilution 367.1     396.8     371.6     409.7  

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
 
In millions September 30, 2015   December 31, 2014
       
Assets      
Current Assets:      
Cash and equivalents $ 3,001     $ 3,990  
Trade receivables 2,339     2,293  
Inventories 1,153     1,180  
Deferred income taxes 189     212  
Prepaid expenses and other current assets 287     401  
Total current assets 6,969     8,076  
       
Net plant and equipment 1,601     1,686  
Goodwill 4,470     4,667  
Intangible assets 1,618     1,799  
Deferred income taxes 286     301  
Other assets 1,160     1,149  
  $ 16,104     $ 17,678  
Liabilities and Stockholders’ Equity      
Current Liabilities:      
Short-term debt $ 812     $ 1,476  
Accounts payable 498     512  
Accrued expenses 1,137     1,287  
Cash dividends payable 200     186  
Income taxes payable 71     64  
Deferred income taxes 6     8  
Total current liabilities 2,724     3,533  
       
Noncurrent Liabilities:      
Long-term debt 7,000     5,981  
Deferred income taxes 342     338  
Other liabilities 948     1,002  
Total noncurrent liabilities 8,290     7,321  
       
Stockholders’ Equity:      
Common stock 6     6  
Additional paid-in-capital 1,124     1,096  
Income reinvested in the business 18,066     17,173  
Common stock held in treasury (12,740 )   (10,798 )
Accumulated other comprehensive income (1,370 )   (658 )
Noncontrolling interest 4     5  
Total stockholders’ equity 5,090     6,824  
  $ 16,104     $ 17,678  

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
 
ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
 
  Three Months Ended   Nine Months Ended
Dollars in millions September 30,   September 30,
  2015   2014   2015   2014
Operating income $ 761     $ 772     $ 2,188     $ 2,202  
Tax rate 29.6 %   30.0 %   30.5 %   30.0 %
Income taxes (225 )   (232 )   (668 )   (661 )
Operating income after taxes $ 536     $ 540     $ 1,520     $ 1,541  
               
Invested capital:              
Trade receivables $ 2,339     $ 2,519     $ 2,339     $ 2,519  
Inventories 1,153     1,265     1,153     1,265  
Net plant and equipment 1,601     1,693     1,601     1,693  
Goodwill and intangible assets 6,088     6,596     6,088     6,596  
Accounts payable and accrued expenses (1,635 )   (1,901 )   (1,635 )   (1,901 )
Other, net 355     339     355     339  
Total invested capital $ 9,901     $ 10,511     $ 9,901     $ 10,511  
               
Average invested capital $ 10,080     $ 10,432     $ 10,079     $ 11,489  
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) (121 )   (155 )   (126 )   (158 )
Adjustment for Industrial Packaging     461         (529 )
Adjusted average invested capital $ 9,959     $ 10,738     $ 9,953     $ 10,802  
Annualized adjusted return on average invested capital 21.5 %   20.1 %   20.4 %   19.0 %

FREE CASH FLOW (UNAUDITED)
 
In millions Three Months Ended
  September 30, 2015
Net income $ 511  
   
Net cash provided by operating activities $ 706  
Less: Additions to plant and equipment (62 )
Free cash flow $ 644  
   
Free cash flow conversion 126 %

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
 
For the Three Months Ended September 30, 2015 % F(U) vs. prior year
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
  Total
Revenue
Organic
Revenue
Operating
Margin
Automotive OEM $ 612   $ 156   25.4 %   (3.0 )% 5.2 % 2.0 %
Test & Measurement and Electronics 490   82   16.6 %   (16.4 )% (11.3 )% (2.1 )%
Food Equipment 551   144   26.3 %   (4.2 )% 3.1 % 3.2 %
Polymers & Fluids 423   80   19.0 %   (13.6 )% (3.0 )% (1.2 )%
Welding 396   98   24.8 %   (13.7 )% (10.3 )% (1.4 )%
Construction Products 409   94   23.1 %   (8.1 )% 3.7 % 4.2 %
Specialty Products 479   115   24.0 %   (6.5 )% (0.1 )% 2.7 %
Intersegment (6 )   %   % % %
Total Segments 3,354   769   22.9 %   (9.2 )% (1.7 )% 1.2 %
Unallocated   (8 ) %   % % %
Total Company $ 3,354   $ 761   22.7 %   (9.2 )% (1.7 )% 1.8 %

For the Nine Months Ended September 30, 2015 % F(U) vs. prior year
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
  Total
Revenue
Organic
Revenue
Operating
Margin
Automotive OEM $ 1,914   $ 478   25.0 %   (2.8 )% 6.0 % 1.5 %
Test & Measurement and Electronics 1,469   232   15.8 %   (11.6 )% (5.9 )% 0.3 %
Food Equipment 1,564   370   23.7 %   (3.7 )% 3.7 % 3.2 %
Polymers & Fluids 1,310   262   20.0 %   (11.2 )% (1.7 )% 1.2 %
Welding 1,255   326   26.0 %   (9.9 )% (6.5 )% (0.1 )%
Construction Products 1,209   241   19.9 %   (7.4 )% 4.0 % 2.5 %
Specialty Products 1,427   334   23.4 %   (9.2 )% (3.1 )% 1.2 %
Intersegment (18 )   %   % % %
Total Segments 10,130   2,243   22.1 %   (7.7 )% (0.3 )% 1.4 %
Unallocated   (55 ) %   % % %
Total Company $ 10,130   $ 2,188   21.6 %   (7.7 )% (0.3 )% 1.5 %

 

CONTACT: Investors Contact: 
Aaron Hoffman 224.661.7429 ahoffman@itw.com
Media Contact: 
Alison Donnelly 224.661.7427 adonnelly@itw.com