ITW Reports Second-Quarter 2017 Results
July 24 2017 - 7:00AM
Second-quarter highlights:
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 GuidanceAs 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 MeasuresThis 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 StatementThis 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 ITWITW (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
SUBSIDIARIESSTATEMENT 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
SUBSIDIARIESSTATEMENT 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
SUBSIDIARIESSEGMENT DATA (UNAUDITED) |
|
Three Months Ended June 30, 2017 |
Dollars in millions |
TotalRevenue |
|
OperatingIncome |
|
OperatingMargin |
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 |
TotalRevenue |
|
OperatingIncome |
|
OperatingMargin |
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
SUBSIDIARIESSEGMENT DATA (UNAUDITED) |
|
Q2 2017 vs. Q2 2016
Favorable/(Unfavorable) |
Operating Revenue |
AutomotiveOEM |
|
FoodEquipment |
|
Test &Measurementand
Electronics |
|
Welding |
|
Polymers &Fluids |
|
ConstructionProducts |
|
SpecialtyProducts |
|
TotalITW |
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 |
AutomotiveOEM |
|
FoodEquipment |
|
Test &Measurementand
Electronics |
|
Welding |
|
Polymers &Fluids |
|
ConstructionProducts |
|
SpecialtyProducts |
|
TotalITW |
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
SUBSIDIARIESSEGMENT DATA (UNAUDITED) |
|
1H 2017 vs 1H 2016
Favorable/(Unfavorable) |
Operating Revenue |
AutomotiveOEM |
|
FoodEquipment |
|
Test &Measurementand
Electronics |
|
Welding |
|
Polymers& Fluids |
|
ConstructionProducts |
|
SpecialtyProducts |
|
TotalITW |
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 |
AutomotiveOEM |
|
FoodEquipment |
|
Test &Measurementand
Electronics |
|
Welding |
|
Polymers& Fluids |
|
ConstructionProducts |
|
SpecialtyProducts |
|
TotalITW |
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 |
AutomotiveOEM |
|
FoodEquipment |
|
Test &Measurementand
Electronics |
|
Welding |
|
Polymers& Fluids |
|
ConstructionProducts |
|
SpecialtyProducts |
|
TotalITW |
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
SUBSIDIARIESGAAP 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
SUBSIDIARIESGAAP 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 |
% |
Contact: Mike Drazin 224.661.7433 or mdrazin@itw.com
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