ITW - ITW Delivers $1.81 Earnings per Share
GLENVIEW, Ill., April 25, 2019 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its first-quarter 2019 results including earnings per share (EPS) of $1.81 compared to $1.90 in the first quarter of 2018. As expected, unfavorable foreign currency translation impact, higher restructuring costs and a higher effective tax rate reduced EPS by a combined $0.16 year-over-year.
“ITW had a solid start to 2019. We expanded operating margin to 24.3 percent, excluding the impact from accelerated restructuring, as enterprise initiatives contributed 100 basis points and price/cost was more favorable than expected. We grew Free Cash Flow 21 percent, with conversion of 90 percent, well above our seasonal average. After a slow start in January, sales trends improved across the board as the quarter progressed,” said E. Scott Santi, Chairman and Chief Executive Officer. “Looking ahead, our view that continued contributions from enterprise initiatives, improving price/cost dynamics, restructuring benefits, more favorable sales and foreign currency comparisons, and stabilizing auto production in Europe and China will all contribute to a stronger operating environment in the back half of the year is unchanged. As a result, we remain firmly on track to deliver on our full year EPS guidance. As the ITW team continues to execute on our ‘Finish the Job’ agenda, I am confident that we will continue to deliver differentiated financial performance in 2019 and beyond.”
Revenue of $3.6 billion was down five percent, with an unfavorable foreign currency translation impact of 3.4 percent and organic revenue down 1.5 percent. Excluding the impact of one less shipping day in the quarter, organic revenue was flat. Organic revenue growth by segment was as follows: Welding grew three percent, Food Equipment grew two percent; Test & Measurement/Electronics, Polymers & Fluids and Construction Products were down one percent, Specialty Products down two percent, and Automotive OEM down six percent. As expected, the company’s ongoing Product Line Simplification (PLS) activities reduced organic revenue growth by 70 basis points.
Operating margin was 23.6 percent, as compared to 24.1 percent in the prior year. Excluding 70 basis points of unfavorable margin impact due to higher restructuring expenses, operating margin improved 20 basis points to 24.3 percent. Strong execution on enterprise initiatives contributed 100 basis points of margin improvement and price/cost diluted margin by 10 basis points. Free Cash Flow increased 21 percent to $539 million, with 90 percent conversion, and the company repurchased $375 million of its own shares. After-tax return on invested capital was 27.7 percent.
2019 Guidance
The company is reaffirming its full-year EPS guidance of $7.90 to $8.20 per share, which represents four to eight percent growth year over year. Factoring in the slower start to the year, organic revenue growth is expected to be in the range of 0.5 to 2.5 percent. The company expects full-year operating margin to improve by approximately 100 basis points with enterprise initiatives contributing 100 basis points. Free cash flow is expected to be above 100 percent of net income, and the company is on pace to repurchase approximately $1.5 billion of its shares in 2019. The effective tax rate is expected to be 24.5 to 25.5 percent.
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, foreign exchange rates, total and organic revenue growth, operating margin, economic and regulatory conditions in various geographic regions, price/cost impact, restructuring expenses, free cash flow, effective tax rate, after-tax return on invested capital, and timing and amount of share repurchases. 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 2018.
About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.8 billion in 2018. 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 approximately 48,000 dedicated colleagues in operations around the world who thrive in the company’s unique, 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 amounts |
| 2019 |
| 2018 |
| Operating Revenue |
| $ |
| 3,552 |
| $ |
| 3,744 |
| Cost of revenue |
| 2,059 |
| 2,181 |
| Selling, administrative, and research and development expenses |
| 611 |
| 612 |
| Amortization and impairment of intangible assets |
| 43 |
| 48 |
| Operating Income |
| 839 |
| 903 |
| Interest expense |
| (63 |
| ) |
| (66 |
| ) |
| Other income (expense) |
| 14 |
| 12 |
| Income Before Taxes |
| 790 |
| 849 |
| Income Taxes |
| 193 |
| 197 |
| Net Income |
| $ |
| 597 |
| $ |
| 652 |
| Net Income Per Share: |
| Basic |
| $ |
| 1.82 |
| $ |
| 1.92 |
| Diluted |
| $ |
| 1.81 |
| $ |
| 1.90 |
| Cash Dividends Per Share: |
| Paid |
| $ |
| 1.00 |
| $ |
| 0.78 |
| Declared |
| $ |
| 1.00 |
| $ |
| 0.78 |
| Shares of Common Stock Outstanding During the Period: |
| Average |
| 327.3 |
| 340.2 |
| Average assuming dilution |
| 329.6 |
| 342.8 |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
| In millions |
| March 31, 2019 |
| December 31, 2018 |
| Assets |
| Current Assets: |
| Cash and equivalents |
| $ |
| 1,755 |
| $ |
| 1,504 |
| Trade receivables |
| 2,715 |
| 2,622 |
| Inventories |
| 1,346 |
| 1,318 |
| Prepaid expenses and other current assets |
| 259 |
| 334 |
| Total current assets |
| 6,075 |
| 5,778 |
| Net plant and equipment |
| 1,765 |
| 1,791 |
| Goodwill |
| 4,621 |
| 4,633 |
| Intangible assets |
| 1,044 |
| 1,084 |
| Deferred income taxes |
| 547 |
| 554 |
| Other assets |
| 1,274 |
| 1,030 |
| $ |
| 15,326 |
| $ |
| 14,870 |
| Liabilities and Stockholders' Equity |
| Current Liabilities: |
| Short-term debt |
| $ |
| 1,760 |
| $ |
| 1,351 |
| Accounts payable |
| 568 |
| 524 |
| Accrued expenses |
| 1,228 |
| 1,271 |
| Cash dividends payable |
| 326 |
| 328 |
| Income taxes payable |
| 79 |
| 68 |
| Total current liabilities |
| 3,961 |
| 3,542 |
| Noncurrent Liabilities: |
| Long-term debt |
| 5,981 |
| 6,029 |
| Deferred income taxes |
| 727 |
| 707 |
| Noncurrent income taxes payable |
| 495 |
| 495 |
| Other liabilities |
| 962 |
| 839 |
| Total noncurrent liabilities |
| 8,165 |
| 8,070 |
| Stockholders’ Equity: |
| Common stock |
| 6 |
| 6 |
| Additional paid-in-capital |
| 1,255 |
| 1,253 |
| Retained earnings |
| 21,488 |
| 21,217 |
| Common stock held in treasury |
| (17,911 |
| ) |
| (17,545 |
| ) |
| Accumulated other comprehensive income (loss) |
| (1,642 |
| ) |
| (1,677 |
| ) |
| Noncontrolling interest |
| 4 |
| 4 |
| Total stockholders’ equity |
| 3,200 |
| 3,258 |
| $ |
| 15,326 |
| $ |
| 14,870 |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| Three Months Ended March 31, 2019 |
| Dollars in millions |
| Total Revenue |
| Operating Income |
| Operating Margin |
| Automotive OEM |
| $ |
| 806 |
| $ |
| 167 |
| 20.6 |
| % |
| Food Equipment |
| 518 |
| 129 |
| 24.9 |
| % |
| Test & Measurement and Electronics |
| 524 |
| 126 |
| 24.1 |
| % |
| Welding |
| 427 |
| 120 |
| 28.1 |
| % |
| Polymers & Fluids |
| 416 |
| 89 |
| 21.3 |
| % |
| Construction Products |
| 401 |
| 87 |
| 21.7 |
| % |
| Specialty Products |
| 465 |
| 123 |
| 26.5 |
| % |
| Intersegment |
| (5 |
| ) |
| — |
| — |
| % |
| Total Segments |
| 3,552 |
| 841 |
| 23.7 |
| % |
| Unallocated |
| — |
| (2 |
| ) |
| — |
| % |
| Total Company |
| $ |
| 3,552 |
| $ |
| 839 |
| 23.6 |
| % |
| Q1 2019 vs. Q1 2018 Favorable/(Unfavorable) |
| Operating Revenue |
| Automotive OEM |
| Food Equipment |
| Test & Measurement and Electronics |
| Welding |
| Polymers & Fluids |
| Construction Products |
| Specialty Products |
| Total ITW |
| Organic |
| (6.4 |
| )% |
| 1.7 |
| % |
| (0.5 |
| )% |
| 2.8 |
| % |
| (0.8 |
| )% |
| (1.4 |
| )% |
| (1.5 |
| )% |
| (1.5 |
| )% |
| Acquisitions/ Divestitures |
| — |
| % |
| — |
| % |
| — |
| % |
| (0.5 |
| )% |
| (0.9 |
| )% |
| — |
| % |
| — |
| % |
| (0.2 |
| )% |
| Translation |
| (4.1 |
| )% |
| (3.4 |
| )% |
| (3.1 |
| )% |
| (1.3 |
| )% |
| (4.3 |
| )% |
| (4.9 |
| )% |
| (2.8 |
| )% |
| (3.4 |
| )% |
| Operating Revenue |
| (10.5 |
| )% |
| (1.7 |
| )% |
| (3.6 |
| )% |
| 1.0 |
| % |
| (6.0 |
| )% |
| (6.3 |
| )% |
| (4.3 |
| )% |
| (5.1 |
| )% |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| Q1 2019 vs. Q1 2018 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 |
| (100) bps |
| 40 bps |
| (10) bps |
| 60 bps |
| (20) bps |
| (40) bps |
| (30) bps |
| (30) bps |
| Changes in Variable Margin & OH Costs |
| (60) bps |
| 70 bps |
| 100 bps |
| (30) bps |
| 70 bps |
| 60 bps |
| — |
| 50 bps |
| Total Organic |
| (160) bps |
| 110 bps |
| 90 bps |
| 30 bps |
| 50 bps |
| 20 bps |
| (30) bps |
| 20 bps |
| Acquisitions/ Divestitures |
| — |
| — |
| — |
| 10 bps |
| 10 bps |
| — |
| — |
| — |
| Restructuring/Other |
| (190) bps |
| (80) bps |
| (20) bps |
| — |
| (20) bps |
| (70) bps |
| 10 bps |
| (70) bps |
| Total Operating Margin Change |
| (350) bps |
| 30 bps |
| 70 bps |
| 40 bps |
| 40 bps |
| (50) bps |
| (20) bps |
| (50) bps |
| Total Operating Margin % * |
| 20.6 |
| % |
| 24.9 |
| % |
| 24.1 |
| % |
| 28.1 |
| % |
| 21.3 |
| % |
| 21.7 |
| % |
| 26.5 |
| % |
| 23.6 |
| % |
| *Includes unfavorable operating margin impact of amortization expense from acquisition- related intangible assets |
| 50 bps |
| 70 bps |
| 260 bps |
| 30 bps |
| 360 bps |
| 40 bps |
| 110 bps |
| 130 bps ** |
| ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.10) on GAAP earnings per share for the first quarter of 2019. |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
| Three Months Ended |
| March 31, |
| Dollars in millions |
| 2019 |
| 2018 |
| Operating income |
| $ |
| 839 |
| $ |
| 903 |
| Tax rate |
| 24.4 |
| % |
| 24.8 |
| % |
| Income taxes |
| (205 |
| ) |
| (224 |
| ) |
| Operating income after taxes |
| $ |
| 634 |
| $ |
| 679 |
| Invested capital: |
| Trade receivables |
| $ |
| 2,715 |
| $ |
| 2,874 |
| Inventories |
| 1,346 |
| 1,335 |
| Net plant and equipment |
| 1,765 |
| 1,829 |
| Goodwill and intangible assets |
| 5,665 |
| 6,021 |
| Accounts payable and accrued expenses |
| (1,796 |
| ) |
| (1,905 |
| ) |
| Other, net |
| (509 |
| ) |
| (382 |
| ) |
| Total invested capital |
| $ |
| 9,186 |
| $ |
| 9,772 |
| Average invested capital |
| $ |
| 9,160 |
| $ |
| 9,797 |
| Adjusted return on average invested capital |
| 27.7 |
| % |
| 27.7 |
| % |
A reconciliation of the first quarter 2018 effective tax rate excluding the first quarter discrete tax benefit related to foreign tax credits is as follows:
| Three Months Ended |
| March 31, 2018 |
| Dollars in millions |
| Income Taxes |
| Tax Rate |
| As reported |
| $ |
| 197 |
| 23.2 |
| % |
| Discrete tax benefit |
| 14 |
| 1.6 |
| % |
| As adjusted |
| $ |
| 211 |
| 24.8 |
| % |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
| In millions |
| Twelve Months Ended December 31, 2018 |
| Operating income |
| $ |
| 3,584 |
| Tax rate |
| 24.9 |
| % |
| Income taxes |
| (893 |
| ) |
| Operating income after taxes |
| $ |
| 2,691 |
| Invested capital: |
| Trade receivables |
| $ |
| 2,622 |
| Inventories |
| 1,318 |
| Net plant and equipment |
| 1,791 |
| Goodwill and intangible assets |
| 5,717 |
| Accounts payable and accrued expenses |
| (1,795 |
| ) |
| Other, net |
| (519 |
| ) |
| Total invested capital |
| $ |
| 9,134 |
| Average invested capital |
| $ |
| 9,533 |
| Adjusted return on average invested capital |
| 28.2 |
| % |
A reconciliation of the full year 2018 effective tax rate excluding the third quarter net discrete tax benefit is as follows:
| Twelve Months Ended |
| December 31, 2018 |
| In millions |
| Income Taxes |
| Tax Rate |
| As reported |
| $ |
| 831 |
| 24.5 |
| % |
| Net discrete tax benefit |
| 15 |
| 0.4 |
| % |
| As adjusted |
| $ |
| 846 |
| 24.9 |
| % |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
FREE CASH FLOW (UNAUDITED)
| Three Months Ended |
| March 31, |
| In millions |
| 2019 |
| 2018 |
| Net cash provided by operating activities |
| $ |
| 616 |
| $ |
| 538 |
| Less: Additions to plant and equipment |
| (77 |
| ) |
| (94 |
| ) |
| Free cash flow |
| $ |
| 539 |
| $ |
| 444 |
| Net income |
| $ |
| 597 |
| $ |
| 652 |
| Free cash flow to net income conversion rate |
| 90 |
| % |
| 68 |
| % |
Media Contact Investor Relations
Illinois Tool Works Illinois Tool Works
Trisha Knych Karen Fletcher
Tel: 224.661.7566 Tel: 224.661.7433
mediarelations@itw.com investorrelations@itw.com