ITW - ITW Reports Second Quarter 2023 Results

• Revenue of $4.1 billion, an increase of 2% with organic growth of 3%
• Record operating income of $1.01 billion, an increase of 9%
• Operating margin of 24.8%, an increase of 170 bps
• Record GAAP EPS of $2.48, an increase of 5%; Excl. one-time tax items, EPS increased 9%
• Raising full year GAAP EPS guidance by $0.10 to a range of $9.55 to $9.95 per share
  
  

GLENVIEW, Ill., Aug. 01, 2023 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2023 results.

“The ITW team delivered another quarter of strong operational execution and financial performance. Quarterly operating income grew nine percent and exceeded $1 billion for the first time in ITW’s history, operating margin expanded 170 basis points year on year, and GAAP EPS of $2.48 was a Q2 record for the company,” said E. Scott Santi, Chairman and Chief Executive Officer. “Organic growth was three percent as resilient demand in many of ITW’s industrial end markets was partially offset by inventory reduction efforts by our end customers and channel partners in response to stabilizing supply chain performance, which we estimate to have impacted organic growth by 1 to 1.5 percent in the quarter. While customer and channel inventory normalization will continue to be a factor for the next several quarters, we expect stable underlying demand and continued strong margin and profitability performance through the balance of the year. As a result, we are raising our full-year 2023 GAAP EPS guidance by $0.10 at the mid-point.”

Second Quarter 2023 Results
Second quarter revenue of $4.1 billion increased two percent with organic revenue growth of three percent, as divestitures reduced revenue by one percent.

GAAP EPS increased five percent to $2.48 and included $0.07 of a one-time tax benefit. GAAP EPS of $2.37 in the second quarter of 2022 included a $0.16 one-time tax benefit. Excluding one-time tax items in both periods, EPS increased nine percent. Operating income grew nine percent to a record $1.01 billion. Operating margin of 24.8 percent improved 170 basis points as enterprise initiatives contributed 130 basis points. Operating cash flow was $790 million, and free cash flow was $705 million, an increase of 68 percent, with a conversion rate to net income of 94 percent. The company repurchased $375 million of its own shares and the effective tax rate was 21.4 percent.

2023 Guidance
ITW is raising its full-year GAAP EPS guidance by $0.10 to $9.55 to $9.95 per share. The company is projecting organic growth of three to five percent based on first half 2023 performance and current levels of demand. Divestitures are expected to reduce revenue by one percent resulting in total revenue growth of two to four percent. Operating margin is projected to be in the range of 24.5 to 25.5 percent, with enterprise initiatives contributing more than 100 basis points. Free cash flow is projected to be greater than 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares. The expected tax rate is in the range of 22.5 to 23.5 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. The estimated guidance of free cash flow conversion rate is based on assumptions that are difficult to predict, and estimated guidance for the most directly comparable GAAP measure and a reconciliation of this forward-looking estimate to its most directly comparable GAAP estimate have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of reliable forward-looking cash flow information.

Forward-looking Statements
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 global supply chain challenges, expected impact of inflation including raw material inflation and rising interest rates, the impact of enterprise initiatives, future financial and operating performance, free cash flow and free cash flow conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted income per share, restructuring expenses and related benefits, expected dividend payments, 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, the impact of recent or potential acquisitions and/or divestitures, and the company’s 2023 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 risk factors contained in ITW's Form 10-K for 2022 and subsequent reports filed with the SEC.

About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenue of $15.9 billion in 2022. 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 46,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com

⁽¹⁾ Effective tax rate used for interest expense and other (income) expense for the three months ended June 30, 2023 and 2022 was 23.6% and 23.9%, respectively. Effective tax rate used for interest expense and other (income) expense for the six months ended June 30, 2023 and 2022 was 23.1% and 23.5%, respectively.

⁽²⁾ Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within each of the periods presented.

⁽³⁾ Returns for the three months ended June 30, 2023 and 2022 were converted to an annual rate by multiplying the calculated return by 4. Returns for the six months ended June 30, 2023 and 2022 were converted to an annual rate by multiplying the calculated return by 2.

A reconciliation of the tax rate for the three and six months ended June 30, 2023, excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:

A reconciliation of the tax rate for the three and six months ended June 30, 2022, excluding the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a U.S. tax audit, is as follows:

⁽¹⁾ Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2022 was 23.2%.

⁽²⁾ Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within the period presented.

A reconciliation of the 2022 effective tax rate excluding the fourth quarter 2022 discrete tax benefit of $32 million related to the utilization of capital loss carryforwards and the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a U.S. tax audit is as follows: