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  • GAAP EPS of $1.46 +12%, $0.07 above guidance mid-point
  • Record quarterly performance for operating margin (23.1%), operating income ($792 million), and after-tax ROIC (22.9%)
  • Organic revenue +1%, +2% excluding Product Line Simplification
  • Raising full-year 2016 GAAP EPS guidance by $0.10

GLENVIEW, Ill., July 20, 2016 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported second quarter 2016 diluted earnings per share (EPS) of $1.46, a 12% increase compared to the year-ago period. Operating margin increased 180 basis points to 23.1%, operating income of $792 million was up 8%, and after-tax return on invested capital increased by 260 basis points to 22.9%.  Second quarter results for all three of these key metrics were all-time highs for the company.  Organic revenue increased 2% excluding Product Line Simplification (PLS) as six of the company’s seven segments delivered positive year on year growth, while the overall demand environment in the Welding segment remained challenging with revenue down 11% in the quarter.  The company’s ongoing PLS activities reduced overall organic revenue growth by approximately 1 percentage-point resulting in net organic growth for the company of 1% in the quarter. 

"I am very pleased with ITW’s performance in the quarter.  The fact that we achieved best ever operating income, operating margin, and return on invested capital performance reinforces both our conviction in the strength of the differentiated performance potential that resides within the ITW Business Model and the excellent progress that our ITW colleagues around the world continue to make in positioning the company to leverage it to its full potential,” said E. Scott Santi, Chairman and Chief Executive Officer. "I am also pleased with the progress that our segments are making in executing our framework for accelerated organic revenue growth, as evidenced by the fact that six of our seven segments delivered positive year on year organic growth in the quarter.  As a result, we were able to overcome the continued challenging demand environment in our Welding segment and deliver 12% earnings per share growth.”

Second Quarter Highlights

  • GAAP EPS of $1.46 increased 12%, $0.07 above guidance mid-point.
  • Operating margin increased 180 basis points to an all-time quarterly record of 23.1%. Enterprise Initiatives contributed 120 basis points. 
  • Operating income was up 8% to an all-time quarterly record of $792 million.
  • Total revenue was $3.4 billion, down 0.1%. Currency translation reduced revenue by 1.3%.
  • Organic revenue grew 1.2%, as North America grew 0.4% and International grew 2.2%.
  • After-tax return on invested capital improved 260 basis points to an all-time record of 22.9%.
  • Free cash flow was up 23% compared to the year-ago period and conversion of 90% of net income was in line with normal seasonality. 
  • The company repurchased shares for $500 million and paid $198 million in dividends.
  • Six of seven segments achieved positive organic revenue growth as Food Equipment grew 5%, Automotive OEM grew 4%, Test & Measurement/Electronics and Construction Products both grew 3%, Polymers & Fluids grew 2% and Specialty Products grew 0.3%. Welding declined by 11%.
  • Five of seven segments improved operating margin with Construction Products up 440 basis points to 24.3%, Food Equipment up 300 basis points to 25.0%, Test & Measurement/Electronics and Specialty Products up 250 basis points to 18.6% and 26.0% respectively, and Automotive OEM up 130 basis points to 25.8%.  Polymers & Fluids was unchanged at 20.9% and Welding declined 120 basis points to 24.9%, both due to higher restructuring.

2016 Guidance

ITW is raising its 2016 full-year GAAP EPS guidance range by $0.10 to $5.50 to $5.70, a year-over-year increase of 9% at the mid-point. The company is also narrowing its full-year organic growth forecast to 1 to 2% (prior forecast of 1 to 3%) as a result of the lingering difficult market conditions being experienced by the Welding segment.  Consistent with prior guidance, the forecast includes approximately 1%-point of PLS impact.  Operating margin is expected to exceed 22.5% for the full year.  Guidance is based on current foreign exchange rates and includes the expected impact of the Engineered Fasteners & Components (EF&C) acquisition.

On July 1, 2016, the Company completed the acquisition of EF&C for approximately $450 million.  In the second half of 2016, EF&C is expected to add revenues of approximately $220 to $240 million.  After acquisition accounting, EF&C is expected to have no EPS impact in the second half of 2016.

For the third quarter 2016, the company expects GAAP EPS to be in a range of $1.42 to $1.52, and operating margin to be approximately 23%. Organic revenue is forecast to be up 1 to 3%.

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, the impact of product line simplification activities and enterprise initiatives, operating margin, after-tax return on invested capital and the expected impact of acquisitions on financial results. 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 2015 and Form 10-Q for the first quarter of 2016.

About ITW
ITW (NYSE:ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $13.4 billion in 2015. 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 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 Six Months Ended
 June 30, June 30,
In millions except per share amounts2016 2015 2016 2015
Operating Revenue$3,431  $3,434  $6,705  $6,776 
Cost of revenue1,967  2,024  3,863  3,994 
Selling, administrative, and research and development expenses617  622  1,214  1,238 
Amortization and impairment of intangible assets55  58  114  117 
Operating Income792  730  1,514  1,427 
Interest expense(58) (55) (116) (109)
Other income (expense)17  21  21  42 
Income Before Taxes751  696  1,419  1,360 
Income Taxes226  216  426  422 
Net Income$525  $480  $993  $938 
        
Net Income Per Share:       
Basic$1.47  $1.31  $2.76  $2.53 
Diluted$1.46  $1.30  $2.75  $2.51 
        
Cash Dividends Per Share:       
Paid$0.55  $0.485  $1.10  $0.97 
Declared$0.55  $0.485  $1.10  $0.97 
        
Shares of Common Stock Outstanding During the Period:       
Average356.6  366.2  359.3  371.4 
Average assuming dilution358.5  368.4  361.2  373.8 


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
 
In millionsJune 30, 2016 December 31, 2015
Assets   
Current Assets:   
Cash and equivalents$2,355  $3,090 
Trade receivables2,413  2,203 
Inventories1,145  1,086 
Prepaid expenses and other current assets254  341 
Total current assets6,167  6,720 
    
Net plant and equipment1,580  1,577 
Goodwill4,466  4,439 
Intangible assets1,441  1,560 
Deferred income taxes466  346 
Other assets1,102  1,087 
 $15,222  $15,729 
    
Liabilities and Stockholders' Equity   
Current Liabilities:   
Short-term debt$864  $526 
Accounts payable519  449 
Accrued expenses1,116  1,136 
Cash dividends payable195  200 
Income taxes payable130  57 
Total current liabilities2,824  2,368 
    
Noncurrent Liabilities:   
Long-term debt6,300  6,896 
Deferred income taxes149  256 
Other liabilities999  981 
Total noncurrent liabilities7,448  8,133 
    
Stockholders’ Equity:   
Common stock6  6 
Additional paid-in-capital1,158  1,135 
Income reinvested in the business18,916  18,316 
Common stock held in treasury(13,664) (12,729)
Accumulated other comprehensive income (loss)(1,470) (1,504)
Noncontrolling interest4  4 
Total stockholders’ equity4,950  5,228 
 $15,222  $15,729 


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 millions2016 2015 2016 2015 2015
Operating income$792  $730  $1,514  $1,427  $2,867 
Tax rate30.0% 31.0% 30.0% 31.0% 30.1%
Income taxes(238) (226) (454) (443) (864)
Operating income after taxes$554  $504  $1,060  $984  $2,003 
          
Invested capital:         
Trade receivables$2,413  $2,412  $2,413  $2,412  $2,203 
Inventories1,145  1,191  1,145  1,191  1,086 
Net plant and equipment1,580  1,636  1,580  1,636  1,577 
Goodwill and intangible assets5,907  6,222  5,907  6,222  5,999 
Accounts payable and accrued expenses(1,635) (1,680) (1,635) (1,680) (1,585)
Other, net349  437  349  437  280 
Total invested capital$9,759  $10,218  $9,759  $10,218  $9,560 
          
Average invested capital$9,768  $10,021  $9,698  $10,099  $9,943 
Adjustment for Wilsonart (formerly the Decorative Surfaces segment)(112) (120) (112) (127) (123)
Adjusted average invested capital$9,656  $9,901  $9,586  $9,972  $9,820 
          
Adjusted return on average invested capital22.9% 20.3% 22.1% 19.7% 20.4%


FREE CASH FLOW (UNAUDITED)
 
 Three Months Ended Six Months Ended
 June 30, June 30,
Dollars in millions2016 2015 2016 2015
Net cash provided by operating activities$535  $448  $1,014  $890 
Less: Additions to plant and equipment(64) (64) (121) (147)
Free cash flow$471  $384  $893  $743 
        
Net income$525  $480  $993  $938 
Free cash flow to net income conversion rate90% 80% 90% 79%


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
 
Three Months Ended June 30, 2016
Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
Automotive OEM$670 $173 25.8%
Food Equipment535 134 25.0%
Test & Measurement and Electronics507 94 18.6%
Welding375 94 24.9%
Polymers & Fluids443 93 20.9%
Construction Products424 103 24.3%
Specialty Products484 126 26.0%
Intersegment(7) %
Total Segments3,431 817 23.8%
Unallocated (25)%
Total Company$3,431 $792 23.1%


Six Months Ended June 30, 2016
Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
Automotive OEM$1,326 $346 26.1%
Food Equipment1,034 256 24.8%
Test & Measurement and Electronics971 166 17.1%
Welding764 187 24.4%
Polymers & Fluids861 177 20.6%
Construction Products808 184 22.8%
Specialty Products952 248 26.0%
Intersegment(11) %
Total Segments6,705 1,564 23.3%
Unallocated (50)%
Total Company$6,705 $1,514 22.6%


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
 
Q2 2016 vs. Q2 2015 Favorable/(Unfavorable)
Operating RevenueAutomotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
WeldingPolymers &
Fluids
Construction
Products
Specialty
Products
Total
ITW
Organic4.2%4.7%2.8%(11.3)%1.9%3.1%0.3%1.2%
Divestitures%%%%%(0.2)%%%
Translation(0.7)%(1.2)%(0.8)%(0.9)%(2.7)%(1.7)%(0.7)%(1.3)%
Operating Revenue3.5%3.5%2.0%(12.2)%(0.8)%1.2%(0.4)%(0.1)%


Q2 2016 vs. Q2 2015 Favorable/(Unfavorable)
Change in Operating MarginAutomotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
WeldingPolymers
& Fluids
Construction
Products
Specialty
Products
Total
ITW
Operating Leverage60 bps110 bps90 bps(220) bps50 bps70 bps10 bps10 bps
Changes in Variable Margin & OH Costs40 bps80 bps160 bps240 bps20 bps300 bps230 bps160 bps
Total Organic100 bps190 bps250 bps20 bps70 bps370 bps240 bps170 bps
Restructuring/Other30 bps110 bps(140) bps(70) bps70 bps10 bps10 bps
Total Operating Margin Change130 bps300 bps250 bps(120) bps440 bps250 bps180 bps
         
Total Operating Margin % * 25.8% 25.0% 18.6% 24.9% 20.9% 24.3% 26.0% 23.1%
         
*Includes unfavorable operating margin
impact of amortization expense from
acquisition-related intangible assets
10 bps80 bps370 bps60 bps420 bps60 bps160 bps160 bps


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
 
FY 2015 vs FY 2014 Favorable/(Unfavorable)
Operating RevenueAutomotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
WeldingPolymers &
Fluids
Construction
Products
Specialty
Products
Total
ITW
Organic5.8%3.4%(5.2)%(7.6)%(2.0)%3.7%(2.3)%(0.4)%
Divestitures(0.2)%%%(0.1)%(1.0)%(0.5)%%(0.2)%
Translation(8.0)%(7.1)%(5.5)%(3.1)%(8.2)%(10.2)%(6.0)%(6.8)%
Operating Revenue(2.4)%(3.7)%(10.7)%(10.8)%(11.2)%(7.0)%(8.3)%(7.4)%


1H 2016 vs 1H 2015 Favorable/(Unfavorable)
Operating RevenueAutomotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
WeldingPolymers &
Fluids
Construction
Products
Specialty
Products
Total
ITW
Organic3.4%4.0%0.5%(9.9)%1.2%4.0%1.7%0.9%
Divestitures%%%%(0.5)%(0.2)%%(0.1)%
Translation(1.5)%(1.8)%(1.4)%(1.2)%(3.7)%(2.8)%(1.2)%(1.8)%
Operating Revenue1.9%2.2%(0.9)%(11.1)%(3.0)%1.0%0.5%(1.0)%

 

Investors Contact: Mike Drazin 224.661.7433 mdrazin@itw.com
Media Contact: Mallory Ramp 224.661.7431 mramp@itw.com

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Source: Illinois Tool Works