ITW
$138.09
Illinois Tool Works
($1.33)
(.95%)
Earnings Details
1st Quarter March 2017
Monday, April 24, 2017 8:00:20 AM
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Summary

Illinois Tool Works Beats

Illinois Tool Works (ITW) reported 1st Quarter March 2017 earnings of $1.54 per share on revenue of $3.5 billion. The consensus earnings estimate was $1.45 per share on revenue of $3.4 billion. The Earnings Whisper number was $1.46 per share. Revenue grew 6.0% on a year-over-year basis.

The company said it expects second quarter earnings of $1.55 to $1.65 per share and now expects 2017 earnings of $6.20 to $6.40 per share. The company's previous guidance was 2017 earnings of $6.00 to $6.20 per share. The current consensus earnings estimate is $1.59 per share for the quarter ending June 30, 2017 and $6.19 per share for the year ending December 31, 2017.

Illinois Tool Works Inc is a manufacturer of industrial products and equipment. Its segments are: Automotive OEM, Test and Measurement and Electronics, Food Equipment, Polymers and Fluids, Welding, Construction Products, and Specialty Products.

Results
Reported Earnings
$1.54
Earnings Whisper
$1.46
Consensus Estimate
$1.45
Reported Revenue
$3.47 Bil
Revenue Estimate
$3.40 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

ITW Reports First-Quarter 2017 Results

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">First-quarter highlights:</span>

-- GAAP EPS of $1.54, an increase of 19%

-- Total revenue of $3.5 billion, an increase of 6.0%; organic growth of 3.5%

-- Operating margin of 23.3%, an increase of 120 bps and an all-time record for the company

Company now expects 2017 earnings to be in the range of $6.20 to $6.40 per share with organic growth of 2 to 4%

Illinois Tool Works Inc. (ITW) today reported its first-quarter 2017 results.

First-quarter GAAP earnings were $1.54 per share, an increase of 19% versus the first quarter of 2016. Excluding the impact of foreign currency translation, EPS grew 21% year-on-year. Revenue grew 6.0% to $3.5 billion. Organic revenue increased 3.5% while the 2016 acquisition of Engineered Fasteners & Components (EF&C) added 3.8% to revenue. Foreign currency translation reduced revenue by 1.3%.

"Our record results in the first quarter reflect strong execution across the company and further progress in our efforts to leverage ITW’s highly differentiated and proprietary business model to drive solid growth with best-in-class margins and returns," said E. Scott Santi, Chairman and Chief Executive Officer. "We are off to a strong start in 2017 and the company is well-positioned to deliver continued progress and differentiated performance through the balance of 2017 and beyond."

Operating income was $809 million, an increase of 12%, and operating margin for the quarter was 23.3%, an increase of 120 basis points. Excluding the margin impact from the 2016 acquisition of EF&C, operating margin was 23.8%, an increase of 170 basis points year-on-year with 100 basis points of structural margin improvement from Enterprise Initiatives. After-tax return on invested capital was 23.8%, an improvement of 260 basis points. First-quarter net income was $536 million.

Organic revenue growth was positive in six of seven segments: 9% in Automotive OEM, 6% in Test & Measurement/Electronics, 3% in Construction Products, 2% in Food Equipment and Polymers & Fluids and 1% in Specialty Products. Welding was flat.

Effective January 1, 2017 the company adopted FASB guidance that requires that the income tax effects associated with the settlement of stock-based awards be recognized through income tax expense rather than equity. The first-quarter effective tax rate was 28.3%, in line with company expectations.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Full-Year and Second Quarter 2017 Guidance</span>

As a result of the company’s strong Q1 results, ITW is raising its 2017 full-year guidance. The company now expects earnings to be in the range of $6.20 to $6.40 per share, up from prior guidance of $6.00 to $6.20 per share, with organic growth of 2 to 4%, up from 1.5 to 3.5%. ITW expects operating margin to exceed 23.5% and free cash flow to exceed 100% of net income. The company now expects an effective tax rate of approximately 29%, down from prior guidance of 29 to 30%, resulting in an EPS benefit of $0.04 per share.

For the second quarter 2017, the company expects earnings to be in the range of $1.55 to $1.65 per share with organic growth of 2 to 4%.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Non-GAAP Measures</span>

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.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Forward-looking Statement</span>

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, 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.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">About ITW</span>

ITW (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 SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
March 31,
In millions except per share amounts
2017
2016
Operating Revenue
$
3,471
$
3,274
Cost of revenue
2,004
1,896
Selling, administrative, and research and development expenses 605
597
Amortization and impairment of intangible assets
53
59
Operating Income
809
722
Interest expense
(64
)
(58
)
Other income (expense)
4
4
Income Before Taxes
749
668
Income taxes
213
200
Net Income
$
536
$
468
Net Income Per Share:
Basic
$
1.55
$
1.29
Diluted
$
1.54
$
1.29
Cash Dividends Per Share:
Paid
$
0.65
$
0.55
Declared
$
0.65
$
0.55
Shares of Common Stock Outstanding During the Period:
Average
346.2
362.0
Average assuming dilution
349.0
363.9
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions
March 31, 2017
December 31, 2016
Assets
Current Assets:
Cash and equivalents
$
2,493
$
2,472
Trade receivables
2,534
2,357
Inventories
1,158
1,076
Prepaid expenses and other current assets
245
218
Total current assets
6,430
6,123
Net plant and equipment
1,674
1,652
Goodwill
4,605
4,558
Intangible assets
1,411
1,463
Deferred income taxes
425
449
Other assets
984
956
$
15,529
$
15,201
Liabilities and Stockholders’ Equity
Current Liabilities:
Short-term debt
$
671
$
652
Accounts payable
574
511
Accrued expenses
1,149
1,202
Cash dividends payable
225
226
Income taxes payable
256
169
Total current liabilities
2,875
2,760
Noncurrent Liabilities:
Long-term debt
7,205
7,177
Deferred income taxes
121
134
Other liabilities
830
871
Total noncurrent liabilities
8,156
8,182
Stockholders’ Equity:
Common stock
6
6
Additional paid-in-capital
1,184
1,188
Retained earnings
19,817
19,505
Common stock held in treasury
(14,871
)
(14,638
)
Accumulated other comprehensive income (loss) (1,643
)
(1,807
)
Noncontrolling interest
5
5
Total stockholders’ equity
4,498
4,259
$
15,529
$
15,201
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended March 31, 2017
Dollars in millions
Total
Operating
Operating
Revenue
Income
Margin
Automotive OEM
$
828
$
202
24.4%
Food Equipment
497
125
25.1%
Test & Measurement and Electronics 480
96
20.0%
Welding
387
107
27.7%
Polymers & Fluids
426
88
20.6%
Construction Products
395
89
22.5%
Specialty Products
463
124
26.9%
Intersegment
(5
)
--
--%
Total Segments
3,471
831
23.9%
Unallocated
--
(22
)
--%
Total Company
$
3,471
$
809
23.3%
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q1 2017 vs. Q1 2016 Favorable/(Unfavorable)
Operating Revenue
Automotive
Food
Test &
Welding
Polymers &
Construction
Specialty
Total
OEM
Equipment
Measurement
Fluids
Products
Products
ITW
and Electronics
Organic
9.0%
2.0%
5.5%
(0.3)%
1.5%
2.9%
0.8%
3.5%
Acquisitions/
19.4%
--%
--%
--%
--%
--%
(0.7)%
3.8%
Divestitures
Translation
(2.1)%
(2.4)%
(2.0)%
(0.3)%
0.5%
(0.2)%
(1.3)%
(1.3)%
Operating Revenue
26.3%
(0.4)%
3.5%
(0.6)%
2.0%
2.7%
(1.2)%
6.0%
Q1 2017 vs. Q1 2016 Favorable/(Unfavorable)
Change in Operating
Automotive
Food
Test &
Welding
Polymers &
Construction
Specialty
Total
Margin
OEM
Equipment
Measurement
Fluids
Products
Products
ITW
and Electronics
Operating Leverage
120 bps
50 bps
170 bps
--
40 bps
80 bps
10 bps
80 bps
Changes in Variable
(30) bps
(30) bps
290 bps
220 bps
100 bps
120 bps
80 bps
90 bps
Margin & OH Costs
Total Organic
90 bps
20 bps
460 bps
220 bps
140 bps
200 bps
90 bps
170 bps
Acquisitions/
(260) bps
--
--
--
--
--
40 bps
(50) bps
Divestitures
Restructuring/Other
(30) bps
40 bps
(10) bps
160 bps
(100) bps
(50) bps
(50) bps
--
Total Operating
(200) bps
60 bps
450 bps
380 bps
40 bps
150 bps
80 bps
120 bps
Margin Change
Total Operating
24.4%
25.1%
20.0%
27.7%
20.6%
22.5%
26.9%
23.3%
Margin % *
*Includes unfavorable 50 bps
80 bps
350 bps
50 bps
420 bps
60 bps
140 bps
160 bps
operating margin
impact of
amortization expense
from acquisition-
related intangible
assets
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended
Twelve
Months Ended
March 31,
December 31,
Dollars in millions
2017
2016
2016
Operating income
$
809
$
722
$
3,064
Tax rate
28.3
%
30.0
%
30.0
%
Income taxes
(229
)
(216
)
(919
)
Operating income after taxes
$
580
$
506
$
2,145
Invested capital:
Trade receivables
$
2,534
$
2,394
$
2,357
Inventories
1,158
1,134
1,076
Net plant and equipment
1,674
1,598
1,652
Goodwill and intangible assets
6,016
6,005
6,021
Accounts payable and accrued expenses
(1,723
)
(1,611
)
(1,713
)
Other, net
222
257
223
Total invested capital
$
9,881
$
9,777
$
9,616
Average invested capital
$
9,748
$
9,668
$
9,780
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) --
(111
)
(91
)
Adjusted average invested capital
$
9,748
$
9,557
$
9,689
Adjusted return on average invested capital
23.8
%
21.2
%
22.1
%
FREE CASH FLOW (UNAUDITED)
Three Months Ended
March 31,
Dollars in millions
2017
2016
Net cash provided by operating activities
$
463
$
479
Less: Additions to plant and equipment
(64
)
(57
)
Free cash flow
$
399
$
422
Net income
$
536
$
468
Free cash flow to net income conversion rate 74
%
*
90
%

* Excluding $87 million related to the timing of payments for income taxes and pension contributions, the free cash flow to net income conversion rate for the three months ended March 31, 2017 would have been 91%.

Contact: Mike Drazin 224.661.7433 or mdrazin@itw.com

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