ITW
$125.20
Illinois Tool Works
($.10)
(.08%)
Earnings Details
3rd Quarter September 2016
Thursday, October 20, 2016 8:01:26 AM
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Summary

Illinois Tool Works Misses

Illinois Tool Works (ITW) reported 3rd Quarter September 2016 earnings of $1.50 per share on revenue of $3.5 billion. The consensus earnings estimate was $1.49 per share on revenue of $3.5 billion. The Earnings Whisper number was $1.51 per share. Revenue grew 4.2% on a year-over-year basis.

The company said it expects fourth quarter earnings of $1.31 to $1.41 per share. The current consensus earnings estimate is $1.39 per share for the quarter ending December 31, 2016.

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
$1.50
Earnings Whisper
$1.51
Consensus Estimate
$1.49
Reported Revenue
$3.50 Bil
Revenue Estimate
$3.49 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

ITW Reports Record Third Quarter 2016 Financial Results

GAAP EPS of $1.50 (+8%)

Record quarterly operating margin of 23.1% (23.9% excluding EF&C acquisition dilution)

-- Record quarterly operating income of $808 million (+6%)

-- Record after-tax ROIC of 23% (+140 basis points vs. year ago)

-- Total revenue +4%, Organic revenue +2% (including ~1% negative PLS impact)

-- FCF of 101% of net income

-- Raising full-year 2016 GAAP EPS guidance mid-point

Illinois Tool Works Inc. (ITW) today reported third quarter 2016 diluted earnings per share (EPS) of $1.50, an 8% increase compared to the year-ago period. Currency translation reduced EPS by $0.02 in the quarter. Operating margin increased 40 basis points to 23.1%, including 80 basis points of margin dilution from the third quarter 2016 acquisition of Engineered Fasteners & Components (EF&C). Excluding the EF&C dilution impact, third quarter operating margin was 23.9%. Operating income of $808 million was up 6%, and after-tax return on invested capital increased by 140 basis points to 23%. Organic revenue increased 2% and the company’s ongoing Product Line Simplification (PLS) activities reduced organic revenue growth by approximately 1 percentage point.

"The ITW team delivered another quarter of quality execution and earnings growth marked by all-time record operating income and continued strong margin expansion driven by our Enterprise Strategy initiatives. In addition, continued progress in executing our pivot to growth in combination with our diversified portfolio of seven highly differentiated businesses allowed us to deliver positive organic growth in the third quarter despite a macro environment that remains challenging," said E. Scott Santi, Chairman and Chief Executive Officer.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Third Quarter Highlights</span>

Total revenue was $3.5 billion, an increase of 4%. Organic revenue grew 2% with 1% growth in North America and 3% in International.

Operating margin improved 40 basis points to 23.1%, an all-time record for the company, as enterprise initiatives contributed 120 basis points. The acquisition of EF&C diluted operating margin by 80 basis points. Excluding the EF&C dilution impact, third quarter operating margin was 23.9%.

-- Operating income grew 6% to an all-time quarterly record of $808 million.

GAAP EPS of $1.50 increased 8% due to strong margin performance. Currency translation reduced EPS by $0.02 in the quarter.

After-tax return on invested capital was 23%, an all-time high and an increase of 140 basis points.

Free cash flow was solid at 101% of net income. Share repurchases totaled $500 million and the company announced an 18% dividend increase on August 5, 2016.

Six of seven segments achieved positive organic revenue growth as Automotive OEM and Test & Measurement/Electronics both grew 7%, Construction Products grew 2%, Polymers & Fluids and Food Equipment Group both grew 1% and Specialty Products grew 0.1%. Welding declined by 9%.

All seven segments achieved operating margin at or above 21% with Food Equipment at 27.4%, Welding at 26.5%, Specialty Products at 26.1%, Automotive OEM at 21.8% (25.5% excluding EF&C), Construction at 22.6%, Test & Measurement/Electronics and Polymers & Fluids both at 21%.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">2016 Guidance</span>

ITW is raising its 2016 full-year GAAP EPS guidance range to $5.56 to $5.66, a year-over-year increase of 9% at the mid-point. Consistent with prior guidance the full-year organic growth forecast is 1 to 2% and includes approximately 1 percentage point of PLS impact. Operating margin is forecast to exceed 22.5%.

For the fourth quarter 2016, the company expects GAAP EPS to be in a range of $1.31 to $1.41, an increase of 11% at the mid-point. Organic revenue is forecast to be 0 to 2%, and operating margin to be approximately 21.5%. Guidance is based on current foreign exchange rates.

<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, 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 second quarter of 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 $13.4 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 more than 51,000 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
Nine Months Ended
September 30,
September 30,
In millions except per share amounts
2016
2015
2016
2015
Operating Revenue
$
3,495
$
3,354
$
10,200
$
10,130
Cost of revenue
2,027
1,953
5,890
5,947
Selling, administrative, and research and development expenses 604
581
1,818
1,819
Amortization and impairment of intangible assets
56
59
170
176
Operating Income
808
761
2,322
2,188
Interest expense
(58
)
(59
)
(174
)
(168
)
Other income (expense)
13
23
34
65
Income Before Taxes
763
725
2,182
2,085
Income Taxes
228
214
654
636
Net Income
$
535
$
511
$
1,528
$
1,449
Net Income Per Share:
Basic
$
1.51
$
1.40
$
4.28
$
3.92
Diluted
$
1.50
$
1.39
$
4.25
$
3.90
Cash Dividends Per Share:
Paid
$
0.55
$
0.485
$
1.65
$
1.455
Declared
$
0.65
$
0.55
$
1.75
$
1.52
Shares of Common Stock Outstanding During the Period:
Average
353.5
365.1
357.3
369.3
Average assuming dilution
355.5
367.1
359.3
371.6
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions
September 30, 2016
December 31, 2015
Assets
Current Assets:
Cash and equivalents
$
2,299
$
3,090
Trade receivables
2,496
2,203
Inventories
1,167
1,086
Prepaid expenses and other current assets
223
341
Total current assets
6,185
6,720
Net plant and equipment
1,702
1,577
Goodwill
4,711
4,439
Intangible assets
1,480
1,560
Deferred income taxes
467
346
Other assets
1,164
1,087
$
15,709
$
15,729
Liabilities and Stockholders’ Equity
Current Liabilities:
Short-term debt
$
1,364
$
526
Accounts payable
582
449
Accrued expenses
1,180
1,136
Cash dividends payable
228
200
Income taxes payable
132
57
Total current liabilities
3,486
2,368
Noncurrent Liabilities:
Long-term debt
6,329
6,896
Deferred income taxes
131
256
Other liabilities
970
981
Total noncurrent liabilities
7,430
8,133
Stockholders’ Equity:
Common stock
6
6
Additional paid-in-capital
1,174
1,135
Income reinvested in the business
19,223
18,316
Common stock held in treasury
(14,147
)
(12,729
)
Accumulated other comprehensive income (loss) (1,468
)
(1,504
)
Noncontrolling interest
5
4
Total stockholders’ equity
4,793
5,228
$
15,709
$
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
Nine Months Ended
Twelve
Months
Ended
December 31,
September 30,
September 30,
Dollars in millions
2016
2015
2016
2015
2015
Operating income
$
808
$
761
$
2,322
$
2,188
$
2,867
Tax rate
30.0
%
29.6
%
30.0
%
30.5
%
30.1
%
Income taxes
(243
)
(225
)
(697
)
(668
)
(864
)
Operating income after taxes
$
565
$
536
$
1,625
$
1,520
$
2,003
Invested capital:
Trade receivables
$
2,496
$
2,339
$
2,496
$
2,339
$
2,203
Inventories
1,167
1,153
1,167
1,153
1,086
Net plant and equipment
1,702
1,601
1,702
1,601
1,577
Goodwill and intangible assets
6,191
6,088
6,191
6,088
5,999
Accounts payable and accrued expenses
(1,762
)
(1,635
)
(1,762
)
(1,635
)
(1,585
)
Other, net
393
313
393
313
280
Total invested capital
$
10,187
$
9,859
$
10,187
$
9,859
$
9,560
Average invested capital
$
9,973
$
10,038
$
9,821
$
10,039
$
9,943
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) (116
)
(121
)
(114
)
(126
)
(123
)
Adjusted average invested capital
$
9,857
$
9,917
$
9,707
$
9,913
$
9,820
Adjusted return on average invested capital
23.0
%
21.6
%
22.3
%
20.5
%
20.4
%
FREE CASH FLOW
Three Months Ended
Nine Months Ended
September 30,
September 30,
Dollars in millions
2016
2015
2016
2015
Net cash provided by operating activities
$
624
$
706
$
1,638
$
1,596
Less: Additions to plant and equipment
(81
)
(62
)
(202
)
(209
)
Free cash flow
$
543
$
644
$
1,436
$
1,387
Net income
$
535
$
511
$
1,528
$
1,449
Free cash flow to net income conversion rate 101
%
126
%
94
%
96
%
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended September 30, 2016
Dollars in millions
Total
Operating
Operating
Revenue
Income
Margin
Automotive OEM
$
765
$
166
21.8 %
Food Equipment
544
149
27.4 %
Test & Measurement and Electronics 516
108
21.0 %
Welding
361
95
26.5 %
Polymers & Fluids
422
89
21.0 %
Construction Products
415
94
22.6 %
Specialty Products
477
125
26.1 %
Intersegment
(5
)
--
--
%
Total Segments
3,495
826
23.7 %
Unallocated
--
(18
)
--
%
Total Company
$
3,495
$
808
23.1 %
Nine Months Ended September 30, 2016
Dollars in millions
Total
Operating
Operating
Revenue
Income
Margin
Automotive OEM
$
2,091
$
512
24.5 %
Food Equipment
1,578
405
25.7 %
Test & Measurement and Electronics 1,487
274
18.4 %
Welding
1,125
282
25.1 %
Polymers & Fluids
1,283
266
20.7 %
Construction Products
1,223
278
22.7 %
Specialty Products
1,429
373
26.1 %
Intersegment
(16
)
--
--
%
Total Segments
10,200
2,390
23.4 %
Unallocated
--
(68
)
--
%
Total Company
$
10,200
$
2,322
22.8 %
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q3 2016 vs. Q3 2015 Favorable/(Unfavorable)
Operating Revenue Automotive OEM
Food Equipment
Test &
Welding
Polymers & Fluids Construction Products Specialty Products
Total ITW
Measurement
and Electronics
Organic
6.6
%
0.7
%
6.6
%
(8.5 )%
0.8
%
1.5
%
0.1
%
1.6
%
Acquisitions/
19.2
%
--
%
--
%
--
%
--
%
(0.2
)%
--
%
3.5
%
Divestitures
Translation
(1.0
)%
(2.0
)%
(1.3
)%
(0.4 )%
(0.8
)%
0.3
%
(0.7
)%
(0.9 )%
Operating Revenue 24.8
%
(1.3
)%
5.3
%
(8.9 )%
--
%
1.6
%
(0.6
)%
4.2
%
Q3 2016 vs. Q3 2015 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
90 bps
10 bps
190 bps
(160) bps
20 bps
30 bps
-
30 bps
Changes in Variable Margin & OH Costs
(60) bps
110 bps
230 bps
290 bps
120 bps
110 bps
180 bps
100 bps
Total Organic
30 bps
120 bps
420 bps
130 bps
140 bps
140 bps
180 bps
130 bps
Acquisitions/
(370) bps
-
-
-
-
-
-
(80) bps
Divestitures
Restructuring/Other
(20) bps
(10) bps
20 bps
40 bps
60 bps
(190) bps
30 bps
(10) bps
Total Operating Margin Change
(360) bps
110 bps
440 bps
170 bps
200 bps
(50) bps
210 bps
40 bps
Total Operating Margin % *
21.8 %
27.4 %
21.0
%
26.5 %
21.0
%
22.6
%
26.1
%
23.1 %
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 80 bps
80 bps
360 bps
60 bps
430 bps
60 bps
140 bps
170 bps
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
YTD 2016 vs YTD 2015 Favorable/(Unfavorable)
Operating Revenue Automotive OEM
Food Equipment
Test &
Welding
Polymers & Fluids Construction Products Specialty Products
Total ITW
Measurement
and Electronics
Organic
4.4
%
2.8
%
2.5
%
(9.4
)%
1.1
%
3.1
%
1.2
%
1.2
%
Acquisitions/
6.1
%
--
%
--
%
--
%
(0.3
)%
(0.2
)%
--
%
1.1
%
Divestitures
Translation
(1.3
)%
(1.8
)%
(1.3
)%
(1.0
)%
(2.8
)%
(1.7
)%
(1.1
)%
(1.6 )%
Operating Revenue 9.2
%
1.0
%
1.2
%
(10.4 )%
(2.0
)%
1.2
%
0.1
%
0.7
%
YTD 2016 vs YTD 2015 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
60 bps
60 bps
70 bps
(190) bps
40 bps
80 bps
20 bps
20 bps
Changes in Variable Margin & OH Costs
20 bps
100 bps
190 bps
180 bps
20 bps
200 bps
210 bps
120 bps
Total Organic
80 bps
160 bps
260 bps
(10) bps
60 bps
280 bps
230 bps
140 bps
Acquisitions/
(140) bps
-
-
-
-
(10) bps
-
(20) bps
Divestitures
Restructuring/Other
10 bps
40 bps
-
(80) bps
10 bps
10 bps
40 bps
-
Total Operating Margin Change
(50) bps
200 bps
260 bps
(90) bps
70 bps
280 bps
270 bps
120 bps
Total Operating Margin % *
24.5 %
25.7 %
18.4
%
25.1 %
20.7
%
22.7
%
26.1
%
22.8 %
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps
80 bps
390 bps
90 bps
430 bps
60 bps
150 bps
170 bps
Total ITW Operating Revenue
Operating Revenue YTD 2016
Full Year 2015
Favorable/
(Unfavorable)
Organic
1.2
%
(0.4
)%
160 bps
Acquisitions/
1.1
%
(0.2
)%
130 bps
Divestitures
Translation
(1.6 )%
(6.8
)%
520 bps
Operating Revenue 0.7
%
(7.4
)%
810 bps
Investors Contact: Mike Drazin 224.661.7433 mdrazin@itw.com
Media Contact: Mallory Ramp 224.661.7431 mramp@itw.com

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