ITW
$133.44
Illinois Tool Works
($.41)
(.31%)
Earnings Details
4th Quarter December 2016
Wednesday, January 25, 2017 8:02:19 AM
Tweet Share Watch
Summary

Illinois Tool Works Reports In-line

Illinois Tool Works (ITW) reported 4th Quarter December 2016 earnings of $1.39 per share on revenue of $3.4 billion. The consensus earnings estimate was $1.37 per share on revenue of $3.4 billion. The Earnings Whisper number was $1.39 per share. Revenue grew 3.8% on a year-over-year basis.

The company said it expects first quarter earnings of $1.39 to $1.49 per share and continues to expect 2017 earnings of $6.00 to $6.20 per share. The current consensus earnings estimate is $1.43 per share for the quarter ending March 31, 2017 and $6.14 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
$1.39
Earnings Whisper
$1.39
Consensus Estimate
$1.37
Reported Revenue
$3.40 Bil
Revenue Estimate
$3.40 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

ITW Reports Fourth-Quarter and Full-Year 2016 Results

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

-- Total revenue was $3.4 billion, an increase of 4%; organic growth was 2%

-- Operating margin was 21.8%, an increase of 110 bps

-- GAAP EPS was $1.45 including $0.06 of non-recurring items, an increase of 18%

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

-- Total revenue was $13.6 billion, an increase of 1%; organic growth was 1%

-- Operating margin was 22.5%, an increase of 110 bps; 22.8% excluding EF&C

-- After-tax ROIC was 22.1%, an increase of 170 bps

-- GAAP EPS was $5.70, an increase of 11%

Illinois Tool Works Inc. (ITW) today reported its fourth-quarter and full-year 2016 results.

"The fourth quarter closed out a year of record financial performance and strong execution by the ITW team. In 2016, we grew EPS 11%, improved operating margin by 110 basis points to an all-time high of 22.5% and increased after tax return on invested capital 170 basis points to a record 22.1%," said E. Scott Santi, Chairman and Chief Executive Officer. "Throughout 2016, we continued to invest in our businesses to sustain above-market organic growth, strengthened our highly differentiated business portfolio and returned more than $2.8 billion of surplus capital to shareholders. We continue to work hard to push our performance to best-in-class levels, and we are well-positioned to deliver continued progress and strong results in 2017.

Fourth-quarter GAAP earnings were $1.45 per share, an increase of 18% versus the fourth quarter of 2015. Foreign currency translation reduced EPS by 2% year-on-year. Revenue grew 4% year-on-year to $3.4 billion. Organic revenue increased 2% while the 2016 acquisition of Engineered Fasteners & Components (EF&C) added 4% to revenue. Foreign currency translation reduced revenue by 2% year-on-year and Product Line Simplification (PLS) reduced revenue by approximately 1%.

During the fourth quarter the company recorded a net EPS benefit of $0.06 per share, related to a dividend distribution from its investment in Wilsonart, which was partially offset by one-time charges related to two small divestitures. Excluding these non-recurring items, fourth quarter earnings were $1.39 per share, an increase of 13% versus the prior year.

Operating income was $742 million and operating margin for the quarter was 21.8%, an increase of 110 basis points year-on-year. Excluding the margin dilution from the 2016 acquisition of EF&C, operating margin was 22.2%, an increase of 150 basis points year-on-year with 130 basis points of margin expansion coming from Enterprise Initiatives. Fourth-quarter net income was $507 million and the company converted 117 percent of net income to free cash flow.

Organic revenue growth was positive in five of seven segments; 7% in Automotive OEM, 3% in Food Equipment and Construction Products, 2% in Polymers & Fluids, 1% in Specialty Products with Test & Measurement/Electronics flat and a decline of 8% in Welding.

Operating margin improved in all seven segments to 24.7% in Food Equipment, 24.4% in Welding, 24% in Specialty Products, 23% in Automotive OEM (25.2% excluding the margin dilution from EF&C), 21.4% in Construction Products, 20.1% in Test & Measurement/Electronics and 19% in Polymers & Fluids.

Full-year 2016 GAAP earnings were $5.70 per share, an increase of 11%. Total revenue increased 1% to $13.6 billion with organic growth of 1%. The acquisition of EF&C increased revenue 2%. Foreign currency translation reduced revenue by 2%.

Full-year operating margin was 22.5%, up 110 basis points versus 2015, or up 140 basis points to 22.8% excluding the margin dilution impact from EF&C. ITW converted 100% of net income to free cash flow for the year and generated 22.1% after-tax return on invested capital. For the full year, ITW paid $821 million in dividends to shareholders and repurchased $2 billion of its own shares.

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

ITW is reaffirming its 2017 full-year performance expectations. The company expects 2017 earnings to be in the range of $6.00 to $6.20 per share with organic growth of 1.5 to 3.5%. ITW also expects operating margin to exceed 23.5% and free cash flow conversion to exceed 100% for the full-year.

The company expects first quarter 2017 earnings to be in the range of $1.39 to $1.49 per share with organic growth of 1 to 2%. The company expects operating margin to exceed 22.5%.

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

This earnings release contains 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, 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 third 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 $13.6 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
Twelve Months Ended
December 31,
December 31,
In millions except per share amounts
2016
2015
2016
2015
Operating Revenue
$
3,399
$
3,275
$
13,599
$
13,405
Cost of revenue
2,006
1,941
7,896
7,888
Selling, administrative, and research and development expenses 597
598
2,415
2,417
Amortization and impairment of intangible assets
54
57
224
233
Operating Income
742
679
3,064
2,867
Interest expense
(63
)
(58
)
(237
)
(226
)
Other income (expense)
47
13
81
78
Income Before Taxes
726
634
2,908
2,719
Income taxes
219
184
873
820
Net Income
$
507
$
450
$
2,035
$
1,899
Net Income Per Share:
Basic
$
1.46
$
1.24
$
5.73
$
5.16
Diluted
$
1.45
$
1.23
$
5.70
$
5.13
Cash Dividends Per Share:
Paid
$
0.65
$
0.55
$
2.30
$
2.005
Declared
$
0.65
$
0.55
$
2.40
$
2.07
Shares of Common Stock Outstanding During the Period:
Average
348.3
363.7
355.0
367.9
Average assuming dilution
350.4
365.9
357.1
370.1
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions
December 31, 2016
December 31, 2015
Assets
Current Assets:
Cash and equivalents
$
2,472
$
3,090
Trade receivables
2,357
2,203
Inventories
1,076
1,086
Prepaid expenses and other current assets
218
341
Total current assets
6,123
6,720
Plant and equipment
1,652
1,577
Goodwill
4,558
4,439
Intangible assets
1,463
1,560
Deferred income taxes
449
346
Other assets
956
1,087
$
15,201
$
15,729
Liabilities and Stockholders’ Equity
Current Liabilities:
Short-term debt
$
652
$
526
Accounts payable
511
449
Accrued expenses
1,202
1,136
Cash dividends payable
226
200
Income taxes payable
169
57
Total current liabilities
2,760
2,368
Noncurrent Liabilities:
Long-term debt
7,177
6,896
Deferred income taxes
134
256
Other liabilities
871
981
Total noncurrent liabilities
8,182
8,133
Stockholders’ Equity:
Common stock:
6
6
Additional paid-in-capital
1,188
1,135
Retained earnings
19,505
18,316
Common stock held in treasury
(14,638
)
(12,729
)
Accumulated other comprehensive income (loss) (1,807
)
(1,504
)
Noncontrolling interest
5
4
Total stockholders’ equity
4,259
5,228
$
15,201
$
15,729
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended December 31, 2016
Dollars in millions
Total
Operating
Operating
Revenue
Income
Margin
Automotive OEM
$
773
$
178
23.0 %
Food Equipment
532
132
24.7 %
Test & Measurement and Electronics 487
98
20.1 %
Welding
361
88
24.4 %
Polymers & Fluids
408
77
19.0 %
Construction Products
386
83
21.4 %
Specialty Products
456
109
24.0 %
Intersegment
(4
)
--
--
%
Total Segments
3,399
765
22.5 %
Unallocated
--
(23
)
--
%
Total Company
$
3,399
$
742
21.8 %
Twelve Months Ended December 31, 2016
Dollars in millions
Total
Operating
Operating
Revenue
Income
Margin
Automotive OEM
$
2,864
$
690
24.1 %
Food Equipment
2,110
537
25.4 %
Test & Measurement and Electronics 1,974
372
18.9 %
Welding
1,486
370
24.9 %
Polymers & Fluids
1,691
343
20.3 %
Construction Products
1,609
361
22.4 %
Specialty Products
1,885
482
25.6 %
Intersegment
(20
)
--
--
%
Total Segments
13,599
3,155
23.2 %
Unallocated
--
(91
)
--
%
Total Company
$
13,599
$
3,064
22.5 %
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q4 2016 vs. Q4 2015 Favorable/(Unfavorable)
Operating
Automotive
Food
Test &
Welding
Polymers &
Construction
Specialty Total
Revenue
OEM
Equipment Measurement
Fluids
Products
Products
ITW
and Electronics
Organic
7.0
%
2.6
%
(0.3
)%
(7.9 )%
2.1
%
2.7
%
1.2
%
1.5
%
Acquisitions/
20.8
%
--
%
--
%
--
%
--
%
(0.2
)%
(0.5 )%
3.8
%
Divestitures
Translation
(2.0
)%
(2.8 )%
(2.1
)%
(0.7 )%
(0.8
)%
(0.5
)%
(1.2 )%
(1.6 )%
Operating Revenue 25.8
%
(0.2 )%
(2.4
)%
(8.6 )%
1.3
%
2.0
%
(0.5 )%
3.7
%
Q4 2016 vs. Q4 2015 Favorable/(Unfavorable)
Change in
Automotive OEM Food Equipment Test &
Welding
Polymers & Fluids Construction Products Specialty Products Total ITW
Operating Margin
Measurement
and Electronics
Operating Leverage
100 bps
50 bps
(10) bps
(160) bps 60 bps
60 bps
30 bps
40 bps
Changes in Variable Margin & OH Costs
160 bps
20 bps
230 bps
320 bps
40 bps
120 bps
180 bps
130 bps
Total Organic
260 bps
70 bps
220 bps
160 bps
100 bps
180 bps
210 bps
170 bps
Acquisitions/
(220) bps
-
-
-
-
(10) bps
20 bps
(30) bps
Divestitures
Restructuring/Other
60 bps
10 bps
(20) bps
30 bps
(20) bps
(20) bps
(130) bps
(30) bps
Total Operating Margin Change
100 bps
80 bps
200 bps
190 bps
80 bps
150 bps
100 bps
110 bps
Total Operating Margin % *
23.0
%
24.7
%
20.1
%
24.4 %
19.0
%
21.4
%
24.0
%
21.8 %
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps
80 bps
380 bps
60 bps
450 bps
60 bps
140 bps
170 bps
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Full Year 2016 vs Full Year 2015 Favorable/(Unfavorable)
Operating
Automotive
Food
Test &
Welding
Polymers &
Construction
Specialty Total
Revenue
OEM
Equipment Measurement
Fluids
Products
Products
ITW
and
Electronics
Organic
5.1
%
2.8
%
1.8
%
(9.1
)%
1.3
%
3.0
%
1.2
%
1.2
%
Acquisitions/
9.7
%
--
%
--
%
--
%
(0.2
)%
(0.2
)%
(0.1 )%
1.7
%
Divestitures
Translation
(1.5
)%
(2.1 )%
(1.5
)%
(0.9
)%
(2.3
)%
(1.4
)%
(1.1 )%
(1.5 )%
Operating Revenue 13.3
%
0.7
%
0.3
%
(10.0 )%
(1.2
)%
1.4
%
--
%
1.4
%
Full Year 2016 vs Full Year 2015 Favorable/(Unfavorable)
Change in
Automotive OEM Food Equipment Test &
Welding
Polymers & Fluids Construction Products Specialty Products Total ITW
Operating Margin
Measurement
and Electronics
Operating Leverage
80 bps
60 bps
60 bps
(190) bps 30 bps
80 bps
30 bps
30 bps
Changes in Variable Margin & OH Costs
50 bps
80 bps
190 bps
210 bps
40 bps
180 bps
200 bps
110 bps
Total Organic
130 bps
140 bps
250 bps
20 bps
70 bps
260 bps
230 bps
140 bps
Acquisitions/
(160) bps
-
-
-
-
-
10 bps
(30) bps
Divestitures
Restructuring/Other
20 bps
30 bps
10 bps
(50) bps
-
(10) bps
(10) bps
-
Total Operating Margin Change
(10) bps
170 bps
260 bps
(30) bps
70 bps
250 bps
230 bps
110 bps
Total Operating Margin % *
24.1
%
25.4
%
18.9
%
24.9 %
20.3
%
22.4
%
25.6
%
22.5 %
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps
80 bps
380 bps
80 bps
430 bps
60 bps
150 bps
170 bps
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Full Year 2015 vs Full Year 2014 Favorable/(Unfavorable)
Operating Automotive
Food
Test &
Welding
Polymers &
Construction
Specialty Total
Revenue
OEM
Equipment Measurement
Fluids
Products
Products
ITW
and Electronics
Organic
5.8
%
3.4
%
(5.2
)%
(7.6
)%
(2.0
)%
3.7
%
(2.3 )%
(0.4 )%
Acquisitions/
(0.2 )%
--
%
--
%
(0.1
)%
(1.0
)%
(0.5
)%
--
%
(0.2 )%
Divestitures
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 )%
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
December 31,
December 31,
Dollars in millions
2016
2015
2016
2015
2012
Operating income
$
742
$
679
$
3,064
$
2,867
$
2,475
Adjustment for Decorative Surfaces
--
--
--
--
(143
)
Adjusted operating income
742
679
3,064
2,867
2,332
Tax rate (as adjusted for discrete charge in 4Q 2012)
30.0
%
29.0
%
30.0
%
30.1
%
29.2
%
Income taxes
(222
)
(196
)
(919
)
(864
)
(681
)
Operating income after taxes
$
520
$
483
$
2,145
$
2,003
$
1,651
Invested capital:
Trade receivables
$
2,357
$
2,203
$
2,357
$
2,203
$
2,742
Inventories
1,076
1,086
1,076
1,086
1,585
Net plant and equipment
1,652
1,577
1,652
1,577
1,994
Goodwill and intangible assets
6,021
5,999
6,021
5,999
7,788
Accounts payable and accrued expenses
(1,713
)
(1,585
)
(1,713
)
(1,585
)
(2,068
)
Other, net
223
280
223
280
773
Total invested capital
$
9,616
$
9,560
$
9,616
$
9,560
$
12,814
Average invested capital
$
9,902
$
9,709
$
9,780
$
9,943
$
13,140
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) (59
)
(118
)
(91
)
(123
)
(274
)
Adjusted for Industrial Packaging
--
--
--
--
(1,504
)
Adjusted average invested capital
$
9,843
$
9,591
$
9,689
$
9,820
$
11,362
Adjusted return on average invested capital
21.1
%
20.1
%
22.1
%
20.4
%
14.5
%

A reconciliation of the 2012 effective tax rate to the adjusted tax rate excluding the discrete tax charge is as follows:

Twelve Months Ended
Dollars in millions December 31, 2012
Income Taxes
Tax Rate
As reported
$
973
30.3 %
Discrete tax charge (36
)
(1.1 )%
As adjusted
$
937
29.2 %
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
FREE CASH FLOW (UNAUDITED)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
Dollars in millions
2016
2015
2016
2015
Net cash provided by operating activities
$
664
$
703
$
2,302
$
2,299
Less: Additions to plant and equipment
(71
)
(75
)
(273
)
(284
)
Free cash flow
$
593
$
628
$
2,029
$
2,015
Net income
$
507
$
450
$
2,035
$
1,899
Free cash flow to net income conversion rate 117
%
140
%
100
%
106
%
2012 ADJUSTED INCOME PER SHARE FROM CONTINUING OPERATIONS - DILUTED (UNAUDITED)
Twelve Months Ended
December 31, 2012
As reported
$
4.72
Decorative Surfaces net gain
1.34
Decorative Surfaces equity interest
(0.04
)
Decorative Surfaces operating results
0.21
As adjusted for the Decorative Surfaces business $
3.21
2016 ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)
Three Months Ended
December 31, 2016
As reported
$
1.45
Gain related to Wilsonart dividend (0.10
)
Loss related to divestitures
0.04
As adjusted
$
1.39
Contact: Mike Drazin 224.661.7433 or mdrazin@itw.com

https://resource.globenewswire.com/Resource/Download/5947b771-ca1d-4d68-8a54-06116e780a4e?size=1

<img src="http://www.globenewswire.com/newsroom/ti?ndecode=MTUwIzY2NjMxMTg=" alt="" width="1" height="1"/>