ITW
$151.81
Illinois Tool Works
($.32)
(.21%)
Earnings Details
2nd Quarter June 2019
Friday, July 26, 2019 8:00:00 AM
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Summary

Illinois Tool Works Beats but Guides Lower

Illinois Tool Works (ITW) reported 2nd Quarter June 2019 earnings of $2.00 per share on revenue of $3.6 billion. The consensus earnings estimate was $1.97 per share on revenue of $3.7 billion. The Earnings Whisper number was $1.99 per share. Revenue fell 5.8% compared to the same quarter a year ago.

The company said it expects 2019 earnings of $7.55 to $7.85 per share. The company's previous guidance was earnings of $7.90 to $8.20 per share and the current consensus earnings estimate is $7.89 per share for the year ending December 31, 2019.

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
$2.00
Earnings Whisper
$1.99
Consensus Estimate
$1.97
Reported Revenue
$3.61 Bil
Revenue Estimate
$3.74 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

ITW Reports Second Quarter 2019 Results

GLENVIEW, Ill., July 26, 2019 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its second-quarter 2019 results including GAAP earnings per share (EPS) of $1.91 compared to $1.97 in the second quarter of 2018. Revenue of $3.6 billion was down 5.8 percent with organic revenue down 2.8 percent and unfavorable foreign currency translation impact of 2.7 percent. Operating margin was 24.1 percent.

“In the second quarter, we experienced a deceleration in demand across our portfolio relative to the demand levels we were seeing exiting the first quarter. On a sequential basis, second quarter organic revenue declined approximately two percentage points versus first quarter run rates,” said E. Scott Santi, Chairman and Chief Executive Officer.

“In this more challenging demand environment, the ITW team executed well on the elements within our own control and delivered solid financial results. Operating margin improved year-over-year to 24.4 percent, excluding higher restructuring impact of 30 basis points, as enterprise initiatives contributed 110 basis points. The combination of unfavorable foreign currency translation, higher restructuring expenses and a small loss on two divestitures reduced EPS by $0.09 year-over-year. Excluding these three items, EPS would have increased two percent to $2.00. Free cash flow increased 14 percent year-on-year.”

“We are updating our full year guidance to reflect current levels of demand. All other assumptions remain essentially unchanged. We continue to expect a stronger second half on a relative basis, as known headwinds from foreign currency and higher restructuring expenses dissipate. We expect continued strong contributions from enterprise initiatives, positive price/cost margin dynamics, and strong free cash flow as we progress through the balance of the year. While we will be prudent in making appropriate adjustments due to the near-term demand environment, we remain focused on managing and investing to maximize ITW’s performance over the long term. The highly differentiated nature of ITW’s core competitive advantages and the strength and resilience of our proprietary business model and diversified portfolio position us well for strong financial performance across a wide range of economic scenarios,” Santi concluded.

Revenue of $3.6 billion was down 5.8 percent with organic revenue down 2.8 percent, unfavorable foreign currency translation impact of 2.7 percent, and divestiture impact of 0.3 percent. As expected, the company’s ongoing Product Line Simplification (PLS) activities reduced organic growth by 70 basis points. 

Operating margin was 24.1 percent. Excluding 30 basis points of unfavorable margin impact from higher year-over-year restructuring expenses, operating margin improved 10 basis points to 24.4 percent. Free Cash Flow increased 14 percent and the company repurchased $375 million of its own shares. After-tax return on invested capital was 28.6 percent.

2019 Full-Year Guidance
Current levels of demand, adjusted for normal seasonality, project full year organic revenue to be down one to three percent. As a result, the company is updating its full year GAAP EPS guidance to a range of $7.55 to $7.85, which includes approximately $0.25 of headwind from foreign currency translation and higher restructuring expenses. Operating margin is forecast to be flat to up 50 basis points, largely due to strong contributions from enterprise initiatives of 100 basis points, partially offset by 25 basis points of higher restructuring expenses. Free cash flow is expected to be above 100 percent of net income, and the company is on pace to repurchase approximately $1.5 billion of its shares. The effective tax rate for the full year is expected to be in the range of 24 to 25 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.

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, foreign exchange rates, total and organic revenue growth, operating margin, economic and regulatory conditions in various geographic regions, price/cost impact, restructuring expenses, free cash flow, effective tax rate, after-tax return on invested capital, and timing and amount of share repurchases. 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 2018.

About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.8 billion in 2018. 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 approximately 48,000 dedicated colleagues in operations around the world who thrive in the company’s unique, decentralized and entrepreneurial culture.        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 amounts2019 2018 2019 2018
Operating Revenue$3,609  $3,831  $7,161  $7,575 
Cost of revenue2,099  2,231  4,158  4,412 
Selling, administrative, and research and development expenses598  620  1,209  1,232 
Amortization and impairment of intangible assets41  48  84  96 
Operating Income871  932  1,710  1,835 
Interest expense(55) (64) (118) (130)
Other income (expense)9  26  23  38 
Income Before Taxes825  894  1,615  1,743 
Income Taxes202  228  395  425 
Net Income$623  $666  $1,220  $1,318 
        
Net Income Per Share:       
Basic$1.92  $1.98  $3.74  $3.90 
Diluted$1.91  $1.97  $3.72  $3.87 
        
Cash Dividends Per Share:       
Paid$1.00  $0.78  $2.00  $1.56 
Declared$1.00  $0.78  $2.00  $1.56 
        
Shares of Common Stock Outstanding During the Period:       
Average324.8  336.7  326.0  338.5 
Average assuming dilution326.6  338.9  327.9  340.8 
            

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millionsJune 30, 2019 December 31, 2018
Assets   
Current Assets:   
Cash and equivalents$1,677  $1,504 
Trade receivables2,629  2,622 
Inventories1,256  1,318 
Prepaid expenses and other current assets288  334 
Assets held for sale439   
Total current assets6,289  5,778 
    
Net plant and equipment1,717  1,791 
Goodwill4,503  4,633 
Intangible assets928  1,084 
Deferred income taxes516  554 
Other assets1,234  1,030 
 $15,187  $14,870 
    
Liabilities and Stockholders' Equity   
Current Liabilities:   
Short-term debt$  $1,351 
Accounts payable512  524 
Accrued expenses1,207  1,271 
Cash dividends payable323  328 
Income taxes payable53  68 
Liabilities held for sale93   
Total current liabilities2,188  3,542 
    
Noncurrent Liabilities:   
Long-term debt7,809  6,029 
Deferred income taxes683  707 
Noncurrent income taxes payable462  495 
Other liabilities950  839 
Total noncurrent liabilities9,904  8,070 
    
Stockholders’ Equity:   
Common stock6  6 
Additional paid-in-capital1,270  1,253 
Retained earnings21,788  21,217 
Common stock held in treasury(18,276) (17,545)
Accumulated other comprehensive income (loss)(1,697) (1,677)
Noncontrolling interest4  4 
Total stockholders’ equity3,095  3,258 
 $15,187  $14,870 
        

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Three Months Ended June 30, 2019
Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
Automotive OEM$788 $174 22.1%
Food Equipment548 140 25.6%
Test & Measurement and Electronics533 131 24.5%
Welding422 122 28.8%
Polymers & Fluids427 97 22.8%
Construction Products424 106 25.0%
Specialty Products473 124 26.1%
Intersegment(6) %
Total Segments3,609 894 24.8%
Unallocated (23)%
Total Company$3,609 $871 24.1%
         


Six Months Ended June 30, 2019
Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
Automotive OEM$1,594 $341 21.4%
Food Equipment1,066 269 25.3%
Test & Measurement and Electronics1,057 257 24.3%
Welding849 242 28.5%
Polymers & Fluids843 186 22.1%
Construction Products825 193 23.4%
Specialty Products938 247 26.3%
Intersegment(11) %
Total Segments7,161 1,735 24.2%
Unallocated (25)%
Total Company$7,161 $1,710 23.9%
         

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Q2 2019 vs. Q2 2018 Favorable/(Unfavorable)
Operating RevenueAutomotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
WeldingPolymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic(7.1)%1.7%(1.3)%(2.4)%0.1%(0.7)%(6.4)%(2.8)%
Acquisitions/
Divestitures
%%%(0.8)%(0.8)%%(0.8)%(0.3)%
Translation(3.3)%(2.7)%(2.3)%(1.0)%(3.2)%(3.8)%(2.1)%(2.7)%
Operating Revenue(10.4)%(1.0)%(3.6)%(4.2)%(3.9)%(4.5)%(9.3)%(5.8)%
                 


Q2 2019 vs. Q2 2018 Favorable/(Unfavorable)
Change in
Operating Margin
Automotive OEMFood
Equipment
Test &
Measurement
 and
Electronics
WeldingPolymers
& Fluids
Construction ProductsSpecialty ProductsTotal ITW
Operating Leverage(120) bps40 bps(40) bps(40) bps10 bps(20) bps(130) bps(60) bps
Changes in Variable Margin & OH Costs90 bps90 bps10 bps170 bps60 bps(50) bps60 bps
Total Organic (30) bps 40 bps 50 bps (30) bps 180 bps 40 bps (180) bps
Acquisitions/
Divestitures
20 bps20 bps30 bps10 bps
Restructuring/Other(10) bps(20) bps50 bps(40) bps(40) bps10 bps(50) bps(30) bps
Total Operating Margin Change (40) bps 20 bps 100 bps (50) bps 160 bps 50 bps (200) bps (20) bps
         
Total Operating Margin % *22.1%25.6%24.5%28.8%22.8%25.0%26.1%24.1%
         
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps 70 bps 220 bps 30 bps 350 bps 30 bps 100 bps 120 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.09) on GAAP earnings per share for the second quarter of 2019.
 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

1H 2019 vs 1H 2018 Favorable/(Unfavorable)
Operating RevenueAutomotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
WeldingPolymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic(6.7)%1.7%(0.9)%0.2%(0.4)%(1.0)%(4.1)%(2.2)%
Acquisitions/
Divestitures
%%%(0.7)%(0.9)%%(0.4)%(0.2)%
Translation(3.7)%(3.0)%(2.7)%(1.1)%(3.7)%(4.4)%(2.4)%(3.1)%
Operating Revenue(10.4)%(1.3)%(3.6)%(1.6)%(5.0)%(5.4)%(6.9)%(5.5)%
                 


1H 2019 vs. 1H 2018 Favorable/(Unfavorable)
Change in
Operating Margin
Automotive
 OEM
Food
Equipment
Test &
Measurement and
Electronics
WeldingPolymers
& Fluids
Construction ProductsSpecialty ProductsTotal ITW
Operating Leverage(110) bps40 bps(30) bps10 bps(10) bps(10) bps(90) bps(40) bps
Changes in Variable Margin & OH Costs20 bps40 bps100 bps(10) bps120 bps50 bps(10) bps50 bps
Total Organic (90) bps 80 bps 70 bps 110 bps 40 bps (100) bps 10 bps
Acquisitions/
Divestitures
20 bps20 bps20 bps10 bps
Restructuring/Other(100) bps(50) bps10 bps(20) bps(30) bps(30) bps(30) bps(50) bps
Total Operating Margin Change (190) bps 30 bps 80 bps 100 bps 10 bps (110) bps (30) bps
         
Total Operating Margin % *21.4%25.3%24.3%28.5%22.1%23.4%26.3%23.9%
         
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps 70 bps 240 bps 20 bps 350 bps 30 bps 100 bps 120 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.19) on GAAP earnings per share for the first half of 2019.
 

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
 June 30, June 30,
Dollars in millions2019 2018 2019 2018
Operating income$871  $932  $1,710  $1,835 
Tax rate24.5% 25.5% 24.5% 25.2%
Income taxes(213) (238) (418) (462)
Operating income after taxes$658  $694  $1,292  $1,373 
        
Invested capital:       
Trade receivables$2,629  $2,878  $2,629  $2,878 
Inventories1,256  1,320  1,256  1,320 
Net assets held for sale346    346   
Net plant and equipment1,717  1,783  1,717  1,783 
Goodwill and intangible assets5,431  5,852  5,431  5,852 
Accounts payable and accrued expenses(1,719) (1,847) (1,719) (1,847)
Other, net(433) (407) (433) (407)
Total invested capital$9,227  $9,579  $9,227  $9,579 
        
Average invested capital$9,206  $9,675  $9,182  $9,724 
Adjusted return on average invested capital28.6% 28.7% 28.1% 28.2%
            

A reconciliation of the tax rate for the six month period ended June 30, 2018 excluding the first quarter 2018 discrete tax benefit related to foreign tax credits is as follows:

 Six Months Ended
 June 30, 2018
Dollars in millionsIncome Taxes Tax Rate
As reported$425  24.4%
Discrete tax benefit14  0.8%
As adjusted$439  25.2%
       

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Dollars in millionsTwelve Months
Ended

December 31,
2018
Operating income$3,584 
Tax rate24.9%
Income taxes(893)
Operating income after taxes$2,691 
  
Invested capital: 
Trade receivables$2,622 
Inventories1,318 
Net plant and equipment1,791 
Goodwill and intangible assets5,717 
Accounts payable and accrued expenses(1,795)
Other, net(519)
Total invested capital$9,134 
  
Average invested capital$9,533 
Adjusted return on average invested capital28.2%
   

A reconciliation of the full year 2018 effective tax rate excluding the third quarter net discrete tax benefit is as follows:

 Twelve Months Ended
 December 31, 2018
Dollars in millionsIncome Taxes Tax Rate
As reported$831  24.5%
Net discrete tax benefit15  0.4%
As adjusted$846  24.9%
       

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

FREE CASH FLOW (UNAUDITED)

 Three Months Ended Six Months Ended
 June 30, June 30,
Dollars in millions2019 2018 2019 2018
Net cash provided by operating activities$685  $620  $1,301  $1,158 
Less: Additions to plant and equipment(77) (87) (154) (181)
Free cash flow$608  $533  $1,147  $977 
        
Net income$623  $666  $1,220  $1,318 
Free cash flow to net income conversion rate98% 80% 94% 74%
            

ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

 Three Months Ended
 June 30, 2019
As reported$1.91 
Foreign currency translation0.06 
Higher restructuring expenses0.02 
Loss on divestitures0.01 
As adjusted$2.00 
    


Media Contact 
Illinois Tool Works 
Trisha Knych  
Tel: 224.661.7566 
mediarelations@itw.com 
  Investor Relations
Illinois Tool Works
Karen Fletcher
Tel: 224.661.7433
investorrelations@itw.com

Illinois Tool Works logo

Source: Illinois Tool Works Inc.