ITW
$165.03
Illinois Tool Works
($1.46)
(.88%)
Earnings Details
3rd Quarter September 2017
Monday, October 23, 2017 8:00:23 AM
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Summary

Illinois Tool Works Beats

Illinois Tool Works (ITW) reported 3rd Quarter September 2017 earnings of $1.71 per share on revenue of $3.6 billion. The consensus earnings estimate was $1.65 per share on revenue of $3.6 billion. The Earnings Whisper number was $1.67 per share. Revenue grew 3.4% on a year-over-year basis.

The company said it expects fourth quarter earnings of $1.55 to $1.65 per share. The current consensus earnings estimate is $1.59 per share for the quarter 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
$1.71
Earnings Whisper
$1.67
Consensus Estimate
$1.65
Reported Revenue
$3.62 Bil
Revenue Estimate
$3.57 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

ITW Reports Third-Quarter 2017 Results

Third-Quarter Highlights:

GAAP EPS of $1.85 includes $0.14 benefit from a favorable legal settlement; excluding this item EPS was $1.71, an increase of 14%

-- Total revenue of $3.6 billion, an increase of 4%

Operating margin of 26.6% includes 220 basis points benefit from the legal settlement; excluding this item operating margin was 24.4%, an increase of 130 bps

Updated 2017 full-year outlook: GAAP EPS of $6.62 to $6.72, an increase of $0.25 at the mid-point

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

Third-quarter revenue grew 4% to $3.6 billion as organic revenue and foreign currency translation each increased revenue by 2% in the quarter. GAAP EPS of $1.85 includes a $0.14 benefit from a previously disclosed favorable legal settlement. Excluding this item, EPS increased 14% to $1.71. Operating margin was 26.6% and includes a 220 basis point benefit from the settlement. Excluding this item, operating margin was 24.4%, an increase of 130 basis points, with enterprise initiatives contributing 110 basis points of margin improvement.

"In the third quarter, the ITW team continued to execute at a high level and, as a result, delivered another quarter of strong financial results," said E. Scott Santi, Chairman and Chief Executive Officer. "I continue to be very pleased with our progress in positioning the company to leverage ITW’s differentiated business model and high quality diversified business portfolio to deliver consistent top tier performance."

Organic revenue growth was positive in six of seven segments led by Specialty Products (+5%), Welding (+4%) and Construction (+4%).

As previously disclosed, the company entered into a confidential legal settlement in 2017, resulting in a favorable pre-tax impact of $80 million on the third quarter 2017 results. The following schedule illustrates the impact of this item on the company’s reported third quarter 2017 financial performance.

$ Millions
Q3’16 As
Q3’17 As
Legal
Q3’17 Ex
Change
Reported
Reported
Settlement
Settlement
year-on-year
Total Revenue
$3,495
$3,615
-
-
+4%
Operating Income $808
$961
+$80
$881
+9%
Operating Margin 23.1%
26.6%
+220 bps
24.4%
+130 bps
EPS
$1.50
$1.85
+$0.14
$1.71
+14%
After-tax ROIC
23.0%
26.3%
+220 bps
24.1%
+110 bps

Full-Year and Fourth Quarter 2017 Guidance

ITW is raising its 2017 full-year GAAP EPS guidance by $0.25 at the mid-point to a range of $6.62 to $6.72. The company expects full-year organic revenue growth of 2 to 3% and operating margin of approximately 24.5%.

For the fourth quarter 2017, the company expects GAAP EPS to be in the range of $1.55 to $1.65 and organic growth of 2 to 3%.

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, 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.

About ITW

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
Nine Months Ended
September 30,
September 30,
In millions except per share amounts
2017
2016
2017
2016
Operating Revenue
$
3,615
$
3,495
$
10,685
$
10,200
Cost of revenue
2,094
2,027
6,185
5,890
Selling, administrative, and research and development expenses 589
604
1,795
1,818
Legal settlement (income)
(80
)
--
(95
)
--
Amortization and impairment of intangible assets
51
56
156
170
Operating Income
961
808
2,644
2,322
Interest expense
(65
)
(58
)
(194
)
(174
)
Other income (expense)
10
13
24
34
Income Before Taxes
906
763
2,474
2,182
Income Taxes
266
228
711
654
Net Income
$
640
$
535
$
1,763
$
1,528
Net Income Per Share:
Basic
$
1.86
$
1.51
$
5.12
$
4.28
Diluted
$
1.85
$
1.50
$
5.07
$
4.25
Cash Dividends Per Share:
Paid
$
0.65
$
0.55
$
1.95
$
1.65
Declared
$
0.78
$
0.65
$
2.08
$
1.75
Shares of Common Stock Outstanding During the Period:
Average
343.4
353.5
344.7
357.3
Average assuming dilution
346.0
355.5
347.5
359.3
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions
September 30, 2017
December 31, 2016
Assets
Current Assets:
Cash and equivalents
$
2,785
$
2,472
Trade receivables
2,672
2,357
Inventories
1,225
1,076
Prepaid expenses and other current assets
230
218
Total current assets
6,912
6,123
Net plant and equipment
1,759
1,652
Goodwill
4,732
4,558
Intangible assets
1,319
1,463
Deferred income taxes
473
449
Other assets
1,119
956
$
16,314
$
15,201
Liabilities and Stockholders’ Equity
Current Liabilities:
Short-term debt
$
698
$
652
Accounts payable
585
511
Accrued expenses
1,231
1,202
Cash dividends payable
267
226
Income taxes payable
86
169
Total current liabilities
2,867
2,760
Noncurrent Liabilities:
Long-term debt
7,439
7,177
Deferred income taxes
112
134
Other liabilities
870
871
Total noncurrent liabilities
8,421
8,182
Stockholders’ Equity:
Common stock
6
6
Additional paid-in-capital
1,207
1,188
Retained earnings
20,553
19,505
Common stock held in treasury
(15,336
)
(14,638
)
Accumulated other comprehensive income (loss) (1,407
)
(1,807
)
Noncontrolling interest
3
5
Total stockholders’ equity
5,026
4,259
$
16,314
$
15,201
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended September 30, 2017
Dollars in millions
Total
Operating
Operating
Revenue
Income
Margin
Automotive OEM
$
795
$
172
21.6 %
Food Equipment
549
150
27.3 %
Test & Measurement and Electronics 525
127
24.1 %
Welding
378
100
26.6 %
Polymers & Fluids
434
90
21.0 %
Construction Products
440
112
25.4 %
Specialty Products
498
138
27.7 %
Intersegment
(4
)
--
--
%
Total Segments
3,615
889
24.6 %
Unallocated*
--
72
--
%
Total Company
$
3,615
$
961
26.6 %
Nine Months Ended September 30, 2017
Dollars in millions
Total
Operating
Operating
Revenue
Income
Margin
Automotive OEM
$
2,443
$
556
22.7 %
Food Equipment
1,575
414
26.3 %
Test & Measurement and Electronics 1,524
337
22.1 %
Welding
1,150
312
27.2 %
Polymers & Fluids
1,297
272
21.0 %
Construction Products
1,260
303
24.0 %
Specialty Products
1,451
401
27.6 %
Intersegment
(15
)
--
--
%
Total Segments
10,685
2,595
24.3 %
Unallocated*
--
49
--
%
Total Company
$
10,685
$
2,644
24.7 %
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q3 2017 vs. Q3 2016 Favorable/(Unfavorable)
Operating Revenue
Automotive Food
Test &
Welding Polymers & Construction Specialty Total
OEM
Equipment Measurement
Fluids
Products
Products
ITW
and
Electronics
Organic
1.3
%
(0.4 )%
0.8
%
3.9 %
1.0
%
3.5
%
4.5
%
1.9
%
Acquisitions/Divestitures --
%
--
%
--
%
--
%
--
%
--
%
(1.2 )%
(0.2 )%
Translation
2.8
%
1.5
%
1.0
%
0.9 %
1.6
%
2.5
%
1.3
%
1.8
%
Operating Revenue
4.1
%
1.1
%
1.8
%
4.8 %
2.6
%
6.0
%
4.6
%
3.5
%
Q3 2017 vs. Q3 2016 Favorable/(Unfavorable)
Change in Operating Margin
Automotive
Food
Test &
Welding
Polymers
Construction Specialty
Total
OEM
Equipment
Measurement
& Fluids
Products
Products
ITW
and
Electronics
Operating Leverage
30 bps
--
20 bps
60 bps
20 bps
90 bps
90 bps
50 bps
Changes in Variable Margin & OH Costs
(40) bps
20 bps
240 bps
20 bps
--
40 bps
140 bps
300 bps
Total Organic
(10) bps
20 bps
260 bps
80 bps
20 bps
130 bps
230 bps
350 bps
Acquisitions/Divestitures
--
--
--
--
--
--
30 bps
--
Restructuring/Other
(10) bps
(30) bps
50 bps
(70) bps
(20) bps
150 bps
(100) bps
--
Total Operating Margin Change
(20) bps
(10) bps
310 bps
10 bps
--
280 bps
160 bps
350 bps
Total Operating Margin % *
21.6
% 27.3
% 24.1
% 26.6
% 21.0
% 25.4
% 27.7
% 26.6
%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps
70 bps
300 bps
40 bps
400 bps
50 bps
120 bps
150 bps**
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.10) on GAAP net income diluted earnings per share for the third quarter of 2017.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
YTD 2017 vs YTD 2016 Favorable/(Unfavorable)
Operating Revenue
Automotive Food
Test &
Welding Polymers
Construction Specialty Total ITW
OEM
Equipment Measurement
& Fluids
Products
Products
and
Electronics
Organic
4.7
%
0.7
%
3.5
%
2.2 %
0.5
%
2.7
%
3.1
%
2.7
%
Acquisitions/Divestitures 12.2
%
--
%
--
%
--
%
--
%
--
%
(1.1 )%
2.3
%
Translation
--
%
(0.9 )%
(1.0
)%
0.1 %
0.5
%
0.3
%
(0.5 )%
(0.2 )%
Operating Revenue
16.9
%
(0.2 )%
2.5
%
2.3 %
1.0
%
3.0
%
1.5
%
4.8
%
YTD 2017 vs. YTD 2016 Favorable/(Unfavorable)
Change in Operating Margin
Automotive
Food
Test &
Welding
Polymers
Construction Specialty
Total ITW
OEM
Equipment
Measurement
& Fluids
Products
Products
and
Electronics
Operating Leverage
80 bps
20 bps
110 bps
40 bps
10 bps
70 bps
70 bps
50 bps
Changes in Variable Margin & OH Costs
(50) bps
20 bps
230 bps
80 bps
70 bps
--
100 bps
180 bps
Total Organic
30 bps
40 bps
340 bps
120 bps
80 bps
70 bps
170 bps
230 bps
Acquisitions/Divestitures
(160) bps
--
--
--
--
--
30 bps
(40) bps
Restructuring/Other
(50) bps
20 bps
30 bps
90 bps
(50) bps
60 bps
(50) bps
--
Total Operating Margin Change
(180) bps
60 bps
370 bps
210 bps
30 bps
130 bps
150 bps
190 bps
Total Operating Margin % *
22.7
% 26.3
% 22.1
% 27.2
% 21.0
% 24.0
% 27.6
% 24.7
%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 60 bps
80 bps
320 bps
40 bps
410 bps
60 bps
130 bps
160 bps**
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.31) on GAAP net income diluted earnings per share for the first nine months of 2017.
Full Year 2016 vs Full Year 2015 Favorable/(Unfavorable)
Operating Revenue
Automotive
Food
Test &
Welding
Polymers &
Construction
Specialty Total ITW
OEM
Equipment Measurement
Fluids
Products
Products
and
Electronics
Organic
5.1
%
2.8
%
1.8
%
(9.1
)%
1.3
%
3.0
%
1.2
%
1.2
%
Acquisitions/Divestitures 9.7
%
--
%
--
%
--
%
(0.2
)%
(0.2
)%
(0.1 )%
1.7
%
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
%
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
September 30,
December 31,
Dollars in millions
2017
2016
2016
Operating income
$
961
$
808
$
3,064
Tax rate
29.3
%
30.0
%
30.0
%
Income taxes
(282
)
(243
)
(919
)
Operating income after taxes
$
679
$
565
$
2,145
Invested capital:
Trade receivables
$
2,672
$
2,496
$
2,357
Inventories
1,225
1,167
1,076
Net plant and equipment
1,759
1,702
1,652
Goodwill and intangible assets
6,051
6,191
6,021
Accounts payable and accrued expenses
(1,816
)
(1,762
)
(1,713
)
Other, net
487
393
223
Total invested capital
$
10,378
$
10,187
$
9,616
Average invested capital
$
10,354
$
9,973
$
9,780
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) --
(116
)
(91
)
Adjusted average invested capital
$
10,354
$
9,857
$
9,689
Adjusted return on average invested capital
26.3
% * 23.0
%
22.1
%
FREE CASH FLOW (UNAUDITED)
Three Months Ended
Nine Months Ended
September 30,
September 30,
Dollars in millions
2017
2016
2017
2016
Net cash provided by operating activities
$
780
$
624
$
1,707
$
1,638
Less: Additions to plant and equipment
(78
)
(81
)
(219
)
(202
)
Free cash flow
$
702
*
$
543
$
1,488
$
1,436
Net income
$
640
$
535
$
1,763
$
1,528
Free cash flow to net income conversion rate 110
%
*
101
%
84
%
94
%

Investor Contact: Mike Drazin 224.661.7433 or mdrazin@itw.com

Media Contact: Trisha Knych 224.661.7566 or tknych@itw.com

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