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ITW Reports Fourth Quarter and Full-Year 2014 Financial Results

  • 4Q diluted EPS from continuing operations of $1.18, up 28 percent
  • 4Q operating margin of 19.6 percent up 190 basis points; Enterprise initiatives contributed 120 basis points
  • 4Q organic revenue grew 2.3 percent
  • Full-year 2015 EPS guidance unchanged; $5.25 at midpoint, up 12 percent

GLENVIEW, Ill., Jan. 27, 2015 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported fourth quarter 2014 earnings per share (EPS) from continuing operations of $1.18, 28 percent higher than the year-ago period. Operating margin increased 190 basis points to 19.6 percent and organic revenue grew 2.3 percent.

"We were pleased with ITW's strong performance in the quarter and for the year," said E. Scott Santi, president and chief executive officer. "In the quarter, the Company continued to deliver meaningful improvement in our earnings per share, operating margin and return on invested capital metrics."

"For full-year 2014, ITW grew earnings per share 29 percent, expanded operating margin by 210 basis points to 19.9 percent, improved after-tax return on invested capital by 260 basis points to 18.9 percent, and returned $5 billion to shareholders in the form of dividends and share repurchases. As a result of the strength of the ITW business model and the continued execution of our enterprise strategy, the Company is well positioned to deliver another year of solid progress in 2015," Santi concluded.

Fourth quarter 2014 financial highlights (versus year-ago):

  • Organic revenue was up 2.3 percent, with North American and international growth of 3 percent and 2 percent, respectively. In North America, organic revenue growth was driven by continued strength in welding, food equipment, and automotive OEM. Internationally, European organic revenues increased 1 percent and Asia Pacific grew 2 percent. As expected, ongoing product line simplification activities associated with the portfolio management component of ITW's enterprise strategy reduced organic revenue growth by approximately 1 percentage point in the quarter. Total revenues of $3.5 billion were down 1.4 percent due to negative foreign currency translation impact.
  • Operating margins of 19.6 percent increased 190 basis points, with enterprise initiatives contributing 120 basis points. Six of the Company's seven segments delivered operating margin improvement in excess of 100 basis points. Operating income increased 9.2 percent to $686 million.
  • After-tax Return on Invested Capital (ROIC) of 18.6 percent increased 220 basis points.

Fourth quarter 2014 segment highlights (versus year-ago):

  • Automotive OEM organic revenue growth of 7 percent outpaced fourth quarter worldwide auto builds of 1 percent. Organic revenues grew 12 percent in Europe, 4 percent in North America and 7 percent in Asia Pacific. Operating margins of 22.3 percent increased 190 basis points.
  • Food Equipment's organic revenues increased 5 percent due to solid growth in equipment and service worldwide. Operating margins of 21.7 percent increased 220 basis points.
  • Welding's organic revenues grew 4 percent, with North America increasing 10 percent due to strength in equipment sales to industrial and commercial customers. Operating margins of 25.4 percent increased 230 basis points.

Outlook

ITW is confirming its 2015 full-year EPS guidance range of $5.15 to $5.35, which is $5.25 at the midpoint, a 12 percent increase. Organic revenue growth for the year is expected to be 2.5 to 3.5 percent. Total revenue for the year is projected to decline 1 to 2 percent due to the impact of foreign currency translation. For the first quarter 2015, the Company is forecasting EPS to be in a range of $1.13 to $1.21, which is $1.17 at the midpoint, a 16 percent increase. In the first quarter, the Company expects 2 to 3 percent organic revenue growth and total revenue to decline 2 to 3 percent due to the impact of currency translation. The Company's outlook is based on current foreign exchange rates.

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 organic and total revenue growth, operating margins and diluted income per share from continuing operations. 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-Q from the second quarter of 2014. The attached tables include a calculation of ROIC, a non-GAAP measure.

About ITW

ITW is a Fortune 200 global diversified industrial manufacturer of value added consumables and specialty equipment with related service businesses. The Company focuses on solid growth, improving profitability and strong returns across its worldwide platforms and divisions. These divisions serve customers and markets around the globe, with a significant presence in developed as well as emerging markets. ITW's revenues totaled $14.5 billion in 2014.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Twelve Months Ended
(In millions except per share amounts) December 31, December 31,
2014 2013 2014 2013
Operating Revenues $ 3,504 $ 3,554 $ 14,484 $ 14,135
Cost of revenues 2,114 2,173 8,673 8,554
Selling, administrative, and research and development expenses 644 689 2,678 2,815
Amortization of intangible assets 60 64 242 250
Impairment of goodwill and other intangible assets 3 2
Operating Income 686 628 2,888 2,514
Interest expense (54) (60) (250) (239)
Other income (expense) 25 5 61 72
Income from Continuing Operations Before Income Taxes 657 573 2,699 2,347
Income Taxes 196 166 809 717
Income from Continuing Operations 461 407 1,890 1,630
Income (Loss) from Discontinued Operations (11) 1 1,056 49
Net Income $ 450 $ 408 $ 2,946 $ 1,679
Income Per Share from Continuing Operations:
Basic $ 1.19 $ 0.93 $ 4.70 $ 3.65
Diluted $ 1.18 $ 0.92 $ 4.67 $ 3.63
Income (Loss) Per Share from Discontinued Operations:
Basic $ (0.02) $ — $ 2.63 $ 0.11
Diluted $ (0.02) $ — $ 2.61 $ 0.11
Net Income Per Share:
Basic $ 1.17 $ 0.93 $ 7.33 $ 3.76
Diluted $ 1.16 $ 0.93 $ 7.28 $ 3.74
Shares of Common Stock Outstanding During the Period:
Average 386.4 437.7 401.7 446.2
Average assuming dilution 389.2 440.9 404.6 449.3
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(In millions) December 31, December 31,
2014 2013
ASSETS
Current Assets:
Cash and equivalents $ 3,990 $ 3,618
Trade receivables 2,293 2,365
Inventories 1,180 1,247
Deferred income taxes 212 384
Prepaid expenses and other current assets 401 366
Assets held for sale 1,836
Total current assets 8,076 9,816
Net plant and equipment 1,686 1,709
Goodwill 4,667 4,886
Intangible assets 1,799 1,999
Deferred income taxes 301 359
Other assets 1,149 1,197
$ 17,678 $ 19,966
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 1,476 $ 3,551
Accounts payable 512 634
Accrued expenses 1,287 1,272
Cash dividends payable 186 181
Income taxes payable 64 69
Deferred income taxes 8 10
Liabilities held for sale 317
Total current liabilities 3,533 6,034
Noncurrent Liabilities:
Long-term debt 5,981 2,793
Deferred income taxes 338 507
Other liabilities 1,002 923
Total noncurrent liabilities 7,321 4,223
Stockholders' Equity:
Common stock 6 6
Additional paid-in-capital 1,096 1,046
Income reinvested in the business 17,173 14,943
Common stock held in treasury (10,798) (6,676)
Accumulated other comprehensive income (658) 384
Noncontrolling interest 5 6
Total stockholders' equity 6,824 9,709
$ 17,678 $ 19,966
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS
ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended Twelve Months Ended
(Dollars in millions) December 31, December 31,
2014 2013 2014 2013
Operating income $ 686 $ 628 $ 2,888 $ 2,514
Tax rate (as adjusted for discrete tax charge in 2013) 30.0% 29.0% 30.0% 28.8%
Income taxes (206) (182) (866) (724)
Operating income after taxes $ 480 $ 446 $ 2,022 $ 1,790
Invested capital:
Trade receivables $ 2,293 $ 2,365 $ 2,293 $ 2,365
Inventories 1,180 1,247 1,180 1,247
Net assets held for sale 1,519 1,519
Net plant and equipment 1,686 1,709 1,686 1,709
Goodwill and intangible assets 6,466 6,885 6,466 6,885
Accounts payable and accrued expenses (1,799) (1,906) (1,799) (1,906)
Other, net 465 616 465 616
Total invested capital $ 10,291 $ 12,435 $ 10,291 $ 12,435
Average invested capital $ 10,401 $ 12,511 $ 11,249 $ 12,605
Adjustment for Wilsonart (formerly Decorative Surfaces) (147) (165) (154) (169)
Adjustment for Industrial Packaging 95 (1,469) (424) (1,477)
Adjusted average invested capital $ 10,349 $ 10,877 $ 10,671 $ 10,959
Annualized adjusted return on average invested capital 18.6% 16.4% 18.9% 16.3%
Twelve Months Ended
December 31, 2013
Income Taxes - As reported $ 717
Discrete tax charge related to foreign earnings (40)
Income Taxes - As adjusted 677
Income from Continuing Operations Before Income Taxes 2,347
Tax rate (as adjusted for discrete tax charge in 2013) 28.8%
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS
ADJUSTED FREE OPERATING CASH FLOW (UNAUDITED)
Three Months Ended Twelve Months Ended
(In millions) December 31, December 31,
2014 2013 2014 2013
Net cash provided by operating activities $ 458 $ 708 $ 1,616 $ 2,528
Less: Additions to plant and equipment (89) (111) (361) (368)
Free operating cash flow 369 597 1,255 2,160
Plus: Taxes paid related to sale of Industrial Packaging 191 724
Adjusted free operating cash flow $ 560 $ 597 $ 1,979 $ 2,160
ADJUSTED FREE OPERATING CASH FLOW CONVERSION RATE (UNAUDITED)
(Dollars in millions) Three Months Ended Twelve Months Ended
December 31, 2014 December 31, 2014
Adjusted free operating cash flow $ 560 $ 1,979
Net Income - As reported $ 450 $ 2,946
Less: Industrial Packaging gain on sale, after taxes (1,148)
Adjusted net income $ 450 $ 1,798
Adjusted free operating cash flow to adjusted net income conversion rate 124% 110%
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
For the Three Months Ended December 31, 2014 % F(U) vs. prior year
(Dollars in millions) Total
Revenue
Operating
Income
Operating
Margin
Total
Revenue
Organic
Revenue
Operating
Margin
Automotive OEM $ 620 $ 138 22.3% 2.7% 7.3% 190 bps
Test & Measurement and Electronics 541 82 15.1% (3.3)% (0.5)% (60) bps
Food Equipment 554 120 21.7% 1.4% 4.7% 220 bps
Polymers & Fluids 452 79 17.5% (4.2)% 0.7% 150 bps
Welding 458 116 25.4% 2.3% 4.2% 230 bps
Construction Products 402 63 15.7% (4.7)% 1.6% 190 bps
Specialty Products 482 92 19.0% (5.4)% (2.6)% 110 bps
Intersegment (5) —% —% —%
Total Segments 3,504 690 19.7% (1.4)% 2.3% 150 bps
Unallocated (4) —% —% —%
Total Company $ 3,504 $ 686 19.6% (1.4)% 2.3% 190 bps
For the Twelve Months Ended December 31, 2014 % F(U) vs. prior year
(Dollars in millions) Total
Revenue
Operating
Income
Operating
Margin
Total
Revenue
Organic
Revenue
Operating
Margin
Automotive OEM $ 2,590 $ 600 23.2% 8.1% 8.9% 270 bps
Test & Measurement and Electronics 2,204 340 15.4% 1.3% 1.5% 60 bps
Food Equipment 2,177 453 20.8% 6.4% 4.7% 200 bps
Polymers & Fluids 1,927 357 18.5% (3.3)% (1.2)% 170 bps
Welding 1,850 479 25.9% 0.7% 1.2% 60 bps
Construction Products 1,707 289 17.0% (0.6)% 2.2% 310 bps
Specialty Products 2,055 440 21.4% 2.4% (0.3)% 110 bps
Intersegment (26) —% —% —%
Total Segments 14,484 2,958 20.4% 2.5% 2.6% 170 bps
Unallocated (70) —% —% —%
Total Company $ 14,484 $ 2,888 19.9% 2.5% 2.6% 210 bps

CONTACT: Investors Contact: Aaron Hoffman 847.657.7314 ahoffman@itw.com Media Contact: Alison Donnelly 847.657.4565 adonnelly@itw.com

Source:Illinois Tool Works