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ITW Reports Third Quarter 2015 Financial Results

  • EPS of $1.39, up 9 percent; up 18 percent excluding $(0.12) of currency headwinds
  • Record operating margin of 22.7 percent, up 180 basis points; Enterprise Initiatives contribute 110 basis points
  • Strong free cash flow conversion at 126 percent of net income
  • Record after-tax return on invested capital of 21.5 percent

GLENVIEW, Ill., Oct. 21, 2015 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported third quarter 2015 diluted earnings per share (EPS) from continuing operations of $1.39, a 9 percent increase compared to the year-ago period. Organic revenue was down 1.7 percent in the quarter as continued solid organic growth performance in Automotive OEM, Food Equipment and Construction Products was offset by deteriorating end market trends in Welding and Test & Measurement and Electronics. In addition, the company’s ongoing Product Line Simplification (PLS) activities reduced organic growth by 1 percentage-point.

"ITW delivered another strong quarter of margin expansion and earnings per share growth," said E. Scott Santi, chairman and chief executive officer. "In the quarter, ITW set new all-time records for operating margin and after-tax return on invested capital and grew EPS by 9 percent. In addition, free cash flow conversion was very strong at 126 percent. Due to ITW’s unique business model and proven track record of operational execution, the company is well positioned to continue to deliver differentiated performance in both the current environment and over the long-term.”

Third quarter 2015 enterprise highlights*

  • EPS increased 9 percent to $1.39. Excluding $(0.12) impact from foreign currency headwinds, EPS would have been up 18 percent.
  • Operating margin increased 180 basis points to a record of 22.7 percent as Enterprise Initiatives contribute 110 basis points.
  • Free cash flow was $644 million, 126 percent of net income.
  • After-tax return on invested capital improved 140 basis points to a record of 21.5 percent.
  • Total revenues of $3.4 billion were down 9 percent primarily due to the impact of foreign currency translation.

Third quarter 2015 segment performance*

  • Automotive OEM organic revenue growth of 5 percent outpaced flat worldwide auto builds. Organic revenue increased 12 percent in Europe, 5 percent in North America and declined 5 percent in China. Operating margin of 25.4 percent was up 200 basis points.
  • Construction Products organic revenue increased 4 percent driven by 7 percent growth in North America and 5 percent growth in Asia Pacific. Record operating margin of 23.1 percent was up 420 basis points.
  • Food Equipment organic revenue increased 3 percent due to 6 percent growth in North America. Record operating margin of 26.3 percent was an increase of 320 basis points.
  • Facing challenging year-over-year comparisons and significant end market weakness, organic revenue in Welding and Test & Measurement and Electronics declined by 10 percent and 11 percent, respectively.

Guidance

The company is reducing its 2015 full-year EPS guidance by $0.05 or 1 percent at the midpoint to reflect current demand levels. The updated EPS range of $5.05 to $5.15 is a year-over-year increase of 9 percent at the midpoint. Excluding the negative currency impact, full-year EPS would be up 18 percent at the midpoint. Organic revenue for the year is projected to be down 1 percent to flat, which includes the expected 1-percentage point of impact from PLS. Operating margin is projected to exceed 21 percent, an increase of more than 100 basis points year-over-year. For the fourth quarter 2015, the company is expecting EPS to be in a range of $1.15 to $1.25 and operating margin to be approximately 21 percent. Fourth quarter organic revenue is forecast to be down 1 to 2 percent, in line with current demand levels.

*All comparisons are to the prior year period.

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, impact of foreign currency translation, 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-K for 2014 and Form 10-Q for the second quarter of 2015. The attached tables include a calculation of ROIC, a non-GAAP measure.

About ITW

ITW (NYSE:ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.5 billion in 2014. The Company’s seven industry-leading businesses 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 nearly 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
In millions except per share amountsSeptember 30, September 30,
2015 2014 2015 2014
Operating Revenues$3,354 $3,692 $10,130 $10,980
Cost of revenues1,953 2,182 5,947 6,559
Selling, administrative, and research and development expenses581 675 1,819 2,034
Amortization of intangible assets57 60 174 182
Impairment of goodwill and other intangible assets2 3 2 3
Operating Income761 772 2,188 2,202
Interest expense(59) (68) (168) (196)
Other income (expense)23 20 65 36
Income from Continuing Operations Before Income Taxes725 724 2,085 2,042
Income Taxes214 217 636 613
Income from Continuing Operations511 507 1,449 1,429
Income from Discontinued Operations 24 1,067
Net Income$511 $531 $1,449 $2,496
Income Per Share from Continuing Operations:
Basic$1.40 $1.29 $3.92 $3.51
Diluted$1.39 $1.28 $3.90 $3.49
Income Per Share from Discontinued Operations:
Basic$ $0.06 $ $2.62
Diluted$ $0.06 $ $2.60
Net Income Per Share:
Basic$1.40 $1.35 $3.92 $6.14
Diluted$1.39 $1.34 $3.90 $6.09
Shares of Common Stock Outstanding During the Period:
Average365.1 394.0 369.3 406.8
Average assuming dilution367.1 396.8 371.6 409.7



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions
September 30, 2015 December 31, 2014
Assets
Current Assets:
Cash and equivalents$3,001 $3,990
Trade receivables2,339 2,293
Inventories1,153 1,180
Deferred income taxes189 212
Prepaid expenses and other current assets287 401
Total current assets6,969 8,076
Net plant and equipment1,601 1,686
Goodwill4,470 4,667
Intangible assets1,618 1,799
Deferred income taxes286 301
Other assets1,160 1,149
$16,104 $17,678
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt$812 $1,476
Accounts payable498 512
Accrued expenses1,137 1,287
Cash dividends payable200 186
Income taxes payable71 64
Deferred income taxes6 8
Total current liabilities2,724 3,533
Noncurrent Liabilities:
Long-term debt7,000 5,981
Deferred income taxes342 338
Other liabilities948 1,002
Total noncurrent liabilities8,290 7,321
Stockholders’ Equity:
Common stock6 6
Additional paid-in-capital1,124 1,096
Income reinvested in the business18,066 17,173
Common stock held in treasury(12,740) (10,798)
Accumulated other comprehensive income(1,370) (658)
Noncontrolling interest4 5
Total stockholders’ equity5,090 6,824
$16,104 $17,678


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended Nine Months Ended
Dollars in millionsSeptember 30, September 30,
2015 2014 2015 2014
Operating income$761 $772 $2,188 $2,202
Tax rate29.6% 30.0% 30.5% 30.0%
Income taxes(225) (232) (668) (661)
Operating income after taxes$536 $540 $1,520 $1,541
Invested capital:
Trade receivables$2,339 $2,519 $2,339 $2,519
Inventories1,153 1,265 1,153 1,265
Net plant and equipment1,601 1,693 1,601 1,693
Goodwill and intangible assets6,088 6,596 6,088 6,596
Accounts payable and accrued expenses(1,635) (1,901) (1,635) (1,901)
Other, net355 339 355 339
Total invested capital$9,901 $10,511 $9,901 $10,511
Average invested capital$10,080 $10,432 $10,079 $11,489
Adjustment for Wilsonart (formerly the Decorative Surfaces segment)(121) (155) (126) (158)
Adjustment for Industrial Packaging 461 (529)
Adjusted average invested capital$9,959 $10,738 $9,953 $10,802
Annualized adjusted return on average invested capital21.5% 20.1% 20.4% 19.0%


FREE CASH FLOW (UNAUDITED)
In millionsThree Months Ended
September 30, 2015
Net income$511
Net cash provided by operating activities$706
Less: Additions to plant and equipment(62)
Free cash flow$644
Free cash flow conversion126%


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
For the Three Months Ended September 30, 2015% F(U) vs. prior year
Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
Total
Revenue
Organic
Revenue
Operating
Margin
Automotive OEM$612 $156 25.4% (3.0)%5.2%2.0%
Test & Measurement and Electronics490 82 16.6% (16.4)%(11.3)%(2.1)%
Food Equipment551 144 26.3% (4.2)%3.1%3.2%
Polymers & Fluids423 80 19.0% (13.6)%(3.0)%(1.2)%
Welding396 98 24.8% (13.7)%(10.3)%(1.4)%
Construction Products409 94 23.1% (8.1)%3.7%4.2%
Specialty Products479 115 24.0% (6.5)%(0.1)%2.7%
Intersegment(6) % %%%
Total Segments3,354 769 22.9% (9.2)%(1.7)%1.2%
Unallocated (8)% %%%
Total Company$3,354 $761 22.7% (9.2)%(1.7)%1.8%


For the Nine Months Ended September 30, 2015% F(U) vs. prior year
Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
Total
Revenue
Organic
Revenue
Operating
Margin
Automotive OEM$1,914 $478 25.0% (2.8)%6.0%1.5%
Test & Measurement and Electronics1,469 232 15.8% (11.6)%(5.9)%0.3%
Food Equipment1,564 370 23.7% (3.7)%3.7%3.2%
Polymers & Fluids1,310 262 20.0% (11.2)%(1.7)%1.2%
Welding1,255 326 26.0% (9.9)%(6.5)%(0.1)%
Construction Products1,209 241 19.9% (7.4)%4.0%2.5%
Specialty Products1,427 334 23.4% (9.2)%(3.1)%1.2%
Intersegment(18) % %%%
Total Segments10,130 2,243 22.1% (7.7)%(0.3)%1.4%
Unallocated (55)% %%%
Total Company$10,130 $2,188 21.6% (7.7)%(0.3)%1.5%


Investors Contact: Aaron Hoffman 224.661.7429 ahoffman@itw.com Media Contact: Alison Donnelly 224.661.7427 adonnelly@itw.com

Source:Illinois Tool Works