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ITW Reports Fourth Quarter and Full-Year 2015 Financial Results

  • EPS of $1.23, up 4 percent; up 11 percent excluding (0.08) currency impact; $0.03 above guidance mid-point
  • Operating margin 20.7 percent; up 110 basis points driven by ITW’s Enterprise Initiatives
  • Full-year 2015 EPS $5.13, up 10 percent; up 19 percent excluding currency impact
  • Reaffirming full-year 2016 guidance

GLENVIEW, Ill., Jan. 27, 2016 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported fourth quarter 2015 diluted earnings per share (EPS) of $1.23, a 4 percent increase compared to the year-ago period. Operating margin increased 110 basis points to 20.7 percent and organic revenue declined 0.6 percent. The company’s ongoing Product Line Simplification (PLS) activities reduced organic growth by 1 percentage-point.

"We are pleased with ITW’s strong performance in the quarter and for the year,” said E. Scott Santi, Chairman and Chief Executive Officer. "In the quarter, the company continued to deliver meaningful improvement in our EPS, operating margin, and return on invested capital metrics, and demand across our business portfolio held steady versus the third quarter. While demand for industrial equipment remains sluggish, we have seen stable underlying demand trends in both Welding and Test & Measurement/Electronics over the past two quarters.

“For full-year 2015, ITW grew EPS 10 percent, expanded operating margin by 150 basis points to a record of 21.4 percent, improved after-tax return on invested capital by 140 basis points to a record of 20.4 percent, and returned more than $2.7 billion to shareholders in the form of dividends and share repurchases. In 2015, the company made meaningful progress on the organic growth component of our Enterprise Strategy as evidenced by 60 percent of the company’s revenues achieving “ready to grow” status and 45 percent growing at 6 percent organically. In the current economic environment and over the long-term, ITW’s unique business model and the execution of our Enterprise Strategy have us well-positioned to continue to deliver differentiated performance,” Santi concluded.

4Q Highlights

  • EPS increased 4 percent to $1.23. Excluding $(0.08) impact from foreign currency translation, EPS would have been up 11 percent.
  • Operating margin increased 110 basis points to a fourth quarter record of 20.7 percent as Enterprise Initiatives contributed 110 basis points.
  • Free cash flow was very strong at $628 million, an increase of 12 percent; free cash flow conversion was 140 percent of net income.
  • After-tax return on invested capital improved 150 basis points to a fourth quarter record of 20.1 percent.
  • Total revenues of $3.3 billion were down 6.5 percent primarily due to the impact from foreign currency translation. Organic revenue declined 0.6 percent as the company’s ongoing PLS activities reduced organic growth by 1 percentage-point.
  • Automotive OEM organic revenue grew 5 percent, including 10 percent growth in Europe, 4 percent growth in North America and 14 percent growth in China.
  • Construction Products organic revenue increased 3 percent driven by 7 percent growth in Asia Pacific and 2 percent growth in North America. Operating margin of 19.9 percent was up 420 basis points.
  • Food Equipment organic revenue increased 2 percent against a challenging prior year comparison with solid growth in international equipment and North America service. Operating margin of 23.9 percent increased 220 basis points.
  • Sequential demand in Welding was up 2 percent compared to the third quarter of 2015, and was flat on a seasonally adjusted basis. Facing challenging year-over-year comparisons, organic revenue declined 11 percent.
  • Test & Measurement/Electronics organic revenue declined 3 percent. Sequential demand was up 6 percent compared to the third quarter of 2015, and up 2 percent on a seasonally adjusted basis. Operating margin of 18.1 percent increased 300 basis points.

Capital Allocation Update

On January 25, 2016, ITW announced that it had reached a definitive agreement to acquire the Engineered Fasteners and Components (EF&C) business, a leading global supplier of engineered fastening systems and interior technical components to the automotive OEM market, from ZF TRW for approximately $450 million. Headquartered in Germany, EF&C operates 13 manufacturing facilities globally and employs approximately 3,500 people. EF&C had revenues of approximately $470 million in 2015. ITW plans to fund a majority of the purchase price with non-U.S. cash. The company expects the acquisition to be slightly accretive to EPS in the first 12 months and to generate long-term return on invested capital at or above the company’s 20-plus percent target. Pending customary closing conditions and regulatory approvals, the transaction is expected to close in the first half of 2016.

In January 2016, ITW tax-efficiently accessed $1.2 billion of non-U.S. cash. As a result, the company is raising its 2016 share repurchase expectation by $1 billion to approximately $2 billion.

2016 Guidance

The company is reaffirming its 2016 full-year EPS guidance of $5.35 to $5.55, which is a year-over-year increase of 6 percent at the midpoint. Organic revenue for the year is projected to be up 1 to 3 percent, which is in-line with current demand levels. The organic growth forecast includes approximately 90 basis points of impact from the company’s ongoing PLS activities. Operating margin is projected to be approximately 22.5 percent, an increase of more than 100 basis points year-over-year. ITW’s Enterprise Initiatives are expected to improve operating margin by 100 basis points, independent of volume growth.

For the first quarter 2016, the company expects EPS to be in a range of $1.20 to $1.30 and operating margin to be approximately 21.5 percent. Organic revenue is forecast to be flat to up 2 percent.

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, the impact of product line simplification activities, operating margin and 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 2014 and Form 10-Q for the third quarter of 2015.

About ITW

ITW (NYSE:ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $13.4 billion in 2015. 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 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 Twelve Months Ended
December 31, December 31,
In millions except per share amounts2015 2014 2015 2014
Operating Revenue$3,275 $3,504 $13,405 $14,484
Cost of revenue1,941 2,114 7,888 8,673
Selling, administrative, and research and development expenses598 644 2,417 2,678
Amortization of intangible assets57 60 231 242
Impairment of goodwill and other intangible assets 2 3
Operating Income679 686 2,867 2,888
Interest expense(58) (54) (226) (250)
Other income (expense)13 25 78 61
Income from Continuing Operations Before Income Taxes634 657 2,719 2,699
Income Taxes184 196 820 809
Income from Continuing Operations450 461 1,899 1,890
Income (Loss) from Discontinued Operations (11) 1,056
Net Income$450 $450 $1,899 $2,946
Income Per Share from Continuing Operations:
Basic$1.24 $1.19 $5.16 $4.70
Diluted$1.23 $1.18 $5.13 $4.67
Income (Loss) Per Share from Discontinued Operations:
Basic$ $(0.02) $ $2.63
Diluted$ $(0.02) $ $2.61
Net Income Per Share:
Basic$1.24 $1.17 $5.16 $7.33
Diluted$1.23 $1.16 $5.13 $7.28
Shares of Common Stock Outstanding During the Period:
Average363.7 386.4 367.9 401.7
Average assuming dilution365.9 389.2 370.1 404.6


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
December 31,
In millions2015 2014
Assets
Current Assets:
Cash and equivalents$3,090 $3,990
Trade receivables2,203 2,293
Inventories1,086 1,180
Prepaid expenses and other current assets341 401
Total current assets6,720 7,864
Net plant and equipment1,577 1,686
Goodwill4,439 4,667
Intangible assets1,560 1,799
Deferred income taxes346 338
Other assets1,087 1,111
$15,729 $17,465
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt$526 $1,476
Accounts payable449 512
Accrued expenses1,136 1,287
Cash dividends payable200 186
Income taxes payable57 64
Total current liabilities2,368 3,525
Noncurrent Liabilities:
Long-term debt6,896 5,943
Deferred income taxes256 171
Other liabilities981 1,002
Total noncurrent liabilities8,133 7,116
Stockholders’ Equity:
Common stock6 6
Additional paid-in-capital1,135 1,096
Income reinvested in the business18,316 17,173
Common stock held in treasury(12,729) (10,798)
Accumulated other comprehensive income (loss)(1,504) (658)
Noncontrolling interest4 5
Total stockholders’ equity5,228 6,824
$15,729 $17,465


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended Twelve Months Ended
December 31, December 31,
Dollars in millions2015 2014 2015 2014 2012
Operating income$679 $686 $2,867 $2,888 $2,475
Adjustment for Decorative Surfaces (143)
Adjusted operating income679 686 2,867 2,888 2,332
Tax rate (as adjusted for discrete tax charge in 4Q 2012)29.0% 30.0% 30.1% 30.0% 29.2%
Income taxes(196) (206) (864) (866) (681)
Adjusted operating income after taxes$483 $480 $2,003 $2,022 $1,651
Invested capital:
Trade receivables$2,203 $2,293 $2,203 $2,293 $2,742
Inventories1,086 1,180 1,086 1,180 1,585
Net plant and equipment1,577 1,686 1,577 1,686 1,994
Goodwill and intangible assets5,999 6,466 5,999 6,466 7,788
Accounts payable and accrued expenses(1,585) (1,799) (1,585) (1,799) (2,068)
Other, net280 427 280 427 773
Total invested capital$9,560 $10,253 $9,560 $10,253 $12,814
Average invested capital$9,709 $10,362 $9,943 $11,215 $13,140
Adjustment for Wilsonart (formerly the Decorative Surfaces segment)(118) (147) (123) (154) (274)
Adjustment for Industrial Packaging 95 (424) (1,504)
Adjusted average invested capital$9,591 $10,310 $9,820 $10,637 $11,362
Annualized adjusted return on average invested capital20.1% 18.6% 20.4% 19.0% 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 millionsDecember 31, 2012
Income Taxes Tax Rate
As reported$973 30.3%
Discrete tax charges(36) (1.1)%
As adjusted$937 29.2%


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED FREE CASH FLOW (UNAUDITED)
Three Months Ended Twelve Months Ended
Dollars in millionsDecember 31, December 31,
2015 2014 2015 2014
Net cash provided by operating activities$703 $458 $2,299 $1,616
Less: Additions to plant and equipment(75) (89) (284) (361)
Free cash flow628 369 2,015 1,255
Plus: Taxes paid related to sale of Industrial Packaging 191 724
Adjusted free cash flow$628 $560 $2,015 $1,979
Net Income - As reported$450 $450 $1,899 $2,946
Less: Industrial Packaging gain on sale, after taxes (1,148)
Adjusted net income$450 $450 $1,899 $1,798
Adjusted free cash flow to adjusted net income conversion rate140% 124% 106% 110%


ADJUSTED INCOME PER SHARE FROM CONTINUING OPERATIONS - DILUTED (UNAUDITED)
Twelve Months Ended
December 31, 2012
As reported$4.72
Decorative Surfaces net gain1.34
Decorative Surfaces equity interest(0.04)
Decorative Surface operating results0.21
As adjusted$3.21


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
For the Three Months Ended December 31, 2015
Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
Automotive OEM$615 $135 22.0%
Test & Measurement and Electronics500 90 18.1%
Food Equipment532 128 23.9%
Polymers & Fluids402 73 18.2%
Welding395 89 22.5%
Construction Products378 75 19.9%
Specialty Products458 105 23.0%
Intersegment(5) %
Total Segments3,275 695 21.2%
Unallocated (16)%
Total Company$3,275 $679 20.7%


For the Twelve Months Ended December 31, 2015
Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
Automotive OEM$2,529 $613 24.2%
Test & Measurement and Electronics1,969 322 16.3%
Food Equipment2,096 498 23.7%
Polymers & Fluids1,712 335 19.6%
Welding1,650 415 25.2%
Construction Products1,587 316 19.9%
Specialty Products1,885 439 23.3%
Intersegment(23) %
Total Segments13,405 2,938 21.9%
Unallocated (71)%
Total Company$13,405 $2,867 21.4%


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q4 2015 vs. Q4 2014 Favorable/(Unfavorable)
Operating RevenueAutomotive
OEM
Test & Measurement and
Electronics
Food
Equipment
Polymers &
Fluids
WeldingConstruction
Products
Specialty
Products
Total
ITW
Organic5.2%(3.1)%2.4%(2.9)%(10.8)%3.0%0.1%(0.6)%
Divestitures%%%(0.9)%(0.1)%%%(0.1)%
Translation(6.1)%(4.6)%(6.3)%(7.3)%(2.7)%(8.8)%(5.3)%(5.8)%
Operating Revenue(0.9)%(7.7)%(3.9)%(11.1)%(13.6)%(5.8)%(5.2)%(6.5)%


Q4 2015 vs. Q4 2014 Favorable/(Unfavorable)
Change in Operating MarginAutomotive OEMTest & Measurement and ElectronicsFood EquipmentPolymers & FluidsWeldingConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage80 bps(100) bps60 bps(80) bps(200) bps80 bps- bps(20) bps
Changes in Variable Margin & OH Costs (70) 280 210 180 (90) 150 270 110
Total Organic10 bps180 bps270 bps100 bps(290) bps230 bps270 bps90 bps
Restructuring/Other (40) 120 (50) (30) 190 130 20
Total Operating Margin Change(30) bps300 bps220 bps70 bps(290) bps420 bps400 bps110 bps
Total Operating Margin % * 22.0% 18.1% 23.9% 18.2% 22.5% 19.9% 23.0% 20.7%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets10 bps400 bps80 bps460 bps70 bps70 bps180 bps180 bps


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

Source:Illinois Tool Works