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ITW Reports First-Quarter 2017 Results

First-quarter highlights:

  • GAAP EPS of $1.54, an increase of 19%
  • Total revenue of $3.5 billion, an increase of 6.0%; organic growth of 3.5%
  • Operating margin of 23.3%, an increase of 120 bps and an all-time record for the company
  • Company now expects 2017 earnings to be in the range of $6.20 to $6.40 per share with organic growth of 2 to 4%

GLENVIEW, Ill., April 24, 2017 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported its first-quarter 2017 results.

First-quarter GAAP earnings were $1.54 per share, an increase of 19% versus the first quarter of 2016. Excluding the impact of foreign currency translation, EPS grew 21% year-on-year. Revenue grew 6.0% to $3.5 billion. Organic revenue increased 3.5% while the 2016 acquisition of Engineered Fasteners & Components (EF&C) added 3.8% to revenue. Foreign currency translation reduced revenue by 1.3%.

“Our record results in the first quarter reflect strong execution across the company and further progress in our efforts to leverage ITW’s highly differentiated and proprietary business model to drive solid growth with best-in-class margins and returns,” said E. Scott Santi, Chairman and Chief Executive Officer. “We are off to a strong start in 2017 and the company is well-positioned to deliver continued progress and differentiated performance through the balance of 2017 and beyond.”

Operating income was $809 million, an increase of 12%, and operating margin for the quarter was 23.3%, an increase of 120 basis points. Excluding the margin impact from the 2016 acquisition of EF&C, operating margin was 23.8%, an increase of 170 basis points year-on-year with 100 basis points of structural margin improvement from Enterprise Initiatives. After-tax return on invested capital was 23.8%, an improvement of 260 basis points. First-quarter net income was $536 million.

Organic revenue growth was positive in six of seven segments: 9% in Automotive OEM, 6% in Test & Measurement/Electronics, 3% in Construction Products, 2% in Food Equipment and Polymers & Fluids and 1% in Specialty Products. Welding was flat.

Effective January 1, 2017 the company adopted FASB guidance that requires that the income tax effects associated with the settlement of stock-based awards be recognized through income tax expense rather than equity. The first-quarter effective tax rate was 28.3%, in line with company expectations.

Full-Year and Second Quarter 2017 Guidance
As a result of the company’s strong Q1 results, ITW is raising its 2017 full-year guidance. The company now expects earnings to be in the range of $6.20 to $6.40 per share, up from prior guidance of $6.00 to $6.20 per share, with organic growth of 2 to 4%, up from 1.5 to 3.5%. ITW expects operating margin to exceed 23.5% and free cash flow to exceed 100% of net income. The company now expects an effective tax rate of approximately 29%, down from prior guidance of 29 to 30%, resulting in an EPS benefit of $0.04 per share.

For the second quarter 2017, the company expects earnings to be in the range of $1.55 to $1.65 per share with organic growth of 2 to 4%.

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 (NYSE: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
March 31,
In millions except per share amounts2017 2016
Operating Revenue$3,471 $3,274
Cost of revenue2,004 1,896
Selling, administrative, and research and development expenses605 597
Amortization and impairment of intangible assets53 59
Operating Income809 722
Interest expense(64) (58)
Other income (expense)4 4
Income Before Taxes749 668
Income taxes213 200
Net Income$536 $468
Net Income Per Share:
Basic$1.55 $1.29
Diluted$1.54 $1.29
Cash Dividends Per Share:
Paid$0.65 $0.55
Declared$0.65 $0.55
Shares of Common Stock Outstanding During the Period:
Average346.2 362.0
Average assuming dilution349.0 363.9


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millionsMarch 31, 2017 December 31, 2016
Assets
Current Assets:
Cash and equivalents$2,493 $2,472
Trade receivables2,534 2,357
Inventories1,158 1,076
Prepaid expenses and other current assets245 218
Total current assets6,430 6,123
Net plant and equipment1,674 1,652
Goodwill4,605 4,558
Intangible assets1,411 1,463
Deferred income taxes425 449
Other assets984 956
$15,529 $15,201
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt$671 $652
Accounts payable574 511
Accrued expenses1,149 1,202
Cash dividends payable225 226
Income taxes payable256 169
Total current liabilities2,875 2,760
Noncurrent Liabilities:
Long-term debt7,205 7,177
Deferred income taxes121 134
Other liabilities830 871
Total noncurrent liabilities8,156 8,182
Stockholders’ Equity:
Common stock6 6
Additional paid-in-capital1,184 1,188
Retained earnings19,817 19,505
Common stock held in treasury(14,871) (14,638)
Accumulated other comprehensive income (loss)(1,643) (1,807)
Noncontrolling interest5 5
Total stockholders’ equity4,498 4,259
$15,529 $15,201


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended March 31, 2017
Dollars in millionsTotal
Revenue

Operating
Income

Operating
Margin

Automotive OEM$828 $202 24.4%
Food Equipment497 125 25.1%
Test & Measurement and Electronics480 96 20.0%
Welding387 107 27.7%
Polymers & Fluids426 88 20.6%
Construction Products395 89 22.5%
Specialty Products463 124 26.9%
Intersegment(5) —%
Total Segments3,471 831 23.9%
Unallocated (22) —%
Total Company$3,471 $809 23.3%


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q1 2017 vs. Q1 2016 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and Electronics
Welding Polymers &
Fluids
Construction
Products
Specialty
Products
Total
ITW

Organic 9.0% 2.0% 5.5% (0.3)% 1.5% 2.9% 0.8% 3.5%
Acquisitions/
Divestitures
19.4% —% —% —% —% —% (0.7)% 3.8%
Translation (2.1)% (2.4)% (2.0)% (0.3)% 0.5% (0.2)% (1.3)% (1.3)%
Operating Revenue 26.3% (0.4)% 3.5% (0.6)% 2.0% 2.7% (1.2)% 6.0%


Q1 2017 vs. Q1 2016 Favorable/(Unfavorable)
Change in Operating
Margin
Automotive
OEM
Food
Equipment
Test &
Measurement
and Electronics
Welding Polymers &
Fluids
Construction
Products
Specialty
Products
Total
ITW
Operating Leverage120 bps 50 bps 170 bps 40 bps 80 bps 10 bps 80 bps
Changes in Variable
Margin & OH Costs
(30) bps (30) bps 290 bps 220 bps 100 bps 120 bps 80 bps 90 bps
Total Organic 90 bps 20 bps 460 bps 220 bps 140 bps 200 bps 90 bps 170 bps
Acquisitions/
Divestitures
(260) bps 40 bps (50) bps
Restructuring/Other(30) bps 40 bps (10) bps 160 bps (100) bps (50) bps (50) bps
Total Operating
Margin Change
(200) bps 60 bps 450 bps 380 bps 40 bps 150 bps 80 bps 120 bps
Total Operating
Margin % *
24.4% 25.1% 20.0% 27.7% 20.6% 22.5% 26.9% 23.3%
*Includes unfavorable
operating margin
impact of
amortization expense
from acquisition-
related intangible
assets
50 bps 80 bps 350 bps 50 bps 420 bps 60 bps 140 bps 160 bps


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
March 31, December 31,
Dollars in millions2017 2016 2016
Operating income$809 $722 $3,064
Tax rate28.3% 30.0% 30.0%
Income taxes(229) (216) (919)
Operating income after taxes$580 $506 $2,145
Invested capital:
Trade receivables$2,534 $2,394 $2,357
Inventories1,158 1,134 1,076
Net plant and equipment1,674 1,598 1,652
Goodwill and intangible assets6,016 6,005 6,021
Accounts payable and accrued expenses(1,723) (1,611) (1,713)
Other, net222 257 223
Total invested capital$9,881 $9,777 $9,616
Average invested capital$9,748 $9,668 $9,780
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) (111) (91)
Adjusted average invested capital$9,748 $9,557 $9,689
Adjusted return on average invested capital23.8% 21.2% 22.1%


FREE CASH FLOW (UNAUDITED)
Three Months Ended
March 31,
Dollars in millions2017 2016
Net cash provided by operating activities$463 $479
Less: Additions to plant and equipment(64) (57)
Free cash flow$399 $422
Net income$536 $468
Free cash flow to net income conversion rate74%*90%

* Excluding $87 million related to the timing of payments for income taxes and pension contributions, the free cash flow to net income conversion rate for the three months ended March 31, 2017 would have been 91%.


Contact: Mike Drazin 224.661.7433 or mdrazin@itw.com

Source:Illinois Tool Works