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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

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Source: Illinois Tool Works