ITW Delivers $1.81 Earnings per Share

Reaffirms FY 2019 EPS Guidance of $7.90 to $8.20

Company Release - 4/25/2019 8:00 AM ET

GLENVIEW, Ill., April 25, 2019 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its first-quarter 2019 results including earnings per share (EPS) of $1.81 compared to $1.90 in the first quarter of 2018.  As expected, unfavorable foreign currency translation impact, higher restructuring costs and a higher effective tax rate reduced EPS by a combined $0.16 year-over-year.

“ITW had a solid start to 2019. We expanded operating margin to 24.3 percent, excluding the impact from accelerated restructuring, as enterprise initiatives contributed 100 basis points and price/cost was more favorable than expected.  We grew Free Cash Flow 21 percent, with conversion of 90 percent, well above our seasonal average.  After a slow start in January, sales trends improved across the board as the quarter progressed,” said E. Scott Santi, Chairman and Chief Executive Officer.  “Looking ahead, our view that continued contributions from enterprise initiatives, improving price/cost dynamics, restructuring benefits, more favorable sales and foreign currency comparisons, and stabilizing auto production in Europe and China will all contribute to a stronger operating environment in the back half of the year is unchanged.  As a result, we remain firmly on track to deliver on our full year EPS guidance.  As the ITW team continues to execute on our ‘Finish the Job’ agenda, I am confident that we will continue to deliver differentiated financial performance in 2019 and beyond.”

Revenue of $3.6 billion was down five percent, with an unfavorable foreign currency translation impact of 3.4 percent and organic revenue down 1.5 percent.  Excluding the impact of one less shipping day in the quarter, organic revenue was flat.  Organic revenue growth by segment was as follows:  Welding grew three percent, Food Equipment grew two percent; Test & Measurement/Electronics, Polymers & Fluids and Construction Products were down one percent, Specialty Products down two percent, and Automotive OEM down six percent.  As expected, the company’s ongoing Product Line Simplification (PLS) activities reduced organic revenue growth by 70 basis points.

Operating margin was 23.6 percent, as compared to 24.1 percent in the prior year.  Excluding 70 basis points of unfavorable margin impact due to higher restructuring expenses, operating margin improved 20 basis points to 24.3 percent. Strong execution on enterprise initiatives contributed 100 basis points of margin improvement and price/cost diluted margin by 10 basis points.  Free Cash Flow increased 21 percent to $539 million, with 90 percent conversion, and the company repurchased $375 million of its own shares.  After-tax return on invested capital was 27.7 percent.

2019 Guidance
The company is reaffirming its full-year EPS guidance of $7.90 to $8.20 per share, which represents four to eight percent growth year over year. Factoring in the slower start to the year, organic revenue growth is expected to be in the range of 0.5 to 2.5 percent. The company expects full-year operating margin to improve by approximately 100 basis points with enterprise initiatives contributing 100 basis points. Free cash flow is expected to be above 100 percent of net income, and the company is on pace to repurchase approximately $1.5 billion of its shares in 2019. The effective tax rate is expected to be 24.5 to 25.5 percent.

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, foreign exchange rates, total and organic revenue growth, operating margin, economic and regulatory conditions in various geographic regions, price/cost impact, restructuring expenses, free cash flow, effective tax rate, after-tax return on invested capital, and timing and amount of share repurchases.  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 2018.

About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.8 billion in 2018. 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 approximately 48,000 dedicated colleagues in operations around the world who thrive in the company’s unique, decentralized and entrepreneurial culture.        www.itw.com

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)

 Three Months Ended
 March 31,
In millions except per share amounts2019 2018
Operating Revenue$3,552  $3,744 
Cost of revenue2,059  2,181 
Selling, administrative, and research and development expenses611  612 
Amortization and impairment of intangible assets43  48 
Operating Income839  903 
Interest expense(63) (66)
Other income (expense)14  12 
Income Before Taxes790  849 
Income Taxes193  197 
Net Income$597  $652 
    
Net Income Per Share:   
Basic$1.82  $1.92 
Diluted$1.81  $1.90 
    
Cash Dividends Per Share:   
Paid$1.00  $0.78 
Declared$1.00  $0.78 
    
Shares of Common Stock Outstanding During the Period:   
Average327.3  340.2 
Average assuming dilution329.6  342.8 


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millionsMarch 31,
2019
 December 31,
2018
Assets   
Current Assets:   
Cash and equivalents$1,755  $1,504 
Trade receivables2,715  2,622 
Inventories1,346  1,318 
Prepaid expenses and other current assets259  334 
Total current assets6,075  5,778 
    
Net plant and equipment1,765  1,791 
Goodwill4,621  4,633 
Intangible assets1,044  1,084 
Deferred income taxes547  554 
Other assets1,274  1,030 
 $15,326  $14,870 
    
Liabilities and Stockholders' Equity   
Current Liabilities:   
Short-term debt$1,760  $1,351 
Accounts payable568  524 
Accrued expenses1,228  1,271 
Cash dividends payable326  328 
Income taxes payable79  68 
Total current liabilities3,961  3,542 
    
Noncurrent Liabilities:   
Long-term debt5,981  6,029 
Deferred income taxes727  707 
Noncurrent income taxes payable495  495 
Other liabilities962  839 
Total noncurrent liabilities8,165  8,070 
    
Stockholders’ Equity:   
Common stock6  6 
Additional paid-in-capital1,255  1,253 
Retained earnings21,488  21,217 
Common stock held in treasury(17,911) (17,545)
Accumulated other comprehensive income (loss)(1,642) (1,677)
Noncontrolling interest4  4 
Total stockholders’ equity3,200  3,258 
 $15,326  $14,870 


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended March 31, 2019
 Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
 Automotive OEM$806 $167    20.6%
 Food Equipment518 129 24.9%
 Test & Measurement and Electronics524 126 24.1%
 Welding427 120 28.1%
 Polymers & Fluids416 89 21.3%
 Construction Products401 87 21.7%
 Specialty Products465 123 26.5%
 Intersegment(5) %
 Total Segments3,552 841 23.7%
 Unallocated (2)%
 Total Company$3,552 $839 23.6%


Q1 2019 vs. Q1 2018 Favorable/(Unfavorable)
 Operating RevenueAutomotive
OEM
Food
Equipment
Test &
Measurement
and Electronics
WeldingPolymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
 Organic     (6.4)%     1.7 %     (0.5)%     2.8 %   (0.8)%    (1.4)%   (1.5)%   (1.5)%
 Acquisitions/
 Divestitures
 % % %(0.5)%(0.9)% % %(0.2)%
 Translation(4.1)%(3.4)%(3.1)%(1.3)%(4.3)%(4.9)%(2.8)%(3.4)%
 Operating Revenue(10.5)%(1.7)%(3.6)%1.0%(6.0)%(6.3)%(4.3)%(5.1)%


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q1 2019 vs. Q1 2018 Favorable/(Unfavorable)
 Change in
 Operating Margin
Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
WeldingPolymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
 Operating Leverage (100) bps 40 bps (10) bps 60 bps (20) bps (40) bps (30) bps (30) bps
 Changes in Variable
 Margin & OH Costs
 (60) bps 70 bps 100 bps (30) bps 70 bps 60 bps  50 bps
 Total Organic (160) bps 110 bps 90 bps 30 bps 50 bps 20 bps (30) bps 20 bps
 Acquisitions/
 Divestitures
    10 bps 10 bps   
 Restructuring/Other (190) bps (80) bps (20) bps  (20) bps (70) bps 10 bps (70) bps
 Total Operating
 Margin Change
 (350) bps 30 bps 70 bps 40 bps 40 bps (50) bps (20) bps (50) bps
         
 Total Operating
 Margin % *
20.6%24.9%24.1%28.1%21.3%21.7%26.5%23.6%
         
 *Includes unfavorable
 operating margin
 impact of
 amortization expense
 from acquisition-
 related intangible
 assets
 50 bps 70 bps 260 bps 30 bps 360 bps 40 bps 110 bps 130 bps **
 ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.10) on GAAP earnings per share for the first quarter of 2019.


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

 Three Months Ended
 March 31,
Dollars in millions2019 2018
Operating income$839  $903 
Tax rate24.4% 24.8%
Income taxes(205) (224)
Operating income after taxes$634  $679 
    
Invested capital:   
Trade receivables$2,715  $2,874 
Inventories1,346  1,335 
Net plant and equipment1,765  1,829 
Goodwill and intangible assets5,665  6,021 
Accounts payable and accrued expenses(1,796) (1,905)
Other, net(509) (382)
Total invested capital$9,186  $9,772 
    
Average invested capital$9,160  $9,797 
Adjusted return on average invested capital27.7% 27.7%


A reconciliation of the first quarter 2018 effective tax rate excluding the first quarter discrete tax benefit related to foreign tax credits is as follows:

 Three Months Ended
 March 31, 2018
Dollars in millionsIncome Taxes Tax Rate
As reported$197  23.2%
Discrete tax benefit14  1.6%
As adjusted$211  24.8%


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

In millionsTwelve Months
Ended

December 31,
2018
Operating income$3,584 
Tax rate24.9%
Income taxes(893)
Operating income after taxes$2,691 
  
Invested capital: 
Trade receivables$2,622 
Inventories1,318 
Net plant and equipment1,791 
Goodwill and intangible assets5,717 
Accounts payable and accrued expenses(1,795)
Other, net(519)
Total invested capital$9,134 
  
Average invested capital$9,533 
Adjusted return on average invested capital28.2%


A reconciliation of the full year 2018 effective tax rate excluding the third quarter net discrete tax benefit is as follows:

 Twelve Months Ended
 December 31, 2018
In millionsIncome Taxes Tax Rate
As reported$831  24.5%
Net discrete tax benefit15  0.4%
As adjusted$846  24.9%


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

FREE CASH FLOW (UNAUDITED)

 Three Months Ended
 March 31,
In millions2019 2018
Net cash provided by operating activities$616  $538 
Less: Additions to plant and equipment(77) (94)
Free cash flow$539  $444 
    
Net income$597  $652 
Free cash flow to net income conversion rate90% 68%


Media Contact                                                       Investor Relations
Illinois Tool Works                                                   Illinois Tool Works
Trisha Knych                                                           Karen Fletcher
Tel: 224.661.7566                                                   Tel: 224.661.7433
mediarelations@itw.com                                         investorrelations@itw.com

Illinois Tool Works logo

Source: Illinois Tool Works Inc.