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ITW Reports Fourth Quarter and Full Year Results

Company Release - 1/31/2020 8:00 AM ET

Fourth-Quarter 2019 Highlights

  • GAAP EPS $1.99, an increase of 9%, including $0.11 of divestiture gains
  • Total revenue declined 3.1%; organic revenue down 1.6%
  • Operating margin of 23.7%; 24.1% excluding 40 basis points of higher restructuring expenses
  • After-tax ROIC of 28.9%, an increase of 120 basis points
  • Free cash flow was 114% of net income

Full-Year 2019 Highlights

  • GAAP EPS $7.74, an increase of 2%
  • Total revenue declined 4.5%; organic revenue down 1.9%
  • Operating margin of 24.1%; 24.4% excluding 30 basis points of higher restructuring expenses
  • After-tax ROIC of 28.7%, an increase of 50 basis points
  • Free cash flow increased 9% and was 106% of net income

GLENVIEW, Ill., Jan. 31, 2020 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth-quarter and full-year 2019 results.

“The ITW team closed out 2019 with another quarter of strong execution and resilient financial performance,” said E. Scott Santi, chairman and chief executive officer. “Despite near-term macro challenges, we grew earnings per share nine percent, delivered 24.1 percent operating margin excluding higher restructuring expenses and improved after-tax return on invested capital 120 basis points to 28.9 percent.”

“For the year, in a contracting industrial demand environment including a six percent decline in global auto builds, ITW grew earnings per share five percent excluding the impact of foreign currency headwinds, higher restructuring expenses and divestiture gains.  We expanded operating margin to 24.4 percent excluding higher restructuring expenses, improved after-tax return on invested capital to 28.7 percent, increased free cash flow nine percent and returned $2.8 billion to shareholders in the form of dividends and share repurchases.  Throughout 2019, we executed very well on the things within our control and continued to make meaningful progress on our path to full-potential performance through the implementation of our ‘Finish the Job’ enterprise strategy agenda.  ITW’s proprietary and powerful business model, diversified high-quality business portfolio and dedicated team of highly skilled ITW colleagues around the world position us well to continue to deliver differentiated performance in 2020 and beyond,” Santi concluded.

2019 Results
Fourth-quarter revenue of $3.5 billion declined 3.1 percent with organic revenue down 1.6 percent.  Foreign currency translation and divestitures reduced revenues by 1.0 percent and 0.5 percent, respectively. Product Line Simplification (PLS) activities reduced organic revenue by 60 basis points.  GAAP EPS increased nine percent to $1.99 including $0.11 divestiture gains from the sale of three businesses.  Operating margin was 23.7 percent.  Excluding 40 basis points impact from higher restructuring expenses, operating margin improved 10 basis points to 24.1 percent.  Enterprise initiatives contributed 130 basis points and price/cost was positive 30 basis points. Free cash flow was $692 million with a 114 percent conversion rate.  The effective tax rate for the fourth quarter was 22.8 percent.

Full year revenue of $14.1 billion declined 4.5 percent with organic revenue down 1.9 percent and unfavorable foreign currency translation impact of 2.3 percent. PLS reduced organic revenue by 60 basis points versus 70 basis points in 2018.  2019 GAAP EPS increased two percent to $7.74 including $0.09 of net gains from divestitures.  Operating margin was 24.1 percent.  Excluding 30 basis points impact from higher restructuring expenses, operating margin improved 10 bps to 24.4 percent.  Enterprise initiatives contributed 120 basis points and price/cost was positive 10 basis points.  After-tax return on invested capital was 28.7 percent.  Free cash flow increased nine percent to $2.7 billion. The company repurchased $1.5 billion of its own shares and raised its dividend seven percent in August 2019 to an annualized $4.28 per share.  The effective tax rate for the full year was 23.3 percent.

2020 Guidance
The company initiated full-year EPS guidance in a range of $7.65 to $8.05 per share.  At current levels of demand, organic growth is forecast to be in the range of zero to two percent.  Foreign currency translation and divestitures are projected to reduce revenues by one percentage point each. PLS impact is forecast to moderate to approximately 50 basis points.  Operating margin is expected to improve and be in a range of 24.5 to 25 percent, with enterprise initiatives contributing approximately 100 basis points. Free cash flow is expected to be greater than 100 percent of net income.  The Company expects an effective tax rate in the range of 23.5 to 24.5 percent and plans to repurchase approximately $2 billion of its shares in 2020. 

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 $14.1 billion in 2019. 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’s approximately 45,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. 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 amounts2019 2018 2019 2018
Operating Revenue$3,469  $3,580  $14,109  $14,768 
Cost of revenue2,022  2,096  8,187  8,604 
Selling, administrative, and research and development expenses586  578  2,361  2,391 
Amortization and impairment of intangible assets37  46  159  189 
Operating Income824  860  3,402  3,584 
Interest expense(51) (63) (221) (257)
Other income (expense)58  19  107  67 
Income Before Taxes831  816  3,288  3,394 
Income taxes190  209  767  831 
Net Income$641  $607  $2,521  $2,563 
        
Net Income Per Share:       
Basic$2.00  $1.84  $7.78  $7.65 
Diluted$1.99  $1.83  $7.74  $7.60 
        
Cash Dividends Per Share:       
Paid$1.07  $1.00  $4.07  $3.34 
Declared$1.07  $1.00  $4.14  $3.56 
        
Shares of Common Stock Outstanding During the Period:       
Average 321.2   329.8   323.9   335.0 
Average assuming dilution 322.9   331.6   325.6   337.1 
        


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

In millionsDecember 31, 2019 December 31, 2018
Assets   
Current Assets:   
Cash and equivalents$1,981  $1,504 
Trade receivables2,461  2,622 
Inventories1,164  1,318 
Prepaid expenses and other current assets296  334 
Assets held for sale351   
Total current assets6,253  5,778 
    
Net plant and equipment1,729  1,791 
Goodwill4,492  4,633 
Intangible assets851  1,084 
Deferred income taxes516  554 
Other assets1,227  1,030 
 $15,068  $14,870 
    
Liabilities and Stockholders’ Equity   
Current Liabilities:   
Short-term debt$4  $1,351 
Accounts payable472  524 
Accrued expenses1,217  1,271 
Cash dividends payable342  328 
Income taxes payable48  68 
Liabilities held for sale71   
Total current liabilities2,154  3,542 
    
Noncurrent Liabilities:   
Long-term debt7,754  6,029 
Deferred income taxes668  707 
Noncurrent income taxes payable462  495 
Other liabilities1,000  839 
Total noncurrent liabilities9,884  8,070 
    
Stockholders’ Equity:   
Common stock6  6 
Additional paid-in-capital1,304  1,253 
Retained earnings22,403  21,217 
Common stock held in treasury(18,982) (17,545)
Accumulated other comprehensive income (loss)(1,705) (1,677)
Noncontrolling interest4  4 
Total stockholders’ equity3,030  3,258 
 $15,068  $14,870 
        


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Three Months Ended December 31, 2019
Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
Automotive OEM$725 $154 21.2%
Food Equipment571 157 27.5%
Test & Measurement and Electronics552 155 28.1%
Welding387 98 25.4%
Polymers & Fluids408 94 23.0%
Construction Products384 85 22.2%
Specialty Products446 109 24.5%
Intersegment(4) %
Total Segments3,469 852 24.6%
Unallocated (28)%
Total Company$3,469 $824 23.7%


Twelve Months Ended December 31, 2019
Dollars in millionsTotal
Revenue
Operating
Income
Operating
Margin
Automotive OEM$3,063 $659 21.5%
Food Equipment2,188 578 26.4%
Test & Measurement and Electronics2,121 542 25.6%
Welding1,638 453 27.7%
Polymers & Fluids1,669 381 22.8%
Construction Products1,625 383 23.6%
Specialty Products1,825 472 25.9%
Intersegment(20) %
Total Segments14,109 3,468 24.6%
Unallocated (66)%
Total Company$14,109 $3,402 24.1%
         


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Q4 2019 vs. Q4 2018 Favorable/(Unfavorable)
Operating RevenueAutomotive
OEM
 Food
Equipment

 Test &
Measurement
and
Electronics

 Welding
 Polymers
& Fluids

 Construction
Products

 Specialty
Products

 Total ITW
Organic(5.4)% 1.7% 4.0% (3.7)% (2.0)% (1.2)% (3.4)% (1.6)%
Acquisitions/ Divestitures% % (0.7)% (2.5)% % % (0.8)% (0.5)%
Translation(1.4)% (1.1)% (0.7)% (0.2)% (1.4)% (1.9)% (0.8)% (1.0)%
Operating Revenue(6.8)% 0.6% 2.6% (6.4)% (3.4)% (3.1)% (5.0)% (3.1)%


Q4 2019 vs. Q4 2018 Favorable/(Unfavorable)
Change in Operating MarginAutomotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
WeldingPolymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Operating Leverage (100) bps 20 bps 90 bps (60) bps (40) bps (20) bps (70) bps (30) bps
         
Changes in Variable Margin & OH Costs 90 bps 130 bps 230 bps (20) bps 270 bps (210) bps (20) bps 40 bps
Total Organic (10) bps 150 bps 320 bps (80) bps 230 bps (230) bps (90) bps 10 bps
Acquisitions/ Divestitures 20 bps 20 bps 20 bps 10 bps
Restructuring/Other (30) bps (60) bps (10) bps (90) bps (80) bps (40) bps (20) bps (50) bps
Total Operating Margin Change (40) bps 90 bps 330 bps (150) bps 150 bps (270) bps (90) bps (30) bps
         
Total Operating Margin % *21.2%27.5%28.1%25.4%23.0%22.2%24.5%23.7%
         
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps 60 bps 150 bps 30 bps 360 bps 30 bps 90 bps110 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.09) on GAAP earnings per share for the fourth quarter of 2019.
 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Full Year 2019 vs Full Year 2018 Favorable/(Unfavorable)
Operating RevenueAutomotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
WeldingPolymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic(5.4)%1.1%(0.3)%(1.2)%%(1.0)%(4.1)%(1.9)%
Acquisitions/ Divestitures%%(0.2)%(1.1)%(0.4)%%(0.6)%(0.3)%
Translation(2.8)%(2.3)%(1.8)%(0.8)%(2.8)%(3.4)%(1.8)%(2.3)%
Operating Revenue(8.2)%(1.2)%(2.3)%(3.1)%(3.2)%(4.4)%(6.5)%(4.5)%


Full Year 2019 vs Full Year 2018 Favorable/(Unfavorable)
Change in Operating MarginAutomotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
WeldingPolymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Operating Leverage (90) bps 30 bps (10) bps (20) bps  (10) bps (90) bps (50) bps
          
Changes in Variable Margin & OH Costs 50 bps 60 bps 150 bps  170 bps (40) bps (10) bps 60 bps
Total Organic (40) bps 90 bps 140 bps (20) bps 170 bps (50) bps (100) bps 10 bps
Acquisitions/ Divestitures   10 bps 20 bps   20 bps 
Restructuring/Other (60) bps (30) bps  (30) bps (30) bps (20) bps (10) bps (30) bps
Total Operating Margin Change (100) bps 60 bps 150 bps (30) bps 140 bps (70) bps (90) bps (20) bps
         
Total Operating Margin % *21.5%26.4%25.6%27.7%22.8%23.6%25.9%24.1%
         
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps 70 bps 200 bps 20 bps 360 bps 30 bps 90 bps120 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.37) on GAAP earnings per share for 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 Twelve Months Ended
 December 31, December 31,
Dollars in millions2019 2018 2019 2018
Operating income$824  $860  $3,402  $3,584 
Adjusted tax rate22.8% 25.5% 24.0% 24.9%
Income taxes(188) (219) (815) (893)
Operating income after taxes$636  $641  $2,587  $2,691 
        
Invested capital:       
Trade receivables$2,461  $2,622  $2,461  $2,622 
Inventories1,164  1,318  1,164  1,318 
Net assets held for sale280    280   
Net plant and equipment1,729  1,791  1,729  1,791 
Goodwill and intangible assets5,343  5,717  5,343  5,717 
Accounts payable and accrued expenses(1,689) (1,795) (1,689) (1,795)
Other, net(481) (519) (481) (519)
Total invested capital$8,807  $9,134  $8,807  $9,134 
        
Average invested capital$8,797  $9,247  $9,028  $9,533 
Adjusted after-tax return on average invested capital28.9% 27.7% 28.7% 28.2%

A reconciliation of the 2019 effective tax rate excluding the third quarter discrete tax benefit of $21 million is as follows:

 Twelve Months Ended
 December 31, 2019
 Income Taxes Tax Rate
As reported$767  23.3%
Discrete tax benefit related to third quarter21  0.7%
As adjusted$788  24.0%

A reconciliation of the 2018 effective tax rate excluding the third quarter net discrete tax benefit of $15 million is as follows:

 Twelve Months Ended
 December 31, 2018
 Income Taxes Tax Rate
As reported$831  24.5%
Net discrete tax benefit related to third quarter15  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 Twelve Months Ended
 December 31, December 31,
Dollars in millions2019 2018 2019 2018
Net cash provided by operating activities$774  $809  $2,995  $2,811 
Less: Additions to plant and equipment(82) (82) (326) (364)
Free cash flow$692  $727  $2,669  $2,447 
        
Net income$641  $607  $2,521  $2,563 
Free cash flow to net income conversion rate108%*120% 106% 95%

* Excluding the impact of the fourth quarter net after-tax gains on disposal of businesses of $35 million, net income would have been $606 million and the free cash flow to net income conversion rate for the three months ended December 31, 2019 would have been 114%.


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
NET INCOME PER SHARE - DILUTED, AS REPORTED (UNAUDITED)

 Twelve Months Ended
 December 31,
 2019 2018
Net income per share - diluted, as reported$7.74 *$7.60 

* Diluted EPS for the twelve months ended December 31, 2019 includes the impact of $0.09 of divestiture gains, $(0.20) of foreign currency translation headwinds and $(0.12) of higher restructuring expenses.


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

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Source: Illinois Tool Works Inc.