ITW Reports First Quarter 2020 Results

Company Release - 5/5/2020 8:00 AM ET
  • GAAP EPS of $1.77, a decrease of 2%
  • Operating margin of 23.6%
  • Free cash flow was 98% of net income
  • Strong financial position and balance sheet with $1.4 billion of cash on hand, essentially no short-term debt, and a revolving credit facility in place that could provide additional liquidity of $2.5 billion
  • Due to uncertainties regarding the duration and severity of the COVID-19 pandemic, ITW is suspending previously announced annual guidance for 2020

GLENVIEW, Ill., May 05, 2020 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its first quarter 2020 results with GAAP earnings per share (EPS) of $1.77 compared to $1.81 in the prior year period.  First-quarter revenue of $3.2 billion declined 9.1 percent with organic revenue down 6.6 percent.  Foreign currency translation and divestitures reduced revenues by 1.5 percent and 1.0 percent, respectively.  Operating margin was flat at 23.6 percent as Enterprise Initiatives contributed 120 basis points.  Free cash flow was $554 million with a 98 percent conversion rate and after-tax return on invested capital was 27.0 percent.

ITW’s differentiated financial position includes a strong balance sheet, with approximately $1.4 billion in cash and cash equivalents on hand, essentially no short-term debt, and a revolving credit facility in place that could provide additional liquidity of up to $2.5 billion, if needed.

“While things are far from normal for any of us or our businesses at present, I am inspired and heartened by the teamwork, flexibility, ingenuity, and selflessness demonstrated by the ITW team in adapting to the very unusual and challenging circumstances brought about by the pandemic,” said E. Scott Santi, chairman and chief executive officer. “Our ITW colleagues everywhere are going the extra mile to protect the health and support the well-being of each other and to continue to serve our customers with excellence.  Around the world, many ITW manufacturing locations have been designated as essential, signifying the vital role the company plays in supporting customers and industries that are critical to the economic health of the markets and communities we serve.”

“It remains highly uncertain as to how long this global pandemic and related economic challenges will last or how quickly our customers and end markets will recover. However, I am confident that the strength and resilience of ITW’s powerful Business Model, our diversified, high-quality business portfolio, and our people put us in a position of strength to deal with whatever lies ahead.  ITW will rise to the challenge, as we always have over the course of our 108-year history.  Our strong financial position gives us the latitude to make strategic choices now to prepare for a range of recovery scenarios, and to come out the other side well-positioned to continue on our path to ITW’s full-potential performance.”

2020 Guidance
Due to the uncertainties regarding the duration and severity of the coronavirus (COVID-19) pandemic, ITW is suspending its previously announced annual guidance for 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. Such statements may include, without limitation, statements regarding the potential effects of the COVID-19 pandemic on the Company’s business, the anticipated duration of the Company’s COVID-19 containment and recovery phases, the Company’s financial scenario planning and estimates, expected access to liquidity sources, expected capital allocation, diluted earnings per share, foreign exchange rates, total and organic revenue, operating margin, economic and regulatory conditions in various geographic regions, expected dividend payments, price/cost impact, restructuring expenses, free cash flow, effective tax rate, after-tax return on invested capital, timing and amount of share repurchases, potential acquisitions and dispositions and related impact on financial results, and plans regarding the issuance of guidance.  These statements are subject to certain risks, uncertainties, assumptions 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 2019, the Form 8-K filed on May 5, 2020 and subsequent reports filed with the SEC.

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
 March 31,
In millions except per share amounts2020 2019
Operating Revenue$3,228  $3,552 
Cost of revenue1,871  2,059 
Selling, administrative, and research and development expenses560  611 
Amortization and impairment of intangible assets36  43 
Operating Income761  839 
Interest expense(51) (63)
Other income (expense)25  14 
Income Before Taxes735  790 
Income Taxes169  193 
Net Income$566  $597 
    
Net Income Per Share:   
Basic$1.78  $1.82 
Diluted$1.77  $1.81 
    
Cash Dividends Per Share:   
Paid$1.07  $1.00 
Declared$1.07  $1.00 
    
Shares of Common Stock Outstanding During the Period:   
Average318.3  327.3 
Average assuming dilution319.7  329.6 
      

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

In millionsMarch 31, 2020 December 31, 2019
Assets   
Current Assets:   
Cash and equivalents$1,430  $1,981 
Trade receivables2,424  2,461 
Inventories1,185  1,164 
Prepaid expenses and other current assets244  296 
Assets held for sale223  351 
Total current assets5,506  6,253 
    
Net plant and equipment1,704  1,729 
Goodwill4,401  4,492 
Intangible assets836  851 
Deferred income taxes473  516 
Other assets1,229  1,227 
 $14,149  $15,068 
    
Liabilities and Stockholders' Equity   
Current Liabilities:   
Short-term debt$4  $4 
Accounts payable488  472 
Accrued expenses1,105  1,217 
Cash dividends payable338  342 
Income taxes payable55  48 
Liabilities held for sale42  71 
Total current liabilities2,032  2,154 
    
Noncurrent Liabilities:   
Long-term debt7,690  7,754 
Deferred income taxes695  668 
Noncurrent income taxes payable462  462 
Other liabilities986  1,000 
Total noncurrent liabilities9,833  9,884 
    
Stockholders’ Equity:   
Common stock6  6 
Additional paid-in-capital1,309  1,304 
Retained earnings22,631  22,403 
Common stock held in treasury(19,680) (18,982)
Accumulated other comprehensive income (loss)(1,983) (1,705)
Noncontrolling interest1  4 
Total stockholders’ equity2,284  3,030 
 $14,149  $15,068 
        

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

Three Months Ended March 31, 2020
Dollars in millionsTotal RevenueOperating IncomeOperating Margin
Automotive OEM$696 $145 20.9%
Food Equipment483 117 24.3%
Test & Measurement and Electronics485 121 25.1%
Welding372 109 29.1%
Polymers & Fluids393 93 23.6%
Construction Products390 91 23.4%
Specialty Products414 109 26.3%
Intersegment(5) %
Total Segments3,228 785 24.3%
Unallocated (24)%
Total Company$3,228 $761 23.6%
         

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

Q1 2020 vs. Q1 2019 Favorable/(Unfavorable)
Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Organic(12.0)%(5.6)%(3.3)%(9.0)%(3.2)%0.1%(8.7)%(6.6)%
Acquisitions/Divestitures%%(3.1)%(3.4)%%%(1.2)%(1.0)%
Translation(1.7)%(1.2)%(1.1)%(0.4)%(2.3)%(2.7)%(1.0)%(1.5)%
Operating Revenue(13.7)%(6.8)%(7.5)%(12.8)%(5.5)%(2.6)%(10.9)%(9.1)%
                 


Q1 2020 vs. Q1 2019 Favorable/(Unfavorable)
Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage(240) bps (130) bps (100) bps (160) bps (80) bps 10 bps (180) bps (150) bps 
Changes in Variable Margin & OH Costs70 bps 10 bps 120 bps 130 bps 260 bps 30 bps 30 bps 40 bps 
Total Organic(170) bps (120) bps 20 bps (30) bps 180 bps 40 bps (150) bps (110) bps 
Acquisitions/Divestitures  60 bps 80 bps   70 bps 20 bps 
Restructuring/Other200 bps 60 bps 20 bps 50 bps 50 bps 130 bps 60 bps 90 bps 
Total Operating Margin Change30 bps (60) bps 100 bps 100 bps 230 bps 170 bps (20) bps  
         
Total Operating Margin % *20.9%24.3%25.1%29.1%23.6%23.4%26.3%23.6%
         
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets60 bps 70 bps 170 bps  20 bps  360 bps  30 bps 90 bps  110 bps ** 
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.09) on GAAP earnings per share for the first quarter of 2020.
 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

 Three Months Ended
 March 31,
Dollars in millions2020 2019
Operating income$761  $839 
Tax rate23.0% 24.4%
Income taxes(175) (205)
Operating income after taxes$586  $634 
    
Invested capital:   
Trade receivables$2,424  $2,715 
Inventories1,185  1,346 
Net assets held for sale181   
Net plant and equipment1,704  1,765 
Goodwill and intangible assets5,237  5,665 
Accounts payable and accrued expenses(1,593) (1,796)
Other, net(590) (509)
Total invested capital$8,548  $9,186 
    
Average invested capital$8,677  $9,160 
Return on average invested capital27.0% 27.7%
      

FREE CASH FLOW (UNAUDITED)

 Three Months Ended
 March 31,
Dollars in millions2020 2019
Net cash provided by operating activities$614  $616 
Less: Additions to plant and equipment(60) (77)
Free cash flow$554  $539 
    
Net income$566  $597 
Free cash flow to net income conversion rate98% 90%
      

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

NET DEBT TO EBITDA (UNAUDITED)

 Twelve Months Ended
Dollars in millionsMarch 31, 2020
Total debt$7,694 
Less: Cash and equivalents(1,430)
Net debt$6,264 
  
Net income$2,490 
Add: 
Interest expense209 
Other income(118)
Income taxes743 
Depreciation268 
Amortization and impairment of intangible assets152 
EBITDA$3,744 
  
Net debt to EBITDA ratio1.7 
   


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.