ITW Reports Third Quarter 2020 Results

Company Release - 10/23/2020
  • Total revenue of $3.3 billion as revenue increased 29 percent versus Q2 2020
  • Operating margin of 23.8%
  • GAAP EPS of $1.83
  • After-tax ROIC of 29.6%
  • Free cash flow was 108% of net income

GLENVIEW, Ill., Oct. 23, 2020 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2020 results.

“We saw solid recovery progress in many of the end markets we serve in the third quarter as evidenced by our revenue being up sequentially 29 percent versus second quarter.  Our people around the world responded by leveraging our proprietary business model to provide excellent service to our customers while keeping themselves and their co-workers safe.  These efforts and our third quarter financial results support the decisions we made early in the pandemic to provide full compensation and benefits support to all of our ITW team members, to focus on positioning the company for full participation in the recovery, and to remain invested in the key initiatives supporting the execution of our long-term enterprise strategy,” said E. Scott Santi, chairman and chief executive officer.  “I am very proud of how the ITW team is managing through this challenging period, and I thank all of my ITW colleagues around the world for their continued exceptional efforts and dedication.”

“In the face of the unprecedented challenges and circumstances brought about by the global pandemic, our strong operational and financial performance over the last several quarters provides further evidence that ITW is a company that has both the enduring competitive advantages and the resilience necessary to deliver consistent upper tier performance in any economic environment.  Looking ahead, we remain focused on delivering strong results across a range of economic scenarios while continuing to execute on our long-term strategy to achieve and sustain ITW’s full-potential performance,” Santi concluded.

Third Quarter Results
Third-quarter revenue of $3.3 billion declined 4.9 percent compared to the prior year period as organic revenue declined 4.6 percent.  Divestitures reduced revenue by 1.0 percent, partially offset by a foreign currency translation benefit of 0.7 percent.  Product Line Simplification reduced revenue by 30 basis points.

Operating margin was 23.8 percent compared to 25.0 percent in the prior year period as the lower volume impact and higher restructuring expenses were partially offset with benefits from Enterprise Initiatives of 120 basis points.  Six of seven segments delivered operating margin above 20 percent.

GAAP earnings per share was $1.83 compared to $2.04 in the prior year period.  Free cash flow was $631 million, 108 percent of net income.  After-tax return on invested capital improved to 29.6 percent compared to 29.2 percent in the prior year period.  The effective tax rate was 21.3 percent.

On May 5, 2020, ITW suspended annual guidance for 2020 due to uncertainties regarding the duration and severity of the COVID-19 pandemic.  On August 7, 2020, ITW raised its dividend seven percent to an annualized $4.56 per share. 

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, related government actions and the Company’s strategy in response thereto on the Company’s business, the anticipated duration of the Company’s COVID-19 containment and recovery phases, the Company’s fiscal 2020 financial performance projections and ranges, 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, expected adjustments to capacity and cost structure, free cash flow, effective tax rate, after-tax return on invested capital, timing and amount of share repurchases, if any, 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 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   Nine Months Ended
  September 30,   September 30,
In millions except per share amounts 2020   2019   2020   2019
Operating Revenue $ 3,307       $ 3,479       $ 9,099       $ 10,640    
Cost of revenue 1,910       2,007       5,375       6,165    
Selling, administrative, and research and development expenses 560       566       1,606       1,775    
Amortization and impairment of intangible assets 48       38       119       122    
Operating Income 789       868       1,999       2,578    
Interest expense (52 )     (52 )     (154 )     (170 )  
Other income (expense) 2       26       35       49    
Income Before Taxes 739       842       1,880       2,457    
Income Taxes 157       182       413       577    
Net Income $ 582       $ 660       $ 1,467       $ 1,880    
               
Net Income Per Share:              
Basic $ 1.84       $ 2.05       $ 4.63       $ 5.79    
Diluted $ 1.83       $ 2.04       $ 4.61       $ 5.76    
               
Cash Dividends Per Share:              
Paid $ 1.07       $ 1.00       $ 3.21       $ 3.00    
Declared $ 1.14       $ 1.07       $ 3.28       $ 3.07    
               
Shares of Common Stock Outstanding During the Period:              
Average 316.5       322.3       316.9       324.8    
Average assuming dilution 317.9       324.0       318.3       326.6    
                               

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

In millions September 30, 2020   December 31, 2019
Assets      
Current Assets:      
Cash and equivalents $ 2,169       $ 1,981    
Trade receivables 2,494       2,461    
Inventories 1,149       1,164    
Prepaid expenses and other current assets 219       296    
Assets held for sale       351    
Total current assets 6,031       6,253    
       
Net plant and equipment 1,736       1,729    
Goodwill 4,591       4,492    
Intangible assets 814       851    
Deferred income taxes 509       516    
Other assets 1,259       1,227    
  $ 14,940       $ 15,068    
       
Liabilities and Stockholders' Equity      
Current Liabilities:      
Short-term debt $ 353       $ 4    
Accounts payable 521       472    
Accrued expenses 1,263       1,217    
Cash dividends payable 361       342    
Income taxes payable 42       48    
Liabilities held for sale       71    
Total current liabilities 2,540       2,154    
       
Noncurrent Liabilities:      
Long-term debt 7,592       7,754    
Deferred income taxes 671       668    
Noncurrent income taxes payable 413       462    
Other liabilities 1,027       1,000    
Total noncurrent liabilities 9,703       9,884    
       
Stockholders’ Equity:      
Common stock 6       6    
Additional paid-in-capital 1,346       1,304    
Retained earnings 22,833       22,403    
Common stock held in treasury (19,652 )     (18,982 )  
Accumulated other comprehensive income (loss) (1,837 )     (1,705 )  
Noncontrolling interest 1       4    
Total stockholders’ equity 2,697       3,030    
  $ 14,940       $ 15,068    
 
 

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

Three Months Ended September 30, 2020
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 714     $ 149     20.8 %
Food Equipment 449     88     19.6 %
Test & Measurement and Electronics 489     116     23.7 %
Welding 346     96     27.9 %
Polymers & Fluids 438     116     26.6 %
Construction Products 456     128     28.1 %
Specialty Products 420     106     25.2 %
Intersegment (5 )       %
Total Segments 3,307     799     24.2 %
Unallocated     (10 )   %
Total Company $ 3,307     $ 789     23.8 %

 

Nine Months Ended September 30, 2020
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 1,771     $ 266     15.0 %
Food Equipment 1,268     236     18.6 %
Test & Measurement and Electronics 1,429     354     24.8 %
Welding 1,016     269     26.5 %
Polymers & Fluids 1,185     291     24.6 %
Construction Products 1,222     309     25.3 %
Specialty Products 1,221     313     25.7 %
Intersegment (13 )       %
Total Segments 9,099     2,038     22.4 %
Unallocated     (39 )   %
Total Company $ 9,099     $ 1,999     22.0 %


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

Q3 2020 vs. Q3 2019 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and Electronics
Welding Polymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic (4.8) % (19.5) % (2.4) % (10.0) % 5.8
% 7.6 % (4.7) % (4.6) %
Acquisitions/Divestitures
%
% (3.0) % (4.3) %
% % (0.8) % (1.0) %
Translation 0.7
% 0.9
% 1.1
% 0.3
% (1.0) % 2.0 % 0.7
% 0.7
%
Operating Revenue (4.1 ) % (18.6 ) % (4.3 ) % (14.0 ) % 4.8 % 9.6  % (4.8 ) % (4.9 ) %

 

Q3 2020 vs. Q3 2019 Favorable/(Unfavorable)
Change in Operating Margin Automotive OEM Food Equipment Test & Measurement
and
Electronics
Welding Polymers & Fluids Construction Products Specialty Products Total ITW
Operating Leverage (90) bps (490) bps (60) bps (180) bps 130 bps 150 bps (100) bps (100) bps
Changes in Variable Margin & OH Costs 120 bps (120) bps (140) bps 120 bps 150 bps 180 bps (90) bps 40 bps
Total Organic  30 bps  (610) bps  (200) bps  (60) bps  280 bps  330 bps  (190) bps  (60) bps
Acquisitions/Divestitures 30 bps 60 bps 20 bps 10 bps
Restructuring/Other (160) bps (180) bps (20) bps (30) bps (30) bps (30) bps 70 bps (70) bps
Total Operating Margin Change  (130) bps  (790) bps  (190) bps  (30) bps  250 bps  300 bps  (100) bps  (120) bps
                 
Total Operating Margin % * 20.8 % 19.6 % 23.7 % 27.9 % 26.6 % 28.1 % 25.2 % 23.8 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  50 bps  80 bps  440 bps  10 bps  310 bps  20 bps  90 bps  150 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.11) on GAAP earnings per share for the third quarter of 2020.


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

YTD 2020 vs. YTD 2019 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and Electronics
Welding Polymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic (23.3) % (21.2) % (5.5) % (14.7) % (4.0) % (0.5) % (9.9) % (12.7) %
Acquisitions/Divestitures % % (3.0) % (3.9) % % % (0.9) % (1.0) %
Translation (0.9) % (0.4) % (0.4) % (0.2) % (2.0) % (1.0) % (0.7) % (0.8) %
Operating Revenue (24.2 ) % (21.6 ) % (8.9 ) % (18.8 ) % (6.0 ) % (1.5 ) % (11.5 ) % (14.5 ) %

 

YTD 2020 vs. YTD 2019 Favorable/(Unfavorable)
Change in Operating Margin Automotive OEM Food Equipment Test & Measurement
and
Electronics
Welding Polymers
& Fluids
Construction Products Specialty Products Total ITW
Operating Leverage (530) bps (580) bps (150) bps (280) bps (90) bps (20) bps (220) bps (300) bps
Changes in Variable Margin & OH Costs (180) bps (150) bps 120 bps (10) bps 230 bps 100 bps 30 bps 30 bps
Total Organic  (710) bps  (730) bps  (30) bps  (290) bps  140 bps  80 bps  (190) bps  (270) bps
Acquisitions/Divestitures 40 bps 70 bps 50 bps 20 bps
Restructuring/Other 50 bps (10) bps 30 bps 40 bps 50 bps 80 bps 30 bps
Total Operating Margin Change  (660) bps  (740) bps  10 bps  (190) bps  180 bps  130 bps  (60) bps  (220) bps
                 
Total Operating Margin % * 15.0 % 18.6 % 24.8 % 26.5 % 24.6 % 25.3 % 25.7 % 22.0 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  60 bps  80 bps  270 bps  20 bps  340 bps  20 bps  90 bps  130 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.28) on GAAP earnings per share for the first nine months 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   Nine Months Ended
  June 30,   September 30,   September 30,
Dollars in millions 2020   2020   2019   2020   2019
Operating income $ 449     $ 789     $ 868     $ 1,999     $ 2,578  
Tax rate 21.3 %   21.3 %   24.1 %   22.0 %   24.3 %
Income taxes (96)     (168)     (210)     (439)     (628)  
Operating income after taxes $ 353     $ 621     $ 658     $ 1,560     $ 1,950  
                   
Invested capital:                  
Trade receivables $ 2,156     $ 2,494     $ 2,499     $ 2,494     $ 2,499  
Inventories 1,167     1,149     1,209     1,149     1,209  
Net assets held for sale 181         324         324  
Net plant and equipment 1,711     1,736     1,693     1,736     1,693  
Goodwill and intangible assets 5,244     5,405     5,320     5,405     5,320  
Accounts payable and accrued expenses (1,508)     (1,784)     (1,722)     (1,784)     (1,722)  
Other, net (636)     (527)     (535)     (527)     (535)  
Total invested capital $ 8,315     $ 8,473     $ 8,788     $ 8,473     $ 8,788  
                   
Average invested capital $ 8,431     $ 8,394     $ 9,007     $ 8,536     $ 9,083  
Return on average invested capital 16.8 %   29.6 %   29.2 %   24.4 %   28.6 %

 

A reconciliation of the tax rate for the three and nine month periods ended September 30, 2019 excluding the third quarter 2019 discrete tax benefit of $21 million related to a U.S. federal provision to return adjustment is as follows:

  Three Months Ended   Nine Months Ended
  September 30, 2019   September 30, 2019
Dollars in millions Income
Taxes
  Tax Rate   Income
Taxes
  Tax Rate
As reported $ 182     21.6 %   $ 577     23.5 %
Discrete tax benefit 21     2.5 %   21     0.8 %
As adjusted $ 203     24.1 %   $ 598     24.3 %


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

FREE CASH FLOW (UNAUDITED)

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
Dollars in millions 2020   2019   2020   2019
Net cash provided by operating activities $ 683     $ 920     $ 2,034     $ 2,221  
Less: Additions to plant and equipment (52)     (90)     (168)     (244)  
Free cash flow $ 631     $ 830     $ 1,866     $ 1,977  
               
Net income $ 582     $ 660     $ 1,467     $ 1,880  
Free cash flow to net income conversion rate 108 %   126 %   127 %   105 %

 

     
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.