ITW Reports Second Quarter 2021 Results

Company Release - 7/30/2021
  • Total revenue of $3.7 billion, an increase of 43% with organic growth of 37%
  • Operating margin of 24.3%, an increase of 680 basis points
  • GAAP EPS of $2.45, an increase of 143%
  • Raising full year organic growth guidance to a range of 11 to 13 percent and GAAP EPS guidance to a range of $8.55 to $8.95 per share

GLENVIEW, Ill., July 30, 2021 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2021 results.

“In the second quarter, we saw continued improvement in both the breadth and pace of the recovery, with organic revenue growth at the segment level ranging from 17 to 84 percent,” said E. Scott Santi, Chairman and Chief Executive Officer. “In the face of rising raw material costs and a challenging supply chain environment, our people around the world leveraged the strength and resilience of our proprietary business model and the ‘Win the Recovery’ actions taken over the course of the past year to serve our customers with excellence while delivering 43 percent revenue growth and 143 percent earnings growth. While the near-term environment is certainly not without its challenges, order intake rates in all segments and geographic regions remain strong and I have no doubt that we are well positioned to continue to execute at a high level as we move through the remainder of the year.”

Second Quarter 2021 Results
Second quarter revenue of $3.7 billion increased 43 percent versus the prior year period, as organic revenue grew 37 percent and foreign currency translation impact was favorable by six percent.

GAAP EPS of $2.45 increased 143 percent and included a $0.35 one-time tax benefit related to the remeasurement of net deferred tax assets in the United Kingdom. Operating income increased 99 percent to $893 million and incremental margin was 40 percent. Operating margin was 24.3 percent, an increase of 680 basis points with enterprise initiatives contributing 150 basis points, partially offset by dilutive price/cost margin impact of 120 basis points. In the quarter, price recovery actions essentially offset raw material cost increases on a dollar-for-dollar basis. Free cash flow was $477 million, 72 percent of net income adjusted for the one-time tax benefit. After-tax return on invested capital improved to 30.8 percent. The effective tax rate for the second quarter was 10.1 percent, and excluding the one-time tax benefit, the effective tax rate was 23.0 percent.

All seven segments delivered double-digit organic growth in the quarter, led by Automotive OEM up 84 percent and Food Equipment up 46 percent. Welding, Test & Measurement and Electronics, Construction Products, and Polymers & Fluids delivered organic growth in the range of 28 to 33 percent, and Specialty Products grew 17 percent. On a geographic basis, organic growth was 36 percent in North America, 50 percent in Europe, and 20 percent in Asia Pacific. As expected, the impact of Automotive OEM customers adjusting production schedules to account for the well-publicized shortage of several components reduced ITW’s revenues by approximately $60 million or two percentage points in the quarter.

2021 Guidance
The company is raising its full-year GAAP EPS guidance to $8.55 to $8.95 per share, an increase of $0.35 or 32 percent at the midpoint versus prior year. This compares to previous guidance of $8.20 to $8.60 per share and incorporates the one-time tax benefit realized in the second quarter. The company is also raising its organic growth guidance to a range of 11 to 13 percent. Foreign currency translation impact at current foreign exchange rates is projected to contribute 3 percentage points to revenue growth. Raw material cost increases are expected to be offset by price increases on a dollar-for-dollar basis and therefore EPS neutral. The full year margin dilution impact from price/cost is now forecasted to be approximately 100 basis points, partially offsetting the expected margin contribution from Enterprise Initiatives of more than 100 basis points. As a result of price/cost, operating margin is expected to be in the range of 24.5 to 25.5 percent, an increase of 210 basis points at the midpoint versus 2020 and 50 basis points lower versus previous guidance. Free cash flow is expected to be approximately 100 percent of net income adjusted for the second quarter one-time tax benefit, and the company is on pace to repurchase approximately $1 billion of its shares, having repurchased $500 million in the first half of the year. Guidance excludes any impact from the previously announced acquisition of the MTS Test & Simulation business.

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. The estimated guidance of free cash flow conversion rate is based on assumptions that are difficult to predict, and a reconciliation of estimated free cash flow to the most directly comparable GAAP measure has been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of availability of reliable forward-looking cash flow and operating information.

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 duration and potential effects of the COVID-19 pandemic, related government actions and the company’s strategy in response thereto on the company’s business, expected impact of tariffs and raw material inflation, product line simplification activities and enterprise initiatives, future financial and operating performance, free cash flow, organic and total revenue, operating margin, price/cost impact, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation, after-tax return on invested capital, effective tax rates, exchange rates, expected access to liquidity sources, expected capital allocation, expected timing and amount of share repurchases, end market economic and regulatory conditions, potential acquisitions and dispositions and related impact on financial results, including statements with respect to the anticipated acquisition of the MTS Test & Simulation business, and the company’s 2021 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 2020.

About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $12.6 billion in 2020. 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 43,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com

Media Contact
Illinois Tool Works
Tel: 224.661.7451
mediarelations@itw.com
Investor Relations
Illinois Tool Works
Karen Fletcher
Tel: 224.661.7433
investorrelations@itw.com

   

 

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

  Three Months Ended   Six Months Ended
  June 30,   June 30,
In millions except per share amounts 2021   2020   2021   2020
Operating Revenue $ 3,676       $ 2,564       $ 7,220       $ 5,792    
Cost of revenue 2,163       1,594       4,202       3,465    
Selling, administrative, and research and development expenses 588       486       1,154       1,046    
Amortization and impairment of intangible assets 32       35       66       71    
Operating Income 893       449       1,798       1,210    
Interest expense (52 )     (51 )     (104 )     (102 )  
Other income (expense) 22       8       34       33    
Income Before Taxes 863       406       1,728       1,141    
Income Taxes 88       87       282       256    
Net Income $ 775       $ 319       $ 1,446       $ 885    
               
Net Income Per Share:              
Basic $ 2.46       $ 1.01       $ 4.58       $ 2.79    
Diluted $ 2.45       $ 1.01       $ 4.56       $ 2.78    
               
Cash Dividends Per Share:              
Paid $ 1.14       $ 1.07       $ 2.28       $ 2.14    
Declared $ 1.14       $ 1.07       $ 2.28       $ 2.14    
               
Shares of Common Stock Outstanding During the Period:              
Average 315.6       316.1       316.1       317.2    
Average assuming dilution 316.9       317.4       317.4       318.6    


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

In millions June 30, 2021   December 31, 2020
Assets      
Current Assets:      
Cash and equivalents $ 2,058       $ 2,564    
Trade receivables 2,786       2,506    
Inventories 1,400       1,189    
Prepaid expenses and other current assets 265       264    
Total current assets 6,509       6,523    
       
Net plant and equipment 1,767       1,777    
Goodwill 4,658       4,690    
Intangible assets 716       781    
Deferred income taxes 613       533    
Other assets 1,317       1,308    
  $ 15,580       $ 15,612    
       
Liabilities and Stockholders' Equity      
Current Liabilities:      
Short-term debt $ 592       $ 350    
Accounts payable 607       534    
Accrued expenses 1,326       1,284    
Cash dividends payable 358       361    
Income taxes payable 77       60    
Total current liabilities 2,960       2,589    
       
Noncurrent Liabilities:      
Long-term debt 7,056       7,772    
Deferred income taxes 617       588    
Noncurrent income taxes payable 365       413    
Other liabilities 1,061       1,068    
Total noncurrent liabilities 9,099       9,841    
       
Stockholders’ Equity:      
Common stock 6       6    
Additional paid-in-capital 1,402       1,362    
Retained earnings 23,842       23,114    
Common stock held in treasury (20,140 )     (19,659 )  
Accumulated other comprehensive income (loss) (1,590 )     (1,642 )  
Noncontrolling interest 1       1    
Total stockholders’ equity 3,521       3,182    
  $ 15,580       $ 15,612    


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

Three Months Ended June 30, 2021
Dollars in millions Total Revenue
  Operating Income
  Operating Margin
Automotive OEM $ 707     $ 133     18.8 %
Food Equipment 514     113     22.0 %
Test & Measurement and Electronics 606     170     28.1 %
Welding 402     115     28.5 %
Polymers & Fluids 466     127     27.3 %
Construction Products 518     143     27.6 %
Specialty Products 471     128     27.2 %
Intersegment (8 )       %
Total Segments 3,676     929     25.3 %
Unallocated     (36 )   %
Total Company $ 3,676     $ 893     24.3 %

 

Six Months Ended June 30, 2021
Dollars in millions Total Revenue
  Operating Income
  Operating Margin
Automotive OEM $ 1,490     $ 322     21.6 %
Food Equipment 965     209     21.6 %
Test & Measurement and Electronics 1,158     327     28.2 %
Welding 803     236     29.4 %
Polymers & Fluids 901     239     26.6 %
Construction Products 987     273     27.6 %
Specialty Products 928     254     27.4 %
Intersegment (12 )       %
Total Segments 7,220     1,860     25.8 %
Unallocated     (62 )   %
Total Company $ 7,220     $ 1,798     24.9 %


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

Q2 2021 vs. Q2 2020 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and Electronics
Welding Polymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic 83.5 % 46.0 % 28.7 % 32.6 % 27.6 % 28.2   % 17.2 % 37.2 %
Acquisitions/
Divestitures
% % % % % (0.1 ) % % %
Translation 11.8 % 6.9 % 4.3 % 2.6 % 4.1 % 9.6   % 4.4 % 6.2 %
Operating
Revenue
95.3 % 52.9 % 33.0 % 35.2 % 31.7 % 37.7   % 21.6 % 43.4 %

 

Q2 2021 vs. Q2 2020 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 1700 bps 1010 bps 560 bps 480 bps 520 bps 440 bps 330 bps 700 bps
Changes in Variable Margin & OH Costs 970 bps 280 bps (330) bps 220 bps (70) bps (30) bps (140) bps (20) bps
Total Organic 2670 bps 1290 bps 230 bps 700 bps 450 bps 410 bps 190 bps 680 bps
Acquisitions/
Divestitures
Restructuring/
Other
(10) bps (10) bps 10 bps (10) bps (30) bps (20) bps (10) bps
Total Operating Margin Change 2660 bps 1280 bps 240 bps 690 bps 420 bps 390 bps 180 bps 680 bps
                 
Total Operating Margin % * 18.8 % 22.0 % 28.1 % 28.5 % 27.3 % 27.6 % 27.2 % 24.3 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 70 bps 160 bps 10 bps 240 bps 20 bps 80 bps 90 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the second quarter of 2021.


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

1H 2021 vs. 1H 2020 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and Electronics
Welding Polymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic 33.6 % 13.2 % 19.4 % 17.9 % 17.7 % 20.3   % 12.1 % 19.9 %
Acquisitions/
Divestitures
% % % % % (0.1 ) % % %
Translation 7.3 % 4.7 % 3.8 % 1.9 % 2.9 % 8.6   % 3.7 % 4.8 %
Operating
Revenue
40.9 % 17.9 % 23.2 % 19.8 % 20.6 % 28.8   % 15.8 % 24.7 %

 

1H 2021 vs. 1H 2020 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 630 bps 320 bps 420 bps 280 bps 360 bps 350 bps 230 bps 390 bps
Changes in Variable Margin & OH Costs 420 bps 40 bps (140) bps 90 bps (40) bps 70 bps (50) bps 10 bps
Total Organic 1050 bps 360 bps 280 bps 370 bps 320 bps 420 bps 180 bps 400 bps
Acquisitions/
Divestitures
Restructuring/
Other
(10) bps (10) bps (20) bps (30) bps
Total Operating Margin Change 1050 bps 350 bps 280 bps 360 bps 320 bps 400 bps 150 bps 400 bps
                 
Total Operating Margin % * 21.6 % 21.6 % 28.2 % 29.4 % 26.6 % 27.6 % 27.4 % 24.9 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 70 bps 170 bps 10 bps 260 bps 20 bps 80 bps 100 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.16) on GAAP earnings per share for the first half of 2021.


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

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

  Three Months Ended   Six Months Ended
  June 30,   June 30,
Dollars in millions 2021   2020   2021   2020
Operating income $ 893       $ 449       $ 1,798       $ 1,210    
Tax rate 23.0   %   21.3   %   22.7   %   22.4   %
Income taxes (206 )     (96 )     (409 )     (271 )  
Operating income after taxes $ 687       $ 353       $ 1,389       $ 939    
               
Invested capital:              
Trade receivables $ 2,786       $ 2,156       $ 2,786       $ 2,156    
Inventories 1,400       1,167       1,400       1,167    
Net assets held for sale       181             181    
Net plant and equipment 1,767       1,711       1,767       1,711    
Goodwill and intangible assets 5,374       5,244       5,374       5,244    
Accounts payable and accrued expenses (1,933 )     (1,508 )     (1,933 )     (1,508 )  
Other, net (283 )     (636 )     (283 )     (636 )  
Total invested capital $ 9,111       $ 8,315       $ 9,111       $ 8,315    
               
Average invested capital $ 8,926       $ 8,431       $ 8,864       $ 8,557    
After-tax return on average invested capital 30.8   %   16.8   %   31.3   %   22.0   %

A reconciliation of the tax rate for the three and six month periods ended June 30, 2021 excluding the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate is as follows:

  Three Months Ended   Six Months Ended
  June 30, 2021   June 30, 2021
Dollars in millions Income Taxes   Tax Rate   Income Taxes   Tax Rate
As reported $ 88     10.1 %   $ 282     16.3 %
Discrete tax benefit 112     12.9 %   112     6.4 %
As adjusted $ 200     23.0 %   $ 394     22.7 %


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

FREE CASH FLOW (UNAUDITED)

  Three Months Ended   Six Months Ended   Twelve Months Ended
  June 30,   June 30,   December 31,
Dollars in millions 2021   2020   2021   2020   2020
Net cash provided by operating activities $ 555       $ 737       $ 1,164       $ 1,351       $ 2,807    
Less: Additions to plant and equipment (78 )     (56 )     (146 )     (116 )     (236 )  
Free cash flow $ 477       $ 681       $ 1,018       $ 1,235       $ 2,571    
                   
Net income $ 775       $ 319       $ 1,446       $ 885       $ 2,109    
Less: Second quarter 2021 discrete tax benefit related to a change in the U.K. income tax rate (112 )           (112 )              
Adjusted net income $ 663       $ 319       $ 1,334       $ 885       $ 2,109    
Free cash flow to adjusted net income conversion rate 72   %   213   %   76   %   140   %   122   %

 


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Source: Illinois Tool Works Inc.