ITW Reports First Quarter 2022 Results

Company Release - 5/3/2022
  • Total revenue of $3.9 billion; organic growth of 11%
  • GAAP EPS of $2.11 including $(0.05) of unfavorable foreign currency translation impact
  • Operating margin of 22.7%; 23.4% excluding 70 bps of margin dilution from the acquisition of MTS
  • Raising guidance for GAAP EPS to $9.00 to $9.40 per share and organic revenue growth to 7 to 10%

GLENVIEW, Ill., May 03, 2022 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its first quarter 2022 results.

“In what remains a challenging and dynamic environment, our ITW business teams around the world continue to do an exceptional job of leveraging the performance power of the ITW Business Model and our advantaged supply position to support our customers and execute our ‘Win the Recovery’ strategy to accelerate profitable market penetration and organic growth across our portfolio,” said E. Scott Santi, Chairman and Chief Executive Officer. “Our first quarter results reflect continued strong momentum in this regard, and we remain well-positioned to seize the opportunities and respond to the challenges that lie ahead as we move through the balance of 2022.”

First Quarter 2022 Results
First quarter revenue grew 11.2 percent to $3.9 billion with organic growth of 10.6 percent. The acquisition of MTS contributed 2.8 percent to revenue. Foreign currency translation impact reduced revenue by 2.2 percent. Six of seven segments delivered positive organic growth, led by Food Equipment up 28 percent, Construction Products up 21 percent, Welding and Polymers & Fluids both up 13 percent, Test & Measurement and Electronics up eight percent, and Specialty Products up one percent. Organic revenue was down one percent in Automotive OEM due to automotive production limitations related to component supply shortages.

GAAP EPS was $2.11, including $(0.05) of unfavorable foreign currency translation impact. Operating margin was 23.4 percent, excluding 70 basis points of margin dilution impact from the acquisition of MTS. Enterprise initiatives contributed 90 basis points. While pricing actions more than offset raw material cost increases on a dollar-for-dollar basis, the impact of price/cost reduced margin percentage by 250 basis points. Operating cash flow was $323 million, and free cash flow was $249 million with a conversion of 38 percent of net income due to higher working capital investments to support double digit revenue growth and increased inventory levels to help mitigate supply chain risk and sustain customer service levels. The company repurchased $375 million of its own shares, and the effective tax rate for the quarter was 23.1 percent.

2022 Guidance
Based on the company’s first quarter results and projecting current levels of demand through the balance of the year, ITW is raising its full-year organic growth guidance to seven to 10 percent and full-year revenue growth guidance to 8.5 to 11.5 percent. The acquisition of MTS is expected to add three percent to revenue. Foreign currency translation is expected to reduce revenue by 1.5 percent. The company is also raising its full-year GAAP EPS guidance to $9.00 to $9.40 per share, an increase of 11 to 16 percent versus prior year excluding the impact of favorable one-time tax items in 2021. Operating margin is expected to expand to 24 to 25 percent, with enterprise initiatives contributing 100 basis points. The margin dilution impact from the acquisition of MTS and price/cost are expected to be 50 and 100 basis points, respectively. Free cash flow is expected to grow 10 to 20 percent year-over-year with a conversion rate of 85 to 95 percent of net income. The company is on pace to repurchase $1.5 billion of its own shares, and the effective tax rate is expected to be 23 to 24 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 Statements
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 and global supply chain challenges, related government actions and the company’s strategy in response thereto on the company’s business, expected impact of raw material inflation, enterprise initiatives, future financial and operating performance, free cash flow and free cash flow conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation of overseas cash, 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 divestitures and related impact on financial results, including statements with respect to the impact of the 2021 acquisition of the MTS Test & Simulation business, and the company’s 2022 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 2021.

About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.5 billion in 2021. 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 amounts   2022       2021  
Operating Revenue $ 3,939     $ 3,544  
Cost of revenue   2,357       2,039  
Selling, administrative, and research and development expenses   652       566  
Amortization and impairment of intangible assets   35       34  
Operating Income   895       905  
Interest expense   (48 )     (52 )
Other income (expense)   14       12  
Income Before Taxes   861       865  
Income Taxes   199       194  
Net Income $ 662     $ 671  
       
Net Income Per Share:      
Basic $ 2.12     $ 2.12  
Diluted $ 2.11     $ 2.11  
       
Cash Dividends Per Share:      
Paid $ 1.22     $ 1.14  
Declared $ 1.22     $ 1.14  
       
Shares of Common Stock Outstanding During the Period:      
Average   312.5       316.6  
Average assuming dilution   313.7       317.9  
               

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

In millions March 31, 2022   December 31, 2021
Assets      
Current Assets:      
Cash and equivalents $ 1,296     $ 1,527  
Trade receivables   3,126       2,840  
Inventories   1,883       1,694  
Prepaid expenses and other current assets   377       313  
Total current assets   6,682       6,374  
       
Net plant and equipment   1,795       1,809  
Goodwill   5,008       4,965  
Intangible assets   875       972  
Deferred income taxes   546       552  
Other assets   1,380       1,405  
  $ 16,286     $ 16,077  
       
Liabilities and Stockholders' Equity      
Current Liabilities:      
Short-term debt $ 1,041     $ 778  
Accounts payable   696       585  
Accrued expenses   1,541       1,648  
Cash dividends payable   380       382  
Income taxes payable   200       77  
Total current liabilities   3,858       3,470  
       
Noncurrent Liabilities:      
Long-term debt   6,817       6,909  
Deferred income taxes   627       654  
Noncurrent income taxes payable   365       365  
Other liabilities   1,037       1,053  
Total noncurrent liabilities   8,846       8,981  
       
Stockholders’ Equity:      
Common stock   6       6  
Additional paid-in-capital   1,447       1,432  
Retained earnings   24,607       24,325  
Common stock held in treasury   (21,008 )     (20,636 )
Accumulated other comprehensive income (loss)   (1,471 )     (1,502 )
Noncontrolling interest   1       1  
Total stockholders’ equity   3,582       3,626  
  $ 16,286     $ 16,077  


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

Three Months Ended March 31, 2022
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 760   $ 138   18.1 %
Food Equipment   566     126   22.3 %
Test & Measurement and Electronics   685     149   21.8 %
Welding   450     139   30.8 %
Polymers & Fluids   481     118   24.5 %
Construction Products   551     136   24.7 %
Specialty Products   452     120   26.6 %
Intersegment   (6 )     %
Total Segments   3,939     926   23.5 %
Unallocated       (31 ) %
Total Company $ 3,939   $ 895   22.7 %


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

Q1 2022 vs. Q1 2021 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
Welding Polymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic (0.7)% 28.2% 7.9% 12.9% 12.8% 21.3% 0.6% 10.6%
Acquisitions/Divestitures —% —% 18.1% —% —% —% —% 2.8%
Translation (2.2)% (2.9)% (2.0)% (0.7)% (2.3)% (3.9)% (1.7)% (2.2)%
Operating
Revenue
(2.9) % 25.3 % 24.0 % 12.2 % 10.5 % 17.4 % (1.1) % 11.2 %

 

Q1 2022 vs. Q1 2021 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 (10) bps 560 bps 160 bps 180 bps 240 bps 310 bps 10 bps 200 bps
Changes in Variable Margin & OH Costs (480) bps (440) bps (420) bps (120) bps (360) bps (620) bps (140) bps (390) bps
Total Organic (490) bps 120 bps (260) bps 60 bps (120) bps (310) bps (130) bps (190) bps
Acquisitions/

Divestitures
(420) bps (70) bps
Restructuring/Other (110) bps (10) bps 20 bps (10) bps 20 bps 30 bps (20) bps
Total Operating Margin Change (600) bps 110 bps (660) bps 50 bps (120) bps (290) bps (100) bps (280) bps
                 
Total Operating Margin % * 18.1 % 22.3 % 21.8 % 30.8 % 24.5 % 24.7 % 26.6 % 22.7 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 60 bps 200 bps 20 bps 220 bps 10 bps 70 bps 90 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the first quarter of 2022.


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 millions   2022       2021  
Numerator:      
Net Income $ 662     $ 671  
Interest expense, net of tax (1)   37       40  
Other (income) expense, net of tax (1)   (11 )     (9 )
Operating income after taxes $ 688     $ 702  
       
Denominator:      
Invested capital:      
Cash and equivalents $ 1,296     $ 2,484  
Trade receivables   3,126       2,662  
Inventories   1,883       1,292  
Net plant and equipment   1,795       1,746  
Goodwill and intangible assets   5,883       5,379  
Accounts payable and accrued expenses   (2,237 )     (1,850 )
Debt   (7,858 )     (7,949 )
Other, net   (306 )     (488 )
Total net assets (stockholders' equity)   3,582       3,276  
Cash and equivalents   (1,296 )     (2,484 )
Debt   7,858       7,949  
Total invested capital $ 10,144     $ 8,741  
       
Average invested capital (2) $ 9,966     $ 8,740  
       
Net income to average invested capital (3)   26.6 %     30.7 %
After-tax return on average invested capital (3)   27.6 %     32.1 %

(1) Effective tax rate used for interest expense and other (income) expense for the three months ended March 31, 2022 and 2021 was 23.1% and 22.4%, respectively.

(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of the periods presented.

(3) Returns for the three months ended March 31, 2022 and 2021 were converted to an annual rate by multiplying the calculated return by 4.


AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

  Twelve Months Ended
Dollars in millions December 31, 2021
Numerator:  
Net income $ 2,694  
Discrete tax benefit related to the third quarter 2021   (21 )
Discrete tax benefit related to the second quarter 2021   (112 )
Interest expense, net of tax (1)   157  
Other (income) expense, net of tax (1)   (40 )
Operating income after taxes $ 2,678  
   
Denominator:  
Invested capital:  
Cash and equivalents $ 1,527  
Trade receivables   2,840  
Inventories   1,694  
Net plant and equipment   1,809  
Goodwill and intangible assets   5,937  
Accounts payable and accrued expenses   (2,233 )
Debt   (7,687 )
Other, net   (261 )
Total net assets (stockholders' equity)   3,626  
Cash and equivalents   (1,527 )
Debt   7,687  
Total invested capital $ 9,786  
   
Average invested capital (2) $ 9,087  
   
Net income to average invested capital   29.6 %
After-tax return on average invested capital   29.5 %

(1) Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2021 was 23.0%.

(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within the period presented.

A reconciliation of the 2021 effective tax rate excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital losses and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate is as follows:

  Twelve Months Ended
  December 31, 2021
Dollars in millions Income Taxes   Tax Rate
As reported $ 632   19.0 %
Discrete tax benefit related to the third quarter 2021   21   0.6 %
Discrete tax benefit related to the second quarter 2021   112   3.4 %
As adjusted $ 765   23.0 %


FREE CASH FLOW (UNAUDITED)

  Three Months Ended
  March 31,
Dollars in millions   2022       2021  
Net cash provided by operating activities $ 323     $ 609  
Less: Additions to plant and equipment   (74 )     (68 )
Free cash flow $ 249     $ 541  
       
Net income $ 662     $ 671  
       
Net cash provided by operating activities to net income conversion rate   49 %     91 %
Free cash flow to net income conversion rate   38 %     81 %


ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

  Twelve Months Ended
  December 31, 2021
As reported $ 8.51  
Discrete tax benefit related to the third quarter 2021   (0.07 )
Discrete tax benefit related to the second quarter 2021   (0.35 )
As adjusted $ 8.09  

 

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

 


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Source: Illinois Tool Works Inc.