Illinois Tool Works Inc (ITW) Reports Solid Q3 2023 Earnings with Revenue of $4.0 Billion

• ITW's Q3 2023 revenue reached $4.0 billion, marking a 0.5% increase.

• Operating income rose by 9% to $1.1 billion, with an operating margin of 26.5%.

• GAAP EPS also saw a 9% increase, reaching $2.55.

• ITW has narrowed its full-year GAAP EPS guidance range to $9.65 to $9.85 per share.

Released on October 24, 2023, Illinois Tool Works Inc (NYSE:ITW)'s third-quarter earnings report showcases a strong financial performance. The company reported a revenue of $4.0 billion, a slight increase of 0.5% from the previous year. Operating income rose by 9% to $1.1 billion, with an operating margin of 26.5%, up by 200 basis points. The company's GAAP EPS also saw a 9% increase, reaching $2.55.

Financial Highlights

ITW's third-quarter revenue of $4.0 billion was driven by organic revenue growth of 0.2%, with divestitures reducing revenue by 1.2% and foreign currency translation adding 1.5%. The company's GAAP EPS increased by 9% to $2.55, and the effective tax rate was 23.8%. Operating income grew by 9% to $1.1 billion, and operating cash flow was $982 million. Free cash flow saw a significant increase of 40% to $856 million, with a conversion rate to net income of 111%. During the quarter, ITW repurchased $375 million of its own shares and raised its dividend by 7% to an annualized $5.60 per share.

2023 Guidance

ITW has narrowed its full-year GAAP EPS guidance from a range of $9.55 to $9.95 per share to a range of $9.65 to $9.85 per share. The company is projecting total revenue growth of one to two percent with organic growth of two to three percent. Operating margin is projected to be in the range of 25 to 25.5 percent, an improvement of 150 basis points at the mid-point. Free cash flow is projected to be greater than 100 percent of net income, and the company plans to repurchase approximately $1.5 billion of its own shares. The expected tax rate is in the range of 22.5 to 23.5 percent.

CEO's Commentary

The strength and resilience of ITWs proprietary business model and high-quality diversified portfolio once again drove strong operational execution and financial performance in the third quarter. Quarterly operating margin expanded 200 basis points year over year to 26.5 percent, free cash flow grew 40 percent, and GAAP EPS grew nine percent to $2.55, said E. Scott Santi, Chairman and Chief Executive Officer. Looking ahead at the balance of the year, while we anticipate some impact from ongoing automotive industry labor actions on our Automotive OEM segment in the fourth quarter, the company remains well-positioned to deliver another strong year of differentiated overall performance in 2023.

Segment Performance

The Automotive OEM segment reported a total revenue of $799 million with an operating margin of 18.9%. The Food Equipment segment reported a total revenue of $678 million with an operating margin of 27.3%. The Test & Measurement and Electronics segment reported a total revenue of $698 million with an operating margin of 23.8%. The Welding segment reported a total revenue of $468 million with an operating margin of 31.6%. The Polymers & Fluids segment reported a total revenue of $458 million with an operating margin of 28.1%. The Construction Products segment reported a total revenue of $522 million with an operating margin of 29.9%. The Specialty Products segment reported a total revenue of $414 million with an operating margin of 27.8%.

Looking Forward

Despite the anticipated impact from ongoing automotive industry labor actions on the Automotive OEM segment in the fourth quarter, ITW remains well-positioned to deliver another strong year of differentiated overall performance in 2023.

This article first appeared on GuruFocus.