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ITW Reports Fourth Quarter and Full Year 2020 Results

·14 min read

Provides 2021 Guidance Including EPS Growth of 18% at the Mid-point

Fourth-Quarter 2020 Highlights

  • Total revenue of $3.5 billion, an increase of 5% versus Q3 2020

  • Record Q4 operating income of $883 million, an increase of 7% year-over-year

  • Record Q4 operating margin of 25.4% as enterprise initiatives contributed 130 basis points

  • GAAP EPS of $2.02, an increase of 2%, or 7% excluding $0.11 of divestiture gains in Q4 2019

  • Record Q4 after-tax ROIC of 32.0%, an increase of 310 basis points

  • Strong free cash flow of $705 million, 110% of net income

2021 Guidance

  • Organic growth of 7 to 10%

  • GAAP EPS of $7.60 to $8.00, an increase of 15 to 21%

GLENVIEW, Ill., Feb. 05, 2021 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth-quarter and full-year 2020 results.

“The ITW team closed out 2020 with another quarter of strong execution and financial performance, generating revenue of $3.5 billion and delivering all-time record Q4 operating income, operating margin, and ROIC performance,” said E. Scott Santi, chairman and chief executive officer.

“Looking back at 2020 in its entirety, our people around the world provided another meaningful demonstration of the power of the ITW Business Model and the differentiating value of our decentralized entrepreneurial culture in how the company responded to the unprecedented events and challenges of the past year. While it was the unique circumstances that we faced and our response to them that defined the year, it was the sum total of all that the ITW team has built over the last eight years through the execution of our enterprise strategy that gave us the capabilities and options to respond as we did. In the face of a global pandemic, our ability to deliver strong operational and financial performance while remaining fully invested in the execution of our long-term enterprise strategy provides further evidence that ITW is a company that has the enduring competitive advantages, resilience, and agility necessary to deliver consistent top tier performance in any environment and over the long term. I offer my heartfelt thanks to all my ITW colleagues for their dedication and commitment to keeping their co-workers safe, serving our customers with excellence, and continuing to make progress on our path to ITW’s full-potential performance,” Santi concluded.

2020 Results
Fourth-quarter revenue of $3.5 billion increased 0.2 percent versus prior year, as organic revenue declined 0.9 percent, divestitures reduced revenue by 0.7 percent and foreign currency translation impact was favorable by 1.8 percent. Product Line Simplification (PLS) reduced organic revenue by 20 basis points. GAAP EPS increased two percent to $2.02. Excluding $0.11 of divestiture gains in the fourth quarter of 2019, EPS increased seven percent. Operating income increased seven percent to $883 million. Operating margin was 25.4 percent, an increase of 170 basis points with enterprise initiatives contributing 130 basis points. Free cash flow was $705 million, 110 percent of net income. After-tax return on invested capital improved to 32.0 percent compared to 28.9 percent in the prior year period. The effective tax rate for the fourth quarter was 22.1 percent.

Full year revenue of $12.6 billion declined 10.9 percent, as organic revenue declined 9.8 percent, divestitures reduced revenue by 0.9 percent and foreign currency translation impact was unfavorable by 0.2 percent. PLS reduced organic revenue by 30 basis points. 2020 GAAP EPS declined fourteen percent to $6.63. Operating margin of 22.9 percent was down from 24.1 percent in the prior year as the impact of lower volumes was partially offset by enterprise initiatives of 120 basis points. Free cash flow was $2.6 billion, 122 percent of net income. After-tax return on invested capital was 26.2 percent. The company repurchased $706 million of its own shares and raised its dividend seven percent in August 2020 to an annualized $4.56 per share. The effective tax rate for the full year was 22.0 percent.

2021 Guidance
The company initiated full-year GAAP EPS guidance in a range of $7.60 to $8.00 per share, an increase of 15 to 21 percent. Organic growth is expected to be in the range of seven to ten percent. Revenue is expected to grow in the range of nine to twelve percent as foreign currency translation at current exchange rates is projected to increase revenues by approximately two percent. PLS impact is forecasted to be approximately 50 basis points. Operating margin is expected to be in a range of 24 to 25 percent, with enterprise initiatives contributing approximately 100 basis points. Free cash flow is expected to be greater than 100 percent of net income. The company plans to repurchase approximately $1 billion of its shares in 2021 and expects an effective tax rate in the range of 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. 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 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, expected impact of tariffs and raw material inflation, product line simplification activities and enterprise initiatives, future financial performance, operating performance, free cash flow, organic and total revenue, operating margin, price/cost impact, statements regarding diluted income per share, restructuring expenses and related benefits, expected adjustments to capacity and cost structure, expected dividend payments, expected repatriation, after-tax return on invested capital, expected total shareholder returns, 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 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 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 $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




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

Three Months Ended

Twelve Months Ended

December 31,

December 31,

In millions except per share amounts

2020

2019

2020

2019

Operating Revenue

$

3,475

$

3,469

$

12,574

$

14,109

Cost of revenue

2,000

2,022

7,375

8,187

Selling, administrative, and research and development expenses

557

586

2,163

2,361

Amortization and impairment of intangible assets

35

37

154

159

Operating Income

883

824

2,882

3,402

Interest expense

(52

)

(51

)

(206

)

(221

)

Other income (expense)

(7

)

58

28

107

Income Before Taxes

824

831

2,704

3,288

Income taxes

182

190

595

767

Net Income

$

642

$

641

$

2,109

$

2,521

Net Income Per Share:

Basic

$

2.03

$

2.00

$

6.66

$

7.78

Diluted

$

2.02

$

1.99

$

6.63

$

7.74

Cash Dividends Per Share:

Paid

$

1.14

$

1.07

$

4.35

$

4.07

Declared

$

1.14

$

1.07

$

4.42

$

4.14

Shares of Common Stock Outstanding During the Period:

Average

316.7

321.2

316.9

323.9

Average assuming dilution

318.1

322.9

318.3

325.6




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

In millions

December 31, 2020

December 31, 2019

Assets

Current Assets:

Cash and equivalents

$

2,564

$

1,981

Trade receivables

2,506

2,461

Inventories

1,189

1,164

Prepaid expenses and other current assets

264

296

Assets held for sale

351

Total current assets

6,523

6,253

Net plant and equipment

1,777

1,729

Goodwill

4,690

4,492

Intangible assets

781

851

Deferred income taxes

533

516

Other assets

1,308

1,227

$

15,612

$

15,068

Liabilities and Stockholders' Equity

Current Liabilities:

Short-term debt

$

350

$

4

Accounts payable

534

472

Accrued expenses

1,284

1,217

Cash dividends payable

361

342

Income taxes payable

60

48

Liabilities held for sale

71

Total current liabilities

2,589

2,154

Noncurrent Liabilities:

Long-term debt

7,772

7,754

Deferred income taxes

588

668

Noncurrent income taxes payable

413

462

Other liabilities

1,068

1,000

Total noncurrent liabilities

9,841

9,884

Stockholders' Equity:

Common stock

6

6

Additional paid-in-capital

1,362

1,304

Retained earnings

23,114

22,403

Common stock held in treasury

(19,659

)

(18,982

)

Accumulated other comprehensive income (loss)

(1,642

)

(1,705

)

Noncontrolling interest

1

4

Total stockholders' equity

3,182

3,030

$

15,612

$

15,068




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

Three Months Ended December 31, 2020

Dollars in millions

Total
Revenue

Operating
Income

Operating
Margin

Automotive OEM

$

800

$

191

23.9

%

Food Equipment

471

106

22.3

%

Test & Measurement and Electronics

534

153

28.6

%

Welding

368

107

28.9

%

Polymers & Fluids

437

111

25.4

%

Construction Products

430

112

26.2

%

Specialty Products

439

119

27.0

%

Intersegment

(4

)

%

Total Segments

3,475

899

25.8

%

Unallocated

(16

)

%

Total Company

$

3,475

$

883

25.4

%


Twelve Months Ended December 31, 2020

Dollars in millions

Total
Revenue

Operating
Income

Operating
Margin

Automotive OEM

$

2,571

$

457

17.8

%

Food Equipment

1,739

342

19.6

%

Test & Measurement and Electronics

1,963

507

25.8

%

Welding

1,384

376

27.1

%

Polymers & Fluids

1,622

402

24.8

%

Construction Products

1,652

421

25.5

%

Specialty Products

1,660

432

26.0

%

Intersegment

(17

)

%

Total Segments

12,574

2,937

23.4

%

Unallocated

(55

)

%

Total Company

$

12,574

$

2,882

22.9

%




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

Q4 2020 vs. Q4 2019 Favorable/(Unfavorable)

Operating Revenue

Automotive
OEM

Food
Equipment

Test &
Measurement
and
Electronics

Welding

Polymers &
Fluids

Construction
Products

Specialty
Products

Total ITW

Organic

7.8

%

(19.1

)

%

(3.1

)

%

(2.4

)

%

6.8

%

8.1

%

(2.8

)

%

(0.9

)

%

Acquisitions/ Divestitures

%

%

(1.9

)

%

(3.1

)

%

%

%

(0.3

)

%

(0.7

)

%

Translation

2.6

%

1.8

%

1.7

%

0.7

%

0.2

%

3.8

%

1.5

%

1.8

%

Operating Revenue

10.4

%

(17.3

)

%

(3.3

)

%

(4.8

)

%

7.0

%

11.9

%

(1.6

)

%

0.2

%


Q4 2020 vs. Q4 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

140 bps

(470) bps

(70) bps

(50) bps

160 bps

160 bps

(60) bps

(20) bps

Changes in Variable Margin & OH Costs

120 bps

(60) bps

110 bps

280 bps

10 bps

240 bps

270 bps

160 bps

Total Organic

260 bps

(530) bps

40 bps

230 bps

170 bps

400 bps

210 bps

140 bps

Acquisitions/ Divestitures

40 bps

50 bps

30 bps

10 bps

Restructuring/Other

10 bps

10 bps

(30) bps

70 bps

70 bps

10 bps

20 bps

Total Operating Margin Change

270 bps

(520) bps

50 bps

350 bps

240 bps

400 bps

250 bps

170 bps

Total Operating Margin % *

23.9%

22.3%

28.6%

28.9%

25.4%

26.2%

27.0%

25.4%

* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets

40 bps

80 bps

180 bps

20 bps

300 bps

20 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 fourth quarter of 2020.




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

Full Year 2020 vs Full Year 2019 Favorable/(Unfavorable)

Operating Revenue

Automotive
OEM

Food
Equipment

Test &
Measurement
and
Electronics

Welding

Polymers &
Fluids

Construction
Products

Specialty
Products

Total ITW

Organic

(16.0

)

%

(20.6

)

%

(4.9

)

%

(11.8

)

%

(1.4

)

%

1.5

%

(8.2

)

%

(9.8

)

%

Acquisitions/ Divestitures

%

%

(2.8

)

%

(3.7

)

%

%

%

(0.8

)

%

(0.9

)

%

Translation

(0.1

)

%

0.1

%

0.3

%

%

(1.4

)

%

0.2

%

(0.1

)

%

(0.2

)

%

Operating Revenue

(16.1

)

%

(20.5

)

%

(7.4

)

%

(15.5

)

%

(2.8

)

%

1.7

%

(9.1

)

%

(10.9

)

%


Full Year 2020 vs Full Year 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

(330) bps

(540) bps

(130) bps

(220) bps

(30) bps

30 bps

(180) bps

(230) bps

Changes in Variable Margin & OH Costs

(90) bps

(140) bps

120 bps

60 bps

180 bps

130 bps

90 bps

70 bps

Total Organic

(420) bps

(680) bps

(10) bps

(160) bps

150 bps

160 bps

(90) bps

(160) bps

Acquisitions/ Divestitures

40 bps

60 bps

40 bps

10 bps

Restructuring/Other

50 bps

(10) bps

40 bps

50 bps

30 bps

60 bps

30 bps

Total Operating Margin Change

(370) bps

(680) bps

20 bps

(60) bps

200 bps

190 bps

10 bps

(120) bps

Total Operating Margin % *

17.8%

19.6%

25.8%

27.1%

24.8%

25.5%

26.0%

22.9%

* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets

50 bps

80 bps

250 bps

20 bps

330 bps

30 bps

90 bps

130 bps**

** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.37) on GAAP earnings per share for 2020.




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

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

Dollars in millions

2020

2019

2020

2019

Operating income

$

883

$

824

$

2,882

$

3,402

Tax rate

22.1

%

22.8

%

22.0

%

24.0

%

Income taxes

(194

)

(188

)

(633

)

(815

)

Operating income after taxes

$

689

$

636

$

2,249

$

2,587

Invested capital:

Trade receivables

$

2,506

$

2,461

$

2,506

$

2,461

Inventories

1,189

1,164

1,189

1,164

Net assets held for sale

280

280

Net plant and equipment

1,777

1,729

1,777

1,729

Goodwill and intangible assets

5,471

5,343

5,471

5,343

Accounts payable and accrued expenses

(1,818

)

(1,689

)

(1,818

)

(1,689

)

Other, net

(385

)

(481

)

(385

)

(481

)

Total invested capital

$

8,740

$

8,807

$

8,740

$

8,807

Average invested capital

$

8,606

$

8,797

$

8,576

$

9,028

After-tax return on average invested capital

32.0

%

28.9

%

26.2

%

28.7

%

A reconciliation of the 2019 effective tax rate excluding the third quarter 2019 discrete tax benefit of $21 million is as follows:

Twelve Months Ended

December 31, 2019

Dollars in millions

Income Taxes

Tax Rate

As reported

$

767

23.3

%

Discrete tax benefit related to third quarter

21

0.7

%

As adjusted

$

788

24.0

%




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

FREE CASH FLOW (UNAUDITED)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

Dollars in millions

2020

2019

2020

2019

Net cash provided by operating activities

$

773

$

774

$

2,807

$

2,995

Less: Additions to plant and equipment

(68

)

(82

)

(236

)

(326

)

Free cash flow

$

705

$

692

$

2,571

$

2,669

Net income

$

642

$

641

$

2,109

$

2,521

Free cash flow to net income conversion rate

110

%

108

%

122

%

106

%

TOTAL DEBT TO EBITDA (UNAUDITED)

Twelve Months Ended

Dollars in millions

December 31, 2020

Total debt

$

8,122

Net income

$

2,109

Add:

Interest expense

206

Other income

(28

)

Income taxes

595

Depreciation

273

Amortization and impairment of intangible assets

154

EBITDA

$

3,309

Total debt to EBITDA ratio

2.5

x


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