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ITW Reports Fourth Quarter and Full Year Results

Fourth-Quarter 2019 Highlights

  • GAAP EPS $1.99, an increase of 9%, including $0.11 of divestiture gains
  • Total revenue declined 3.1%; organic revenue down 1.6%
  • Operating margin of 23.7%; 24.1% excluding 40 basis points of higher restructuring expenses
  • After-tax ROIC of 28.9%, an increase of 120 basis points
  • Free cash flow was 114% of net income

Full-Year 2019 Highlights

  • GAAP EPS $7.74, an increase of 2%
  • Total revenue declined 4.5%; organic revenue down 1.9%
  • Operating margin of 24.1%; 24.4% excluding 30 basis points of higher restructuring expenses
  • After-tax ROIC of 28.7%, an increase of 50 basis points
  • Free cash flow increased 9% and was 106% of net income

GLENVIEW, Ill., Jan. 31, 2020 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (ITW) today reported its fourth-quarter and full-year 2019 results.

“The ITW team closed out 2019 with another quarter of strong execution and resilient financial performance,” said E. Scott Santi, chairman and chief executive officer. “Despite near-term macro challenges, we grew earnings per share nine percent, delivered 24.1 percent operating margin excluding higher restructuring expenses and improved after-tax return on invested capital 120 basis points to 28.9 percent.”

“For the year, in a contracting industrial demand environment including a six percent decline in global auto builds, ITW grew earnings per share five percent excluding the impact of foreign currency headwinds, higher restructuring expenses and divestiture gains.  We expanded operating margin to 24.4 percent excluding higher restructuring expenses, improved after-tax return on invested capital to 28.7 percent, increased free cash flow nine percent and returned $2.8 billion to shareholders in the form of dividends and share repurchases.  Throughout 2019, we executed very well on the things within our control and continued to make meaningful progress on our path to full-potential performance through the implementation of our ‘Finish the Job’ enterprise strategy agenda.  ITW’s proprietary and powerful business model, diversified high-quality business portfolio and dedicated team of highly skilled ITW colleagues around the world position us well to continue to deliver differentiated performance in 2020 and beyond,” Santi concluded.

2019 Results
Fourth-quarter revenue of $3.5 billion declined 3.1 percent with organic revenue down 1.6 percent.  Foreign currency translation and divestitures reduced revenues by 1.0 percent and 0.5 percent, respectively. Product Line Simplification (PLS) activities reduced organic revenue by 60 basis points.  GAAP EPS increased nine percent to $1.99 including $0.11 divestiture gains from the sale of three businesses.  Operating margin was 23.7 percent.  Excluding 40 basis points impact from higher restructuring expenses, operating margin improved 10 basis points to 24.1 percent.  Enterprise initiatives contributed 130 basis points and price/cost was positive 30 basis points. Free cash flow was $692 million with a 114 percent conversion rate.  The effective tax rate for the fourth quarter was 22.8 percent.

Full year revenue of $14.1 billion declined 4.5 percent with organic revenue down 1.9 percent and unfavorable foreign currency translation impact of 2.3 percent. PLS reduced organic revenue by 60 basis points versus 70 basis points in 2018.  2019 GAAP EPS increased two percent to $7.74 including $0.09 of net gains from divestitures.  Operating margin was 24.1 percent.  Excluding 30 basis points impact from higher restructuring expenses, operating margin improved 10 bps to 24.4 percent.  Enterprise initiatives contributed 120 basis points and price/cost was positive 10 basis points.  After-tax return on invested capital was 28.7 percent.  Free cash flow increased nine percent to $2.7 billion. The company repurchased $1.5 billion of its own shares and raised its dividend seven percent in August 2019 to an annualized $4.28 per share.  The effective tax rate for the full year was 23.3 percent.

2020 Guidance
The company initiated full-year EPS guidance in a range of $7.65 to $8.05 per share.  At current levels of demand, organic growth is forecast to be in the range of zero to two percent.  Foreign currency translation and divestitures are projected to reduce revenues by one percentage point each. PLS impact is forecast to moderate to approximately 50 basis points.  Operating margin is expected to improve and be in a range of 24.5 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 expects an effective tax rate in the range of 23.5 to 24.5 percent and plans to repurchase approximately $2 billion of its shares in 2020. 

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, including, without limitation, statements regarding diluted earnings per share, foreign exchange rates, total and organic revenue growth, operating margin, economic and regulatory conditions in various geographic regions, price/cost impact, restructuring expenses, free cash flow, effective tax rate, after-tax return on invested capital, and timing and amount of share repurchases.  These statements are subject to certain risks, uncertainties 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 2018.

About Illinois Tool Works
ITW (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   Twelve Months Ended
  December 31,   December 31,
In millions except per share amounts 2019   2018   2019   2018
Operating Revenue $ 3,469     $ 3,580     $ 14,109     $ 14,768  
Cost of revenue 2,022     2,096     8,187     8,604  
Selling, administrative, and research and development expenses 586     578     2,361     2,391  
Amortization and impairment of intangible assets 37     46     159     189  
Operating Income 824     860     3,402     3,584  
Interest expense (51 )   (63 )   (221 )   (257 )
Other income (expense) 58     19     107     67  
Income Before Taxes 831     816     3,288     3,394  
Income taxes 190     209     767     831  
Net Income $ 641     $ 607     $ 2,521     $ 2,563  
               
Net Income Per Share:              
Basic $ 2.00     $ 1.84     $ 7.78     $ 7.65  
Diluted $ 1.99     $ 1.83     $ 7.74     $ 7.60  
               
Cash Dividends Per Share:              
Paid $ 1.07     $ 1.00     $ 4.07     $ 3.34  
Declared $ 1.07     $ 1.00     $ 4.14     $ 3.56  
               
Shares of Common Stock Outstanding During the Period:              
Average   321.2       329.8       323.9       335.0  
Average assuming dilution   322.9       331.6       325.6       337.1  
               


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

In millions December 31, 2019   December 31, 2018
Assets      
Current Assets:      
Cash and equivalents $ 1,981     $ 1,504  
Trade receivables 2,461     2,622  
Inventories 1,164     1,318  
Prepaid expenses and other current assets 296     334  
Assets held for sale 351      
Total current assets 6,253     5,778  
       
Net plant and equipment 1,729     1,791  
Goodwill 4,492     4,633  
Intangible assets 851     1,084  
Deferred income taxes 516     554  
Other assets 1,227     1,030  
  $ 15,068     $ 14,870  
       
Liabilities and Stockholders’ Equity      
Current Liabilities:      
Short-term debt $ 4     $ 1,351  
Accounts payable 472     524  
Accrued expenses 1,217     1,271  
Cash dividends payable 342     328  
Income taxes payable 48     68  
Liabilities held for sale 71      
Total current liabilities 2,154     3,542  
       
Noncurrent Liabilities:      
Long-term debt 7,754     6,029  
Deferred income taxes 668     707  
Noncurrent income taxes payable 462     495  
Other liabilities 1,000     839  
Total noncurrent liabilities 9,884     8,070  
       
Stockholders’ Equity:      
Common stock 6     6  
Additional paid-in-capital 1,304     1,253  
Retained earnings 22,403     21,217  
Common stock held in treasury (18,982 )   (17,545 )
Accumulated other comprehensive income (loss) (1,705 )   (1,677 )
Noncontrolling interest 4     4  
Total stockholders’ equity 3,030     3,258  
  $ 15,068     $ 14,870  
               


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

Three Months Ended December 31, 2019
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 725   $ 154   21.2 %
Food Equipment 571   157   27.5 %
Test & Measurement and Electronics 552   155   28.1 %
Welding 387   98   25.4 %
Polymers & Fluids 408   94   23.0 %
Construction Products 384   85   22.2 %
Specialty Products 446   109   24.5 %
Intersegment (4 )   %
Total Segments 3,469   852   24.6 %
Unallocated   (28 ) %
Total Company $ 3,469   $ 824   23.7 %


Twelve Months Ended December 31, 2019
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 3,063   $ 659   21.5 %
Food Equipment 2,188   578   26.4 %
Test & Measurement and Electronics 2,121   542   25.6 %
Welding 1,638   453   27.7 %
Polymers & Fluids 1,669   381   22.8 %
Construction Products 1,625   383   23.6 %
Specialty Products 1,825   472   25.9 %
Intersegment (20 )   %
Total Segments 14,109   3,468   24.6 %
Unallocated   (66 ) %
Total Company $ 14,109   $ 3,402   24.1 %
                 


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

Q4 2019 vs. Q4 2018 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
 Food
Equipment

 Test &
Measurement
and
Electronics

 Welding
 Polymers
& Fluids

 Construction
Products

 Specialty
Products

 Total ITW
Organic (5.4 )%   1.7 %   4.0 %   (3.7 )%   (2.0 )%   (1.2 )%   (3.4 )%   (1.6 )%
Acquisitions/ Divestitures %   %   (0.7 )%   (2.5 )%   %   %   (0.8 )%   (0.5 )%
Translation (1.4 )%   (1.1 )%   (0.7 )%   (0.2 )%   (1.4 )%   (1.9 )%   (0.8 )%   (1.0 )%
Operating Revenue (6.8 )%   0.6 %   2.6 %   (6.4 )%   (3.4 )%   (3.1 )%   (5.0 )%   (3.1 )%


Q4 2019 vs. Q4 2018 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  (100) bps  20 bps  90 bps  (60) bps  (40) bps  (20) bps  (70) bps  (30) bps
                 
Changes in Variable Margin & OH Costs  90 bps  130 bps  230 bps  (20) bps  270 bps  (210) bps  (20) bps  40 bps
Total Organic  (10) bps  150 bps  320 bps  (80) bps  230 bps  (230) bps  (90) bps  10 bps
Acquisitions/ Divestitures  20 bps  20 bps  20 bps  10 bps
Restructuring/Other  (30) bps  (60) bps  (10) bps  (90) bps  (80) bps  (40) bps  (20) bps  (50) bps
Total Operating Margin Change  (40) bps  90 bps  330 bps  (150) bps  150 bps  (270) bps  (90) bps  (30) bps
                 
Total Operating Margin % * 21.2% 27.5% 28.1% 25.4% 23.0% 22.2% 24.5% 23.7%
                 
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  50 bps  60 bps  150 bps  30 bps  360 bps  30 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 2019.
 

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

Full Year 2019 vs Full Year 2018 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
Welding Polymers
& Fluids
Construction
Products
Specialty
Products
Total ITW
Organic (5.4 )% 1.1 % (0.3 )% (1.2 )% % (1.0 )% (4.1 )% (1.9 )%
Acquisitions/ Divestitures % % (0.2 )% (1.1 )% (0.4 )% % (0.6 )% (0.3 )%
Translation (2.8 )% (2.3 )% (1.8 )% (0.8 )% (2.8 )% (3.4 )% (1.8 )% (2.3 )%
Operating Revenue (8.2 )% (1.2 )% (2.3 )% (3.1 )% (3.2 )% (4.4 )% (6.5 )% (4.5 )%


Full Year 2019 vs Full Year 2018 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  30 bps  (10) bps  (20) bps    (10) bps  (90) bps  (50) bps
                   
Changes in Variable Margin & OH Costs  50 bps  60 bps  150 bps    170 bps  (40) bps  (10) bps  60 bps
Total Organic  (40) bps  90 bps  140 bps  (20) bps  170 bps  (50) bps  (100) bps  10 bps
Acquisitions/ Divestitures      10 bps  20 bps      20 bps  
Restructuring/Other  (60) bps  (30) bps    (30) bps  (30) bps  (20) bps  (10) bps  (30) bps
Total Operating Margin Change  (100) bps  60 bps  150 bps  (30) bps  140 bps  (70) bps  (90) bps  (20) bps
                 
Total Operating Margin % * 21.5 % 26.4 % 25.6 % 27.7 % 22.8 % 23.6 % 25.9 % 24.1 %
                 
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  50 bps  70 bps  200 bps  20 bps  360 bps  30 bps  90 bps 120 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.37) on GAAP earnings per share for 2019.
 


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

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

  Three Months Ended   Twelve Months Ended
  December 31,   December 31,
Dollars in millions 2019   2018   2019   2018
Operating income $ 824     $ 860     $ 3,402     $ 3,584  
Adjusted tax rate 22.8 %   25.5 %   24.0 %   24.9 %
Income taxes (188 )   (219 )   (815 )   (893 )
Operating income after taxes $ 636     $ 641     $ 2,587     $ 2,691  
               
Invested capital:              
Trade receivables $ 2,461     $ 2,622     $ 2,461     $ 2,622  
Inventories 1,164     1,318     1,164     1,318  
Net assets held for sale 280         280      
Net plant and equipment 1,729     1,791     1,729     1,791  
Goodwill and intangible assets 5,343     5,717     5,343     5,717  
Accounts payable and accrued expenses (1,689 )   (1,795 )   (1,689 )   (1,795 )
Other, net (481 )   (519 )   (481 )   (519 )
Total invested capital $ 8,807     $ 9,134     $ 8,807     $ 9,134  
               
Average invested capital $ 8,797     $ 9,247     $ 9,028     $ 9,533  
Adjusted after-tax return on average invested capital 28.9 %   27.7 %   28.7 %   28.2 %

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

  Twelve Months Ended
  December 31, 2019
  Income Taxes   Tax Rate
As reported $ 767     23.3 %
Discrete tax benefit related to third quarter 21     0.7 %
As adjusted $ 788     24.0 %

A reconciliation of the 2018 effective tax rate excluding the third quarter net discrete tax benefit of $15 million is as follows:

  Twelve Months Ended
  December 31, 2018
  Income Taxes   Tax Rate
As reported $ 831     24.5 %
Net discrete tax benefit related to third quarter 15     0.4 %
As adjusted $ 846     24.9 %
             


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 2019   2018   2019   2018
Net cash provided by operating activities $ 774     $ 809     $ 2,995     $ 2,811  
Less: Additions to plant and equipment (82 )   (82 )   (326 )   (364 )
Free cash flow $ 692     $ 727     $ 2,669     $ 2,447  
               
Net income $ 641     $ 607     $ 2,521     $ 2,563  
Free cash flow to net income conversion rate 108 % * 120 %   106 %   95 %

* Excluding the impact of the fourth quarter net after-tax gains on disposal of businesses of $35 million, net income would have been $606 million and the free cash flow to net income conversion rate for the three months ended December 31, 2019 would have been 114%.


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
NET INCOME PER SHARE - DILUTED, AS REPORTED (UNAUDITED)

  Twelve Months Ended
  December 31,
  2019   2018
Net income per share - diluted, as reported $ 7.74   * $ 7.60  

* Diluted EPS for the twelve months ended December 31, 2019 includes the impact of $0.09 of divestiture gains, $(0.20) of foreign currency translation headwinds and $(0.12) of higher restructuring expenses.


   
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