EX-99.1 2 ex991pressrel1q18.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1

ITW Delivers $1.90 Earnings per Share, up 23%
Raises guidance for 2018 after solid Q1 financial results

•
GAAP EPS was $1.90, up 23% versus prior year
•
Total revenue was $3.7 billion, an increase of 8%; organic growth was 3%
•
Operating margin was 24.1%, an increase of 90 bps
•
Operating income was up 12% to $903 million and after-tax ROIC was 27.7%
•
Raising full year guidance by $0.15 at the midpoint, up 17% versus prior year

GLENVIEW, Ill., April 26, 2018 - Illinois Tool Works Inc. (NYSE: ITW) today reported first quarter 2018 GAAP earnings of $1.90 per share, a 23% increase compared to the year ago period. Revenue was up 8% with 3% organic growth.

Operating income was $903 million in the quarter, an increase of 12 percent, and operating margin was 24.1 percent, an increase of 90 basis points. Enterprise Initiatives contributed 110 basis points of margin improvement, more than offsetting 50 basis points of unfavorable price/cost margin impact. While price/cost impact was dilutive to margin percentage, on a dollar basis pricing actions more than offset the impact of raw material cost inflation.

“We are off to a solid start in 2018,” said E. Scott Santi, Chairman and Chief Executive Officer. “Despite lower than expected auto builds impacting our Automotive OEM segment, we delivered three percent organic revenue growth which, along with strong execution on our enterprise initiatives and disciplined price/cost management, resulted in operating earnings growth of 12 percent year on year for the quarter. As we look ahead at the balance of the year, the combination of ITW’s resilient high quality business portfolio, positive underlying demand trends, and additional benefits from enterprise initiatives have the company well positioned for continued top and bottom line growth. As a result, we are raising our full year EPS guidance by $0.15 at the mid-point.”

All seven of the company’s business segments delivered positive year on year organic growth, led by Welding (+8 percent), Test & Measurement and Electronics (+8 percent) and Construction Products (+3 percent).

After-tax return on invested capital was 27.7 percent, an improvement of 400 basis points, of which 350 basis points is a result of the new U.S tax rules and regulations.

In the first quarter, Free Cash Flow was $444 million, an increase of 11 percent. The company repurchased $500 million of its own shares.

2018 Guidance
ITW is raising its 2018 full-year guidance by $0.15 at the mid-point to a range of $7.60 to $7.80 per share, up from prior guidance of $7.45 to $7.65 per share, reflecting 17 percent EPS growth year on year at the midpoint. The company expects organic growth of three to four percent, operating margin in the range of 25 to 25.5 percent, free cash flow at or above 100 percent of net income, and an effective tax rate of approximately 25 percent for the year.

For the second quarter 2018, the company expects earnings to be in the range of $1.90 to $2.00 per share, up 15 percent at the mid-point, with organic growth of three to four 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 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, organic revenue growth, operating margin, free cash flow, effective tax rate, after-tax return on invested capital, timing and amount of share repurchases and expected dividend payout ratio. 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 2017.






About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.3 billion in 2017. 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 has approximately 50,000 dedicated colleagues in operations around the world who thrive in the company’s unique, decentralized and entrepreneurial culture.





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

 
Three Months Ended
 
March 31,
In millions except per share amounts
2018
 
2017(1)
Operating Revenue
$
3,744

 
$
3,471

Cost of revenue
2,181

 
2,003

Selling, administrative, and research and development expenses
612

 
608

Amortization and impairment of intangible assets
48

 
53

Operating Income
903

 
807

Interest expense
(66
)
 
(64
)
Other income (expense)
12

 
6

Income Before Taxes
849

 
749

Income Taxes
197

 
213

Net Income
$
652

 
$
536

 
 
 
 
Net Income Per Share:
 
 
 
Basic
$
1.92

 
$
1.55

Diluted
$
1.90

 
$
1.54

 
 
 
 
Cash Dividends Per Share:
 
 
 
Paid
$
0.78

 
$
0.65

Declared
$
0.78

 
$
0.65

 
 
 
 
Shares of Common Stock Outstanding During the Period:
 
 
 
Average
340.2

 
346.2

Average assuming dilution
342.8

 
349.0


(1) 
The first quarter of 2017 has been restated to reflect the adoption of new accounting guidance in 2018 which resulted in the presentation of $2 million of other net periodic benefit income in Other income (expense) rather than in Operating Income, with no change in Net Income.




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

In millions
March 31, 2018
 
December 31, 2017
Assets
 
 
 
Current Assets:
 
 
 
Cash and equivalents
$
1,940

 
$
3,094

Trade receivables
2,874

 
2,628

Inventories
1,335

 
1,220

Prepaid expenses and other current assets
274

 
336

Total current assets
6,423

 
7,278

 
 
 
 
Net plant and equipment
1,829

 
1,778

Goodwill
4,795

 
4,752

Intangible assets
1,226

 
1,272

Deferred income taxes
658

 
505

Other assets
1,232

 
1,195

 
$
16,163

 
$
16,780

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
660

 
$
850

Accounts payable
655

 
590

Accrued expenses
1,250

 
1,258

Cash dividends payable
264

 
266

Income taxes payable
96

 
89

Total current liabilities
2,925

 
3,053

 
 
 
 
Noncurrent Liabilities:
 
 
 
Long-term debt
6,889

 
7,478

Deferred income taxes
689

 
164

Noncurrent income taxes payable
614

 
614

Other liabilities
883

 
882

Total noncurrent liabilities
9,075

 
9,138

 
 
 
 
Stockholders’ Equity:
 
 
 
Common stock
6

 
6

Additional paid-in-capital
1,220

 
1,218

Retained earnings
20,228

 
20,210

Common stock held in treasury
(16,055
)
 
(15,562
)
Accumulated other comprehensive income (loss)
(1,240
)
 
(1,287
)
Noncontrolling interest
4

 
4

Total stockholders’ equity
4,163

 
4,589

 
$
16,163

 
$
16,780






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


Three Months Ended March 31, 2018
Dollars in millions
Total Revenue
Operating Income
Operating Margin
Automotive OEM
$
901

$
217

24.1
%
Food Equipment
527

130

24.6
%
Test & Measurement and Electronics
543

127

23.4
%
Welding
423

117

27.7
%
Polymers & Fluids
442

92

20.9
%
Construction Products
428

95

22.2
%
Specialty Products
485

130

26.7
%
Intersegment
(5
)
—

—
%
Total Segments
3,744

908

24.3
%
Unallocated
—

(5
)
—
%
Total Company
$
3,744

$
903

24.1
%




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


Q1 2018 vs. Q1 2017 Favorable/(Unfavorable)
Operating Revenue
Automotive OEM
Food Equipment
Test & Measurement and Electronics
Welding
Polymers & Fluids
Construction Products
Specialty Products
Total ITW
Organic
1.0
%
0.4
%
7.6
%
7.6
%
0.3
%
2.9
%
0.5
 %
2.6
%
Acquisitions/Divestitures
—
%
—
%
—
%
—
%
—
%
—
%
(0.3
)%
—
%
Translation
7.8
%
5.6
%
5.5
%
1.8
%
3.5
%
5.4
%
4.7
 %
5.3
%
Operating Revenue
8.8
%
6.0
%
13.1
%
9.4
%
3.8
%
8.3
%
4.9
 %
7.9
%

Q1 2018 vs. Q1 2017 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
 10 bps
 210 bps
 110 bps
 20 bps
 70 bps
 10 bps
 60 bps
Changes in Variable Margin & OH Costs
 (80) bps
 (80) bps
 100 bps
 (100) bps
 (40) bps
 (90) bps
 (40) bps
—
Total Organic
 (70) bps
 (70) bps
 310 bps
 10 bps
 (20) bps
 (20) bps
 (30) bps
 60 bps
Acquisitions/Divestitures
—
—
—
—
—
—
—
—
Restructuring/Other
 40 bps
 20 bps
 30 bps
 (10) bps
 50 bps
 (10) bps
 10 bps
 30 bps
Total Operating Margin Change
 (30) bps
 (50) bps
 340 bps
—
 30 bps
 (30) bps
 (20) bps
 90 bps
 
 
 
 
 
 
 
 
 
Total Operating Margin % *
24.1%
24.6%
23.4%
27.7%
20.9%
22.2%
26.7%
24.1%
 
 
 
 
 
 
 
 
 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets
 50 bps
 70 bps
 280 bps
 30 bps
 380 bps
 40 bps
 120 bps
 140 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.11) on GAAP earnings per share for the first quarter of 2018.

Full Year 2017 vs Full Year 2016 Favorable/(Unfavorable)
Operating Revenue
Automotive OEM
Food Equipment
Test & Measurement and Electronics
Welding
Polymers & Fluids
Construction Products
Specialty Products
Total ITW
Organic
4.1
%
0.5
%
4.8
%
3.2
%
1.0
%
2.9
%
3.5
 %
2.9
%
Acquisitions/Divestitures
8.9
%
—
%
—
%
—
%
—
%
—
%
(1.1
)%
1.8
%
Translation
1.2
%
0.1
%
—
%
0.3
%
1.0
%
1.0
%
0.4
 %
0.6
%
Operating Revenue
14.2
%
0.6
%
4.8
%
3.5
%
2.0
%
3.9
%
2.8
 %
5.3
%





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

March 31,
 
December 31,
Dollars in millions
2018
 
2017
 
2017
Operating income
$
903

 
$
807

 
$
3,485

Less: Legal settlement income
—

 
—

 
(95
)
Adjusted operating income
903

 
807

 
3,390

Tax rate(1)
25.0
%
 
28.3
%
 
28.3
%
Income taxes
(226
)
 
(229
)
 
(958
)
Operating income after taxes
$
677

 
$
578

 
$
2,432

 
 
 
 
 
 
Invested capital:
 
 
 

 
 
Trade receivables
$
2,874

 
$
2,534

 
$
2,628

Inventories
1,335

 
1,158

 
1,220

Net plant and equipment
1,829

 
1,674

 
1,778

Goodwill and intangible assets
6,021

 
6,016

 
6,024

Accounts payable and accrued expenses
(1,905
)
 
(1,723
)
 
(1,848
)
Other, net
(382
)
 
222

 
21

Total invested capital
$
9,772

 
$
9,881

 
$
9,823

 
 
 
 
 
 
Average invested capital
$
9,797

 
$
9,748

 
$
10,005

Annualized return on average invested capital
27.7
%
 
23.7
%
 
24.3
%

(1) 
The tax rate for the three months ended March 31, 2018 represents the estimated effective tax rate for the full year of 2018. The tax rate for the twelve months ended December 31, 2017 excludes the impact of the $658 million discrete tax charge related to the 2017 U.S. tax legislation.

After-tax return on invested capital for the three months ended March 31, 2018 was 27.7 percent, an improvement of 400 basis points, of which 350 basis points is a result of the new U.S. tax rules and regulations.


FREE CASH FLOW (UNAUDITED)

 
Three Months Ended
 
March 31,
Dollars in millions
2018
 
2017
Net cash provided by operating activities
$
538

 
$
463

Less: Additions to plant and equipment
(94
)
 
(64
)
Free cash flow
$
444

 
$
399





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


IMPACT OF THE "TAX CUTS AND JOBS ACT" AND LEGAL SETTLEMENT ON 2017 RESULTS

Following the passing of the “Tax Cuts and Jobs Act” in the U.S., ITW recorded a one-time tax charge of $658 million in the fourth quarter of 2017. Additionally, as previously disclosed, ITW entered into a confidential legal settlement, resulting in a favorable one-time benefit of $95 million in 2017. The following schedule illustrates the impact of these items on the Company’s full-year 2017 financial results:

Dollars in millions
Full Year 2017(1)
Legal
Item
Tax
Charge
Full Year 2017
Ex. Items
Total Revenue
$14,314
—
—
$14,314
Operating Income
3,485
+$95
—
3,390
Operating Margin
24.3%
+60 bps
—
23.7%
Tax Rate
48.4%
—
+20.1%-pts
28.3%
Net Income
$1,687
+$59
($658)
$2,286
EPS
$4.86
+$0.17
($1.90)
$6.59

(1) 
Full year 2017 has been restated to reflect the adoption of new accounting guidance in 2018 which resulted in the presentation of $9 million of other net periodic benefit income in Other income (expense) rather than in Operating Income, with no change in Net Income.