Exhibit 99.1
ITW Reports Record Third Quarter 2016 Financial Results
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| • | Record quarterly operating margin of 23.1% (23.9% excluding EF&C acquisition dilution) |
| |
| • | Record quarterly operating income of $808 million (+6%) |
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| • | Record after-tax ROIC of 23% (+140 basis points vs. year ago) |
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| • | Total revenue +4%, Organic revenue +2% (including ~1% negative PLS impact) |
| |
| • | FCF of 101% of net income |
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| • | Raising full-year 2016 GAAP EPS guidance mid-point |
GLENVIEW, Ill., October 20, 2016 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported third quarter 2016 diluted earnings per share (EPS) of $1.50, an 8% increase compared to the year-ago period. Currency translation reduced EPS by $0.02 in the quarter. Operating margin increased 40 basis points to 23.1%, including 80 basis points of margin dilution from the third quarter 2016 acquisition of Engineered Fasteners & Components (EF&C). Excluding the EF&C dilution impact, third quarter operating margin was 23.9%. Operating income of $808 million was up 6%, and after-tax return on invested capital increased by 140 basis points to 23%. Organic revenue increased 2% and the company’s ongoing Product Line Simplification (PLS) activities reduced organic revenue growth by approximately 1 percentage point.
"The ITW team delivered another quarter of quality execution and earnings growth marked by all-time record operating income and continued strong margin expansion driven by our Enterprise Strategy initiatives. In addition, continued progress in executing our pivot to growth in combination with our diversified portfolio of seven highly differentiated businesses allowed us to deliver positive organic growth in the third quarter despite a macro environment that remains challenging,” said E. Scott Santi, Chairman and Chief Executive Officer.
Third Quarter Highlights
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| • | Total revenue was $3.5 billion, an increase of 4%. Organic revenue grew 2% with 1% growth in North America and 3% in International. |
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| • | Operating margin improved 40 basis points to 23.1%, an all-time record for the company, as enterprise initiatives contributed 120 basis points. The acquisition of EF&C diluted operating margin by 80 basis points. Excluding the EF&C dilution impact, third quarter operating margin was 23.9%. |
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| • | Operating income grew 6% to an all-time quarterly record of $808 million. |
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| • | GAAP EPS of $1.50 increased 8% due to strong margin performance. Currency translation reduced EPS by $0.02 in the quarter. |
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| • | After-tax return on invested capital was 23%, an all-time high and an increase of 140 basis points. |
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| • | Free cash flow was solid at 101% of net income. Share repurchases totaled $500 million and the company announced an 18% dividend increase on August 5, 2016. |
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| • | Six of seven segments achieved positive organic revenue growth as Automotive OEM and Test & Measurement/Electronics both grew 7%, Construction Products grew 2%, Polymers & Fluids and Food Equipment Group both grew 1% and Specialty Products grew 0.1%. Welding declined by 9%. |
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| • | All seven segments achieved operating margin at or above 21% with Food Equipment at 27.4%, Welding at 26.5%, Specialty Products at 26.1%, Automotive OEM at 21.8% (25.5% excluding EF&C), Construction at 22.6%, Test & Measurement/Electronics and Polymers & Fluids both at 21%. |
2016 Guidance
ITW is raising its 2016 full-year GAAP EPS guidance range to $5.56 to $5.66, a year-over-year increase of 9% at the mid-point. Consistent with prior guidance the full-year organic growth forecast is 1 to 2% and includes approximately 1 percentage point of PLS impact. Operating margin is forecast to exceed 22.5%.
For the fourth quarter 2016, the company expects GAAP EPS to be in a range of $1.31 to $1.41, an increase of 11% at the mid-point. Organic revenue is forecast to be 0 to 2%, and operating margin to be approximately 21.5%. Guidance is based on current foreign exchange rates.
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, the impact of product line simplification activities and enterprise initiatives, operating margin, after-tax return on invested capital and the
expected impact of acquisitions on financial results. 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 2015 and Form 10-Q for the second quarter of 2016.
About ITW
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $13.4 billion in 2015. 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 more than 51,000 dedicated colleagues in operations around the world who thrive in the company’s unique decentralized and entrepreneurial culture. To learn more about the company and the ITW Business Model, visit www.itw.com.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| In millions except per share amounts | 2016 | | 2015 | | 2016 | | 2015 |
| Operating Revenue | $ | 3,495 |
| | $ | 3,354 |
| | $ | 10,200 |
| | $ | 10,130 |
|
| Cost of revenue | 2,027 |
| | 1,953 |
| | 5,890 |
| | 5,947 |
|
| Selling, administrative, and research and development expenses | 604 |
| | 581 |
| | 1,818 |
| | 1,819 |
|
| Amortization and impairment of intangible assets | 56 |
| | 59 |
| | 170 |
| | 176 |
|
| Operating Income | 808 |
| | 761 |
| | 2,322 |
| | 2,188 |
|
| Interest expense | (58 | ) | | (59 | ) | | (174 | ) | | (168 | ) |
| Other income (expense) | 13 |
| | 23 |
| | 34 |
| | 65 |
|
| Income Before Taxes | 763 |
| | 725 |
| | 2,182 |
| | 2,085 |
|
| Income Taxes | 228 |
| | 214 |
| | 654 |
| | 636 |
|
| Net Income | $ | 535 |
| | $ | 511 |
| | $ | 1,528 |
| | $ | 1,449 |
|
| | | | | | | | |
| Net Income Per Share: | | | | | | | |
| Basic | $ | 1.51 |
| | $ | 1.40 |
| | $ | 4.28 |
| | $ | 3.92 |
|
| Diluted | $ | 1.50 |
| | $ | 1.39 |
| | $ | 4.25 |
| | $ | 3.90 |
|
| | | | | | | | |
| Cash Dividends Per Share: | | | | | | | |
| Paid | $ | 0.55 |
| | $ | 0.485 |
| | $ | 1.65 |
| | $ | 1.455 |
|
| Declared | $ | 0.65 |
| | $ | 0.55 |
| | $ | 1.75 |
| | $ | 1.52 |
|
| | | | | | | | |
| Shares of Common Stock Outstanding During the Period: | | | | | | | |
| Average | 353.5 |
| | 365.1 |
| | 357.3 |
| | 369.3 |
|
| Average assuming dilution | 355.5 |
| | 367.1 |
| | 359.3 |
| | 371.6 |
|
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
|
| | | | | | | |
| In millions | September 30, 2016 | | December 31, 2015 |
| Assets | | | |
| Current Assets: | | | |
| Cash and equivalents | $ | 2,299 |
| | $ | 3,090 |
|
| Trade receivables | 2,496 |
| | 2,203 |
|
| Inventories | 1,167 |
| | 1,086 |
|
| Prepaid expenses and other current assets | 223 |
| | 341 |
|
| Total current assets | 6,185 |
| | 6,720 |
|
| | | | |
| Net plant and equipment | 1,702 |
| | 1,577 |
|
| Goodwill | 4,711 |
| | 4,439 |
|
| Intangible assets | 1,480 |
| | 1,560 |
|
| Deferred income taxes | 467 |
| | 346 |
|
| Other assets | 1,164 |
| | 1,087 |
|
| | $ | 15,709 |
| | $ | 15,729 |
|
| | | | |
| Liabilities and Stockholders' Equity | |
| | |
|
| Current Liabilities: | |
| | |
|
| Short-term debt | $ | 1,364 |
| | $ | 526 |
|
| Accounts payable | 582 |
| | 449 |
|
| Accrued expenses | 1,180 |
| | 1,136 |
|
| Cash dividends payable | 228 |
| | 200 |
|
| Income taxes payable | 132 |
| | 57 |
|
| Total current liabilities | 3,486 |
| | 2,368 |
|
| | | | |
| Noncurrent Liabilities: | |
| | |
|
| Long-term debt | 6,329 |
| | 6,896 |
|
| Deferred income taxes | 131 |
| | 256 |
|
| Other liabilities | 970 |
| | 981 |
|
| Total noncurrent liabilities | 7,430 |
| | 8,133 |
|
| | | | |
| Stockholders’ Equity: | |
| | |
|
| Common stock | 6 |
| | 6 |
|
| Additional paid-in-capital | 1,174 |
| | 1,135 |
|
| Income reinvested in the business | 19,223 |
| | 18,316 |
|
| Common stock held in treasury | (14,147 | ) | | (12,729 | ) |
| Accumulated other comprehensive income (loss) | (1,468 | ) | | (1,504 | ) |
| Noncontrolling interest | 5 |
| | 4 |
|
| Total stockholders’ equity | 4,793 |
| | 5,228 |
|
| | $ | 15,709 |
| | $ | 15,729 |
|
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Twelve Months Ended December 31, |
| September 30, | | September 30, | |
| Dollars in millions | 2016 | | 2015 | | 2016 | | 2015 | | 2015 |
| Operating income | $ | 808 |
| | $ | 761 |
| | $ | 2,322 |
| | $ | 2,188 |
| | $ | 2,867 |
|
| Tax rate | 30.0 | % | | 29.6 | % | | 30.0 | % | | 30.5 | % | | 30.1 | % |
| Income taxes | (243 | ) | | (225 | ) | | (697 | ) | | (668 | ) | | (864 | ) |
| Operating income after taxes | $ | 565 |
| | $ | 536 |
| | $ | 1,625 |
| | $ | 1,520 |
| | $ | 2,003 |
|
| | | | | | | | | | |
| Invested capital: | | | |
| | | | | | |
| Trade receivables | $ | 2,496 |
| | $ | 2,339 |
| | $ | 2,496 |
| | $ | 2,339 |
| | $ | 2,203 |
|
| Inventories | 1,167 |
| | 1,153 |
| | 1,167 |
| | 1,153 |
| | 1,086 |
|
| Net plant and equipment | 1,702 |
| | 1,601 |
| | 1,702 |
| | 1,601 |
| | 1,577 |
|
| Goodwill and intangible assets | 6,191 |
| | 6,088 |
| | 6,191 |
| | 6,088 |
| | 5,999 |
|
| Accounts payable and accrued expenses | (1,762 | ) | | (1,635 | ) | | (1,762 | ) | | (1,635 | ) | | (1,585 | ) |
| Other, net | 393 |
| | 313 |
| | 393 |
| | 313 |
| | 280 |
|
| Total invested capital | $ | 10,187 |
| | $ | 9,859 |
| | $ | 10,187 |
| | $ | 9,859 |
| | $ | 9,560 |
|
| | | | | | | | | | |
| Average invested capital | $ | 9,973 |
| | $ | 10,038 |
| | $ | 9,821 |
| | $ | 10,039 |
| | $ | 9,943 |
|
| Adjustment for Wilsonart (formerly the Decorative Surfaces segment) | (116 | ) | | (121 | ) | | (114 | ) | | (126 | ) | | (123 | ) |
| Adjusted average invested capital | $ | 9,857 |
| | $ | 9,917 |
| | $ | 9,707 |
| | $ | 9,913 |
| | $ | 9,820 |
|
| | | | | | | | | | |
| Adjusted return on average invested capital | 23.0 | % | | 21.6 | % | | 22.3 | % | | 20.5 | % | | 20.4 | % |
FREE CASH FLOW
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| Dollars in millions | 2016 | | 2015 | | 2016 | | 2015 |
| Net cash provided by operating activities | $ | 624 |
| | $ | 706 |
| | $ | 1,638 |
| | $ | 1,596 |
|
| Less: Additions to plant and equipment | (81 | ) | | (62 | ) | | (202 | ) | | (209 | ) |
| Free cash flow | $ | 543 |
| | $ | 644 |
| | $ | 1,436 |
| | $ | 1,387 |
|
| | | | | | | | |
| Net income | $ | 535 |
| | $ | 511 |
| | $ | 1,528 |
| | $ | 1,449 |
|
| Free cash flow to net income conversion rate | 101 | % | | 126 | % | | 94 | % | | 96 | % |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
|
| | | | | | | | |
| Three Months Ended September 30, 2016 |
| Dollars in millions | Total Revenue | Operating Income | Operating Margin |
| Automotive OEM | $ | 765 |
| $ | 166 |
| 21.8 | % |
| Food Equipment | 544 |
| 149 |
| 27.4 | % |
| Test & Measurement and Electronics | 516 |
| 108 |
| 21.0 | % |
| Welding | 361 |
| 95 |
| 26.5 | % |
| Polymers & Fluids | 422 |
| 89 |
| 21.0 | % |
| Construction Products | 415 |
| 94 |
| 22.6 | % |
| Specialty Products | 477 |
| 125 |
| 26.1 | % |
| Intersegment | (5 | ) | — |
| — | % |
| Total Segments | 3,495 |
| 826 |
| 23.7 | % |
| Unallocated | — |
| (18 | ) | — | % |
| Total Company | $ | 3,495 |
| $ | 808 |
| 23.1 | % |
|
| | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Dollars in millions | Total Revenue | Operating Income | Operating Margin |
| Automotive OEM | $ | 2,091 |
| $ | 512 |
| 24.5 | % |
| Food Equipment | 1,578 |
| 405 |
| 25.7 | % |
| Test & Measurement and Electronics | 1,487 |
| 274 |
| 18.4 | % |
| Welding | 1,125 |
| 282 |
| 25.1 | % |
| Polymers & Fluids | 1,283 |
| 266 |
| 20.7 | % |
| Construction Products | 1,223 |
| 278 |
| 22.7 | % |
| Specialty Products | 1,429 |
| 373 |
| 26.1 | % |
| Intersegment | (16 | ) | — |
| — | % |
| Total Segments | 10,200 |
| 2,390 |
| 23.4 | % |
| Unallocated | — |
| (68 | ) | — | % |
| Total Company | $ | 10,200 |
| $ | 2,322 |
| 22.8 | % |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| Q3 2016 vs. Q3 2015 Favorable/(Unfavorable) |
| Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW |
| Organic | 6.6 | % | 0.7 | % | 6.6 | % | (8.5 | )% | 0.8 | % | 1.5 | % | 0.1 | % | 1.6 | % |
| Acquisitions/Divestitures | 19.2 | % | — | % | — | % | — | % | — | % | (0.2 | )% | — | % | 3.5 | % |
| Translation | (1.0 | )% | (2.0 | )% | (1.3 | )% | (0.4 | )% | (0.8 | )% | 0.3 | % | (0.7 | )% | (0.9 | )% |
| Operating Revenue | 24.8 | % | (1.3 | )% | 5.3 | % | (8.9 | )% | — | % | 1.6 | % | (0.6 | )% | 4.2 | % |
|
| | | | | | | | |
| Q3 2016 vs. Q3 2015 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 | 10 bps | 190 bps | (160) bps | 20 bps | 30 bps | - | 30 bps |
| Changes in Variable Margin & OH Costs | (60) bps | 110 bps | 230 bps | 290 bps | 120 bps | 110 bps | 180 bps | 100 bps |
| Total Organic | 30 bps | 120 bps | 420 bps | 130 bps | 140 bps | 140 bps | 180 bps | 130 bps |
| Acquisitions/Divestitures | (370) bps | - | - | - | - | - | - | (80) bps |
| Restructuring/Other | (20) bps | (10) bps | 20 bps | 40 bps | 60 bps | (190) bps | 30 bps | (10) bps |
| Total Operating Margin Change | (360) bps | 110 bps | 440 bps | 170 bps | 200 bps | (50) bps | 210 bps | 40 bps |
| | | | | | | | | |
| Total Operating Margin % * | 21.8% | 27.4% | 21.0% | 26.5% | 21.0% | 22.6% | 26.1% | 23.1% |
| | | | | | | | | |
| *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 80 bps | 80 bps | 360 bps | 60 bps | 430 bps | 60 bps | 140 bps | 170 bps |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| YTD 2016 vs YTD 2015 Favorable/(Unfavorable) |
| Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW |
| Organic | 4.4 | % | 2.8 | % | 2.5 | % | (9.4 | )% | 1.1 | % | 3.1 | % | 1.2 | % | 1.2 | % |
| Acquisitions/Divestitures | 6.1 | % | — | % | — | % | — | % | (0.3 | )% | (0.2 | )% | — | % | 1.1 | % |
| Translation | (1.3 | )% | (1.8 | )% | (1.3 | )% | (1.0 | )% | (2.8 | )% | (1.7 | )% | (1.1 | )% | (1.6 | )% |
| Operating Revenue | 9.2 | % | 1.0 | % | 1.2 | % | (10.4 | )% | (2.0 | )% | 1.2 | % | 0.1 | % | 0.7 | % |
|
| | | | | | | | |
| YTD 2016 vs YTD 2015 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 | 60 bps | 60 bps | 70 bps | (190) bps | 40 bps | 80 bps | 20 bps | 20 bps |
| Changes in Variable Margin & OH Costs | 20 bps | 100 bps | 190 bps | 180 bps | 20 bps | 200 bps | 210 bps | 120 bps |
| Total Organic | 80 bps | 160 bps | 260 bps | (10) bps | 60 bps | 280 bps | 230 bps | 140 bps |
| Acquisitions/Divestitures | (140) bps | - | - | - | - | (10) bps | - | (20) bps |
| Restructuring/Other | 10 bps | 40 bps | - | (80) bps | 10 bps | 10 bps | 40 bps | - |
| Total Operating Margin Change | (50) bps | 200 bps | 260 bps | (90) bps | 70 bps | 280 bps | 270 bps | 120 bps |
| | | | | | | | | |
| Total Operating Margin % * | 24.5% | 25.7% | 18.4% | 25.1% | 20.7% | 22.7% | 26.1% | 22.8% |
| | | | | | | | | |
| *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 40 bps | 80 bps | 390 bps | 90 bps | 430 bps | 60 bps | 150 bps | 170 bps |
|
| | | | | |
| Total ITW Operating Revenue |
| Operating Revenue | YTD 2016 | Full Year 2015 | Favorable/(Unfavorable) |
| Organic | 1.2 | % | (0.4 | )% | 160 bps |
| Acquisitions/Divestitures | 1.1 | % | (0.2 | )% | 130 bps |
| Translation | (1.6 | )% | (6.8 | )% | 520 bps |
| Operating Revenue | 0.7 | % | (7.4 | )% | 810 bps |
