Illinois Tool Works (ITW)

Q1 2011 Earnings Call

April 26, 2011 10:00 am ET

Executives

David Speer - Chairman, Chief Executive Officer and Member of Executive Committee

Ronald Kropp - Chief Financial Officer and Senior Vice President

John Brooklier - Vice President of Investor Relations

Analysts

John Inch - BofA Merrill Lynch

Terry Darling - Goldman Sachs Group Inc.

Ingrid Aja - JP Morgan Chase & Co

Peter Chang - Crédit Suisse AG

Ajay Kejriwal - FBR Capital Markets & Co.

Alexander Sacco - Buckingham Research Group, Inc.

Robert McCarthy - Robert W. Baird & Co. Incorporated

Mark Koznarek - Cleveland Research Company

Nigel Coe - Deutsche Bank AG

Deane Dray - Citigroup Inc

Presentation

Operator

Compare to:
Previous Statements by ITW
» Illinois Tool Works Inc. Q3 2010 Earnings Call Transcript
» Illinois Tool Works Inc. Q1 2010 Earnings Call Transcript
» Illinois Tool Works Inc. Q4 2009 Earnings Call Transcript

Thank you, and welcome to the ITW First Quarter 2011 Earnings Release Conference Call. [Operator Instructions] I'd like to go ahead and turn the call to your host for today, to Mr. John Brooklier, Vice President of Investor Relations. Sir, you may begin.

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John Brooklier

Good morning, everyone, and welcome to all who've joined us for our first quarter 2011 conference call. Please note that our new 9 a.m Central call time represents a permanent starting time for future conference calls.

Joining me this morning is our CEO, David Speer; and our CFO, Ron Kropp. We are all eager to discuss our very, very strong first quarter financial results. David Speer will now make some introductory remarks. David?

David Speer

Thank you, John. I'm pleased to report our 2011 first quarter reached its double-digit organic growth, solid end market demand, strong EPS growth and substantial margin improvement. Here are some of the highlights.

Total company organic revenues grew a strong 11.7% in the first quarter. While ITW's organic growth was broad based in the quarter, we especially saw strong growth emanating from our Welding, Transportation OEM, Industrial Packaging, PC Board Fabrication and Test & Measurement businesses. It's clear to us that most of our global end markets continue to improve and that market penetration opportunities remain plentiful. Excluding the one-time tax benefit associated with an Australian tax case, earnings of $0.91 per share were 30% higher than the adjusted year ago quarter.

Q1 total company operating margins of 15.6% were 110 basis points higher than the year ago period. Notably, our base businesses accounted for 90 basis points of that margin improvement.

We had a good acquisition quarter completing 6 transactions, representing nearly $330 million of annualized revenues. Year-to-date, we have completed 9 transactions for $435 million of annualized acquired revenues.

Finally, in recognition of what we believe will continue to be a positive macroenvironment, we raised our full-year earnings guidance to a range of $4.16 to $4.34. While the new full-year EPS range includes the previously mentioned one-time tax gain, it also represents $0.20 per share of additional operating earnings compared to our initial earnings forecast guidance earlier in January.

Now let me turn the call back over to John.

John Brooklier

Thank you, David. Here is the agenda for today's call. Ron will join us shortly to talk about the Q1 financial highlights. I will then cover Q1 operating highlights for our 8 reporting segments. Ron will then come back and detail our 2011 forecast. And then finally, we'll open your call for questions. And as always, we ask for your cooperation for our 1 question, 1 follow-up question policy.

First, let's cover the traditional housekeeping items. This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding operating performance, revenue growth, diluted net income per share, restructuring expenses, acquisition activity,tax rates, end market conditions and the company's related 2011 earnings forecast.

Finally, the telephone replay for this conference call is (402)220-6528. The replay is available through midnight of May 10, 2011 and no passcode is necessary to access the replay.

Now here's our CFO, Ron Kropp, who will comment on our very strong 2011 first quarter results. Ron?

Ronald Kropp

Thanks, John. Good morning, everybody. Before I run through the financial results, I'd like to remind you that as we announced back in January, this is the first quarter that reflects the elimination of the one-month reporting lag for our international businesses. All of 2010 and 2011 data that we present here reflect as new reporting calendar.

Now here are the highlights for the first quarter. First of all, revenues increased 17% primarily due to higher base revenues and acquisitions. Operating income was $683 million, which was higher than last year by $141 million. Margins of 15.6% were higher by 110 basis points. Diluted earnings per share was $1.24, which was higher than last year by $0.58.

However, as previously mentioned, this quarter's results reflect a one-time tax benefit of $0.33 per share related to a favorable judgment in an Australian tax case. Excluding this tax benefit, diluted income per share would've been $0.91 or 30% higher than adjusted EPS a year ago. Reported EPS of $1.24 is above the previously provided range of $1.14 to $1.20 primarily due to stronger base business performance and favorable currency translation.

Finally, free operating cash flow is $56 million, which was lower than normal due to higher working capital related to seasonality and the timing of payroll funding and higher tax payments.

Now let's go to the components of our operating results. Our 17.4% revenue increase was primarily due to 3 factors: First, base revenues were up 11.7% with North American base revenues increasing 12.2% and international base revenue is up 11.0%. As David mentioned, we have continued to see solid revenue gains worldwide led by the Transportation, Welding, PC Board Fabrication, Industrial Packaging and Test & Measurement businesses.

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