Second-quarter highlights:
  • GAAP EPS of $1.69, an increase of 16%
  • Total revenue of $3.6 billion, an increase of 4.9%; organic growth of 2.6%
  • Operating margin of 24.3%, an increase of 120 bps and an all-time record for the company
  • Company now expects 2017 earnings to be in the range of $6.32 to $6.52 per share

GLENVIEW, Ill., July 24, 2017 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported its second-quarter 2017 results.

Second-quarter GAAP earnings were $1.69 per share, an increase of 16% versus the second quarter of 2016. Revenue grew 4.9% to $3.6 billion. Organic revenue increased 2.6% while the 2016 acquisition of Engineered Fasteners & Components (EF&C) added 3.5% to revenue. Foreign currency translation reduced revenue by 1.2%.

Operating income of $874 million for the second quarter was up 10% and was the highest quarterly income total in the company's history. Operating margin for the quarter was 24.3%, an increase of 120 basis points. Excluding the margin impact from EF&C, operating margin was 24.9%, an increase of 180 basis points year-on-year with 100 basis points of structural margin improvement from Enterprise Initiatives. After-tax return on invested capital was 24.8%, an improvement of 190 basis points. Second-quarter net income was $587 million.

"Our second quarter performance reflects continued progress in our focus on leveraging ITW's differentiated business model and diversified high-quality business portfolio to full potential," said E. Scott Santi, Chairman and Chief Executive Officer. "I once again thank the entire ITW team for the great job that they continue to do in serving our customers and executing our strategy with excellence. Due to their efforts, ITW is well-positioned to continue to deliver differentiated performance through the balance of 2017 and beyond."

Organic revenue growth was positive in six of seven segments: 4% in Automotive OEM, 4% in Test & Measurement/Electronics, 4% in Specialty Products, 3% in Welding, 2% in Construction Products, and 1% in Food Equipment. Polymers & Fluids was down 1%.

During the second quarter, the company recorded an EPS benefit of $0.03 per share related to a legal settlement. Excluding this item, second quarter earnings were $1.66 per share, an increase of 14% versus the prior year.

Full-Year and Third Quarter 2017 Guidance As a result of the company's strong second quarter results, ITW is raising its 2017 full-year EPS guidance by $0.12 at the mid-point. The company now expects earnings to be in the range of $6.32 to $6.52 per share, up from prior guidance of $6.20 to $6.40 per share, with organic revenue growth of 2 to 4%. ITW expects operating margin of approximately 24% and free cash flow to exceed 100% of net income. The company expects an effective tax rate of approximately 29%.

For the third quarter 2017, the company expects earnings to be in the range of $1.57 to $1.67 per share with organic growth of 1 to 3%.

The company's third quarter and revised full-year EPS guidance does not include any EPS benefit from the previously disclosed legal settlement beyond the $0.03 per share recorded in the second quarter.

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 and after-tax return on invested capital. 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 2016.

About ITW ITW (NYSE:ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $13.6 billion in 2016. 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 50,000 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   Six Months Ended
  June 30,   June 30,
In millions except per share amounts 2017   2016   2017   2016
Operating Revenue $ 3,599     $ 3,431     $ 7,070     $ 6,705  
Cost of revenue 2,087     1,967     4,091     3,863  
Selling, administrative, and research and development expenses 586     617     1,191     1,214  
Amortization and impairment of intangible assets 52     55     105     114  
Operating Income 874     792     1,683     1,514  
Interest expense (65 )   (58 )   (129 )   (116 )
Other income (expense) 10     17     14     21  
Income Before Taxes 819     751     1,568     1,419  
Income taxes 232     226     445     426  
Net Income $ 587     $ 525     $ 1,123     $ 993  
               
Net Income Per Share:              
Basic $ 1.70     $ 1.47     $ 3.25     $ 2.76  
Diluted $ 1.69     $ 1.46     $ 3.23     $ 2.75  
               
Cash Dividends Per Share:              
Paid $ 0.65     $ 0.55     $ 1.30     $ 1.10  
Declared $ 0.65     $ 0.55     $ 1.30     $ 1.10  
               
Shares of Common Stock Outstanding During the Period:              
Average 344.7   356.6   345.4   359.3
Average assuming dilution 347.5   358.5   348.3   361.2

 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (UNAUDITED)
 
In millions June 30, 2017   December 31, 2016
Assets      
Current Assets:      
Cash and equivalents $ 2,496     $ 2,472  
Trade receivables 2,629     2,357  
Inventories 1,199     1,076  
Prepaid expenses and other current assets 246     218  
Total current assets 6,570     6,123  
       
Net plant and equipment 1,726     1,652  
Goodwill 4,675     4,558  
Intangible assets 1,366     1,463  
Deferred income taxes 488     449  
Other assets 1,097     956  
  $ 15,922     $ 15,201  
       
Liabilities and Stockholders' Equity      
Current Liabilities:      
Short-term debt $ 691     $ 652  
Accounts payable 582     511  
Accrued expenses 1,172     1,202  
Cash dividends payable 224     226  
Income taxes payable 157     169  
Total current liabilities 2,826     2,760  
       
Noncurrent Liabilities:      
Long-term debt 7,360     7,177  
Deferred income taxes 121     134  
Other liabilities 841     871  
Total noncurrent liabilities 8,322     8,182  
       
Stockholders' Equity:      
Common stock 6     6  
Additional paid-in-capital 1,196     1,188  
Retained earnings 20,180     19,505  
Common stock held in treasury (15,095 )   (14,638 )
Accumulated other comprehensive income (loss) (1,516 )   (1,807 )
Noncontrolling interest 3     5  
Total stockholders' equity 4,774     4,259  
  $ 15,922     $ 15,201  

 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES SEGMENT DATA (UNAUDITED)
 
Three Months Ended June 30, 2017
Dollars in millions TotalRevenue   OperatingIncome   OperatingMargin
Automotive OEM $ 820       $ 182     22.3 %
Food Equipment 529     139     26.4 %
Test & Measurement and Electronics 519     114     21.9 %
Welding 385     105     27.2 %
Polymers & Fluids 437     94     21.4 %
Construction Products 425     102     24.0 %
Specialty Products 490     139     28.3 %
Intersegment (6 )       %
Total Segments 3,599     875     24.3 %
Unallocated     (1 )   %
Total Company $ 3,599       $ 874     24.3 %

 
Six Months Ended June 30, 2017
Dollars in millions TotalRevenue   OperatingIncome   OperatingMargin
Automotive OEM $ 1,648     $ 384     23.3 %
Food Equipment 1,026     264     25.8 %
Test & Measurement and Electronics 999     210     21.0 %
Welding 772     212     27.4 %
Polymers & Fluids 863     182     21.0 %
Construction Products 820     191     23.3 %
Specialty Products 953     263     27.6 %
Intersegment (11 )       %
Total Segments 7,070     1,706     24.1 %
Unallocated     (23 )   %
Total Company $ 7,070     $ 1,683     23.8 %

 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES SEGMENT DATA (UNAUDITED)
 
Q2 2017 vs. Q2 2016 Favorable/(Unfavorable)
Operating Revenue AutomotiveOEM   FoodEquipment   Test &Measurementand Electronics   Welding   Polymers &Fluids   ConstructionProducts   SpecialtyProducts   TotalITW
Organic 4.4 %   0.6 %   4.3 %   3.3 %   (1.0 )%   1.6 %   3.9 %   2.6 %
Acquisitions/Divestitures 19.0 %   %   %   %   %   %   (1.4 )%   3.5 %
Translation (1.2 )%   (2.0 )%   (1.8 )%   (0.4 )%   (0.3 )%   (1.2 )%   (1.4 )%   (1.2 )%
Operating Revenue 22.2 %   (1.4 )%   2.5 %   2.9 %   (1.3 )%   0.4 %   1.1 %   4.9 %

 
Q2 2017 vs. Q2 2016 Favorable/(Unfavorable)
Change in Operating Margin AutomotiveOEM   FoodEquipment   Test &Measurementand Electronics   Welding   Polymers &Fluids   ConstructionProducts   SpecialtyProducts   TotalITW
Operating Leverage 70 bps 10 bps 120 bps 60 bps (20) bps 40 bps 80 bps 50 bps
Changes in Variable Margin & OH Costs (70) bps 90 bps 200 bps 10 bps 100 bps (140) bps 100 bps 110 bps
Total Organic      100 bps  320 bps  70 bps  80 bps  (100) bps  180 bps  160 bps
Acquisitions/Divestitures (270) bps                     30 bps (60) bps
Restructuring/Other (80) bps 40 bps 10 bps 160 bps (30) bps 70 bps 20 bps 20 bps
Total Operating Margin Change  (350) bps  140 bps  330 bps  230 bps  50 bps  (30) bps  230 bps  120 bps
                 
Total Operating Margin % * 22.3 %   26.4 %   21.9 %   27.2 %   21.4 %   24.0 %   28.3 %   24.3 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps 80 bps 320 bps 40 bps 400 bps 60 bps 120 bps 150 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.10) on GAAP net income diluted earnings per share for the second quarter of 2017.

 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES SEGMENT DATA (UNAUDITED)
 
1H 2017 vs 1H 2016 Favorable/(Unfavorable)
Operating Revenue AutomotiveOEM   FoodEquipment   Test &Measurementand Electronics   Welding   Polymers& Fluids   ConstructionProducts   SpecialtyProducts   TotalITW
Organic 6.7 %   1.3 %   4.9 %   1.5 %   0.2 %   2.2 %   2.4 %   3.0 %
Acquisitions/Divestitures 19.2 %   %   %   %   %   %   (1.1 )%   3.6 %
Translation (1.7 )%   (2.2 )%   (2.0 )%   (0.4 )%   0.1 %   (0.7 )%   (1.3 )%   (1.2 )%
Operating Revenue 24.2 %   (0.9 )%   2.9 %   1.1 %   0.3 %   1.5 %   %   5.4 %

 
1H 2017 vs. 1H 2016 Favorable/(Unfavorable)
Change in Operating Margin AutomotiveOEM   FoodEquipment   Test &Measurementand Electronics   Welding   Polymers& Fluids   ConstructionProducts   SpecialtyProducts   TotalITW
Operating Leverage 90 bps 20 bps 140 bps 40 bps     50 bps 60 bps 60 bps
Changes in Variable Margin & OH Costs (50) bps 40 bps 250 bps 110 bps 110 bps (20) bps 90 bps 110 bps
Total Organic 40 bps 60 bps 390 bps 150 bps 110 bps 30 bps 150 bps 170 bps
Acquisitions/Divestitures (270) bps                     30 bps (60) bps
Restructuring/Other (50) bps 40 bps     150 bps (70) bps 20 bps (20) bps 10 bps
Total Operating Margin Change (280) bps 100 bps 390 bps 300 bps 40 bps 50 bps 160 bps 120 bps
                 
Total Operating Margin % * 23.3 %   25.8 %   21.0 %   27.4 %   21.0 %   23.3 %   27.6 %   23.8 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 60 bps 80 bps 340 bps 50 bps 410 bps 60 bps 130 bps 150 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.21) on GAAP net income diluted earnings per share for the first half of 2017.

 
Full Year 2016 vs Full Year 2015 Favorable/(Unfavorable)
Operating Revenue AutomotiveOEM   FoodEquipment   Test &Measurementand Electronics   Welding   Polymers& Fluids   ConstructionProducts   SpecialtyProducts   TotalITW
Organic 5.1 %   2.8 %   1.8 %   (9.1 )%   1.3 %   3.0 %   1.2 %   1.2 %
Acquisitions/Divestitures 9.7 %   %   %   %   (0.2 )%   (0.2 )%   (0.1 )%   1.7 %
Translation (1.5 )%   (2.1 )%   (1.5 )%   (0.9 )%   (2.3 )%   (1.4 )%   (1.1 )%   (1.5 )%
Operating Revenue 13.3 %   0.7 %   0.3 %   (10.0 )%   (1.2 )%   1.4 %   %   1.4 %

 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
 
ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
 
  Three Months Ended   Six Months Ended   Twelve Months Ended
  June 30,   June 30,   December 31,
Dollars in millions 2017   2016   2017   2016   2016
Operating income $ 874     $ 792     $ 1,683     $ 1,514     $ 3,064  
Tax rate 28.4 %   30.0 %   28.4 %   30.0 %   30.0 %
Income taxes (248 )   (238 )   (477 )   (454 )   (919 )
Operating income after taxes $ 626     $ 554     $ 1,206     $ 1,060     $ 2,145  
                   
Invested capital:                  
Trade receivables $ 2,629     $ 2,413     $ 2,629     $ 2,413     $ 2,357  
Inventories 1,199     1,145     1,199     1,145     1,076  
Net plant and equipment 1,726     1,580     1,726     1,580     1,652  
Goodwill and intangible assets 6,041     5,907     6,041     5,907     6,021  
Accounts payable and accrued expenses (1,754 )   (1,635 )   (1,754 )   (1,635 )   (1,713 )
Other, net 488     349     488     349     223  
Total invested capital $ 10,329     $ 9,759     $ 10,329     $ 9,759     $ 9,616  
                   
Average invested capital $ 10,105     $ 9,768     $ 9,942     $ 9,698     $ 9,780  
Adjustment for Wilsonart (formerly the Decorative Surfaces segment)     (112 )       (112 )   (91 )
Adjusted average invested capital $ 10,105     $ 9,656     $ 9,942     $ 9,586     $ 9,689  
Adjusted return on average invested capital 24.8 %   22.9 %   24.3 %   22.1 %   22.1 %

 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
 
FREE CASH FLOW (UNAUDITED)
       
  Three Months Ended   Six Months Ended
  June 30,   June 30,
Dollars in millions 2017   2016   2017   2016
Net cash provided by operating activities $ 464     $ 535     $ 927     $ 1,014  
Less: Additions to plant and equipment (77 )   (64 )   (141 )   (121 )
Free cash flow $ 387     $ 471     $ 786     $ 893  
               
Net income $ 587     $ 525     $ 1,123     $ 993  
Free cash flow to net income conversion rate 66 % * 90 %   70 % * 90 %
 
*  Excluding $115 million related to an additional discretionary pension contribution, the free cash flow to net income conversion rate for the three months ended June 30, 2017 would have been 85%. Excluding $160 million of discretionary pension contributions for the six months ended June 30, 2017 as compared to the prior year period, the free cash flow to net income conversion rate would have been 84%.
 

  Three Months Ended   Six Months Ended
  June 30,   June 30,
Dollars in millions 2017   2017
Free cash flow $ 387     $ 786  
Pension contribution adjustment 115     160  
Adjusted free cash flow $ 502     $ 946  
       
Net income $ 587     $ 1,123  
Adjusted free cash flow to net income conversion rate 85 %   84 %

Contact: Mike Drazin 224.661.7433 or mdrazin@itw.com

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