Fourth-Quarter 2017 Highlights:
  • Total revenue was $3.6 billion, an increase of 7%; organic growth was 4%
  • Operating margin was 23.4%, an increase of 160 bps
  • GAAP EPS was $(0.22), including a $658 million one-time tax charge
  • Excluding the one-time tax charge, EPS was $1.70, an increase of 17%

Full-Year 2017 Highlights:
  • Total revenue was $14.3 billion, an increase of 5%; organic growth was 3%
  • Operating margin was 24.4%, an increase of 190 bps
  • After-tax ROIC was 24.4%, an increase of 230 bps
  • GAAP EPS was $4.86, including the one-time tax charge and a previously disclosed favorable legal settlement
  • EPS was $6.59 excluding these two items, an increase of 16%

2018 Guidance:
  • Raising GAAP EPS guidance by 6% at the midpoint to $7.45 to $7.65 and accelerating previously announced plans to increase dividend pay-out ratio

GLENVIEW, Ill., Jan. 24, 2018 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported its fourth-quarter and full-year 2017 results.

"The ITW team delivered another year of strong execution and performance in 2017," said E. Scott Santi, Chairman and Chief Executive Officer.  "In 2017, excluding one-time tax and legal items, we grew EPS 16%, improved operating margin by 120 basis points to an all-time high of 23.7% and increased after-tax return on invested capital 230 basis points to a record 24.4%."

"We also continued to make meaningful progress on our focused efforts to accelerate organic growth.  Our 2017 organic growth rate of 3% was up almost 2 percentage points versus 2016. In addition, our Q4 organic growth rate of 4% gives us good momentum going into 2018."

"Overall, these results demonstrate continued progress in our efforts to position ITW to generate consistent differentiated performance on a sustained basis," Santi added. "Through the combination of ITW's high quality business portfolio and our ongoing focus on leveraging ITW's powerful business model to full potential, we are well positioned to deliver strong results in 2018 and beyond."

Fourth-quarter revenue grew 7% to $3.6 billion as organic revenue increased 4% and foreign currency translation increased revenue by 3%. GAAP EPS of $(0.22) includes a one-time $658 million charge associated with the passage of the "Tax Cuts and Jobs Act." The charge encompasses several elements, including a repatriation tax on accumulated overseas earnings and a benefit from the revaluation of deferred tax assets and liabilities. Excluding this one-time item, EPS increased 17% to $1.70. Operating margin was 23.4%, an increase of 160 basis points, with enterprise initiatives contributing 140 basis points of margin improvement.

Organic revenue growth was positive in six of seven segments led by Test & Measurement and Electronics (+9%), Welding (+6%) and Specialty Products (+5%).

Full-year 2017 revenue increased 5% to $14.3 billion with organic growth of 3%. GAAP EPS of $4.86 includes the above-mentioned unfavorable tax impact and a $0.17 benefit from a previously disclosed favorable legal item. Excluding these one-time items, EPS was $6.59, an increase of 16% year-on-year. Operating margin was 24.4% and includes a 70 basis point benefit from the legal item. Excluding this item, operating margin was 23.7%, an increase of 120 basis points.

Full-Year and First Quarter 2018 Guidance ITW is raising its 2018 full-year guidance by $0.40 at the midpoint to reflect the benefits of a reduction in the tax rate to an estimated range of 25 to 26% and current foreign exchange rates. The company expects 2018 GAAP earnings to be in the range of $7.45 to $7.65 per share with organic growth of 3 to 4%.

The company forecasts first quarter 2018 GAAP earnings to be in the range of $1.80 to $1.90 per share with organic growth of 3 to 4%.

Subject to formal Board approval, ITW expects to accelerate previously announced plans to increase its dividend pay-out ratio from 43% to approximately 50% of Free Cash Flow on a run rate basis in August of 2018.

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, exchange rates, free cash flow, effective tax rate, expected dividend pay-out ratio, expected repatriation, 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 $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. 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   Twelve Months Ended
  December 31,   December 31,
In millions except per share amounts 2017   2016   2017   2016
Operating Revenue $ 3,629     $ 3,399     $ 14,314     $ 13,599  
Cost of revenue 2,124     2,006     8,309     7,896  
Selling, administrative, and research and development expenses 605     597     2,400     2,415  
Legal settlement (income)         (95 )    
Amortization and impairment of intangible assets 50     54     206     224  
Operating Income 850     742     3,494     3,064  
Interest expense (66 )   (63 )   (260 )   (237 )
Other income (expense) 12     47     36     81  
Income Before Taxes 796     726     3,270     2,908  
Income taxes 872     219     1,583     873  
Net Income (Loss) $ (76 )   $ 507     $ 1,687     $ 2,035  
               
Net Income (Loss) Per Share:              
Basic $ (0.22 )   $ 1.46     $ 4.90     $ 5.73  
Diluted $ (0.22 )   $ 1.45     $ 4.86     $ 5.70  
               
Cash Dividends Per Share:              
Paid $ 0.78     $ 0.65     $ 2.73     $ 2.30  
Declared $ 0.78     $ 0.65     $ 2.86     $ 2.40  
               
Shares of Common Stock Outstanding During the Period:              
Average   342.1       348.3       344.1       355.0  
Average assuming dilution   342.1       350.4       346.8       357.1  

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

In millions December 31, 2017   December 31, 2016
Assets      
Current Assets:      
Cash and equivalents $ 3,094     $ 2,472  
Trade receivables 2,628     2,357  
Inventories 1,220     1,076  
Prepaid expenses and other current assets 336     218  
Total current assets 7,278     6,123  
       
Net plant and equipment 1,778     1,652  
Goodwill 4,752     4,558  
Intangible assets 1,272     1,463  
Deferred income taxes 505     449  
Other assets 1,195     956  
  $ 16,780     $ 15,201  
       
Liabilities and Stockholders' Equity      
Current Liabilities:      
Short-term debt $ 850     $ 652  
Accounts payable 590     511  
Accrued expenses 1,258     1,202  
Cash dividends payable 266     226  
Income taxes payable 89     169  
Total current liabilities 3,053     2,760  
       
Noncurrent Liabilities:      
Long-term debt 7,478     7,177  
Deferred income taxes 164     134  
Noncurrent income taxes payable 614      
Other liabilities 882     871  
Total noncurrent liabilities 9,138     8,182  
       
Stockholders' Equity:      
Common stock 6     6  
Additional paid-in-capital 1,218     1,188  
Retained earnings 20,210     19,505  
Common stock held in treasury (15,562 )   (14,638 )
Accumulated other comprehensive income (loss) (1,287 )   (1,807 )
Noncontrolling interest 4     5  
Total stockholders' equity 4,589     4,259  
  $ 16,780     $ 15,201  

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

Three Months Ended December 31, 2017
Dollars in millions Total Revenue Operating Income Operating Margin
Automotive OEM $ 828   $ 191   23.1 %
Food Equipment 548   142   25.8 %
Test & Measurement and Electronics 545   127   23.4 %
Welding 388   103   26.4 %
Polymers & Fluids 427   85   19.9 %
Construction Products 412   96   23.4 %
Specialty Products 487   126   25.9 %
Intersegment (6 )   %
Total Segments 3,629   870   24.0 %
Unallocated   (20 ) %
Total Company $ 3,629   $ 850   23.4 %

Twelve Months Ended December 31, 2017
Dollars in millions Total Revenue Operating Income Operating Margin
Automotive OEM $ 3,271   $ 747   22.8 %
Food Equipment 2,123   556   26.2 %
Test & Measurement and Electronics 2,069   464   22.4 %
Welding 1,538   415   27.0 %
Polymers & Fluids 1,724   357   20.7 %
Construction Products 1,672   399   23.9 %
Specialty Products 1,938   527   27.2 %
Intersegment (21 )   %
Total Segments 14,314   3,465   24.2 %
Unallocated*   29   %
Total Company $ 14,314   $ 3,494   24.4 %

* Unallocated for the twelve months ended December 31, 2017 includes the favorable impact from the legal settlement.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES SEGMENT DATA (UNAUDITED)
Q4 2017 vs. Q4 2016 Favorable/(Unfavorable)
Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW
Organic 2.5 % (0.4 )% 8.8 % 6.1 % 2.5 % 3.5 % 4.8 % 3.7 %
Acquisitions/Divestitures % % % % % % (0.8 )% (0.1 )%
Translation 4.5 % 3.4 % 2.9 % 1.3 % 2.4 % 3.2 % 2.9 % 3.2 %
Operating Revenue 7.0 % 3.0 % 11.7 % 7.4 % 4.9 % 6.7 % 6.9 % 6.8 %

Q4 2017 vs. Q4 2016 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  40 bps  (10) bps  230 bps  110 bps  70 bps  80 bps  90 bps  90 bps
Changes in Variable Margin & OH Costs    50 bps  130 bps  140 bps    130 bps  40 bps  60 bps
Total Organic  40 bps  40 bps  360 bps  250 bps  70 bps  210 bps  130 bps  150 bps
Acquisitions/Divestitures              20 bps  
Restructuring/Other  (30) bps  70 bps  (30) bps  (50) bps  20 bps  (10) bps  40 bps  10 bps
Total Operating Margin Change  10 bps  110 bps  330 bps  200 bps  90 bps  200 bps  190 bps  160 bps
                 
Total Operating Margin % * 23.1 % 25.8 % 23.4 % 26.4 % 19.9 % 23.4 % 25.9 % 23.4 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  50 bps  80 bps  280 bps  40 bps  400 bps  50 bps  130 bps  140 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.10) on GAAP earnings per share for the fourth quarter of 2017.

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

Full Year 2017 vs Full Year 2016 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  20 bps  130 bps  70 bps  30 bps  70 bps  70 bps  70 bps
Changes in Variable Margin & OH Costs  (30) bps  30 bps  210 bps  90 bps  50 bps  30 bps  90 bps  140 bps
Total Organic  30 bps  50 bps  340 bps  160 bps  80 bps  100 bps  160 bps  210 bps
Acquisitions/Divestitures  (120) bps            30 bps  (30) bps
Restructuring/Other  (40) bps  30 bps  10 bps  50 bps  (40) bps  50 bps  (30) bps  10 bps
Total Operating Margin Change  (130) bps  80 bps  350 bps  210 bps  40 bps  150 bps  160 bps  190 bps
                 
Total Operating Margin % * 22.8 % 26.2 % 22.4 % 27.0 % 20.7 % 23.9 % 27.2 % 24.4 %
                 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  60 bps  70 bps  320 bps  40 bps  410 bps  50 bps  130 bps  150 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.42) on GAAP earnings per share for 2017.

Q4 2016 vs. Q4 2015 Favorable/(Unfavorable)
Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW
Organic 7.0 % 2.6 % (0.3 )% (7.9 )% 2.1 % 2.7 % 1.2 % 1.5 %
Acquisitions/Divestitures 20.8 % % % % % (0.2 )% (0.5 )% 3.8 %
Translation (2.0 )% (2.8 )% (2.1 )% (0.7 )% (0.8 )% (0.5 )% (1.2 )% (1.6 )%
Operating Revenue 25.8 % (0.2 )% (2.4 )% (8.6 )% 1.3 % 2.0 % (0.5 )% 3.7 %

Full Year 2016 vs Full Year 2015 Favorable/(Unfavorable)
Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW
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)

IMPACT OF THE "TAX CUTS AND JOBS ACT" AND LEGAL SETTLEMENT

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 schedules illustrate the impact of these items on the Company's reported fourth quarter and full-year 2017 financial results.

Fourth Quarter
Dollars in millions Q4'16 As Reported Q4'17 As Reported Tax Charge Q4 '17 Ex. Tax Charge Change Vs. Prior Year
Total Revenue $3,399 $3,629 $3,629 +7%
Operating Income $742 $850 $850 +14%
Operating Margin 21.8% 23.4% 23.4% +160 bps
Tax Rate 30.0% 109.6% +82.7%-pts 26.9% (310) bps
Net Income (Loss) $507 ($76) ($658) $582 +15%
EPS $1.45 ($0.22) ($1.92) $1.70 +17%

Full-Year
Dollars in millions 2016 As Reported 2017 As Reported Legal Item Tax Charge 2017 Ex. Items Change Vs. Prior Year
Total Revenue $13,599 $14,314 $14,314 +5%
Operating Income $3,064 $3,494 +$95 $3,399 +11%
Operating Margin 22.5% 24.4% +70 bps 23.7% +120 bps
Tax Rate 30.0% 48.4% +20.1%-pts 28.3% (170) bps
Net Income $2,035 $1,687 +$59 ($658) $2,286 +12%
EPS $5.70 $4.86 +$0.17 ($1.90) $6.59 +16%

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 2017   2016   2017   2016
Operating income $ 850     $ 742     $ 3,494     $ 3,064  
Less: Legal settlement income         (95 )    
Adjusted operating income 850     742     3,399     3,064  
Adjusted tax rate 26.9 %   30.0 %   28.3 %   30.0 %
Income taxes (229 )   (222 )   (961 )   (919 )
Operating income after taxes $ 621     $ 520     $ 2,438     $ 2,145  
               
Invested capital:              
Trade receivables $ 2,628     $ 2,357     $ 2,628     $ 2,357  
Inventories 1,220     1,076     1,220     1,076  
Net plant and equipment 1,778     1,652     1,778     1,652  
Goodwill and intangible assets 6,024     6,021     6,024     6,021  
Accounts payable and accrued expenses (1,848 )   (1,713 )   (1,848 )   (1,713 )
Other, net 21     223     21     223  
Total invested capital $ 9,823     $ 9,616     $ 9,823     $ 9,616  
               
Average invested capital $ 10,101     $ 9,902     $ 10,005     $ 9,780  
Adjustment for Wilsonart (formerly the Decorative Surfaces segment)     (59 )       (91 )
Adjusted average invested capital $ 10,101     $ 9,843     $ 10,005     $ 9,689  
               
Adjusted return on average invested capital 24.6 %   21.1 %   24.4 %   22.1 %

A reconciliation of the 2017 effective tax rate to the adjusted tax rate excluding the discrete tax charge related to the 2017 U.S. tax legislation is as follows:
  Three Months Ended   Twelve Months Ended
  December 31, 2017   December 31, 2017
  Income Taxes   Tax Rate   Income Taxes   Tax Rate
As reported $ 872     109.6 %   $ 1,583     48.4 %
Discrete tax charge related to 2017 U.S. tax legislation (658 )   (82.7 )%   (658 )   (20.1 )%
As adjusted $ 214     26.9 %   $ 925     28.3 %

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 2017   2016   2017   2016
Net cash provided by operating activities $ 695     $ 664     $ 2,402     $ 2,302  
Less: Additions to plant and equipment (78 )   (71 )   (297 )   (273 )
Free cash flow $ 617     $ 593     $ 2,105   * $ 2,029  
               
Net income (loss), as reported $ (76 )   $ 507     $ 1,687     $ 2,035  
Discrete tax charge related to 2017 U.S. tax legislation 658         658      
Adjusted net income $ 582     $ 507     $ 2,345     $ 2,035  
Free cash flow to adjusted net income conversion rate 106 %   117 %   90 % * 100 %

* Excluding $115 million related to an additional discretionary pension contribution, free cash flow would have been $2.2 billion (or 95% of adjusted net income) for the twelve months ended December 31, 2017.

Investor Contact: Karen Fletcher 224.661.7433 or kfletcher@itw.com

Media Contact: Trisha Knych 224.661.7566 or tknych@itw.com

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