ITW Reports Fourth Quarter and Full Year Results

Fourth-Quarter 2019 Highlights

• GAAP EPS $1.99, an increase of 9%, including $0.11 of divestiture gains
• Total revenue declined 3.1%; organic revenue down 1.6%
• Operating margin of 23.7%; 24.1% excluding 40 basis points of higher restructuring expenses
• After-tax ROIC of 28.9%, an increase of 120 basis points
• Free cash flow was 114% of net income

Full-Year 2019 Highlights

• GAAP EPS $7.74, an increase of 2%
• Total revenue declined 4.5%; organic revenue down 1.9%
• Operating margin of 24.1%; 24.4% excluding 30 basis points of higher restructuring expenses
• After-tax ROIC of 28.7%, an increase of 50 basis points
• Free cash flow increased 9% and was 106% of net income

GLENVIEW, Ill., Jan. 31, 2020 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth-quarter and full-year 2019 results.

“The ITW team closed out 2019 with another quarter of strong execution and resilient financial performance,” said E. Scott Santi, chairman and chief executive officer. “Despite near-term macro challenges, we grew earnings per share nine percent, delivered 24.1 percent operating margin excluding higher restructuring expenses and improved after-tax return on invested capital 120 basis points to 28.9 percent.”

“For the year, in a contracting industrial demand environment including a six percent decline in global auto builds, ITW grew earnings per share five percent excluding the impact of foreign currency headwinds, higher restructuring expenses and divestiture gains.  We expanded operating margin to 24.4 percent excluding higher restructuring expenses, improved after-tax return on invested capital to 28.7 percent, increased free cash flow nine percent and returned $2.8 billion to shareholders in the form of dividends and share repurchases.  Throughout 2019, we executed very well on the things within our control and continued to make meaningful progress on our path to full-potential performance through the implementation of our ‘Finish the Job’ enterprise strategy agenda.  ITW’s proprietary and powerful business model, diversified high-quality business portfolio and dedicated team of highly skilled ITW colleagues around the world position us well to continue to deliver differentiated performance in 2020 and beyond,” Santi concluded.

2019 Results

Fourth-quarter revenue of $3.5 billion declined 3.1 percent with organic revenue down 1.6 percent.  Foreign currency translation and divestitures reduced revenues by 1.0 percent and 0.5 percent, respectively. Product Line Simplification (PLS) activities reduced organic revenue by 60 basis points.  GAAP EPS increased nine percent to $1.99 including $0.11 divestiture gains from the sale of three businesses.  Operating margin was 23.7 percent.  Excluding 40 basis points impact from higher restructuring expenses, operating margin improved 10 basis points to 24.1 percent.  Enterprise initiatives contributed 130 basis points and price/cost was positive 30 basis points. Free cash flow was $692 million with a 114 percent conversion rate.  The effective tax rate for the fourth quarter was 22.8 percent.

Full year revenue of $14.1 billion declined 4.5 percent with organic revenue down 1.9 percent and unfavorable foreign currency translation impact of 2.3 percent. PLS reduced organic revenue by 60 basis points versus 70 basis points in 2018.  2019 GAAP EPS increased two percent to $7.74 including $0.09 of net gains from divestitures.  Operating margin was 24.1 percent.  Excluding 30 basis points impact from higher restructuring expenses, operating margin improved 10 bps to 24.4 percent.  Enterprise initiatives contributed 120 basis points and price/cost was positive 10 basis points.  After-tax return on invested capital was 28.7 percent.  Free cash flow increased nine percent to $2.7 billion. The company repurchased $1.5 billion of its own shares and raised its dividend seven percent in August 2019 to an annualized $4.28 per share.  The effective tax rate for the full year was 23.3 percent.

2020 Guidance

The company initiated full-year EPS guidance in a range of $7.65 to $8.05 per share.  At current levels of demand, organic growth is forecast to be in the range of zero to two percent.  Foreign currency translation and divestitures are projected to reduce revenues by one percentage point each. PLS impact is forecast to moderate to approximately 50 basis points.  Operating margin is expected to improve and be in a range of 24.5 to 25 percent, with enterprise initiatives contributing approximately 100 basis points. Free cash flow is expected to be greater than 100 percent of net income.  The Company expects an effective tax rate in the range of 23.5 to 24.5 percent and plans to repurchase approximately $2 billion of its shares in 2020. 

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, foreign exchange rates, total and organic revenue growth, operating margin, economic and regulatory conditions in various geographic regions, price/cost impact, restructuring expenses, free cash flow, effective tax rate, after-tax return on invested capital, and timing and amount of share repurchases.  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 2018.

About Illinois Tool Works

ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.1 billion in 2019. 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’s approximately 45,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF INCOME (UNAUDITED)

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

A reconciliation of the 2019 effective tax rate excluding the third quarter discrete tax benefit of $21 million is as follows:

A reconciliation of the 2018 effective tax rate excluding the third quarter net discrete tax benefit of $15 million is as follows:

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

FREE CASH FLOW (UNAUDITED)

* Excluding the impact of the fourth quarter net after-tax gains on disposal of businesses of $35 million, net income would have been $606 million and the free cash flow to net income conversion rate for the three months ended December 31, 2019 would have been 114%.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

NET INCOME PER SHARE - DILUTED, AS REPORTED (UNAUDITED)

* Diluted EPS for the twelve months ended December 31, 2019 includes the impact of $0.09 of divestiture gains, $(0.20) of foreign currency translation headwinds and $(0.12) of higher restructuring expenses.