ITW Illinois Tool Works Inc.

ITW Reports Second Quarter 2022 Results

ITW Reports Second Quarter 2022 Results

  • Total revenue of $4.0 billion; organic growth of 10%
  • GAAP EPS of $2.37 included $(0.15) of EPS headwind from foreign currency translation impact and higher restructuring expenses
  • Operating margin of 23.1% included 200 bps of operating leverage offset by (160) bps of price/cost impact and (100) bps of headwind from the MTS acquisition and higher restructuring expenses
  • Maintaining full-year 2022 guidance including organic revenue growth of 7% to 10% and record GAAP EPS of $9.00 to $9.40 per share

GLENVIEW, Ill., Aug. 02, 2022 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2022 results.

“In the current environment, our teams around the world continue to do an exceptional job of demonstrating the power and resilience of the ITW Business Model as evidenced by the more than 10 percent organic growth and 23 percent plus operating margin that they delivered in the second quarter,” said E. Scott Santi, Chairman and Chief Executive Officer. “Across the company we continue to leverage our 80/20 front-to-back driven operational capabilities to support our customers and execute our “Win the Recovery” strategy to accelerate profitable market penetration and organic growth across our portfolio. Looking ahead at the remainder of 2022, based on our first half results and current levels of demand, we are maintaining our current guidance for full-year 2022, including organic growth of 8.5 percent and record GAAP EPS of $9.20 at their respective mid-points. While the near-term environment has its challenges, we remain focused on delivering differentiated service to our customers, top-tier financial performance for our shareholders, and continued progress on our path to ITW’s full potential performance.”

Second Quarter 2022 Results

Second quarter revenue of $4.0 billion increased nine percent with organic revenue growth of 10 percent. The acquisition of MTS contributed three percent to revenue. Unfavorable foreign currency translation reduced revenue by four percent. Six of seven segments delivered positive organic growth in the quarter, led by Food Equipment up 25 percent, Welding up 22 percent, Construction Products up 15 percent, Polymers & Fluids up 10 percent, Automotive OEM up six percent, and Test & Measurement and

Electronics up one percent due to a difficult year-over-year comparison. Specialty Products organic revenue was down less than two percent. On a geographic basis, organic growth was 14 percent in North America, 6 percent in Europe, and 3 percent in Asia Pacific.

GAAP EPS was $2.37 and included $(0.05) of higher restructuring expenses related to 80/20 front-to-back projects, $(0.10) of unfavorable foreign currency translation, and a $0.16 one-time tax benefit related to the routine resolution of a U.S. tax audit. As a reminder, GAAP EPS of $2.45 in the second quarter of 2021 included a $0.35 one-time tax benefit. Operating margin was 24.1 percent excluding margin dilution impacts of (50) basis points each from the MTS acquisition and higher restructuring expenses. Enterprise initiatives contributed 90 basis points. Price/cost margin dilution impact moderated in the second quarter to (160) basis points compared to (250) basis points in the first quarter of 2022. Operating cash flow was $501 million, and free cash flow was $420 million with a conversion rate of 57 percent. The reported tax rate for the second quarter was 18.3 percent and excluding the one-time tax benefit, the effective tax rate was 23.9 percent.

2022 Guidance

ITW is maintaining its full-year GAAP EPS guidance of $9.00 to $9.40 per share. Based on current levels of demand, the company is projecting full-year revenue growth in the range of six to nine percent, with organic growth of seven to ten percent. At current foreign exchange rates, currency translation is projected to reduce revenue by four percent and EPS by approximately $(0.35). The acquisition of MTS is expected to add three percent to revenue. Operating margin is forecasted to be in the range of 24 to 25 percent, with enterprise initiatives contributing approximately 100 basis points and price/cost margin dilution impact of (100) basis points. Price is projected to exceed input cost inflation on a dollar-for-dollar basis. The expected free cash flow conversion rate is unchanged at 85 to 95 percent of net income, and the company is on pace to repurchase $1.5 billion of its own shares. The projected effective tax rate is 22 to 23 percent.

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. The estimated guidance of free cash flow conversion rate is based on assumptions that are difficult to predict, and estimated guidance for the most directly comparable GAAP measure and a reconciliation of this forward-looking estimate to its most directly comparable GAAP estimate have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of reliable forward-looking cash flow information.

Forward-looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding the duration and potential effects of the COVID-19 pandemic and global supply chain challenges, related government actions and the company’s strategy in response thereto on the company’s business, expected impact of inflation including raw material inflation, enterprise initiatives, future financial and operating performance, free cash flow and free cash flow conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation of overseas cash, after-tax return on invested capital, effective tax rates, exchange rates, expected access to liquidity sources, expected capital allocation, expected timing and amount of share repurchases, end market economic and regulatory conditions, potential acquisitions and divestitures and related impact on financial results, including statements with respect to the impact of the 2021 acquisition of the MTS Test & Simulation business, and the company’s 2022 guidance. These statements are subject to certain risks, uncertainties, assumptions, 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 2021 and subsequent reports filed with the SEC.

About Illinois Tool Works

ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.5 billion in 2021. 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)

 Three Months Ended Six Months Ended
 June 30, June 30,
In millions except per share amounts 2022   2021   2022   2021 
Operating Revenue$4,011  $3,676  $7,950  $7,220 
Cost of revenue 2,392   2,163   4,749   4,202 
Selling, administrative, and research and development expenses 659   588   1,311   1,154 
Amortization and impairment of intangible assets 34   32   69   66 
Operating Income 926   893   1,821   1,798 
Interest expense (47)  (52)  (95)  (104)
Other income (expense) 24   22   38   34 
Income Before Taxes 903   863   1,764   1,728 
Income Taxes 165   88   364   282 
Net Income$738  $775  $1,400  $1,446 
        
Net Income Per Share:       
Basic$2.37  $2.46  $4.49  $4.58 
Diluted$2.37  $2.45  $4.48  $4.56 
        
Cash Dividends Per Share:       
Paid$1.22  $1.14  $2.44  $2.28 
Declared$1.22  $1.14  $2.44  $2.28 
        
Shares of Common Stock Outstanding During the Period:       
Average 310.6   315.6   311.5   316.1 
Average assuming dilution 311.5   316.9   312.6   317.4 



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millionsJune 30, 2022 December 31, 2021
Assets   
Current Assets:   
Cash and equivalents$879  $1,527 
Trade receivables 3,109   2,840 
Inventories 1,975   1,694 
Prepaid expenses and other current assets 305   313 
Assets held for sale 103    
Total current assets 6,371   6,374 
    
Net plant and equipment 1,736   1,809 
Goodwill 4,870   4,965 
Intangible assets 832   972 
Deferred income taxes 498   552 
Other assets 1,359   1,405 
 $15,666  $16,077 
    
Liabilities and Stockholders' Equity   
Current Liabilities:   
Short-term debt$1,525  $778 
Accounts payable 679   585 
Accrued expenses 1,562   1,648 
Cash dividends payable 378   382 
Income taxes payable 120   77 
Liabilities held for sale 30    
Total current liabilities 4,294   3,470 
    
Noncurrent Liabilities:   
Long-term debt 6,115   6,909 
Deferred income taxes 632   654 
Noncurrent income taxes payable 274   365 
Other liabilities 972   1,053 
Total noncurrent liabilities 7,993   8,981 
    
Stockholders’ Equity:   
Common stock 6   6 
Additional paid-in-capital 1,464   1,432 
Retained earnings 24,967   24,325 
Common stock held in treasury (21,382)  (20,636)
Accumulated other comprehensive income (loss) (1,677)  (1,502)
Noncontrolling interest 1   1 
Total stockholders’ equity 3,379   3,626 
 $15,666  $16,077 



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended June 30, 2022
Dollars in millionsTotal RevenueOperating IncomeOperating Margin
Automotive OEM$711 $101 14.3%
Food Equipment 614  152 24.7%
Test & Measurement and Electronics 696  157 22.5%
Welding 486  142 29.3%
Polymers & Fluids 496  125 25.1%
Construction Products 565  156 27.6%
Specialty Products 447  121 26.9%
Intersegment (4)  %
Total Segments 4,011  954 23.8%
Unallocated   (28)%
Total Company$4,011 $926 23.1%



Six Months Ended June 30, 2022
Dollars in millionsTotal RevenueOperating IncomeOperating Margin
Automotive OEM$1,471 $239 16.3%
Food Equipment 1,180  278 23.6%
Test & Measurement and Electronics 1,381  306 22.2%
Welding 936  281 30.0%
Polymers & Fluids 977  243 24.8%
Construction Products 1,116  292 26.2%
Specialty Products 899  241 26.8%
Intersegment (10)  %
Total Segments 7,950  1,880 23.6%
Unallocated   (59)%
Total Company$7,950 $1,821 22.9%



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q2 2022 vs. Q2 2021 Favorable/(Unfavorable)
Operating RevenueAutomotive

OEM
Food

Equipment
Test &

Measurement

and

Electronics
WeldingPolymers &

Fluids
Construction

Products
Specialty

Products
Total ITW
Organic6.1%25.0%0.9%22.1%10.2%15.1%(1.7)%10.4%
Acquisitions/

Divestitures
%%17.8%%%%%2.9%
Translation(5.5)%(5.4)%(3.8)%(1.3)%(3.5)%(6.0)%(3.3)%(4.2)%
Operating Revenue0.6%19.6%14.9%20.8%6.7%9.1%(5.0)%9.1%



Q2 2022 vs. Q2 2021 Favorable/(Unfavorable)
Change in Operating MarginAutomotive OEMFood EquipmentTest &

Measurement

and Electronics
WeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage120 bps480 bps20 bps290 bps170 bps220 bps(20) bps200 bps
Changes in Variable Margin & OH Costs(300) bps(200) bps(260) bps(220) bps(400) bps(220) bps (220) bps
Total Organic (180) bps 280 bps (240) bps 70 bps (230) bps   (20) bps (20) bps
Acquisitions/

Divestitures
  (330) bps    (50) bps
Restructuring/Other(270) bps(10) bps10 bps10 bps10 bps (10) bps(50) bps
Total Operating Margin Change (450) bps 270 bps (560) bps 80 bps (220) bps   (30) bps (120) bps
         
Total Operating Margin % *14.3%24.7%22.5%29.3%25.1%27.6%26.9%23.1%
         
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 50 bps 200 bps 10 bps 210 bps 20 bps 60 bps 90 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the second quarter of 2022.



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

1H 2022 vs. 1H 2021 Favorable/(Unfavorable)
Operating RevenueAutomotive

OEM
Food

Equipment
Test &

Measurement

and

Electronics
WeldingPolymers &

Fluids
Construction

Products
Specialty

Products
Total ITW
Organic2.5%26.5%4.3%17.5%11.5%18.1%(0.6)%10.5%
Acquisitions/

Divestitures
%%17.9%%%%%2.9%
Translation(3.8)%(4.2)%(3.0)%(1.0)%(3.0)%(5.0)%(2.5)%(3.3)%
Operating Revenue(1.3)%22.3%19.2%16.5%8.5%13.1%(3.1)%10.1%



1H 2022 vs. 1H 2021 Favorable/(Unfavorable)
Change in Operating MarginAutomotive

OEM
Food EquipmentTest &

Measurement

and

Electronics
WeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage40 bps520 bps100 bps230 bps200 bps260 bps(10) bps200 bps
Changes in Variable Margin & OH Costs(390) bps(310) bps(340) bps(170) bps(380) bps(410) bps(60) bps(300) bps
Total Organic (350) bps 210 bps (240) bps 60 bps (180) bps (150) bps (70) bps (100) bps
Acquisitions/



Divestitures
  (370) bps    (60) bps
Restructuring/Other(180) bps(10) bps10 bps  10 bps10 bps(40) bps
Total Operating Margin Change (530) bps 200 bps (600) bps 60 bps (180) bps (140) bps (60) bps (200) bps
         
Total Operating Margin % *16.3%23.6%22.2%30.0%24.8%26.2%26.8%22.9%
         
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 50 bps 200 bps 10 bps 220 bps 10 bps 60 bps 90 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.17) on GAAP earnings per share for the first half of 2022.



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

 Three Months Ended Six Months Ended
 June 30, June 30,
Dollars in millions 2022   2021   2022   2021 
Numerator:       
Net Income$738  $775  $1,400  $1,446 
Discrete tax benefit related to the second quarter 2022 (51)     (51)   
Discrete tax benefit related to the second quarter 2021    (112)     (112)
Interest expense, net of tax (1) 36   41   73   81 
Other (income) expense, net of tax (1) (18)  (17)  (29)  (26)
Operating income after taxes$705  $687  $1,393  $1,389 
        
Denominator:       
Invested capital:       
Cash and equivalents$879  $2,058  $879  $2,058 
Trade receivables 3,109   2,786   3,109   2,786 
Inventories 1,975   1,400   1,975   1,400 
Net assets held for sale 73      73    
Net plant and equipment 1,736   1,767   1,736   1,767 
Goodwill and intangible assets 5,702   5,374   5,702   5,374 
Accounts payable and accrued expenses (2,241)  (1,933)  (2,241)  (1,933)
Debt (7,640)  (7,648)  (7,640)  (7,648)
Other, net (214)  (283)  (214)  (283)
Total net assets (stockholders' equity) 3,379   3,521   3,379   3,521 
Cash and equivalents (879)  (2,058)  (879)  (2,058)
Debt 7,640   7,648   7,640   7,648 
Total invested capital$10,140  $9,111  $10,140  $9,111 
        
Average invested capital (2)$10,143  $8,926  $10,024  $8,864 
        
Net income to average invested capital (3) 29.1%  34.8%  27.9%  32.6%
After-tax return on average invested capital (3) 27.8%  30.8%  27.8%  31.3%

(1) Effective tax rate used for interest expense and other (income) expense for the three months ended June 30, 2022 and 2021 was 23.9% and 23.0%, respectively. Effective tax rate used for interest expense and other (income) expense for the six months ended June 30, 2022 and 2021 was 23.5% and 22.7%, respectively.

(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within each of the periods presented.

(3) Returns for the three months ended June 30, 2022 and 2021 were converted to an annual rate by multiplying the calculated return by 4. Returns for the six months ended June 30, 2022 and 2021 were converted to an annual rate by multiplying the calculated return by 2.

A reconciliation of the tax rate for the three and six months ended June 30, 2022, excluding the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a U.S. tax audit, is as follows:

 Three Months Ended Six Months Ended
 June 30, 2022 June 30, 2022
Dollars in millionsIncome Taxes Tax Rate Income Taxes Tax Rate
As reported$165 18.3% $364 20.7%
Discrete tax benefit related to the second quarter 2022 51 5.6%  51 2.8%
As adjusted$216 23.9% $415 23.5%

A reconciliation of the tax rate for the three and six months ended June 30, 2021, excluding the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate, is as follows:

 Three Months Ended Six Months Ended
 June 30, 2021 June 30, 2021
Dollars in millionsIncome Taxes Tax Rate Income Taxes Tax Rate
As reported$88 10.1% $282 16.3%
Discrete tax benefit related to the second quarter 2021 112 12.9%  112 6.4%
As adjusted$200 23.0% $394 22.7%



AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

 Twelve Months Ended
Dollars in millionsDecember 31, 2021
Numerator: 
Net income$2,694 
Discrete tax benefit related to the third quarter 2021 (21)
Discrete tax benefit related to the second quarter 2021 (112)
Interest expense, net of tax (1) 157 
Other (income) expense, net of tax (1) (40)
Operating income after taxes$2,678 
  
Denominator: 
Invested capital: 
Cash and equivalents$1,527 
Trade receivables 2,840 
Inventories 1,694 
Net plant and equipment 1,809 
Goodwill and intangible assets 5,937 
Accounts payable and accrued expenses (2,233)
Debt (7,687)
Other, net (261)
Total net assets (stockholders' equity) 3,626 
Cash and equivalents (1,527)
Debt 7,687 
Total invested capital$9,786 
  
Average invested capital (2)$9,087 
  
Net income to average invested capital 29.6%
After-tax return on average invested capital 29.5%

(1)  Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2021 was 23.0%.

(2)  Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within the period presented.

A reconciliation of the 2021 effective tax rate excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital losses and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate, is as follows:

 Twelve Months Ended
 December 31, 2021
Dollars in millionsIncome Taxes Tax Rate
As reported$632 19.0%
Discrete tax benefit related to the third quarter 2021 21 0.6%
Discrete tax benefit related to the second quarter 2021 112 3.4%
As adjusted$765 23.0%



FREE CASH FLOW (UNAUDITED)

 Three Months Ended Six Months Ended
 June 30, June 30,
Dollars in millions 2022   2021   2022   2021 
Net cash provided by operating activities$501  $555  $824  $1,164 
Less: Additions to plant and equipment (81)  (78)  (155)  (146)
Free cash flow$420  $477  $669  $1,018 
        
Net Income$738  $775  $1,400  $1,446 
        
Net cash provided by operating activities to net income conversion rate 68%  72%  59%  80%
Free cash flow to net income conversion rate 57%  62%  48%  70%



Media ContactInvestor Relations
Tel: 224.661.7451Karen Fletcher
Tel: 224.661.7433
 


EN
02/08/2022

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