ITW Illinois Tool Works Inc.

ITW Reports Third Quarter 2020 Results

ITW Reports Third Quarter 2020 Results

  • Total revenue of $3.3 billion as revenue increased 29 percent versus Q2 2020
  • Operating margin of 23.8%
  • GAAP EPS of $1.83
  • After-tax ROIC of 29.6%
  • Free cash flow was 108% of net income

GLENVIEW, Ill., Oct. 23, 2020 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2020 results.

“We saw solid recovery progress in many of the end markets we serve in the third quarter as evidenced by our revenue being up sequentially 29 percent versus second quarter.  Our people around the world responded by leveraging our proprietary business model to provide excellent service to our customers while keeping themselves and their co-workers safe.  These efforts and our third quarter financial results support the decisions we made early in the pandemic to provide full compensation and benefits support to all of our ITW team members, to focus on positioning the company for full participation in the recovery, and to remain invested in the key initiatives supporting the execution of our long-term enterprise strategy,” said E. Scott Santi, chairman and chief executive officer.  “I am very proud of how the ITW team is managing through this challenging period, and I thank all of my ITW colleagues around the world for their continued exceptional efforts and dedication.”

“In the face of the unprecedented challenges and circumstances brought about by the global pandemic, our strong operational and financial performance over the last several quarters provides further evidence that ITW is a company that has both the enduring competitive advantages and the resilience necessary to deliver consistent upper tier performance in any economic environment.  Looking ahead, we remain focused on delivering strong results across a range of economic scenarios while continuing to execute on our long-term strategy to achieve and sustain ITW’s full-potential performance,” Santi concluded.

Third Quarter Results

Third-quarter revenue of $3.3 billion declined 4.9 percent compared to the prior year period as organic revenue declined 4.6 percent.  Divestitures reduced revenue by 1.0 percent, partially offset by a foreign currency translation benefit of 0.7 percent.  Product Line Simplification reduced revenue by 30 basis points.

Operating margin was 23.8 percent compared to 25.0 percent in the prior year period as the lower volume impact and higher restructuring expenses were partially offset with benefits from Enterprise Initiatives of 120 basis points.  Six of seven segments delivered operating margin above 20 percent.

GAAP earnings per share was $1.83 compared to $2.04 in the prior year period.  Free cash flow was $631 million, 108 percent of net income.  After-tax return on invested capital improved to 29.6 percent compared to 29.2 percent in the prior year period.  The effective tax rate was 21.3 percent.

On May 5, 2020, ITW suspended annual guidance for 2020 due to uncertainties regarding the duration and severity of the COVID-19 pandemic.  On August 7, 2020, ITW raised its dividend seven percent to an annualized $4.56 per share. 

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. Such statements may include, without limitation, statements regarding the potential effects of the COVID-19 pandemic, related government actions and the Company’s strategy in response thereto on the Company’s business, the anticipated duration of the Company’s COVID-19 containment and recovery phases, the Company’s fiscal 2020 financial performance projections and ranges, expected access to liquidity sources, expected capital allocation, diluted earnings per share, foreign exchange rates, total and organic revenue, operating margin, economic and regulatory conditions in various geographic regions, expected dividend payments, price/cost impact, restructuring expenses, expected adjustments to capacity and cost structure, free cash flow, effective tax rate, after-tax return on invested capital, timing and amount of share repurchases, if any, potential acquisitions and dispositions and related impact on financial results, and plans regarding the issuance of 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 2019 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 $14.1 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)

 Three Months Ended Nine Months Ended
 September 30, September 30,
In millions except per share amounts2020 2019 2020 2019
Operating Revenue$3,307   $3,479   $9,099   $10,640  
Cost of revenue1,910   2,007   5,375   6,165  
Selling, administrative, and research and development expenses560   566   1,606   1,775  
Amortization and impairment of intangible assets48   38   119   122  
Operating Income789   868   1,999   2,578  
Interest expense(52)  (52)  (154)  (170) 
Other income (expense)2   26   35   49  
Income Before Taxes739   842   1,880   2,457  
Income Taxes157   182   413   577  
Net Income$582   $660   $1,467   $1,880  
        
Net Income Per Share:       
Basic$1.84   $2.05   $4.63   $5.79  
Diluted$1.83   $2.04   $4.61   $5.76  
        
Cash Dividends Per Share:       
Paid$1.07   $1.00   $3.21   $3.00  
Declared$1.14   $1.07   $3.28   $3.07  
        
Shares of Common Stock Outstanding During the Period:       
Average316.5   322.3   316.9   324.8  
Average assuming dilution317.9   324.0   318.3   326.6  
                

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millionsSeptember 30, 2020 December 31, 2019
Assets   
Current Assets:   
Cash and equivalents$2,169   $1,981  
Trade receivables2,494   2,461  
Inventories1,149   1,164  
Prepaid expenses and other current assets219   296  
Assets held for sale   351  
Total current assets6,031   6,253  
    
Net plant and equipment1,736   1,729  
Goodwill4,591   4,492  
Intangible assets814   851  
Deferred income taxes509   516  
Other assets1,259   1,227  
 $14,940   $15,068  
    
Liabilities and Stockholders' Equity   
Current Liabilities:   
Short-term debt$353   $4  
Accounts payable521   472  
Accrued expenses1,263   1,217  
Cash dividends payable361   342  
Income taxes payable42   48  
Liabilities held for sale   71  
Total current liabilities2,540   2,154  
    
Noncurrent Liabilities:   
Long-term debt7,592   7,754  
Deferred income taxes671   668  
Noncurrent income taxes payable413   462  
Other liabilities1,027   1,000  
Total noncurrent liabilities9,703   9,884  
    
Stockholders’ Equity:   
Common stock6   6  
Additional paid-in-capital1,346   1,304  
Retained earnings22,833   22,403  
Common stock held in treasury(19,652)  (18,982) 
Accumulated other comprehensive income (loss)(1,837)  (1,705) 
Noncontrolling interest1   4  
Total stockholders’ equity2,697   3,030  
 $14,940   $15,068  
 
 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended September 30, 2020
Dollars in millionsTotal

Revenue
Operating

Income
Operating

Margin
Automotive OEM$714  $149  20.8%
Food Equipment449  88  19.6%
Test & Measurement and Electronics489  116  23.7%
Welding346  96  27.9%
Polymers & Fluids438  116  26.6%
Construction Products456  128  28.1%
Specialty Products420  106  25.2%
Intersegment(5)   %
Total Segments3,307  799  24.2%
Unallocated  (10) %
Total Company$3,307  $789  23.8%



Nine Months Ended September 30, 2020
Dollars in millionsTotal

Revenue
Operating

Income
Operating

Margin
Automotive OEM$1,771  $266  15.0%
Food Equipment1,268  236  18.6%
Test & Measurement and Electronics1,429  354  24.8%
Welding1,016  269  26.5%
Polymers & Fluids1,185  291  24.6%
Construction Products1,222  309  25.3%
Specialty Products1,221  313  25.7%
Intersegment(13)   %
Total Segments9,099  2,038  22.4%
Unallocated  (39) %
Total Company$9,099  $1,999  22.0%



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q3 2020 vs. Q3 2019 Favorable/(Unfavorable)
Operating RevenueAutomotive

OEM
Food

Equipment
Test &

Measurement

and Electronics
WeldingPolymers

& Fluids
Construction

Products
Specialty

Products
Total ITW
Organic(4.8)%(19.5)%(2.4)%(10.0)%5.8

%7.6%(4.7)%(4.6)%
Acquisitions/Divestitures

%

%(3.0)%(4.3)%

%%(0.8)%(1.0)%
Translation0.7

%0.9

%1.1

%0.3

%(1.0)%2.0%0.7

%0.7

%
Operating Revenue(4.1)%(18.6)%(4.3)%(14.0)%4.8%9.6 %(4.8)%(4.9)%



Q3 2020 vs. Q3 2019 Favorable/(Unfavorable)
Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement

and

Electronics
WeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage(90) bps(490) bps(60) bps(180) bps130 bps150 bps(100) bps(100) bps
Changes in Variable Margin & OH Costs120 bps(120) bps(140) bps120 bps150 bps180 bps(90) bps40 bps
Total Organic 30 bps  (610) bps  (200) bps  (60) bps  280 bps  330 bps  (190) bps  (60) bps
Acquisitions/Divestitures30 bps60 bps20 bps10 bps
Restructuring/Other(160) bps(180) bps(20) bps(30) bps(30) bps(30) bps70 bps(70) bps
Total Operating Margin Change (130) bps  (790) bps  (190) bps  (30) bps  250 bps  300 bps  (100) bps  (120) bps
         
Total Operating Margin % *20.8%19.6%23.7%27.9%26.6%28.1%25.2%23.8%
         
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps  80 bps  440 bps  10 bps  310 bps  20 bps  90 bps  150 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.11) on GAAP earnings per share for the third quarter of 2020.



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

YTD 2020 vs. YTD 2019 Favorable/(Unfavorable)
Operating RevenueAutomotive

OEM
Food

Equipment
Test &

Measurement

and Electronics
WeldingPolymers

& Fluids
Construction

Products
Specialty

Products
Total ITW
Organic(23.3)%(21.2)%(5.5)%(14.7)%(4.0)%(0.5)%(9.9)%(12.7)%
Acquisitions/Divestitures%%(3.0)%(3.9)%%%(0.9)%(1.0)%
Translation(0.9)%(0.4)%(0.4)%(0.2)%(2.0)%(1.0)%(0.7)%(0.8)%
Operating Revenue(24.2)%(21.6)%(8.9)%(18.8)%(6.0)%(1.5)%(11.5)%(14.5)%



YTD 2020 vs. YTD 2019 Favorable/(Unfavorable)
Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement

and

Electronics
WeldingPolymers

& Fluids
Construction ProductsSpecialty ProductsTotal ITW
Operating Leverage(530) bps(580) bps(150) bps(280) bps(90) bps(20) bps(220) bps(300) bps
Changes in Variable Margin & OH Costs(180) bps(150) bps120 bps(10) bps230 bps100 bps30 bps30 bps
Total Organic (710) bps  (730) bps  (30) bps  (290) bps  140 bps  80 bps  (190) bps  (270) bps
Acquisitions/Divestitures40 bps70 bps50 bps20 bps
Restructuring/Other50 bps(10) bps30 bps40 bps50 bps80 bps30 bps
Total Operating Margin Change (660) bps  (740) bps  10 bps  (190) bps  180 bps  130 bps  (60) bps  (220) bps
         
Total Operating Margin % *15.0%18.6%24.8%26.5%24.6%25.3%25.7%22.0%
         
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 60 bps  80 bps  270 bps  20 bps  340 bps  20 bps  90 bps  130 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.28) on GAAP earnings per share for the first nine months of 2020.



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

 Three Months Ended Nine Months Ended
 June 30, September 30, September 30,
Dollars in millions2020 2020 2019 2020 2019
Operating income$449  $789  $868  $1,999  $2,578 
Tax rate21.3% 21.3% 24.1% 22.0% 24.3%
Income taxes(96)  (168)  (210)  (439)  (628) 
Operating income after taxes$353  $621  $658  $1,560  $1,950 
          
Invested capital:         
Trade receivables$2,156  $2,494  $2,499  $2,494  $2,499 
Inventories1,167  1,149  1,209  1,149  1,209 
Net assets held for sale181    324    324 
Net plant and equipment1,711  1,736  1,693  1,736  1,693 
Goodwill and intangible assets5,244  5,405  5,320  5,405  5,320 
Accounts payable and accrued expenses(1,508)  (1,784)  (1,722)  (1,784)  (1,722) 
Other, net(636)  (527)  (535)  (527)  (535) 
Total invested capital$8,315  $8,473  $8,788  $8,473  $8,788 
          
Average invested capital$8,431  $8,394  $9,007  $8,536  $9,083 
Return on average invested capital16.8% 29.6% 29.2% 24.4% 28.6%



A reconciliation of the tax rate for the three and nine month periods ended September 30, 2019 excluding the third quarter 2019 discrete tax benefit of $21 million related to a U.S. federal provision to return adjustment is as follows:

 Three Months Ended Nine Months Ended
 September 30, 2019 September 30, 2019
Dollars in millionsIncome

Taxes
 Tax Rate Income

Taxes
 Tax Rate
As reported$182  21.6% $577  23.5%
Discrete tax benefit21  2.5% 21  0.8%
As adjusted$203  24.1% $598  24.3%



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

FREE CASH FLOW (UNAUDITED)

 Three Months Ended Nine Months Ended
 September 30, September 30,
Dollars in millions2020 2019 2020 2019
Net cash provided by operating activities$683  $920  $2,034  $2,221 
Less: Additions to plant and equipment(52)  (90)  (168)  (244) 
Free cash flow$631  $830  $1,866  $1,977 
        
Net income$582  $660  $1,467  $1,880 
Free cash flow to net income conversion rate108% 126% 127% 105%



   
Media Contact Investor Relations
Illinois Tool Works Illinois Tool Works
Trisha Knych Karen Fletcher
Tel: 224.661.7566 Tel: 224.661.7433
 
EN
23/10/2020

Underlying

To request access to management, click here to engage with our
partner Phoenix-IR's CorporateAccessNetwork.com

Reports on Illinois Tool Works Inc.

 PRESS RELEASE

ITW Completes Acquisition of MTS Test & Simulation Business

ITW Completes Acquisition of MTS Test & Simulation Business GLENVIEW, Ill., Dec. 01, 2021 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today announced that it has completed the acquisition of the MTS Test & Simulation business from Amphenol Corporation (NYSE: APH). About Illinois Tool WorksITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $12.6 billion in 2020. 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 hi...

Illinois Tool Works Inc: 2 directors

Two Directors at Illinois Tool Works Inc bought/sold after exercising options 29,436 shares at between 233.240USD and 235.289USD. The significance rating of the trade was 100/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trad...

Valens Research
  • Valens Research

Valens Equity Insights and Inflections - 2021 11 09

Harmonic (HLIT) has been transitioning its business away from traditional broadcasting end markets towards the streaming and cable broadband markets. Uniform Accounting highlights that the market is missing the economics of Harmonic's new business lines, indicating equity upside. As Harmonic grows its industry-leading vCMTS software to be the best-in-class broadband routing solution, it is poised to exponentially grow its profitability. Uniform ROA is projected to expand from 3% in 2020 to 9% b...

Valens Research
  • Valens Research

ITW - Embedded Expectations Analysis - 2021 11 04

Illinois Tool Works Inc. (ITW:USA) trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 27.8x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may have concerns about supply chain disruptions, margin pressure, and disruptions to their automotive vertical. Specifically, management may have concerns about supply chain disruptions, demand across Automotive OEMs, and the progress of the recovery of the food industry. In additi...

 PRESS RELEASE

ITW Board of Directors Declares Quarterly Dividend

ITW Board of Directors Declares Quarterly Dividend GLENVIEW, Ill., Oct. 29, 2021 (GLOBE NEWSWIRE) -- The Board of Directors of Illinois Tool Works Inc. (NYSE: ITW) declared a dividend on the company's common stock of $1.22 per share for the fourth quarter of 2021. The dividend equates to $4.88 per share on a full-year basis. The dividend will be paid on January 14, 2022 to shareholders of record as of December 31, 2021. About Illinois Tool WorksITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $12.6 billion in 2020. The company’s seven ...

ResearchPool Subscriptions

Get the most out of your insights

Get in touch