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.

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STATEMENT OF INCOME (UNAUDITED)

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GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

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:

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

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