Illinois Tool Works Inc.
10/28/2021 | Press release | Distributed by Public on 10/28/2021 06:12
ITW Reports Third Quarter 2021 Results
- Total revenue of $3.6 billion, an increase of 8% with organic revenue growth of 6%
- Operating margin of 23.8%; Enterprise initiatives contributed 100 basis points
- GAAP EPS of $2.02, an increase of 10%
- Updated full year guidance with organic growth of 11 to 12% and EPS growth of 25 to 28%
GLENVIEW, IL., Oct. 28, 2021 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2021 results.
"We saw continued strong growth momentum in six of our seven segments in the third quarter, while our Automotive OEM segment continued to be impacted by auto production reductions associated with the well-publicized supply chain challenges affecting our customers," said E. Scott Santi, Chairman and Chief Executive Officer. "Our teams around the world continue to do an exceptional job of executing for our customers and for the company in a very challenging environment as evidenced by the six percent organic growth and ten percent earnings per share growth that ITW delivered in the quarter. Moving forward, we remain highly focused on fully leveraging the competitive strength of the ITW Business Model and the investments we have made, and continue to make, in support of the execution of our enterprise strategy and our 'Win the Recovery' positioning to their full potential."
Third Quarter 2021 Results
Third quarter revenue grew eight percent to $3.6 billion, with six percent organic growth. Operating income grew seven percent to $845 million. Excluding Automotive OEM, revenue grew 12 percent and operating income grew 14 percent. Operating margin was 23.8 percent, flat year-over-year, with enterprise initiatives and volume leverage each contributing 100 basis points or more of positive margin impact offset by price/cost margin dilution impact of 200 basis points. Consistent with our strategy, price recovery actions offset raw material cost increases on a dollar-for-dollar basis in the third quarter. GAAP EPS of $2.02 increased 10 percent. The effective tax rate for the third quarter was 20.8 percent, in line with the third quarter of 2020, and included a $0.06 one-time tax benefit. Operating cash flow was $619 million, 97 percent of net income, and free cash flow was $548 million, 86 percent of net income.
Six of seven segments delivered strong organic growth in the quarter, led by Welding up 22 percent, Food Equipment up 19 percent, Test & Measurement and Electronics up 12 percent, and Specialty Products up 8 percent. Polymers & Fluids and Construction Products were both up 3 percent. Automotive OEM declined 11 percent.
Capital Allocation Update
Pending final regulatory approvals, ITW expects to complete its previously announced acquisition of the MTS Test & Simulation business in the fourth quarter of 2021. On August 6, 2021, ITW raised its dividend by seven percent to an annualized rate of $4.88 per share. The company is on pace to repurchase approximately $1 billion of its shares in 2021, having repurchased $750 million year-to-date.
2021 Guidance
ITW expects total revenue growth of 13 to 14 percent and organic growth in the range of 11 to 12 percent. Foreign currency translation impact at current foreign exchange rates is projected to contribute two percentage points to revenue growth. GAAP EPS guidance is updated to a range of $8.30 to $8.50, due to actual and anticipated lower auto production levels in Q3 and Q4 versus previous guidance. Raw material cost increases are expected to be offset with price on a dollar-for-dollar basis and therefore EPS neutral. Full year margin dilution impact from price/cost is expected to be approximately 150 basis points, offset by more than 200 basis points of volume leverage and a contribution from enterprise initiatives of more than 100 basis points. Operating margin is expected to be in the range of 23.5 to 24.5 percent, an increase of more than 100 basis points at the midpoint versus 2020. Free cash flow is expected to be approximately 90 percent of net income adjusted for one-time tax benefits. Guidance excludes any impact from the acquisition of the MTS Test & Simulation business.
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 estimated free cash flow to the most directly comparable GAAP measure have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of availability of reliable forward-looking cash flow and operating information.
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 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 tariffs and raw material inflation, product line simplification activities and enterprise initiatives, future financial and operating performance, free cash flow and free cash flow conversion rate, organic and total revenue, operating margin, price/cost impact, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation, 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 dispositions and related impact on financial results, including statements with respect to the anticipated acquisition of the MTS Test & Simulation business, and the company's 2021 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 2020.
About Illinois Tool Works
ITW (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 highly innovative, customer-focused solutions are required. ITW's approximately 43,000 dedicated colleagues around the world thrive in the company's decentralized and entrepreneurial culture. www.itw.com
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Media Contact Illinois Tool Works Tel: 224.661.7451 [email protected] |
Investor Relations Illinois Tool Works Karen Fletcher Tel: 224.661.7433 [email protected] |
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 amounts | 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Operating Revenue | $ | 3,556 | $ | 3,307 | $ | 10,776 | $ | 9,099 | |||||||||||
| Cost of revenue | 2,096 | 1,910 | 6,298 | 5,375 | |||||||||||||||
| Selling, administrative, and research and development expenses | 581 | 560 | 1,735 | 1,606 | |||||||||||||||
| Amortization and impairment of intangible assets | 34 | 48 | 100 | 119 | |||||||||||||||
| Operating Income | 845 | 789 | 2,643 | 1,999 | |||||||||||||||
| Interest expense | (49 | ) | (52 | ) | (153 | ) | (154 | ) | |||||||||||
| Other income (expense) | 10 | 2 | 44 | 35 | |||||||||||||||
| Income Before Taxes | 806 | 739 | 2,534 | 1,880 | |||||||||||||||
| Income Taxes | 167 | 157 | 449 | 413 | |||||||||||||||
| Net Income | $ | 639 | $ | 582 | $ | 2,085 | $ | 1,467 | |||||||||||
| Net Income Per Share: | |||||||||||||||||||
| Basic | $ | 2.03 | $ | 1.84 | $ | 6.61 | $ | 4.63 | |||||||||||
| Diluted | $ | 2.02 | $ | 1.83 | $ | 6.58 | $ | 4.61 | |||||||||||
| Cash Dividends Per Share: | |||||||||||||||||||
| Paid | $ | 1.14 | $ | 1.07 | $ | 3.42 | $ | 3.21 | |||||||||||
| Declared | $ | 1.22 | $ | 1.14 | $ | 3.50 | $ | 3.28 | |||||||||||
| Shares of Common Stock Outstanding During the Period: | |||||||||||||||||||
| Average | 314.6 | 316.5 | 315.6 | 316.9 | |||||||||||||||
| Average assuming dilution | 315.9 | 317.9 | 316.9 | 318.3 | |||||||||||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
| In millions | September 30, 2021 | December 31, 2020 | |||||||
| Assets | |||||||||
| Current Assets: | |||||||||
| Cash and equivalents | $ | 1,987 | $ | 2,564 | |||||
| Trade receivables | 2,729 | 2,506 | |||||||
| Inventories | 1,524 | 1,189 | |||||||
| Prepaid expenses and other current assets | 337 | 264 | |||||||
| Total current assets | 6,577 | 6,523 | |||||||
| Net plant and equipment | 1,744 | 1,777 | |||||||
| Goodwill | 4,610 | 4,690 | |||||||
| Intangible assets | 683 | 781 | |||||||
| Deferred income taxes | 580 | 533 | |||||||
| Other assets | 1,323 | 1,308 | |||||||
| $ | 15,517 | $ | 15,612 | ||||||
| Liabilities and Stockholders' Equity | |||||||||
| Current Liabilities: | |||||||||
| Short-term debt | $ | 579 | $ | 350 | |||||
| Accounts payable | 565 | 534 | |||||||
| Accrued expenses | 1,399 | 1,284 | |||||||
| Cash dividends payable | 383 | 361 | |||||||
| Income taxes payable | 70 | 60 | |||||||
| Total current liabilities | 2,996 | 2,589 | |||||||
| Noncurrent Liabilities: | |||||||||
| Long-term debt | 6,972 | 7,772 | |||||||
| Deferred income taxes | 633 | 588 | |||||||
| Noncurrent income taxes payable | 365 | 413 | |||||||
| Other liabilities | 1,058 | 1,068 | |||||||
| Total noncurrent liabilities | 9,028 | 9,841 | |||||||
| Stockholders' Equity: | |||||||||
| Common stock | 6 | 6 | |||||||
| Additional paid-in-capital | 1,416 | 1,362 | |||||||
| Retained earnings | 24,098 | 23,114 | |||||||
| Common stock held in treasury | (20,390 | ) | (19,659 | ) | |||||
| Accumulated other comprehensive income (loss) | (1,638 | ) | (1,642 | ) | |||||
| Noncontrolling interest | 1 | 1 | |||||||
| Total stockholders' equity | 3,493 | 3,182 | |||||||
| $ | 15,517 | $ | 15,612 | ||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| Three Months Ended September 30, 2021 | ||||||||||
| Dollars in millions |
Total Revenue |
Operating Income |
Operating Margin |
|||||||
| Automotive OEM | $ | 647 | $ | 112 | 17.3 | % | ||||
| Food Equipment | 544 | 130 | 23.9 | % | ||||||
| Test & Measurement and Electronics | 552 | 148 | 26.8 | % | ||||||
| Welding | 425 | 128 | 30.0 | % | ||||||
| Polymers & Fluids | 456 | 111 | 24.2 | % | ||||||
| Construction Products | 478 | 133 | 27.8 | % | ||||||
| Specialty Products | 459 | 126 | 27.3 | % | ||||||
| Intersegment | (5 | ) | - | - | % | |||||
| Total Segments | 3,556 | 888 | 24.9 | % | ||||||
| Unallocated | - | (43 | ) | - | % | |||||
| Total Company | $ | 3,556 | $ | 845 | 23.8 | % |
| Nine Months Ended September 30, 2021 | ||||||||||
| Dollars in millions |
Total Revenue |
Operating Income |
Operating Margin |
|||||||
| Automotive OEM | $ | 2,137 | $ | 434 | 20.3 | % | ||||
| Food Equipment | 1,509 | 339 | 22.5 | % | ||||||
| Test & Measurement and Electronics | 1,710 | 475 | 27.8 | % | ||||||
| Welding | 1,228 | 364 | 29.6 | % | ||||||
| Polymers & Fluids | 1,357 | 350 | 25.8 | % | ||||||
| Construction Products | 1,465 | 406 | 27.7 | % | ||||||
| Specialty Products | 1,387 | 380 | 27.4 | % | ||||||
| Intersegment | (17 | ) | - | - | % | |||||
| Total Segments | 10,776 | 2,748 | 25.5 | % | ||||||
| Unallocated | - | (105 | ) | - | % | |||||
| Total Company | $ | 10,776 | $ | 2,643 | 24.5 | % |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| Q3 2021 vs. Q3 2020 Favorable/(Unfavorable) | ||||||||||||||||||
| Operating Revenue |
Automotive OEM |
Food Equipment |
Test & Measurement and Electronics |
Welding |
Polymers & Fluids |
Construction Products |
Specialty Products |
Total ITW |
||||||||||
| Organic | (10.7 | ) | % | 18.9 | % | 11.8 | % | 22.0 | % | 3.4 | % | 3.4 | % | 8.3 | % | 6.3 | % | |
| Acquisitions/Divestitures | - | % | - | % | - | % | - | % | - | % | (0.1 | ) | % | - | % | - | % | |
| Translation | 1.3 | % | 2.1 | % | 1.1 | % | 0.9 | % | 0.7 | % | 1.7 | % | 1.1 | % | 1.2 | % | ||
|
Operating Revenue |
(9.4 | ) | % | 21.0 | % | 12.9 | % | 22.9 | % | 4.1 | % | 5.0 | % | 9.4 | % | 7.5 | % |
| Q3 2021 vs. Q3 2020 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 | (240) bps | 410 bps | 290 bps | 290 bps | 70 bps | 50 bps | 180 bps | 130 bps |
| Changes in Variable Margin & OH Costs | (320) bps | (140) bps | (20) bps | (40) bps | (340) bps | (120) bps | 30 bps | (210) bps |
| Total Organic | (560) bps | 270 bps | 270 bps | 250 bps | (270) bps | (70) bps | 210 bps | (80) bps |
| Acquisitions/Divestitures | - | - | - | - | - | - | - | - |
| Restructuring/Other | 210 bps | 160 bps | 40 bps | (40) bps | 30 bps | 40 bps | - | 80 bps |
| Total Operating Margin Change | (350) bps | 430 bps | 310 bps | 210 bps | (240) bps | (30) bps | 210 bps | - |
|
Total Operating Margin % * |
17.3% | 23.9% | 26.8% | 30.0% | 24.2% | 27.8% | 27.3% | 23.8% |
| *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 40 bps | 60 bps | 170 bps | 20 bps | 240 bps | 20 bps | 80 bps | 90 bps ** |
| ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the third quarter of 2021. |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| YTD 2021 vs. YTD 2020 Favorable/(Unfavorable) | |||||||||||||||||
| Operating Revenue |
Automotive OEM |
Food Equipment |
Test & Measurement and Electronics |
Welding |
Polymers & Fluids |
Construction Products |
Specialty Products |
Total ITW |
|||||||||
| Organic | 15.7 | % | 15.2 | % | 16.8 | % | 19.3 | % | 12.4 | % | 14.0 | % | 10.8 | % | 14.9 | % | |
| Acquisitions/Divestitures | - | % | - | % | - | % | - | % | - | % | (0.1 | ) | % | - | % | - | % |
| Translation | 4.9 | % | 3.8 | % | 2.9 | % | 1.6 | % | 2.1 | % | 6.0 | % | 2.8 | % | 3.5 | % | |
|
Operating Revenue |
20.6 | % | 19.0 | % | 19.7 | % | 20.9 | % | 14.5 | % | 19.9 | % | 13.6 | % | 18.4 | % |
| YTD 2021 vs. YTD 2020 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 | 310 bps | 350 bps | 380 bps | 270 bps | 240 bps | 250 bps | 210 bps | 300 bps |
| Changes in Variable Margin & OH Costs | 150 bps | (20) bps | (100) bps | 60 bps | (130) bps | (20) bps | (20) bps | (70) bps |
| Total Organic | 460 bps | 330 bps | 280 bps | 330 bps | 110 bps | 230 bps | 190 bps | 230 bps |
| Acquisitions/Divestitures | - | - | - | - | - | - | - | - |
| Restructuring/Other | 70 bps | 60 bps | 20 bps | (20) bps | 10 bps | 10 bps | (20) bps | 20 bps |
| Total Operating Margin Change | 530 bps | 390 bps | 300 bps | 310 bps | 120 bps | 240 bps | 170 bps | 250 bps |
|
Total Operating Margin % * |
20.3% | 22.5% | 27.8% | 29.6% | 25.8% | 27.7% | 27.4% | 24.5% |
| *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 40 bps | 60 bps | 160 bps | 10 bps | 250 bps | 20 bps | 70 bps | 100 bps ** |
| ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.24) on GAAP earnings per share for the first nine months of 2021. |
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 | ||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| Dollars in millions | 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Operating income | $ | 845 | $ | 789 | $ | 2,643 | $ | 1,999 | |||||||||||
| Tax rate (as adjusted in 2021) | 23.4 | % | 21.3 | % | 22.9 | % | 22.0 | % | |||||||||||
| Income taxes | (198 | ) | (168 | ) | (607 | ) | (439 | ) | |||||||||||
| Operating income after taxes | $ | 647 | $ | 621 | $ | 2,036 | $ | 1,560 | |||||||||||
| Invested capital: | |||||||||||||||||||
| Trade receivables | $ | 2,729 | $ | 2,494 | $ | 2,729 | $ | 2,494 | |||||||||||
| Inventories | 1,524 | 1,149 | 1,524 | 1,149 | |||||||||||||||
| Net plant and equipment | 1,744 | 1,736 | 1,744 | 1,736 | |||||||||||||||
| Goodwill and intangible assets | 5,293 | 5,405 | 5,293 | 5,405 | |||||||||||||||
| Accounts payable and accrued expenses | (1,964 | ) | (1,784 | ) | (1,964 | ) | (1,784 | ) | |||||||||||
| Other, net | (269 | ) | (527 | ) | (269 | ) | (527 | ) | |||||||||||
| Total invested capital | $ | 9,057 | $ | 8,473 | $ | 9,057 | $ | 8,473 | |||||||||||
| Average invested capital | $ | 9,084 | $ | 8,394 | $ | 8,912 | $ | 8,536 | |||||||||||
| After-tax return on average invested capital | 28.5 | % | 29.6 | % | 30.5 | % | 24.4 | % |
A reconciliation of the tax rate for the three and nine month periods ended September 30, 2021, 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:
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, 2021 | September 30, 2021 | ||||||||||||
| Dollars in millions | Income Taxes | Tax Rate | Income Taxes | Tax Rate | |||||||||
| As reported | $ | 167 | 20.8 | % | $ | 449 | 17.7 | % | |||||
| Discrete tax benefit related to the third quarter 2021 | 21 | 2.6 | % | 21 | 0.8 | % | |||||||
| Discrete tax benefit related to the second quarter 2021 | - | - | % | 112 | 4.4 | % | |||||||
| As adjusted | $ | 188 | 23.4 | % | $ | 582 | 22.9 | % |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
FREE CASH FLOW (UNAUDITED)
| Three Months Ended | Nine Months Ended | Twelve Months | ||||||||||||||||||||||
| September 30, | September 30, | Ended | ||||||||||||||||||||||
| Dollars in millions | 2021 | 2020 | 2021 | 2020 | December 31, 2020 | |||||||||||||||||||
| Net cash provided by operating activities | $ | 619 | $ | 683 | $ | 1,783 | $ | 2,034 | $ | 2,807 | ||||||||||||||
| Less: Additions to plant and equipment | (71 | ) | (52 | ) | (217 | ) | (168 | ) | (236 | ) | ||||||||||||||
| Free cash flow | $ | 548 | $ | 631 | $ | 1,566 | $ | 1,866 | $ | 2,571 | ||||||||||||||
| Net income | $ | 639 | $ | 582 | $ | 2,085 | $ | 1,467 | $ | 2,109 | ||||||||||||||
| Net cash provided by operating activities to Net income conversion rate | 97 | % | 117 | % | 86 | % | 139 | % | 133 | % | ||||||||||||||
| Free cash flow to Net income conversion rate | 86 | % | 108 | % | 75 | % | 127 | % | 122 | % |
Source: Illinois Tool Works Inc.