• ITW Reports Third Quarter 2023 Results

    ソース: Nasdaq GlobeNewswire / 24 10 2023 07:00:01   America/Chicago

    • Revenue of $4.0 billion, an increase of 0.5%
    • Operating income of $1.1 billion, an increase of 9%
    • Operating margin of 26.5%, an increase of 200 bps
    • GAAP EPS of $2.55, an increase of 9%
    • Narrowing full year GAAP EPS guidance range to $9.65 to $9.85 per share

    GLENVIEW, Ill., Oct. 24, 2023 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2023 results.

    “The strength and resilience of ITW’s proprietary business model and high-quality diversified portfolio once again drove strong operational execution and financial performance in the third quarter. Quarterly operating margin expanded 200 basis points year over year to 26.5 percent, free cash flow grew 40 percent, and GAAP EPS grew nine percent to $2.55,” said E. Scott Santi, Chairman and Chief Executive Officer. “Organic revenue growth was two percent on an equal days’ basis in the quarter. Looking ahead at the balance of the year, while we anticipate some impact from ongoing automotive industry labor actions on our Automotive OEM segment in the fourth quarter, the company remains well-positioned to deliver another strong year of differentiated overall performance in 2023.”

    Third Quarter 2023 Results
    Third quarter revenue of $4.0 billion increased 0.5 percent with organic revenue growth of 0.2 percent, as divestitures reduced revenue by 1.2 percent and foreign currency translation added 1.5 percent. On an equal days’ basis, organic growth was two percent. End customer and channel partner inventory reduction efforts associated with supply chain normalization reduced organic growth by an estimated 1 to 1.5 percent in the quarter.

    GAAP EPS increased nine percent to $2.55 and the effective tax rate was 23.8 percent. Operating income grew nine percent to $1.1 billion. Operating margin of 26.5 percent expanded 200 basis points as enterprise initiatives contributed 140 basis points. Operating cash flow was $982 million, and free cash flow was $856 million, an increase of 40 percent, with a conversion rate to net income of 111 percent. During the quarter, the company repurchased $375 million of its own shares and raised its dividend seven percent to an annualized $5.60 per share.

    2023 Guidance
    ITW is narrowing the range of its full year GAAP EPS guidance from $9.55 to $9.95 per share to a range of $9.65 to $9.85 per share, which includes a $0.12 per share adjustment for the estimated fourth quarter impact of ongoing automotive industry labor actions. The company is projecting total revenue growth of one to two percent with organic growth of two to three percent based on current levels of demand exiting the third quarter, and the estimated fourth quarter impact of ongoing automotive industry labor actions. Combined divestitures and foreign currency translation are expected to reduce revenue by one percent. Operating margin is projected to be in the range of 25 to 25.5 percent, an improvement of 150 basis points at the mid-point, with enterprise initiatives contributing more than 100 basis points. Free cash flow is projected to be greater than 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares. The expected tax rate is in the range of 22.5 to 23.5 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 to net income 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 global supply chain challenges, expected impact of inflation including raw material inflation and rising interest rates, the impact of 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, statements regarding diluted income per share, restructuring expenses and related benefits, expected dividend payments, 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, the impact of recent or potential acquisitions and/or divestitures, the potential impact of automotive industry labor actions, and the company’s 2023 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 risk factors contained in ITW's Form 10-K for 2022 and subsequent reports filed with the SEC.

    About Illinois Tool Works
    ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenue of $15.9 billion in 2022. 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 46,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com


    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 2023   2022   2023   2022 
    Operating Revenue$4,031  $4,011  $12,124  $11,961 
    Cost of revenue 2,319   2,371   7,004   7,120 
    Selling, administrative, and research and development expenses 615   624   1,980   1,935 
    Amortization and impairment of intangible assets 27   33   88   102 
    Operating Income 1,070   983   3,052   2,804 
    Interest expense (67)  (52)  (196)  (147)
    Other income (expense) 10   26   40   64 
    Income Before Taxes 1,013   957   2,896   2,721 
    Income Taxes 241   230   656   594 
    Net Income$772  $727  $2,240  $2,127 
            
    Net Income Per Share:       
    Basic$2.55  $2.36  $7.38  $6.85 
    Diluted$2.55  $2.35  $7.36  $6.83 
            
    Cash Dividends Per Share:       
    Paid$1.31  $1.22  $3.93  $3.66 
    Declared$1.40  $1.31  $4.02  $3.75 
            
    Shares of Common Stock Outstanding During the Period:       
    Average 301.9   308.8   303.4   310.6 
    Average assuming dilution 303.0   309.7   304.5   311.6 


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    STATEMENT OF FINANCIAL POSITION (UNAUDITED)

    In millionsSeptember 30, 2023 December 31, 2022
    Assets   
    Current Assets:   
    Cash and equivalents$990  $708 
    Trade receivables 3,163   3,171 
    Inventories 1,799   2,054 
    Prepaid expenses and other current assets 336   329 
    Assets held for sale —   8 
    Total current assets 6,288   6,270 
        
    Net plant and equipment 1,904   1,848 
    Goodwill 4,828   4,864 
    Intangible assets 682   768 
    Deferred income taxes 455   494 
    Other assets 1,238   1,178 
     $15,395  $15,422 
        
    Liabilities and Stockholders' Equity   
    Current Liabilities:   
    Short-term debt$1,248  $1,590 
    Accounts payable 580   594 
    Accrued expenses 1,588   1,728 
    Cash dividends payable 421   400 
    Income taxes payable 145   147 
    Liabilities held for sale —   1 
    Total current liabilities 3,982   4,460 
        
    Noncurrent Liabilities:   
    Long-term debt 6,818   6,173 
    Deferred income taxes 464   484 
    Noncurrent income taxes payable 151   273 
    Other liabilities 976   943 
    Total noncurrent liabilities 8,409   7,873 
        
    Stockholders' Equity:   
    Common stock 6   6 
    Additional paid-in-capital 1,569   1,501 
    Retained earnings 26,823   25,799 
    Common stock held in treasury (23,493)  (22,377)
    Accumulated other comprehensive income (loss) (1,902)  (1,841)
    Noncontrolling interest 1   1 
    Total stockholders' equity 3,004   3,089 
     $15,395  $15,422 


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    SEGMENT DATA (UNAUDITED)

    Three Months Ended September 30, 2023
    Dollars in millionsTotal RevenueOperating IncomeOperating Margin
    Automotive OEM$799 $15118.9%
    Food Equipment 678  18527.3%
    Test & Measurement and Electronics 698  16723.8%
    Welding 468  14731.6%
    Polymers & Fluids 458  12928.1%
    Construction Products 522  15529.9%
    Specialty Products 414  11527.8%
    Intersegment (6) ——%
    Total Segments 4,031  1,04926.0%
    Unallocated —  21—%
    Total Company$4,031 $1,07026.5%


    Nine Months Ended September 30, 2023
    Dollars in millionsTotal RevenueOperating IncomeOperating Margin
    Automotive OEM$2,421 $418 17.3%
    Food Equipment 1,967  536 27.2%
    Test & Measurement and Electronics 2,101  501 23.8%
    Welding 1,451  471 32.5%
    Polymers & Fluids 1,364  357 26.2%
    Construction Products 1,574  454 28.9%
    Specialty Products 1,260  333 26.4%
    Intersegment (14) — —%
    Total Segments 12,124  3,070 25.3%
    Unallocated —  (18)—%
    Total Company$12,124 $3,052 25.2%


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    SEGMENT DATA (UNAUDITED)

    Q3 2023 vs. Q3 2022 Favorable/(Unfavorable)
    Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Organic3.8%6.3%(3.9)%(2.4)%3.4%(2.1)%(5.6)%0.2%
    Acquisitions/
    Divestitures    		—%(1.8)%—%—%(5.7)%—%(2.3)%(1.2)%
    Translation2.2%2.7%1.5%0.6%(0.8)%0.9%2.4%1.5%
    Operating Revenue6.0%7.2%(2.4)%(1.8)%(3.1)%(1.2)%(5.5)%0.5%


    Q3 2023 vs. Q3 2022 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Operating Leverage70 bps110 bps(100) bps(40) bps70 bps(30) bps(110) bps—
    Changes in Variable Margin & OH Costs100 bps(40) bps(10) bps50 bps200 bps430 bps40 bps200 bps
    Total Organic170 bps70 bps(110) bps10 bps270 bps400 bps(70) bps200 bps
    Acquisitions/
    Divestitures    		—
    		10 bps—
    		—
    		20 bps—
    		60 bps10 bps
    Restructuring/Other(30) bps20 bps(30) bps—
    		(10) bps20 bps20 bps(10) bps
    Total Operating Margin Change140 bps100 bps(140) bps10 bps280 bps420 bps10 bps200 bps
             
    Total Operating Margin % *18.9%27.3%23.8%31.6%28.1%29.9%27.8%26.5%
             
    * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets30 bps40 bps160 bps10 bps170 bps10 bps30 bps70 bps **
    ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.07) on GAAP earnings per share for the third quarter of 2023.


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    SEGMENT DATA (UNAUDITED)

    YTD 2023 vs. YTD 2022 Favorable/(Unfavorable)
    Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Organic9.2%9.6%0.9%2.7%0.9%(3.1)%(4.7)%2.8%
    Acquisitions/
    Divestitures    		—%(1.3)%—%—%(5.3)%—%(1.5)%(1.0)%
    Translation(0.4)%0.2%(0.7)%—%(1.5)%(1.1)%0.4%(0.4)%
    Operating Revenue8.8%8.5%0.2%2.7%(5.9)%(4.2)%(5.8)%1.4%


    YTD 2023 vs. YTD 2022 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Operating Leverage180 bps180 bps20 bps50 bps10 bps(50) bps(100) bps60 bps
    Changes in Variable Margin & OH Costs(190) bps70 bps60 bps150 bps120 bps360 bps20 bps110 bps
    Total Organic(10) bps250 bps80 bps200 bps130 bps310 bps(80) bps170 bps
    Acquisitions/
    Divestitures    		—
    		20 bps—
    		—
    		30 bps—
    		40 bps10 bps
    Restructuring/Other70 bps—
    		(20) bps—
    		(40) bps(20) bps(30) bps—
    Total Operating Margin Change60 bps270 bps60 bps200 bps120 bps290 bps(70) bps180 bps
             
    Total Operating Margin % *17.3%27.2%23.8%32.5%26.2%28.9%26.4%25.2%
             
    * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets20 bps50 bps170 bps10 bps180 bps10 bps60 bps70 bps **
    ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.22) on GAAP earnings per share for the first nine months of 2023.


    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 2023   2022   2023   2022 
    Numerator:       
    Net income$772  $727  $2,240  $2,127 
    Discrete tax benefit related to the second quarter 2023 —   —   (20)  — 
    Discrete tax benefit related to the second quarter 2022 —   —   —   (51)
    Interest expense, net of tax(1) 51   39   150   112 
    Other (income) expense, net of tax(1) (8)  (20)  (31)  (49)
    Operating income after taxes$815  $746  $2,339  $2,139 
            
    Denominator:       
    Invested capital:       
    Cash and equivalents$990  $774  $990  $774 
    Trade receivables 3,163   3,031   3,163   3,031 
    Inventories 1,799   2,007   1,799   2,007 
    Net assets held for sale —   75   —   75 
    Net plant and equipment 1,904   1,705   1,904   1,705 
    Goodwill and intangible assets 5,510   5,557   5,510   5,557 
    Accounts payable and accrued expenses (2,168)  (2,177)  (2,168)  (2,177)
    Debt (8,066)  (7,628)  (8,066)  (7,628)
    Other, net (128)  (330)  (128)  (330)
    Total net assets (stockholders' equity) 3,004   3,014   3,004   3,014 
    Cash and equivalents (990)  (774)  (990)  (774)
    Debt 8,066   7,628   8,066   7,628 
    Total invested capital$10,080  $9,868  $10,080  $9,868 
            
    Average invested capital(2)$10,237  $10,004  $10,239  $9,985 
            
    Net income to average invested capital(3) 30.1%  29.1%  29.2%  28.4%
    After-tax return on average invested capital(3) 31.9%  29.9%  30.5%  28.6%

    (1)  Effective tax rate used for interest expense and other (income) expense for the three months ended September 30, 2023 and 2022 was 23.8% and 23.9%, respectively. Effective tax rate used for interest expense and other (income) expense for the nine months ended September 30, 2023 and 2022 was 23.4% and 23.7%, 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 September 30, 2023 and 2022 were converted to an annual rate by multiplying the calculated return by 4. Returns for the nine months ended September 30, 2023 and 2022 were converted to an annual rate by dividing the calculated return by 3 and multiplying it by 4.
    A reconciliation of the tax rate for the nine months ended September 30, 2023, excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:

      Nine Months Ended
      September 30, 2023
    Dollars in millions Income Taxes Tax Rate
    As reported $656 22.7%
    Discrete tax benefit related to the second quarter 2023  20 0.7%
    As adjusted $676 23.4%

    A reconciliation of the tax rate for the nine months ended September 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:

     Nine Months Ended
     September 30, 2022
    Dollars in millionsIncome Taxes Tax Rate
    As reported$594 21.8%
    Discrete tax benefit related to the second quarter 2022 51 1.9%
    As adjusted$645 23.7%


    AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

     Twelve Months Ended
    Dollars in millionsDecember 31, 2022
    Numerator: 
    Net income$3,034 
    Discrete tax benefit related to the fourth quarter 2022 (32)
    Discrete tax benefit related to the second quarter 2022 (51)
    Interest expense, net of tax(1) 156 
    Other (income) expense, net of tax(1) (196)
    Operating income after taxes$2,911 
      
    Denominator: 
    Invested capital: 
    Cash and equivalents$708 
    Trade receivables 3,171 
    Inventories 2,054 
    Net assets held for sale 7 
    Net plant and equipment 1,848 
    Goodwill and intangible assets 5,632 
    Accounts payable and accrued expenses (2,322)
    Debt (7,763)
    Other, net (246)
    Total net assets (stockholders' equity) 3,089 
    Cash and equivalents (708)
    Debt 7,763 
    Total invested capital$10,144 
      
    Average invested capital(2)$10,017 
      
    Net income to average invested capital 30.3%
    After-tax return on average invested capital 29.1%

    (1)  Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2022 was 23.2%.

    (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 2022 effective tax rate excluding the fourth quarter 2022 discrete tax benefit of $32 million related to the utilization of capital loss carryforwards and the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a U.S. tax audit is as follows:

     Twelve Months Ended
     December 31, 2022
    Dollars in millionsIncome Taxes Tax Rate
    As reported$808 21.0%
    Discrete tax benefit related to the fourth quarter 2022 32 0.8%
    Discrete tax benefit related to the second quarter 2022 51 1.4%
    As adjusted$891 23.2%


    FREE CASH FLOW (UNAUDITED)

     Three Months Ended Nine Months Ended
     September 30, September 30,
    Dollars in millions 2023   2022   2023   2022 
    Net cash provided by operating activities$982  $713  $2,500  $1,537 
    Less: Additions to plant and equipment (126)  (101)  (324)  (256)
    Free cash flow$856  $612  $2,176  $1,281 
            
    Net income$772  $727  $2,240  $2,127 
            
    Net cash provided by operating activities to net income conversion rate 127%  98%  112%  72%
    Free cash flow to net income conversion rate 111%  84%  97%  60%


    ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

     Twelve Months Ended
     December 31, 2022
    As reported$9.77 
    Net impact of gains from two divestitures in the fourth quarter 2022 (0.60)
    As adjusted$9.17 


    Media ContactInvestor Relations
    Tel: 224.661.7451Karen Fletcher
    mediarelations@itw.comTel: 224.661.7433
     investorrelations@itw.com

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