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ITW Reports First Quarter 2024 Results
ソース: Nasdaq GlobeNewswire / 30 4 2024 07:00:02 America/Chicago
- Revenue of $4.0 billion, organic growth declined (0.6)% as expected
- Operating income of $1.13 billion, an increase of 16% includes $117 million benefit from a one-time LIFO accounting change (“item”); ex-item, operating income was $1.01 billion, an increase of 4%
- Operating margin of 28.4%, an increase of 420 bps; 25.4% ex-item, an increase of 120 bps as enterprise initiatives contributed 140 bps
- GAAP EPS of $2.73, an increase of 17%; EPS of $2.44 ex-item, an increase of 5%
- Reaffirming full-year organic growth guidance of 1 to 3% and raising full-year GAAP EPS guidance by $0.30 to a range of $10.30 to $10.70 per share
GLENVIEW, Ill., April 30, 2024 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its first quarter 2024 results and raised guidance for full-year 2024.
“While the near-term demand environment across the majority of our segments was challenging as expected, the ITW team delivered a solid start to the year as operating income grew four percent, operating margin expanded 120 basis points to 25.4 percent, and EPS increased five percent to $2.44, excluding a one-time item,” said Christopher A. O’Herlihy, President and Chief Executive Officer. “Looking ahead, we expect current levels of demand across our end markets and favorable year-over-year comparisons will translate to positive organic growth through the balance of the year. Combined with our strong margin and profitability performance, I am confident that ITW is on track and well positioned to deliver on our 2024 performance targets including positive organic growth of one to three percent.”
First Quarter 2024 Results
First quarter revenue of $4.0 billion declined by one percent as organic growth declined by 0.6 percent. Foreign currency translation impact reduced revenue by 0.4 percent.GAAP EPS increased 17 percent to $2.73 and included $0.29 of favorable impact from a one-time LIFO inventory accounting change. Excluding this item, EPS of $2.44 increased five percent. Operating income increased 16 percent to $1.13 billion and included $117 million of pre-tax impact from the one-time item. Excluding the one-time item, operating income grew four percent. Operating margin improved 420 basis points to 28.4 percent. Excluding the one-time item, operating margin improved 120 basis points to 25.4 percent as enterprise initiatives contributed 140 basis points. Operating cash flow was $589 million, and free cash flow was $494 million with a conversion of 68 percent to net income excluding the one-time item. During the quarter, the company repurchased $375 million of its own shares and the effective tax rate was 23.6 percent.
One-Time LIFO Inventory Accounting Change
As of December 31, 2023, the last-in, first-out ("LIFO") method was used to determine the cost of inventories at certain U.S. businesses representing approximately 23 percent of total inventories. During the first quarter of 2024, ITW changed the method used to determine the cost of inventory at these businesses from LIFO to the first-in, first-out ("FIFO") method to provide a more consistent and simpler method for valuing inventory across its operations. The company recorded the pre-tax cumulative effect of this change in accounting method of $117 million resulting in an increase to inventories and a reduction in cost of revenue in the quarter.2024 Guidance
ITW is incorporating the impact of the one-time item into its full-year 2024 guidance and raising GAAP EPS by $0.30 to a range of $10.30 to $10.70 per share and operating margin by 50 basis points to a range of 26 to 27 percent with enterprise initiatives expected to contribute more than 100 basis points. The company projects revenue growth of two to four percent and organic growth of one to three percent based on current levels of demand and foreign exchange rates. Free cash flow is expected to exceed 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate is in the range of 24 to 24.5 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. For the same reasons, the company is unable to address the potential significance of the unavailable information, which could be material to future results.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 to net income conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted income per share, expected dividend payments, after-tax return on invested capital, effective tax rates, exchange rates, expected timing and amount of share repurchases, end market economic and regulatory conditions, the impact of recent or potential acquisitions and/or divestitures, and the Company’s 2024 guidance. These statements are subject to certain risks, uncertainties, assumptions, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that could cause actual results to differ materially from the Company’s expectations include those that are detailed in ITW’s Form 10-K for 2023 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 $16.1 billion in 2023. 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. www.itw.com
Investor Relations & Media Contact:
Erin Linnihan
Tel: 224.661.7431
investorrelations@itw.com | mediarelations@itw.comILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)Three Months Ended March 31, In millions except per share amounts 2024 2023 Operating Revenue $ 3,973 $ 4,019 Cost of revenue 2,145 2,341 Selling, administrative, and research and development expenses 676 675 Amortization and impairment of intangible assets 25 31 Operating Income 1,127 972 Interest expense (71 ) (60 ) Other income (expense) 16 10 Income Before Taxes 1,072 922 Income Taxes 253 208 Net Income $ 819 $ 714 Net Income Per Share: Basic $ 2.74 $ 2.34 Diluted $ 2.73 $ 2.33 Cash Dividends Per Share: Paid $ 1.40 $ 1.31 Declared $ 1.40 $ 1.31 Shares of Common Stock Outstanding During the Period: Average 298.9 305.0 Average assuming dilution 300.0 306.1 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)In millions March 31, 2024 December 31, 2023 Assets Current Assets: Cash and equivalents $ 959 $ 1,065 Trade receivables 3,238 3,123 Inventories 1,825 1,707 Prepaid expenses and other current assets 349 340 Total current assets 6,371 6,235 Net plant and equipment 1,973 1,976 Goodwill 4,904 4,909 Intangible assets 653 657 Deferred income taxes 462 479 Other assets 1,290 1,262 $ 15,653 $ 15,518 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 2,066 $ 1,825 Accounts payable 597 581 Accrued expenses 1,512 1,663 Cash dividends payable 418 419 Income taxes payable 251 187 Total current liabilities 4,844 4,675 Noncurrent Liabilities: Long-term debt 6,259 6,339 Deferred income taxes 380 326 Noncurrent income taxes payable 151 151 Other liabilities 998 1,014 Total noncurrent liabilities 7,788 7,830 Stockholders' Equity: Common stock 6 6 Additional paid-in-capital 1,618 1,588 Retained earnings 27,523 27,122 Common stock held in treasury (24,243 ) (23,870 ) Accumulated other comprehensive income (loss) (1,884 ) (1,834 ) Noncontrolling interest 1 1 Total stockholders' equity 3,021 3,013 $ 15,653 $ 15,518 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Three Months Ended March 31, 2024 Dollars in millions Total Revenue Operating Income Operating Margin Automotive OEM $ 816 $ 162 19.8 % Food Equipment 631 164 26.0 % Test & Measurement and Electronics 696 163 23.4 % Welding 476 156 32.7 % Polymers & Fluids 432 111 25.8 % Construction Products 488 143 29.4 % Specialty Products 440 130 29.7 % Intersegment (6 ) — — % Total Segments 3,973 1,029 25.9 % Unallocated — 98 — % Total Company $ 3,973 $ 1,127 28.4 % ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Q1 2024 vs. Q1 2023 Favorable/(Unfavorable) Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW Organic 3.4 % (1.4 )% (1.3 )% (3.5 )% (0.9 )% (7.0 )% 5.5 % (0.6 )% Acquisitions/
Divestitures— % — % 0.8 % — % — % — % (2.2 )% (0.1 )% Translation (0.9 )% 0.7 % (0.4 )% 0.1 % (2.4 )% (0.3 )% 0.5 % (0.4 )% Operating Revenue 2.5 % (0.7 )% (0.9 )% (3.4 )% (3.3 )% (7.3 )% 3.8 % (1.1 )% Q1 2024 vs. Q1 2023 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 60 bps (30) bps (40) bps (50) bps (20) bps (130) bps 110 bps (20) bps Changes in Variable Margin & OH Costs 300 bps (50) bps (20) bps 120 bps 140 bps 320 bps 200 bps 430 bps Total Organic 360 bps (80) bps (60) bps 70 bps 120 bps 190 bps 310 bps 410 bps Acquisitions/
Divestitures— — (50) bps — — — 50 bps — Restructuring/Other 10 bps 10 bps — 10 bps 20 bps — 50 bps 10 bps Total Operating Margin Change 370 bps (70) bps (110) bps 80 bps 140 bps 190 bps 410 bps 420 bps Total Operating Margin % * 19.8% 26.0% 23.4% 32.7% 25.8% 29.4% 29.7% 28.4% * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 50 bps 170 bps — 150 bps 10 bps 20 bps 60 bps ** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.06) on GAAP earnings per share for the first quarter of 2024. ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED) Three Months Ended March 31, Dollars in millions 2024 2023 Numerator: Net income $ 819 $ 714 Cumulative effect of change in inventory accounting method, net of tax (1) (88 ) — Interest expense, net of tax (2) 54 46 Other (income) expense, net of tax (2) (12 ) (8 ) Operating income after taxes $ 773 $ 752 Denominator: Invested capital: Cash and equivalents $ 959 $ 1,143 Trade receivables 3,238 3,201 Inventories 1,825 2,000 Net assets held for sale — 9 Net plant and equipment 1,973 1,885 Goodwill and intangible assets 5,557 5,622 Accounts payable and accrued expenses (2,109 ) (2,103 ) Debt (8,325 ) (8,380 ) Other, net (97 ) (276 ) Total net assets (stockholders' equity) 3,021 3,101 Cash and equivalents (959 ) (1,143 ) Debt 8,325 8,380 Total invested capital $ 10,387 $ 10,338 Average invested capital (3) $ 10,249 $ 10,241 Net income to average invested capital (4) 32.0 % 27.9 % After-tax return on average invested capital (4) 30.1 % 29.4 % (1) Represents the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax).
(2) Effective tax rate used for interest expense and other (income) expense for the three months ended March 31, 2024 and 2023 was 23.6% and 22.6%, respectively.
(3) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of the periods presented.
(4) Returns for the three months ended March 31, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 4.
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED) Twelve Months Ended Dollars in millions December 31, 2023 Numerator: Net income $ 2,957 Discrete tax benefit related to the second quarter 2023 (20 ) Interest expense, net of tax (1) 204 Other (income) expense, net of tax (1) (38 ) Operating income after taxes $ 3,103 Denominator: Invested capital: Cash and equivalents $ 1,065 Trade receivables 3,123 Inventories 1,707 Net plant and equipment 1,976 Goodwill and intangible assets 5,566 Accounts payable and accrued expenses (2,244 ) Debt (8,164 ) Other, net (16 ) Total net assets (stockholders' equity) 3,013 Cash and equivalents (1,065 ) Debt 8,164 Total invested capital $ 10,112 Average invested capital (2) $ 10,214 Net income to average invested capital 29.0 % After-tax return on average invested capital 30.4 % (1) Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2023 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 2023 effective tax rate excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes is as follows:
Twelve Months Ended December 31, 2023 Dollars in millions Income Taxes Tax Rate As reported $ 866 22.6 % Discrete tax benefit related to the second quarter 2023 20 0.6 % As adjusted $ 886 23.2 % FREE CASH FLOW (UNAUDITED) Three Months Ended March 31, Dollars in millions 2024 2023 Net cash provided by operating activities $ 589 $ 728 Less: Additions to plant and equipment (95 ) (113 ) Free cash flow $ 494 $ 615 Net income $ 819 $ 714 Net cash provided by operating activities to net income conversion rate 72 % 102 % Free cash flow to net income conversion rate 60 % (1) 86 % (1) Excluding the impact of the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax), the free cash flow to net income conversion rate would have been 68%.
ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED) Three Months Ended March 31, 2024 As reported $ 2.73 Cumulative effect of change in inventory accounting method, net of tax (1) (0.29 ) As adjusted $ 2.44 (1) Represents the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax).
