• ITW Reports Third Quarter 2024 Results

    ソース: Nasdaq GlobeNewswire / 30 10 2024 07:00:01   America/Chicago

    • Revenue of $4.0 billion, a decrease of 2% as organic growth declined 1%
    • Operating margin of 26.5% as enterprise initiatives contributed 130 basis points
    • GAAP EPS of $3.91 included a divestiture gain of $1.26; ex-gain EPS of $2.65, an increase of 4%
    • Raising full year GAAP EPS guidance by $1.33 to a range of $11.63 to $11.73 per share

    GLENVIEW, Ill., Oct. 30, 2024 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2024 results.

    “ITW delivered solid third quarter results, as our worldwide team continued to successfully navigate and overcome market challenges with strong operational execution as evidenced by operating margin of 26.5 percent, including 130 basis points contribution from enterprise initiatives, and EPS growth to $2.65 per share excluding a divesture gain,” said Christopher A. O’Herlihy, President and Chief Executive Officer. “All year, our focused execution and operational excellence have enabled the Company to effectively counter persistent market headwinds and achieve solid growth in margin and profitability while we continued to manage and invest in ITW to maximize growth and performance over the long term.”

    “As we look ahead to the balance of the year and beyond, ITW remains well-positioned to continue to execute at a high level through these near-term end market macro challenges while we remain focused on driving continued progress on our long-term strategy to build above-market organic growth, fueled by customer-back innovation, into a core ITW strength,” O’Herlihy concluded.

    Third Quarter 2024 Results
    Third quarter revenue of $4.0 billion declined by 1.6 percent as organic growth declined by 1.4 percent. Foreign currency translation impact reduced revenue by 0.4 percent and acquisitions increased revenue by 0.2 percent.

    GAAP EPS increased 53 percent to $3.91 per share and included a divestiture gain of $1.26 from the previously announced sale of the Company’s equity interest in Wilsonart International Holdings LLC (“Wilsonart”). Excluding this gain, EPS of $2.65 increased four percent.

    Operating income was $1.05 billion and operating margin of 26.5 percent was flat with prior year. Enterprise initiatives contributed 130 basis points and six of seven segments expanded operating margin. Sequentially, operating margin improved 30 basis points from the second quarter of 2024.

    Operating cash flow was $891 million, and free cash flow was $783 million, with a conversion rate to adjusted net income of 102 percent. During the quarter, the company repurchased $375 million of its own shares and raised its dividend seven percent to an annualized $6.00 per share. The effective tax rate for the third quarter was 14.9 percent.

    Wilsonart Divestiture
    On August 5, 2024, the company announced the sale of its noncontrolling equity interest in Wilsonart. Proceeds from the transaction, net of transaction costs, were $395 million, resulting in a pre-tax gain of $363 million. Income taxes on the gain were more than offset by a discrete tax benefit of $107 million related to the utilization of capital loss carryforwards which resulted in a favorable GAAP EPS impact of $1.26. The sale is not expected to have a material impact on the Company’s financial results in future quarters.

    2024 Guidance
    ITW is incorporating the impact of the divestiture gain and a lower projected effective tax rate for the full year of approximately 21.5 percent into its 2024 guidance and raising GAAP EPS by $1.33 from the previous range of $10.30 to $10.40 to a new range of $11.63 to $11.73 per share. Based on current levels of demand and foreign currency exchange rates, the Company is maintaining its previous guidance for revenue and organic growth to be approximately flat for 2024. Operating margin is projected to be in the range of 26.5 to 27 percent, an improvement of 165 basis points at the midpoint, with enterprise initiatives projected to contribute more than 100 basis points. Free cash flow is projected to be approximately 100 percent of adjusted net income and the company plans to repurchase approximately $1.5 billion of its own shares.

    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 that 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 300 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.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 2024   2023   2024   2023 
    Operating Revenue$3,966  $4,031  $11,966  $12,124 
    Cost of revenue 2,230   2,319   6,637   7,004 
    Selling, administrative, and research and development expenses 658   615   2,020   1,980 
    Amortization and impairment of intangible assets 26   27   76   88 
    Operating Income 1,052   1,070   3,233   3,052 
    Interest expense (69)  (67)  (215)  (196)
    Other income (expense) 379   10   421   40 
    Income Before Taxes 1,362   1,013   3,439   2,896 
    Income Taxes 202   241   701   656 
    Net Income$1,160  $772  $2,738  $2,240 
            
    Net Income Per Share:       
    Basic$3.92  $2.55  $9.20  $7.38 
    Diluted$3.91  $2.55  $9.17  $7.36 
            
    Cash Dividends Per Share:       
    Paid$1.40  $1.31  $4.20  $3.93 
    Declared$1.50  $1.40  $4.30  $4.02 
            
    Shares of Common Stock Outstanding During the Period:       
    Average 296.1   301.9   297.6   303.4 
    Average assuming dilution 297.0   303.0   298.5   304.5 
                    


        
    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    STATEMENT OF FINANCIAL POSITION (UNAUDITED)
        
    In millionsSeptember 30, 2024 December 31, 2023
    Assets   
    Current Assets:   
    Cash and equivalents$947  $1,065 
    Trade receivables 3,226   3,123 
    Inventories 1,817   1,707 
    Prepaid expenses and other current assets 314   340 
    Total current assets 6,304   6,235 
        
    Net plant and equipment 2,071   1,976 
    Goodwill 4,980   4,909 
    Intangible assets 617   657 
    Deferred income taxes 468   479 
    Other assets 1,384   1,262 
     $15,824  $15,518 
        
    Liabilities and Stockholders' Equity   
    Current Liabilities:   
    Short-term debt$1,768  $1,825 
    Accounts payable 556   581 
    Accrued expenses 1,655   1,663 
    Cash dividends payable 443   419 
    Income taxes payable 205   187 
    Total current liabilities 4,627   4,675 
        
    Noncurrent Liabilities:   
    Long-term debt 6,578   6,339 
    Deferred income taxes 129   326 
    Noncurrent income taxes payable —   151 
    Other liabilities 1,098   1,014 
    Total noncurrent liabilities 7,805   7,830 
        
    Stockholders' Equity:   
    Common stock 6   6 
    Additional paid-in-capital 1,651   1,588 
    Retained earnings 28,583   27,122 
    Common stock held in treasury (25,000)  (23,870)
    Accumulated other comprehensive income (loss) (1,849)  (1,834)
    Noncontrolling interest 1   1 
    Total stockholders' equity 3,392   3,013 
     $15,824  $15,518 
            


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


    Three Months Ended September 30, 2024
    Dollars in millionsTotal
    Revenue    		Operating
    Income    		Operating
    Margin
    Automotive OEM$772 $150 19.4%
    Food Equipment 677  193 28.4%
    Test & Measurement and Electronics 697  179 25.7%
    Welding 462  149 32.3%
    Polymers & Fluids 448  125 27.9%
    Construction Products 479  145 30.2%
    Specialty Products 438  136 31.1%
    Intersegment (7) — —%
    Total Segments 3,966  1,077 27.1%
    Unallocated —  (25)—%
    Total Company$3,966 $1,052 26.5%


    Nine Months Ended September 30, 2024
    Dollars in millionsTotal
    Revenue    		Operating
    Income    		Operating
    Margin
    Automotive OEM$2,403 $469 19.5%
    Food Equipment 1,975  537 27.2%
    Test & Measurement and Electronics 2,071  501 24.2%
    Welding 1,404  458 32.6%
    Polymers & Fluids 1,334  364 27.3%
    Construction Products 1,471  436 29.6%
    Specialty Products 1,327  410 30.9%
    Intersegment (19) — —%
    Total Segments 11,966  3,175 26.5%
    Unallocated —  58 —%
    Total Company$11,966 $3,233 27.0%


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


    Q3 2024 vs. Q3 2023 Favorable/(Unfavorable)
    Operating RevenueAutomotive
    OEM    		Food
    Equipment    		Test &
    Measurement
    and
    Electronics    		WeldingPolymers &
    Fluids    		Construction
    Products    		Specialty
    Products    		Total ITW
    Organic(3.0)%(0.3)%(1.5)%(1.0)%1.3 %(8.8)%6.0 %(1.4)%
    Acquisitions/
    Divestitures    		—%—%1.0 %—%—%—%—%0.2 %
    Translation(0.3)%0.1 %0.3 %(0.3)%(3.2)%0.7 %(0.3)%(0.4)%
    Operating Revenue(3.3)%(0.2)%(0.2)%(1.3)%(1.9)%(8.1)%5.7 %(1.6)%


    Q3 2024 vs. Q3 2023 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive
    OEM    		Food
    Equipment    		Test &
    Measurement
    and
    Electronics    		WeldingPolymers &
    Fluids    		Construction ProductsSpecialty
    Products    		Total ITW
    Operating Leverage(60) bps(10) bps(40) bps(20) bps20 bps(170) bps100 bps(20) bps
    Changes in Variable Margin & OH Costs80 bps150 bps270 bps90 bps10 bps250 bps270 bps40 bps
    Total Organic20 bps140 bps230 bps70 bps30 bps80 bps370 bps20 bps
    Acquisitions/
    Divestitures    		——(50) bps————(10) bps
    Restructuring/Other30 bps(30) bps10 bps—(50) bps(50) bps(40) bps(10) bps
    Total Operating Margin Change50 bps110 bps190 bps70 bps(20) bps30 bps330 bps—
             
    Total Operating Margin % *19.4%28.4%25.7%32.3%27.9%30.2%31.1%26.5%
             
    * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 50 bps 170 bps - bps 150 bps 10 bps 20 bps 70 bps **
    ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.06) on GAAP earnings per share for the third quarter of 2024.


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


    YTD 2024 vs. YTD 2023 Favorable/(Unfavorable)
    Operating RevenueAutomotive
    OEM    		Food
    Equipment    		Test &
    Measurement
    and
    Electronics    		WeldingPolymers &
    Fluids    		Construction
    Products    		Specialty
    Products
    		Total ITW
    Organic0.3 %0.3 %(2.0)%(3.1)%1.0 %(6.5)%6.0 %(0.7)%
    Acquisitions/
    Divestitures    		—%—%0.9 %—%—%—%(0.7)%0.1 %
    Translation(1.0)%0.1 %(0.3)%(0.1)%(3.2)%(0.1)%—%(0.7)%
    Operating Revenue(0.7)%0.4 %(1.4)%(3.2)%(2.2)%(6.6)%5.3 %(1.3)%


    YTD 2024 vs. YTD 2023 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive
    OEM    		Food
    Equipment    		Test &
    Measurement
    and
    Electronics    		WeldingPolymers &
    Fluids    		Construction
    Products    		Specialty
    Products    		Total ITW
    Operating Leverage—10 bps(50) bps(50) bps20 bps(130) bps120 bps(20) bps
    Changes in Variable Margin & OH Costs190 bps—140 bps50 bps90 bps240 bps290 bps210 bps
    Total Organic190 bps10 bps90 bps—110 bps110 bps410 bps190 bps
    Acquisitions/
    Divestitures    		——(50) bps———20 bps(10) bps
    Restructuring/Other30 bps(10) bps—10 bps—(40) bps20 bps—
    Total Operating Margin Change220 bps—40 bps10 bps110 bps70 bps450 bps180 bps
             
    Total Operating Margin % *19.5%27.2%24.2%32.6%27.3%29.6%30.9%27.0%
             
    * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 40 bps 180 bps 10 bps 150 bps 20 bps 20 bps 70 bps **
    ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.19) on GAAP earnings per share for the first nine months 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 Nine Months Ended
     September 30, September 30,
    Dollars in millions 2024   2023   2024   2023 
    Numerator:       
    Net Income$1,160  $772  $2,738  $2,240 
    Net discrete tax benefit related to the third quarter 2024 (121)  —   (121)  — 
    Discrete tax benefit related to the second quarter 2023 —   —   —   (20)
    Interest expense, net of tax (1) 53   51   164   150 
    Other (income) expense, net of tax (1) (288)  (8)  (320)  (31)
    Operating income after taxes$804  $815  $2,461  $2,339 
            
    Denominator:       
    Invested capital:       
    Cash and equivalents$947  $990  $947  $990 
    Trade receivables 3,226   3,163   3,226   3,163 
    Inventories 1,817   1,799   1,817   1,799 
    Net plant and equipment 2,071   1,904   2,071   1,904 
    Goodwill and intangible assets 5,597   5,510   5,597   5,510 
    Accounts payable and accrued expenses (2,211)  (2,168)  (2,211)  (2,168)
    Debt (8,346)  (8,066)  (8,346)  (8,066)
    Other, net 291   (128)  291   (128)
    Total net assets (stockholders' equity) 3,392   3,004   3,392   3,004 
    Cash and equivalents (947)  (990)  (947)  (990)
    Debt 8,346   8,066   8,346   8,066 
    Total invested capital$10,791  $10,080  $10,791  $10,080 
            
    Average invested capital (2)$10,682  $10,237  $10,466  $10,239 
            
    Net income to average invested capital (3) 43.4%  30.1%  34.9%  29.2%
    After-tax return on average invested capital (3) 30.0%  31.9%  31.3%  30.5%
                    

    (1)  Effective tax rate used for interest expense and other (income) expense for the three months ended September 30, 2024 and 2023 was 23.7% and 23.8%, respectively. Effective tax rate used for interest expense and other (income) expense for the nine months ended September 30, 2024 and 2023 was 23.9% and 23.4%, 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, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 4. Returns for the nine months ended September 30, 2024 and 2023 were converted to an annual rate by dividing the calculated return by 3 and multiplying it by 4.

    After-tax ROIC for the nine months ended September 30, 2024 included 110 basis points of favorable impact related to 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) in the first quarter of 2024.

    A reconciliation of the tax rate for the three and nine month periods ended September 30, 2024, excluding the third quarter 2024 net discrete tax benefit of $121 million, which included favorable discrete tax benefits of $107 million related to the utilization of capital loss carryforwards upon the sale of Wilsonart International Holdings LLC ("Wilsonart") and $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, is as follows:

        
     Three Months Ended Nine Months Ended
     September 30, 2024 September 30, 2024
    Dollars in millionsIncome Taxes Tax Rate Income Taxes Tax Rate
    As reported$202 14.9% $701 20.4%
    Net discrete tax benefit related to the third quarter 2024 121 8.8%  121 3.5%
    As adjusted$323 23.7% $822 23.9%
                

    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 millionsIncome 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%
          


      
    AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
      
     Twelve Months Ended
    Dollars in millionsDecember 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 millionsIncome 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 Nine Months Ended
     September 30, September 30,
    Dollars in millions 2024   2023   2024   2023 
    Net cash provided by operating activities$891  $982  $2,167  $2,500 
    Less: Additions to plant and equipment (108)  (126)  (319)  (324)
    Free cash flow$783  $856  $1,848  $2,176 
            
    Net income$1,160  $772  $2,738  $2,240 
            
    Net cash provided by operating activities to net income conversion rate 77%  127%  79%  112%
    Free cash flow to net income conversion rate 68%(1) 111%  67%  97%
                     

    (1)  Excluding the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes, and a discrete tax benefit of $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, the free cash flow to net income conversion rate would have been 102% for the three months ended September 30, 2024.

      
    ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)
      
     Three Months Ended
     September 30, 2024
    As reported$3.91 
    Impact of sale of noncontrolling interest in Wilsonart (1) (1.26)
    As adjusted$2.65 
        

    (1)  Includes the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes.


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