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Q3 diluted EPS from continuing operations of $1.28 up 42 percent
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Record operating margins of 20.9 percent up 190 basis points versus year-ago period; Enterprise initiatives contribute 120 basis points
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Organic revenues grow 3.5 percent
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Company raises full-year EPS guidance to $4.61 at midpoint, a 27 percent increase versus 2013
GLENVIEW, Ill., Oct. 21, 2014 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported third quarter 2014 earnings per share (EPS) from continuing operations of $1.28, 42 percent higher than the year-ago period. The strong growth in EPS was due to ongoing contributions from enterprise initiatives, solid organic revenue growth, and continuing share repurchase activity.
Key highlights for the 2014 third quarter financial results versus the year-ago period include:
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Total revenues grew 3.5 percent to $3.7 billion and operating income increased 14 percent to $772 million, the highest quarterly operating income total in the Company's history. Organic revenues grew 3.5 percent, with North American and international growth of 4 percent and 3 percent, respectively. In North America, organic revenue growth was driven by strength in the automotive OEM, food equipment, welding, and test and measurement businesses. Internationally, European organic revenues increased 3 percent and Asia Pacific grew 5 percent. As expected, ongoing product line simplification activities associated with the portfolio management component of ITW's enterprise strategy reduced organic revenue growth by approximately 1 percent in the quarter.
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Record operating margins of 20.9 percent increased 190 basis points, with enterprise initiatives contributing 120 basis points. All segments produced operating margin improvement, with five segments growing operating margins by more than 200 basis points.
- After-tax Return on Invested Capital (ROIC) of 20.1 percent increased 250 basis points.
Third quarter segment highlights versus the year-ago period include:
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Automotive OEM organic revenue growth of 8 percent outpaced third quarter worldwide auto builds of 2 percent. Organic revenues grew 9 percent in Europe, 8 percent in North America and 12 percent in China. Operating margins of 23.4 percent increased 230 basis points.
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Food Equipment's organic revenues increased 5 percent due to across-the-board growth in equipment and service worldwide. Operating margins of 23.1 percent increased 320 basis points.
- Welding's organic revenues grew 5 percent, with North America increasing 10 percent due to strength in equipment sales to industrial and commercial customers. Operating margins of 26.2 percent increased 80 basis points.
"ITW had a strong third quarter with solid organic revenue growth, operating margins hitting record levels, EPS increasing more than 40 percent, and after tax return on invested capital exceeding 20 percent," said Scott Santi, president and chief executive officer. "These results reflect continued progress in the execution of our enterprise strategy as we position ITW for solid organic growth with best-in-class margins and returns. Looking ahead, we are raising full year guidance as we expect operating margins of approximately 20 percent and EPS to increase by more than 25 percent. The ITW operating team continues to execute at a high level, and we thank all of our people around the world for their dedication and ongoing contributions to our progress."
The Company is raising its full-year EPS guidance range to $4.57 to $4.65 from $4.50 to $4.62. For the 2014 fourth quarter, the Company is forecasting EPS to be in a range of $1.07 to $1.15, on 2 to 3 percent organic revenue growth. Total revenue growth in the fourth quarter is projected to be flat due to currency translation effects.
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding total revenue growth, operating margins and diluted income per share from continuing operations. These statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated. Such factors include those contained in ITW's Form 10-Q from the second quarter of 2014. The attached tables include a calculation of ROIC, a non-GAAP measure.
ITW is a Fortune 200 global diversified industrial manufacturer of value added consumables and specialty equipment with related service businesses. The Company focuses on solid growth, improving profitability and strong returns across its worldwide platforms and divisions. These divisions serve customers and markets around the globe, with a significant presence in developed as well as emerging markets. ITW's revenues totaled $14.1 billion in 2013.
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | ||||
| STATEMENT OF INCOME (UNAUDITED) | ||||
| Three Months Ended | Nine Months Ended | |||
| (In millions except per share amounts) | September 30, | September 30, | ||
| 2014 | 2013 | 2014 | 2013 | |
| Operating Revenues | $ 3,692 | $ 3,568 | $ 10,980 | $ 10,581 |
| Cost of revenues | 2,182 | 2,148 | 6,559 | 6,381 |
| Selling, administrative, and research and development expenses | 675 | 676 | 2,034 | 2,126 |
| Amortization of intangible assets | 60 | 64 | 182 | 186 |
| Impairment of goodwill and other intangible assets | 3 | 2 | 3 | 2 |
| Operating Income | 772 | 678 | 2,202 | 1,886 |
| Interest expense | (68) | (60) | (196) | (179) |
| Other income (expense) | 20 | 10 | 36 | 67 |
| Income from Continuing Operations Before Income Taxes | 724 | 628 | 2,042 | 1,774 |
| Income Taxes | 217 | 222 | 613 | 551 |
| Income from Continuing Operations | 507 | 406 | 1,429 | 1,223 |
| Income from Discontinued Operations | 24 | 46 | 1,067 | 48 |
| Net Income | $ 531 | $ 452 | $ 2,496 | $ 1,271 |
| Income Per Share from Continuing Operations: | ||||
| Basic | $ 1.29 | $ 0.91 | $ 3.51 | $ 2.72 |
| Diluted | $ 1.28 | $ 0.90 | $ 3.49 | $ 2.70 |
| Income Per Share from Discontinued Operations: | ||||
| Basic | $ 0.06 | $ 0.10 | $ 2.62 | $ 0.11 |
| Diluted | $ 0.06 | $ 0.10 | $ 2.60 | $ 0.11 |
| Net Income Per Share: | ||||
| Basic | $ 1.35 | $ 1.01 | $ 6.14 | $ 2.83 |
| Diluted | $ 1.34 | $ 1.01 | $ 6.09 | $ 2.81 |
| Shares of Common Stock Outstanding During the Period: | ||||
| Average | 394.0 | 445.9 | 406.8 | 449.0 |
| Average assuming dilution | 396.8 | 448.9 | 409.7 | 452.1 |
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | ||
| STATEMENT OF FINANCIAL POSITION (UNAUDITED) | ||
| (In millions) | September 30, | December 31, |
| 2014 | 2013 | |
| ASSETS | ||
| Current Assets: | ||
| Cash and equivalents | $ 4,820 | $ 3,618 |
| Trade receivables | 2,519 | 2,365 |
| Inventories | 1,265 | 1,247 |
| Deferred income taxes | 266 | 384 |
| Prepaid expenses and other current assets | 282 | 366 |
| Assets held for sale | — | 1,836 |
| Total current assets | 9,152 | 9,816 |
| Net Plant and Equipment | 1,693 | 1,709 |
| Goodwill | 4,771 | 4,886 |
| Intangible Assets | 1,825 | 1,999 |
| Deferred Income Taxes | 329 | 359 |
| Other Assets | 1,258 | 1,197 |
| $ 19,028 | $ 19,966 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current Liabilities: | ||
| Short-term debt | $ 1,496 | $ 3,551 |
| Accounts payable | 594 | 634 |
| Accrued expenses | 1,307 | 1,272 |
| Cash dividends payable | 190 | 181 |
| Income taxes payable | 277 | 69 |
| Deferred income taxes | 10 | 10 |
| Liabilities held for sale | — | 317 |
| Total current liabilities | 3,874 | 6,034 |
| Noncurrent Liabilities: | ||
| Long-term debt | 6,034 | 2,793 |
| Deferred income taxes | 418 | 507 |
| Other liabilities | 901 | 923 |
| Total noncurrent liabilities | 7,353 | 4,223 |
| Stockholders' Equity: | ||
| Common stock | 6 | 6 |
| Additional paid-in-capital | 1,076 | 1,046 |
| Income reinvested in the business | 16,909 | 14,943 |
| Common stock held in treasury | (10,047) | (6,676) |
| Accumulated other comprehensive income | (148) | 384 |
| Noncontrolling interest | 5 | 6 |
| Total stockholders' equity | 7,801 | 9,709 |
| $ 19,028 | $ 19,966 | |
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | ||||
| GAAP to NON-GAAP RECONCILIATION (UNAUDITED) | ||||
| ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED) | ||||
| Three Months Ended | Nine Months Ended | |||
| (Dollars in millions) | September 30, | September 30, | ||
| 2014 | 2013 | 2014 | 2013 | |
| Operating income | $ 772 | $ 678 | $ 2,202 | $ 1,886 |
| Tax rate (as adjusted for discrete tax charge in 2013) | 30.0% | 29.0% | 30.0% | 28.8% |
| Income taxes | (232) | (196) | (661) | (543) |
| Operating income after taxes | $ 540 | $ 482 | $ 1,541 | $ 1,343 |
| Invested capital: | ||||
| Trade receivables | $ 2,519 | $ 2,493 | $ 2,519 | $ 2,493 |
| Inventories | 1,265 | 1,308 | 1,265 | 1,308 |
| Net assets held for sale | — | 1,557 | — | 1,557 |
| Net plant and equipment | 1,693 | 1,667 | 1,693 | 1,667 |
| Goodwill and intangible assets | 6,596 | 6,975 | 6,596 | 6,975 |
| Accounts payable and accrued expenses | (1,901) | (1,898) | (1,901) | (1,898) |
| Other, net | 339 | 484 | 339 | 484 |
| Total invested capital | $ 10,511 | $ 12,586 | $ 10,511 | $ 12,586 |
| Average invested capital | $ 10,432 | $ 12,560 | $ 11,489 | $ 12,648 |
| Adjustment for Wilsonart (formerly Decorative Surfaces) | (155) | (169) | (158) | (170) |
| Adjustment for Industrial Packaging | 461 | (1,468) | (529) | (1,482) |
| Adjusted average invested capital | $ 10,738 | $ 10,923 | $ 10,802 | $ 10,996 |
| Annualized adjusted return on average invested capital | 20.1% | 17.6% | 19.0% | 16.3% |
| Three Months Ended | Nine Months Ended | |||
| September 30, 2013 | September 30, 2013 | |||
| Income Taxes - As reported | $ 222 | $ 551 | ||
| Discrete tax charge related to foreign earnings | (40) | (40) | ||
| Income Taxes - As adjusted | 182 | 511 | ||
| Income from Continuing Operations Before Income Taxes | 628 | 1,774 | ||
| Tax rate (as adjusted for discrete tax charge in 2013) | 29.0% | 28.8% | ||
| ADJUSTED FREE OPERATING CASH FLOW (UNAUDITED) | ||||
| Three Months Ended | Nine Months Ended | |||
| (In millions) | September 30, | September 30, | ||
| 2014 | 2013 | 2014 | 2013 | |
| Net cash provided by operating activities | $ 271 | $ 811 | $ 1,158 | $ 1,820 |
| Less: Additions to plant and equipment | (126) | (79) | (272) | (257) |
| Free operating cash flow | 145 | 732 | 886 | 1,563 |
| Plus: Taxes paid related to sale of Industrial Packaging | 533 | — | 533 | — |
| Adjusted free operating cash flow | $ 678 | $ 732 | $ 1,419 | $ 1,563 |
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | ||||||
| SEGMENT DATA (UNAUDITED) | ||||||
| For the Three Months Ended September 30, 2014 | % F(U) vs. prior year | |||||
| (Dollars in millions) |
Total Revenue |
Operating Income |
Operating Margin |
Total Revenue |
Organic Revenue |
Operating Margin |
| Automotive OEM | $ 631 | $ 148 | 23.4% | 7.1% | 7.6% | 230 bps |
| Test & Measurement and Electronics | 586 | 110 | 18.7% | 5.6% | 5.2% | 240 bps |
| Food Equipment | 575 | 133 | 23.1% | 6.0% | 5.3% | 320 bps |
| Polymers & Fluids | 490 | 99 | 20.2% | (2.8)% | (2.0)% | 210 bps |
| Welding | 459 | 120 | 26.2% | 4.7% | 5.0% | 80 bps |
| Construction Products | 445 | 84 | 18.9% | 1.1% | 2.1% | 270 bps |
| Specialty Products | 513 | 109 | 21.3% | 0.5% | —% | 20 bps |
| Intersegment | (7) | — | —% | —% | —% | — |
| Total Segments | 3,692 | 803 | 21.7% | 3.5% | 3.5% | 200 bps |
| Unallocated | — | (31) | —% | —% | —% | — |
| Total Company | $ 3,692 | $ 772 | 20.9% | 3.5% | 3.5% | 190 bps |