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ITW Reports Fourth Quarter and Full Year 2023 Results
Source: Nasdaq GlobeNewswire / 01 Feb 2024 07:00:01 America/Chicago
Fourth Quarter 2023 Highlights
- Revenue of $4.0 billion, essentially flat
- Operating margin of 24.8% as enterprise initiatives contributed 150 bps
- GAAP EPS of $2.38 included $(0.04) impact from the devaluation of Argentina’s currency
2023 Highlights
- Revenue of $16.1 billion, an increase of 1% with organic growth of 2%
- Operating income of $4 billion, an increase of 7%
- Operating margin of 25.1%, an increase of 130 bps
- GAAP EPS of $9.74, an increase of 6% excluding $0.60 of divestiture gains in 2022
2024 Guidance
- Revenue growth of 2 to 4% with organic growth of 1 to 3%
- Operating margin of 25.5 to 26.5% with enterprise initiatives contributing approximately 100 bps
- GAAP EPS of $10.00 to $10.40, a year-over-year increase of 5% at the mid-point
GLENVIEW, Ill., Feb. 01, 2024 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth quarter and full year 2023 results and initiated guidance for full year 2024.
“In a challenging macro demand environment, the ITW team continued to leverage the strength and resilience of ITW’s proprietary business model and high-quality diversified portfolio to deliver a solid finish to a record year for the company,” said Christopher A. O’Herlihy, President and Chief Executive Officer.
“2023 marked another year of strong operational execution and financial performance, as ITW delivered organic growth of two percent, expanded operating margin by 130 basis points to 25.1 percent, grew operating income seven percent to $4 billion, and increased cash flow by more than 50 percent. We made solid progress in our efforts to build above-market organic growth fueled by customer-back innovation into a defining ITW strength, on par with our world-class financial and operational capabilities. As a result, we are very pleased with our momentum and positioning heading into 2024. I want to thank my ITW colleagues around the world for their extraordinary dedication and commitment to serving our customers and executing our strategy with excellence every day.”
Fourth Quarter 2023 Results
Fourth quarter revenue of $4.0 billion increased 0.3 percent with organic revenue down 0.5 percent, as divestitures reduced revenue by 0.4 percent and favorable foreign currency translation added 1.2 percent. End customer and channel inventory reduction efforts combined with the impact from automotive industry labor actions reduced organic growth by an estimated 1.5 percent in the quarter.
GAAP EPS of $2.38 included $(0.04) of unfavorable impact from the devaluation of Argentina’s currency. Operating income of $988 million was a fourth-quarter company record, and enterprise initiatives contributed 150 basis points to operating margin of 24.8 percent. Operating cash flow was $1 billion, and free cash flow grew 39 percent to a record $908 million, with a conversion of 127 percent to net income. During the quarter, the company repurchased $375 million of its own shares and the effective tax rate was 22.6 percent.
Full Year 2023 Results
Full year revenue of $16.1 billion increased one percent with organic revenue growth of two percent. The net impact from divestitures and foreign currency translation reduced revenue by one percent. End customer and channel inventory reduction impact reduced organic growth by an estimated one percent. On a geographic basis, organic growth was essentially flat in North America, up four percent in Europe, and up seven percent in Asia Pacific.
GAAP EPS of $9.74 increased six percent excluding divestiture gains of $0.60 in 2022. Operating income of $4 billion grew seven percent, and operating margin increased 130 basis points to a record 25.1 percent with enterprise initiatives contributing 130 basis points. Operating cash flow was $3.5 billion and free cash flow was a record $3.1 billion, an increase of 59 percent with a conversion of 104 percent to net income. The company invested approximately $800 million to support the long-term profitable growth of its businesses and returned $3.1 billion to shareholders through dividends and share repurchases and raised the dividend by seven percent per share. The effective tax rate was 22.6 percent.
2024 Guidance
The company is initiating 2024 guidance including GAAP EPS in the range of $10.00 to $10.40 per share and revenue growth of two to four percent based on current levels of demand. Organic growth is projected to be one to three percent with foreign currency translation at current exchange rates adding approximately one percent to revenue. Operating margin is projected to be in the range of 25.5 to 26.5 percent, with enterprise initiatives contributing approximately 100 basis points. Free cash flow is expected to be greater than 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, 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, 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 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 $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
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)Three Months Ended Twelve Months Ended December 31, December 31, In millions except per share amounts 2023 2022 2023 2022 Operating Revenue $ 3,983 $ 3,971 $ 16,107 $ 15,932 Cost of revenue 2,312 2,309 9,316 9,429 Selling, administrative, and research and development expenses 658 644 2,638 2,579 Amortization and impairment of intangible assets 25 32 113 134 Operating Income 988 986 4,040 3,790 Interest expense (70 ) (56 ) (266 ) (203 ) Other income (expense) 9 191 49 255 Income Before Taxes 927 1,121 3,823 3,842 Income taxes 210 214 866 808 Net Income $ 717 $ 907 $ 2,957 $ 3,034 Net Income Per Share: Basic $ 2.39 $ 2.96 $ 9.77 $ 9.80 Diluted $ 2.38 $ 2.95 $ 9.74 $ 9.77 Cash Dividends Per Share: Paid $ 1.40 $ 1.31 $ 5.33 $ 4.97 Declared $ 1.40 $ 1.31 $ 5.42 $ 5.06 Shares of Common Stock Outstanding During the Period: Average 300.1 306.8 302.6 309.6 Average assuming dilution 301.1 307.9 303.6 310.7 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)In millions December 31, 2023 December 31, 2022 Assets Current Assets: Cash and equivalents $ 1,065 $ 708 Trade receivables 3,123 3,171 Inventories 1,707 2,054 Prepaid expenses and other current assets 340 329 Assets held for sale — 8 Total current assets 6,235 6,270 Net plant and equipment 1,976 1,848 Goodwill 4,909 4,864 Intangible assets 657 768 Deferred income taxes 479 494 Other assets 1,262 1,178 $ 15,518 $ 15,422 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 1,825 $ 1,590 Accounts payable 581 594 Accrued expenses 1,663 1,728 Cash dividends payable 419 400 Income taxes payable 187 147 Liabilities held for sale — 1 Total current liabilities 4,675 4,460 Noncurrent Liabilities: Long-term debt 6,339 6,173 Deferred income taxes 326 484 Noncurrent income taxes payable 151 273 Other liabilities 1,014 943 Total noncurrent liabilities 7,830 7,873 Stockholders' Equity: Common stock 6 6 Additional paid-in-capital 1,588 1,501 Retained earnings 27,122 25,799 Common stock held in treasury (23,870 ) (22,377 ) Accumulated other comprehensive income (loss) (1,834 ) (1,841 ) Noncontrolling interest 1 1 Total stockholders' equity 3,013 3,089 $ 15,518 $ 15,422 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Three Months Ended December 31, 2023 Dollars in millions Total Revenue Operating Income Operating Margin Automotive OEM $ 814 $ 143 17.6 % Food Equipment 655 177 27.0 % Test & Measurement and Electronics 731 185 25.3 % Welding 451 134 29.6 % Polymers & Fluids 440 125 28.5 % Construction Products 459 124 26.9 % Specialty Products 437 116 26.6 % Intersegment (4 ) — — % Total Segments 3,983 1,004 25.2 % Unallocated — (16 ) — % Total Company $ 3,983 $ 988 24.8 % Twelve Months Ended December 31, 2023 Dollars in millions Total Revenue Operating Income Operating Margin Automotive OEM $ 3,235 $ 561 17.3 % Food Equipment 2,622 713 27.2 % Test & Measurement and Electronics 2,832 686 24.2 % Welding 1,902 605 31.8 % Polymers & Fluids 1,804 482 26.7 % Construction Products 2,033 578 28.4 % Specialty Products 1,697 449 26.5 % Intersegment (18 ) — — % Total Segments 16,107 4,074 25.3 % Unallocated — (34 ) — % Total Company $ 16,107 $ 4,040 25.1 % ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Q4 2023 vs. Q4 2022 Favorable/(Unfavorable) Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW Organic 7.7 % 2.7 % (1.4 )% (6.8 )% (1.6 )% (3.5 )% (5.4 )% (0.5 )% Acquisitions/
Divestitures— % (0.9 )% — % — % — % — % (1.8 )% (0.4 )% Translation 1.7 % 2.1 % 1.1 % 0.5 % (1.6 )% 1.2 % 1.8 % 1.2 % Operating Revenue 9.4 % 3.9 % (0.3 )% (6.3 )% (3.2 )% (2.3 )% (5.4 )% 0.3 % Q4 2023 vs. Q4 2022 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 130 bps 50 bps (30) bps (100) bps (30) bps (60) bps (110) bps (10) bps Changes in Variable Margin & OH Costs 80 bps (90) bps (110) bps (110) bps 370 bps 190 bps 90 bps 40 bps Total Organic 210 bps (40) bps (140) bps (210) bps 340 bps 130 bps (20) bps 30 bps Acquisitions/
Divestitures— 10 bps — — — — 50 bps 10 bps Restructuring/Other (160) bps (30) bps (20) bps 10 bps (70) bps 10 bps 60 bps (40) bps Total Operating Margin Change 50 bps (60) bps (160) bps (200) bps 270 bps 140 bps 90 bps — Total Operating Margin % * 17.6% 27.0% 25.3% 29.6% 28.5% 26.9% 26.6% 24.8% * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 20 bps 50 bps 140 bps 10 bps 160 bps 20 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 fourth quarter of 2023. ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Full Year 2023 vs Full Year 2022 Favorable/(Unfavorable) Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW Organic 8.8 % 7.8 % 0.3 % 0.3 % 0.3 % (3.2 )% (4.9 )% 2.0 % Acquisitions/
Divestitures— % (1.2 )% — % — % (4.0 )% — % (1.6 )% (0.8 )% Translation 0.2 % 0.7 % (0.2 )% 0.1 % (1.6 )% (0.6 )% 0.8 % (0.1 )% Operating Revenue 9.0 % 7.3 % 0.1 % 0.4 % (5.3 )% (3.8 )% (5.7 )% 1.1 % Full Year 2023 vs Full Year 2022 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 160 bps 150 bps 10 bps 10 bps — (60) bps (90) bps 40 bps Changes in Variable Margin & OH Costs (120) bps 30 bps 10 bps 90 bps 180 bps 330 bps 30 bps 90 bps Total Organic 40 bps 180 bps 20 bps 100 bps 180 bps 270 bps (60) bps 130 bps Acquisitions/
Divestitures— 20 bps — — 30 bps — 40 bps 10 bps Restructuring/Other 10 bps (10) bps (20) bps — (60) bps (20) bps — (10) bps Total Operating Margin Change 50 bps 190 bps — 100 bps 150 bps 250 bps (20) bps 130 bps Total Operating Margin % * 17.3% 27.2% 24.2% 31.8% 26.7% 28.4% 26.5% 25.1% * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 50 bps 160 bps 10 bps 180 bps 20 bps 40 bps 70 bps ** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.28) on GAAP earnings per share for 2023. ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended Twelve Months Ended December 31, December 31, Dollars in millions 2023 2022 2023 2022 Numerator: Net income $ 717 $ 907 $ 2,957 $ 3,034 Discrete tax benefit related to the second quarter 2023 — — (20) — Discrete tax benefit related to the fourth quarter 2022 — (32) — (32) Discrete tax benefit related to the second quarter 2022 — — — (51) Interest expense, net of tax(1) 54 44 204 156 Other (income) expense, net of tax(1) (7) (147) (38) (196) Operating income after taxes $ 764 $ 772 $ 3,103 $ 2,911 Denominator: Invested capital: Cash and equivalents $ 1,065 $ 708 $ 1,065 $ 708 Trade receivables 3,123 3,171 3,123 3,171 Inventories 1,707 2,054 1,707 2,054 Net assets held for sale — 7 — 7 Net plant and equipment 1,976 1,848 1,976 1,848 Goodwill and intangible assets 5,566 5,632 5,566 5,632 Accounts payable and accrued expenses (2,244) (2,322) (2,244) (2,322) Debt (8,164) (7,763) (8,164) (7,763) Other, net (16) (246) (16) (246) Total net assets (stockholders' equity) 3,013 3,089 3,013 3,089 Cash and equivalents (1,065) (708) (1,065) (708) Debt 8,164 7,763 8,164 7,763 Total invested capital $ 10,112 $ 10,144 $ 10,112 $ 10,144 Average invested capital(2) $ 10,096 $ 10,006 $ 10,214 $ 10,017 Net income to average invested capital(3) 28.4% 36.3% 29.0% 30.3% After-tax return on average invested capital(3) 30.3% 30.8% 30.4% 29.1% (1) Effective tax rate used for interest expense and other (income) expense for the three months ended December 31, 2023 and 2022 was 22.6% and 22.0%, respectively, and 23.2% for the twelve months ended December 31, 2023 and 2022. (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 December 31, 2023 and 2022 were converted to an annual rate by multiplying the calculated return by 4. 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 % A reconciliation of the effective tax rate for the three and twelve month periods ended December 31, 2022, 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:
Three Months Ended Twelve Months Ended December 31, 2022 December 31, 2022 Dollars in millions Income Taxes Tax Rate Income Taxes Tax Rate As reported $ 214 19.1 % $ 808 21.0 % Discrete tax benefit related to the fourth quarter 2022 32 2.9 % 32 0.8 % Discrete tax benefit related to the second quarter 2022 — — % 51 1.4 % As adjusted $ 246 22.0 % $ 891 23.2 % FREE CASH FLOW (UNAUDITED)
Three Months Ended Twelve Months Ended December 31, December 31, Dollars in millions 2023 2022 2023 2022 Net cash provided by operating activities $ 1,039 $ 811 $ 3,539 $ 2,348 Less: Additions to plant and equipment (131) (156) (455) (412) Free cash flow $ 908 $ 655 $ 3,084 $ 1,936 Net income $ 717 $ 907 $ 2,957 $ 3,034 Net cash provided by operating activities to net income conversion rate 145% 89% 120% 77% Free cash flow to net income conversion rate 127% 72% 104% 64% Three Months Ended March 31, June 30, September 30, Dollars in millions 2023 2023 2023 Net cash provided by operating activities $ 728 $ 790 $ 982 Less: Additions to plant and equipment (113) (85) (126) Free cash flow $ 615 $ 705 $ 856 Net income $ 714 $ 754 $ 772 Net cash provided by operating activities to net income conversion rate 102% 105% 127% Free cash flow to net income conversion rate 86% 94% 111% ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)
Three Months Ended December 31, 2023 As reported $ 2.38 Argentina currency devaluation impact in the fourth quarter 2023 0.04 As adjusted $ 2.42 Three Months Ended Twelve Months Ended December 31, 2022 December 31, 2022 As reported $ 2.95 $ 9.77 Net impact of gains from two divestitures in the fourth quarter 2022 (0.61 ) (0.60 ) As adjusted $ 2.34 $ 9.17 Media Contact Investor Relations Erin Linnihan Karen Fletcher / Erin Linnihan Tel: 224.661.7451 Tel: 224.661.7433 mediarelations@itw.com investorrelations@itw.com 
