• ITW Reports Second Quarter 2023 Results

    Source: Nasdaq GlobeNewswire / 01 Aug 2023 07:00:01   America/Chicago

    • Revenue of $4.1 billion, an increase of 2% with organic growth of 3%
    • Record operating income of $1.01 billion, an increase of 9%
    • Operating margin of 24.8%, an increase of 170 bps
    • Record GAAP EPS of $2.48, an increase of 5%; Excl. one-time tax items, EPS increased 9%
    • Raising full year GAAP EPS guidance by $0.10 to a range of $9.55 to $9.95 per share

    GLENVIEW, Ill., Aug. 01, 2023 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2023 results.

    “The ITW team delivered another quarter of strong operational execution and financial performance. Quarterly operating income grew nine percent and exceeded $1 billion for the first time in ITW’s history, operating margin expanded 170 basis points year on year, and GAAP EPS of $2.48 was a Q2 record for the company,” said E. Scott Santi, Chairman and Chief Executive Officer. “Organic growth was three percent as resilient demand in many of ITW’s industrial end markets was partially offset by inventory reduction efforts by our end customers and channel partners in response to stabilizing supply chain performance, which we estimate to have impacted organic growth by 1 to 1.5 percent in the quarter. While customer and channel inventory normalization will continue to be a factor for the next several quarters, we expect stable underlying demand and continued strong margin and profitability performance through the balance of the year. As a result, we are raising our full-year 2023 GAAP EPS guidance by $0.10 at the mid-point.”

    Second Quarter 2023 Results
    Second quarter revenue of $4.1 billion increased two percent with organic revenue growth of three percent, as divestitures reduced revenue by one percent.

    GAAP EPS increased five percent to $2.48 and included $0.07 of a one-time tax benefit. GAAP EPS of $2.37 in the second quarter of 2022 included a $0.16 one-time tax benefit. Excluding one-time tax items in both periods, EPS increased nine percent. Operating income grew nine percent to a record $1.01 billion. Operating margin of 24.8 percent improved 170 basis points as enterprise initiatives contributed 130 basis points. Operating cash flow was $790 million, and free cash flow was $705 million, an increase of 68 percent, with a conversion rate to net income of 94 percent. The company repurchased $375 million of its own shares and the effective tax rate was 21.4 percent.

    2023 Guidance
    ITW is raising its full-year GAAP EPS guidance by $0.10 to $9.55 to $9.95 per share. The company is projecting organic growth of three to five percent based on first half 2023 performance and current levels of demand. Divestitures are expected to reduce revenue by one percent resulting in total revenue growth of two to four percent. Operating margin is projected to be in the range of 24.5 to 25.5 percent, 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 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, 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

    Media Contact
    		Investor Relations
    Tel: 224.661.7451 Karen Fletcher
    mediarelations@itw.com Tel: 224.661.7433
      investorrelations@itw.com


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    STATEMENT OF INCOME (UNAUDITED)
     
     Three Months Ended Six Months Ended
     June 30, June 30,
    In millions except per share amounts 2023   2022   2023   2022 
    Operating Revenue$4,074  $4,011  $8,093  $7,950 
    Cost of revenue 2,344   2,392   4,685   4,749 
    Selling, administrative, and research and development expenses 690   659   1,365   1,311 
    Amortization and impairment of intangible assets 30   34   61   69 
    Operating Income 1,010   926   1,982   1,821 
    Interest expense (69)  (47)  (129)  (95)
    Other income (expense) 20   24   30   38 
    Income Before Taxes 961   903   1,883   1,764 
    Income taxes 207   165   415   364 
    Net Income$754  $738  $1,468  $1,400 
            
    Net Income Per Share:       
    Basic$2.49  $2.37  $4.83  $4.49 
    Diluted$2.48  $2.37  $4.81  $4.48 
            
    Cash Dividends Per Share:       
    Paid$1.31  $1.22  $2.62  $2.44 
    Declared$1.31  $1.22  $2.62  $2.44 
            
    Shares of Common Stock Outstanding During the Period:       
    Average 303.3   310.6   304.1   311.5 
    Average assuming dilution 304.2   311.5   305.2   312.6 


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    STATEMENT OF FINANCIAL POSITION (UNAUDITED)
     
    In millionsJune 30, 2023 December 31, 2022
    Assets   
    Current Assets:   
    Cash and equivalents$922  $708 
    Trade receivables 3,216   3,171 
    Inventories 1,921   2,054 
    Prepaid expenses and other current assets 345   329 
    Assets held for sale —   8 
    Total current assets 6,404   6,270 
        
    Net plant and equipment 1,901   1,848 
    Goodwill 4,887   4,864 
    Intangible assets 708   768 
    Deferred income taxes 500   494 
    Other assets 1,252   1,178 
     $15,652  $15,422 
        
    Liabilities and Stockholders' Equity   
    Current Liabilities:   
    Short-term debt$1,275  $1,590 
    Accounts payable 590   594 
    Accrued expenses 1,625   1,728 
    Cash dividends payable 396   400 
    Income taxes payable 154   147 
    Liabilities held for sale —   1 
    Total current liabilities 4,040   4,460 
        
    Noncurrent Liabilities:   
    Long-term debt 6,947   6,173 
    Deferred income taxes 451   484 
    Noncurrent income taxes payable 151   273 
    Other liabilities 969   943 
    Total noncurrent liabilities 8,518   7,873 
        
    Stockholders' Equity:   
    Common stock 6   6 
    Additional paid-in-capital 1,550   1,501 
    Retained earnings 26,473   25,799 
    Common stock held in treasury (23,116)  (22,377)
    Accumulated other comprehensive income (loss) (1,820)  (1,841)
    Noncontrolling interest 1   1 
    Total stockholders' equity 3,094   3,089 
     $15,652  $15,422 


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


    Three Months Ended June 30, 2023
    Dollars in millionsTotal RevenueOperating IncomeOperating Margin
    Automotive OEM$826  $139  16.8%
    Food Equipment 654   182  27.8%
    Test & Measurement and Electronics 700   162  23.2%
    Welding 490   167  33.9%
    Polymers & Fluids 459   119  25.9%
    Construction Products 526   154  29.3%
    Specialty Products 423   109  26.0%
    Intersegment (4)  —  —%
    Total Segments 4,074   1,032  25.3%
    Unallocated —   (22) —%
    Total Company$4,074  $1,010  24.8%


    Six Months Ended June 30, 2023
    Dollars in millionsTotal RevenueOperating IncomeOperating Margin
    Automotive OEM$1,622  $267  16.4%
    Food Equipment 1,289   351  27.2%
    Test & Measurement and Electronics 1,403   334  23.8%
    Welding 983   324  32.9%
    Polymers & Fluids 906   228  25.2%
    Construction Products 1,052   299  28.4%
    Specialty Products 846   218  25.8%
    Intersegment (8)  —  —%
    Total Segments 8,093   2,021  25.0%
    Unallocated —   (39) —%
    Total Company$8,093  $1,982  24.5%


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


    Q2 2023 vs. Q2 2022 Favorable/(Unfavorable)
    Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & Fluids Construction ProductsSpecialty ProductsTotal ITW
    Organic16.3%6.9%1.1%0.7%(0.5)%(5.7)%(3.6)%3.0%
    Acquisitions/ Divestitures—%(1.0)%—%—%(5.7)%—%(2.3)%(1.1)%
    Translation(0.1)%0.4%(0.4)%—%(1.4)%(1.1)%0.5%(0.3)%
    Operating Revenue16.2%6.3%0.7%0.7%(7.6)%(6.8)%(5.4)%1.6%


    Q2 2023 vs. Q2 2022 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Operating Leverage320 bps140 bps30 bps-(10) bps(90) bps(80) bps60 bps
    Changes in Variable Margin & OH Costs(210) bps140 bps70 bps460 bps150 bps320 bps20 bps100 bps
    Total Organic110 bps280 bps100 bps460 bps140 bps230 bps(60) bps160 bps
    Acquisitions/
    Divestitures    		—30 bps——30 bps—60 bps10 bps
    Restructuring/Other140 bps—(30) bps—(90) bps(60) bps(90) bps—
    Total Operating Margin Change250 bps310 bps70 bps460 bps80 bps170 bps(90) bps170 bps
             
    Total Operating Margin % *16.8%27.8%23.2%33.9%25.9%29.3%26.0%24.8%
             
    * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 50 bps 170 bps 10 bps 180 bps 10 bps 60 bps 70 bps **
    ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.07) on GAAP earnings per share for the second quarter of 2023.


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


    H1 2023 vs. H2 2022 Favorable/(Unfavorable)
    Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & Fluids Construction ProductsSpecialty Products Total ITW
    Organic11.9%11.3%3.3%5.3%(0.3)%(3.6)%(4.3)%4.1%
    Acquisitions/Divestitures—%(1.1)%—%—%(5.1)%—%(1.1)%(0.9)%
    Translation(1.6)%(1.0)%(1.7)%(0.3)%(1.9)%(2.1)%(0.5)%(1.4)%
    Operating Revenue10.3%9.2%1.6%5.0%(7.3)%(5.7)%(5.9)%1.8%


    H1 2023 vs. H2 2022 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Operating Leverage230 bps210 bps80 bps80 bps(10) bps(60) bps(90) bps90 bps
    Changes in Variable Margin & OH Costs(330) bps140 bps100 bps210 bps80 bps310 bps—60 bps
    Total Organic(100) bps350 bps180 bps290 bps70 bps250 bps(90) bps150 bps
    Acquisitions/Divestitures—20 bps——30 bps—30 bps10 bps
    Restructuring/Other110 bps(10) bps(20) bps—(60) bps(30) bps(40) bps—
    Total Operating Margin Change10 bps360 bps160 bps290 bps40 bps220 bps(100) bps160 bps
             
    Total Operating Margin % *16.4%27.2%23.8%32.9%25.2%28.4%25.8%24.5%
             
    * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 50 bps 180 bps 10 bps 190 bps 10 bps 60 bps 80 bps **
    ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.15) on GAAP earnings per share for the first half 2023.


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
     
    AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
     
     Three Months Ended Six Months Ended
     June 30, June 30,
    Dollars in millions 2023   2022   2023   2022 
    Numerator:       
    Net income$754  $738  $1,468  $1,400 
    Discrete tax benefit related to the second quarter 2023 (20)  —   (20)  — 
    Discrete tax benefit related to the second quarter 2022 —   (51)  —   (51)
    Interest expense, net of tax (1) 53   36   99   73 
    Other (income) expense, net of tax (1) (15)  (18)  (23)  (29)
    Operating income after taxes$772  $705  $1,524  $1,393 
            
    Denominator:       
    Invested capital:       
    Cash and equivalents$922  $879  $922  $879 
    Trade receivables 3,216   3,109   3,216   3,109 
    Inventories 1,921   1,975   1,921   1,975 
    Net assets held for sale —   73   —   73 
    Net plant and equipment 1,901   1,736   1,901   1,736 
    Goodwill and intangible assets 5,595   5,702   5,595   5,702 
    Accounts payable and accrued expenses (2,215)  (2,241)  (2,215)  (2,241)
    Debt (8,222)  (7,640)  (8,222)  (7,640)
    Other, net (24)  (214)  (24)  (214)
    Total net assets (stockholders' equity) 3,094   3,379   3,094   3,379 
    Cash and equivalents (922)  (879)  (922)  (879)
    Debt 8,222   7,640   8,222   7,640 
    Total invested capital$10,394  $10,140  $10,394  $10,140 
            
    Average invested capital (2)$10,366  $10,143  $10,292  $10,024 
            
    Net income to average invested capital (3) 29.1%  29.1%  28.5%  27.9%
    After-tax return on average invested capital (3) 29.8%  27.8%  29.6%  27.8%

    (1) Effective tax rate used for interest expense and other (income) expense for the three months ended June 30, 2023 and 2022 was 23.6% and 23.9%, respectively. Effective tax rate used for interest expense and other (income) expense for the six months ended June 30, 2023 and 2022 was 23.1% and 23.5%, 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 June 30, 2023 and 2022 were converted to an annual rate by multiplying the calculated return by 4. Returns for the six months ended June 30, 2023 and 2022 were converted to an annual rate by multiplying the calculated return by 2.

    A reconciliation of the tax rate for the three and six months ended June 30, 2023, excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:

     Three Months Ended Six Months Ended
     June 30, 2023 June 30, 2023
    Dollars in millionsIncome Taxes Tax Rate Income Taxes Tax Rate
    As reported$207  21.4% $415  22.0%
    Discrete tax benefit related to the second quarter 2023 20  2.2%  20  1.1%
    As adjusted$227  23.6% $435  23.1%

    A reconciliation of the tax rate for the three and six months ended June 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:

     Three Months Ended Six Months Ended
     June 30, 2022 June 30, 2022
    Dollars in millionsIncome Taxes Tax Rate Income Taxes Tax Rate
    As reported$165  18.3% $364  20.7%
    Discrete tax benefit related to the second quarter 2022 51  5.6%  51  2.8%
    As adjusted$216  23.9% $415  23.5%


    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 Six Months Ended
     June 30, June 30,
    Dollars in millions 2023   2022   2023   2022 
    Net cash provided by operating activities$790  $501  $1,518  $824 
    Less: Additions to plant and equipment (85)  (81)  (198)  (155)
    Free cash flow$705  $420  $1,320  $669 
            
    Net income$754  $738  $1,468  $1,400 
            
    Net cash provided by operating activities to net income conversion rate 105%  68%  103%  59%
    Free cash flow to net income conversion rate 94%  57%  90%  48%


    ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)
      
     Three Months Ended
     June 30,
      2023   2022 
    As reported$2.48  $2.37 
    Discrete tax benefit related to the second quarter 2023 (0.07)  — 
    Discrete tax benefit related to the second quarter 2022 —   (0.16)
    As adjusted$2.41  $2.21 


     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 


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