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ITW Reports First Quarter 2022 Results
Source: Nasdaq GlobeNewswire / 03 May 2022 08:00:02 America/New_York
- Total revenue of $3.9 billion; organic growth of 11%
- GAAP EPS of $2.11 including $(0.05) of unfavorable foreign currency translation impact
- Operating margin of 22.7%; 23.4% excluding 70 bps of margin dilution from the acquisition of MTS
- Raising guidance for GAAP EPS to $9.00 to $9.40 per share and organic revenue growth to 7 to 10%
GLENVIEW, Ill., May 03, 2022 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its first quarter 2022 results.
“In what remains a challenging and dynamic environment, our ITW business teams around the world continue to do an exceptional job of leveraging the performance power of the ITW Business Model and our advantaged supply position to support our customers and execute our ‘Win the Recovery’ strategy to accelerate profitable market penetration and organic growth across our portfolio,” said E. Scott Santi, Chairman and Chief Executive Officer. “Our first quarter results reflect continued strong momentum in this regard, and we remain well-positioned to seize the opportunities and respond to the challenges that lie ahead as we move through the balance of 2022.”
First Quarter 2022 Results
First quarter revenue grew 11.2 percent to $3.9 billion with organic growth of 10.6 percent. The acquisition of MTS contributed 2.8 percent to revenue. Foreign currency translation impact reduced revenue by 2.2 percent. Six of seven segments delivered positive organic growth, led by Food Equipment up 28 percent, Construction Products up 21 percent, Welding and Polymers & Fluids both up 13 percent, Test & Measurement and Electronics up eight percent, and Specialty Products up one percent. Organic revenue was down one percent in Automotive OEM due to automotive production limitations related to component supply shortages.GAAP EPS was $2.11, including $(0.05) of unfavorable foreign currency translation impact. Operating margin was 23.4 percent, excluding 70 basis points of margin dilution impact from the acquisition of MTS. Enterprise initiatives contributed 90 basis points. While pricing actions more than offset raw material cost increases on a dollar-for-dollar basis, the impact of price/cost reduced margin percentage by 250 basis points. Operating cash flow was $323 million, and free cash flow was $249 million with a conversion of 38 percent of net income due to higher working capital investments to support double digit revenue growth and increased inventory levels to help mitigate supply chain risk and sustain customer service levels. The company repurchased $375 million of its own shares, and the effective tax rate for the quarter was 23.1 percent.
2022 Guidance
Based on the company’s first quarter results and projecting current levels of demand through the balance of the year, ITW is raising its full-year organic growth guidance to seven to 10 percent and full-year revenue growth guidance to 8.5 to 11.5 percent. The acquisition of MTS is expected to add three percent to revenue. Foreign currency translation is expected to reduce revenue by 1.5 percent. The company is also raising its full-year GAAP EPS guidance to $9.00 to $9.40 per share, an increase of 11 to 16 percent versus prior year excluding the impact of favorable one-time tax items in 2021. Operating margin is expected to expand to 24 to 25 percent, with enterprise initiatives contributing 100 basis points. The margin dilution impact from the acquisition of MTS and price/cost are expected to be 50 and 100 basis points, respectively. Free cash flow is expected to grow 10 to 20 percent year-over-year with a conversion rate of 85 to 95 percent of net income. The company is on pace to repurchase $1.5 billion of its own shares, and the effective tax rate is expected to be 23 to 24 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.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 the duration and potential effects of the COVID-19 pandemic and global supply chain challenges, related government actions and the company’s strategy in response thereto on the company’s business, expected impact of raw material inflation, 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, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation of overseas cash, 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, potential acquisitions and divestitures and related impact on financial results, including statements with respect to the impact of the 2021 acquisition of the MTS Test & Simulation business, and the company’s 2022 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 contained in ITW's Form 10-K for 2021.About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.5 billion in 2021. 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.comILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)Three Months Ended March 31, In millions except per share amounts 2022 2021 Operating Revenue $ 3,939 $ 3,544 Cost of revenue 2,357 2,039 Selling, administrative, and research and development expenses 652 566 Amortization and impairment of intangible assets 35 34 Operating Income 895 905 Interest expense (48 ) (52 ) Other income (expense) 14 12 Income Before Taxes 861 865 Income Taxes 199 194 Net Income $ 662 $ 671 Net Income Per Share: Basic $ 2.12 $ 2.12 Diluted $ 2.11 $ 2.11 Cash Dividends Per Share: Paid $ 1.22 $ 1.14 Declared $ 1.22 $ 1.14 Shares of Common Stock Outstanding During the Period: Average 312.5 316.6 Average assuming dilution 313.7 317.9 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)In millions March 31, 2022 December 31, 2021 Assets Current Assets: Cash and equivalents $ 1,296 $ 1,527 Trade receivables 3,126 2,840 Inventories 1,883 1,694 Prepaid expenses and other current assets 377 313 Total current assets 6,682 6,374 Net plant and equipment 1,795 1,809 Goodwill 5,008 4,965 Intangible assets 875 972 Deferred income taxes 546 552 Other assets 1,380 1,405 $ 16,286 $ 16,077 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 1,041 $ 778 Accounts payable 696 585 Accrued expenses 1,541 1,648 Cash dividends payable 380 382 Income taxes payable 200 77 Total current liabilities 3,858 3,470 Noncurrent Liabilities: Long-term debt 6,817 6,909 Deferred income taxes 627 654 Noncurrent income taxes payable 365 365 Other liabilities 1,037 1,053 Total noncurrent liabilities 8,846 8,981 Stockholders’ Equity: Common stock 6 6 Additional paid-in-capital 1,447 1,432 Retained earnings 24,607 24,325 Common stock held in treasury (21,008 ) (20,636 ) Accumulated other comprehensive income (loss) (1,471 ) (1,502 ) Noncontrolling interest 1 1 Total stockholders’ equity 3,582 3,626 $ 16,286 $ 16,077 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Three Months Ended March 31, 2022 Dollars in millions Total
RevenueOperating
IncomeOperating
MarginAutomotive OEM $ 760 $ 138 18.1 % Food Equipment 566 126 22.3 % Test & Measurement and Electronics 685 149 21.8 % Welding 450 139 30.8 % Polymers & Fluids 481 118 24.5 % Construction Products 551 136 24.7 % Specialty Products 452 120 26.6 % Intersegment (6 ) — — % Total Segments 3,939 926 23.5 % Unallocated — (31 ) — % Total Company $ 3,939 $ 895 22.7 % ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Q1 2022 vs. Q1 2021 Favorable/(Unfavorable) Operating Revenue Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers
& FluidsConstruction
ProductsSpecialty
ProductsTotal ITW Organic (0.7)% 28.2% 7.9% 12.9% 12.8% 21.3% 0.6% 10.6% Acquisitions/Divestitures —% —% 18.1% —% —% —% —% 2.8% Translation (2.2)% (2.9)% (2.0)% (0.7)% (2.3)% (3.9)% (1.7)% (2.2)% Operating
Revenue(2.9)% 25.3% 24.0% 12.2% 10.5% 17.4% (1.1)% 11.2% Q1 2022 vs. Q1 2021 Favorable/(Unfavorable) Change in Operating Margin Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers & Fluids Construction Products Specialty Products Total ITW Operating Leverage (10) bps 560 bps 160 bps 180 bps 240 bps 310 bps 10 bps 200 bps Changes in Variable Margin & OH Costs (480) bps (440) bps (420) bps (120) bps (360) bps (620) bps (140) bps (390) bps Total Organic (490) bps 120 bps (260) bps 60 bps (120) bps (310) bps (130) bps (190) bps Acquisitions/
Divestitures— — (420) bps — — — — (70) bps Restructuring/Other (110) bps (10) bps 20 bps (10) bps — 20 bps 30 bps (20) bps Total Operating Margin Change (600) bps 110 bps (660) bps 50 bps (120) bps (290) bps (100) bps (280) bps Total Operating Margin % * 18.1% 22.3% 21.8% 30.8% 24.5% 24.7% 26.6% 22.7% *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 60 bps 200 bps 20 bps 220 bps 10 bps 70 bps 90 bps ** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the first quarter of 2022. 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 2022 2021 Numerator: Net Income $ 662 $ 671 Interest expense, net of tax (1) 37 40 Other (income) expense, net of tax (1) (11 ) (9 ) Operating income after taxes $ 688 $ 702 Denominator: Invested capital: Cash and equivalents $ 1,296 $ 2,484 Trade receivables 3,126 2,662 Inventories 1,883 1,292 Net plant and equipment 1,795 1,746 Goodwill and intangible assets 5,883 5,379 Accounts payable and accrued expenses (2,237 ) (1,850 ) Debt (7,858 ) (7,949 ) Other, net (306 ) (488 ) Total net assets (stockholders' equity) 3,582 3,276 Cash and equivalents (1,296 ) (2,484 ) Debt 7,858 7,949 Total invested capital $ 10,144 $ 8,741 Average invested capital (2) $ 9,966 $ 8,740 Net income to average invested capital (3) 26.6 % 30.7 % After-tax return on average invested capital (3) 27.6 % 32.1 % (1) Effective tax rate used for interest expense and other (income) expense for the three months ended March 31, 2022 and 2021 was 23.1% and 22.4%, respectively.
(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of the periods presented.
(3) Returns for the three months ended March 31, 2022 and 2021 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, 2021 Numerator: Net income $ 2,694 Discrete tax benefit related to the third quarter 2021 (21 ) Discrete tax benefit related to the second quarter 2021 (112 ) Interest expense, net of tax (1) 157 Other (income) expense, net of tax (1) (40 ) Operating income after taxes $ 2,678 Denominator: Invested capital: Cash and equivalents $ 1,527 Trade receivables 2,840 Inventories 1,694 Net plant and equipment 1,809 Goodwill and intangible assets 5,937 Accounts payable and accrued expenses (2,233 ) Debt (7,687 ) Other, net (261 ) Total net assets (stockholders' equity) 3,626 Cash and equivalents (1,527 ) Debt 7,687 Total invested capital $ 9,786 Average invested capital (2) $ 9,087 Net income to average invested capital 29.6 % After-tax return on average invested capital 29.5 % (1) Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2021 was 23.0%.
(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 2021 effective tax rate excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital losses and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate is as follows:
Twelve Months Ended December 31, 2021 Dollars in millions Income Taxes Tax Rate As reported $ 632 19.0 % Discrete tax benefit related to the third quarter 2021 21 0.6 % Discrete tax benefit related to the second quarter 2021 112 3.4 % As adjusted $ 765 23.0 % FREE CASH FLOW (UNAUDITED)
Three Months Ended March 31, Dollars in millions 2022 2021 Net cash provided by operating activities $ 323 $ 609 Less: Additions to plant and equipment (74 ) (68 ) Free cash flow $ 249 $ 541 Net income $ 662 $ 671 Net cash provided by operating activities to net income conversion rate 49 % 91 % Free cash flow to net income conversion rate 38 % 81 % ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)
Twelve Months Ended December 31, 2021 As reported $ 8.51 Discrete tax benefit related to the third quarter 2021 (0.07 ) Discrete tax benefit related to the second quarter 2021 (0.35 ) As adjusted $ 8.09 Media Contact Investor Relations Tel: 224.661.7451 Karen Fletcher mediarelations@itw.com Tel: 224.661.7433 investorrelations@itw.com 
