-
ITW Reports Second Quarter 2022 Results
Source: Nasdaq GlobeNewswire / 02 Aug 2022 08:00:03 America/New_York
- Total revenue of $4.0 billion; organic growth of 10%
- GAAP EPS of $2.37 included $(0.15) of EPS headwind from foreign currency translation impact and higher restructuring expenses
- Operating margin of 23.1% included 200 bps of operating leverage offset by (160) bps of price/cost impact and (100) bps of headwind from the MTS acquisition and higher restructuring expenses
- Maintaining full-year 2022 guidance including organic revenue growth of 7% to 10% and record GAAP EPS of $9.00 to $9.40 per share
GLENVIEW, Ill., Aug. 02, 2022 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2022 results.
“In the current environment, our teams around the world continue to do an exceptional job of demonstrating the power and resilience of the ITW Business Model as evidenced by the more than 10 percent organic growth and 23 percent plus operating margin that they delivered in the second quarter,” said E. Scott Santi, Chairman and Chief Executive Officer. “Across the company we continue to leverage our 80/20 front-to-back driven operational capabilities to support our customers and execute our “Win the Recovery” strategy to accelerate profitable market penetration and organic growth across our portfolio. Looking ahead at the remainder of 2022, based on our first half results and current levels of demand, we are maintaining our current guidance for full-year 2022, including organic growth of 8.5 percent and record GAAP EPS of $9.20 at their respective mid-points. While the near-term environment has its challenges, we remain focused on delivering differentiated service to our customers, top-tier financial performance for our shareholders, and continued progress on our path to ITW’s full potential performance.”
Second Quarter 2022 Results
Second quarter revenue of $4.0 billion increased nine percent with organic revenue growth of 10 percent. The acquisition of MTS contributed three percent to revenue. Unfavorable foreign currency translation reduced revenue by four percent. Six of seven segments delivered positive organic growth in the quarter, led by Food Equipment up 25 percent, Welding up 22 percent, Construction Products up 15 percent, Polymers & Fluids up 10 percent, Automotive OEM up six percent, and Test & Measurement andElectronics up one percent due to a difficult year-over-year comparison. Specialty Products organic revenue was down less than two percent. On a geographic basis, organic growth was 14 percent in North America, 6 percent in Europe, and 3 percent in Asia Pacific.
GAAP EPS was $2.37 and included $(0.05) of higher restructuring expenses related to 80/20 front-to-back projects, $(0.10) of unfavorable foreign currency translation, and a $0.16 one-time tax benefit related to the routine resolution of a U.S. tax audit. As a reminder, GAAP EPS of $2.45 in the second quarter of 2021 included a $0.35 one-time tax benefit. Operating margin was 24.1 percent excluding margin dilution impacts of (50) basis points each from the MTS acquisition and higher restructuring expenses. Enterprise initiatives contributed 90 basis points. Price/cost margin dilution impact moderated in the second quarter to (160) basis points compared to (250) basis points in the first quarter of 2022. Operating cash flow was $501 million, and free cash flow was $420 million with a conversion rate of 57 percent. The reported tax rate for the second quarter was 18.3 percent and excluding the one-time tax benefit, the effective tax rate was 23.9 percent.
2022 Guidance
ITW is maintaining its full-year GAAP EPS guidance of $9.00 to $9.40 per share. Based on current levels of demand, the company is projecting full-year revenue growth in the range of six to nine percent, with organic growth of seven to ten percent. At current foreign exchange rates, currency translation is projected to reduce revenue by four percent and EPS by approximately $(0.35). The acquisition of MTS is expected to add three percent to revenue. Operating margin is forecasted to be in the range of 24 to 25 percent, with enterprise initiatives contributing approximately 100 basis points and price/cost margin dilution impact of (100) basis points. Price is projected to exceed input cost inflation on a dollar-for-dollar basis. The expected free cash flow conversion rate is unchanged at 85 to 95 percent of net income, and the company is on pace to repurchase $1.5 billion of its own shares. The projected effective tax rate is 22 to 23 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 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 inflation including 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 and subsequent reports filed with the SEC.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 Six Months Ended June 30, June 30, In millions except per share amounts 2022 2021 2022 2021 Operating Revenue $ 4,011 $ 3,676 $ 7,950 $ 7,220 Cost of revenue 2,392 2,163 4,749 4,202 Selling, administrative, and research and development expenses 659 588 1,311 1,154 Amortization and impairment of intangible assets 34 32 69 66 Operating Income 926 893 1,821 1,798 Interest expense (47 ) (52 ) (95 ) (104 ) Other income (expense) 24 22 38 34 Income Before Taxes 903 863 1,764 1,728 Income Taxes 165 88 364 282 Net Income $ 738 $ 775 $ 1,400 $ 1,446 Net Income Per Share: Basic $ 2.37 $ 2.46 $ 4.49 $ 4.58 Diluted $ 2.37 $ 2.45 $ 4.48 $ 4.56 Cash Dividends Per Share: Paid $ 1.22 $ 1.14 $ 2.44 $ 2.28 Declared $ 1.22 $ 1.14 $ 2.44 $ 2.28 Shares of Common Stock Outstanding During the Period: Average 310.6 315.6 311.5 316.1 Average assuming dilution 311.5 316.9 312.6 317.4 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)In millions June 30, 2022 December 31, 2021 Assets Current Assets: Cash and equivalents $ 879 $ 1,527 Trade receivables 3,109 2,840 Inventories 1,975 1,694 Prepaid expenses and other current assets 305 313 Assets held for sale 103 — Total current assets 6,371 6,374 Net plant and equipment 1,736 1,809 Goodwill 4,870 4,965 Intangible assets 832 972 Deferred income taxes 498 552 Other assets 1,359 1,405 $ 15,666 $ 16,077 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 1,525 $ 778 Accounts payable 679 585 Accrued expenses 1,562 1,648 Cash dividends payable 378 382 Income taxes payable 120 77 Liabilities held for sale 30 — Total current liabilities 4,294 3,470 Noncurrent Liabilities: Long-term debt 6,115 6,909 Deferred income taxes 632 654 Noncurrent income taxes payable 274 365 Other liabilities 972 1,053 Total noncurrent liabilities 7,993 8,981 Stockholders’ Equity: Common stock 6 6 Additional paid-in-capital 1,464 1,432 Retained earnings 24,967 24,325 Common stock held in treasury (21,382 ) (20,636 ) Accumulated other comprehensive income (loss) (1,677 ) (1,502 ) Noncontrolling interest 1 1 Total stockholders’ equity 3,379 3,626 $ 15,666 $ 16,077 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Three Months Ended June 30, 2022 Dollars in millions Total Revenue Operating Income Operating Margin Automotive OEM $ 711 $ 101 14.3 % Food Equipment 614 152 24.7 % Test & Measurement and Electronics 696 157 22.5 % Welding 486 142 29.3 % Polymers & Fluids 496 125 25.1 % Construction Products 565 156 27.6 % Specialty Products 447 121 26.9 % Intersegment (4 ) — — % Total Segments 4,011 954 23.8 % Unallocated — (28 ) — % Total Company $ 4,011 $ 926 23.1 % Six Months Ended June 30, 2022 Dollars in millions Total Revenue Operating Income Operating Margin Automotive OEM $ 1,471 $ 239 16.3 % Food Equipment 1,180 278 23.6 % Test & Measurement and Electronics 1,381 306 22.2 % Welding 936 281 30.0 % Polymers & Fluids 977 243 24.8 % Construction Products 1,116 292 26.2 % Specialty Products 899 241 26.8 % Intersegment (10 ) — — % Total Segments 7,950 1,880 23.6 % Unallocated — (59 ) — % Total Company $ 7,950 $ 1,821 22.9 % ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Q2 2022 vs. Q2 2021 Favorable/(Unfavorable) Operating Revenue Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers &
FluidsConstruction
ProductsSpecialty
ProductsTotal ITW Organic 6.1 % 25.0 % 0.9 % 22.1 % 10.2 % 15.1 % (1.7 )% 10.4 % Acquisitions/
Divestitures— % — % 17.8 % — % — % — % — % 2.9 % Translation (5.5 )% (5.4 )% (3.8 )% (1.3 )% (3.5 )% (6.0 )% (3.3 )% (4.2 )% Operating Revenue 0.6 % 19.6 % 14.9 % 20.8 % 6.7 % 9.1 % (5.0 )% 9.1 % Q2 2022 vs. Q2 2021 Favorable/(Unfavorable) Change in Operating Margin Automotive OEM Food Equipment Test &
Measurement
and ElectronicsWelding Polymers & Fluids Construction Products Specialty Products Total ITW Operating Leverage 120 bps 480 bps 20 bps 290 bps 170 bps 220 bps (20) bps 200 bps Changes in Variable Margin & OH Costs (300) bps (200) bps (260) bps (220) bps (400) bps (220) bps — (220) bps Total Organic (180) bps 280 bps (240) bps 70 bps (230) bps — (20) bps (20) bps Acquisitions/
Divestitures— — (330) bps — — — — (50) bps Restructuring/Other (270) bps (10) bps 10 bps 10 bps 10 bps — (10) bps (50) bps Total Operating Margin Change (450) bps 270 bps (560) bps 80 bps (220) bps — (30) bps (120) bps Total Operating Margin % * 14.3 % 24.7 % 22.5 % 29.3 % 25.1 % 27.6 % 26.9 % 23.1 % *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 50 bps 200 bps 10 bps 210 bps 20 bps 60 bps 90 bps ** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the second quarter of 2022. ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)1H 2022 vs. 1H 2021 Favorable/(Unfavorable) Operating Revenue Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers &
FluidsConstruction
ProductsSpecialty
ProductsTotal ITW Organic 2.5 % 26.5 % 4.3 % 17.5 % 11.5 % 18.1 % (0.6 )% 10.5 % Acquisitions/
Divestitures— % — % 17.9 % — % — % — % — % 2.9 % Translation (3.8 )% (4.2 )% (3.0 )% (1.0 )% (3.0 )% (5.0 )% (2.5 )% (3.3 )% Operating Revenue (1.3 )% 22.3 % 19.2 % 16.5 % 8.5 % 13.1 % (3.1 )% 10.1 % 1H 2022 vs. 1H 2021 Favorable/(Unfavorable) Change in Operating Margin Automotive
OEMFood Equipment Test &
Measurement
and
ElectronicsWelding Polymers & Fluids Construction Products Specialty Products Total ITW Operating Leverage 40 bps 520 bps 100 bps 230 bps 200 bps 260 bps (10) bps 200 bps Changes in Variable Margin & OH Costs (390) bps (310) bps (340) bps (170) bps (380) bps (410) bps (60) bps (300) bps Total Organic (350) bps 210 bps (240) bps 60 bps (180) bps (150) bps (70) bps (100) bps Acquisitions/
Divestitures— — (370) bps — — — — (60) bps Restructuring/Other (180) bps (10) bps 10 bps — — 10 bps 10 bps (40) bps Total Operating Margin Change (530) bps 200 bps (600) bps 60 bps (180) bps (140) bps (60) bps (200) bps Total Operating Margin % * 16.3 % 23.6 % 22.2 % 30.0 % 24.8 % 26.2 % 26.8 % 22.9 % *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 50 bps 200 bps 10 bps 220 bps 10 bps 60 bps 90 bps ** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.17) on GAAP earnings per share for the first half 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 Six Months Ended June 30, June 30, Dollars in millions 2022 2021 2022 2021 Numerator: Net Income $ 738 $ 775 $ 1,400 $ 1,446 Discrete tax benefit related to the second quarter 2022 (51 ) — (51 ) — Discrete tax benefit related to the second quarter 2021 — (112 ) — (112 ) Interest expense, net of tax (1) 36 41 73 81 Other (income) expense, net of tax (1) (18 ) (17 ) (29 ) (26 ) Operating income after taxes $ 705 $ 687 $ 1,393 $ 1,389 Denominator: Invested capital: Cash and equivalents $ 879 $ 2,058 $ 879 $ 2,058 Trade receivables 3,109 2,786 3,109 2,786 Inventories 1,975 1,400 1,975 1,400 Net assets held for sale 73 — 73 — Net plant and equipment 1,736 1,767 1,736 1,767 Goodwill and intangible assets 5,702 5,374 5,702 5,374 Accounts payable and accrued expenses (2,241 ) (1,933 ) (2,241 ) (1,933 ) Debt (7,640 ) (7,648 ) (7,640 ) (7,648 ) Other, net (214 ) (283 ) (214 ) (283 ) Total net assets (stockholders' equity) 3,379 3,521 3,379 3,521 Cash and equivalents (879 ) (2,058 ) (879 ) (2,058 ) Debt 7,640 7,648 7,640 7,648 Total invested capital $ 10,140 $ 9,111 $ 10,140 $ 9,111 Average invested capital (2) $ 10,143 $ 8,926 $ 10,024 $ 8,864 Net income to average invested capital (3) 29.1 % 34.8 % 27.9 % 32.6 % After-tax return on average invested capital (3) 27.8 % 30.8 % 27.8 % 31.3 % (1) Effective tax rate used for interest expense and other (income) expense for the three months ended June 30, 2022 and 2021 was 23.9% and 23.0%, respectively. Effective tax rate used for interest expense and other (income) expense for the six months ended June 30, 2022 and 2021 was 23.5% and 22.7%, 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, 2022 and 2021 were converted to an annual rate by multiplying the calculated return by 4. Returns for the six months ended June 30, 2022 and 2021 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, 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 millions Income 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 % A reconciliation of the tax rate for the three and six months ended June 30, 2021, excluding the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate, is as follows:
Three Months Ended Six Months Ended June 30, 2021 June 30, 2021 Dollars in millions Income Taxes Tax Rate Income Taxes Tax Rate As reported $ 88 10.1 % $ 282 16.3 % Discrete tax benefit related to the second quarter 2021 112 12.9 % 112 6.4 % As adjusted $ 200 23.0 % $ 394 22.7 % 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 Six Months Ended June 30, June 30, Dollars in millions 2022 2021 2022 2021 Net cash provided by operating activities $ 501 $ 555 $ 824 $ 1,164 Less: Additions to plant and equipment (81 ) (78 ) (155 ) (146 ) Free cash flow $ 420 $ 477 $ 669 $ 1,018 Net Income $ 738 $ 775 $ 1,400 $ 1,446 Net cash provided by operating activities to net income conversion rate 68 % 72 % 59 % 80 % Free cash flow to net income conversion rate 57 % 62 % 48 % 70 % Media Contact Investor Relations Tel: 224.661.7451 Karen Fletcher mediarelations@itw.com Tel: 224.661.7433 investorrelations@itw.com 
