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ITW Reports Third Quarter 2021 Results
Source: Nasdaq GlobeNewswire / 28 Oct 2021 07:00:02 America/Chicago
- Total revenue of $3.6 billion, an increase of 8% with organic revenue growth of 6%
- Operating margin of 23.8%; Enterprise initiatives contributed 100 basis points
- GAAP EPS of $2.02, an increase of 10%
- Updated full year guidance with organic growth of 11 to 12% and EPS growth of 25 to 28%
GLENVIEW, IL., Oct. 28, 2021 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2021 results.
“We saw continued strong growth momentum in six of our seven segments in the third quarter, while our Automotive OEM segment continued to be impacted by auto production reductions associated with the well-publicized supply chain challenges affecting our customers,” said E. Scott Santi, Chairman and Chief Executive Officer. “Our teams around the world continue to do an exceptional job of executing for our customers and for the company in a very challenging environment as evidenced by the six percent organic growth and ten percent earnings per share growth that ITW delivered in the quarter. Moving forward, we remain highly focused on fully leveraging the competitive strength of the ITW Business Model and the investments we have made, and continue to make, in support of the execution of our enterprise strategy and our ‘Win the Recovery’ positioning to their full potential.”
Third Quarter 2021 Results
Third quarter revenue grew eight percent to $3.6 billion, with six percent organic growth. Operating income grew seven percent to $845 million. Excluding Automotive OEM, revenue grew 12 percent and operating income grew 14 percent. Operating margin was 23.8 percent, flat year-over-year, with enterprise initiatives and volume leverage each contributing 100 basis points or more of positive margin impact offset by price/cost margin dilution impact of 200 basis points. Consistent with our strategy, price recovery actions offset raw material cost increases on a dollar-for-dollar basis in the third quarter. GAAP EPS of $2.02 increased 10 percent. The effective tax rate for the third quarter was 20.8 percent, in line with the third quarter of 2020, and included a $0.06 one-time tax benefit. Operating cash flow was $619 million, 97 percent of net income, and free cash flow was $548 million, 86 percent of net income.Six of seven segments delivered strong organic growth in the quarter, led by Welding up 22 percent, Food Equipment up 19 percent, Test & Measurement and Electronics up 12 percent, and Specialty Products up 8 percent. Polymers & Fluids and Construction Products were both up 3 percent. Automotive OEM declined 11 percent.
Capital Allocation Update
Pending final regulatory approvals, ITW expects to complete its previously announced acquisition of the MTS Test & Simulation business in the fourth quarter of 2021. On August 6, 2021, ITW raised its dividend by seven percent to an annualized rate of $4.88 per share. The company is on pace to repurchase approximately $1 billion of its shares in 2021, having repurchased $750 million year-to-date.2021 Guidance
ITW expects total revenue growth of 13 to 14 percent and organic growth in the range of 11 to 12 percent. Foreign currency translation impact at current foreign exchange rates is projected to contribute two percentage points to revenue growth. GAAP EPS guidance is updated to a range of $8.30 to $8.50, due to actual and anticipated lower auto production levels in Q3 and Q4 versus previous guidance. Raw material cost increases are expected to be offset with price on a dollar-for-dollar basis and therefore EPS neutral. Full year margin dilution impact from price/cost is expected to be approximately 150 basis points, offset by more than 200 basis points of volume leverage and a contribution from enterprise initiatives of more than 100 basis points. Operating margin is expected to be in the range of 23.5 to 24.5 percent, an increase of more than 100 basis points at the midpoint versus 2020. Free cash flow is expected to be approximately 90 percent of net income adjusted for one-time tax benefits. Guidance excludes any impact from the acquisition of the MTS Test & Simulation business.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 estimated free cash flow to the most directly comparable GAAP measure have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of availability of reliable forward-looking cash flow and operating information.Forward-looking Statement
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 tariffs and raw material inflation, product line simplification activities and enterprise initiatives, future financial and operating performance, free cash flow and free cash flow conversion rate, organic and total revenue, operating margin, price/cost impact, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation, 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 dispositions and related impact on financial results, including statements with respect to the anticipated acquisition of the MTS Test & Simulation business, and the company’s 2021 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 2020.About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $12.6 billion in 2020. 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 43,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.comMedia Contact
Illinois Tool Works
Tel: 224.661.7451
mediarelations@itw.comInvestor Relations
Illinois Tool Works
Karen Fletcher
Tel: 224.661.7433
investorrelations@itw.comILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)Three Months Ended Nine Months Ended September 30, September 30, In millions except per share amounts 2021 2020 2021 2020 Operating Revenue $ 3,556 $ 3,307 $ 10,776 $ 9,099 Cost of revenue 2,096 1,910 6,298 5,375 Selling, administrative, and research and development expenses 581 560 1,735 1,606 Amortization and impairment of intangible assets 34 48 100 119 Operating Income 845 789 2,643 1,999 Interest expense (49 ) (52 ) (153 ) (154 ) Other income (expense) 10 2 44 35 Income Before Taxes 806 739 2,534 1,880 Income Taxes 167 157 449 413 Net Income $ 639 $ 582 $ 2,085 $ 1,467 Net Income Per Share: Basic $ 2.03 $ 1.84 $ 6.61 $ 4.63 Diluted $ 2.02 $ 1.83 $ 6.58 $ 4.61 Cash Dividends Per Share: Paid $ 1.14 $ 1.07 $ 3.42 $ 3.21 Declared $ 1.22 $ 1.14 $ 3.50 $ 3.28 Shares of Common Stock Outstanding During the Period: Average 314.6 316.5 315.6 316.9 Average assuming dilution 315.9 317.9 316.9 318.3 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)In millions September 30, 2021 December 31, 2020 Assets Current Assets: Cash and equivalents $ 1,987 $ 2,564 Trade receivables 2,729 2,506 Inventories 1,524 1,189 Prepaid expenses and other current assets 337 264 Total current assets 6,577 6,523 Net plant and equipment 1,744 1,777 Goodwill 4,610 4,690 Intangible assets 683 781 Deferred income taxes 580 533 Other assets 1,323 1,308 $ 15,517 $ 15,612 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 579 $ 350 Accounts payable 565 534 Accrued expenses 1,399 1,284 Cash dividends payable 383 361 Income taxes payable 70 60 Total current liabilities 2,996 2,589 Noncurrent Liabilities: Long-term debt 6,972 7,772 Deferred income taxes 633 588 Noncurrent income taxes payable 365 413 Other liabilities 1,058 1,068 Total noncurrent liabilities 9,028 9,841 Stockholders’ Equity: Common stock 6 6 Additional paid-in-capital 1,416 1,362 Retained earnings 24,098 23,114 Common stock held in treasury (20,390 ) (19,659 ) Accumulated other comprehensive income (loss) (1,638 ) (1,642 ) Noncontrolling interest 1 1 Total stockholders’ equity 3,493 3,182 $ 15,517 $ 15,612 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Three Months Ended September 30, 2021 Dollars in millions Total
RevenueOperating
IncomeOperating
MarginAutomotive OEM $ 647 $ 112 17.3 % Food Equipment 544 130 23.9 % Test & Measurement and Electronics 552 148 26.8 % Welding 425 128 30.0 % Polymers & Fluids 456 111 24.2 % Construction Products 478 133 27.8 % Specialty Products 459 126 27.3 % Intersegment (5 ) — — % Total Segments 3,556 888 24.9 % Unallocated — (43 ) — % Total Company $ 3,556 $ 845 23.8 % Nine Months Ended September 30, 2021 Dollars in millions Total
RevenueOperating
IncomeOperating
MarginAutomotive OEM $ 2,137 $ 434 20.3 % Food Equipment 1,509 339 22.5 % Test & Measurement and Electronics 1,710 475 27.8 % Welding 1,228 364 29.6 % Polymers & Fluids 1,357 350 25.8 % Construction Products 1,465 406 27.7 % Specialty Products 1,387 380 27.4 % Intersegment (17 ) — — % Total Segments 10,776 2,748 25.5 % Unallocated — (105 ) — % Total Company $ 10,776 $ 2,643 24.5 % ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Q3 2021 vs. Q3 2020 Favorable/(Unfavorable) Operating Revenue Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers
& FluidsConstruction
ProductsSpecialty
ProductsTotal
ITWOrganic (10.7 ) % 18.9 % 11.8 % 22.0 % 3.4 % 3.4 % 8.3 % 6.3 % Acquisitions/Divestitures — % — % — % — % — % (0.1 ) % — % — % Translation 1.3 % 2.1 % 1.1 % 0.9 % 0.7 % 1.7 % 1.1 % 1.2 % Operating
Revenue(9.4 ) % 21.0 % 12.9 % 22.9 % 4.1 % 5.0 % 9.4 % 7.5 % Q3 2021 vs. Q3 2020 Favorable/(Unfavorable) Change in Operating Margin Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers
& FluidsConstruction
ProductsSpecialty
ProductsTotal
ITWOperating Leverage (240) bps 410 bps 290 bps 290 bps 70 bps 50 bps 180 bps 130 bps Changes in Variable Margin & OH Costs (320) bps (140) bps (20) bps (40) bps (340) bps (120) bps 30 bps (210) bps Total Organic (560) bps 270 bps 270 bps 250 bps (270) bps (70) bps 210 bps (80) bps Acquisitions/Divestitures — — — — — — — — Restructuring/Other 210 bps 160 bps 40 bps (40) bps 30 bps 40 bps — 80 bps Total Operating Margin Change (350) bps 430 bps 310 bps 210 bps (240) bps (30) bps 210 bps — Total Operating
Margin % *17.3% 23.9% 26.8% 30.0% 24.2% 27.8% 27.3% 23.8% *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 60 bps 170 bps 20 bps 240 bps 20 bps 80 bps 90 bps ** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the third quarter of 2021. ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)YTD 2021 vs. YTD 2020 Favorable/(Unfavorable) Operating Revenue Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers
& FluidsConstruction
ProductsSpecialty
ProductsTotal
ITWOrganic 15.7 % 15.2 % 16.8 % 19.3 % 12.4 % 14.0 % 10.8 % 14.9 % Acquisitions/Divestitures — % — % — % — % — % (0.1 ) % — % — % Translation 4.9 % 3.8 % 2.9 % 1.6 % 2.1 % 6.0 % 2.8 % 3.5 % Operating
Revenue20.6 % 19.0 % 19.7 % 20.9 % 14.5 % 19.9 % 13.6 % 18.4 % YTD 2021 vs. YTD 2020 Favorable/(Unfavorable) Change in Operating Margin Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers
& FluidsConstruction
ProductsSpecialty
ProductsTotal
ITWOperating Leverage 310 bps 350 bps 380 bps 270 bps 240 bps 250 bps 210 bps 300 bps Changes in Variable Margin & OH Costs 150 bps (20) bps (100) bps 60 bps (130) bps (20) bps (20) bps (70) bps Total Organic 460 bps 330 bps 280 bps 330 bps 110 bps 230 bps 190 bps 230 bps Acquisitions/Divestitures — — — — — — — — Restructuring/Other 70 bps 60 bps 20 bps (20) bps 10 bps 10 bps (20) bps 20 bps Total Operating Margin Change 530 bps 390 bps 300 bps 310 bps 120 bps 240 bps 170 bps 250 bps Total Operating
Margin % *20.3% 22.5% 27.8% 29.6% 25.8% 27.7% 27.4% 24.5% *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 60 bps 160 bps 10 bps 250 bps 20 bps 70 bps 100 bps ** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.24) on GAAP earnings per share for the first nine months of 2021. ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, Dollars in millions 2021 2020 2021 2020 Operating income $ 845 $ 789 $ 2,643 $ 1,999 Tax rate (as adjusted in 2021) 23.4 % 21.3 % 22.9 % 22.0 % Income taxes (198 ) (168 ) (607 ) (439 ) Operating income after taxes $ 647 $ 621 $ 2,036 $ 1,560 Invested capital: Trade receivables $ 2,729 $ 2,494 $ 2,729 $ 2,494 Inventories 1,524 1,149 1,524 1,149 Net plant and equipment 1,744 1,736 1,744 1,736 Goodwill and intangible assets 5,293 5,405 5,293 5,405 Accounts payable and accrued expenses (1,964 ) (1,784 ) (1,964 ) (1,784 ) Other, net (269 ) (527 ) (269 ) (527 ) Total invested capital $ 9,057 $ 8,473 $ 9,057 $ 8,473 Average invested capital $ 9,084 $ 8,394 $ 8,912 $ 8,536 After-tax return on average invested capital 28.5 % 29.6 % 30.5 % 24.4 % A reconciliation of the tax rate for the three and nine month periods ended September 30, 2021, 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:
Three Months Ended Nine Months Ended September 30, 2021 September 30, 2021 Dollars in millions Income Taxes Tax Rate Income Taxes Tax Rate As reported $ 167 20.8 % $ 449 17.7 % Discrete tax benefit related to the third quarter 2021 21 2.6 % 21 0.8 % Discrete tax benefit related to the second quarter 2021 — — % 112 4.4 % As adjusted $ 188 23.4 % $ 582 22.9 % ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)FREE CASH FLOW (UNAUDITED)
Three Months Ended Nine Months Ended Twelve Months September 30, September 30, Ended Dollars in millions 2021 2020 2021 2020 December 31, 2020 Net cash provided by operating activities $ 619 $ 683 $ 1,783 $ 2,034 $ 2,807 Less: Additions to plant and equipment (71 ) (52 ) (217 ) (168 ) (236 ) Free cash flow $ 548 $ 631 $ 1,566 $ 1,866 $ 2,571 Net income $ 639 $ 582 $ 2,085 $ 1,467 $ 2,109 Net cash provided by operating activities to Net income conversion rate 97 % 117 % 86 % 139 % 133 % Free cash flow to Net income conversion rate 86 % 108 % 75 % 127 % 122 % 
