• ITW Reports Second Quarter 2024 Results

    Source: Nasdaq GlobeNewswire / 30 Jul 2024 07:00:01   America/Chicago

    • Revenue of $4.0 billion, a decrease of 1% with flat organic growth
    • Operating income of $1.05 billion, an increase of 4.5%
    • Operating margin of 26.2%, an increase of 140 bps as enterprise initiatives contributed 140 bps
    • GAAP EPS of $2.54, an increase of 2%; Excl. a one-time 2023 tax item, EPS increased 5%
    • Narrowing full year GAAP EPS guidance to a range of $10.30 to $10.40 per share

    GLENVIEW, Ill., July 30, 2024 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2024 results and updated guidance for full-year 2024.

    “While the demand environment continued to moderate across our portfolio, we delivered a solid quarter with strong operational execution and profitability,” said Christopher A. O’Herlihy, President and Chief Executive Officer. “Our ability to overcome near-term macro challenges and expand our margin and profitability to record levels as evidenced by margin improvement of 140 basis points to 26.2 percent and EPS growth of more than five percent, is a direct result of the focused execution by our team of dedicated ITW professionals around the world.”

    “Looking ahead, we are lowering the top-end of our full year GAAP EPS guidance to reflect current levels of demand partially offset by better margin performance. We remain focused on managing and investing for the long-term as we build above-market organic growth, fueled by customer-back innovation, into a core ITW strength,” O’Herlihy concluded.

    Second Quarter 2024 Results
    Second quarter revenue of $4.0 billion declined by 1.2 percent as organic growth declined 0.1 percent. Foreign currency translation impact reduced revenue by 1.2 percent and acquisitions added 0.1 percent.

    GAAP EPS increased 2.4 percent to $2.54 and excluding a one-time tax item in 2023, EPS increased 5.4 percent. Operating income increased 4.5 percent to $1.05 billion, a second quarter record. Operating margin improved 140 basis points to 26.2 percent, a second quarter record, as enterprise initiatives contributed 140 basis points. Operating cash flow was $687 million, and free cash flow was $571 million with a conversion of 75 percent to net income. During the quarter, the company repurchased $375 million of its own shares and the effective tax rate was 24.4 percent.

    2024 Guidance
    ITW is lowering the top-end of its full year GAAP EPS guidance range of $10.30 to $10.70 per share to a narrower range of $10.30 to $10.40 per share, an increase of six percent compared to the prior year at the midpoint. Based on current levels of demand and foreign currency exchange rates exiting the second quarter, the company is projecting revenue growth and organic growth to be approximately flat for 2024. ITW is raising its operating margin guidance from 26 to 27 percent to a narrower range of 26.5 to 27 percent, an increase of 165 bps at the midpoint with enterprise initiatives projected to contribute more than 100 basis points. Free cash flow is expected to exceed 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate remains unchanged 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, expected dividend payments, after-tax return on invested capital, effective tax rates, exchange rates, 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 2023 and subsequent reports filed with the SEC.

    About Illinois Tool Works

    ITW (NYSE: ITW) is a Fortune 300 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 Six Months Ended
     June 30, June 30,
    In millions except per share amounts 2024   2023   2024   2023 
    Operating Revenue$4,027  $4,074  $8,000  $8,093 
    Cost of revenue 2,262   2,344   4,407   4,685 
    Selling, administrative, and research and development expenses 686   690   1,362   1,365 
    Amortization and impairment of intangible assets 25   30   50   61 
    Operating Income 1,054   1,010   2,181   1,982 
    Interest expense (75)  (69)  (146)  (129)
    Other income (expense) 26   20   42   30 
    Income Before Taxes 1,005   961   2,077   1,883 
    Income Taxes 246   207   499   415 
    Net Income$759  $754  $1,578  $1,468 
            
    Net Income Per Share:       
    Basic$2.55  $2.49  $5.29  $4.83 
    Diluted$2.54  $2.48  $5.27  $4.81 
            
    Cash Dividends Per Share:       
    Paid$1.40  $1.31  $2.80  $2.62 
    Declared$1.40  $1.31  $2.80  $2.62 
            
    Shares of Common Stock Outstanding During the Period:       
    Average 297.6   303.3   298.3   304.1 
    Average assuming dilution 298.5   304.2   299.3   305.2 


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    STATEMENT OF FINANCIAL POSITION (UNAUDITED)
     
    In millionsJune 30, 2024 December 31, 2023
    Assets   
    Current Assets:   
    Cash and equivalents$862  $1,065 
    Trade receivables 3,250   3,123 
    Inventories 1,819   1,707 
    Prepaid expenses and other current assets 325   340 
    Total current assets 6,256   6,235 
        
    Net plant and equipment 2,011   1,976 
    Goodwill 4,910   4,909 
    Intangible assets 641   657 
    Deferred income taxes 448   479 
    Other assets 1,311   1,262 
     $15,577  $15,518 
        
    Liabilities and Stockholders' Equity   
    Current Liabilities:   
    Short-term debt$2,044  $1,825 
    Accounts payable 576   581 
    Accrued expenses 1,615   1,663 
    Cash dividends payable 416   419 
    Income taxes payable 153   187 
    Total current liabilities 4,804   4,675 
        
    Noncurrent Liabilities:   
    Long-term debt 6,429   6,339 
    Deferred income taxes 381   326 
    Noncurrent income taxes payable —   151 
    Other liabilities 1,001   1,014 
    Total noncurrent liabilities 7,811   7,830 
        
    Stockholders' Equity:   
    Common stock 6   6 
    Additional paid-in-capital 1,636   1,588 
    Retained earnings 27,866   27,122 
    Common stock held in treasury (24,622)  (23,870)
    Accumulated other comprehensive income (loss) (1,925)  (1,834)
    Noncontrolling interest 1   1 
    Total stockholders' equity 2,962   3,013 
     $15,577  $15,518 


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    SEGMENT DATA (UNAUDITED)
     
    Three Months Ended June 30, 2024
    Dollars in millionsTotal
    Revenue    		Operating
    Income    		Operating
    Margin
    Automotive OEM$815 $157 19.4%
    Food Equipment 667  180 27.1%
    Test & Measurement and Electronics 678  159 23.5%
    Welding 466  153 32.9%
    Polymers & Fluids 454  128 28.2%
    Construction Products 504  148 29.4%
    Specialty Products 449  144 31.9%
    Intersegment (6) — —%
    Total Segments 4,027   1,069   26.6 %
    Unallocated —  (15)—%
    Total Company$4,027  $1,054   26.2 %


    Six Months Ended June 30, 2024
    Dollars in millionsTotal
    Revenue    		Operating
    Income    		Operating
    Margin
    Automotive OEM$1,631 $31919.6%
    Food Equipment 1,298  34426.5%
    Test & Measurement and Electronics 1,374  32223.4%
    Welding 942  30932.8%
    Polymers & Fluids 886  23927.0%
    Construction Products 992  29129.4%
    Specialty Products 889  27430.8%
    Intersegment (12) ——%
    Total Segments 8,000   2,098 26.2 %
    Unallocated —  83—%
    Total Company$8,000  $2,181 27.3 %


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    SEGMENT DATA (UNAUDITED)
     
    Q2 2024 vs. Q2 2023 Favorable/(Unfavorable)
    Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Organic0.4%2.5%(3.1) %(4.7) %2.6%(3.8) %6.7%(0.1) %
    Acquisitions/
    Divestitures    		—%—%0.8%—%—%—%—%0.1%
    Translation(1.7) %(0.4) %(0.9) %(0.3) %(3.9) %(0.5) %(0.5) %(1.2) %
    Operating Revenue (1.3) % 2.1 % (3.2) % (5.0) % (1.3) % (4.3) % 6.2 % (1.2) %


    Q2 2024 vs. Q2 2023 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Operating Leverage— 50 bps(90) bps(70) bps50 bps(80) bps130 bps— 
    Changes in Variable Margin & OH Costs210 bps(100) bps190 bps(50) bps130 bps150 bps390 bps140 bps
    Total Organic210 bps(50) bps100 bps(120) bps180 bps70 bps520 bps140 bps
    Acquisitions/
    Divestitures    		— — (50) bps— — — — (10) bps
    Restructuring/Other50 bps(20) bps(20) bps20 bps50 bps(60) bps70 bps10 bps
    Total Operating Margin Change260 bps(70) bps30 bps(100) bps230 bps10 bps590 bps140 bps
             
    Total Operating Margin % *19.4%27.1%23.5%32.9%28.2%29.4%31.9%26.2%
             
    * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 20 bps  40 bps  190 bps —  150 bps  10 bps  20 bps  70 bps **
    ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.06) on GAAP earnings per share for the second quarter of 2024.


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    SEGMENT DATA (UNAUDITED)
     
    H1 2024 vs. H1 2023 Favorable/(Unfavorable)
    Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Organic1.9%0.6%(2.2) %(4.1) %0.9%(5.4) %6.1%(0.4) %
    Acquisitions/
    Divestitures    		—%—%0.8%—%—%—%(1.1)%—%
    Translation(1.3) %0.1%(0.7) %(0.1) %(3.2) %(0.4) %—%(0.8) %
    Operating Revenue 0.6 % 0.7 % (2.1) % (4.2) % (2.3) % (5.8) % 5.0 % (1.2) %


    H1 2024 vs. H1 2023 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Operating Leverage40 bps20 bps(60) bps(60) bps20 bps(90) bps120 bps(20) bps
    Changes in Variable Margin & OH Costs250 bps(80) bps80 bps40 bps130 bps220 bps300 bps290 bps
    Total Organic290 bps(60) bps20 bps(20) bps150 bps130 bps420 bps270 bps
    Acquisitions/
    Divestitures    		— — (50) bps— — — 30 bps— 
    Restructuring/Other30 bps(10) bps(10) bps10 bps30 bps(30) bps50 bps10 bps
    Total Operating Margin Change320 bps(70) bps(40) bps(10) bps180 bps100 bps500 bps280 bps
             
    Total Operating Margin % *19.6%26.5%23.4%32.8%27.0%29.4%30.8%27.3%
             
    * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps  50 bps  190 bps —  150 bps  10 bps  20 bps  70 bps **
    ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.13) on GAAP earnings per share for the first half of 2024.


    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 2024   2023   2024   2023 
    Numerator:       
    Net Income$759  $754  $1,578  $1,468 
    Discrete tax benefit related to the second quarter 2023 —   (20)  —   (20)
    Interest expense, net of tax (1) 57   53   111   99 
    Other (income) expense, net of tax (1) (20)  (15)  (32)  (23)
    Operating income after taxes$796  $772  $1,657  $1,524 
            
    Denominator:       
    Invested capital:       
    Cash and equivalents$862  $922  $862  $922 
    Trade receivables 3,250   3,216   3,250   3,216 
    Inventories 1,819   1,921   1,819   1,921 
    Net plant and equipment 2,011   1,901   2,011   1,901 
    Goodwill and intangible assets 5,551   5,595   5,551   5,595 
    Accounts payable and accrued expenses (2,191)  (2,215)  (2,191)  (2,215)
    Debt (8,473)  (8,222)  (8,473)  (8,222)
    Other, net 133   (24)  133   (24)
    Total net assets (stockholders' equity) 2,962   3,094   2,962   3,094 
    Cash and equivalents (862)  (922)  (862)  (922)
    Debt 8,473   8,222   8,473   8,222 
    Total invested capital$10,573  $10,394  $10,573  $10,394 
            
    Average invested capital (2)$10,480  $10,366  $10,357  $10,292 
            
    Net income to average invested capital (3) 29.0%  29.1%  30.5%  28.5%
    After-tax return on average invested capital (3) 30.4%  29.8%  32.0%  29.6%

    (1) Effective tax rate used for interest expense and other (income) expense for the three months ended June 30, 2024 and 2023 was 24.4% and 23.6%, respectively. Effective tax rate used for interest expense and other (income) expense for the six months ended June 30, 2024 and 2023 was 24.0% and 23.1%, 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, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 4. Returns for the six months ended June 30, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 2.
    After-tax ROIC for the six months ended June 30, 2024 included 170 basis points of favorable impact related to the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax) in the first quarter of 2024.

    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%


    AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
     Twelve Months Ended
    Dollars in millionsDecember 31, 2023
    Numerator: 
    Net income$2,957 
    Discrete tax benefit related to the second quarter 2023 (20)
    Interest expense, net of tax (1) 204 
    Other (income) expense, net of tax (1) (38)
    Operating income after taxes$3,103 
      
    Denominator: 
    Invested capital: 
    Cash and equivalents$1,065 
    Trade receivables 3,123 
    Inventories 1,707 
    Net plant and equipment 1,976 
    Goodwill and intangible assets 5,566 
    Accounts payable and accrued expenses (2,244)
    Debt (8,164)
    Other, net (16)
    Total net assets (stockholders' equity) 3,013 
    Cash and equivalents (1,065)
    Debt 8,164 
    Total invested capital$10,112 
      
    Average invested capital (2)$10,214 
      
    Net income to average invested capital 29.0%
    After-tax return on average invested capital 30.4%

    (1) Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2023 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 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 millionsIncome 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%


    FREE CASH FLOW (UNAUDITED)
        
     Three Months Ended Six Months Ended
     June 30, June 30,
    Dollars in millions 2024   2023   2024   2023 
    Net cash provided by operating activities$687  $790  $1,276  $1,518 
    Less: Additions to plant and equipment (116)  (85)  (211)  (198)
    Free cash flow$571  $705  $1,065  $1,320 
            
    Net income$759  $754  $1,578  $1,468 
            
    Net cash provided by operating activities to net income conversion rate 91%  105%  81%  103%
    Free cash flow to net income conversion rate 75%  94%  67%  90%


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


    Investor Relations & Media Contact:
    Erin Linnihan
    Tel: 224.661.7431
    investorrelations@itw.com | mediarelations@itw.com


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