Latest News by Industry
GLENVIEW, Ill., May 02, 2023 (GLOBE NEWSWIRE) -- - Illinois Tool Works Inc. (NYSE: ITW) today reported its first quarter 2023 results.
“The ITW team delivered a solid start to the year with organic growth of five percent, operating margin expansion of 150 basis points, strong free cash flow, and double-digit EPS growth as we continue to demonstrate the performance power of our proprietary business model and the resilience of our diversified high-quality business portfolio,” said E. Scott Santi, Chairman and Chief Executive Officer. “While the near-term economic outlook continues to be uncertain, I am confident that ITW remains well positioned to deliver best-in-class performance in any environment.”
First Quarter 2023 Results
First quarter revenue of $4.0 billion increased two percent with organic revenue growth of five percent. Foreign currency translation impact and divestitures combined reduced revenue by three percent.
GAAP EPS increased 10 percent to $2.33, a new first quarter record, and included $0.06 of unfavorable foreign currency translation impact. Operating income increased nine percent to $972 million. Operating margin of 24.2 percent improved 150 basis points with enterprise initiatives contributing 100 basis points. Operating cash flow was $728 million, and free cash flow was $615 million, an increase of 147 percent, with a conversion rate to net income of 86 percent. The company repurchased $375 million of its own shares and the effective tax rate was 22.6 percent.
2023 Guidance
The company is raising its full-year GAAP EPS guidance to $9.45 to $9.85 per share which incorporates a projected lower tax rate for the full year in the range of 23.5 to 24 percent. This compares to previous guidance of $9.40 to $9.80 per share. The organic growth projection of three to five percent reflects current levels of demand and a risk adjustment for further slowing in certain end markets. Foreign currency translation impact and divestitures combined are expected to reduce revenue by one percent, resulting in total revenue growth of two to four percent. This compares to previous guidance of 1.5 to 3.5 percent. Operating margin is projected to be in the range of 24.5 to 25.5 percent, with approximately 100 basis points contribution from enterprise initiatives. 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.
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, 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 contained in ITW's Form 10-K for 2022.
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
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | |||||||
| STATEMENT OF INCOME (UNAUDITED) | |||||||
| Three Months Ended | |||||||
| March 31, | |||||||
| In millions except per share amounts | 2023 | 2022 | |||||
| Operating Revenue | $ | 4,019 | $ | 3,939 | |||
| Cost of revenue | 2,341 | 2,357 | |||||
| Selling, administrative, and research and development expenses | 675 | 652 | |||||
| Amortization and impairment of intangible assets | 31 | 35 | |||||
| Operating Income | 972 | 895 | |||||
| Interest expense | (60 | ) | (48 | ) | |||
| Other income (expense) | 10 | 14 | |||||
| Income Before Taxes | 922 | 861 | |||||
| Income taxes | 208 | 199 | |||||
| Net Income | $ | 714 | $ | 662 | |||
| Net Income Per Share: | |||||||
| Basic | $ | 2.34 | $ | 2.12 | |||
| Diluted | $ | 2.33 | $ | 2.11 | |||
| Cash Dividends Per Share: | |||||||
| Paid | $ | 1.31 | $ | 1.22 | |||
| Declared | $ | 1.31 | $ | 1.22 | |||
| Shares of Common Stock Outstanding During the Period: | |||||||
| Average | 305.0 | 312.5 | |||||
| Average assuming dilution | 306.1 | 313.7 | |||||
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | |||||||
| STATEMENT OF FINANCIAL POSITION (UNAUDITED) | |||||||
| In millions | March 31, 2023 | December 31, 2022 | |||||
| Assets | |||||||
| Current Assets: | |||||||
| Cash and equivalents | $ | 1,143 | $ | 708 | |||
| Trade receivables | 3,201 | 3,171 | |||||
| Inventories | 2,000 | 2,054 | |||||
| Prepaid expenses and other current assets | 334 | 329 | |||||
| Assets held for sale | 10 | 8 | |||||
| Total current assets | 6,688 | 6,270 | |||||
| Net plant and equipment | 1,885 | 1,848 | |||||
| Goodwill | 4,884 | 4,864 | |||||
| Intangible assets | 738 | 768 | |||||
| Deferred income taxes | 503 | 494 | |||||
| Other assets | 1,223 | 1,178 | |||||
| $ | 15,921 | $ | 15,422 | ||||
| Liabilities and Stockholders' Equity | |||||||
| Current Liabilities: | |||||||
| Short-term debt | $ | 2,870 | $ | 1,590 | |||
| Accounts payable | 599 | 594 | |||||
| Accrued expenses | 1,504 | 1,728 | |||||
| Cash dividends payable | 398 | 400 | |||||
| Income taxes payable | 224 | 147 | |||||
| Liabilities held for sale | 1 | 1 | |||||
| Total current liabilities | 5,596 | 4,460 | |||||
| Noncurrent Liabilities: | |||||||
| Long-term debt | 5,510 | 6,173 | |||||
| Deferred income taxes | 477 | 484 | |||||
| Noncurrent income taxes payable | 273 | 273 | |||||
| Other liabilities | 964 | 943 | |||||
| Total noncurrent liabilities | 7,224 | 7,873 | |||||
| Stockholders' Equity: | |||||||
| Common stock | 6 | 6 | |||||
| Additional paid-in-capital | 1,526 | 1,501 | |||||
| Retained earnings | 26,115 | 25,799 | |||||
| Common stock held in treasury | (22,743 | ) | (22,377 | ) | |||
| Accumulated other comprehensive income (loss) | (1,804 | ) | (1,841 | ) | |||
| Noncontrolling interest | 1 | 1 | |||||
| Total stockholders' equity | 3,101 | 3,089 | |||||
| $ | 15,921 | $ | 15,422 | ||||
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES |
| SEGMENT DATA (UNAUDITED) |
| Three Months Ended March 31, 2023 | |||||||||||
| Dollars in millions | Total Revenue | Operating Income | Operating Margin | ||||||||
| Automotive OEM | $ | 796 | $ | 128 | 16.1 | % | |||||
| Food Equipment | 635 | 169 | 26.7 | % | |||||||
| Test & Measurement and Electronics | 703 | 172 | 24.5 | % | |||||||
| Welding | 493 | 157 | 31.9 | % | |||||||
| Polymers & Fluids | 447 | 109 | 24.4 | % | |||||||
| Construction Products | 526 | 145 | 27.5 | % | |||||||
| Specialty Products | 423 | 109 | 25.6 | % | |||||||
| Intersegment | (4 | ) | — | — | % | ||||||
| Total Segments | 4,019 | 989 | 24.6 | % | |||||||
| Unallocated | — | (17 | ) | — | % | ||||||
| Total Company | $ | 4,019 | $ | 972 | 24.2 | % | |||||
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES |
| SEGMENT DATA (UNAUDITED) |
| Q1 2023 vs. Q1 2022 Favorable/(Unfavorable) | ||||||||
| Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW |
| Organic | 7.9% | 16.0% | 5.6% | 10.2% | (0.1)% | (1.4)% | (5.0)% | 5.2% |
| Acquisitions/ Divestitures | —% | (1.2)% | —% | —% | (4.5)% | —% | —% | (0.7)% |
| Translation | (3.2)% | (2.5)% | (3.0)% | (0.6)% | (2.4)% | (3.2)% | (1.4)% | (2.5)% |
| Operating Revenue | 4.7% | 12.3% | 2.6% | 9.6% | (7.0)% | (4.6)% | (6.4)% | 2.0% |
| Q1 2023 vs. Q1 2022 Favorable/(Unfavorable) | ||||||||||||||||
| Change in Operating Margin | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
| Operating Leverage | 150 bps | 300 bps | 130 bps | 140 bps | — | (20) bps | (100) bps | 100 bps | ||||||||
| Changes in Variable Margin & OH Costs | (430) bps | 130 bps | 140 bps | (40) bps | (10) bps | 310 bps | (10) bps | 40 bps | ||||||||
| Total Organic | (280) bps | 430 bps | 270 bps | 100 bps | (10) bps | 290 bps | (110) bps | 140 bps | ||||||||
| Acquisitions/ Divestitures | — | 20 bps | — | — | 40 bps | — | — | 10 bps | ||||||||
| Restructuring/Other | 80 bps | (10) bps | — | 10 bps | (40) bps | (10) bps | 10 bps | — | ||||||||
| Total Operating Margin Change | (200) bps | 440 bps | 270 bps | 110 bps | (10) bps | 280 bps | (100) bps | 150 bps | ||||||||
| Total Operating Margin % * | 16.1% | 26.7% | 24.5% | 31.9% | 24.4% | 27.5% | 25.6% | 24.2% | ||||||||
| * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 30 bps | 50 bps | 180 bps | 10 bps | 210 bps | 20 bps | 70 bps | 80 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 2023. | ||||||||||||||||
| 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 | 2023 | 2022 | |||||
| Numerator: | |||||||
| Net income | $ | 714 | $ | 662 | |||
| Interest expense, net of tax (1) | 46 | 37 | |||||
| Other (income) expense, net of tax (1) | (8 | ) | (11 | ) | |||
| Operating income after taxes | $ | 752 | $ | 688 | |||
| Denominator: | |||||||
| Invested capital: | |||||||
| Cash and equivalents | $ | 1,143 | $ | 1,296 | |||
| Trade receivables | 3,201 | 3,126 | |||||
| Inventories | 2,000 | 1,883 | |||||
| Net assets held for sale | 9 | — | |||||
| Net plant and equipment | 1,885 | 1,795 | |||||
| Goodwill and intangible assets | 5,622 | 5,883 | |||||
| Accounts payable and accrued expenses | (2,103 | ) | (2,237 | ) | |||
| Debt | (8,380 | ) | (7,858 | ) | |||
| Other, net | (276 | ) | (306 | ) | |||
| Total net assets (stockholders' equity) | 3,101 | 3,582 | |||||
| Cash and equivalents | (1,143 | ) | (1,296 | ) | |||
| Debt | 8,380 | 7,858 | |||||
| Total invested capital | $ | 10,338 | $ | 10,144 | |||
| Average invested capital(2) | $ | 10,241 | $ | 9,966 | |||
| Net income to average invested capital(3) | 27.9 | % | 26.6 | % | |||
| After-tax return on average invested capital(3) | 29.4 | % | 27.6 | % | |||
(1) Effective tax rate used for interest expense and other (income) expense for the three months ended March 31, 2023 and 2022 was 22.6% 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 the periods presented.
(3) Returns for the three months ended March 31, 2023 and 2022 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, 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 millions | Income 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 | |||||||
| March 31, | |||||||
| Dollars in millions | 2023 | 2022 | |||||
| Net cash provided by operating activities | $ | 728 | $ | 323 | |||
| Less: Additions to plant and equipment | (113 | ) | (74 | ) | |||
| Free cash flow | $ | 615 | $ | 249 | |||
| Net income | $ | 714 | $ | 662 | |||
| Net cash provided by operating activities to net income conversion rate | 102 | % | 49 | % | |||
| Free cash flow to net income conversion rate | 86 | % | 38 | % | |||
| ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED) | |||
| 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 | |
| ITW | ITW | |
| Media Contact | Investor Relations | |
| Tel: 224.661.7451 | Karen Fletcher | |
| mediarelations@itw.com | Tel: 224.661.7433 | |
| investorrelations@itw.com |