ITW Reports Record First Quarter 2021 Results
30 April 2021 - 10:00PM
Illinois Tool Works Inc. (NYSE: ITW) today reported its first
quarter 2021 results.
“We saw continued improvement in the demand
environment across a broad cross section of our business portfolio
in the first quarter and our teams around the world responded,”
said E. Scott Santi, Chairman and Chief Executive Officer. “The
combination of the ‘Win the Recovery’ actions we initiated over the
course of the past year, the foundational strength of ITW’s 80/20
front-to-back business system, and our continuing progress in
executing our long-term enterprise strategy allowed us to meet our
customers’ increasing needs while delivering excellent
profitability leverage, as evidenced by our 19 percent earnings
growth, 45 percent incremental margins, and 120 basis points of
margin benefit from enterprise initiatives in the quarter. While a
number of significant issues and uncertainties remain on the path
to recovery from the COVID-19 pandemic globally, I am confident
that ITW is well-positioned to both seize the opportunities and
deal with the challenges that lie ahead as we move through the
balance of 2021.”
First Quarter 2021 ResultsFirst
quarter revenue of $3.5 billion increased 10 percent versus the
prior year period, as organic revenue grew six percent, or eight
percent when equalizing for one less shipping day in 2021 versus
2020, and foreign currency translation impact was favorable by four
percent. Product Line Simplification (PLS) activities reduced
organic revenue growth by 20 basis points.
GAAP EPS of $2.11 increased 19 percent.
Operating income increased 19 percent to $905 million. Operating
margin was 25.5 percent, an increase of 190 basis points with
enterprise initiatives contributing 120 basis points. Free cash
flow was $541 million, 81 percent of net income and in line with
typical seasonality. After-tax return on invested capital improved
to 32.1 percent compared to 27.0 percent in the prior year period.
The effective tax rate for the first quarter was 22.4 percent.
Six of our seven segments delivered strong
organic growth in the quarter, led by Construction Products which
was up 13 percent. Test & Measurement and Electronics was up 11
percent, Polymers & Fluids up nine percent, Automotive OEM up
eight percent, Specialty Products up seven percent, and Welding up
six percent. While organic revenue in Food Equipment was down ten
percent in Q1, we saw meaningful improvement in demand trends
sequentially versus the 19 percent decline the business experienced
in the fourth quarter of 2020.
2021 GuidanceProjecting full
year results based on demand rates exiting the first quarter, the
company now expects full year GAAP EPS of $8.20 to $8.60 per share,
an increase of 27 percent at the midpoint. Organic growth is
expected to be in the range of 10 to 12 percent. Revenue is
expected to grow in the range of 12 to 14 percent as foreign
currency translation at current exchange rates is projected to
increase revenue by approximately two percent. PLS impact is
forecasted to be approximately 50 basis points. Operating margin is
expected to be in the range of 25 to 26 percent, with enterprise
initiatives contributing approximately 100 basis points. Free cash
flow is expected to be greater than 100 percent of net income. The
company plans to repurchase approximately $1 billion of its shares
and expects an effective tax rate of 23 to 24 percent. Guidance
excludes any impact from the previously announced 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 a reconciliation of estimated Free Cash Flow to the
most directly comparable GAAP measure has 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, 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, 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 WorksITW
(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.com
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESSTATEMENT OF INCOME
(UNAUDITED)
|
Three Months Ended |
|
March 31, |
In millions except per share amounts |
2021 |
|
2020 |
Operating Revenue |
$ |
3,544 |
|
|
$ |
3,228 |
|
Cost of revenue |
2,039 |
|
|
1,871 |
|
Selling, administrative, and research and development expenses |
566 |
|
|
560 |
|
Amortization and impairment of intangible assets |
34 |
|
|
36 |
|
Operating Income |
905 |
|
|
761 |
|
Interest expense |
(52 |
) |
|
(51 |
) |
Other income (expense) |
12 |
|
|
25 |
|
Income Before Taxes |
865 |
|
|
735 |
|
Income Taxes |
194 |
|
|
169 |
|
Net Income |
$ |
671 |
|
|
$ |
566 |
|
|
|
|
|
Net Income Per Share: |
|
|
|
Basic |
$ |
2.12 |
|
|
$ |
1.78 |
|
Diluted |
$ |
2.11 |
|
|
$ |
1.77 |
|
|
|
|
|
Cash Dividends Per Share: |
|
|
|
Paid |
$ |
1.14 |
|
|
$ |
1.07 |
|
Declared |
$ |
1.14 |
|
|
$ |
1.07 |
|
|
|
|
|
Shares of Common Stock Outstanding During the Period: |
|
|
|
Average |
316.6 |
|
|
318.3 |
|
Average assuming dilution |
317.9 |
|
|
319.7 |
|
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESSTATEMENT OF FINANCIAL POSITION
(UNAUDITED)
In millions |
March 31, 2021 |
|
December 31, 2020 |
Assets |
|
|
|
Current Assets: |
|
|
|
Cash and equivalents |
$ |
2,484 |
|
|
$ |
2,564 |
|
Trade receivables |
2,662 |
|
|
2,506 |
|
Inventories |
1,292 |
|
|
1,189 |
|
Prepaid expenses and other current assets |
266 |
|
|
264 |
|
Total current assets |
6,704 |
|
|
6,523 |
|
|
|
|
|
Net plant and equipment |
1,746 |
|
|
1,777 |
|
Goodwill |
4,632 |
|
|
4,690 |
|
Intangible assets |
747 |
|
|
781 |
|
Deferred income taxes |
519 |
|
|
533 |
|
Other assets |
1,315 |
|
|
1,308 |
|
|
$ |
15,663 |
|
|
$ |
15,612 |
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
Current Liabilities: |
|
|
|
Short-term debt |
$ |
350 |
|
|
$ |
350 |
|
Accounts payable |
589 |
|
|
534 |
|
Accrued expenses |
1,261 |
|
|
1,284 |
|
Cash dividends payable |
360 |
|
|
361 |
|
Income taxes payable |
120 |
|
|
60 |
|
Total current liabilities |
2,680 |
|
|
2,589 |
|
|
|
|
|
Noncurrent Liabilities: |
|
|
|
Long-term debt |
7,599 |
|
|
7,772 |
|
Deferred income taxes |
637 |
|
|
588 |
|
Noncurrent income taxes payable |
413 |
|
|
413 |
|
Other liabilities |
1,058 |
|
|
1,068 |
|
Total noncurrent liabilities |
9,707 |
|
|
9,841 |
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
Common stock |
6 |
|
|
6 |
|
Additional paid-in-capital |
1,378 |
|
|
1,362 |
|
Retained earnings |
23,425 |
|
|
23,114 |
|
Common stock held in treasury |
(19,897 |
) |
|
(19,659 |
) |
Accumulated other comprehensive income (loss) |
(1,638 |
) |
|
(1,642 |
) |
Noncontrolling interest |
2 |
|
|
1 |
|
Total stockholders’ equity |
3,276 |
|
|
3,182 |
|
|
$ |
15,663 |
|
|
$ |
15,612 |
|
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESSEGMENT DATA (UNAUDITED)
Three Months Ended March 31, 2021 |
Dollars in millions |
TotalRevenue |
OperatingIncome |
OperatingMargin |
Automotive OEM |
$ |
783 |
|
|
$ |
189 |
|
|
24.1 |
% |
Food Equipment |
451 |
|
|
96 |
|
|
21.2 |
% |
Test & Measurement and Electronics |
552 |
|
|
157 |
|
|
28.4 |
% |
Welding |
401 |
|
|
121 |
|
|
30.3 |
% |
Polymers & Fluids |
435 |
|
|
112 |
|
|
25.7 |
% |
Construction Products |
469 |
|
|
130 |
|
|
27.6 |
% |
Specialty Products |
457 |
|
|
126 |
|
|
27.6 |
% |
Intersegment |
(4 |
) |
|
— |
|
|
— |
% |
Total Segments |
3,544 |
|
|
931 |
|
|
26.3 |
% |
Unallocated |
— |
|
|
(26 |
) |
|
— |
% |
Total Company |
$ |
3,544 |
|
|
$ |
905 |
|
|
25.5 |
% |
Q1 2021 vs. Q1 2020 Favorable/(Unfavorable) |
Operating Revenue |
AutomotiveOEM |
FoodEquipment |
Test &Measurementand Electronics |
Welding |
Polymers& Fluids |
ConstructionProducts |
SpecialtyProducts |
Total ITW |
Organic |
7.6 |
% |
(9.6 |
) |
% |
10.7 |
% |
6.2 |
% |
8.8 |
% |
12.8 |
|
% |
7.3 |
% |
6.1 |
% |
Acquisitions/ Divestitures |
— |
% |
— |
|
% |
— |
% |
— |
% |
— |
% |
(0.2 |
) |
% |
— |
% |
— |
% |
Translation |
5.0 |
% |
3.1 |
|
% |
3.3 |
% |
1.3 |
% |
1.9 |
% |
7.6 |
|
% |
3.1 |
% |
3.7 |
% |
Operating
Revenue |
12.6 |
% |
(6.5 |
) |
% |
14.0 |
% |
7.5 |
% |
10.7 |
% |
20.2 |
|
% |
10.4 |
% |
9.8 |
% |
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESSEGMENT DATA (UNAUDITED)
Q1 2021 vs. Q1 2020 Favorable/(Unfavorable) |
Change in Operating Margin |
AutomotiveOEM |
FoodEquipment |
Test &Measurementand Electronics |
Welding |
Polymers& Fluids |
ConstructionProducts |
SpecialtyProducts |
Total ITW |
Operating Leverage |
130 bps |
(260) bps |
260 bps |
100 bps |
200 bps |
260 bps |
140 bps |
120 bps |
Changes in Variable Margin & OH Costs |
170 bps |
(50) bps |
70 bps |
20 bps |
(10) bps |
170 bps |
50 bps |
70 bps |
Total Organic |
300 bps |
(310) bps |
330 bps |
120 bps |
190 bps |
430 bps |
190 bps |
190 bps |
Acquisitions/ Divestitures |
— |
— |
— |
— |
— |
— |
— |
— |
Restructuring/ Other |
20 bps |
— |
— |
— |
20 bps |
(10) bps |
(60) bps |
— |
Total Operating Margin Change |
320 bps |
(310) bps |
330 bps |
120 bps |
210 bps |
420 bps |
130 bps |
190 bps |
|
|
|
|
|
|
|
|
|
Total Operating Margin % * |
24.1% |
21.2% |
28.4% |
30.3% |
25.7% |
27.6% |
27.6% |
25.5% |
|
|
|
|
|
|
|
|
|
*Includes unfavorable operating margin impact
of amortization expense
from acquisition-related intangible assets |
40 bps |
70 bps |
170 bps |
10 bps |
290 bps |
20 bps |
80 bps |
100 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 2021. |
ILLINOIS TOOL WORKS INC. and
SUBSIDIARIESGAAP to NON-GAAP RECONCILIATIONS
(UNAUDITED)
AFTER-TAX RETURN ON AVERAGE INVESTED
CAPITAL (UNAUDITED)
|
Three Months Ended |
|
March 31, |
Dollars in millions |
2021 |
|
2020 |
Operating income |
$ |
905 |
|
|
|
$ |
761 |
|
|
Tax rate |
22.4 |
|
% |
|
23.0 |
|
% |
Income taxes |
(203 |
) |
|
|
(175 |
) |
|
Operating income after taxes |
$ |
702 |
|
|
|
$ |
586 |
|
|
|
|
|
|
Invested capital: |
|
|
|
Trade receivables |
$ |
2,662 |
|
|
|
$ |
2,424 |
|
|
Inventories |
1,292 |
|
|
|
1,185 |
|
|
Net assets held for sale |
— |
|
|
|
181 |
|
|
Net plant and equipment |
1,746 |
|
|
|
1,704 |
|
|
Goodwill and intangible assets |
5,379 |
|
|
|
5,237 |
|
|
Accounts payable and accrued expenses |
(1,850 |
) |
|
|
(1,593 |
) |
|
Other, net |
(488 |
) |
|
|
(590 |
) |
|
Total invested capital |
$ |
8,741 |
|
|
|
$ |
8,548 |
|
|
|
|
|
|
Average invested capital |
$ |
8,740 |
|
|
|
$ |
8,677 |
|
|
After-tax return on average invested capital |
32.1 |
|
% |
|
27.0 |
|
% |
FREE CASH FLOW (UNAUDITED)
|
Three Months Ended |
|
Twelve Months Ended |
|
March 31, |
|
December 31, |
Dollars in millions |
2021 |
|
2020 |
|
2020 |
Net cash provided by operating activities |
$ |
609 |
|
|
|
$ |
614 |
|
|
|
$ |
2,807 |
|
|
Less: Additions to plant and equipment |
(68 |
) |
|
|
(60 |
) |
|
|
(236 |
) |
|
Free cash flow |
$ |
541 |
|
|
|
$ |
554 |
|
|
|
$ |
2,571 |
|
|
|
|
|
|
|
|
Net income |
$ |
671 |
|
|
|
$ |
566 |
|
|
|
$ |
2,109 |
|
|
Free cash flow to net income conversion rate |
81 |
|
% |
|
98 |
|
% |
|
122 |
|
% |
Investor RelationsIllinois Tool WorksKaren
FletcherTel: 224.661.7433investorrelations@itw.com
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