• ITW Reports First Quarter 2023 Results

    Source: Nasdaq GlobeNewswire / 02 May 2023 07:00:02   America/Chicago

    • Revenue of $4.0 billion, an increase of 2% with organic growth of 5%
    • Operating income of $972 million, an increase of 9%
    • Operating margin of 24.2%, an increase of 150 bps
    • GAAP EPS of $2.33, an increase of 10%
    • Raising full year GAAP EPS guidance by $0.05 to a range of $9.45 to $9.85 per share

    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 millionsMarch 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 millionsTotal RevenueOperating IncomeOperating 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 RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Organic7.9%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 Revenue4.7%12.3%2.6%9.6%(7.0)%(4.6)%(6.4)%2.0%


    Q1 2023 vs. Q1 2022 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Operating Leverage150 bps300 bps130 bps140 bps— (20) bps(100) bps100 bps
    Changes in Variable Margin & OH Costs(430) bps130 bps140 bps(40) bps(10) bps310 bps(10) bps40 bps
    Total Organic(280) bps430 bps270 bps100 bps(10) bps290 bps(110) bps140 bps
    Acquisitions/
    Divestitures    		— 20 bps— — 40 bps— — 10 bps
    Restructuring/Other80 bps(10) bps— 10 bps(40) bps(10) bps10 bps— 
    Total Operating Margin Change(200) bps440 bps270 bps110 bps(10) bps280 bps(100) bps150 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 assets30 bps50 bps180 bps10 bps210 bps20 bps70 bps80 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 millionsDecember 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 millionsIncome 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 



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