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ITW Reports Fourth Quarter and Full Year 2020 Results
Source: Nasdaq GlobeNewswire / 05 Feb 2021 07:00:01 America/Chicago
Provides 2021 Guidance Including EPS Growth of 18% at the Mid-point
Fourth-Quarter 2020 Highlights
- Total revenue of $3.5 billion, an increase of 5% versus Q3 2020
- Record Q4 operating income of $883 million, an increase of 7% year-over-year
- Record Q4 operating margin of 25.4% as enterprise initiatives contributed 130 basis points
- GAAP EPS of $2.02, an increase of 2%, or 7% excluding $0.11 of divestiture gains in Q4 2019
- Record Q4 after-tax ROIC of 32.0%, an increase of 310 basis points
- Strong free cash flow of $705 million, 110% of net income
2021 Guidance
- Organic growth of 7 to 10%
- GAAP EPS of $7.60 to $8.00, an increase of 15 to 21%
GLENVIEW, Ill., Feb. 05, 2021 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth-quarter and full-year 2020 results.
“The ITW team closed out 2020 with another quarter of strong execution and financial performance, generating revenue of $3.5 billion and delivering all-time record Q4 operating income, operating margin, and ROIC performance,” said E. Scott Santi, chairman and chief executive officer.
“Looking back at 2020 in its entirety, our people around the world provided another meaningful demonstration of the power of the ITW Business Model and the differentiating value of our decentralized entrepreneurial culture in how the company responded to the unprecedented events and challenges of the past year. While it was the unique circumstances that we faced and our response to them that defined the year, it was the sum total of all that the ITW team has built over the last eight years through the execution of our enterprise strategy that gave us the capabilities and options to respond as we did. In the face of a global pandemic, our ability to deliver strong operational and financial performance while remaining fully invested in the execution of our long-term enterprise strategy provides further evidence that ITW is a company that has the enduring competitive advantages, resilience, and agility necessary to deliver consistent top tier performance in any environment and over the long term. I offer my heartfelt thanks to all my ITW colleagues for their dedication and commitment to keeping their co-workers safe, serving our customers with excellence, and continuing to make progress on our path to ITW’s full-potential performance,” Santi concluded.
2020 Results
Fourth-quarter revenue of $3.5 billion increased 0.2 percent versus prior year, as organic revenue declined 0.9 percent, divestitures reduced revenue by 0.7 percent and foreign currency translation impact was favorable by 1.8 percent. Product Line Simplification (PLS) reduced organic revenue by 20 basis points. GAAP EPS increased two percent to $2.02. Excluding $0.11 of divestiture gains in the fourth quarter of 2019, EPS increased seven percent. Operating income increased seven percent to $883 million. Operating margin was 25.4 percent, an increase of 170 basis points with enterprise initiatives contributing 130 basis points. Free cash flow was $705 million, 110 percent of net income. After-tax return on invested capital improved to 32.0 percent compared to 28.9 percent in the prior year period. The effective tax rate for the fourth quarter was 22.1 percent.Full year revenue of $12.6 billion declined 10.9 percent, as organic revenue declined 9.8 percent, divestitures reduced revenue by 0.9 percent and foreign currency translation impact was unfavorable by 0.2 percent. PLS reduced organic revenue by 30 basis points. 2020 GAAP EPS declined fourteen percent to $6.63. Operating margin of 22.9 percent was down from 24.1 percent in the prior year as the impact of lower volumes was partially offset by enterprise initiatives of 120 basis points. Free cash flow was $2.6 billion, 122 percent of net income. After-tax return on invested capital was 26.2 percent. The company repurchased $706 million of its own shares and raised its dividend seven percent in August 2020 to an annualized $4.56 per share. The effective tax rate for the full year was 22.0 percent.
2021 Guidance
The company initiated full-year GAAP EPS guidance in a range of $7.60 to $8.00 per share, an increase of 15 to 21 percent. Organic growth is expected to be in the range of seven to ten percent. Revenue is expected to grow in the range of nine to twelve percent as foreign currency translation at current exchange rates is projected to increase revenues by approximately two percent. PLS impact is forecasted to be approximately 50 basis points. Operating margin is expected to be in a range of 24 to 25 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 in 2021 and expects an effective tax rate in the range of 23 to 24 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 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 potential effects of the COVID-19 pandemic, related government actions and the company’s strategy in response thereto on the company’s business, the anticipated duration of the company’s COVID-19 containment and recovery phases, expected impact of tariffs and raw material inflation, product line simplification activities and enterprise initiatives, future financial performance, operating performance, free cash flow, organic and total revenue, operating margin, price/cost impact, statements regarding diluted income per share, restructuring expenses and related benefits, expected adjustments to capacity and cost structure, expected dividend payments, expected repatriation, after-tax return on invested capital, expected total shareholder returns, 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 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 2019 and subsequent reports filed with the SEC.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.comILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)Three Months Ended Twelve Months Ended December 31, December 31, In millions except per share amounts 2020 2019 2020 2019 Operating Revenue $ 3,475 $ 3,469 $ 12,574 $ 14,109 Cost of revenue 2,000 2,022 7,375 8,187 Selling, administrative, and research and development expenses 557 586 2,163 2,361 Amortization and impairment of intangible assets 35 37 154 159 Operating Income 883 824 2,882 3,402 Interest expense (52 ) (51 ) (206 ) (221 ) Other income (expense) (7 ) 58 28 107 Income Before Taxes 824 831 2,704 3,288 Income taxes 182 190 595 767 Net Income $ 642 $ 641 $ 2,109 $ 2,521 Net Income Per Share: Basic $ 2.03 $ 2.00 $ 6.66 $ 7.78 Diluted $ 2.02 $ 1.99 $ 6.63 $ 7.74 Cash Dividends Per Share: Paid $ 1.14 $ 1.07 $ 4.35 $ 4.07 Declared $ 1.14 $ 1.07 $ 4.42 $ 4.14 Shares of Common Stock Outstanding During the Period: Average 316.7 321.2 316.9 323.9 Average assuming dilution 318.1 322.9 318.3 325.6 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)In millions December 31, 2020 December 31, 2019 Assets Current Assets: Cash and equivalents $ 2,564 $ 1,981 Trade receivables 2,506 2,461 Inventories 1,189 1,164 Prepaid expenses and other current assets 264 296 Assets held for sale — 351 Total current assets 6,523 6,253 Net plant and equipment 1,777 1,729 Goodwill 4,690 4,492 Intangible assets 781 851 Deferred income taxes 533 516 Other assets 1,308 1,227 $ 15,612 $ 15,068 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 350 $ 4 Accounts payable 534 472 Accrued expenses 1,284 1,217 Cash dividends payable 361 342 Income taxes payable 60 48 Liabilities held for sale — 71 Total current liabilities 2,589 2,154 Noncurrent Liabilities: Long-term debt 7,772 7,754 Deferred income taxes 588 668 Noncurrent income taxes payable 413 462 Other liabilities 1,068 1,000 Total noncurrent liabilities 9,841 9,884 Stockholders' Equity: Common stock 6 6 Additional paid-in-capital 1,362 1,304 Retained earnings 23,114 22,403 Common stock held in treasury (19,659 ) (18,982 ) Accumulated other comprehensive income (loss) (1,642 ) (1,705 ) Noncontrolling interest 1 4 Total stockholders' equity 3,182 3,030 $ 15,612 $ 15,068 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Three Months Ended December 31, 2020 Dollars in millions Total
RevenueOperating
IncomeOperating
MarginAutomotive OEM $ 800 $ 191 23.9 % Food Equipment 471 106 22.3 % Test & Measurement and Electronics 534 153 28.6 % Welding 368 107 28.9 % Polymers & Fluids 437 111 25.4 % Construction Products 430 112 26.2 % Specialty Products 439 119 27.0 % Intersegment (4 ) — — % Total Segments 3,475 899 25.8 % Unallocated — (16 ) — % Total Company $ 3,475 $ 883 25.4 % Twelve Months Ended December 31, 2020 Dollars in millions Total
RevenueOperating
IncomeOperating
MarginAutomotive OEM $ 2,571 $ 457 17.8 % Food Equipment 1,739 342 19.6 % Test & Measurement and Electronics 1,963 507 25.8 % Welding 1,384 376 27.1 % Polymers & Fluids 1,622 402 24.8 % Construction Products 1,652 421 25.5 % Specialty Products 1,660 432 26.0 % Intersegment (17 ) — — % Total Segments 12,574 2,937 23.4 % Unallocated — (55 ) — % Total Company $ 12,574 $ 2,882 22.9 % ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Q4 2020 vs. Q4 2019 Favorable/(Unfavorable) Operating Revenue Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers &
FluidsConstruction
ProductsSpecialty
ProductsTotal ITW Organic 7.8 % (19.1 ) % (3.1 ) % (2.4 ) % 6.8 % 8.1 % (2.8 ) % (0.9 ) % Acquisitions/ Divestitures — % — % (1.9 ) % (3.1 ) % — % — % (0.3 ) % (0.7 ) % Translation 2.6 % 1.8 % 1.7 % 0.7 % 0.2 % 3.8 % 1.5 % 1.8 % Operating Revenue 10.4 % (17.3 ) % (3.3 ) % (4.8 ) % 7.0 % 11.9 % (1.6 ) % 0.2 % Q4 2020 vs. Q4 2019 Favorable/(Unfavorable) Change in Operating Margin Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers &
FluidsConstruction
ProductsSpecialty
ProductsTotal ITW Operating Leverage 140 bps (470) bps (70) bps (50) bps 160 bps 160 bps (60) bps (20) bps Changes in Variable Margin & OH Costs 120 bps (60) bps 110 bps 280 bps 10 bps 240 bps 270 bps 160 bps Total Organic 260 bps (530) bps 40 bps 230 bps 170 bps 400 bps 210 bps 140 bps Acquisitions/ Divestitures — — 40 bps 50 bps — — 30 bps 10 bps Restructuring/Other 10 bps 10 bps (30) bps 70 bps 70 bps — 10 bps 20 bps Total Operating Margin Change 270 bps (520) bps 50 bps 350 bps 240 bps 400 bps 250 bps 170 bps Total Operating Margin % * 23.9% 22.3% 28.6% 28.9% 25.4% 26.2% 27.0% 25.4% * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 80 bps 180 bps 20 bps 300 bps 20 bps 90 bps 110 bps** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.09) on GAAP earnings per share for the fourth quarter of 2020. ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Full Year 2020 vs Full Year 2019 Favorable/(Unfavorable) Operating Revenue Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers &
FluidsConstruction
ProductsSpecialty
ProductsTotal ITW Organic (16.0 ) % (20.6 ) % (4.9 ) % (11.8 ) % (1.4 ) % 1.5 % (8.2 ) % (9.8 ) % Acquisitions/ Divestitures — % — % (2.8 ) % (3.7 ) % — % — % (0.8 ) % (0.9 ) % Translation (0.1 ) % 0.1 % 0.3 % — % (1.4 ) % 0.2 % (0.1 ) % (0.2 ) % Operating Revenue (16.1 ) % (20.5 ) % (7.4 ) % (15.5 ) % (2.8 ) % 1.7 % (9.1 ) % (10.9 ) % Full Year 2020 vs Full Year 2019 Favorable/(Unfavorable) Change in Operating Margin Automotive
OEMFood
EquipmentTest &
Measurement
and
ElectronicsWelding Polymers &
FluidsConstruction
ProductsSpecialty
ProductsTotal ITW Operating Leverage (330) bps (540) bps (130) bps (220) bps (30) bps 30 bps (180) bps (230) bps Changes in Variable Margin & OH Costs (90) bps (140) bps 120 bps 60 bps 180 bps 130 bps 90 bps 70 bps Total Organic (420) bps (680) bps (10) bps (160) bps 150 bps 160 bps (90) bps (160) bps Acquisitions/ Divestitures — — 40 bps 60 bps — — 40 bps 10 bps Restructuring/Other 50 bps — (10) bps 40 bps 50 bps 30 bps 60 bps 30 bps Total Operating Margin Change (370) bps (680) bps 20 bps (60) bps 200 bps 190 bps 10 bps (120) bps Total Operating Margin % * 17.8% 19.6% 25.8% 27.1% 24.8% 25.5% 26.0% 22.9% * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps 80 bps 250 bps 20 bps 330 bps 30 bps 90 bps 130 bps** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.37) on GAAP earnings per share for 2020. ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended Twelve Months Ended December 31, December 31, Dollars in millions 2020 2019 2020 2019 Operating income $ 883 $ 824 $ 2,882 $ 3,402 Tax rate 22.1 % 22.8 % 22.0 % 24.0 % Income taxes (194 ) (188 ) (633 ) (815 ) Operating income after taxes $ 689 $ 636 $ 2,249 $ 2,587 Invested capital: Trade receivables $ 2,506 $ 2,461 $ 2,506 $ 2,461 Inventories 1,189 1,164 1,189 1,164 Net assets held for sale — 280 — 280 Net plant and equipment 1,777 1,729 1,777 1,729 Goodwill and intangible assets 5,471 5,343 5,471 5,343 Accounts payable and accrued expenses (1,818 ) (1,689 ) (1,818 ) (1,689 ) Other, net (385 ) (481 ) (385 ) (481 ) Total invested capital $ 8,740 $ 8,807 $ 8,740 $ 8,807 Average invested capital $ 8,606 $ 8,797 $ 8,576 $ 9,028 After-tax return on average invested capital 32.0 % 28.9 % 26.2 % 28.7 % A reconciliation of the 2019 effective tax rate excluding the third quarter 2019 discrete tax benefit of $21 million is as follows:
Twelve Months Ended December 31, 2019 Dollars in millions Income Taxes Tax Rate As reported $ 767 23.3 % Discrete tax benefit related to third quarter 21 0.7 % As adjusted $ 788 24.0 % ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)FREE CASH FLOW (UNAUDITED)
Three Months Ended Twelve Months Ended December 31, December 31, Dollars in millions 2020 2019 2020 2019 Net cash provided by operating activities $ 773 $ 774 $ 2,807 $ 2,995 Less: Additions to plant and equipment (68 ) (82 ) (236 ) (326 ) Free cash flow $ 705 $ 692 $ 2,571 $ 2,669 Net income $ 642 $ 641 $ 2,109 $ 2,521 Free cash flow to net income conversion rate 110 % 108 % 122 % 106 % TOTAL DEBT TO EBITDA (UNAUDITED)
Twelve Months Ended Dollars in millions December 31, 2020 Total debt $ 8,122 Net income $ 2,109 Add: Interest expense 206 Other income (28 ) Income taxes 595 Depreciation 273 Amortization and impairment of intangible assets 154 EBITDA $ 3,309 Total debt to EBITDA ratio 2.5 x Media Contact
Illinois Tool Works
Trisha Knych
Tel: 224.661.7566
mediarelations@itw.comInvestor Relations
Illinois Tool Works
Karen Fletcher
Tel: 224.661.7433
investorrelations@itw.com