• ITW Reports Fourth Quarter and Full Year 2023 Results

    Source: Nasdaq GlobeNewswire / 01 Feb 2024 07:00:01   America/Chicago

    Fourth Quarter 2023 Highlights

    • Revenue of $4.0 billion, essentially flat
    • Operating margin of 24.8% as enterprise initiatives contributed 150 bps
    • GAAP EPS of $2.38 included $(0.04) impact from the devaluation of Argentina’s currency

    2023 Highlights

    • Revenue of $16.1 billion, an increase of 1% with organic growth of 2%
    • Operating income of $4 billion, an increase of 7%
    • Operating margin of 25.1%, an increase of 130 bps
    • GAAP EPS of $9.74, an increase of 6% excluding $0.60 of divestiture gains in 2022

    2024 Guidance

    • Revenue growth of 2 to 4% with organic growth of 1 to 3%
    • Operating margin of 25.5 to 26.5% with enterprise initiatives contributing approximately 100 bps
    • GAAP EPS of $10.00 to $10.40, a year-over-year increase of 5% at the mid-point

    GLENVIEW, Ill., Feb. 01, 2024 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth quarter and full year 2023 results and initiated guidance for full year 2024.

    “In a challenging macro demand environment, the ITW team continued to leverage the strength and resilience of ITW’s proprietary business model and high-quality diversified portfolio to deliver a solid finish to a record year for the company,” said Christopher A. O’Herlihy, President and Chief Executive Officer.

    “2023 marked another year of strong operational execution and financial performance, as ITW delivered organic growth of two percent, expanded operating margin by 130 basis points to 25.1 percent, grew operating income seven percent to $4 billion, and increased cash flow by more than 50 percent. We made solid progress in our efforts to build above-market organic growth fueled by customer-back innovation into a defining ITW strength, on par with our world-class financial and operational capabilities. As a result, we are very pleased with our momentum and positioning heading into 2024. I want to thank my ITW colleagues around the world for their extraordinary dedication and commitment to serving our customers and executing our strategy with excellence every day.”

    Fourth Quarter 2023 Results

    Fourth quarter revenue of $4.0 billion increased 0.3 percent with organic revenue down 0.5 percent, as divestitures reduced revenue by 0.4 percent and favorable foreign currency translation added 1.2 percent. End customer and channel inventory reduction efforts combined with the impact from automotive industry labor actions reduced organic growth by an estimated 1.5 percent in the quarter.

    GAAP EPS of $2.38 included $(0.04) of unfavorable impact from the devaluation of Argentina’s currency. Operating income of $988 million was a fourth-quarter company record, and enterprise initiatives contributed 150 basis points to operating margin of 24.8 percent. Operating cash flow was $1 billion, and free cash flow grew 39 percent to a record $908 million, with a conversion of 127 percent to net income. During the quarter, the company repurchased $375 million of its own shares and the effective tax rate was 22.6 percent.

    Full Year 2023 Results

    Full year revenue of $16.1 billion increased one percent with organic revenue growth of two percent. The net impact from divestitures and foreign currency translation reduced revenue by one percent. End customer and channel inventory reduction impact reduced organic growth by an estimated one percent. On a geographic basis, organic growth was essentially flat in North America, up four percent in Europe, and up seven percent in Asia Pacific.

    GAAP EPS of $9.74 increased six percent excluding divestiture gains of $0.60 in 2022. Operating income of $4 billion grew seven percent, and operating margin increased 130 basis points to a record 25.1 percent with enterprise initiatives contributing 130 basis points. Operating cash flow was $3.5 billion and free cash flow was a record $3.1 billion, an increase of 59 percent with a conversion of 104 percent to net income. The company invested approximately $800 million to support the long-term profitable growth of its businesses and returned $3.1 billion to shareholders through dividends and share repurchases and raised the dividend by seven percent per share. The effective tax rate was 22.6 percent.

    2024 Guidance

    The company is initiating 2024 guidance including GAAP EPS in the range of $10.00 to $10.40 per share and revenue growth of two to four percent based on current levels of demand. Organic growth is projected to be one to three percent with foreign currency translation at current exchange rates adding approximately one percent to revenue. Operating margin is projected to be in the range of 25.5 to 26.5 percent, with enterprise initiatives contributing approximately 100 basis points. Free cash flow is expected to be greater than 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate is 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, 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 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 2022 and subsequent reports filed with the SEC.

    About Illinois Tool Works

    ITW (NYSE: ITW) is a Fortune 200 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 Twelve Months Ended
     December 31, December 31,
    In millions except per share amounts2023 2022 2023 2022
    Operating Revenue$3,983  $3,971  $16,107  $15,932 
    Cost of revenue 2,312   2,309   9,316   9,429 
    Selling, administrative, and research and development expenses 658   644   2,638   2,579 
    Amortization and impairment of intangible assets 25   32   113   134 
    Operating Income 988   986   4,040   3,790 
    Interest expense (70)  (56)  (266)  (203)
    Other income (expense) 9   191   49   255 
    Income Before Taxes 927   1,121   3,823   3,842 
    Income taxes 210   214   866   808 
    Net Income$717  $907  $2,957  $3,034 
            
    Net Income Per Share:       
    Basic$2.39  $2.96  $9.77  $9.80 
    Diluted$2.38  $2.95  $9.74  $9.77 
            
    Cash Dividends Per Share:       
    Paid$1.40  $1.31  $5.33  $4.97 
    Declared$1.40  $1.31  $5.42  $5.06 
            
    Shares of Common Stock Outstanding During the Period:       
    Average 300.1   306.8   302.6   309.6 
    Average assuming dilution 301.1   307.9   303.6   310.7 


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    STATEMENT OF FINANCIAL POSITION (UNAUDITED)

    In millionsDecember 31, 2023 December 31, 2022
    Assets   
    Current Assets:   
    Cash and equivalents$1,065  $708 
    Trade receivables 3,123   3,171 
    Inventories 1,707   2,054 
    Prepaid expenses and other current assets 340   329 
    Assets held for sale    8 
    Total current assets 6,235   6,270 
        
    Net plant and equipment 1,976   1,848 
    Goodwill 4,909   4,864 
    Intangible assets 657   768 
    Deferred income taxes 479   494 
    Other assets 1,262   1,178 
     $15,518  $15,422 
        
    Liabilities and Stockholders' Equity   
    Current Liabilities:   
    Short-term debt$1,825  $1,590 
    Accounts payable 581   594 
    Accrued expenses 1,663   1,728 
    Cash dividends payable 419   400 
    Income taxes payable 187   147 
    Liabilities held for sale    1 
    Total current liabilities 4,675   4,460 
        
    Noncurrent Liabilities:   
    Long-term debt 6,339   6,173 
    Deferred income taxes 326   484 
    Noncurrent income taxes payable 151   273 
    Other liabilities 1,014   943 
    Total noncurrent liabilities 7,830   7,873 
        
    Stockholders' Equity:   
    Common stock 6   6 
    Additional paid-in-capital 1,588   1,501 
    Retained earnings 27,122   25,799 
    Common stock held in treasury (23,870)  (22,377)
    Accumulated other comprehensive income (loss) (1,834)  (1,841)
    Noncontrolling interest 1   1 
    Total stockholders' equity 3,013   3,089 
     $15,518  $15,422 


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    SEGMENT DATA (UNAUDITED)

    Three Months Ended December 31, 2023
    Dollars in millionsTotal RevenueOperating IncomeOperating Margin
    Automotive OEM$814 $143 17.6%
    Food Equipment 655  177 27.0%
    Test & Measurement and Electronics 731  185 25.3%
    Welding 451  134 29.6%
    Polymers & Fluids 440  125 28.5%
    Construction Products 459  124 26.9%
    Specialty Products 437  116 26.6%
    Intersegment (4)  %
    Total Segments 3,983  1,004 25.2%
    Unallocated   (16)%
    Total Company$3,983 $988 24.8%


    Twelve Months Ended December 31, 2023
    Dollars in millionsTotal RevenueOperating IncomeOperating Margin
    Automotive OEM$3,235 $561 17.3%
    Food Equipment 2,622  713 27.2%
    Test & Measurement and Electronics 2,832  686 24.2%
    Welding 1,902  605 31.8%
    Polymers & Fluids 1,804  482 26.7%
    Construction Products 2,033  578 28.4%
    Specialty Products 1,697  449 26.5%
    Intersegment (18)  %
    Total Segments 16,107  4,074 25.3%
    Unallocated   (34)%
    Total Company$16,107 $4,040 25.1%


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    SEGMENT DATA (UNAUDITED)

    Q4 2023 vs. Q4 2022 Favorable/(Unfavorable)
    Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Organic7.7%2.7%(1.4)%(6.8)%(1.6)%(3.5)%(5.4)%(0.5)%
    Acquisitions/
    Divestitures
    %(0.9)%%%%%(1.8)%(0.4)%
    Translation1.7%2.1%1.1%0.5%(1.6)%1.2%1.8%1.2%
    Operating Revenue9.4%3.9%(0.3)%(6.3)%(3.2)%(2.3)%(5.4)%0.3%


    Q4 2023 vs. Q4 2022 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Operating Leverage130 bps50 bps(30) bps(100) bps(30) bps(60) bps(110) bps(10) bps
    Changes in Variable Margin & OH Costs80 bps(90) bps(110) bps(110) bps370 bps190 bps90 bps40 bps
    Total Organic210 bps(40) bps(140) bps(210) bps340 bps130 bps(20) bps30 bps
    Acquisitions/
    Divestitures

    10 bps



    50 bps10 bps
    Restructuring/Other(160) bps(30) bps(20) bps10 bps(70) bps10 bps60 bps(40) bps
    Total Operating Margin Change50 bps(60) bps(160) bps(200) bps270 bps140 bps90 bps
             
    Total Operating Margin % *17.6%27.0%25.3%29.6%28.5%26.9%26.6%24.8%
             
    * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets20 bps50 bps140 bps10 bps160 bps20 bps20 bps60 bps **
    ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.06) on GAAP earnings per share for the fourth quarter of 2023.


    ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
    SEGMENT DATA (UNAUDITED)

    Full Year 2023 vs Full Year 2022 Favorable/(Unfavorable)
    Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Organic8.8%7.8%0.3%0.3%0.3%(3.2)%(4.9)%2.0%
    Acquisitions/
    Divestitures
    %(1.2)%%%(4.0)%%(1.6)%(0.8)%
    Translation0.2%0.7%(0.2)%0.1%(1.6)%(0.6)%0.8%(0.1)%
    Operating Revenue9.0%7.3%0.1%0.4%(5.3)%(3.8)%(5.7)%1.1%


    Full Year 2023 vs Full Year 2022 Favorable/(Unfavorable)
    Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
    Operating Leverage160 bps150 bps10 bps10 bps(60) bps(90) bps40 bps
    Changes in Variable Margin & OH Costs(120) bps30 bps10 bps90 bps180 bps330 bps30 bps90 bps
    Total Organic40 bps180 bps20 bps100 bps180 bps270 bps(60) bps130 bps
    Acquisitions/
    Divestitures

    20 bps

    30 bps
    40 bps10 bps
    Restructuring/Other10 bps(10) bps(20) bps
    (60) bps(20) bps
    (10) bps
    Total Operating Margin Change50 bps190 bps100 bps150 bps250 bps(20) bps130 bps
             
    Total Operating Margin % *17.3%27.2%24.2%31.8%26.7%28.4%26.5%25.1%
             
    * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets30 bps50 bps160 bps10 bps180 bps20 bps40 bps70 bps **
    ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.28) on GAAP earnings per share for 2023.


    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 millions2023 2022 2023 2022
    Numerator:       
    Net income$717  $907  $2,957  $3,034 
    Discrete tax benefit related to the second quarter 2023       (20)    
    Discrete tax benefit related to the fourth quarter 2022    (32)      (32) 
    Discrete tax benefit related to the second quarter 2022          (51) 
    Interest expense, net of tax(1) 54   44   204   156 
    Other (income) expense, net of tax(1) (7)   (147)   (38)   (196) 
    Operating income after taxes$764  $772  $3,103  $2,911 
            
    Denominator:       
    Invested capital:       
    Cash and equivalents$1,065  $708  $1,065  $708 
    Trade receivables 3,123   3,171   3,123   3,171 
    Inventories 1,707   2,054   1,707   2,054 
    Net assets held for sale    7      7 
    Net plant and equipment 1,976   1,848   1,976   1,848 
    Goodwill and intangible assets 5,566   5,632   5,566   5,632 
    Accounts payable and accrued expenses (2,244)   (2,322)   (2,244)   (2,322) 
    Debt (8,164)   (7,763)   (8,164)   (7,763) 
    Other, net (16)   (246)   (16)   (246) 
    Total net assets (stockholders' equity) 3,013   3,089   3,013   3,089 
    Cash and equivalents (1,065)   (708)   (1,065)   (708) 
    Debt 8,164   7,763   8,164   7,763 
    Total invested capital$10,112  $10,144  $10,112  $10,144 
            
    Average invested capital(2)$10,096  $10,006  $10,214  $10,017 
            
    Net income to average invested capital(3) 28.4%   36.3%   29.0%   30.3% 
    After-tax return on average invested capital(3) 30.3%   30.8%   30.4%   29.1% 


    (1) Effective tax rate used for interest expense and other (income) expense for the three months ended December 31, 2023 and 2022 was 22.6% and 22.0%, respectively, and 23.2% for the twelve months ended December 31, 2023 and 2022.
       
    (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 December 31, 2023 and 2022 were converted to an annual rate by multiplying the calculated return by 4.
       

    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%

    A reconciliation of the effective tax rate for the three and twelve month periods ended December 31, 2022, 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:

     Three Months Ended Twelve Months Ended
     December 31, 2022 December 31, 2022
    Dollars in millionsIncome Taxes Tax Rate Income Taxes Tax Rate
    As reported$214 19.1% $808 21.0%
    Discrete tax benefit related to the fourth quarter 2022 32 2.9%  32 0.8%
    Discrete tax benefit related to the second quarter 2022  %  51 1.4%
    As adjusted$246 22.0% $891 23.2%


    FREE CASH FLOW (UNAUDITED)

     Three Months Ended Twelve Months Ended
     December 31, December 31,
    Dollars in millions2023
     2022
     2023
     2022
    Net cash provided by operating activities$1,039 $811 $3,539 $2,348
    Less: Additions to plant and equipment (131)  (156)  (455)  (412)
    Free cash flow$908 $655 $3,084 $1,936
            
    Net income$717 $907 $2,957 $3,034
            
    Net cash provided by operating activities to net income conversion rate 145%  89%  120%  77%
    Free cash flow to net income conversion rate 127%  72%  104%  64%


     Three Months Ended
     March 31, June 30, September 30,
    Dollars in millions2023
     2023
     2023
    Net cash provided by operating activities$728 $790 $982
    Less: Additions to plant and equipment (113)  (85)  (126)
    Free cash flow$615 $705 $856
          
    Net income$714 $754 $772
          
    Net cash provided by operating activities to net income conversion rate 102%  105%  127%
    Free cash flow to net income conversion rate 86%  94%  111%


    ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

     Three Months Ended
     December 31, 2023
    As reported$2.38
    Argentina currency devaluation impact in the fourth quarter 2023 0.04
    As adjusted$2.42


     Three Months Ended Twelve Months Ended
     December 31, 2022 December 31, 2022
    As reported$2.95  $9.77 
    Net impact of gains from two divestitures in the fourth quarter 2022 (0.61)  (0.60)
    As adjusted$2.34  $9.17 


    Media Contact Investor Relations
    Erin Linnihan  Karen Fletcher / Erin Linnihan
    Tel: 224.661.7451 Tel: 224.661.7433
    mediarelations@itw.com investorrelations@itw.com

     


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