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ITW Reports Third Quarter 2022 Results
Источник: Nasdaq GlobeNewswire / 25 окт 2022 08:00:02 America/New_York
- Revenue of $4.0 billion; an increase of 13% with organic growth of 16%
- GAAP EPS of $2.35, an increase of 16%
- Record operating income of $983 million, an increase of 16%
- Operating margin of 24.5%, an increase of 70 bps; operating margin of 25.1% excluding (60) bps of margin dilution from the acquisition of MTS. Enterprise initiatives contributed 110 bps.
- Raising full-year GAAP EPS guidance to $9.45 to $9.55 per share and organic revenue growth guidance to 11 to 12%
GLENVIEW, Ill., Oct. 25, 2022 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2022 results.
“Despite softening demand and inventory destocking in certain end-markets, the ITW team delivered another quarter of strong performance with organic growth of 16 percent, operating margin of 24.5 percent, after-tax ROIC of 29.9 percent and earnings per share growth of 16 percent,” said E. Scott Santi, Chairman and Chief Executive Officer. “Our business teams around the world continue to do an exceptional job of navigating what remains a dynamic and challenging operating environment to deliver for our customers and for the company. In addition, we were pleased to see incremental margins return to our normal 30 percent-plus historical levels in the third quarter as the impact of volume growth, enterprise initiatives, pricing actions, and some moderation in the pace of input cost inflation drove a 130 basis point improvement in operating margin in our base business.
“While it is clear that the economic outlook is becoming increasingly uncertain, demand remains strong across the majority of our business portfolio and as a result ITW is well-positioned to deliver a strong finish to what has been a very strong year.”
Third Quarter 2022 Results
Third quarter revenue of $4.0 billion increased 13 percent with organic revenue growth of 16 percent. The acquisition of MTS contributed three percent to revenue. Unfavorable foreign currency translation reduced revenue by six percent. Five of seven segments delivered double-digit organic growth in the quarter, led by Automotive OEM up 25 percent and Food Equipment up 23 percent. Test & Measurement and Electronics and Construction Products were both up 17 percent, Welding up 14 percent, Polymers & Fluids up eight percent and Specialty Products was essentially flat, or up three percent excluding significant 80/20 Front-to-Back driven Product Line Simplification (“PLS”). At the enterprise level, PLS reduced organic growth by (70) basis points. On a geographic basis, organic growth was 17 percent in North America, 14 percent in Europe, and 15 percent in Asia Pacific.GAAP EPS was $2.35, an increase of 16 percent, and included $(0.13) of unfavorable foreign currency translation impact and $(0.07) from a higher effective tax rate. Operating margin of 25.1 percent improved 130 basis points excluding (60) basis points impact from the acquisition of MTS. Enterprise initiatives contributed 110 basis points. Price/cost was positive on a dollar-for-dollar basis and the margin dilution impact continued to moderate in the third quarter to (40) basis points as compared to (200) basis points in the first half of 2022. Operating cash flow was $713 million, and free cash flow was $612 million, an increase of 12 percent with a conversion rate to net income of 84 percent. The reported tax rate for the third quarter was 23.9 percent.
Portfolio Management and Capital Allocation Update
Consistent with our previously announced plan to divest certain business units, on October 3, 2022, ITW closed the sale of a division within the Polymers & Fluids segment for approximately $220 million, subject to certain closing adjustments. The division has annualized revenue of approximately $100 million in 2022. The gain related to this divestiture is estimated to contribute $0.45 to fourth quarter earnings per share.ITW repurchased $500 million of shares in the third quarter and expects share repurchases of $1.75 billion for the full year. On August 5, 2022, the company raised its dividend by seven percent to an annualized rate of $5.24 per share.
2022 Guidance Update
Based on 12 percent organic growth year-to-date and current levels of demand, ITW is projecting full-year organic growth guidance of 11 to 12 percent and full-year revenue growth of nine to ten percent. The acquisition of MTS is expected to add three percent to revenue. Foreign currency translation at current foreign exchange rates is expected to reduce revenues by five percent.Prior GAAP EPS guidance of $9.00 to $9.40 was adjusted to a narrower range of $9.00 to $9.10 primarily to account for incremental foreign currency translation headwinds and raised by the estimated divestiture gain of $0.45 resulting in the company raising its full-year GAAP EPS guidance to a range of $9.45 to $9.55 per share. For the full year, operating margin is projected to be approximately 24 percent, with enterprise initiatives contributing 100 basis points. Free cash flow is projected to be approximately 80 percent of net income.
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 the duration and potential effects of the COVID-19 pandemic and global supply chain challenges, related government actions and the company’s strategy in response thereto on the company’s business, 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, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation of overseas cash, 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 divestitures and related impact on financial results, including statements with respect to the impact of the 2021 acquisition of the MTS Test & Simulation business and the 2022 divestiture of a division within the Polymers & Fluids segment, and the company’s 2022 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 2021 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 $14.5 billion in 2021. 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 Nine Months Ended September 30, September 30, In millions except per share amounts 2022 2021 2022 2021 Operating Revenue $ 4,011 $ 3,556 $ 11,961 $ 10,776 Cost of revenue 2,371 2,096 7,120 6,298 Selling, administrative, and research and development expenses 624 581 1,935 1,735 Amortization and impairment of intangible assets 33 34 102 100 Operating Income 983 845 2,804 2,643 Interest expense (52 ) (49 ) (147 ) (153 ) Other income (expense) 26 10 64 44 Income Before Taxes 957 806 2,721 2,534 Income Taxes 230 167 594 449 Net Income $ 727 $ 639 $ 2,127 $ 2,085 Net Income Per Share: Basic $ 2.36 $ 2.03 $ 6.85 $ 6.61 Diluted $ 2.35 $ 2.02 $ 6.83 $ 6.58 Cash Dividends Per Share: Paid $ 1.22 $ 1.14 $ 3.66 $ 3.42 Declared $ 1.31 $ 1.22 $ 3.75 $ 3.50 Shares of Common Stock Outstanding During the Period: Average 308.8 314.6 310.6 315.6 Average assuming dilution 309.7 315.9 311.6 316.9
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)In millions September 30, 2022 December 31, 2021 Assets Current Assets: Cash and equivalents $ 774 $ 1,527 Trade receivables 3,031 2,840 Inventories 2,007 1,694 Prepaid expenses and other current assets 281 313 Assets held for sale 103 — Total current assets 6,196 6,374 Net plant and equipment 1,705 1,809 Goodwill 4,759 4,965 Intangible assets 798 972 Deferred income taxes 448 552 Other assets 1,320 1,405 $ 15,226 $ 16,077 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 1,688 $ 778 Accounts payable 618 585 Accrued expenses 1,559 1,648 Cash dividends payable 402 382 Income taxes payable 97 77 Liabilities held for sale 28 — Total current liabilities 4,392 3,470 Noncurrent Liabilities: Long-term debt 5,940 6,909 Deferred income taxes 655 654 Noncurrent income taxes payable 273 365 Other liabilities 952 1,053 Total noncurrent liabilities 7,820 8,981 Stockholders' Equity: Common stock 6 6 Additional paid-in-capital 1,479 1,432 Retained earnings 25,292 24,325 Common stock held in treasury (21,882 ) (20,636 ) Accumulated other comprehensive income (loss) (1,882 ) (1,502 ) Noncontrolling interest 1 1 Total stockholders' equity 3,014 3,626 $ 15,226 $ 16,077
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Three Months Ended September 30, 2022 Dollars in millions Total Revenue Operating Income Operating Margin Automotive OEM $ 753 $ 132 17.5 % Food Equipment 633 167 26.3 % Test & Measurement and Electronics 715 180 25.2 % Welding 477 150 31.5 % Polymers & Fluids 473 119 25.3 % Construction Products 527 136 25.7 % Specialty Products 438 121 27.7 % Intersegment (5 ) — — % Total Segments 4,011 1,005 25.1 % Unallocated — (22 ) — % Total Company $ 4,011 $ 983 24.5 % Nine Months Ended September 30, 2022 Dollars in millions Total Revenue Operating Income Operating Margin Automotive OEM $ 2,224 $ 371 16.7 % Food Equipment 1,813 445 24.5 % Test & Measurement and Electronics 2,096 486 23.2 % Welding 1,413 431 30.5 % Polymers & Fluids 1,450 362 25.0 % Construction Products 1,643 428 26.0 % Specialty Products 1,337 362 27.1 % Intersegment (15 ) — — % Total Segments 11,961 2,885 24.1 % Unallocated — (81 ) — % Total Company $ 11,961 $ 2,804 23.4 %
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)Q3 2022 vs. Q3 2021 Favorable/(Unfavorable) Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW Organic 24.7 % 23.1 % 17.1 % 13.9 % 8.4 % 17.1 % (0.3) % 15.7 % Acquisitions/
Divestitures— % — % 18.3 % — % — % — % — % 2.8 % Translation (8.2) % (6.7) % (5.9) % (1.5) % (4.9) % (6.9) % (4.4) % (5.7) % Operating
Revenue16.5 % 16.4 % 29.5 % 12.4 % 3.5 % 10.2 % (4.7) % 12.8 % Q3 2022 vs. Q3 2021 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 420 bps 420 bps 360 bps 230 bps 150 bps 260 bps (10) bps 290 bps Changes in Variable Margin & OH Costs (400) bps (150) bps (150) bps (160) bps — (470) bps (20) bps (170) bps Total Organic 20 bps 270 bps 210 bps 70 bps 150 bps (210) bps (30) bps 120 bps Acquisitions/
Divestitures— — (370) bps — — — — (60) bps Restructuring/Other — (30) bps — 80 bps (40) bps — 70 bps 10 bps Total Operating Margin Change 20 bps 240 bps (160) bps 150 bps 110 bps (210) bps 40 bps 70 bps Total Operating Margin % * 17.5% 26.3% 25.2% 31.5% 25.3% 25.7% 27.7% 24.5% *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 50 bps 180 bps 10 bps 220 bps 20 bps 60 bps 90 bps ** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the third quarter of 2022.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)YTD 2022 vs. YTD 2021 Favorable/(Unfavorable) Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW Organic 9.2 % 25.2 % 8.4 % 16.3 % 10.4 % 17.7 % (0.5) % 12.2 % Acquisitions/
Divestitures— % — % 18.0 % — % — % — % — % 2.9 % Translation (5.1) % (5.0) % (3.9) % (1.2) % (3.6) % (5.6) % (3.1) % (4.1) % Operating
Revenue4.1 % 20.2 % 22.5 % 15.1 % 6.8 % 12.1 % (3.6) % 11.0 % YTD 2022 vs. YTD 2021 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 170 bps 480 bps 180 bps 230 bps 180 bps 260 bps (10) bps 220 bps Changes in Variable Margin & OH Costs (410) bps (260) bps (270) bps (170) bps (250) bps (430) bps (50) bps (240) bps Total Organic (240) bps 220 bps (90) bps 60 bps (70) bps (170) bps (60) bps (20) bps Acquisitions/
Divestitures— — (380) bps — — — — (60) bps Restructuring/Other (120) bps (20) bps 10 bps 30 bps (10) bps — 30 bps (30) bps Total Operating Margin Change (360) bps 200 bps (460) bps 90 bps (80) bps (170) bps (30) bps (110) bps Total Operating Margin % * 16.7% 24.5% 23.2% 30.5% 25.0% 26.0% 27.1% 23.4% *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 60 bps 190 bps 10 bps 220 bps 20 bps 60 bps 90 bps ** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.25) on GAAP earnings per share for the first nine months of 2022.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, Dollars in millions 2022 2021 2022 2021 Numerator: Net Income $ 727 $ 639 $ 2,127 $ 2,085 Discrete tax benefit related to the second quarter 2022 — — (51 ) — Discrete tax benefit related to the third quarter 2021 — (21 ) — (21 ) Discrete tax benefit related to the second quarter 2021 — — — (112 ) Interest expense, net of tax (1) 39 38 112 118 Other (income) expense, net of tax (1) (20 ) (9 ) (49 ) (34 ) Operating income after taxes $ 746 $ 647 $ 2,139 $ 2,036 Denominator: Invested capital: Cash and equivalents $ 774 $ 1,987 $ 774 $ 1,987 Trade receivables 3,031 2,729 3,031 2,729 Inventories 2,007 1,524 2,007 1,524 Net assets held for sale 75 — 75 — Net plant and equipment 1,705 1,744 1,705 1,744 Goodwill and intangible assets 5,557 5,293 5,557 5,293 Accounts payable and accrued expenses (2,177 ) (1,964 ) (2,177 ) (1,964 ) Debt (7,628 ) (7,551 ) (7,628 ) (7,551 ) Other, net (330 ) (269 ) (330 ) (269 ) Total net assets (stockholders' equity) 3,014 3,493 3,014 3,493 Cash and equivalents (774 ) (1,987 ) (774 ) (1,987 ) Debt 7,628 7,551 7,628 7,551 Total invested capital $ 9,868 $ 9,057 $ 9,868 $ 9,057 Average invested capital (2) $ 10,004 $ 9,084 $ 9,985 $ 8,912 Net income to average invested capital (3) 29.1 % 28.1 % 28.4 % 31.2 % After-tax return on average invested capital (3) 29.9 % 28.5 % 28.6 % 30.5 %
(1) Effective tax rate used for interest expense and other (income) expense for the three months ended September 30, 2022 and 2021 was 23.9% and 23.4%, respectively. Effective tax rate used for interest expense and other (income) expense for the nine months ended September 30, 2022 and 2021 was 23.7% and 22.9%, respectively.(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 September 30, 2022 and 2021 were converted to an annual rate by multiplying the calculated return by 4. Returns for the nine months ended September 30, 2022 and 2021 were converted to an annual rate by dividing the calculated return by 3 and multiplying it by 4.
A reconciliation of the tax rate for the nine months ended September 30, 2022, excluding the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a U.S. tax audit, is as follows:
Nine Months Ended September 30, 2022 Dollars in millions Income Taxes Tax Rate As reported $ 594 21.8 % Discrete tax benefit related to the second quarter 2022 51 1.9 % As adjusted $ 645 23.7 %
A reconciliation of the tax rate for the three and nine month periods ended September 30, 2021, excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital losses and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate, is as follows:Three Months Ended Nine Months Ended September 30, 2021 September 30, 2021 Dollars in millions Income Taxes Tax Rate Income Taxes Tax Rate As reported $ 167 20.8 % $ 449 17.7 % Discrete tax benefit related to the third quarter 2021 21 2.6 % 21 0.8 % Discrete tax benefit related to the second quarter 2021 — — % 112 4.4 % As adjusted $ 188 23.4 % $ 582 22.9 %
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)Twelve Months Ended Dollars in millions December 31, 2021 Numerator: Net income $ 2,694 Discrete tax benefit related to the third quarter 2021 (21 ) Discrete tax benefit related to the second quarter 2021 (112 ) Interest expense, net of tax (1) 157 Other (income) expense, net of tax (1) (40 ) Operating income after taxes $ 2,678 Denominator: Invested capital: Cash and equivalents $ 1,527 Trade receivables 2,840 Inventories 1,694 Net plant and equipment 1,809 Goodwill and intangible assets 5,937 Accounts payable and accrued expenses (2,233 ) Debt (7,687 ) Other, net (261 ) Total net assets (stockholders' equity) 3,626 Cash and equivalents (1,527 ) Debt 7,687 Total invested capital $ 9,786 Average invested capital (2) $ 9,087 Net income to average invested capital 29.6 % After-tax return on average invested capital 29.5 %
(1) Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2021 was 23.0%.(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 2021 effective tax rate excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital losses and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate, is as follows:
Twelve Months Ended December 31, 2021 Dollars in millions Income Taxes Tax Rate As reported $ 632 19.0 % Discrete tax benefit related to the third quarter 2021 21 0.6 % Discrete tax benefit related to the second quarter 2021 112 3.4 % As adjusted $ 765 23.0 % FREE CASH FLOW (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, Dollars in millions 2022 2021 2022 2021 Net cash provided by operating activities $ 713 $ 619 $ 1,537 $ 1,783 Less: Additions to plant and equipment (101 ) (71 ) (256 ) (217 ) Free cash flow $ 612 $ 548 $ 1,281 $ 1,566 Net Income $ 727 $ 639 $ 2,127 $ 2,085 Net cash provided by operating activities to net income conversion rate 98 % 97 % 72 % 86 % Free cash flow to net income conversion rate 84 % 86 % 60 % 75 % Media Contact Investor Relations Tel: 224.661.7451 Karen Fletcher mediarelations@itw.com Tel: 224.661.7433 investorrelations@itw.com 
