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ITW Reports Third Quarter 2013 Results

*Third quarter diluted EPS from continuing operations of $0.90 exceeds Company forecast midpoint of $0.88

GLENVIEW, Ill., Oct. 21, 2013 /PRNewswire/ -- Illinois Tool Works Inc. (NYSE: ITW) today reported third quarter diluted earnings per share (EPS) from continuing operations of $0.90, two cents higher than the midpoint of the Company's forecast.  As noted in the Company's September 24, 2013 announcement, the third quarter forecasted EPS midpoint of $0.88 included a $0.14 reduction from the Industrial Packaging segment moving to discontinued operations and a $0.09 reduction related to a discrete tax charge.

Highlights for 2013 third quarter results versus the prior-year period included:

*Total Company operating revenues were $3.6 billion while operating income was $678 million. Excluding the impact of Decorative Surfaces 2012 results, total Company operating revenues grew 2.9 percent and operating income increased 8.4 percent.  Organic revenues grew 0.4 percent, with international organic revenues growing 2.9 percent and North American organic revenues declining 1.4 percent. Internationally, Asia Pacific organic revenues grew 6.9 percent, with China organic revenues increasing 21.5 percent.  In addition, European organic revenues grew 1.0 percent. The Company was faced with a difficult year-over-year comparison in its electronics assembly platform, which negatively impacted total Company organic revenue growth by 2.5 percent. Reconciliations of GAAP to Non-GAAP results, which exclude the 2012 impact of the divested Decorative Surfaces segment, are included in the attached exhibits.

*By segment, highlights included:

  • Automotive OEM's organic revenues increased 11.5 percent, with strong growth across all regions. By comparison, worldwide auto builds increased 4 percent in the quarter. Automotive OEM operating margins improved 200 basis points to 21.1 percent.
  • Food Equipment's organic revenues grew 4.4 percent, with across-the-board contributions from the North American and international equipment and service businesses. Food Equipment operating margins improved 90 basis points to 19.9 percent.
  • Construction Products organic revenues increased 3.3 percent due to 9.3 percent organic revenue growth in North America. Operating margins improved 250 basis points to 16.2 percent.

"We were pleased with our financial performance in the quarter and the progress we continue to make in executing our Enterprise initiatives," said Scott Santi, president and chief executive officer. "Third quarter operating margins of 19.0 percent were driven by an 80 basis point contribution from our enterprise initiatives.  On a year-to-date basis, free cash flow conversion was solidly above 100 percent of net income, and our adjusted after-tax return on average invested capital was 16.3 percent, up 110 basis points versus the same period last year.  In addition, we continued to make disciplined, return-oriented decisions with regard to capital allocation.  We completed two strategically targeted acquisitions in the quarter, and year-to-date we have returned nearly $1.6 billion to shareholders in the form of share repurchases and dividends."

The Company is now forecasting its full-year diluted income per share from continuing operations to be in a range of $3.56-$3.64. This EPS range assumes a full-year total revenue growth range of 1.0 percent to 2.0 percent. For the 2013 fourth quarter, the Company is forecasting diluted income per share from continuing operations to be in a range of $0.85-$0.93 and assumes a total revenue growth range of 2 percent to 5 percent.

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, the amount of expected share repurchases, statements regarding total revenue growth, diluted income per share from continuing operations, operating margin growth, return on invested capital and end market conditions. These statements are subject to certain risks, uncertainties and other factors which could cause actual results to differ materially from those anticipated.  Such factors include those contained in ITW's 2012  Form 10-K.

ITW is a Fortune 200 global diversified industrial manufacturer of value added consumables and specialty equipment with related service businesses. The Company focuses on solid growth and strong returns across its worldwide platforms and businesses. The businesses serve local customers and markets around the globe, with a significant presence in developed as well as emerging markets. ITW's adjusted revenues totaled $13.9 billion in 2012, with approximately half of the revenues generated outside of the United States.

 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF INCOME (UNAUDITED)






Three Months Ended


Nine Months Ended

(In millions except per share amounts)

September 30,


September 30,


2013


2012


2013


2012

Operating Revenues

$

3,568


$

3,733


$

10,581


$

11,307

Cost of revenues

2,148


2,289


6,381


6,957

Selling, administrative, and research and development expenses

676


713


2,126


2,207

Amortization of intangible assets

64


62


186


190

Impairment of goodwill and other intangible assets

2


2


2


2

Operating Income

678


667


1,886


1,951

Interest expense

(60)


(52)


(179)


(152)

Other income (expense)

10


1


67


31

Income from Continuing Operations Before Income Taxes

628


616


1,774


1,830

Income Taxes

222


171


551


518

Income from Continuing Operations

406


445


1,223


1,312

Income from Discontinued Operations

46


79


48


579

Net Income

$

452


$

524


$

1,271


$

1,891









Income Per Share from Continuing Operations:








Basic

$

0.91


$

0.96


$

2.72


$

2.77

Diluted

$

0.90


$

0.95


$

2.70


$

2.75

Income Per Share from Discontinued Operations:








Basic

$

0.10


$

0.17


$

0.11


$

1.23

Diluted

$

0.10


$

0.17


$

0.11


$

1.22

Net Income Per Share:








Basic

$

1.01


$

1.13


$

2.83


$

4.00

Diluted

$

1.01


$

1.12


$

2.81


$

3.97









Shares of Common Stock Outstanding During the Period:








Average

445.9


464.8


449.0


473.2

Average assuming dilution

448.9


468.1


452.1


476.6









FREE OPERATING CASH FLOW

Three Months Ended


Nine Months Ended


September 30,


September 30,

(In millions)

2013


2012


2013


2012

Net cash provided by operating activities

$

811


$

635


$

1,820


$

1,467

Less: Additions to plant and equipment

(79)


(90)


(257)


(274)

Free operating cash flow

$

732


$

545


$

1,563


$

1,193

 

 


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)


(In millions)

September 30, 2013


December 31, 2012





ASSETS




Current Assets:




Cash and equivalents

$

3,018


$

2,779

Trade receivables

2,493


2,742

Inventories

1,308


1,585

Deferred income taxes

391


332

Prepaid expenses and other current assets

421


522

Assets held for sale

1,951


Total current assets

9,582


7,960

Net Plant and Equipment

1,667


1,994

Goodwill

4,854


5,530

Intangible Assets

2,121


2,258

Deferred Income Taxes

353


391

Other Assets

1,174


1,176


$

19,751


$

19,309





LIABILITIES AND STOCKHOLDERS' EQUITY




Current Liabilities:




Short-term debt

$

1,328


$

459

Accounts payable

616


676

Accrued expenses

1,282


1,392

Cash dividends payable

187


Income taxes payable

75


116

Deferred income taxes

59


8

Liabilities held for sale

394


Total current liabilities

3,941


2,651





Noncurrent Liabilities:




Long-term debt

3,808


4,589

Deferred income taxes

453


244

Other liabilities

1,081


1,255

Total noncurrent liabilities

5,342


6,088





Stockholders' Equity:




Common stock

6


5

Additional paid-in-capital

1,032


1,012

Income reinvested in the business

14,716


13,973

Common stock held in treasury

(5,584)


(4,722)

Accumulated other comprehensive income

292


293

Noncontrolling interest

6


9

Total stockholders' equity

10,468


10,570


$

19,751


$

19,309

 

 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS


(In millions except per share amounts)

Three Months Ended


Three Months Ended


September 30, 2013


September 30, 2012


Total Revenue

Operating Income

Operating Margin

Diluted EPS


Total Revenue

Operating Income

Operating Margin

Diluted EPS

Actual Results (GAAP)

$

3,568


$

678


19.0

%

$

0.90



$

3,733


$

667


17.9

%

$

0.95


Discrete tax charge related to foreign earnings




(0.09)







Decorative Surfaces operating results






267


41



0.06


Adjusted Results (Non-GAAP)

$

3,568


$

678


19.0

%

$

0.99



$

3,466


$

626


18.1

%

$

0.89












Q3 2013 Growth vs. 2012 (GAAP)

(4.4)

%

1.8

%

+110 bps

(5.3)

%






Q3 2013 Growth vs. 2012 (Non-GAAP)

2.9

%

8.4

%

+90 bps

11.9

%






 


(In millions except per share amounts)

Three Months Ended


Twelve Months Ended


December 31, 2012


December 31, 2012


Total Revenue


Operating Income


Diluted EPS


Total Revenue

Operating Income


Diluted EPS

Actual Results (GAAP)

$

3,484


$

524


$

1.99


$

14,791


$

2,475


$

4.72

Decorative Surfaces net gain



1.37




1.34

Decorative Surfaces equity interest (2012)



(0.04)




(0.04)

Decorative Surfaces operating results

93


12


0.01


921


143


0.21

Adjusted Results (Non-GAAP)

$

3,391


$

512


$

0.65


$

13,870


$

2,332


$

3.21













 

 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL




Three Months Ended


Nine Months Ended

(Dollars in millions)

September 30,


September 30,


2013


2012


2013


2012

Operating income

$

678



$

667



$

1,886



$

1,951


Adjustment for Decorative Surfaces



(41)





(131)


Adjusted operating income

678



626



1,886



1,820


Tax rate (as adjusted for discrete tax charge in 2013)

29.0

%


27.8

%


28.8

%


28.3

%

Taxes

(196)



(174)



(543)



(515)


Adjusted operating income after taxes

$

482



$

452



$

1,343



$

1,305










Invested capital:








Trade receivables

$

2,493



$

3,062



$

2,493



$

3,062


Inventories

1,308



1,760



1,308



1,760


Net plant and equipment

1,667



2,081



1,667



2,081


Goodwill and intangible assets

6,975



7,808



6,975



7,808


Accounts payable and accrued expenses

(1,898)



(2,274)



(1,898)



(2,274)


Net assets held for sale

1,557





1,557




Other, net

484



767



484



767


Total invested capital

$

12,586



$

13,204



$

12,586



$

13,204










Average invested capital

$

12,560



$

13,260



$

12,648



$

13,241


Adjustment for Decorative Surfaces

(169)



(296)



(170)



(299)


Adjustment for Industrial Packaging

(1,468)



(1,500)



(1,482)



(1,508)


Adjusted average invested capital

$

10,923



$

11,464



$

10,996



$

11,434


Annualized return on average invested capital

17.6

%


15.8

%


16.3

%


15.2

%









 



Three Months Ended


(Dollars in millions)

September 30, 2013



Income from Continuing Operations Before Income Taxes


Income Taxes


Tax Rate

As reported

$

628



$

222



35.4

%

Discrete tax charge related to foreign earnings



(40)



(6.4)

%

As adjusted

$

628



$

182



29.0

%














Nine Months Ended


(Dollars in millions)

September 30, 2013



Income from Continuing Operations Before Income Taxes


Income Taxes


Tax Rate

As reported

$

1,774



$

551



31.1

%

Discrete tax charge related to foreign earnings



(40)



(2.3)

%

As adjusted

$

1,774



$

511



28.8

%







 

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)


Three Months Ended September 30, 2013

% F(U) vs. prior year


(Dollars in millions)

Total Revenue

Operating Income

Operating Margin


Total Revenue

Organic (Base) Revenue

Operating Margin

Test & Measurement and Electronics

$

555


$

91


16.3

%


(10.9)

%

(11.8)

%

(190)

bps

Automotive OEM

589


124


21.1

%


13.2

%

11.5

%

200

bps

Polymers & Fluids

504


91


18.1

%


(1.1)

%

%

220

bps

Food Equipment

542


108


19.9

%


10.4

%

4.4

%

90

bps

Welding

438


111


25.4

%


(1.0)

%

(3.5)

%

90

bps

Construction Products

440


71


16.2

%


1.7

%

3.3

%

250

bps

Specialty Products

510


108


21.1

%


11.4

%

1.9

%

150

bps

Intersegment

(10)









Total Segments

3,568


704


19.7

%


2.9

%

0.4

%

110

bps

Decorative Surfaces





(100)

%

(100)

%


Unallocated


(26)








Total Company

$

3,568


$

678


19.0

%


(4.4)

%

0.4

%

110

bps



Nine Months Ended September 30, 2013

% F(U) vs. prior year


(Dollars in millions)

Total Revenue

Operating Income

Operating Margin


Total Revenue

Organic (Base) Revenue

Operating Margin

Test & Measurement and Electronics

$

1,617


$

233


14.4

%


(7.3)

%

(8.3)

%

(100)

bps

Automotive OEM

1,792


367


20.5

%


9.7

%

8.9

%

90

bps

Polymers & Fluids

1,521


259


17.1

%


(3.8)

%

(3.5)

%

120

bps

Food Equipment

1,500


278


18.5

%


4.2

%

1.1

%

130

bps

Welding

1,390


361


26.0

%


(1.2)

%

(3.1)

%

(20)

bps

Construction Products

1,295


180


13.9

%


(0.6)

%

0.1

%

200

bps

Specialty Products

1,497


317


21.2

%


6.7

%

1.3

%

100

bps

Intersegment

(31)









Total Segments

10,581


1,995


18.9

%


1.0

%

(0.6)

%

80

bps

Decorative Surfaces





(100)

%

(100)

%


Unallocated**


(109)








Total Company

$

10,581


$

1,886


17.8

%


(6.4)

%

(0.5)

%

50

bps

 ** Includes 2Q 2013 $34 million pension settlement charge

 

SOURCE Illinois Tool Works Inc.

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