ITW Reports Second Quarter 2013 Results

- Second quarter GAAP diluted earnings per share (EPS) from continuing operations of $1.03 includes $0.05 of EPS dilution for a pension settlement charge

- Second quarter adjusted diluted EPS of $1.08 at mid-point of Company's forecast

- Total Company adjusted operating margins of 17.4 percent increase 40 basis points despite $38 million of restructuring costs

- Company full-year mid-point EPS forecast of $4.20 reflects second quarter pension charge

News provided by

Illinois Tool Works Inc.

Jul 23, 2013, 08:00 ET

GLENVIEW, Ill., July 23, 2013 /PRNewswire/ -- Illinois Tool Works Inc. (NYSE: ITW) today reported second quarter 2013 diluted earnings per share (EPS) from continuing operations of $1.03. This included $0.05 of EPS dilution due to a pension settlement charge primarily related to the exit of Decorative Surfaces employees from the ITW pension plan. Excluding the pension settlement charge, second quarter adjusted EPS of $1.08 was six percent higher than adjusted second quarter 2012 earnings and met the Company's forecast. Reconciliations of GAAP to adjusted results, which exclude the pension settlement charge and the 2012 impact of the now divested Decorative Surfaces segment, are included in the attached exhibits.

The following highlights for the 2013 second quarter results versus the prior-year period included:

*Total revenues of $4.2 billion increased 1.0 percent, excluding the impact of the Decorative Surfaces segment in 2012 results. Total Company organic revenues were flat, nearly 100 basis points lower than the Company anticipated at the beginning of the second quarter. By geography, North American organic revenues decreased 1.0 percent, largely due to modest end market softness in the industrial packaging, polymers and fluids and welding segments as well as difficult year-over-year comparisons for the electronics assembly business. International revenues increased 1.1 percent, with European organic revenues decreasing only 1.0 percent. Asia Pacific organic revenues increased 2.6 percent, with China and Australia/New Zealand organic revenues growing 13.5 percent and 2.1 percent, respectively.

*The Automotive OEM segment led the Company in organic growth, increasing 12 percent versus worldwide auto build growth of 3 percent. The segment's European automotive organic revenues grew 11 percent, outpacing second quarter Europe auto builds that increased 1 percent. North American and China automotive organic revenues increased 7 percent and 40 percent, respectively, compared to auto builds of 6 percent and 11 percent.

*Total Company adjusted operating margins of 17.4 percent were 40 basis points higher than the year-ago period. The 17.4 percent operating margin included $38 million of restructuring costs in the quarter, $25 million more than the year-ago period.

*Total Company free operating cash flow was $554 million or 119 percent of income from continuing operations.

"Despite some headwinds in certain North American end markets, ITW continued to generate strong operating margins and returns in the quarter," said E. Scott Santi, president and chief executive officer. "We continue to be very pleased with the early-stage contributions from our enterprise strategy initiatives-portfolio management, business structure simplification and strategic sourcing.  These initiatives contributed 60 basis points to our total Company operating margin improvement in the second quarter. Also, our adjusted return on invested capital improved 70 basis points to 16.1 percent in the quarter. For the balance of the year, while we remain cautious about end markets and revenue growth for some of our segments, we continue to have confidence in our ability to meet our profitability forecasts."

Incorporating first half actual results, including the 5 cents of EPS dilution for the second quarter pension settlement charge, the Company is now forecasting its full-year diluted income per share from continuing operations to be in a range of $4.10-$4.30. This EPS range assumes a full-year total revenue growth range of 0.5 percent to 2.5 percent. For the 2013 third quarter, the Company is forecasting diluted income per share from continuing operations to be in a range of $1.06-$1.16 and assumes a total revenue growth range of 3 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, statements regarding organic and 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 services 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 $16.3 billion in 2012, with more than half of the revenues generated outside of the United States.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF INCOME (UNAUDITED)


Three Months Ended

Six Months Ended

(In millions except per share amounts)

June 30,

June 30,

2013

2012

2013

2012

Operating Revenues

$

4,219

$

4,463

$

8,228

$

8,821

Cost of revenues

2,619

2,814

5,121

5,577

Selling, administrative, and research and development expenses

833

819

1,612

1,651

Amortization of intangible assets

65

72

133

141

Operating Income

702

758

1,362

1,452

Interest expense

(59)

(50)

(119)

(100)

Other income (expense)

11

24

57

32

Income from Continuing Operations Before Income Taxes

654

732

1,300

1,384

Income Taxes

190

213

377

401

Income from Continuing Operations

464

519

923

983

Income (Loss) from Discontinued Operations

1

362

(104)

384

Net Income

$

465

$

881

$

819

$

1,367








Income Per Share from Continuing Operations:






Basic

$

1.03

$

1.10

$

2.05

$

2.06

Diluted

$

1.03

$

1.09

$

2.03

$

2.04

Income (Loss) Per Share from Discontinued Operations:






Basic

$

—

$

0.76

$

(0.23)

$

0.80

Diluted

$

—

$

0.76

$

(0.23)

$

0.80

Net Income Per Share:






Basic

$

1.04

$

1.86

$

1.82

$

2.86

Diluted

$

1.03

$

1.85

$

1.81

$

2.84








Shares of Common Stock Outstanding During the Period:






Average

449.6

472.9

450.7

477.4

Average assuming dilution

452.5

476.1

453.7

480.9

FREE OPERATING CASH FLOW

Three Months Ended

Six Months Ended

June 30,

June 30,

2013

2012

2013

2012

Net cash provided by operating activities

$

643

$

509

$

1,009

$

832

Less: Additions to plant and equipment

(89)

(100)

(178)

(184)

Free operating cash flow

$

554

$

409

$

831

$

648

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

(In millions)

 

June 30, 2013

December 31, 2012

ASSETS


Current Assets:


     Cash and equivalents

$

2,768

$

2,779

     Trade receivables

2,907

2,742

     Inventories

1,490

1,585

     Deferred income taxes

361

332

     Prepaid expenses and other current assets

452

522

     Assets held for sale

235

—

       Total current assets

8,213

7,960

Net Plant and Equipment

1,936

1,994

Goodwill

5,359

5,530

Intangible Assets

2,132

2,258

Deferred Income Taxes

366

391

Other Assets

1,193

1,176

$

19,199

$

19,309




LIABILITIES AND STOCKHOLDERS' EQUITY


Current Liabilities:


     Short-term debt

$

1,301

$

459

     Accounts payable

717

676

     Accrued expenses

1,336

1,392

     Cash dividends payable

170

—

     Income taxes payable

91

116

     Deferred income taxes

32

8

     Liabilities held for sale

64

—

       Total current liabilities

3,711

2,651




Noncurrent Liabilities:


     Long-term debt

3,771

4,589

     Deferred income taxes

383

244

     Other liabilities

1,103

1,255

       Total noncurrent liabilities

5,257

6,088




Stockholders' Equity:


Common stock

6

5

Additional paid-in-capital

1,019

1,012

Income reinvested in the business

14,451

13,973

Common stock held in treasury

(5,263)

(4,722)

Accumulated other comprehensive income

12

293

Noncontrolling interest

6

9

Total stockholders' equity

10,231

10,570

$

19,199

$

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

June 30, 2013

June 30, 2012

Total Revenue

Operating Income

Operating Margin

Diluted EPS

Total Revenue

Operating Income

Operating Margin

Diluted EPS

Actual Results (GAAP)

$

4,219

$

702

16.6

%

$

1.03

$

4,463

$

758

17.0

%

$

1.09

Pension Settlement Charge

—

(34)

-80 bps

(0.05)

—

—

—

—

Decorative Surfaces operating results

—

—

—

—

286

48

—

0.07

Adjusted Results (Non-GAAP)

$

4,219

$

736

17.4

%

$

1.08

$

4,177

$

710

17.0

%

$

1.02










Q2 2013 Growth vs. 2012 (Non-GAAP)

1.0

%

3.7

%

+40 bps

6.0

%




(In millions except per share amounts)

Three Months Ended

Twelve Months Ended

September 30, 2012

December 31, 2012

Total Revenue

Operating Income

Diluted EPS

Total Revenue

Operating Income

Diluted EPS

Actual Results (GAAP)

$

4,337

$

752

$

1.08

$

17,224

$

2,806

$

5.21

Decorative Surfaces net gain

—

—

—

—

—

1.34

Decorative Surfaces equity interest (2012)

—

—

—

—

—

(0.04)

Decorative Surfaces operating results

267

41

0.06

921

143

0.21

Adjusted Results (Non-GAAP)

$

4,070

$

711

$

1.02

$

16,303

$

2,663

$

3.70








ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL

(Dollars in millions)

June 30, 2012

June 30, 2013

Adjusted Operating Income

$

710

$

702

Taxes (29% for 2012 and 2013)

(206)

(204)

Adjusted Operating Income after Taxes

$

504

$

498




Invested capital at end of period:


Trade receivables

$

3,164

$

2,907

Inventories

1,796

1,490

Net Plant and Equipment

2,067

1,936

Goodwill and Intangible Assets

7,824

7,491

Accounts payable and Accrued expenses

(2,264)

(2,053)

Net assets held for sale

71

171

Other, net

657

593

Invested capital

13,315

12,535

Adjustment for Decorative Surfaces

(296)

(171)

Total adjusted invested capital

$

13,019

$

12,364

Average invested capital

$

13,157

$

12,412




Return on average invested capital

15.4

%

16.1

%




ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended June 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

$

542

$

74

13.7

%

(8.5)%

(9.1)%

(200) bps

Automotive OEM

614

126

20.6

%

12.3

%

11.6

%

70 bps

Polymers & Fluids

527

95

18.1

%

(4.2)%

(3.6)%

150 bps

Food Equipment

491

92

18.7

%

3.0

%

1.4

%

230 bps

Welding

480

128

26.5

%

2.4

%

—

%

60 bps

Construction Products

453

62

13.8

%

—

%

0.3

%

40 bps

Specialty Products

506

113

22.4

%

5.2

%

1.6

%

40 bps

Industrial Packaging

619

73

11.8

%

(0.6)%

(1.0)%

(80) bps

Intersegment

(13)






Total Segments

4,219

763

18.1

%

1.0

%

—

%

50 bps

Decorative Surfaces

—

—


(100)%

(100)%

—

Unallocated**

(61)





Total Company

$

4,219

$

702

16.6

%

(5.5)%

—

%

(40) bps

Six Months Ended June 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

$

1,062

$

142

13.4

%

(5.5)%

(6.4)%

(40) bps

Automotive OEM

1,203

243

20.2

%

8.1

%

7.7

%

40 bps

Polymers & Fluids

1,022

167

16.4

%

(5.0)%

(5.1)%

60 bps

Food Equipment

958

170

17.7

%

0.9

%

(0.5)%

150 bps

Welding

952

250

26.2

%

(1.3)%

(2.9)%

(80) bps

Construction Products

871

111

12.8

%

(1.6)%

(1.4)%

180 bps

Specialty Products

987

209

21.2

%

4.4

%

1.0

%

70 bps

Industrial Packaging

1,198

145

12.1

%

(2.6)%

(2.7)%

20 bps

Intersegment

(25)






Total Segments

8,228

1,437

17.5

%

(0.4)%

(1.3)%

60 bps

Decorative Surfaces

—

—


(100)%

(100)%

—

Unallocated**

(75)





Total Company

$

8,228

$

1,362

16.5

%

(6.7)%

(1.3)%

0 bps

 ** Includes $34M pension settlement charge

SOURCE Illinois Tool Works Inc.

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