ILLINOIS TOOL WORKS INC. - 4Q diluted EPS from continuing operations of $1.18, up 28 percent
- 4Q operating margin of 19.6 percent up 190 basis points; Enterprise initiatives contributed 120 basis points
- 4Q organic revenue grew 2.3 percent
- Full-year 2015 EPS guidance unchanged; $5.25 at midpoint, up 12 percent
GLENVIEW, Ill., Jan. 27, 2015 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported fourth quarter 2014 earnings per share (EPS) from continuing operations of $1.18, 28 percent higher than the year-ago period. Operating margin increased 190 basis points to 19.6 percent and organic revenue grew 2.3 percent.
"We were pleased with ITW's strong performance in the quarter and for the year," said E. Scott Santi, president and chief executive officer. "In the quarter, the Company continued to deliver meaningful improvement in our earnings per share, operating margin and return on invested capital metrics."
"For full-year 2014, ITW grew earnings per share 29 percent, expanded operating margin by 210 basis points to 19.9 percent, improved after-tax return on invested capital by 260 basis points to 18.9 percent, and returned $5 billion to shareholders in the form of dividends and share repurchases. As a result of the strength of the ITW business model and the continued execution of our enterprise strategy, the Company is well positioned to deliver another year of solid progress in 2015," Santi concluded.
Fourth quarter 2014 financial highlights (versus year-ago):
- Organic revenue was up 2.3 percent, with North American and international growth of 3 percent and 2 percent, respectively. In North America, organic revenue growth was driven by continued strength in welding, food equipment, and automotive OEM. Internationally, European organic revenues increased 1 percent and Asia Pacific grew 2 percent. As expected, ongoing product line simplification activities associated with the portfolio management component of ITW's enterprise strategy reduced organic revenue growth by approximately 1 percentage point in the quarter. Total revenues of $3.5 billion were down 1.4 percent due to negative foreign currency translation impact.
- Operating margins of 19.6 percent increased 190 basis points, with enterprise initiatives contributing 120 basis points. Six of the Company's seven segments delivered operating margin improvement in excess of 100 basis points. Operating income increased 9.2 percent to $686 million.
- After-tax Return on Invested Capital (ROIC) of 18.6 percent increased 220 basis points.
Fourth quarter 2014 segment highlights (versus year-ago):
- Automotive OEM organic revenue growth of 7 percent outpaced fourth quarter worldwide auto builds of 1 percent. Organic revenues grew 12 percent in Europe, 4 percent in North America and 7 percent in Asia Pacific. Operating margins of 22.3 percent increased 190 basis points.
- Food Equipment's organic revenues increased 5 percent due to solid growth in equipment and service worldwide. Operating margins of 21.7 percent increased 220 basis points.
- Welding's organic revenues grew 4 percent, with North America increasing 10 percent due to strength in equipment sales to industrial and commercial customers. Operating margins of 25.4 percent increased 230 basis points.
Outlook
ITW is confirming its 2015 full-year EPS guidance range of $5.15 to $5.35, which is $5.25 at the midpoint, a 12 percent increase. Organic revenue growth for the year is expected to be 2.5 to 3.5 percent. Total revenue for the year is projected to decline 1 to 2 percent due to the impact of foreign currency translation. For the first quarter 2015, the Company is forecasting EPS to be in a range of $1.13 to $1.21, which is $1.17 at the midpoint, a 16 percent increase. In the first quarter, the Company expects 2 to 3 percent organic revenue growth and total revenue to decline 2 to 3 percent due to the impact of currency translation. The Company's outlook is based on current foreign exchange rates.
Forward-looking statement
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, operating margins and diluted income per share from continuing operations. These statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated. Such factors include those contained in ITW's Form 10-Q from the second quarter of 2014. The attached tables include a calculation of ROIC, a non-GAAP measure.
About ITW
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, improving profitability and strong returns across its worldwide platforms and divisions. These divisions serve customers and markets around the globe, with a significant presence in developed as well as emerging markets. ITW's revenues totaled $14.5 billion in 2014.
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | ||||
| STATEMENT OF INCOME (UNAUDITED) | ||||
| Three Months Ended | Twelve Months Ended | |||
| (In millions except per share amounts) | December 31, | December 31, | ||
| 2014 | 2013 | 2014 | 2013 | |
| Operating Revenues | $ 3,504 | $ 3,554 | $ 14,484 | $ 14,135 |
| Cost of revenues | 2,114 | 2,173 | 8,673 | 8,554 |
| Selling, administrative, and research and development expenses | 644 | 689 | 2,678 | 2,815 |
| Amortization of intangible assets | 60 | 64 | 242 | 250 |
| Impairment of goodwill and other intangible assets | — | — | 3 | 2 |
| Operating Income | 686 | 628 | 2,888 | 2,514 |
| Interest expense | (54) | (60) | (250) | (239) |
| Other income (expense) | 25 | 5 | 61 | 72 |
| Income from Continuing Operations Before Income Taxes | 657 | 573 | 2,699 | 2,347 |
| Income Taxes | 196 | 166 | 809 | 717 |
| Income from Continuing Operations | 461 | 407 | 1,890 | 1,630 |
| Income (Loss) from Discontinued Operations | (11) | 1 | 1,056 | 49 |
| Net Income | $ 450 | $ 408 | $ 2,946 | $ 1,679 |
| Income Per Share from Continuing Operations: | ||||
| Basic | $ 1.19 | $ 0.93 | $ 4.70 | $ 3.65 |
| Diluted | $ 1.18 | $ 0.92 | $ 4.67 | $ 3.63 |
| Income (Loss) Per Share from Discontinued Operations: | ||||
| Basic | $ (0.02) | $ — | $ 2.63 | $ 0.11 |
| Diluted | $ (0.02) | $ — | $ 2.61 | $ 0.11 |
| Net Income Per Share: | ||||
| Basic | $ 1.17 | $ 0.93 | $ 7.33 | $ 3.76 |
| Diluted | $ 1.16 | $ 0.93 | $ 7.28 | $ 3.74 |
| Shares of Common Stock Outstanding During the Period: | ||||
| Average | 386.4 | 437.7 | 401.7 | 446.2 |
| Average assuming dilution | 389.2 | 440.9 | 404.6 | 449.3 |
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | ||
| STATEMENT OF FINANCIAL POSITION (UNAUDITED) | ||
| (In millions) | December 31, | December 31, |
| 2014 | 2013 | |
| ASSETS | ||
| Current Assets: | ||
| Cash and equivalents | $ 3,990 | $ 3,618 |
| Trade receivables | 2,293 | 2,365 |
| Inventories | 1,180 | 1,247 |
| Deferred income taxes | 212 | 384 |
| Prepaid expenses and other current assets | 401 | 366 |
| Assets held for sale | — | 1,836 |
| Total current assets | 8,076 | 9,816 |
| Net plant and equipment | 1,686 | 1,709 |
| Goodwill | 4,667 | 4,886 |
| Intangible assets | 1,799 | 1,999 |
| Deferred income taxes | 301 | 359 |
| Other assets | 1,149 | 1,197 |
| $ 17,678 | $ 19,966 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current Liabilities: | ||
| Short-term debt | $ 1,476 | $ 3,551 |
| Accounts payable | 512 | 634 |
| Accrued expenses | 1,287 | 1,272 |
| Cash dividends payable | 186 | 181 |
| Income taxes payable | 64 | 69 |
| Deferred income taxes | 8 | 10 |
| Liabilities held for sale | — | 317 |
| Total current liabilities | 3,533 | 6,034 |
| Noncurrent Liabilities: | ||
| Long-term debt | 5,981 | 2,793 |
| Deferred income taxes | 338 | 507 |
| Other liabilities | 1,002 | 923 |
| Total noncurrent liabilities | 7,321 | 4,223 |
| Stockholders' Equity: | ||
| Common stock | 6 | 6 |
| Additional paid-in-capital | 1,096 | 1,046 |
| Income reinvested in the business | 17,173 | 14,943 |
| Common stock held in treasury | (10,798) | (6,676) |
| Accumulated other comprehensive income | (658) | 384 |
| Noncontrolling interest | 5 | 6 |
| Total stockholders' equity | 6,824 | 9,709 |
| $ 17,678 | $ 19,966 | |
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | ||||
| GAAP to NON-GAAP RECONCILIATIONS | ||||
| ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED) | ||||
| Three Months Ended | Twelve Months Ended | |||
| (Dollars in millions) | December 31, | December 31, | ||
| 2014 | 2013 | 2014 | 2013 | |
| Operating income | $ 686 | $ 628 | $ 2,888 | $ 2,514 |
| Tax rate (as adjusted for discrete tax charge in 2013) | 30.0% | 29.0% | 30.0% | 28.8% |
| Income taxes | (206) | (182) | (866) | (724) |
| Operating income after taxes | $ 480 | $ 446 | $ 2,022 | $ 1,790 |
| Invested capital: | ||||
| Trade receivables | $ 2,293 | $ 2,365 | $ 2,293 | $ 2,365 |
| Inventories | 1,180 | 1,247 | 1,180 | 1,247 |
| Net assets held for sale | — | 1,519 | — | 1,519 |
| Net plant and equipment | 1,686 | 1,709 | 1,686 | 1,709 |
| Goodwill and intangible assets | 6,466 | 6,885 | 6,466 | 6,885 |
| Accounts payable and accrued expenses | (1,799) | (1,906) | (1,799) | (1,906) |
| Other, net | 465 | 616 | 465 | 616 |
| Total invested capital | $ 10,291 | $ 12,435 | $ 10,291 | $ 12,435 |
| Average invested capital | $ 10,401 | $ 12,511 | $ 11,249 | $ 12,605 |
| Adjustment for Wilsonart (formerly Decorative Surfaces) | (147) | (165) | (154) | (169) |
| Adjustment for Industrial Packaging | 95 | (1,469) | (424) | (1,477) |
| Adjusted average invested capital | $ 10,349 | $ 10,877 | $ 10,671 | $ 10,959 |
| Annualized adjusted return on average invested capital | 18.6% | 16.4% | 18.9% | 16.3% |
| Twelve Months Ended | ||||
| December 31, 2013 | ||||
| Income Taxes - As reported | $ 717 | |||
| Discrete tax charge related to foreign earnings | (40) | |||
| Income Taxes - As adjusted | 677 | |||
| Income from Continuing Operations Before Income Taxes | 2,347 | |||
| Tax rate (as adjusted for discrete tax charge in 2013) | 28.8% | |||
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | ||||
| GAAP to NON-GAAP RECONCILIATIONS | ||||
| ADJUSTED FREE OPERATING CASH FLOW (UNAUDITED) | ||||
| Three Months Ended | Twelve Months Ended | |||
| (In millions) | December 31, | December 31, | ||
| 2014 | 2013 | 2014 | 2013 | |
| Net cash provided by operating activities | $ 458 | $ 708 | $ 1,616 | $ 2,528 |
| Less: Additions to plant and equipment | (89) | (111) | (361) | (368) |
| Free operating cash flow | 369 | 597 | 1,255 | 2,160 |
| Plus: Taxes paid related to sale of Industrial Packaging | 191 | — | 724 | — |
| Adjusted free operating cash flow | $ 560 | $ 597 | $ 1,979 | $ 2,160 |
| ADJUSTED FREE OPERATING CASH FLOW CONVERSION RATE (UNAUDITED) | ||||
| (Dollars in millions) | Three Months Ended | Twelve Months Ended | ||
| December 31, 2014 | December 31, 2014 | |||
| Adjusted free operating cash flow | $ 560 | $ 1,979 | ||
| Net Income - As reported | $ 450 | $ 2,946 | ||
| Less: Industrial Packaging gain on sale, after taxes | — | (1,148) | ||
| Adjusted net income | $ 450 | $ 1,798 | ||
| Adjusted free operating cash flow to adjusted net income conversion rate | 124% | 110% | ||
| ILLINOIS TOOL WORKS INC. and SUBSIDIARIES | ||||||
| SEGMENT DATA (UNAUDITED) | ||||||
| For the Three Months Ended December 31, 2014 | % F(U) vs. prior year | |||||
| (Dollars in millions) | Total Revenue | Operating Income | Operating Margin | Total Revenue | Organic Revenue | Operating Margin |
| Automotive OEM | $ 620 | $ 138 | 22.3% | 2.7% | 7.3% | 190 bps |
| Test & Measurement and Electronics | 541 | 82 | 15.1% | (3.3)% | (0.5)% | (60) bps |
| Food Equipment | 554 | 120 | 21.7% | 1.4% | 4.7% | 220 bps |
| Polymers & Fluids | 452 | 79 | 17.5% | (4.2)% | 0.7% | 150 bps |
| Welding | 458 | 116 | 25.4% | 2.3% | 4.2% | 230 bps |
| Construction Products | 402 | 63 | 15.7% | (4.7)% | 1.6% | 190 bps |
| Specialty Products | 482 | 92 | 19.0% | (5.4)% | (2.6)% | 110 bps |
| Intersegment | (5) | — | —% | —% | —% | — |
| Total Segments | 3,504 | 690 | 19.7% | (1.4)% | 2.3% | 150 bps |
| Unallocated | — | (4) | —% | —% | —% | — |
| Total Company | $ 3,504 | $ 686 | 19.6% | (1.4)% | 2.3% | 190 bps |
| For the Twelve Months Ended December 31, 2014 | % F(U) vs. prior year | |||||
| (Dollars in millions) | Total Revenue | Operating Income | Operating Margin | Total Revenue | Organic Revenue | Operating Margin |
| Automotive OEM | $ 2,590 | $ 600 | 23.2% | 8.1% | 8.9% | 270 bps |
| Test & Measurement and Electronics | 2,204 | 340 | 15.4% | 1.3% | 1.5% | 60 bps |
| Food Equipment | 2,177 | 453 | 20.8% | 6.4% | 4.7% | 200 bps |
| Polymers & Fluids | 1,927 | 357 | 18.5% | (3.3)% | (1.2)% | 170 bps |
| Welding | 1,850 | 479 | 25.9% | 0.7% | 1.2% | 60 bps |
| Construction Products | 1,707 | 289 | 17.0% | (0.6)% | 2.2% | 310 bps |
| Specialty Products | 2,055 | 440 | 21.4% | 2.4% | (0.3)% | 110 bps |
| Intersegment | (26) | — | —% | —% | —% | — |
| Total Segments | 14,484 | 2,958 | 20.4% | 2.5% | 2.6% | 170 bps |
| Unallocated | — | (70) | —% | —% | —% | — |
| Total Company | $ 14,484 | $ 2,888 | 19.9% | 2.5% | 2.6% | 210 bps |
CONTACT: Investors Contact: Aaron Hoffman 847.657.7314 ahoffman@itw.com
Media Contact: Alison Donnelly 847.657.4565 adonnelly@itw.com
