ITW Reports Fourth-Quarter and Full-Year 2016 ResultsDelivers record 2016 financial results and reaffirms guidance for 2017

Fourth-quarter highlights:

  • Total revenue was $3.4 billion, an increase of 4%; organic growth was 2%
  • Operating margin was 21.8%, an increase of 110 bps
  • GAAP EPS was $1.45 including $0.06 of non-recurring items, an increase of 18%

Full-year highlights:

  • Total revenue was $13.6 billion, an increase of 1%; organic growth was 1%
  • Operating margin was 22.5%, an increase of 110 bps; 22.8% excluding EF&C
  • After-tax ROIC was 22.1%, an increase of 170 bps
  • GAAP EPS was $5.70, an increase of 11%

GLENVIEW, Ill., Jan. 25, 2017 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported its fourth-quarter and full-year 2016 results.

'The fourth quarter closed out a year of record financial performance and strong execution by the ITW team. In 2016, we grew EPS 11%, improved operating margin by 110 basis points to an all-time high of 22.5% and increased after tax return on invested capital 170 basis points to a record 22.1%,' said E. Scott Santi, Chairman and Chief Executive Officer. 'Throughout 2016, we continued to invest in our businesses to sustain above-market organic growth, strengthened our highly differentiated business portfolio and returned more than $2.8 billion of surplus capital to shareholders. We continue to work hard to push our performance to best-in-class levels, and we are well-positioned to deliver continued progress and strong results in 2017.

Fourth-quarter GAAP earnings were $1.45 per share, an increase of 18% versus the fourth quarter of 2015. Foreign currency translation reduced EPS by 2% year-on-year. Revenue grew 4% year-on-year to $3.4 billion. Organic revenue increased 2% while the 2016 acquisition of Engineered Fasteners & Components (EF&C) added 4% to revenue. Foreign currency translation reduced revenue by 2% year-on-year and Product Line Simplification (PLS) reduced revenue by approximately 1%.

During the fourth quarter the company recorded a net EPS benefit of $0.06 per share, related to a dividend distribution from its investment in Wilsonart, which was partially offset by one-time charges related to two small divestitures. Excluding these non-recurring items, fourth quarter earnings were $1.39 per share, an increase of 13% versus the prior year.

Operating income was $742 million and operating margin for the quarter was 21.8%, an increase of 110 basis points year-on-year. Excluding the margin dilution from the 2016 acquisition of EF&C, operating margin was 22.2%, an increase of 150 basis points year-on-year with 130 basis points of margin expansion coming from Enterprise Initiatives. Fourth-quarter net income was $507 million and the company converted 117 percent of net income to free cash flow.

Organic revenue growth was positive in five of seven segments; 7% in Automotive OEM, 3% in Food Equipment and Construction Products, 2% in Polymers & Fluids, 1% in Specialty Products with Test & Measurement/Electronics flat and a decline of 8% in Welding.

Operating margin improved in all seven segments to 24.7% in Food Equipment, 24.4% in Welding, 24% in Specialty Products, 23% in Automotive OEM (25.2% excluding the margin dilution from EF&C), 21.4% in Construction Products, 20.1% in Test & Measurement/Electronics and 19% in Polymers & Fluids.

Full-year 2016 GAAP earnings were $5.70 per share, an increase of 11%. Total revenue increased 1% to $13.6 billion with organic growth of 1%. The acquisition of EF&C increased revenue 2%. Foreign currency translation reduced revenue by 2%.

Full-year operating margin was 22.5%, up 110 basis points versus 2015, or up 140 basis points to 22.8% excluding the margin dilution impact from EF&C. ITW converted 100% of net income to free cash flow for the year and generated 22.1% after-tax return on invested capital. For the full year, ITW paid $821 million in dividends to shareholders and repurchased $2 billion of its own shares.

Full-Year and First Quarter 2017 Guidance
ITW is reaffirming its 2017 full-year performance expectations. The company expects 2017 earnings to be in the range of $6.00 to $6.20 per share with organic growth of 1.5 to 3.5%. ITW also expects operating margin to exceed 23.5% and free cash flow conversion to exceed 100% for the full-year.

The company expects first quarter 2017 earnings to be in the range of $1.39 to $1.49 per share with organic growth of 1 to 2%. The company expects operating margin to exceed 22.5%.

Non-GAAP Measures
This earnings release contains non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule.

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 diluted earnings per share, organic revenue growth, the impact of product line simplification activities and enterprise initiatives, operating margin, after-tax return on invested capital and the expected impact of acquisitions on financial results. 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-K for 2015 and Form 10-Q for the third quarter of 2016.

About ITW
ITW (NYSE:ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $13.6 billion in 2016. 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 has more than 50,000 dedicated colleagues in operations around the world who thrive in the company's unique, decentralized and entrepreneurial culture. To learn more about the company and the ITW Business Model, visit 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 amounts 2016 2015 2016 2015
Operating Revenue $ 3,399 $ 3,275 $ 13,599 $ 13,405
Cost of revenue 2,006 1,941 7,896 7,888
Selling, administrative, and research and development expenses 597 598 2,415 2,417
Amortization and impairment of intangible assets 54 57 224 233
Operating Income 742 679 3,064 2,867
Interest expense (63 ) (58 ) (237 ) (226 )
Other income (expense) 47 13 81 78
Income Before Taxes 726 634 2,908 2,719
Income taxes 219 184 873 820
Net Income $ 507 $ 450 $ 2,035 $ 1,899
Net Income Per Share:
Basic $ 1.46 $ 1.24 $ 5.73 $ 5.16
Diluted $ 1.45 $ 1.23 $ 5.70 $ 5.13
Cash Dividends Per Share:
Paid $ 0.65 $ 0.55 $ 2.30 $ 2.005
Declared $ 0.65 $ 0.55 $ 2.40 $ 2.07
Shares of Common Stock Outstanding During the Period:
Average 348.3 363.7 355.0 367.9
Average assuming dilution 350.4 365.9 357.1 370.1
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions December 31, 2016 December 31, 2015
Assets
Current Assets:
Cash and equivalents $ 2,472 $ 3,090
Trade receivables 2,357 2,203
Inventories 1,076 1,086
Prepaid expenses and other current assets 218 341
Total current assets 6,123 6,720
Plant and equipment 1,652 1,577
Goodwill 4,558 4,439
Intangible assets 1,463 1,560
Deferred income taxes 449 346
Other assets 956 1,087
$ 15,201 $ 15,729
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt $ 652 $ 526
Accounts payable 511 449
Accrued expenses 1,202 1,136
Cash dividends payable 226 200
Income taxes payable 169 57
Total current liabilities 2,760 2,368
Noncurrent Liabilities:
Long-term debt 7,177 6,896
Deferred income taxes 134 256
Other liabilities 871 981
Total noncurrent liabilities 8,182 8,133
Stockholders' Equity:
Common stock: 6 6
Additional paid-in-capital 1,188 1,135
Retained earnings 19,505 18,316
Common stock held in treasury (14,638 ) (12,729 )
Accumulated other comprehensive income (loss) (1,807 ) (1,504 )
Noncontrolling interest 5 4
Total stockholders' equity 4,259 5,228
$ 15,201 $ 15,729
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended December 31, 2016
Dollars in millions Total
Revenue		 Operating
Income		 Operating
Margin
Automotive OEM $ 773 $ 178 23.0 %
Food Equipment 532 132 24.7 %
Test & Measurement and Electronics 487 98 20.1 %
Welding 361 88 24.4 %
Polymers & Fluids 408 77 19.0 %
Construction Products 386 83 21.4 %
Specialty Products 456 109 24.0 %
Intersegment (4 ) - - %
Total Segments 3,399 765 22.5 %
Unallocated - (23 ) - %
Total Company $ 3,399 $ 742 21.8 %
Twelve Months Ended December 31, 2016
Dollars in millions Total
Revenue		 Operating
Income		 Operating
Margin
Automotive OEM $ 2,864 $ 690 24.1 %
Food Equipment 2,110 537 25.4 %
Test & Measurement and Electronics 1,974 372 18.9 %
Welding 1,486 370 24.9 %
Polymers & Fluids 1,691 343 20.3 %
Construction Products 1,609 361 22.4 %
Specialty Products 1,885 482 25.6 %
Intersegment (20 ) - - %
Total Segments 13,599 3,155 23.2 %
Unallocated - (91 ) - %
Total Company $ 13,599 $ 3,064 22.5 %
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q4 2016 vs. Q4 2015 Favorable/(Unfavorable)
Operating
Revenue		 Automotive
OEM		 Food
Equipment		 Test &
Measurement
and Electronics 		Welding Polymers &
Fluids		 Construction
Products		 Specialty
Products		 Total
ITW
Organic 7.0 % 2.6 % (0.3 )% (7.9 )% 2.1 % 2.7 % 1.2 % 1.5 %
Acquisitions/
Divestitures 		20.8 % - % - % - % - % (0.2 )% (0.5 )% 3.8 %
Translation (2.0 )% (2.8 )% (2.1 )% (0.7 )% (0.8 )% (0.5 )% (1.2 )% (1.6 )%
Operating Revenue 25.8 % (0.2 )% (2.4 )% (8.6 )% 1.3 % 2.0 % (0.5 )% 3.7 %
Q4 2016 vs. Q4 2015 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 100 bps 50 bps (10) bps (160) bps 60 bps 60 bps 30 bps 40 bps
Changes in Variable Margin & OH Costs 160 bps 20 bps 230 bps 320 bps 40 bps 120 bps 180 bps 130 bps
Total Organic 260 bps 70 bps 220 bps 160 bps 100 bps 180 bps 210 bps 170 bps
Acquisitions/
Divestitures 		(220) bps - - - - (10) bps 20 bps (30) bps
Restructuring/Other 60 bps 10 bps (20) bps 30 bps (20) bps (20) bps (130) bps (30) bps
Total Operating Margin Change 100 bps 80 bps 200 bps 190 bps 80 bps 150 bps 100 bps 110 bps
Total Operating Margin % * 23.0 % 24.7 % 20.1 % 24.4 % 19.0 % 21.4 % 24.0 % 21.8 %
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps 80 bps 380 bps 60 bps 450 bps 60 bps 140 bps 170 bps
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Full Year 2016 vs Full Year 2015 Favorable/(Unfavorable)
Operating
Revenue		 Automotive
OEM		 Food
Equipment 		Test &
Measurement
and
Electronics		 Welding Polymers &
Fluids		 Construction
Products		 Specialty
Products		 Total
ITW
Organic 5.1 % 2.8 % 1.8 % (9.1 )% 1.3 % 3.0 % 1.2 % 1.2 %
Acquisitions/
Divestitures 		9.7 % - % - % - % (0.2 )% (0.2 )% (0.1 )% 1.7 %
Translation (1.5 )% (2.1 )% (1.5 )% (0.9 )% (2.3 )% (1.4 )% (1.1 )% (1.5 )%
Operating Revenue 13.3 % 0.7 % 0.3 % (10.0 )% (1.2 )% 1.4 % - % 1.4 %
Full Year 2016 vs Full Year 2015 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 80 bps 60 bps 60 bps (190) bps 30 bps 80 bps 30 bps 30 bps
Changes in Variable Margin & OH Costs 50 bps 80 bps 190 bps 210 bps 40 bps 180 bps 200 bps 110 bps
Total Organic 130 bps 140 bps 250 bps 20 bps 70 bps 260 bps 230 bps 140 bps
Acquisitions/
Divestitures 		(160) bps - - - - - 10 bps (30) bps
Restructuring/Other 20 bps 30 bps 10 bps (50) bps - (10) bps (10) bps -
Total Operating Margin Change (10) bps 170 bps 260 bps (30) bps 70 bps 250 bps 230 bps 110 bps
Total Operating Margin % * 24.1 % 25.4 % 18.9 % 24.9 % 20.3 % 22.4 % 25.6 % 22.5 %
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 80 bps 380 bps 80 bps 430 bps 60 bps 150 bps 170 bps
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Full Year 2015 vs Full Year 2014 Favorable/(Unfavorable)
Operating
Revenue		 Automotive
OEM		 Food
Equipment		 Test &
Measurement
and Electronics 		Welding Polymers &
Fluids		 Construction
Products		 Specialty
Products		 Total
ITW
Organic 5.8 % 3.4 % (5.2 )% (7.6 )% (2.0 )% 3.7 % (2.3 )% (0.4 )%
Acquisitions/
Divestitures 		(0.2 )% - % - % (0.1 )% (1.0 )% (0.5 )% - % (0.2 )%
Translation (8.0 )% (7.1 )% (5.5 )% (3.1 )% (8.2 )% (10.2 )% (6.0 )% (6.8 )%
Operating Revenue (2.4 )% (3.7 )% (10.7 )% (10.8 )% (11.2 )% (7.0 )% (8.3 )% (7.4 )%
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended Twelve Months Ended
December 31, December 31,
Dollars in millions 2016 2015 2016 2015 2012
Operating income $ 742 $ 679 $ 3,064 $ 2,867 $ 2,475
Adjustment for Decorative Surfaces - - - - (143 )
Adjusted operating income 742 679 3,064 2,867 2,332
Tax rate (as adjusted for discrete charge in 4Q 2012) 30.0 % 29.0 % 30.0 % 30.1 % 29.2 %
Income taxes (222 ) (196 ) (919 ) (864 ) (681 )
Operating income after taxes $ 520 $ 483 $ 2,145 $ 2,003 $ 1,651
Invested capital:
Trade receivables $ 2,357 $ 2,203 $ 2,357 $ 2,203 $ 2,742
Inventories 1,076 1,086 1,076 1,086 1,585
Net plant and equipment 1,652 1,577 1,652 1,577 1,994
Goodwill and intangible assets 6,021 5,999 6,021 5,999 7,788
Accounts payable and accrued expenses (1,713 ) (1,585 ) (1,713 ) (1,585 ) (2,068 )
Other, net 223 280 223 280 773
Total invested capital $ 9,616 $ 9,560 $ 9,616 $ 9,560 $ 12,814
Average invested capital $ 9,902 $ 9,709 $ 9,780 $ 9,943 $ 13,140
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) (59 ) (118 ) (91 ) (123 ) (274 )
Adjusted for Industrial Packaging - - - - (1,504 )
Adjusted average invested capital $ 9,843 $ 9,591 $ 9,689 $ 9,820 $ 11,362
Adjusted return on average invested capital 21.1 % 20.1 % 22.1 % 20.4 % 14.5 %

A reconciliation of the 2012 effective tax rate to the adjusted tax rate excluding the discrete tax charge is as follows:

Twelve Months Ended
Dollars in millions December 31, 2012
Income Taxes Tax Rate
As reported $ 973 30.3 %
Discrete tax charge (36 ) (1.1 )%
As adjusted $ 937 29.2 %
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
FREE CASH FLOW (UNAUDITED)
Three Months Ended Twelve Months Ended
December 31, December 31,
Dollars in millions 2016 2015 2016 2015
Net cash provided by operating activities $ 664 $ 703 $ 2,302 $ 2,299
Less: Additions to plant and equipment (71 ) (75 ) (273 ) (284 )
Free cash flow $ 593 $ 628 $ 2,029 $ 2,015
Net income $ 507 $ 450 $ 2,035 $ 1,899
Free cash flow to net income conversion rate 117 % 140 % 100 % 106 %
2012 ADJUSTED INCOME PER SHARE FROM CONTINUING OPERATIONS - DILUTED (UNAUDITED)
Twelve Months Ended
December 31, 2012
As reported $ 4.72
Decorative Surfaces net gain 1.34
Decorative Surfaces equity interest (0.04 )
Decorative Surfaces operating results 0.21
As adjusted for the Decorative Surfaces business $ 3.21
2016 ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)
Three Months Ended
December 31, 2016
As reported $ 1.45
Gain related to Wilsonart dividend (0.10 )
Loss related to divestitures 0.04
As adjusted $ 1.39 
Contact: Mike Drazin 224.661.7433 or mdrazin@itw.com

Source: Illinois Tool Works

Illinois Tool Works Inc. published this content on 25 January 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 10 February 2017 17:08:05 UTC.

Original documenthttp://investor.itw.com/investor-information/news-releases/2017/01-25-2017-130243560

Public permalinkhttp://www.publicnow.com/view/62FA2CFCFBE8051C1719B17CD0C367A4F6B56DC2