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ITW Reports First Quarter 2023 Results
Source: Nasdaq GlobeNewswire / 02 May 2023 08:00:02 America/New_York
- Revenue of $4.0 billion, an increase of 2% with organic growth of 5%
- Operating income of $972 million, an increase of 9%
- Operating margin of 24.2%, an increase of 150 bps
- GAAP EPS of $2.33, an increase of 10%
- Raising full year GAAP EPS guidance by $0.05 to a range of $9.45 to $9.85 per share
GLENVIEW, Ill., May 02, 2023 (GLOBE NEWSWIRE) -- - Illinois Tool Works Inc. (NYSE: ITW) today reported its first quarter 2023 results.
“The ITW team delivered a solid start to the year with organic growth of five percent, operating margin expansion of 150 basis points, strong free cash flow, and double-digit EPS growth as we continue to demonstrate the performance power of our proprietary business model and the resilience of our diversified high-quality business portfolio,” said E. Scott Santi, Chairman and Chief Executive Officer. “While the near-term economic outlook continues to be uncertain, I am confident that ITW remains well positioned to deliver best-in-class performance in any environment.”
First Quarter 2023 Results
First quarter revenue of $4.0 billion increased two percent with organic revenue growth of five percent. Foreign currency translation impact and divestitures combined reduced revenue by three percent.GAAP EPS increased 10 percent to $2.33, a new first quarter record, and included $0.06 of unfavorable foreign currency translation impact. Operating income increased nine percent to $972 million. Operating margin of 24.2 percent improved 150 basis points with enterprise initiatives contributing 100 basis points. Operating cash flow was $728 million, and free cash flow was $615 million, an increase of 147 percent, with a conversion rate to net income of 86 percent. The company repurchased $375 million of its own shares and the effective tax rate was 22.6 percent.
2023 Guidance
The company is raising its full-year GAAP EPS guidance to $9.45 to $9.85 per share which incorporates a projected lower tax rate for the full year in the range of 23.5 to 24 percent. This compares to previous guidance of $9.40 to $9.80 per share. The organic growth projection of three to five percent reflects current levels of demand and a risk adjustment for further slowing in certain end markets. Foreign currency translation impact and divestitures combined are expected to reduce revenue by one percent, resulting in total revenue growth of two to four percent. This compares to previous guidance of 1.5 to 3.5 percent. Operating margin is projected to be in the range of 24.5 to 25.5 percent, with approximately 100 basis points contribution from enterprise initiatives. Free cash flow is projected to be greater than 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares.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 global supply chain challenges, 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, statements regarding diluted income per share, restructuring expenses and related benefits, expected dividend payments, 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, the impact of recent or potential acquisitions and/or divestitures, and the Company’s 2023 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 2022.About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenue of $15.9 billion in 2022. 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 46,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.comILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF INCOME (UNAUDITED) Three Months Ended March 31, In millions except per share amounts 2023 2022 Operating Revenue $ 4,019 $ 3,939 Cost of revenue 2,341 2,357 Selling, administrative, and research and development expenses 675 652 Amortization and impairment of intangible assets 31 35 Operating Income 972 895 Interest expense (60 ) (48 ) Other income (expense) 10 14 Income Before Taxes 922 861 Income taxes 208 199 Net Income $ 714 $ 662 Net Income Per Share: Basic $ 2.34 $ 2.12 Diluted $ 2.33 $ 2.11 Cash Dividends Per Share: Paid $ 1.31 $ 1.22 Declared $ 1.31 $ 1.22 Shares of Common Stock Outstanding During the Period: Average 305.0 312.5 Average assuming dilution 306.1 313.7 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (UNAUDITED) In millions March 31, 2023 December 31, 2022 Assets Current Assets: Cash and equivalents $ 1,143 $ 708 Trade receivables 3,201 3,171 Inventories 2,000 2,054 Prepaid expenses and other current assets 334 329 Assets held for sale 10 8 Total current assets 6,688 6,270 Net plant and equipment 1,885 1,848 Goodwill 4,884 4,864 Intangible assets 738 768 Deferred income taxes 503 494 Other assets 1,223 1,178 $ 15,921 $ 15,422 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 2,870 $ 1,590 Accounts payable 599 594 Accrued expenses 1,504 1,728 Cash dividends payable 398 400 Income taxes payable 224 147 Liabilities held for sale 1 1 Total current liabilities 5,596 4,460 Noncurrent Liabilities: Long-term debt 5,510 6,173 Deferred income taxes 477 484 Noncurrent income taxes payable 273 273 Other liabilities 964 943 Total noncurrent liabilities 7,224 7,873 Stockholders' Equity: Common stock 6 6 Additional paid-in-capital 1,526 1,501 Retained earnings 26,115 25,799 Common stock held in treasury (22,743 ) (22,377 ) Accumulated other comprehensive income (loss) (1,804 ) (1,841 ) Noncontrolling interest 1 1 Total stockholders' equity 3,101 3,089 $ 15,921 $ 15,422 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES SEGMENT DATA (UNAUDITED) Three Months Ended March 31, 2023 Dollars in millions Total Revenue Operating Income Operating Margin Automotive OEM $ 796 $ 128 16.1 % Food Equipment 635 169 26.7 % Test & Measurement and Electronics 703 172 24.5 % Welding 493 157 31.9 % Polymers & Fluids 447 109 24.4 % Construction Products 526 145 27.5 % Specialty Products 423 109 25.6 % Intersegment (4 ) — — % Total Segments 4,019 989 24.6 % Unallocated — (17 ) — % Total Company $ 4,019 $ 972 24.2 % ILLINOIS TOOL WORKS INC. and SUBSIDIARIES SEGMENT DATA (UNAUDITED) Q1 2023 vs. Q1 2022 Favorable/(Unfavorable) Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW Organic 7.9% 16.0% 5.6% 10.2% (0.1)% (1.4)% (5.0)% 5.2% Acquisitions/
Divestitures—% (1.2)% —% —% (4.5)% —% —% (0.7)% Translation (3.2)% (2.5)% (3.0)% (0.6)% (2.4)% (3.2)% (1.4)% (2.5)% Operating Revenue 4.7% 12.3% 2.6% 9.6% (7.0)% (4.6)% (6.4)% 2.0% Q1 2023 vs. Q1 2022 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 150 bps 300 bps 130 bps 140 bps — (20) bps (100) bps 100 bps Changes in Variable Margin & OH Costs (430) bps 130 bps 140 bps (40) bps (10) bps 310 bps (10) bps 40 bps Total Organic (280) bps 430 bps 270 bps 100 bps (10) bps 290 bps (110) bps 140 bps Acquisitions/
Divestitures— 20 bps — — 40 bps — — 10 bps Restructuring/Other 80 bps (10) bps — 10 bps (40) bps (10) bps 10 bps — Total Operating Margin Change (200) bps 440 bps 270 bps 110 bps (10) bps 280 bps (100) bps 150 bps Total Operating Margin % * 16.1% 26.7% 24.5% 31.9% 24.4% 27.5% 25.6% 24.2% * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 50 bps 180 bps 10 bps 210 bps 20 bps 70 bps 80 bps ** ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the first quarter of 2023. ILLINOIS TOOL WORKS INC. and SUBSIDIARIES GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED) AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED) Three Months Ended March 31, Dollars in millions 2023 2022 Numerator: Net income $ 714 $ 662 Interest expense, net of tax (1) 46 37 Other (income) expense, net of tax (1) (8 ) (11 ) Operating income after taxes $ 752 $ 688 Denominator: Invested capital: Cash and equivalents $ 1,143 $ 1,296 Trade receivables 3,201 3,126 Inventories 2,000 1,883 Net assets held for sale 9 — Net plant and equipment 1,885 1,795 Goodwill and intangible assets 5,622 5,883 Accounts payable and accrued expenses (2,103 ) (2,237 ) Debt (8,380 ) (7,858 ) Other, net (276 ) (306 ) Total net assets (stockholders' equity) 3,101 3,582 Cash and equivalents (1,143 ) (1,296 ) Debt 8,380 7,858 Total invested capital $ 10,338 $ 10,144 Average invested capital(2) $ 10,241 $ 9,966 Net income to average invested capital(3) 27.9 % 26.6 % After-tax return on average invested capital(3) 29.4 % 27.6 % (1) Effective tax rate used for interest expense and other (income) expense for the three months ended March 31, 2023 and 2022 was 22.6% and 23.1%, respectively.
(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of the periods presented.
(3) Returns for the three months ended March 31, 2023 and 2022 were converted to an annual rate by multiplying the calculated return by 4.
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED) Twelve Months Ended Dollars in millions December 31, 2022 Numerator: Net income $ 3,034 Discrete tax benefit related to the fourth quarter 2022 (32 ) Discrete tax benefit related to the second quarter 2022 (51 ) Interest expense, net of tax(1) 156 Other (income) expense, net of tax(1) (196 ) Operating income after taxes $ 2,911 Denominator: Invested capital: Cash and equivalents $ 708 Trade receivables 3,171 Inventories 2,054 Net assets held for sale 7 Net plant and equipment 1,848 Goodwill and intangible assets 5,632 Accounts payable and accrued expenses (2,322 ) Debt (7,763 ) Other, net (246 ) Total net assets (stockholders' equity) 3,089 Cash and equivalents (708 ) Debt 7,763 Total invested capital $ 10,144 Average invested capital(2) $ 10,017 Net income to average invested capital 30.3 % After-tax return on average invested capital 29.1 % (1) Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2022 was 23.2%.
(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 2022 effective tax rate excluding the fourth quarter 2022 discrete tax benefit of $32 million related to the utilization of capital loss carryforwards and the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a U.S. tax audit is as follows:
Twelve Months Ended December 31, 2022 Dollars in millions Income Taxes Tax Rate As reported $ 808 21.0 % Discrete tax benefit related to the fourth quarter 2022 32 0.8 % Discrete tax benefit related to the second quarter 2022 51 1.4 % As adjusted $ 891 23.2 % FREE CASH FLOW (UNAUDITED) Three Months Ended March 31, Dollars in millions 2023 2022 Net cash provided by operating activities $ 728 $ 323 Less: Additions to plant and equipment (113 ) (74 ) Free cash flow $ 615 $ 249 Net income $ 714 $ 662 Net cash provided by operating activities to net income conversion rate 102 % 49 % Free cash flow to net income conversion rate 86 % 38 % ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED) Twelve Months Ended December 31, 2022 As reported $ 9.77 Net impact of gains from two divestitures in the fourth quarter 2022 (0.60 ) As adjusted $ 9.17 ITW ITW Media Contact Investor Relations Tel: 224.661.7451 Karen Fletcher mediarelations@itw.com Tel: 224.661.7433 investorrelations@itw.com