ITW Reports Fourth-Quarter and Full-Year 2016 Results
Delivers 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
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