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Illinois Tool Works: Itw Reports First Quarter 2016 Financial Results

The following excerpt is from the company's SEC filing.

GAAP EPS of $1.29 up 7 percent, up 10 percent excluding currency

Operating margin of 22.1 percent, up 120 basis points driven by ITW’s Enterprise Initiatives

Organic revenue grew 1 percent, 2 percent excluding Product Line Simplification

Raising full-year 2016 guidance by $0.05 at the mid-point

GLENVIEW, Ill., April 20, 2016 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported first quarter 2016 diluted earnings per share (EPS) of $1.29, a 7 percent increase compared to the year-ago period. Operating margin increased 120 basis points to 22.1 percent and organic revenue increased 1 percent. The company’s ongoing Product Line Simplification (PLS) activities reduced organic revenue growth by 1 percentage-point.

"We are pleased with ITW’s strong start to 2016,” said E. Scott Santi, Chairman and Chief Executive Officer. "In a challenging environment, the company continued to deliver meaningful improvement in all of our key performance metrics: organic growth, EPS, operating margin, return on invested capital, and free cash flow. Consistent with our strategy, we continue to execute the steps necessary to position the company to deliver solid above-market organic growth with best-in-class margins and returns. In the current economic environment and over the long-term, ITW’s unique business model and our proven track record of operational execution position us very well for continued differentiated performance.”

First Quarter Highlights

GAAP EPS increased 7 percent to $1.29. Excluding $(0.04) impact from foreign currency translation, EPS would have been up 10 percent.

Operating margin increased 120 basis points to a first quarter record of 22.1 percent as Enterprise Initiatives contributed 130 basis points.

Organic revenue grew 1 percent as North America grew 2 percent and International declined 1 percent. Consumer-facing businesses grew 3 percent and Industrial-facing businesses declined 3 percent. Total revenue was $3.3 billion, a decline of 2 percent due to the impact of foreign currency.

After-tax return on invested capital improved 180 basis points to a first quarter record of 21.2 percent.

Free cash flow conversion was 90 percent.

Five of seven segments achieved positive organic revenue growth as Construction Products grew 5 percent, Automotive OEM, Food Equipment, and Specialty Products all grew 3 percent, and Polymers and Fluids 1 percent. Welding and Test & Measurement Electronics declined by 9 and 2 percent, respectively.

Six of seven segments increased operating margin with Automotive OEM up 140 basis points to 26.4 percent, Food Equipment up 190 basis points to 24.5 percent, Test & Measurement Electronics up 80 basis points to 15.5 percent, Polymers & Fluids up 20 basis points to 20.2 percent, Construction Products up 440 basis points to 21.0 percent, and Specialty Products up 350 basis points to 26.1 percent. Welding declined 300 basis points to 23.9 percent.

2016 Guidance

The company is raising its 2016 full-year GAAP EPS guidance range by $0.05 to $5.40 to $5.60, which represents a 7 percent increase at the mid-point. The organic revenue growth forecast is unchanged at 1 to 3 percent and includes approximately 1 percentage-point of PLS impact. Operating margin is now projected to exceed 22.5 percent, an increase of more than 100 basis points. Enterprise Initiatives are expected to improve operating margin by more than 100 basis points.

For the second quarter 2016, the company expects GAAP EPS to be in a range of $1.34 to $1.44, an increase of 7 percent at the mid-point, and operating margin to be approximately 22.5 percent. Organic revenue is forecast to be flat to up 2 percent.

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 and after-tax return on invested capital. 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.

About ITW

ITW (NYSE:ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $13.4 billion in 2015. 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 nearly 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

March 31,

In millions except per share amounts

Operating Revenue

Cost of revenue

Selling, administrative, and research and development expenses

Amortization and impairment of intangible assets

Operating Income

Interest expense

Other income (expense)

Income Before Taxes

Income Taxes

Net Income

Net Income Per Share:

Diluted

Shares of Common Stock Outstanding During the Period:

Average

Average assuming dilution

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

December 31, 2015

Assets

Current Assets:

Cash and equivalents

Trade receivables

Inventories

Prepaid expenses and other current assets

Total current assets

Net plant and equipment

Goodwill

Intangible assets

Deferred income taxes

Other assets

15,437

15,729

Liabilities and Stockholders' Equity

Current Liabilities:

Short-term debt

Accounts payable

Accrued expenses

Cash dividends payable

Income taxes payable

Total current liabilities

Noncurrent Liabilities:

Long-term debt

Other liabilities

Total noncurrent liabilities

Stockholders’ Equity:

Common stock

Additional paid-in-capital

Income reinvested in the business

18,586

18,316

Common stock held in treasury

(13,183

(12,729

Accumulated other comprehensive income (loss)

(1,332

(1,504

Noncontrolling interest

Total stockholders’ equity

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Twelve Months Ended

March 31,

Dollars in millions

Operating income

Tax rate

Operating income after taxes

Invested capital:

Goodwill and intangible assets

Accounts payable and accrued expenses

(1,611

(1,752

(1,585

Other, net

Total invested capital

Average invested capital

10,039

Adjustment for Wilsonart (formerly the Decorative Surfaces segment)

Adjusted average invested capital

Adjusted return on average invested capital

FREE CASH FLOW (UNAUDITED)

Net cash provided by operating activities

Less: Additions to plant and equipment

Net income

Free cash flow to net income conversion rate

SEGMENT DATA (UNAUDITED)

Three Months Ended March 31, 2016

Total Revenue

Operating Margin

Test & Measurement and Electronics

Intersegment

Total Segments

Unallocated

Total Company

Q1 2016 vs. Q1 2015 Favorable/(Unfavorable)

Total ITW

Divestitures

Translation

Change in Operating Margin

Operating Leverage

30 bps

70 bps

(60) bps

(150) bps

20 bps

130 bps

80 bps

Changes in Variable Margin & OH Costs

100 bps

110 bps

140 bps

(20) bps

(40) bps

190 bps

210 bps

Total Organic

180 bps

(170) bps

320 bps

290 bps

Restructuring/Other

(130) bps

120 bps

60 bps

Total Operating Margin Change

(300) bps

440 bps

350 bps

Total Operating Margin % *

*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets

420 bps

150 bps

170 bps

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Illinois Tool Works: Form, Schedule Or Registration Statement No Filing Party: Date Filed: SEC 1913 (11-01) - April 18, 2016
Illinois Tool Works: Form, Schedule Or Registration Statement No Filing Party: Date Filed: - March 23, 2016
Other definitive proxy statements - March 23, 2016