EPS Forecast
Revenue Forecast
EX-99.1
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a20220331-1q22ex991pressre.htm
EX-99.1
Document
Exhibit 99.1
ITW Reports First Quarter 2022 Results
•Total revenue of $3.9 billion; organic growth of 11%
•GAAP EPS of $2.11 including $(0.05) of unfavorable foreign currency translation impact
•Operating margin of 22.7%; 23.4% excluding 70 bps of margin dilution from the acquisition of MTS
•Raising guidance for GAAP EPS to $9.00 to $9.40 per share and organic revenue growth to 7 to 10%
GLENVIEW, IL., May 3, 2022 - Illinois Tool Works Inc. (NYSE: ITW) today reported its first quarter 2022 results.
“In what remains a challenging and dynamic environment, our ITW business teams around the world continue to do an exceptional job of leveraging the performance power of the ITW Business Model and our advantaged supply position to support our customers and execute our ‘Win the Recovery’ strategy to accelerate profitable market penetration and organic growth across our portfolio,” said E. Scott Santi, Chairman and Chief Executive Officer. “Our first quarter results reflect continued strong momentum in this regard, and we remain well-positioned to seize the opportunities and respond to the challenges that lie ahead as we move through the balance of 2022.”
First Quarter 2022 Results
First quarter revenue grew 11.2 percent to $3.9 billion with organic growth of 10.6 percent. The acquisition of MTS contributed 2.8 percent to revenue. Foreign currency translation impact reduced revenue by 2.2 percent. Six of seven segments delivered positive organic growth, led by Food Equipment up 28 percent, Construction Products up 21 percent, Welding and Polymers & Fluids both up 13 percent, Test & Measurement and Electronics up eight percent, and Specialty Products up one percent. Organic revenue was down one percent in Automotive OEM due to automotive production limitations related to component supply shortages.
GAAP EPS was $2.11, including $(0.05) of unfavorable foreign currency translation impact. Operating margin was 23.4 percent, excluding 70 basis points of margin dilution impact from the acquisition of MTS. Enterprise initiatives contributed 90 basis points. While pricing actions more than offset raw material cost increases on a dollar-for-dollar basis, the impact of price/cost reduced margin percentage by 250 basis points. Operating cash flow was $323 million, and free cash flow was $249 million with a conversion of 38 percent of net income due to higher working capital investments to support double digit revenue growth and increased inventory levels to help mitigate supply chain risk and sustain customer service levels. The company repurchased $375 million of its own shares, and the effective tax rate for the quarter was 23.1 percent.
2022 Guidance
Based on the company’s first quarter results and projecting current levels of demand through the balance of the year, ITW is raising its full-year organic growth guidance to seven to 10 percent and full-year revenue growth guidance to 8.5 to 11.5 percent. The acquisition of MTS is expected to add three percent to revenue. Foreign currency translation is expected to reduce revenue by 1.5 percent. The company is also raising its full-year GAAP EPS guidance to $9.00 to $9.40 per share, an increase of 11 to 16 percent versus prior year excluding the impact of favorable one-time tax items in 2021. Operating margin is expected to expand to 24 to 25 percent, with enterprise initiatives contributing 100 basis points. The margin dilution impact from the acquisition of MTS and price/cost are expected to be 50 and 100 basis points, respectively. Free cash flow is expected to grow 10 to 20 percent year-over-year with a conversion rate of 85 to 95 percent of net income. The company is on pace to repurchase $1.5 billion of its own shares, and the effective tax rate is expected to be 23 to 24 percent.
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.
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 the duration and potential effects of the COVID-19 pandemic and global supply chain challenges, related government actions and the company’s strategy in response thereto on the company’s business, expected impact of raw material inflation, 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, diluted income per share, restructuring expenses and related benefits, expected dividend payments,
expected repatriation of overseas cash, 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, potential acquisitions and divestitures and related impact on financial results, including statements with respect to the impact of the 2021 acquisition of the MTS Test & Simulation business, and the company’s 2022 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 2021.
About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.5 billion in 2021. 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 45,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| In millions except per share amounts | 2022 | 2021 | |||||||||
| Operating Revenue | $ | 3,939 | $ | 3,544 | |||||||
| Cost of revenue | 2,357 | 2,039 | |||||||||
| Selling, administrative, and research and development expenses | 652 | 566 | |||||||||
| Amortization and impairment of intangible assets | 35 | 34 | |||||||||
| Operating Income | 895 | 905 | |||||||||
| Interest expense | (48) | (52) | |||||||||
| Other income (expense) | 14 | 12 | |||||||||
| Income Before Taxes | 861 | 865 | |||||||||
| Income Taxes | 199 | 194 | |||||||||
| Net Income | $ | 662 | $ | 671 | |||||||
| Net Income Per Share: | |||||||||||
| Basic | $ | 2.12 | $ | 2.12 | |||||||
| Diluted | $ | 2.11 | $ | 2.11 | |||||||
| Cash Dividends Per Share: | |||||||||||
| Paid | $ | 1.22 | $ | 1.14 | |||||||
| Declared | $ | 1.22 | $ | 1.14 | |||||||
| Shares of Common Stock Outstanding During the Period: | |||||||||||
| Average | 312.5 | 316.6 | |||||||||
| Average assuming dilution | 313.7 | 317.9 | |||||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
| In millions | March 31, 2022 | December 31, 2021 | |||||||||
| Assets | |||||||||||
| Current Assets: | |||||||||||
| Cash and equivalents | $ | 1,296 | $ | 1,527 | |||||||
| Trade receivables | 3,126 | 2,840 | |||||||||
| Inventories | 1,883 | 1,694 | |||||||||
| Prepaid expenses and other current assets | 377 | 313 | |||||||||
| Total current assets | 6,682 | 6,374 | |||||||||
| Net plant and equipment | 1,795 | 1,809 | |||||||||
| Goodwill | 5,008 | 4,965 | |||||||||
| Intangible assets | 875 | 972 | |||||||||
| Deferred income taxes | 546 | 552 | |||||||||
| Other assets | 1,380 | 1,405 | |||||||||
| $ | 16,286 | $ | 16,077 | ||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current Liabilities: | |||||||||||
| Short-term debt | $ | 1,041 | $ | 778 | |||||||
| Accounts payable | 696 | 585 | |||||||||
| Accrued expenses | 1,541 | 1,648 | |||||||||
| Cash dividends payable | 380 | 382 | |||||||||
| Income taxes payable | 200 | 77 | |||||||||
| Total current liabilities | 3,858 | 3,470 | |||||||||
| Noncurrent Liabilities: | |||||||||||
| Long-term debt | 6,817 | 6,909 | |||||||||
| Deferred income taxes | 627 | 654 | |||||||||
| Noncurrent income taxes payable | 365 | 365 | |||||||||
| Other liabilities | 1,037 | 1,053 | |||||||||
| Total noncurrent liabilities | 8,846 | 8,981 | |||||||||
| Stockholders’ Equity: | |||||||||||
| Common stock | 6 | 6 | |||||||||
| Additional paid-in-capital | 1,447 | 1,432 | |||||||||
| Retained earnings | 24,607 | 24,325 | |||||||||
| Common stock held in treasury | (21,008) | (20,636) | |||||||||
| Accumulated other comprehensive income (loss) | (1,471) | (1,502) | |||||||||
| Noncontrolling interest | 1 | 1 | |||||||||
| Total stockholders’ equity | 3,582 | 3,626 | |||||||||
| $ | 16,286 | $ | 16,077 | ||||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended March 31, 2022 | |||||||||||
| Dollars in millions | Total Revenue | Operating Income | Operating Margin | ||||||||
| Automotive OEM | $ | 760 | $ | 138 | 18.1 | % | |||||
| Food Equipment | 566 | 126 | 22.3 | % | |||||||
| Test & Measurement and Electronics | 685 | 149 | 21.8 | % | |||||||
| Welding | 450 | 139 | 30.8 | % | |||||||
| Polymers & Fluids | 481 | 118 | 24.5 | % | |||||||
| Construction Products | 551 | 136 | 24.7 | % | |||||||
| Specialty Products | 452 | 120 | 26.6 | % | |||||||
| Intersegment | (6) | — | — | % | |||||||
| Total Segments | 3,939 | 926 | 23.5 | % | |||||||
| Unallocated | — | (31) | — | % | |||||||
| Total Company | $ | 3,939 | $ | 895 | 22.7 | % | |||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| Q1 2022 vs. Q1 2021 Favorable/(Unfavorable) | ||||||||||||||||||||||||||
| Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||||||||||||
| Organic | (0.7) | % | 28.2 | % | 7.9 | % | 12.9 | % | 12.8 | % | 21.3 | % | 0.6 | % | 10.6 | % | ||||||||||
| Acquisitions/Divestitures | — | % | — | % | 18.1 | % | — | % | — | % | — | % | — | % | 2.8 | % | ||||||||||
| Translation | (2.2) | % | (2.9) | % | (2.0) | % | (0.7) | % | (2.3) | % | (3.9) | % | (1.7) | % | (2.2) | % | ||||||||||
| Operating Revenue | (2.9) | % | 25.3 | % | 24.0 | % | 12.2 | % | 10.5 | % | 17.4 | % | (1.1) | % | 11.2 | % | ||||||||||
| Q1 2022 vs. Q1 2021 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 | (10) bps | 560 bps | 160 bps | 180 bps | 240 bps | 310 bps | 10 bps | 200 bps | ||||||||||||||||||
| Changes in Variable Margin & OH Costs | (480) bps | (440) bps | (420) bps | (120) bps | (360) bps | (620) bps | (140) bps | (390) bps | ||||||||||||||||||
| Total Organic | (490) bps | 120 bps | (260) bps | 60 bps | (120) bps | (310) bps | (130) bps | (190) bps | ||||||||||||||||||
| Acquisitions/Divestitures | — | — | (420) bps | — | — | — | — | (70) bps | ||||||||||||||||||
| Restructuring/Other | (110) bps | (10) bps | 20 bps | (10) bps | — | 20 bps | 30 bps | (20) bps | ||||||||||||||||||
| Total Operating Margin Change | (600) bps | 110 bps | (660) bps | 50 bps | (120) bps | (290) bps | (100) bps | (280) bps | ||||||||||||||||||
| Total Operating Margin % * | 18.1% | 22.3% | 21.8% | 30.8% | 24.5% | 24.7% | 26.6% | 22.7% | ||||||||||||||||||
| *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 40 bps | 60 bps | 200 bps | 20 bps | 220 bps | 10 bps | 70 bps | 90 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 2022. | ||||||||||||||||||||||||||
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 | 2022 | 2021 | |||||||||
| Numerator: | |||||||||||
| Net Income | $ | 662 | $ | 671 | |||||||
Interest expense, net of tax (1) | 37 | 40 | |||||||||
Other (income) expense, net of tax (1) | (11) | (9) | |||||||||
| Operating income after taxes | $ | 688 | $ | 702 | |||||||
| Denominator: | |||||||||||
| Invested capital: | |||||||||||
| Cash and equivalents | $ | 1,296 | $ | 2,484 | |||||||
| Trade receivables | 3,126 | 2,662 | |||||||||
| Inventories | 1,883 | 1,292 | |||||||||
| Net plant and equipment | 1,795 | 1,746 | |||||||||
| Goodwill and intangible assets | 5,883 | 5,379 | |||||||||
| Accounts payable and accrued expenses | (2,237) | (1,850) | |||||||||
| Debt | (7,858) | (7,949) | |||||||||
| Other, net | (306) | (488) | |||||||||
| Total net assets (stockholders' equity) | 3,582 | 3,276 | |||||||||
| Cash and equivalents | (1,296) | (2,484) | |||||||||
| Debt | 7,858 | 7,949 | |||||||||
| Total invested capital | $ | 10,144 | $ | 8,741 | |||||||
Average invested capital (2) | $ | 9,966 | $ | 8,740 | |||||||
Net income to average invested capital (3) | 26.6 | % | 30.7 | % | |||||||
After-tax return on average invested capital (3) | 27.6 | % | 32.1 | % | |||||||
(1) Effective tax rate used for interest expense and other (income) expense for the three months ended March 31, 2022 and 2021 was 23.1% and 22.4%, 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, 2022 and 2021 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, 2021 | ||||
| Numerator: | |||||
| Net income | $ | 2,694 | |||
| Discrete tax benefit related to the third quarter 2021 | (21) | ||||
| Discrete tax benefit related to the second quarter 2021 | (112) | ||||
Interest expense, net of tax (1) | 157 | ||||
Other (income) expense, net of tax (1) | (40) | ||||
| Operating income after taxes | $ | 2,678 | |||
| Denominator: | |||||
| Invested capital: | |||||
| Cash and equivalents | $ | 1,527 | |||
| Trade receivables | 2,840 | ||||
| Inventories | 1,694 | ||||
| Net plant and equipment | 1,809 | ||||
| Goodwill and intangible assets | 5,937 | ||||
| Accounts payable and accrued expenses | (2,233) | ||||
| Debt | (7,687) | ||||
| Other, net | (261) | ||||
| Total net assets (stockholders' equity) | 3,626 | ||||
| Cash and equivalents | (1,527) | ||||
| Debt | 7,687 | ||||
| Total invested capital | $ | 9,786 | |||
Average invested capital (2) | $ | 9,087 | |||
| Net income to average invested capital | 29.6 | % | |||
| After-tax return on average invested capital | 29.5 | % | |||
(1) Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2021 was 23.0%.
(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 2021 effective tax rate excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital losses and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate is as follows:
| Twelve Months Ended | |||||||||||
| December 31, 2021 | |||||||||||
| Dollars in millions | Income Taxes | Tax Rate | |||||||||
| As reported | $ | 632 | 19.0 | % | |||||||
| Discrete tax benefit related to the third quarter 2021 | 21 | 0.6 | % | ||||||||
| Discrete tax benefit related to the second quarter 2021 | 112 | 3.4 | % | ||||||||
| As adjusted | $ | 765 | 23.0 | % | |||||||
FREE CASH FLOW (UNAUDITED)
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| Dollars in millions | 2022 | 2021 | |||||||||
| Net cash provided by operating activities | $ | 323 | $ | 609 | |||||||
| Less: Additions to plant and equipment | (74) | (68) | |||||||||
| Free cash flow | $ | 249 | $ | 541 | |||||||
| Net income | $ | 662 | $ | 671 | |||||||
| Net cash provided by operating activities to net income conversion rate | 49 | % | 91 | % | |||||||
| Free cash flow to net income conversion rate | 38 | % | 81 | % | |||||||
ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)
| Twelve Months Ended | |||||
| December 31, 2021 | |||||
| As reported | $ | 8.51 | |||
| Discrete tax benefit related to the third quarter 2021 | (0.07) | ||||
| Discrete tax benefit related to the second quarter 2021 | (0.35) | ||||
| As adjusted | $ | 8.09 | |||