ITW Reports Second Quarter 2024 Results

- NYSE Companies
  0
  • Revenue of $4.0 billion, a decrease of 1% with flat organic growth
  • Operating income of $1.05 billion, an increase of 4.5%
  • Operating margin of 26.2%, an increase of 140 bps as enterprise initiatives contributed 140 bps
  • GAAP EPS of $2.54, an increase of 2%; Excl. a one-time 2023 tax item, EPS increased 5%
  • Narrowing full year GAAP EPS guidance to a range of $10.30 to $10.40 per share

GLENVIEW, Ill., July 30, 2024 (GLOBE NEWSWIRE) — Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2024 results and updated guidance for full-year 2024.

“While the demand environment continued to moderate across our portfolio, we delivered a solid quarter with strong operational execution and profitability,” said Christopher A. O’Herlihy, President and Chief Executive Officer. “Our ability to overcome near-term macro challenges and expand our margin and profitability to record levels as evidenced by margin improvement of 140 basis points to 26.2 percent and EPS growth of more than five percent, is a direct result of the focused execution by our team of dedicated ITW professionals around the world.”

“Looking ahead, we are lowering the top-end of our full year GAAP EPS guidance to reflect current levels of demand partially offset by better margin performance. We remain focused on managing and investing for the long-term as we build above-market organic growth, fueled by customer-back innovation, into a core ITW strength,” O’Herlihy concluded.

Second Quarter 2024 Results
Second quarter revenue of $4.0 billion declined by 1.2 percent as organic growth declined 0.1 percent. Foreign currency translation impact reduced revenue by 1.2 percent and acquisitions added 0.1 percent.

GAAP EPS increased 2.4 percent to $2.54 and excluding a one-time tax item in 2023, EPS increased 5.4 percent. Operating income increased 4.5 percent to $1.05 billion, a second quarter record. Operating margin improved 140 basis points to 26.2 percent, a second quarter record, as enterprise initiatives contributed 140 basis points. Operating cash flow was $687 million, and free cash flow was $571 million with a conversion of 75 percent to net income. During the quarter, the company repurchased $375 million of its own shares and the effective tax rate was 24.4 percent.

2024 Guidance
ITW is lowering the top-end of its full year GAAP EPS guidance range of $10.30 to $10.70 per share to a narrower range of $10.30 to $10.40 per share, an increase of six percent compared to the prior year at the midpoint. Based on current levels of demand and foreign currency exchange rates exiting the second quarter, the company is projecting revenue growth and organic growth to be approximately flat for 2024. ITW is raising its operating margin guidance from 26 to 27 percent to a narrower range of 26.5 to 27 percent, an increase of 165 bps at the midpoint with enterprise initiatives projected to contribute more than 100 basis points. Free cash flow is expected to exceed 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate remains unchanged in the range of 24 to 24.5 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. The estimated guidance of free cash flow to net income 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. For the same reasons, the company is unable to address the potential significance of the unavailable information, which could be material to future results.

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, the impact of enterprise initiatives, future financial and operating performance, free cash flow and free cash flow to net income conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted income per share, expected dividend payments, after-tax return on invested capital, effective tax rates, exchange rates, 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 2024 guidance. These statements are subject to certain risks, uncertainties, assumptions, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that could cause actual results to differ materially from the Company’s expectations include those that are detailed in ITW’s Form 10-K for 2023 and subsequent reports filed with the SEC.

About Illinois Tool Works

ITW (NYSE: ITW) is a Fortune 300 global multi-industrial manufacturing leader with revenue of $16.1 billion in 2023. 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   Six Months Ended
  June 30,   June 30,
In millions except per share amounts   2024       2023       2024       2023  
Operating Revenue $ 4,027     $ 4,074     $ 8,000     $ 8,093  
Cost of revenue   2,262       2,344       4,407       4,685  
Selling, administrative, and research and development expenses   686       690       1,362       1,365  
Amortization and impairment of intangible assets   25       30       50       61  
Operating Income   1,054       1,010       2,181       1,982  
Interest expense   (75 )     (69 )     (146 )     (129 )
Other income (expense)   26       20       42       30  
Income Before Taxes   1,005       961       2,077       1,883  
Income Taxes   246       207       499       415  
Net Income $ 759     $ 754     $ 1,578     $ 1,468  
               
Net Income Per Share:              
Basic $ 2.55     $ 2.49     $ 5.29     $ 4.83  
Diluted $ 2.54     $ 2.48     $ 5.27     $ 4.81  
               
Cash Dividends Per Share:              
Paid $ 1.40     $ 1.31     $ 2.80     $ 2.62  
Declared $ 1.40     $ 1.31     $ 2.80     $ 2.62  
               
Shares of Common Stock Outstanding During the Period:              
Average   297.6       303.3       298.3       304.1  
Average assuming dilution   298.5       304.2       299.3       305.2  
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
 
In millions June 30, 2024   December 31, 2023
Assets      
Current Assets:      
Cash and equivalents $ 862     $ 1,065  
Trade receivables   3,250       3,123  
Inventories   1,819       1,707  
Prepaid expenses and other current assets   325       340  
Total current assets   6,256       6,235  
       
Net plant and equipment   2,011       1,976  
Goodwill   4,910       4,909  
Intangible assets   641       657  
Deferred income taxes   448       479  
Other assets   1,311       1,262  
  $ 15,577     $ 15,518  
       
Liabilities and Stockholders’ Equity      
Current Liabilities:      
Short-term debt $ 2,044     $ 1,825  
Accounts payable   576       581  
Accrued expenses   1,615       1,663  
Cash dividends payable   416       419  
Income taxes payable   153       187  
Total current liabilities   4,804       4,675  
       
Noncurrent Liabilities:      
Long-term debt   6,429       6,339  
Deferred income taxes   381       326  
Noncurrent income taxes payable   —       151  
Other liabilities   1,001       1,014  
Total noncurrent liabilities   7,811       7,830  
       
Stockholders’ Equity:      
Common stock   6       6  
Additional paid-in-capital   1,636       1,588  
Retained earnings   27,866       27,122  
Common stock held in treasury   (24,622 )     (23,870 )
Accumulated other comprehensive income (loss)   (1,925 )     (1,834 )
Noncontrolling interest   1       1  
Total stockholders’ equity   2,962       3,013  
  $ 15,577     $ 15,518  
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
 
Three Months Ended June 30, 2024
Dollars in millions Total
Revenue		 Operating
Income		 Operating
Margin
Automotive OEM $ 815   $ 157   19.4 %
Food Equipment   667     180   27.1 %
Test & Measurement and Electronics   678     159   23.5 %
Welding   466     153   32.9 %
Polymers & Fluids   454     128   28.2 %
Construction Products   504     148   29.4 %
Specialty Products   449     144   31.9 %
Intersegment   (6 )   —   — %
Total Segments   4,027     1,069   26.6 %
Unallocated   —     (15 ) — %
Total Company $ 4,027   $ 1,054   26.2 %
Six Months Ended June 30, 2024
Dollars in millions Total
Revenue		 Operating
Income		 Operating
Margin
Automotive OEM $ 1,631   $ 319 19.6 %
Food Equipment   1,298     344 26.5 %
Test & Measurement and Electronics   1,374     322 23.4 %
Welding   942     309 32.8 %
Polymers & Fluids   886     239 27.0 %
Construction Products   992     291 29.4 %
Specialty Products   889     274 30.8 %
Intersegment   (12 )   — — %
Total Segments   8,000     2,098 26.2 %
Unallocated   —     83 — %
Total Company $ 8,000   $ 2,181 27.3 %
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
 
Q2 2024 vs. Q2 2023 Favorable/(Unfavorable)
Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW
Organic 0.4 % 2.5 % (3.1) % (4.7) % 2.6 % (3.8) % 6.7 % (0.1) %
Acquisitions/
Divestitures		 — % — % 0.8 % — % — % — % — % 0.1 %
Translation (1.7) % (0.4) % (0.9) % (0.3) % (3.9) % (0.5) % (0.5) % (1.2) %
Operating Revenue (1.3) % 2.1 % (3.2) % (5.0) % (1.3) % (4.3) % 6.2 % (1.2) %
Q2 2024 vs. Q2 2023 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 —   50 bps (90) bps (70) bps 50 bps (80) bps 130 bps —  
Changes in Variable Margin & OH Costs 210 bps (100) bps 190 bps (50) bps 130 bps 150 bps 390 bps 140 bps
Total Organic 210 bps (50) bps 100 bps (120) bps 180 bps 70 bps 520 bps 140 bps
Acquisitions/
Divestitures		 —   —   (50) bps —   —   —   —   (10) bps
Restructuring/Other 50 bps (20) bps (20) bps 20 bps 50 bps (60) bps 70 bps 10 bps
Total Operating Margin Change 260 bps (70) bps 30 bps (100) bps 230 bps 10 bps 590 bps 140 bps
                 
Total Operating Margin % * 19.4 % 27.1 % 23.5 % 32.9 % 28.2 % 29.4 % 31.9 % 26.2 %
                 
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  20 bps  40 bps  190 bps —    150 bps  10 bps  20 bps  70 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.06) on GAAP earnings per share for the second quarter of 2024.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
 
H1 2024 vs. H1 2023 Favorable/(Unfavorable)
Operating Revenue Automotive OEM Food Equipment Test & Measurement and Electronics Welding Polymers & Fluids Construction Products Specialty Products Total ITW
Organic 1.9 % 0.6 % (2.2) % (4.1) % 0.9 % (5.4) % 6.1 % (0.4) %
Acquisitions/
Divestitures		 — % — % 0.8 % — % — % — % (1.1 )% — %
Translation (1.3) % 0.1 % (0.7) % (0.1) % (3.2) % (0.4) % — % (0.8) %
Operating Revenue 0.6 % 0.7 % (2.1) % (4.2) % (2.3) % (5.8) % 5.0 % (1.2) %
H1 2024 vs. H1 2023 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 40 bps 20 bps (60) bps (60) bps 20 bps (90) bps 120 bps (20) bps
Changes in Variable Margin & OH Costs 250 bps (80) bps 80 bps 40 bps 130 bps 220 bps 300 bps 290 bps
Total Organic 290 bps (60) bps 20 bps (20) bps 150 bps 130 bps 420 bps 270 bps
Acquisitions/
Divestitures		 —   —   (50) bps —   —   —   30 bps —  
Restructuring/Other 30 bps (10) bps (10) bps 10 bps 30 bps (30) bps 50 bps 10 bps
Total Operating Margin Change 320 bps (70) bps (40) bps (10) bps 180 bps 100 bps 500 bps 280 bps
                 
Total Operating Margin % * 19.6 % 26.5 % 23.4 % 32.8 % 27.0 % 29.4 % 30.8 % 27.3 %
                 
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets  30 bps  50 bps  190 bps —    150 bps  10 bps  20 bps  70 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.13) on GAAP earnings per share for the first half of 2024.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
       
  Three Months Ended   Six Months Ended
  June 30,   June 30,
Dollars in millions   2024       2023       2024       2023  
Numerator:              
Net Income $ 759     $ 754     $ 1,578     $ 1,468  
Discrete tax benefit related to the second quarter 2023   —       (20 )     —       (20 )
Interest expense, net of tax (1)   57       53       111       99  
Other (income) expense, net of tax (1)   (20 )     (15 )     (32 )     (23 )
Operating income after taxes $ 796     $ 772     $ 1,657     $ 1,524  
               
Denominator:              
Invested capital:              
Cash and equivalents $ 862     $ 922     $ 862     $ 922  
Trade receivables   3,250       3,216       3,250       3,216  
Inventories   1,819       1,921       1,819       1,921  
Net plant and equipment   2,011       1,901       2,011       1,901  
Goodwill and intangible assets   5,551       5,595       5,551       5,595  
Accounts payable and accrued expenses   (2,191 )     (2,215 )     (2,191 )     (2,215 )
Debt   (8,473 )     (8,222 )     (8,473 )     (8,222 )
Other, net   133       (24 )     133       (24 )
Total net assets (stockholders’ equity)   2,962       3,094       2,962       3,094  
Cash and equivalents   (862 )     (922 )     (862 )     (922 )
Debt   8,473       8,222       8,473       8,222  
Total invested capital $ 10,573     $ 10,394     $ 10,573     $ 10,394  
               
Average invested capital (2) $ 10,480     $ 10,366     $ 10,357     $ 10,292  
               
Net income to average invested capital (3)   29.0 %     29.1 %     30.5 %     28.5 %
After-tax return on average invested capital (3)   30.4 %     29.8 %     32.0 %     29.6 %

(1) Effective tax rate used for interest expense and other (income) expense for the three months ended June 30, 2024 and 2023 was 24.4% and 23.6%, respectively. Effective tax rate used for interest expense and other (income) expense for the six months ended June 30, 2024 and 2023 was 24.0% 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 each quarter within each of the periods presented.

(3) Returns for the three months ended June 30, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 4. Returns for the six months ended June 30, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 2.
After-tax ROIC for the six months ended June 30, 2024 included 170 basis points of favorable impact related to the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax) in the first quarter of 2024.

A reconciliation of the tax rate for the three and six months ended June 30, 2023, excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:

  Three Months Ended   Six Months Ended
  June 30, 2023   June 30, 2023
Dollars in millions Income Taxes   Tax Rate   Income Taxes   Tax Rate
As reported $ 207   21.4 %   $ 415   22.0 %
Discrete tax benefit related to the second quarter 2023   20   2.2 %     20   1.1 %
As adjusted $ 227   23.6 %   $ 435   23.1 %
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
  Twelve Months Ended
Dollars in millions December 31, 2023
Numerator:  
Net income $ 2,957  
Discrete tax benefit related to the second quarter 2023   (20 )
Interest expense, net of tax (1)   204  
Other (income) expense, net of tax (1)   (38 )
Operating income after taxes $ 3,103  
   
Denominator:  
Invested capital:  
Cash and equivalents $ 1,065  
Trade receivables   3,123  
Inventories   1,707  
Net plant and equipment   1,976  
Goodwill and intangible assets   5,566  
Accounts payable and accrued expenses   (2,244 )
Debt   (8,164 )
Other, net   (16 )
Total net assets (stockholders’ equity)   3,013  
Cash and equivalents   (1,065 )
Debt   8,164  
Total invested capital $ 10,112  
   
Average invested capital (2) $ 10,214  
   
Net income to average invested capital   29.0 %
After-tax return on average invested capital   30.4 %

(1) Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2023 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 2023 effective tax rate excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes is as follows:

  Twelve Months Ended
  December 31, 2023
Dollars in millions Income Taxes   Tax Rate
As reported $ 866   22.6 %
Discrete tax benefit related to the second quarter 2023   20   0.6 %
As adjusted $ 886   23.2 %
FREE CASH FLOW (UNAUDITED)
       
  Three Months Ended   Six Months Ended
  June 30,   June 30,
Dollars in millions   2024       2023       2024       2023  
Net cash provided by operating activities $ 687     $ 790     $ 1,276     $ 1,518  
Less: Additions to plant and equipment   (116 )     (85 )     (211 )     (198 )
Free cash flow $ 571     $ 705     $ 1,065     $ 1,320  
               
Net income $ 759     $ 754     $ 1,578     $ 1,468  
               
Net cash provided by operating activities to net income conversion rate   91 %     105 %     81 %     103 %
Free cash flow to net income conversion rate   75 %     94 %     67 %     90 %
ADJUSTED NET INCOME PER SHARE – DILUTED (UNAUDITED)
   
  Three Months Ended
  June 30, 2023
As reported $ 2.48  
Discrete tax benefit related to the second quarter 2023   (0.07 )
As adjusted $ 2.41  


Investor Relations & Media Contact:
Erin Linnihan
Tel: 224.661.7431
[email protected] | [email protected]


Bay Street News