10-KPeriod: FY2017

ILLINOIS TOOL WORKS INC Annual Report, Year Ended Dec 31, 2017

Filed February 15, 2018For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) reported strong performance in its 2017 10-K filing, highlighting the successful execution of its Enterprise Strategy which focuses on leveraging its differentiated ITW Business Model, emphasizing customer-back innovation, and a decentralized, entrepreneurial culture. The company's diversified portfolio across seven segments—Automotive OEM, Food Equipment, Test & Measurement and Electronics, Welding, Polymers & Fluids, Construction Products, and Specialty Products—demonstrated organic revenue growth across all segments. This strategic focus has led to improved operating margins, with all segments exceeding a 20% operating margin in 2017. Financially, ITW showcased robust operational execution. While the company recorded a significant one-time tax expense of $658 million due to the U.S. Tax Cuts and Jobs Act, its underlying operational performance remained strong. Key financial metrics like operating income and operating margin saw substantial increases. The company also demonstrated a strong commitment to returning capital to shareholders through increased dividends and significant share repurchases. The filing underscores ITW's disciplined approach to investing only where it has a competitive advantage, reinforcing its strategy for sustained, differentiated performance.

Financial Highlights

54 data points
Beta

Revenue

$14.31B

42.0% Gross Margin

Net Income

$1.69B

11.8% Net Margin

EPS (Diluted)

$4.86

Total Assets

$16.78B

Cash & Equivalents

$3.09B

Free Cash Flow

$2.10B

Financial Statements
Beta
Revenue$14.31B
Cost of Revenue$8.31B
Gross Profit$6.01B
R&D Expenses$225.00M
Operating Income$3.48B
Interest Expense$260.00M
Net Income$1.69B
EPS (Basic)$4.90
EPS (Diluted)$4.86
Shares Outstanding (Basic)344.10M
Shares Outstanding (Diluted)346.80M

Key Highlights

  • 1All seven business segments achieved worldwide organic revenue growth in 2017.
  • 2Operating margin for all segments exceeded 20% in 2017.
  • 3The company recorded a significant one-time income tax expense of $658 million due to the U.S. Tax Cuts and Jobs Act.
  • 4Operating income increased by 14.0% to $3.5 billion, with operating margin expanding by 190 basis points to 24.4%.
  • 5ITW returned approximately $1.0 billion to shareholders through share repurchases in 2017.
  • 6The quarterly dividend was increased by 20.0% in 2017.
  • 7The company's adjusted after-tax return on average invested capital improved by 230 basis points to 24.4%.

Frequently Asked Questions

ITW's core strategy revolves around its highly differentiated ITW Business Model, which comprises three key elements: the 80/20 front-to-back process for operational efficiency, a customer-back innovation approach to develop tailored solutions, and a decentralized, entrepreneurial culture that drives responsiveness. The company's Enterprise Strategy focuses on leveraging this model for sustained, quality organic growth by narrowing its business portfolio, simplifying its structure, and strategically sourcing.

The U.S. Tax Cuts and Jobs Act, enacted in late 2017, resulted in a significant one-time income tax expense of $658 million for ITW. This charge was primarily due to a one-time repatriation tax on undistributed foreign earnings and other tax law changes. While this impacted net income and the effective tax rate for 2017, the company expects the lower corporate tax rate to benefit future periods.

ITW prioritizes capital allocation towards internal investments to support organic growth and sustain its core businesses, including new product innovation and simplification projects. The company also aims to provide an attractive dividend to shareholders, which was increased by 20.0% in 2017, and actively engages in share repurchases, returning approximately $1.0 billion to shareholders in 2017 through this program. Selective strategic acquisitions that align with its organic growth focus are also considered.

ITW operates through seven distinct segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. While diversified, these segments are managed under the overarching ITW Business Model, which ensures a consistent approach to operational excellence, customer-back innovation, and decentralized execution, allowing each business unit significant flexibility to serve its specific customers and end markets.