10-QPeriod: Q1 FY2010

ILLINOIS TOOL WORKS INC Quarterly Report for Q1 Ended Mar 31, 2010

Filed May 7, 2010For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) reported a significant turnaround in the first quarter of 2010 compared to the same period in 2009. Total operating revenues increased by 14.6% year-over-year to $3.61 billion, driven by improvements across most end markets, including transportation, industrial packaging, and power systems & electronics. This revenue growth, coupled with effective cost management and the absence of substantial goodwill and intangible asset impairment charges seen in the prior year, led to a dramatic improvement in profitability. Net income surged to $294.3 million ($0.58 per diluted share) from a net loss of $39.4 million ($0.08 per diluted share) in Q1 2009. Operating income also saw a substantial increase, rising from $91.3 million to $483.9 million, with operating margins expanding significantly to 13.4% from 2.9%. The company highlighted strong performance in its Transportation and Power Systems & Electronics segments, while also noting a modest revenue decline in Food Equipment. ITW's improved financial results reflect a recovery in its key markets and the successful execution of its operational strategies.

Financial Highlights

49 data points
Beta

Revenue

$3.74B

36.1% Gross Margin

Net Income

$333.81M

8.9% Net Margin

EPS (Diluted)

$0.66

Total Assets

$15.87B

Cash & Equivalents

$1.50B

Free Cash Flow

$215.64M

Financial Statements
Beta
Revenue$3.74B
Cost of Revenue$2.39B
Gross Profit$1.35B
Operating Income$541.54M
Interest Expense$44.37M
Net Income$333.81M
EPS (Basic)$0.66
EPS (Diluted)$0.66
Shares Outstanding (Basic)502.42M
Shares Outstanding (Diluted)505.01M

Key Highlights

  • 1Revenue increased 14.6% to $3.61 billion in Q1 2010 from $3.15 billion in Q1 2009, indicating a strong market recovery.
  • 2Net income dramatically improved, turning a loss of $39.4 million in Q1 2009 into a profit of $294.3 million in Q1 2010.
  • 3Diluted Earnings Per Share (EPS) recovered to $0.58 from a loss of $0.08 in the prior year's comparable quarter.
  • 4Operating income surged by $392.6 million, reaching $483.9 million, with operating margins expanding to 13.4% from 2.9%.
  • 5Significant year-over-year improvement in the Transportation and Industrial Packaging segments, with revenues up 35.6% and 21.0% respectively.
  • 6The company generated $279.4 million in cash from operating activities, a decrease from $447.0 million in Q1 2009 but still demonstrating solid cash generation.
  • 7The effective tax rate increased to 33.9% in Q1 2010, impacted by a discrete tax charge related to healthcare reform legislation, compared to a significantly higher 114.4% in Q1 2009 which was affected by goodwill impairments.

Frequently Asked Questions

The substantial improvement in net income and operating income is primarily driven by a rebound in operating revenues, up 14.6% year-over-year, reflecting an improving macroeconomic environment across key end markets. Additionally, the company benefited from lower operating expenses and the absence of significant goodwill and intangible asset impairment charges that impacted the prior year's results.

Most segments showed strong recovery. The Transportation segment saw a 35.6% revenue increase, and the Industrial Packaging segment reported a 21.0% revenue increase. The Power Systems & Electronics segment also performed well with a 13.7% revenue increase. The Food Equipment segment experienced a slight revenue decline of 0.4%, while the Decorative Surfaces segment saw a 1.5% increase. The Polymers & Fluids segment showed robust growth with an 18.3% revenue increase, driven by acquisitions and market recovery.

The weakening of the U.S. dollar against foreign currencies had a positive impact in Q1 2010, increasing operating revenues by approximately $179 million and boosting net income by about 3 cents per diluted share. This translation effect contributed positively to the overall revenue growth.

ITW's primary uses of liquidity are dividend payments, acquisitions, and share repurchases. The company's liquidity is primarily sourced from free operating cash flows and credit facilities. Free operating cash flow was $218.7 million in Q1 2010, down from $383.1 million in Q1 2009, but the company believes its internally generated cash flows are adequate to service debt, pay dividends, and fund growth initiatives.