10-QPeriod: Q2 FY2011

ILLINOIS TOOL WORKS INC Quarterly Report for Q2 Ended May 5, 2011

Filed May 6, 2011For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) reported a strong first quarter for 2011, demonstrating significant top-line growth and improved profitability. Total operating revenues surged by 17.4% year-over-year to $4.39 billion, driven by robust organic growth across its diverse segments and contributions from recent acquisitions. The company also benefited from a weaker U.S. dollar, which positively impacted international revenues and earnings. Operating income saw a substantial increase of 26.0% to $682.6 million, leading to a notable improvement in operating margins to 15.6% from 14.5% in the prior year's quarter. Net income nearly doubled, reaching $623.1 million, or $1.24 per diluted share, up from $333.8 million, or $0.66 per diluted share, in the first quarter of 2010. This impressive earnings growth was significantly influenced by a one-time, non-cash tax benefit of $165.9 million related to a favorable court ruling in Australia. Despite this extraordinary item, the underlying operational performance indicates broad-based strength across ITW's business units, with many segments experiencing double-digit revenue growth. The company also announced a significant divestiture agreement for its finishing group, signaling strategic portfolio management.

Financial Highlights

50 data points
Beta

Revenue

$4.62B

35.1% Gross Margin

Net Income

$499.00M

10.8% Net Margin

EPS (Diluted)

$0.99

Total Assets

$18.53B

Cash & Equivalents

$1.23B

Free Cash Flow

$225.00M

Financial Statements
Beta
Revenue$4.62B
Cost of Revenue$3.00B
Gross Profit$1.62B
Operating Income$711.00M
Interest Expense$45.00M
Net Income$499.00M
EPS (Basic)$1.00
EPS (Diluted)$0.99
Shares Outstanding (Basic)497.80M
Shares Outstanding (Diluted)501.90M

Key Highlights

  • 1Operating revenues increased by 17.4% to $4.39 billion in Q1 2011 compared to Q1 2010.
  • 2Net income more than doubled, rising 86.7% to $623.1 million, or $1.24 per diluted share.
  • 3Operating income grew by 26.0% to $682.6 million, with operating margins improving to 15.6%.
  • 4A significant $165.9 million non-cash tax benefit was recognized due to a favorable Australian tax court ruling.
  • 5The company experienced strong organic revenue growth, with base manufacturing business revenues up 11.7%.
  • 6ITW announced an agreement to sell its finishing group for $650 million in April 2011.
  • 7Free operating cash flow decreased significantly to $56.2 million from $215.6 million in the prior year's quarter, primarily due to higher investments in acquisitions and increased working capital.

Frequently Asked Questions

The primary driver of the substantial net income increase was a significant $165.9 million non-cash tax benefit recognized in the quarter due to a favorable ruling from the Federal Court of Australia regarding income tax deductions. While this boosted net income considerably, the company also demonstrated strong operational performance with increased revenues and operating income.

Operationally, ITW showed strong performance. Total operating revenues grew by 17.4% driven by a 11.7% increase in base manufacturing business revenues and contributions from acquisitions. Operating income also saw a healthy increase of 26.0%, leading to an improvement in operating margins. This indicates broad-based strength across most of its business segments.

The agreement to sell its finishing group of businesses for $650 million in April 2011 indicates strategic portfolio management by ITW. The company intends to use the after-tax proceeds for share repurchases, which could be accretive to earnings per share.

Free operating cash flow saw a significant decrease from $215.6 million in Q1 2010 to $56.2 million in Q1 2011. This was primarily driven by a substantial increase in acquisitions, which consumed significant cash, as well as an increase in inventories and trade receivables that absorbed working capital. The company also made higher cash dividend payments.