10-QPeriod: Q2 FY2013

ILLINOIS TOOL WORKS INC Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 2, 2013For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) reported a decrease in operating revenues and net income for the three and six months ended June 30, 2013, compared to the prior year. This decline was primarily attributed to divestitures, including the significant divestiture of the Decorative Surfaces segment in late 2012, and lower base revenues in several segments. Despite the revenue decline, the company demonstrated improved operational efficiency and cost management, as evidenced by a slight increase in operating margins in certain segments and an overall improvement in return on average invested capital (ROIC). The company continues to actively manage its portfolio through strategic reviews and divestitures of non-core assets, while also focusing on strategic acquisitions that complement its existing business lines. Liquidity remains strong, with substantial free operating cash flow generation, enabling continued dividend payments and share repurchases. The company is also navigating ongoing strategic reviews for certain segments, indicating a proactive approach to optimizing its business structure.

Financial Highlights

51 data points
Beta

Revenue

$3.59B

40.0% Gross Margin

Net Income

$465.00M

12.9% Net Margin

EPS (Diluted)

$1.03

Total Assets

$19.20B

Cash & Equivalents

$2.77B

Free Cash Flow

$554.00M

Financial Statements
Beta
Revenue$3.59B
Cost of Revenue$2.15B
Gross Profit$1.44B
Operating Income$630.00M
Interest Expense$59.00M
Net Income$465.00M
EPS (Basic)$1.04
EPS (Diluted)$1.03
Shares Outstanding (Basic)449.60M
Shares Outstanding (Diluted)452.50M

Key Highlights

  • 1Operating revenues declined by 5.5% for the quarter and 6.7% year-to-date, largely due to divestitures, notably the Decorative Surfaces segment, and lower base revenues.
  • 2Income from continuing operations decreased by 10.6% for the quarter and 6.1% year-to-date.
  • 3Net income for the quarter was $465 million, down from $881 million in the prior year period, significantly impacted by the prior year's gain on the Decorative Surfaces divestiture.
  • 4Free operating cash flow improved to $831 million for the first six months of 2013, up from $648 million in the prior year, indicating strong cash generation.
  • 5Return on Average Invested Capital (ROIC) improved to 16.1% for the quarter and 15.5% year-to-date, reflecting effective capital utilization.
  • 6The company repurchased approximately $677 million of its common stock during the first six months of 2013, continuing its capital return strategy.
  • 7Several segments, including Automotive OEM, Food Equipment, and Specialty Products, showed revenue and operating income growth, driven by base business performance and strategic acquisitions.

Frequently Asked Questions

The significant decrease in net income, particularly in the three-month period, was primarily due to the absence of a large gain from the divestiture of the Decorative Surfaces segment that was recorded in the prior year's comparable period. While the current period also shows a decline in operating income from continuing operations, the overall net income reduction is heavily influenced by the prior year's one-time gain.

Divestitures, especially the sale of the Decorative Surfaces segment, have reduced overall revenues. The company is also undergoing a strategic review of its Industrial Packaging segment, which creates some uncertainty but also presents opportunities for future optimization. These actions are part of a broader strategy to streamline operations and focus on core, higher-growth businesses, which is impacting short-term revenue figures but aims to improve long-term profitability and efficiency.

ITW demonstrated strong free operating cash flow generation, which increased significantly year-over-year. This robust cash flow allows the company to continue its practice of paying dividends and executing share repurchases. During the first six months of 2013, the company repurchased approximately $677 million of its stock and paid dividends, indicating a commitment to returning value to shareholders.

Segments like Automotive OEM, Food Equipment, and Specialty Products showed positive revenue and operating income growth, driven by strong base business performance and strategic acquisitions. In contrast, the Test & Measurement and Electronics segment experienced declines in revenue and operating income, largely due to decreased customer spending and softness in the personal computing industry. The Industrial Packaging segment also saw revenue and operating income declines.