10-QPeriod: Q1 FY2017

ILLINOIS TOOL WORKS INC Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 5, 2017For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) reported a solid first quarter for 2017, demonstrating robust financial performance driven by its differentiated ITW Business Model. Total operating revenue increased by 6.0% year-over-year to $3,471 million, with organic revenue growth of 3.5%, indicating broad-based strength across most of its segments. Diluted Earnings Per Share (EPS) saw a significant increase of 19.4% to $1.54, reflecting improved operational efficiency and profitability. The company's strategic initiatives, including product line simplification and business structure optimization, continue to yield positive results, contributing to a 120 basis point increase in operating margin to 23.3%. Free cash flow remained strong at $399 million, underscoring ITW's ability to generate substantial cash from operations to fund shareholder returns and strategic investments.

Financial Highlights

51 data points
Beta

Revenue

$3.47B

42.3% Gross Margin

Net Income

$536.00M

15.4% Net Margin

EPS (Diluted)

$1.54

Total Assets

$15.53B

Cash & Equivalents

$2.49B

Free Cash Flow

$399.00M

Financial Statements
Beta
Revenue$3.47B
Cost of Revenue$2.00B
Gross Profit$1.47B
Operating Income$807.00M
Interest Expense$64.00M
Net Income$536.00M
EPS (Basic)$1.55
EPS (Diluted)$1.54
Shares Outstanding (Basic)346.20M
Shares Outstanding (Diluted)349.00M

Key Highlights

  • 1Operating revenue grew 6.0% to $3,471 million, driven by 3.5% organic revenue growth and contributions from acquisitions.
  • 2Diluted Earnings Per Share (EPS) increased by 19.4% to $1.54, showcasing enhanced profitability.
  • 3Operating margin expanded by 120 basis points to 23.3%, primarily due to enterprise initiatives and positive operating leverage.
  • 4Six out of seven operating segments achieved worldwide organic revenue growth, highlighting diversified performance.
  • 5The Automotive OEM segment showed particularly strong organic revenue growth of 9.0%, outpacing automotive build growth.
  • 6Free cash flow was $399 million, demonstrating strong cash generation capabilities.
  • 7The company repurchased approximately $250 million of its common stock in the quarter, reflecting a commitment to shareholder returns.

Frequently Asked Questions

Revenue growth was primarily driven by a combination of organic revenue growth of 3.5% across most segments, fueled by penetration gains, higher end-market demand, and product innovation, along with contributions from acquisitions, partially offset by unfavorable foreign currency translation.

The acquisition of EF&C, completed in July 2016, contributed $128 million in operating revenue during the first quarter of 2017. While it diluted the company's operating margin by 50 basis points due to lower operating margins and acquisition-related expenses, ITW expects it to be slightly accretive to earnings in the first twelve months and improve performance over time through the application of its 80/20 business management process.

ITW's strategy focuses on leveraging its differentiated ITW Business Model, comprising the 80/20 management process, customer-back innovation, and a decentralized, entrepreneurial culture. The company aims for sustained above-market organic growth and additional structural margin improvement through consistent application of the 80/20 process, strategic sourcing, and continued investment in customer-back innovation and market penetration.

ITW's capital allocation priorities include internal investments, payment of an attractive dividend, and external investments in selective strategic acquisitions and an active share repurchase program. In the first quarter of 2017, the company paid $226 million in dividends and repurchased approximately $250 million of its common stock, with approximately $3.2 billion remaining under its authorized repurchase program.