10-QPeriod: Q3 FY2017

ILLINOIS TOOL WORKS INC Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 27, 2017For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) reported strong financial performance for the nine months ended September 30, 2017. Total operating revenue increased by 4.8% to $10.7 billion, driven by a 2.7% increase in organic revenue and a 2.3% contribution from acquisitions. Net income rose significantly by 15.4% to $1.76 billion, translating to a diluted EPS of $5.07, up 19.3% from the prior year. The company's operational efficiency and strategic initiatives, including the 80/20 management process and customer-back innovation, continue to yield positive results, with operating margin improving by 190 basis points to 24.7%. Free cash flow generation remained robust, with $1.5 billion generated in the year-to-date period, supporting capital allocation priorities such as dividends and share repurchases.

Financial Highlights

52 data points
Beta

Revenue

$3.62B

42.1% Gross Margin

Net Income

$640.00M

17.7% Net Margin

EPS (Diluted)

$1.85

Total Assets

$16.31B

Cash & Equivalents

$2.79B

Free Cash Flow

$702.00M

Financial Statements
Beta
Revenue$3.62B
Cost of Revenue$2.09B
Gross Profit$1.52B
Operating Income$960.00M
Interest Expense$65.00M
Net Income$640.00M
EPS (Basic)$1.86
EPS (Diluted)$1.85
Shares Outstanding (Basic)343.40M
Shares Outstanding (Diluted)346.00M

Key Highlights

  • 1Revenue increased by 4.8% to $10.685 billion for the nine months ended September 30, 2017, driven by organic growth (2.7%) and acquisitions (2.3%).
  • 2Net income rose by 15.4% to $1.763 billion for the nine months ended September 30, 2017.
  • 3Diluted earnings per share (EPS) increased by 19.3% to $5.07 for the nine months ended September 30, 2017.
  • 4Operating income grew by 13.9% to $2.644 billion for the nine months ended September 30, 2017, with operating margin improving by 190 basis points to 24.7%.
  • 5The company received a $95 million confidential settlement in Q2 2017, which favorably impacted operating income by $80 million in Q3 2017 and $15 million in Q2 2017.
  • 6Free cash flow generation remained strong, with $1.488 billion generated for the nine months ended September 30, 2017.
  • 7The company increased its quarterly dividend by 20% and continued its share repurchase program, returning capital to shareholders.

Frequently Asked Questions

For the nine months ended September 30, 2017, ITW demonstrated strong financial performance with operating revenue increasing by 4.8% to $10.685 billion and net income growing by 15.4% to $1.763 billion. Diluted EPS saw a significant increase of 19.3% to $5.07. The company also reported an improved operating margin of 24.7%, up 190 basis points from the prior year, reflecting the successful execution of its enterprise initiatives.

Six of ITW's seven segments achieved worldwide organic revenue growth in the third quarter, and all seven segments showed organic revenue growth in the year-to-date period. The growth was primarily driven by organic revenue increases across various segments, with notable contributions from acquisitions, especially in the Automotive OEM segment. The company's strong performance is attributed to its differentiated ITW Business Model, including its 80/20 management process and customer-back innovation.

In the second quarter of 2017, ITW entered into a $95 million confidential settlement agreement. This resulted in a favorable pre-tax impact of $15 million in the second quarter and $80 million in the third quarter of 2017, which was included in operating income. This settlement also favorably impacted operating margin and EPS. Excluding this settlement, operating income and EPS still showed solid year-over-year growth.

ITW continues to prioritize returning capital to shareholders. The company increased its quarterly dividend by 20.0% in the third quarter of 2017. Furthermore, ITW actively engaged in its share repurchase program, buying back approximately 5.5 million shares for $750 million in the year-to-date period. The company has approximately $2.7 billion of authorized repurchases remaining under its current program, indicating a continued commitment to shareholder returns.