10-QPeriod: Q1 FY2018

ILLINOIS TOOL WORKS INC Quarterly Report for Q1 Ended Mar 30, 2018

Filed May 4, 2018For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) reported strong first-quarter 2018 results, with a significant increase in net income and diluted EPS compared to the prior year. Total operating revenue rose by 7.9% to $3.74 billion, driven by a 2.6% increase in organic revenue across all segments and a favorable foreign currency translation effect of 5.3%. Operating income saw a robust 11.9% increase to $903 million, with operating margin expanding by 90 basis points to 24.1%, largely due to enterprise initiatives and lower restructuring expenses, partially offset by unfavorable price/cost dynamics. The company demonstrated strong execution of its business model, with all segments achieving organic revenue growth and operating margins above 20%. Diluted EPS grew by a notable 23.4% to $1.90. Free cash flow also increased by 11.3% to $444 million, supporting substantial capital allocation activities, including $500 million in share repurchases and $266 million in dividends paid. The effective tax rate decreased significantly to 23.2% from 28.3% in the prior year, primarily due to the Tax Cuts and Jobs Act and a discrete tax benefit, positively impacting net income.

Financial Highlights

51 data points
Beta

Revenue

$3.74B

41.7% Gross Margin

Net Income

$652.00M

17.4% Net Margin

EPS (Diluted)

$1.90

Total Assets

$16.16B

Cash & Equivalents

$1.94B

Free Cash Flow

$444.00M

Financial Statements
Beta
Revenue$3.74B
Cost of Revenue$2.18B
Gross Profit$1.56B
Operating Income$903.00M
Interest Expense$66.00M
Net Income$652.00M
EPS (Basic)$1.92
EPS (Diluted)$1.90
Shares Outstanding (Basic)340.20M
Shares Outstanding (Diluted)342.80M

Key Highlights

  • 1Total operating revenue increased by 7.9% to $3.74 billion, with organic revenue growing 2.6% across all segments.
  • 2Operating income grew 11.9% to $903 million, and operating margin expanded 90 basis points to 24.1%.
  • 3Diluted Earnings Per Share (EPS) surged by 23.4% to $1.90.
  • 4Free cash flow increased by 11.3% to $444 million, demonstrating strong operational cash generation.
  • 5The company repurchased $500 million of its common stock and paid $266 million in dividends, highlighting a commitment to shareholder returns.
  • 6The effective tax rate decreased to 23.2% from 28.3%, largely due to the impact of the Tax Cuts and Jobs Act.
  • 7All seven reported segments achieved organic revenue growth and operating margins exceeding 20%.

Frequently Asked Questions

Revenue growth was primarily driven by a combination of a 2.6% increase in organic revenue across all segments and a favorable foreign currency translation effect of 5.3%. The organic growth was attributed to market penetration gains, higher end-market demand, and product innovation.

The Tax Cuts and Jobs Act significantly lowered ITW's effective tax rate to 23.2% in the first quarter of 2018, down from 28.3% in the prior year. This reduction was due to the lower U.S. corporate federal tax rate and a discrete income tax benefit related to foreign tax credits. The Act also resulted in a $406 million cumulative-effect adjustment reducing deferred tax assets and retained earnings upon adoption.

ITW's capital allocation priorities include investing in organic growth and core businesses, paying an attractive dividend, and engaging in share repurchases and selective strategic acquisitions. In the first quarter of 2018, the company repurchased $500 million of its stock and paid $266 million in dividends, demonstrating a balanced approach to returning capital to shareholders.

All seven segments reported positive organic revenue growth and operating margins above 20%. The Automotive OEM segment showed steady growth, while Test & Measurement and Electronics experienced particularly strong revenue and operating income increases due to higher semiconductor and semi-conductor end market demand. Welding also saw robust organic revenue growth driven by industrial and commercial end markets.