ITW Reports Third Quarter 2024 Results

  • Revenue of $4.0 billion, a decrease of 2% as organic growth declined 1%
  • Operating margin of 26.5% as enterprise initiatives contributed 130 basis points
  • GAAP EPS of $3.91 included a divestiture gain of $1.26; ex-gain EPS of $2.65, an increase of 4%
  • Raising full year GAAP EPS guidance by $1.33 to a range of $11.63 to $11.73 per share

GLENVIEW, Ill., Oct. 30, 2024 (GLOBE NEWSWIRE) — Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2024 results.

“ITW delivered solid third quarter results, as our worldwide team continued to successfully navigate and overcome market challenges with strong operational execution as evidenced by operating margin of 26.5 percent, including 130 basis points contribution from enterprise initiatives, and EPS growth to $2.65 per share excluding a divesture gain,” said Christopher A. O’Herlihy, President and Chief Executive Officer. “All year, our focused execution and operational excellence have enabled the Company to effectively counter persistent market headwinds and achieve solid growth in margin and profitability while we continued to manage and invest in ITW to maximize growth and performance over the long term.”

“As we look ahead to the balance of the year and beyond, ITW remains well-positioned to continue to execute at a high level through these near-term end market macro challenges while we remain focused on driving continued progress on our long-term strategy to build above-market organic growth, fueled by customer-back innovation, into a core ITW strength,” O’Herlihy concluded.

Third Quarter 2024 Results
Third quarter revenue of $4.0 billion declined by 1.6 percent as organic growth declined by 1.4 percent. Foreign currency translation impact reduced revenue by 0.4 percent and acquisitions increased revenue by 0.2 percent.

GAAP EPS increased 53 percent to $3.91 per share and included a divestiture gain of $1.26 from the previously announced sale of the Company’s equity interest in Wilsonart International Holdings LLC (“Wilsonart”). Excluding this gain, EPS of $2.65 increased four percent.

Operating income was $1.05 billion and operating margin of 26.5 percent was flat with prior year. Enterprise initiatives contributed 130 basis points and six of seven segments expanded operating margin. Sequentially, operating margin improved 30 basis points from the second quarter of 2024.

Operating cash flow was $891 million, and free cash flow was $783 million, with a conversion rate to adjusted net income of 102 percent. During the quarter, the company repurchased $375 million of its own shares and raised its dividend seven percent to an annualized $6.00 per share. The effective tax rate for the third quarter was 14.9 percent.

Wilsonart Divestiture
On August 5, 2024, the company announced the sale of its noncontrolling equity interest in Wilsonart. Proceeds from the transaction, net of transaction costs, were $395 million, resulting in a pre-tax gain of $363 million. Income taxes on the gain were more than offset by a discrete tax benefit of $107 million related to the utilization of capital loss carryforwards which resulted in a favorable GAAP EPS impact of $1.26. The sale is not expected to have a material impact on the Company’s financial results in future quarters.

2024 Guidance
ITW is incorporating the impact of the divestiture gain and a lower projected effective tax rate for the full year of approximately 21.5 percent into its 2024 guidance and raising GAAP EPS by $1.33 from the previous range of $10.30 to $10.40 to a new range of $11.63 to $11.73 per share. Based on current levels of demand and foreign currency exchange rates, the Company is maintaining its previous guidance for revenue and organic growth to be approximately flat for 2024. Operating margin is projected to be in the range of 26.5 to 27 percent, an improvement of 165 basis points at the midpoint, with enterprise initiatives projected to contribute more than 100 basis points. Free cash flow is projected to be approximately 100 percent of adjusted net income and the company plans to repurchase approximately $1.5 billion of its own shares.

Non-GAAP Measures
This earnings release contains certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule. The estimated guidance of free cash flow to net income conversion rate is based on assumptions that are difficult to predict, and estimated guidance for the most directly comparable GAAP measure and a reconciliation of this forward-looking estimate to its most directly comparable GAAP estimate have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of reliable forward-looking cash flow information. For the same reasons, the company is unable to address the potential significance of the unavailable information, which could be material to future results.

Forward-looking Statements
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding global supply chain challenges, expected impact of inflation including raw material inflation and rising interest rates, the impact of enterprise initiatives, future financial and operating performance, free cash flow and free cash flow to net income conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted income per share, expected dividend payments, after-tax return on invested capital, effective tax rates, exchange rates, expected timing and amount of share repurchases, end market economic and regulatory conditions, the impact of recent or potential acquisitions and/or divestitures, and the Company’s 2024 guidance. These statements are subject to certain risks, uncertainties, assumptions, and other factors that could cause actual results to differ materially from those anticipated. Important risks that could cause actual results to differ materially from the Company’s expectations include those that are detailed in ITW’s Form 10-K for 2023 and subsequent reports filed with the SEC.

About Illinois Tool Works

ITW (NYSE: ITW) is a Fortune 300 global multi-industrial manufacturing leader with revenue of $16.1 billion in 2023. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW’s approximately 45,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com

Investor Relations & Media Contact:   
Erin Linnihan
Tel: 224.661.7431
investorrelations@itw.com | mediarelations@itw.com

       
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
       
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
In millions except per share amounts   2024       2023       2024       2023  
Operating Revenue $ 3,966     $ 4,031     $ 11,966     $ 12,124  
Cost of revenue   2,230       2,319       6,637       7,004  
Selling, administrative, and research and development expenses   658       615       2,020       1,980  
Amortization and impairment of intangible assets   26       27       76       88  
Operating Income   1,052       1,070       3,233       3,052  
Interest expense   (69 )     (67 )     (215 )     (196 )
Other income (expense)   379       10       421       40  
Income Before Taxes   1,362       1,013       3,439       2,896  
Income Taxes   202       241       701       656  
Net Income $ 1,160     $ 772     $ 2,738     $ 2,240  
               
Net Income Per Share:              
Basic $ 3.92     $ 2.55     $ 9.20     $ 7.38  
Diluted $ 3.91     $ 2.55     $ 9.17     $ 7.36  
               
Cash Dividends Per Share:              
Paid $ 1.40     $ 1.31     $ 4.20     $ 3.93  
Declared $ 1.50     $ 1.40     $ 4.30     $ 4.02  
               
Shares of Common Stock Outstanding During the Period:              
Average   296.1       301.9       297.6       303.4  
Average assuming dilution   297.0       303.0       298.5       304.5  
                               

       
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
       
In millions September 30, 2024   December 31, 2023
Assets      
Current Assets:      
Cash and equivalents $ 947     $ 1,065  
Trade receivables   3,226       3,123  
Inventories   1,817       1,707  
Prepaid expenses and other current assets   314       340  
Total current assets   6,304       6,235  
       
Net plant and equipment   2,071       1,976  
Goodwill   4,980       4,909  
Intangible assets   617       657  
Deferred income taxes   468       479  
Other assets   1,384       1,262  
  $ 15,824     $ 15,518  
       
Liabilities and Stockholders’ Equity      
Current Liabilities:      
Short-term debt $ 1,768     $ 1,825  
Accounts payable   556       581  
Accrued expenses   1,655       1,663  
Cash dividends payable   443       419  
Income taxes payable   205       187  
Total current liabilities   4,627       4,675  
       
Noncurrent Liabilities:      
Long-term debt   6,578       6,339  
Deferred income taxes   129       326  
Noncurrent income taxes payable         151  
Other liabilities   1,098       1,014  
Total noncurrent liabilities   7,805       7,830  
       
Stockholders’ Equity:      
Common stock   6       6  
Additional paid-in-capital   1,651       1,588  
Retained earnings   28,583       27,122  
Common stock held in treasury   (25,000 )     (23,870 )
Accumulated other comprehensive income (loss)   (1,849 )     (1,834 )
Noncontrolling interest   1       1  
Total stockholders’ equity   3,392       3,013  
  $ 15,824     $ 15,518  
               

 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Three Months Ended September 30, 2024
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 772   $ 150   19.4 %
Food Equipment   677     193   28.4 %
Test & Measurement and Electronics   697     179   25.7 %
Welding   462     149   32.3 %
Polymers & Fluids   448     125   27.9 %
Construction Products   479     145   30.2 %
Specialty Products   438     136   31.1 %
Intersegment   (7 )     %
Total Segments   3,966     1,077   27.1 %
Unallocated       (25 ) %
Total Company $ 3,966   $ 1,052   26.5 %

Nine Months Ended September 30, 2024
Dollars in millions Total
Revenue
Operating
Income
Operating
Margin
Automotive OEM $ 2,403   $ 469   19.5 %
Food Equipment   1,975     537   27.2 %
Test & Measurement and Electronics   2,071     501   24.2 %
Welding   1,404     458   32.6 %
Polymers & Fluids   1,334     364   27.3 %
Construction Products   1,471     436   29.6 %
Specialty Products   1,327     410   30.9 %
Intersegment   (19 )     %
Total Segments   11,966     3,175   26.5 %
Unallocated       58   %
Total Company $ 11,966   $ 3,233   27.0 %

 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Q3 2024 vs. Q3 2023 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
Welding Polymers &
Fluids
Construction
Products
Specialty
Products
Total ITW
Organic (3.0) % (0.3) % (1.5) % (1.0) % 1.3  % (8.8) % 6.0  % (1.4) %
Acquisitions/
Divestitures
% % 1.0  % % % % % 0.2  %
Translation (0.3) % 0.1  % 0.3  % (0.3) % (3.2) % 0.7  % (0.3) % (0.4) %
Operating Revenue (3.3) % (0.2) % (0.2) % (1.3) % (1.9) % (8.1) % 5.7  % (1.6) %

Q3 2024 vs. Q3 2023 Favorable/(Unfavorable)
Change in Operating Margin Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
Welding Polymers &
Fluids
Construction Products Specialty
Products
Total ITW
Operating Leverage (60) bps (10) bps (40) bps (20) bps 20 bps (170) bps 100 bps (20) bps
Changes in Variable Margin & OH Costs 80 bps 150 bps 270 bps 90 bps 10 bps 250 bps 270 bps 40 bps
Total Organic 20 bps 140 bps 230 bps 70 bps 30 bps 80 bps 370 bps 20 bps
Acquisitions/
Divestitures
(50) bps (10) bps
Restructuring/Other 30 bps (30) bps 10 bps (50) bps (50) bps (40) bps (10) bps
Total Operating Margin Change 50 bps 110 bps 190 bps 70 bps (20) bps 30 bps 330 bps
                 
Total Operating Margin % * 19.4% 28.4% 25.7% 32.3% 27.9% 30.2% 31.1% 26.5%
                 
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 50 bps 170 bps – bps 150 bps 10 bps 20 bps 70 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.06) on GAAP earnings per share for the third quarter of 2024.

 
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

YTD 2024 vs. YTD 2023 Favorable/(Unfavorable)
Operating Revenue Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
Welding Polymers &
Fluids
Construction
Products
Specialty
Products

Total ITW
Organic 0.3  % 0.3  % (2.0) % (3.1) % 1.0  % (6.5) % 6.0  % (0.7) %
Acquisitions/
Divestitures
% % 0.9  % % % % (0.7) % 0.1  %
Translation (1.0) % 0.1  % (0.3) % (0.1) % (3.2) % (0.1) % % (0.7) %
Operating Revenue (0.7) % 0.4  % (1.4) % (3.2) % (2.2) % (6.6) % 5.3  % (1.3) %

YTD 2024 vs. YTD 2023 Favorable/(Unfavorable)
Change in Operating Margin Automotive
OEM
Food
Equipment
Test &
Measurement
and
Electronics
Welding Polymers &
Fluids
Construction
Products
Specialty
Products
Total ITW
Operating Leverage 10 bps (50) bps (50) bps 20 bps (130) bps 120 bps (20) bps
Changes in Variable Margin & OH Costs 190 bps 140 bps 50 bps 90 bps 240 bps 290 bps 210 bps
Total Organic 190 bps 10 bps 90 bps 110 bps 110 bps 410 bps 190 bps
Acquisitions/
Divestitures
(50) bps 20 bps (10) bps
Restructuring/Other 30 bps (10) bps 10 bps (40) bps 20 bps
Total Operating Margin Change 220 bps 40 bps 10 bps 110 bps 70 bps 450 bps 180 bps
                 
Total Operating Margin % * 19.5% 27.2% 24.2% 32.6% 27.3% 29.6% 30.9% 27.0%
                 
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps 40 bps 180 bps 10 bps 150 bps 20 bps 20 bps 70 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.19) on GAAP earnings per share for the first nine months of 2024.

       
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
       
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
       
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
Dollars in millions   2024       2023       2024       2023  
Numerator:              
Net Income $ 1,160     $ 772     $ 2,738     $ 2,240  
Net discrete tax benefit related to the third quarter 2024   (121 )           (121 )      
Discrete tax benefit related to the second quarter 2023                     (20 )
Interest expense, net of tax (1)   53       51       164       150  
Other (income) expense, net of tax (1)   (288 )     (8 )     (320 )     (31 )
Operating income after taxes $ 804     $ 815     $ 2,461     $ 2,339  
               
Denominator:              
Invested capital:              
Cash and equivalents $ 947     $ 990     $ 947     $ 990  
Trade receivables   3,226       3,163       3,226       3,163  
Inventories   1,817       1,799       1,817       1,799  
Net plant and equipment   2,071       1,904       2,071       1,904  
Goodwill and intangible assets   5,597       5,510       5,597       5,510  
Accounts payable and accrued expenses   (2,211 )     (2,168 )     (2,211 )     (2,168 )
Debt   (8,346 )     (8,066 )     (8,346 )     (8,066 )
Other, net   291       (128 )     291       (128 )
Total net assets (stockholders’ equity)   3,392       3,004       3,392       3,004  
Cash and equivalents   (947 )     (990 )     (947 )     (990 )
Debt   8,346       8,066       8,346       8,066  
Total invested capital $ 10,791     $ 10,080     $ 10,791     $ 10,080  
               
Average invested capital (2) $ 10,682     $ 10,237     $ 10,466     $ 10,239  
               
Net income to average invested capital (3)   43.4 %     30.1 %     34.9 %     29.2 %
After-tax return on average invested capital (3)   30.0 %     31.9 %     31.3 %     30.5 %
                               

(1)  Effective tax rate used for interest expense and other (income) expense for the three months ended September 30, 2024 and 2023 was 23.7% and 23.8%, respectively. Effective tax rate used for interest expense and other (income) expense for the nine months ended September 30, 2024 and 2023 was 23.9% and 23.4%, respectively.

(2)  Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within each of the periods presented.

(3)  Returns for the three months ended September 30, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 4. Returns for the nine months ended September 30, 2024 and 2023 were converted to an annual rate by dividing the calculated return by 3 and multiplying it by 4.

After-tax ROIC for the nine months ended September 30, 2024 included 110 basis points of favorable impact related to the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax) in the first quarter of 2024.

A reconciliation of the tax rate for the three and nine month periods ended September 30, 2024, excluding the third quarter 2024 net discrete tax benefit of $121 million, which included favorable discrete tax benefits of $107 million related to the utilization of capital loss carryforwards upon the sale of Wilsonart International Holdings LLC (“Wilsonart”) and $87 million related to a reorganization of the Company’s intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, is as follows:

       
  Three Months Ended   Nine Months Ended
  September 30, 2024   September 30, 2024
Dollars in millions Income Taxes   Tax Rate   Income Taxes   Tax Rate
As reported $ 202   14.9 %   $ 701   20.4 %
Net discrete tax benefit related to the third quarter 2024   121   8.8 %     121   3.5 %
As adjusted $ 323   23.7 %   $ 822   23.9 %
                       

A reconciliation of the tax rate for the nine months ended September 30, 2023, excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:

   
  Nine Months Ended
  September 30, 2023
Dollars in millions Income Taxes   Tax Rate
As reported $ 656   22.7 %
Discrete tax benefit related to the second quarter 2023   20   0.7 %
As adjusted $ 676   23.4 %
           

   
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
   
  Twelve Months Ended
Dollars in millions December 31, 2023
Numerator:  
Net income $ 2,957  
Discrete tax benefit related to the second quarter 2023   (20 )
Interest expense, net of tax (1)   204  
Other (income) expense, net of tax (1)   (38 )
Operating income after taxes $ 3,103  
   
Denominator:  
Invested capital:  
Cash and equivalents $ 1,065  
Trade receivables   3,123  
Inventories   1,707  
Net plant and equipment   1,976  
Goodwill and intangible assets   5,566  
Accounts payable and accrued expenses   (2,244 )
Debt   (8,164 )
Other, net   (16 )
Total net assets (stockholders’ equity)   3,013  
Cash and equivalents   (1,065 )
Debt   8,164  
Total invested capital $ 10,112  
   
Average invested capital (2) $ 10,214  
   
Net income to average invested capital   29.0 %
After-tax return on average invested capital   30.4 %

(1)  Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2023 was 23.2%.

(2)  Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within the period presented.

A reconciliation of the 2023 effective tax rate excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:

   
  Twelve Months Ended
  December 31, 2023
Dollars in millions Income Taxes   Tax Rate
As reported $ 866   22.6 %
Discrete tax benefit related to the second quarter 2023   20   0.6 %
As adjusted $ 886   23.2 %
           

       
FREE CASH FLOW (UNAUDITED)
       
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
Dollars in millions   2024       2023       2024       2023  
Net cash provided by operating activities $ 891     $ 982     $ 2,167     $ 2,500  
Less: Additions to plant and equipment   (108 )     (126 )     (319 )     (324 )
Free cash flow $ 783     $ 856     $ 1,848     $ 2,176  
               
Net income $ 1,160     $ 772     $ 2,738     $ 2,240  
               
Net cash provided by operating activities to net income conversion rate   77 %     127 %     79 %     112 %
Free cash flow to net income conversion rate   68 % (1 )   111 %     67 %     97 %
                                 

(1)  Excluding the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes, and a discrete tax benefit of $87 million related to a reorganization of the Company’s intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, the free cash flow to net income conversion rate would have been 102% for the three months ended September 30, 2024.

   
ADJUSTED NET INCOME PER SHARE – DILUTED (UNAUDITED)
   
  Three Months Ended
  September 30, 2024
As reported $ 3.91  
Impact of sale of noncontrolling interest in Wilsonart (1)   (1.26 )
As adjusted $ 2.65  
       

(1)  Includes the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes.

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