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ITW Reports Fourth Quarter and Full Year 2020 Results

February 5, 2021 8:00 AM

Provides 2021 Guidance Including EPS Growth of 18% at the Mid-point

Fourth-Quarter 2020 Highlights

2021 Guidance

GLENVIEW, Ill., Feb. 05, 2021 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth-quarter and full-year 2020 results.

“The ITW team closed out 2020 with another quarter of strong execution and financial performance, generating revenue of $3.5 billion and delivering all-time record Q4 operating income, operating margin, and ROIC performance,” said E. Scott Santi, chairman and chief executive officer.

“Looking back at 2020 in its entirety, our people around the world provided another meaningful demonstration of the power of the ITW Business Model and the differentiating value of our decentralized entrepreneurial culture in how the company responded to the unprecedented events and challenges of the past year. While it was the unique circumstances that we faced and our response to them that defined the year, it was the sum total of all that the ITW team has built over the last eight years through the execution of our enterprise strategy that gave us the capabilities and options to respond as we did. In the face of a global pandemic, our ability to deliver strong operational and financial performance while remaining fully invested in the execution of our long-term enterprise strategy provides further evidence that ITW is a company that has the enduring competitive advantages, resilience, and agility necessary to deliver consistent top tier performance in any environment and over the long term. I offer my heartfelt thanks to all my ITW colleagues for their dedication and commitment to keeping their co-workers safe, serving our customers with excellence, and continuing to make progress on our path to ITW’s full-potential performance,” Santi concluded.

2020 ResultsFourth-quarter revenue of $3.5 billion increased 0.2 percent versus prior year, as organic revenue declined 0.9 percent, divestitures reduced revenue by 0.7 percent and foreign currency translation impact was favorable by 1.8 percent. Product Line Simplification (PLS) reduced organic revenue by 20 basis points. GAAP EPS increased two percent to $2.02. Excluding $0.11 of divestiture gains in the fourth quarter of 2019, EPS increased seven percent. Operating income increased seven percent to $883 million. Operating margin was 25.4 percent, an increase of 170 basis points with enterprise initiatives contributing 130 basis points. Free cash flow was $705 million, 110 percent of net income. After-tax return on invested capital improved to 32.0 percent compared to 28.9 percent in the prior year period. The effective tax rate for the fourth quarter was 22.1 percent.

Full year revenue of $12.6 billion declined 10.9 percent, as organic revenue declined 9.8 percent, divestitures reduced revenue by 0.9 percent and foreign currency translation impact was unfavorable by 0.2 percent. PLS reduced organic revenue by 30 basis points. 2020 GAAP EPS declined fourteen percent to $6.63. Operating margin of 22.9 percent was down from 24.1 percent in the prior year as the impact of lower volumes was partially offset by enterprise initiatives of 120 basis points. Free cash flow was $2.6 billion, 122 percent of net income. After-tax return on invested capital was 26.2 percent. The company repurchased $706 million of its own shares and raised its dividend seven percent in August 2020 to an annualized $4.56 per share. The effective tax rate for the full year was 22.0 percent.

2021 GuidanceThe company initiated full-year GAAP EPS guidance in a range of $7.60 to $8.00 per share, an increase of 15 to 21 percent. Organic growth is expected to be in the range of seven to ten percent. Revenue is expected to grow in the range of nine to twelve percent as foreign currency translation at current exchange rates is projected to increase revenues by approximately two percent. PLS impact is forecasted to be approximately 50 basis points. Operating margin is expected to be in a range of 24 to 25 percent, with enterprise initiatives contributing approximately 100 basis points. Free cash flow is expected to be greater than 100 percent of net income. The company plans to repurchase approximately $1 billion of its shares in 2021 and expects an effective tax rate in the range of 23 to 24 percent.

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 conversion rate is based on assumptions that are difficult to predict, and a reconciliation of estimated Free Cash Flow to the most directly comparable GAAP measure has been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of availability of reliable forward-looking cash flow and operating information.

Forward-looking Statement 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 the potential effects of the COVID-19 pandemic, related government actions and the company’s strategy in response thereto on the company’s business, the anticipated duration of the company’s COVID-19 containment and recovery phases, expected impact of tariffs and raw material inflation, product line simplification activities and enterprise initiatives, future financial performance, operating performance, free cash flow, organic and total revenue, operating margin, price/cost impact, statements regarding diluted income per share, restructuring expenses and related benefits, expected adjustments to capacity and cost structure, expected dividend payments, expected repatriation, after-tax return on invested capital, expected total shareholder returns, effective tax rates, exchange rates, expected access to liquidity sources, expected capital allocation, expected timing and amount of share repurchases, end market economic and regulatory conditions, potential acquisitions and dispositions and related impact on financial results, including statements with respect to the acquisition of the MTS Test & Simulation business, and the Company’s 2021 guidance. These statements are subject to certain risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those anticipated. Such factors include those contained in ITW's Form 10-K for 2019 and subsequent reports filed with the SEC.

About Illinois Tool WorksITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $12.6 billion in 2020. 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 43,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSTATEMENT OF INCOME (UNAUDITED)

Three Months Ended Twelve Months Ended
December 31, December 31,
In millions except per share amounts2020 2019 2020 2019
Operating Revenue$3,475 $3,469 $12,574 $14,109
Cost of revenue2,000 2,022 7,375 8,187
Selling, administrative, and research and development expenses557 586 2,163 2,361
Amortization and impairment of intangible assets35 37 154 159
Operating Income883 824 2,882 3,402
Interest expense(52) (51) (206) (221)
Other income (expense)(7) 58 28 107
Income Before Taxes824 831 2,704 3,288
Income taxes182 190 595 767
Net Income$642 $641 $2,109 $2,521
Net Income Per Share:
Basic$2.03 $2.00 $6.66 $7.78
Diluted$2.02 $1.99 $6.63 $7.74
Cash Dividends Per Share:
Paid$1.14 $1.07 $4.35 $4.07
Declared$1.14 $1.07 $4.42 $4.14
Shares of Common Stock Outstanding During the Period:
Average316.7 321.2 316.9 323.9
Average assuming dilution318.1 322.9 318.3 325.6

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSTATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millionsDecember 31, 2020 December 31, 2019
Assets
Current Assets:
Cash and equivalents$2,564 $1,981
Trade receivables2,506 2,461
Inventories1,189 1,164
Prepaid expenses and other current assets264 296
Assets held for sale— 351
Total current assets6,523 6,253
Net plant and equipment1,777 1,729
Goodwill4,690 4,492
Intangible assets781 851
Deferred income taxes533 516
Other assets1,308 1,227
$15,612 $15,068
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt$350 $4
Accounts payable534 472
Accrued expenses1,284 1,217
Cash dividends payable361 342
Income taxes payable60 48
Liabilities held for sale— 71
Total current liabilities2,589 2,154
Noncurrent Liabilities:
Long-term debt7,772 7,754
Deferred income taxes588 668
Noncurrent income taxes payable413 462
Other liabilities1,068 1,000
Total noncurrent liabilities9,841 9,884
Stockholders' Equity:
Common stock6 6
Additional paid-in-capital1,362 1,304
Retained earnings23,114 22,403
Common stock held in treasury(19,659) (18,982)
Accumulated other comprehensive income (loss)(1,642) (1,705)
Noncontrolling interest1 4
Total stockholders' equity3,182 3,030
$15,612 $15,068

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Three Months Ended December 31, 2020
Dollars in millionsTotalRevenueOperatingIncomeOperatingMargin
Automotive OEM$800 $191 23.9%
Food Equipment471 106 22.3%
Test & Measurement and Electronics534 153 28.6%
Welding368 107 28.9%
Polymers & Fluids437 111 25.4%
Construction Products430 112 26.2%
Specialty Products439 119 27.0%
Intersegment(4) — —%
Total Segments3,475 899 25.8 %
Unallocated— (16) —%
Total Company$3,475 $883 25.4 %

Twelve Months Ended December 31, 2020
Dollars in millionsTotalRevenueOperatingIncomeOperatingMargin
Automotive OEM$2,571 $457 17.8%
Food Equipment1,739 342 19.6%
Test & Measurement and Electronics1,963 507 25.8%
Welding1,384 376 27.1%
Polymers & Fluids1,622 402 24.8%
Construction Products1,652 421 25.5%
Specialty Products1,660 432 26.0%
Intersegment(17) — —%
Total Segments12,574 2,937 23.4 %
Unallocated— (55) —%
Total Company$12,574 $2,882 22.9 %

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Q4 2020 vs. Q4 2019 Favorable/(Unfavorable)
Operating RevenueAutomotiveOEMFoodEquipmentTest &MeasurementandElectronicsWeldingPolymers &FluidsConstructionProductsSpecialtyProductsTotal ITW
Organic7.8%(19.1)%(3.1)%(2.4)%6.8%8.1%(2.8)%(0.9)%
Acquisitions/ Divestitures—%— %(1.9)%(3.1)%—%—%(0.3)%(0.7)%
Translation2.6%1.8 %1.7 %0.7 %0.2%3.8%1.5 %1.8 %
Operating Revenue10.4%(17.3)%(3.3)%(4.8)%7.0%11.9%(1.6)%0.2 %

Q4 2020 vs. Q4 2019 Favorable/(Unfavorable)
Change in Operating MarginAutomotiveOEMFoodEquipmentTest &MeasurementandElectronicsWeldingPolymers &FluidsConstructionProductsSpecialtyProductsTotal ITW
Operating Leverage140 bps(470) bps(70) bps(50) bps160 bps160 bps(60) bps(20) bps
Changes in Variable Margin & OH Costs120 bps(60) bps110 bps280 bps10 bps240 bps270 bps160 bps
Total Organic260 bps(530) bps40 bps230 bps170 bps400 bps210 bps140 bps
Acquisitions/ Divestitures——40 bps50 bps——30 bps10 bps
Restructuring/Other10 bps10 bps(30) bps70 bps70 bps—10 bps20 bps
Total Operating Margin Change270 bps(520) bps50 bps350 bps240 bps400 bps250 bps170 bps
Total Operating Margin % *23.9%22.3%28.6%28.9%25.4%26.2%27.0%25.4%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 40 bps 80 bps 180 bps 20 bps 300 bps 20 bps 90 bps 110 bps**
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.09) on GAAP earnings per share for the fourth quarter of 2020.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Full Year 2020 vs Full Year 2019 Favorable/(Unfavorable)
Operating RevenueAutomotiveOEMFoodEquipmentTest &MeasurementandElectronicsWeldingPolymers &FluidsConstructionProductsSpecialtyProductsTotal ITW
Organic(16.0)%(20.6)%(4.9)%(11.8)%(1.4)%1.5%(8.2)%(9.8)%
Acquisitions/ Divestitures— %— %(2.8)%(3.7)%— %—%(0.8)%(0.9)%
Translation(0.1)%0.1 %0.3 %— %(1.4)%0.2%(0.1)%(0.2)%
Operating Revenue(16.1)%(20.5)%(7.4)%(15.5)%(2.8)%1.7%(9.1)%(10.9)%

Full Year 2020 vs Full Year 2019 Favorable/(Unfavorable)
Change in Operating MarginAutomotiveOEMFoodEquipmentTest &MeasurementandElectronicsWeldingPolymers &FluidsConstructionProductsSpecialtyProductsTotal ITW
Operating Leverage(330) bps(540) bps(130) bps(220) bps(30) bps30 bps(180) bps(230) bps
Changes in Variable Margin & OH Costs(90) bps(140) bps120 bps60 bps180 bps130 bps90 bps70 bps
Total Organic (420) bps (680) bps (10) bps (160) bps 150 bps 160 bps (90) bps (160) bps
Acquisitions/ Divestitures——40 bps60 bps——40 bps10 bps
Restructuring/Other50 bps—(10) bps40 bps50 bps30 bps60 bps30 bps
Total Operating Margin Change (370) bps (680) bps 20 bps (60) bps 200 bps 190 bps 10 bps (120) bps
Total Operating Margin % *17.8%19.6%25.8%27.1%24.8%25.5%26.0%22.9%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps 80 bps 250 bps 20 bps 330 bps 30 bps 90 bps 130 bps**
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.37) on GAAP earnings per share for 2020.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESGAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Three Months Ended Twelve Months Ended
December 31, December 31,
Dollars in millions2020 2019 2020 2019
Operating income$883 $824 $2,882 $3,402
Tax rate22.1 % 22.8 % 22.0 % 24.0 %
Income taxes(194) (188) (633) (815)
Operating income after taxes$689 $636 $2,249 $2,587
Invested capital:
Trade receivables$2,506 $2,461 $2,506 $2,461
Inventories1,189 1,164 1,189 1,164
Net assets held for sale— 280 — 280
Net plant and equipment1,777 1,729 1,777 1,729
Goodwill and intangible assets5,471 5,343 5,471 5,343
Accounts payable and accrued expenses(1,818) (1,689) (1,818) (1,689)
Other, net(385) (481) (385) (481)
Total invested capital$8,740 $8,807 $8,740 $8,807
Average invested capital$8,606 $8,797 $8,576 $9,028
After-tax return on average invested capital32.0 % 28.9 % 26.2 % 28.7 %

A reconciliation of the 2019 effective tax rate excluding the third quarter 2019 discrete tax benefit of $21 million is as follows:

Twelve Months Ended
December 31, 2019
Dollars in millionsIncome Taxes Tax Rate
As reported$767 23.3%
Discrete tax benefit related to third quarter21 0.7%
As adjusted$788 24.0%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESGAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

FREE CASH FLOW (UNAUDITED)

Three Months Ended Twelve Months Ended
December 31, December 31,
Dollars in millions2020 2019 2020 2019
Net cash provided by operating activities$773 $774 $2,807 $2,995
Less: Additions to plant and equipment(68) (82) (236) (326)
Free cash flow$705 $692 $2,571 $2,669
Net income$642 $641 $2,109 $2,521
Free cash flow to net income conversion rate110 % 108 % 122 % 106 %

TOTAL DEBT TO EBITDA (UNAUDITED)

Twelve Months Ended
Dollars in millionsDecember 31, 2020
Total debt$8,122
Net income$2,109
Add:
Interest expense206
Other income(28)
Income taxes595
Depreciation273
Amortization and impairment of intangible assets154
EBITDA$3,309
Total debt to EBITDA ratio 2.5x

Media Contact Illinois Tool Works Trisha Knych Tel: 224.661.7566 [email protected]Investor RelationsIllinois Tool WorksKaren FletcherTel: 224.661.7433 [email protected]

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Source: Illinois Tool Works Inc.

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