ITW Reports Fourth Quarter and Full Year 2020 Results
Provides 2021 Guidance Including EPS Growth of 18% at the Mid-point
Fourth-Quarter 2020 Highlights
- Total revenue of $3.5 billion, an increase of 5% versus Q3 2020
- Record Q4 operating income of $883 million, an increase of 7% year-over-year
- Record Q4 operating margin of 25.4% as enterprise initiatives contributed 130 basis points
- GAAP EPS of $2.02, an increase of 2%, or 7% excluding $0.11 of divestiture gains in Q4 2019
- Record Q4 after-tax ROIC of 32.0%, an increase of 310 basis points
- Strong free cash flow of $705 million, 110% of net income
2021 Guidance
- Organic growth of 7 to 10%
- GAAP EPS of $7.60 to $8.00, an increase of 15 to 21%
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 Results
Fourth-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 Guidance
The 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 Works
ITW (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 SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||
| In millions except per share amounts | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
| Operating Revenue | $ | 3,475 | $ | 3,469 | $ | 12,574 | $ | 14,109 | |||||||||||
| Cost of revenue | 2,000 | 2,022 | 7,375 | 8,187 | |||||||||||||||
| Selling, administrative, and research and development expenses | 557 | 586 | 2,163 | 2,361 | |||||||||||||||
| Amortization and impairment of intangible assets | 35 | 37 | 154 | 159 | |||||||||||||||
| Operating Income | 883 | 824 | 2,882 | 3,402 | |||||||||||||||
| Interest expense | (52 | ) | (51 | ) | (206 | ) | (221 | ) | |||||||||||
| Other income (expense) | (7 | ) | 58 | 28 | 107 | ||||||||||||||
| Income Before Taxes | 824 | 831 | 2,704 | 3,288 | |||||||||||||||
| Income taxes | 182 | 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: | |||||||||||||||||||
| Average | 316.7 | 321.2 | 316.9 | 323.9 | |||||||||||||||
| Average assuming dilution | 318.1 | 322.9 | 318.3 | 325.6 | |||||||||||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
| In millions | December 31, 2020 | December 31, 2019 | |||||||
| Assets | |||||||||
| Current Assets: | |||||||||
| Cash and equivalents | $ | 2,564 | $ | 1,981 | |||||
| Trade receivables | 2,506 | 2,461 | |||||||
| Inventories | 1,189 | 1,164 | |||||||
| Prepaid expenses and other current assets | 264 | 296 | |||||||
| Assets held for sale | — | 351 | |||||||
| Total current assets | 6,523 | 6,253 | |||||||
| Net plant and equipment | 1,777 | 1,729 | |||||||
| Goodwill | 4,690 | 4,492 | |||||||
| Intangible assets | 781 | 851 | |||||||
| Deferred income taxes | 533 | 516 | |||||||
| Other assets | 1,308 | 1,227 | |||||||
| $ | 15,612 | $ | 15,068 | ||||||
| Liabilities and Stockholders' Equity | |||||||||
| Current Liabilities: | |||||||||
| Short-term debt | $ | 350 | $ | 4 | |||||
| Accounts payable | 534 | 472 | |||||||
| Accrued expenses | 1,284 | 1,217 | |||||||
| Cash dividends payable | 361 | 342 | |||||||
| Income taxes payable | 60 | 48 | |||||||
| Liabilities held for sale | — | 71 | |||||||
| Total current liabilities | 2,589 | 2,154 | |||||||
| Noncurrent Liabilities: | |||||||||
| Long-term debt | 7,772 | 7,754 | |||||||
| Deferred income taxes | 588 | 668 | |||||||
| Noncurrent income taxes payable | 413 | 462 | |||||||
| Other liabilities | 1,068 | 1,000 | |||||||
| Total noncurrent liabilities | 9,841 | 9,884 | |||||||
| Stockholders' Equity: | |||||||||
| Common stock | 6 | 6 | |||||||
| Additional paid-in-capital | 1,362 | 1,304 | |||||||
| Retained earnings | 23,114 | 22,403 | |||||||
| Common stock held in treasury | (19,659 | ) | (18,982 | ) | |||||
| Accumulated other comprehensive income (loss) | (1,642 | ) | (1,705 | ) | |||||
| Noncontrolling interest | 1 | 4 | |||||||
| Total stockholders' equity | 3,182 | 3,030 | |||||||
| $ | 15,612 | $ | 15,068 | ||||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| Three Months Ended December 31, 2020 | ||||||||||
| Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||||
| Automotive OEM | $ | 800 | $ | 191 | 23.9 | % | ||||
| Food Equipment | 471 | 106 | 22.3 | % | ||||||
| Test & Measurement and Electronics | 534 | 153 | 28.6 | % | ||||||
| Welding | 368 | 107 | 28.9 | % | ||||||
| Polymers & Fluids | 437 | 111 | 25.4 | % | ||||||
| Construction Products | 430 | 112 | 26.2 | % | ||||||
| Specialty Products | 439 | 119 | 27.0 | % | ||||||
| Intersegment | (4 | ) | — | — | % | |||||
| Total Segments | 3,475 | 899 | 25.8 | % | ||||||
| Unallocated | — | (16 | ) | — | % | |||||
| Total Company | $ | 3,475 | $ | 883 | 25.4 | % | ||||
| Twelve Months Ended December 31, 2020 | ||||||||||
| Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||||
| Automotive OEM | $ | 2,571 | $ | 457 | 17.8 | % | ||||
| Food Equipment | 1,739 | 342 | 19.6 | % | ||||||
| Test & Measurement and Electronics | 1,963 | 507 | 25.8 | % | ||||||
| Welding | 1,384 | 376 | 27.1 | % | ||||||
| Polymers & Fluids | 1,622 | 402 | 24.8 | % | ||||||
| Construction Products | 1,652 | 421 | 25.5 | % | ||||||
| Specialty Products | 1,660 | 432 | 26.0 | % | ||||||
| Intersegment | (17 | ) | — | — | % | |||||
| Total Segments | 12,574 | 2,937 | 23.4 | % | ||||||
| Unallocated | — | (55 | ) | — | % | |||||
| Total Company | $ | 12,574 | $ | 2,882 | 22.9 | % | ||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| Q4 2020 vs. Q4 2019 Favorable/(Unfavorable) | |||||||||||||||||||||
| Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | |||||||||||||
| Organic | 7.8 | % | (19.1 | ) | % | (3.1 | ) | % | (2.4 | ) | % | 6.8 | % | 8.1 | % | (2.8 | ) | % | (0.9 | ) | % |
| Acquisitions/ Divestitures | — | % | — | % | (1.9 | ) | % | (3.1 | ) | % | — | % | — | % | (0.3 | ) | % | (0.7 | ) | % | |
| Translation | 2.6 | % | 1.8 | % | 1.7 | % | 0.7 | % | 0.2 | % | 3.8 | % | 1.5 | % | 1.8 | % | |||||
| Operating Revenue | 10.4 | % | (17.3 | ) | % | (3.3 | ) | % | (4.8 | ) | % | 7.0 | % | 11.9 | % | (1.6 | ) | % | 0.2 | % | |
| Q4 2020 vs. Q4 2019 Favorable/(Unfavorable) | ||||||||
| Change in Operating Margin | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW |
| Operating Leverage | 140 bps | (470) bps | (70) bps | (50) bps | 160 bps | 160 bps | (60) bps | (20) bps |
| Changes in Variable Margin & OH Costs | 120 bps | (60) bps | 110 bps | 280 bps | 10 bps | 240 bps | 270 bps | 160 bps |
| Total Organic | 260 bps | (530) bps | 40 bps | 230 bps | 170 bps | 400 bps | 210 bps | 140 bps |
| Acquisitions/ Divestitures | — | — | 40 bps | 50 bps | — | — | 30 bps | 10 bps |
| Restructuring/Other | 10 bps | 10 bps | (30) bps | 70 bps | 70 bps | — | 10 bps | 20 bps |
| Total Operating Margin Change | 270 bps | (520) bps | 50 bps | 350 bps | 240 bps | 400 bps | 250 bps | 170 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 SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| Full Year 2020 vs Full Year 2019 Favorable/(Unfavorable) | |||||||||||||||||||||||
| Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total 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 Margin | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW |
| Operating Leverage | (330) bps | (540) bps | (130) bps | (220) bps | (30) bps | 30 bps | (180) bps | (230) bps |
| Changes in Variable Margin & OH Costs | (90) bps | (140) bps | 120 bps | 60 bps | 180 bps | 130 bps | 90 bps | 70 bps |
| Total Organic | (420) bps | (680) bps | (10) bps | (160) bps | 150 bps | 160 bps | (90) bps | (160) bps |
| Acquisitions/ Divestitures | — | — | 40 bps | 60 bps | — | — | 40 bps | 10 bps |
| Restructuring/Other | 50 bps | — | (10) bps | 40 bps | 50 bps | 30 bps | 60 bps | 30 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 SUBSIDIARIES
GAAP 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 millions | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
| Operating income | $ | 883 | $ | 824 | $ | 2,882 | $ | 3,402 | |||||||||||
| Tax rate | 22.1 | % | 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 | |||||||||||
| Inventories | 1,189 | 1,164 | 1,189 | 1,164 | |||||||||||||||
| Net assets held for sale | — | 280 | — | 280 | |||||||||||||||
| Net plant and equipment | 1,777 | 1,729 | 1,777 | 1,729 | |||||||||||||||
| Goodwill and intangible assets | 5,471 | 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 capital | 32.0 | % | 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 millions | Income Taxes | Tax Rate | ||||
| As reported | $ | 767 | 23.3 | % | ||
| Discrete tax benefit related to third quarter | 21 | 0.7 | % | |||
| As adjusted | $ | 788 | 24.0 | % | ||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
FREE CASH FLOW (UNAUDITED)
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||
| Dollars in millions | 2020 | 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 rate | 110 | % | 108 | % | 122 | % | 106 | % | |||||||||||
TOTAL DEBT TO EBITDA (UNAUDITED)
| Twelve Months Ended | ||||
| Dollars in millions | December 31, 2020 | |||
| Total debt | $ | 8,122 | ||
| Net income | $ | 2,109 | ||
| Add: | ||||
| Interest expense | 206 | |||
| Other income | (28 | ) | ||
| Income taxes | 595 | |||
| Depreciation | 273 | |||
| Amortization and impairment of intangible assets | 154 | |||
| EBITDA | $ | 3,309 | ||
| Total debt to EBITDA ratio | 2.5 | x | ||
| Media Contact Illinois Tool Works Trisha Knych Tel: 224.661.7566 mediarelations@itw.com | Investor Relations Illinois Tool Works Karen Fletcher Tel: 224.661.7433 investorrelations@itw.com |