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• | Total revenue $3.6 billion; organic growth +2%; North America +4% |
• | Operating margin 24.6%, +30 bps ex. 2017 legal settlement |
• | GAAP EPS $1.90, +11% ex. 2017 legal settlement |
• | Full-year EPS guidance narrowed $7.55 to $7.65; 15% growth at the mid-point |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions except per share amounts | 2018 | 2017(1) | 2018 | 2017(1) | |||||||||||
Operating Revenue | $ | 3,613 | $ | 3,615 | $ | 11,188 | $ | 10,685 | |||||||
Cost of revenue | 2,096 | 2,092 | 6,508 | 6,182 | |||||||||||
Selling, administrative, and research and development expenses | 581 | 592 | 1,813 | 1,803 | |||||||||||
Legal settlement (income) | — | (80 | ) | — | (95 | ) | |||||||||
Amortization and impairment of intangible assets | 47 | 51 | 143 | 156 | |||||||||||
Operating Income | 889 | 960 | 2,724 | 2,639 | |||||||||||
Interest expense | (64 | ) | (65 | ) | (194 | ) | (194 | ) | |||||||
Other income (expense) | 10 | 11 | 48 | 29 | |||||||||||
Income Before Taxes | 835 | 906 | 2,578 | 2,474 | |||||||||||
Income Taxes | 197 | 266 | 622 | 711 | |||||||||||
Net Income | $ | 638 | $ | 640 | $ | 1,956 | $ | 1,763 | |||||||
Net Income Per Share: | |||||||||||||||
Basic | $ | 1.91 | $ | 1.86 | $ | 5.81 | $ | 5.12 | |||||||
Diluted | $ | 1.90 | $ | 1.85 | $ | 5.77 | $ | 5.07 | |||||||
Cash Dividends Per Share: | |||||||||||||||
Paid | $ | 0.78 | $ | 0.65 | $ | 2.34 | $ | 1.95 | |||||||
Declared | $ | 1.00 | $ | 0.78 | $ | 2.56 | $ | 2.08 | |||||||
Shares of Common Stock Outstanding During the Period: | |||||||||||||||
Average | 333.3 | 343.4 | 336.7 | 344.7 | |||||||||||
Average assuming dilution | 335.3 | 346.0 | 339.0 | 347.5 |
(1) | The three and nine months ended September 30, 2017 have been restated to reflect the adoption of new accounting guidance in 2018 which resulted in the presentation of $1 million and $5 million, respectively, of other net periodic benefit income in Other income (expense) rather than in Operating Income, with no change in Net Income. |
In millions | September 30, 2018 | December 31, 2017 | |||||
Assets | |||||||
Current Assets: | |||||||
Cash and equivalents | $ | 1,589 | $ | 3,094 | |||
Trade receivables | 2,777 | 2,628 | |||||
Inventories | 1,338 | 1,220 | |||||
Prepaid expenses and other current assets | 236 | 336 | |||||
Total current assets | 5,940 | 7,278 | |||||
Net plant and equipment | 1,799 | 1,778 | |||||
Goodwill | 4,655 | 4,752 | |||||
Intangible assets | 1,130 | 1,272 | |||||
Deferred income taxes | 614 | 505 | |||||
Other assets | 1,181 | 1,195 | |||||
$ | 15,319 | $ | 16,780 | ||||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 1,350 | $ | 850 | |||
Accounts payable | 576 | 590 | |||||
Accrued expenses | 1,268 | 1,258 | |||||
Cash dividends payable | 332 | 266 | |||||
Income taxes payable | 137 | 89 | |||||
Total current liabilities | 3,663 | 3,053 | |||||
Noncurrent Liabilities: | |||||||
Long-term debt | 6,054 | 7,478 | |||||
Deferred income taxes | 707 | 164 | |||||
Noncurrent income taxes payable | 496 | 614 | |||||
Other liabilities | 853 | 882 | |||||
Total noncurrent liabilities | 8,110 | 9,138 | |||||
Stockholders’ Equity: | |||||||
Common stock | 6 | 6 | |||||
Additional paid-in-capital | 1,241 | 1,218 | |||||
Retained earnings | 20,938 | 20,210 | |||||
Common stock held in treasury | (17,054 | ) | (15,562 | ) | |||
Accumulated other comprehensive income (loss) | (1,589 | ) | (1,287 | ) | |||
Noncontrolling interest | 4 | 4 | |||||
Total stockholders’ equity | 3,546 | 4,589 | |||||
$ | 15,319 | $ | 16,780 |
Three Months Ended September 30, 2018 | ||||||||
Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||
Automotive OEM | $ | 781 | $ | 168 | 21.5 | % | ||
Food Equipment | 567 | 151 | 26.6 | % | ||||
Test & Measurement and Electronics | 536 | 132 | 24.7 | % | ||||
Welding | 414 | 117 | 28.2 | % | ||||
Polymers & Fluids | 415 | 91 | 22.1 | % | ||||
Construction Products | 431 | 111 | 25.8 | % | ||||
Specialty Products | 475 | 128 | 26.8 | % | ||||
Intersegment | (6 | ) | — | — | % | |||
Total Segments | 3,613 | 898 | 24.8 | % | ||||
Unallocated | — | (9 | ) | — | % | |||
Total Company | $ | 3,613 | $ | 889 | 24.6 | % |
Nine Months Ended September 30, 2018 | ||||||||
Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||
Automotive OEM | $ | 2,561 | $ | 583 | 22.8 | % | ||
Food Equipment | 1,647 | 421 | 25.6 | % | ||||
Test & Measurement and Electronics | 1,633 | 390 | 23.9 | % | ||||
Welding | 1,277 | 363 | 28.4 | % | ||||
Polymers & Fluids | 1,302 | 278 | 21.4 | % | ||||
Construction Products | 1,303 | 315 | 24.2 | % | ||||
Specialty Products | 1,482 | 404 | 27.2 | % | ||||
Intersegment | (17 | ) | — | — | % | |||
Total Segments | 11,188 | 2,754 | 24.6 | % | ||||
Unallocated | — | (30 | ) | — | % | |||
Total Company | $ | 11,188 | $ | 2,724 | 24.3 | % |
Q3 2018 vs. Q3 2017 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | (0.2 | )% | 3.8 | % | 2.9 | % | 10.3 | % | (0.7 | )% | 0.9 | % | (3.8 | )% | 1.5 | % |
Acquisitions/Divestitures | — | % | — | % | — | % | — | % | (0.6 | )% | — | % | — | % | (0.1 | )% |
Translation | (1.7 | )% | (0.7 | )% | (0.7 | )% | (0.9 | )% | (3.1 | )% | (2.9 | )% | (0.9 | )% | (1.5 | )% |
Operating Revenue | (1.9 | )% | 3.1 | % | 2.2 | % | 9.4 | % | (4.4 | )% | (2.0 | )% | (4.7 | )% | (0.1 | )% |
Q3 2018 vs. Q3 2017 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 | 70 bps | 70 bps | 160 bps | (20) bps | 20 bps | (70) bps | 20 bps |
Changes in Variable Margin & OH Costs | 40 bps | (180) bps | (10) bps | (40) bps | 80 bps | 40 bps | (40) bps | (230) bps (1) |
Total Organic | 30 bps | (110) bps | 60 bps | 120 bps | 60 bps | 60 bps | (110) bps | (210) bps |
Acquisitions/Divestitures | — | — | — | — | 10 bps | — | — | — |
Restructuring/Other | (40) bps | 40 bps | — | 40 bps | 40 bps | (20) bps | 20 bps | 10 bps |
Total Operating Margin Change | (10) bps | (70) bps | 60 bps | 160 bps | 110 bps | 40 bps | (90) bps | (200) bps |
Total Operating Margin % * | 21.5% | 26.6% | 24.7% | 28.2% | 22.1% | 25.8% | 26.8% | 24.6% |
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 50 bps | 70 bps | 270 bps | 30 bps | 390 bps | 40 bps | 110 bps | 130 bps** |
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.11) on GAAP earnings per share for the third quarter of 2018. | ||||||||
(1) The third quarter of 2017 included 230 basis points of favorability from the confidential legal settlement. |
YTD 2018 vs YTD 2017 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | 1.2 | % | 2.0 | % | 4.7 | % | 10.4 | % | 0.2 | % | 1.8 | % | 0.2 | % | 2.6 | % |
Acquisitions/Divestitures | — | % | — | % | — | % | — | % | (0.2 | )% | — | % | (0.1 | )% | — | % |
Translation | 3.6 | % | 2.6 | % | 2.5 | % | 0.6 | % | 0.4 | % | 1.6 | % | 2.0 | % | 2.1 | % |
Operating Revenue | 4.8 | % | 4.6 | % | 7.2 | % | 11.0 | % | 0.4 | % | 3.4 | % | 2.1 | % | 4.7 | % |
YTD 2018 vs. YTD 2017 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 | 30 bps | 40 bps | 120 bps | 150 bps | 10 bps | 50 bps | 10 bps | 50 bps |
Changes in Variable Margin & OH Costs | (30) bps | (120) bps | 70 bps | (40) bps | (10) bps | (10) bps | (70) bps | (100) bps (1) |
Total Organic | — | (80) bps | 190 bps | 110 bps | — | 40 bps | (60) bps | (50) bps |
Acquisitions/Divestitures | — | — | — | — | — | — | — | — |
Restructuring/Other | 10 bps | 10 bps | (10) bps | 10 bps | 40 bps | (20) bps | 20 bps | 10 bps |
Total Operating Margin Change | 10 bps | (70) bps | 180 bps | 120 bps | 40 bps | 20 bps | (40) bps | (40) bps |
Total Operating Margin % * | 22.8% | 25.6% | 23.9% | 28.4% | 21.4% | 24.2% | 27.2% | 24.3% |
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 50 bps | 70 bps | 270 bps | 30 bps | 380 bps | 40 bps | 110 bps | 140 bps** |
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.32) on GAAP earnings per share for the first nine months of 2018. | ||||||||
(1) The year-to-date period of 2017 included 90 basis points of favorability from the confidential legal settlement. |
Three Months Ended | Nine Months Ended | Twelve Months Ended | |||||||||||||||||
September 30, | September 30, | December 31, | |||||||||||||||||
Dollars in millions | 2018 | 2017 | 2018 | 2017 | 2017 | ||||||||||||||
Operating income(1) | $ | 889 | $ | 960 | $ | 2,724 | $ | 2,639 | $ | 3,485 | |||||||||
Less: Legal settlement income | — | (80 | ) | — | (95 | ) | (95 | ) | |||||||||||
Adjusted operating income | 889 | 880 | 2,724 | 2,544 | 3,390 | ||||||||||||||
Tax rate(2) | 25.5 | % | 29.3 | % | 25.0 | % | 28.7 | % | 28.3 | % | |||||||||
Income taxes | (227 | ) | (259 | ) | (681 | ) | (731 | ) | (958 | ) | |||||||||
Operating income after taxes | $ | 662 | $ | 621 | $ | 2,043 | $ | 1,813 | $ | 2,432 | |||||||||
Invested capital: | |||||||||||||||||||
Trade receivables | $ | 2,777 | $ | 2,672 | $ | 2,777 | $ | 2,672 | $ | 2,628 | |||||||||
Inventories | 1,338 | 1,225 | 1,338 | 1,225 | 1,220 | ||||||||||||||
Net plant and equipment | 1,799 | 1,759 | 1,799 | 1,759 | 1,778 | ||||||||||||||
Goodwill and intangible assets | 5,785 | 6,051 | 5,785 | 6,051 | 6,024 | ||||||||||||||
Accounts payable and accrued expenses | (1,844 | ) | (1,816 | ) | (1,844 | ) | (1,816 | ) | (1,848 | ) | |||||||||
Other, net | (494 | ) | 487 | (494 | ) | 487 | 21 | ||||||||||||
Total invested capital | $ | 9,361 | $ | 10,378 | $ | 9,361 | $ | 10,378 | $ | 9,823 | |||||||||
Average invested capital | $ | 9,470 | $ | 10,354 | $ | 9,634 | $ | 10,051 | $ | 10,005 | |||||||||
Annualized return on average invested capital | 28.0 | % | 24.0 | % | 28.3 | % | 24.1 | % | 24.3 | % |
(1) | The 2017 results have been restated to reflect the adoption of new accounting guidance in 2018 related to the presentation of net periodic benefit costs. The adoption of this guidance resulted in the presentation of $9 million, $5 million and $1 million of other net periodic benefit income in Other income (expense) rather than in Operating Income for the full year 2017, first nine months of 2017 and third quarter 2017, respectively, with no change in Net Income. |
(2) | The tax rate for the three months ended September 30, 2018 excludes a net discrete tax benefit of $15 million. The tax rate for the nine months ended September 30, 2018 represents the estimated effective tax rate for the full year of 2018, excluding the third quarter net discrete tax benefit. The tax rate for the twelve months ended December 31, 2017 excludes the impact of the $658 million discrete tax charge related to the 2017 U.S. tax legislation. |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net cash provided by operating activities | $ | 844 | $ | 780 | $ | 2,002 | $ | 1,707 | |||||||
Less: Additions to plant and equipment | (101 | ) | (78 | ) | (282 | ) | (219 | ) | |||||||
Free cash flow | $ | 743 | $ | 702 | $ | 1,720 | $ | 1,488 | |||||||
Less: 2017 legal settlement | — | (65 | ) | — | (95 | ) | |||||||||
Adjusted free cash flow | $ | 743 | $ | 637 | $ | 1,720 | $ | 1,393 |
Fourth Quarter 2017 | Full Year 2017 | ||||||||
Dollars in millions | As Reported(1) | Tax Charge | Ex. Tax Charge | As Reported(1) | Legal Item | Tax Charge | Ex. Items | ||
Total Revenue | $3,629 | — | $3,629 | $14,314 | — | — | $14,314 | ||
Operating Income | 846 | — | 846 | 3,485 | +$95 | — | 3,390 | ||
Operating Margin | 23.3% | — | 23.3% | 24.3% | +60 bps | — | 23.7% | ||
Tax Rate | 109.6% | +82.7%-pts | 26.9% | 48.4% | — | +20.1%-pts | 28.3% | ||
Net Income (Loss) | $(76) | $(658) | $582 | $1,687 | +$59 | ($658) | $2,286 | ||
EPS | $(0.22) | $(1.92) | $1.70 | $4.86 | +$0.17 | ($1.90) | $6.59 |
Third Quarter 2017 | ||||
Dollars in millions | As Reported(1) | Legal Item | Ex. Legal Item | |
Total Revenue | $3,615 | — | $3,615 | |
Operating Income | 960 | +$80 | 880 | |
Operating Margin | 26.6% | +230 bps | 24.3% | |
EPS | $1.85 | +$0.14 | $1.71 |
(1) | The 2017 results have been restated to reflect the adoption of new accounting guidance in 2018 related to the presentation of net periodic benefit costs. The adoption of this guidance resulted in the presentation of $9 million, $4 million and $1 million of other net periodic benefit income in Other income (expense) rather than in Operating Income for the full year 2017, fourth quarter 2017 and third quarter 2017, respectively, with no change in Net Income. |
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