•Total revenue of $3.7 billion, an increase of 43% with organic growth of 37%
•Operating margin of 24.3%, an increase of 680 basis points
•GAAP EPS of $2.45, an increase of 143%
•Raising full year organic growth guidance to a range of 11 to 13 percent and GAAP EPS guidance to a range of $8.55 to $8.95 per share
GLENVIEW, IL., July 30, 2021 - Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2021 results.
“In the second quarter, we saw continued improvement in both the breadth and pace of the recovery, with organic revenue growth at the segment level ranging from 17 to 84 percent,” said E. Scott Santi, Chairman and Chief Executive Officer. “In the face of rising raw material costs and a challenging supply chain environment, our people around the world leveraged the strength and resilience of our proprietary business model and the ‘Win the Recovery’ actions taken over the course of the past year to serve our customers with excellence while delivering 43 percent revenue growth and 143 percent earnings growth. While the near-term environment is certainly not without its challenges, order intake rates in all segments and geographic regions remain strong and I have no doubt that we are well positioned to continue to execute at a high level as we move through the remainder of the year.”
Second Quarter 2021 Results
Second quarter revenue of $3.7 billion increased 43 percent versus the prior year period, as organic revenue grew 37 percent and foreign currency translation impact was favorable by six percent.
GAAP EPS of $2.45 increased 143 percent and included a $0.35 one-time tax benefit related to the remeasurement of net deferred tax assets in the United Kingdom. Operating income increased 99 percent to $893 million and incremental margin was 40 percent. Operating margin was 24.3 percent, an increase of 680 basis points with enterprise initiatives contributing 150 basis points, partially offset by dilutive price/cost margin impact of 120 basis points. In the quarter, price recovery actions essentially offset raw material cost increases on a dollar-for-dollar basis. Free cash flow was $477 million, 72 percent of net income adjusted for the one-time tax benefit. After-tax return on invested capital improved to 30.8 percent. The effective tax rate for the second quarter was 10.1 percent, and excluding the one-time tax benefit, the effective tax rate was 23.0 percent.
All seven segments delivered double-digit organic growth in the quarter, led by Automotive OEM up 84 percent and Food Equipment up 46 percent. Welding, Test & Measurement and Electronics, Construction Products, and Polymers & Fluids delivered organic growth in the range of 28 to 33 percent, and Specialty Products grew 17 percent. On a geographic basis, organic growth was 36 percent in North America, 50 percent in Europe, and 20 percent in Asia Pacific. As expected, the impact of Automotive OEM customers adjusting production schedules to account for the well-publicized shortage of several components reduced ITW’s revenues by approximately $60 million or two percentage points in the quarter.
2021 Guidance
The company is raising its full-year GAAP EPS guidance to $8.55 to $8.95 per share, an increase of $0.35 or 32 percent at the midpoint versus prior year. This compares to previous guidance of $8.20 to $8.60 per share and incorporates the one-time tax benefit realized in the second quarter. The company is also raising its organic growth guidance to a range of 11 to 13 percent. Foreign currency translation impact at current foreign exchange rates is projected to contribute 3 percentage points to revenue growth. Raw material cost increases are expected to be offset by price increases on a dollar-for-dollar basis and therefore EPS neutral. The full year margin dilution impact from price/cost is now forecasted to be approximately 100 basis points, partially offsetting the expected margin contribution from Enterprise Initiatives of more than 100 basis points. As a result of price/cost, operating margin is expected to be in the range of 24.5 to 25.5 percent, an increase of 210 basis points at the midpoint versus 2020 and 50 basis points lower versus previous guidance. Free cash flow is expected to be approximately 100 percent of net income adjusted for the second quarter one-time tax benefit, and the company is on pace to repurchase approximately $1 billion of its shares, having repurchased $500 million in the first half of the year. Guidance excludes any impact from the previously announced acquisition of the MTS Test & Simulation business.
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 duration and potential effects of the COVID-19 pandemic, related government actions and the company’s strategy in response thereto on the company’s business, expected impact of tariffs and raw material inflation, product line simplification activities and enterprise initiatives, future financial and operating performance, free cash flow, organic and total revenue, operating margin, price/cost impact, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation, after-tax return on invested capital, 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 anticipated 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 2020.
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
Six Months Ended
June 30,
June 30,
In millions except per share amounts
2021
2020
2021
2020
Operating Revenue
$
3,676
$
2,564
$
7,220
$
5,792
Cost of revenue
2,163
1,594
4,202
3,465
Selling, administrative, and research and development expenses
588
486
1,154
1,046
Amortization and impairment of intangible assets
32
35
66
71
Operating Income
893
449
1,798
1,210
Interest expense
(52)
(51)
(104)
(102)
Other income (expense)
22
8
34
33
Income Before Taxes
863
406
1,728
1,141
Income Taxes
88
87
282
256
Net Income
$
775
$
319
$
1,446
$
885
Net Income Per Share:
Basic
$
2.46
$
1.01
$
4.58
$
2.79
Diluted
$
2.45
$
1.01
$
4.56
$
2.78
Cash Dividends Per Share:
Paid
$
1.14
$
1.07
$
2.28
$
2.14
Declared
$
1.14
$
1.07
$
2.28
$
2.14
Shares of Common Stock Outstanding During the Period:
Average
315.6
316.1
316.1
317.2
Average assuming dilution
316.9
317.4
317.4
318.6
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions
June 30, 2021
December 31, 2020
Assets
Current Assets:
Cash and equivalents
$
2,058
$
2,564
Trade receivables
2,786
2,506
Inventories
1,400
1,189
Prepaid expenses and other current assets
265
264
Total current assets
6,509
6,523
Net plant and equipment
1,767
1,777
Goodwill
4,658
4,690
Intangible assets
716
781
Deferred income taxes
613
533
Other assets
1,317
1,308
$
15,580
$
15,612
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt
$
592
$
350
Accounts payable
607
534
Accrued expenses
1,326
1,284
Cash dividends payable
358
361
Income taxes payable
77
60
Total current liabilities
2,960
2,589
Noncurrent Liabilities:
Long-term debt
7,056
7,772
Deferred income taxes
617
588
Noncurrent income taxes payable
365
413
Other liabilities
1,061
1,068
Total noncurrent liabilities
9,099
9,841
Stockholders’ Equity:
Common stock
6
6
Additional paid-in-capital
1,402
1,362
Retained earnings
23,842
23,114
Common stock held in treasury
(20,140)
(19,659)
Accumulated other comprehensive income (loss)
(1,590)
(1,642)
Noncontrolling interest
1
1
Total stockholders’ equity
3,521
3,182
$
15,580
$
15,612
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended June 30, 2021
Dollars in millions
Total Revenue
Operating Income
Operating Margin
Automotive OEM
$
707
$
133
18.8
%
Food Equipment
514
113
22.0
%
Test & Measurement and Electronics
606
170
28.1
%
Welding
402
115
28.5
%
Polymers & Fluids
466
127
27.3
%
Construction Products
518
143
27.6
%
Specialty Products
471
128
27.2
%
Intersegment
(8)
—
—
%
Total Segments
3,676
929
25.3
%
Unallocated
—
(36)
—
%
Total Company
$
3,676
$
893
24.3
%
Six Months Ended June 30, 2021
Dollars in millions
Total Revenue
Operating Income
Operating Margin
Automotive OEM
$
1,490
$
322
21.6
%
Food Equipment
965
209
21.6
%
Test & Measurement and Electronics
1,158
327
28.2
%
Welding
803
236
29.4
%
Polymers & Fluids
901
239
26.6
%
Construction Products
987
273
27.6
%
Specialty Products
928
254
27.4
%
Intersegment
(12)
—
—
%
Total Segments
7,220
1,860
25.8
%
Unallocated
—
(62)
—
%
Total Company
$
7,220
$
1,798
24.9
%
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q2 2021 vs. Q2 2020 Favorable/(Unfavorable)
Operating Revenue
Automotive OEM
Food Equipment
Test & Measurement and Electronics
Welding
Polymers & Fluids
Construction Products
Specialty Products
Total ITW
Organic
83.5
%
46.0
%
28.7
%
32.6
%
27.6
%
28.2
%
17.2
%
37.2
%
Acquisitions/ Divestitures
—
%
—
%
—
%
—
%
—
%
(0.1)
%
—
%
—
%
Translation
11.8
%
6.9
%
4.3
%
2.6
%
4.1
%
9.6
%
4.4
%
6.2
%
Operating Revenue
95.3
%
52.9
%
33.0
%
35.2
%
31.7
%
37.7
%
21.6
%
43.4
%
Q2 2021 vs. Q2 2020 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
1700 bps
1010 bps
560 bps
480 bps
520 bps
440 bps
330 bps
700 bps
Changes in Variable Margin & OH Costs
970 bps
280 bps
(330) bps
220 bps
(70) bps
(30) bps
(140) bps
(20) bps
Total Organic
2670 bps
1290 bps
230 bps
700 bps
450 bps
410 bps
190 bps
680 bps
Acquisitions/Divestitures
—
—
—
—
—
—
—
—
Restructuring/ Other
(10) bps
(10) bps
10 bps
(10) bps
(30) bps
(20) bps
(10) bps
—
Total Operating Margin Change
2660 bps
1280 bps
240 bps
690 bps
420 bps
390 bps
180 bps
680 bps
Total Operating Margin % *
18.8%
22.0%
28.1%
28.5%
27.3%
27.6%
27.2%
24.3%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets
40 bps
70 bps
160 bps
10 bps
240 bps
20 bps
80 bps
90 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the second quarter of 2021.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
1H 2021 vs. 1H 2020 Favorable/(Unfavorable)
Operating Revenue
Automotive OEM
Food Equipment
Test & Measurement and Electronics
Welding
Polymers & Fluids
Construction Products
Specialty Products
Total ITW
Organic
33.6
%
13.2
%
19.4
%
17.9
%
17.7
%
20.3
%
12.1
%
19.9
%
Acquisitions/ Divestitures
—
%
—
%
—
%
—
%
—
%
(0.1)
%
—
%
—
%
Translation
7.3
%
4.7
%
3.8
%
1.9
%
2.9
%
8.6
%
3.7
%
4.8
%
Operating Revenue
40.9
%
17.9
%
23.2
%
19.8
%
20.6
%
28.8
%
15.8
%
24.7
%
1H 2021 vs. 1H 2020 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
630 bps
320 bps
420 bps
280 bps
360 bps
350 bps
230 bps
390 bps
Changes in Variable Margin & OH Costs
420 bps
40 bps
(140) bps
90 bps
(40) bps
70 bps
(50) bps
10 bps
Total Organic
1050 bps
360 bps
280 bps
370 bps
320 bps
420 bps
180 bps
400 bps
Acquisitions/Divestitures
—
—
—
—
—
—
—
—
Restructuring/Other
—
(10) bps
—
(10) bps
—
(20) bps
(30) bps
—
Total Operating Margin Change
1050 bps
350 bps
280 bps
360 bps
320 bps
400 bps
150 bps
400 bps
Total Operating Margin % *
21.6%
21.6%
28.2%
29.4%
26.6%
27.6%
27.4%
24.9%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets
40 bps
70 bps
170 bps
10 bps
260 bps
20 bps
80 bps
100 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.16) on GAAP earnings per share for the first half of 2021.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended
Six Months Ended
June 30,
June 30,
Dollars in millions
2021
2020
2021
2020
Operating income
$
893
$
449
$
1,798
$
1,210
Tax rate
23.0
%
21.3
%
22.7
%
22.4
%
Income taxes
(206)
(96)
(409)
(271)
Operating income after taxes
$
687
$
353
$
1,389
$
939
Invested capital:
Trade receivables
$
2,786
$
2,156
$
2,786
$
2,156
Inventories
1,400
1,167
1,400
1,167
Net assets held for sale
—
181
—
181
Net plant and equipment
1,767
1,711
1,767
1,711
Goodwill and intangible assets
5,374
5,244
5,374
5,244
Accounts payable and accrued expenses
(1,933)
(1,508)
(1,933)
(1,508)
Other, net
(283)
(636)
(283)
(636)
Total invested capital
$
9,111
$
8,315
$
9,111
$
8,315
Average invested capital
$
8,926
$
8,431
$
8,864
$
8,557
After-tax return on average invested capital
30.8
%
16.8
%
31.3
%
22.0
%
A reconciliation of the tax rate for the three and six month periods ended June 30, 2021 excluding the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate is as follows:
Three Months Ended
Six Months Ended
June 30, 2021
June 30, 2021
Dollars in millions
Income Taxes
Tax Rate
Income Taxes
Tax Rate
As reported
$
88
10.1
%
$
282
16.3
%
Discrete tax benefit
112
12.9
%
112
6.4
%
As adjusted
$
200
23.0
%
$
394
22.7
%
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
FREE CASH FLOW (UNAUDITED)
Three Months Ended
Six Months Ended
Twelve Months Ended
June 30,
June 30,
December 31,
Dollars in millions
2021
2020
2021
2020
2020
Net cash provided by operating activities
$
555
$
737
$
1,164
$
1,351
$
2,807
Less: Additions to plant and equipment
(78)
(56)
(146)
(116)
(236)
Free cash flow
$
477
$
681
$
1,018
$
1,235
$
2,571
Net income
$
775
$
319
$
1,446
$
885
$
2,109
Less: Second quarter 2021 discrete tax benefit related to a change in the U.K. income tax rate
(112)
—
(112)
—
—
Adjusted net income
$
663
$
319
$
1,334
$
885
$
2,109
Free cash flow to adjusted net income conversion rate