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Published: 2023-10-24 09:24:08 ET
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EX-99.1 2 a20230930-3q23ex991pressre.htm EX-99.1 Document

Exhibit 99.1

ITW Reports Third Quarter 2023 Results

•Revenue of $4.0 billion, an increase of 0.5%
•Operating income of $1.1 billion, an increase of 9%
•Operating margin of 26.5%, an increase of 200 bps
•GAAP EPS of $2.55, an increase of 9%
•Narrowing full year GAAP EPS guidance range to $9.65 to $9.85 per share

GLENVIEW, IL., October 24, 2023 - Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2023 results.
“The strength and resilience of ITW’s proprietary business model and high-quality diversified portfolio once again drove strong operational execution and financial performance in the third quarter. Quarterly operating margin expanded 200 basis points year over year to 26.5 percent, free cash flow grew 40 percent, and GAAP EPS grew nine percent to $2.55,” said E. Scott Santi, Chairman and Chief Executive Officer. “Organic revenue growth was two percent on an equal days’ basis in the quarter. Looking ahead at the balance of the year, while we anticipate some impact from ongoing automotive industry labor actions on our Automotive OEM segment in the fourth quarter, the company remains well-positioned to deliver another strong year of differentiated overall performance in 2023.”

Third Quarter 2023 Results
Third quarter revenue of $4.0 billion increased 0.5 percent with organic revenue growth of 0.2 percent, as divestitures reduced revenue by 1.2 percent and foreign currency translation added 1.5 percent. On an equal days’ basis, organic growth was two percent. End customer and channel partner inventory reduction efforts associated with supply chain normalization reduced organic growth by an estimated 1 to 1.5 percent in the quarter.

GAAP EPS increased nine percent to $2.55 and the effective tax rate was 23.8 percent. Operating income grew nine percent to $1.1 billion. Operating margin of 26.5 percent expanded 200 basis points as enterprise initiatives contributed 140 basis points. Operating cash flow was $982 million, and free cash flow was $856 million, an increase of 40 percent, with a conversion rate to net income of 111 percent. During the quarter, the company repurchased $375 million of its own shares and raised its dividend seven percent to an annualized $5.60 per share.

2023 Guidance
ITW is narrowing the range of its full year GAAP EPS guidance from $9.55 to $9.95 per share to a range of $9.65 to $9.85 per share, which includes a $0.12 per share adjustment for the estimated fourth quarter impact of ongoing automotive industry labor actions. The company is projecting total revenue growth of one to two percent with organic growth of two to three percent based on current levels of demand exiting the third quarter, and the estimated fourth quarter impact of ongoing automotive industry labor actions. Combined divestitures and foreign currency translation are expected to reduce revenue by one percent. Operating margin is projected to be in the range of 25 to 25.5 percent, an improvement of 150 basis points at the mid-point, with enterprise initiatives contributing more than 100 basis points. Free cash flow is projected to be greater than 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares. The expected tax rate is in the range of 22.5 to 23.5 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 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.

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 conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted income per share, restructuring expenses and related benefits, expected dividend payments, 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,


the impact of recent or potential acquisitions and/or divestitures, the potential impact of automotive industry labor actions, and the company’s 2023 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 risk factors contained in ITW's Form 10-K for 2022 and subsequent reports filed with the SEC.

About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenue of $15.9 billion in 2022. 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 46,000 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 EndedNine Months Ended
September 30,September 30,
In millions except per share amounts2023202220232022
Operating Revenue$4,031 $4,011 $12,124 $11,961 
Cost of revenue2,319 2,371 7,004 7,120 
Selling, administrative, and research and development expenses615 624 1,980 1,935 
Amortization and impairment of intangible assets27 33 88 102 
Operating Income1,070 983 3,052 2,804 
Interest expense(67)(52)(196)(147)
Other income (expense)10 26 40 64 
Income Before Taxes1,013 957 2,896 2,721 
Income Taxes241 230 656 594 
Net Income$772 $727 $2,240 $2,127 
Net Income Per Share:
Basic
$2.55 $2.36 $7.38 $6.85 
Diluted
$2.55 $2.35 $7.36 $6.83 
Cash Dividends Per Share:
Paid
$1.31 $1.22 $3.93 $3.66 
Declared
$1.40 $1.31 $4.02 $3.75 
Shares of Common Stock Outstanding During the Period:
Average
301.9 308.8 303.4 310.6 
Average assuming dilution
303.0 309.7 304.5 311.6 



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

In millionsSeptember 30, 2023December 31, 2022
Assets  
Current Assets:  
Cash and equivalents$990 $708 
Trade receivables3,163 3,171 
Inventories1,799 2,054 
Prepaid expenses and other current assets336 329 
Assets held for sale— 8 
Total current assets6,288 6,270 
Net plant and equipment1,904 1,848 
Goodwill4,828 4,864 
Intangible assets682 768 
Deferred income taxes455 494 
Other assets1,238 1,178 
 $15,395 $15,422 
Liabilities and Stockholders' Equity  
Current Liabilities:  
Short-term debt$1,248 $1,590 
Accounts payable580 594 
Accrued expenses1,588 1,728 
Cash dividends payable421 400 
Income taxes payable145 147 
Liabilities held for sale— 1 
Total current liabilities3,982 4,460 
Noncurrent Liabilities:  
Long-term debt6,818 6,173 
Deferred income taxes464 484 
Noncurrent income taxes payable151 273 
Other liabilities976 943 
Total noncurrent liabilities8,409 7,873 
Stockholders' Equity:  
Common stock6 6 
Additional paid-in-capital1,569 1,501 
Retained earnings26,823 25,799 
Common stock held in treasury(23,493)(22,377)
Accumulated other comprehensive income (loss)(1,902)(1,841)
Noncontrolling interest1 1 
Total stockholders' equity3,004 3,089 
$15,395 $15,422 



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

Three Months Ended September 30, 2023
Dollars in millionsTotal RevenueOperating IncomeOperating Margin
Automotive OEM$799 $151 18.9 %
Food Equipment678 185 27.3 %
Test & Measurement and Electronics698 167 23.8 %
Welding468 147 31.6 %
Polymers & Fluids458 129 28.1 %
Construction Products522 155 29.9 %
Specialty Products414 115 27.8 %
Intersegment(6)— — %
Total Segments4,031 1,049 26.0 %
Unallocated— 21 — %
Total Company$4,031 $1,070 26.5 %
Nine Months Ended September 30, 2023
Dollars in millionsTotal RevenueOperating IncomeOperating Margin
Automotive OEM$2,421 $418 17.3 %
Food Equipment1,967 536 27.2 %
Test & Measurement and Electronics2,101 501 23.8 %
Welding1,451 471 32.5 %
Polymers & Fluids1,364 357 26.2 %
Construction Products1,574 454 28.9 %
Specialty Products1,260 333 26.4 %
Intersegment(14)— — %
Total Segments12,124 3,070 25.3 %
Unallocated— (18)— %
Total Company$12,124 $3,052 25.2 %


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

Q3 2023 vs. Q3 2022 Favorable/(Unfavorable)
Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Organic3.8 %6.3 %(3.9)%(2.4)%3.4 %(2.1)%(5.6)%0.2 %
Acquisitions/
Divestitures		— %(1.8)%— %— %(5.7)%— %(2.3)%(1.2)%
Translation2.2 %2.7 %1.5 %0.6 %(0.8)%0.9 %2.4 %1.5 %
Operating Revenue6.0 %7.2 %(2.4)%(1.8)%(3.1)%(1.2)%(5.5)%0.5 %
Q3 2023 vs. Q3 2022 Favorable/(Unfavorable)
Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage70 bps110 bps(100) bps(40) bps70 bps(30) bps(110) bps—
Changes in Variable Margin & OH Costs100 bps(40) bps(10) bps50 bps200 bps430 bps40 bps200 bps
Total Organic170 bps70 bps(110) bps10 bps270 bps400 bps(70) bps200 bps
Acquisitions/
Divestitures		—10 bps——20 bps—60 bps10 bps
Restructuring/Other (30) bps  20 bps  (30) bps — (10) bps  20 bps  20 bps  (10) bps
Total Operating Margin Change140 bps100 bps(140) bps10 bps280 bps420 bps10 bps200 bps
Total Operating Margin % *18.9%27.3%23.8%31.6%28.1%29.9%27.8%26.5%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 30 bps  40 bps  160 bps  10 bps  170 bps  10 bps  30 bps  70 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.07) on GAAP earnings per share for the third quarter of 2023.




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

YTD 2023 vs. YTD 2022 Favorable/(Unfavorable)
Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Organic9.2 %9.6 %0.9 %2.7 %0.9 %(3.1)%(4.7)%2.8 %
Acquisitions/
Divestitures		— %(1.3)%— %— %(5.3)%— %(1.5)%(1.0)%
Translation(0.4)%0.2 %(0.7)%— %(1.5)%(1.1)%0.4 %(0.4)%
Operating Revenue8.8 %8.5 %0.2 %2.7 %(5.9)%(4.2)%(5.8)%1.4 %
YTD 2023 vs. YTD 2022 Favorable/(Unfavorable)
Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage180 bps180 bps20 bps50 bps10 bps(50) bps(100) bps60 bps
Changes in Variable Margin & OH Costs(190) bps70 bps60 bps150 bps120 bps360 bps20 bps110 bps
Total Organic(10) bps250 bps80 bps200 bps130 bps310 bps(80) bps170 bps
Acquisitions/
Divestitures		—20 bps——30 bps—40 bps10 bps
Restructuring/Other 70 bps — (20) bps — (40) bps  (20) bps  (30) bps —
Total Operating Margin Change60 bps270 bps60 bps200 bps120 bps290 bps(70) bps180 bps
Total Operating Margin % *17.3%27.2%23.8%32.5%26.2%28.9%26.4%25.2%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 20 bps  50 bps  170 bps  10 bps  180 bps  10 bps  60 bps  70 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.22) on GAAP earnings per share for the first nine months of 2023.




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

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Three Months EndedNine Months Ended
September 30,September 30,
Dollars in millions2023202220232022
Numerator:
Net income$772 $727 $2,240 $2,127 
Discrete tax benefit related to the second quarter 2023— — (20)— 
Discrete tax benefit related to the second quarter 2022— — — (51)
Interest expense, net of tax (1)
51 39 150 112 
Other (income) expense, net of tax (1)
(8)(20)(31)(49)
Operating income after taxes$815 $746 $2,339 $2,139 
Denominator:
Invested capital:
Cash and equivalents$990 $774 $990 $774 
Trade receivables3,163 3,031 3,163 3,031 
Inventories1,799 2,007 1,799 2,007 
Net assets held for sale— 75 — 75 
Net plant and equipment1,904 1,705 1,904 1,705 
Goodwill and intangible assets5,510 5,557 5,510 5,557 
Accounts payable and accrued expenses(2,168)(2,177)(2,168)(2,177)
Debt(8,066)(7,628)(8,066)(7,628)
Other, net(128)(330)(128)(330)
Total net assets (stockholders' equity)3,004 3,014 3,004 3,014 
Cash and equivalents(990)(774)(990)(774)
Debt8,066 7,628 8,066 7,628 
Total invested capital$10,080 $9,868 $10,080 $9,868 
Average invested capital (2)
$10,237 $10,004 $10,239 $9,985 
Net income to average invested capital (3)
30.1 %29.1 %29.2 %28.4 %
After-tax return on average invested capital (3)
31.9 %29.9 %30.5 %28.6 %

(1)    Effective tax rate used for interest expense and other (income) expense for the three months ended September 30, 2023 and 2022 was 23.8% and 23.9%, respectively. Effective tax rate used for interest expense and other (income) expense for the nine months ended September 30, 2023 and 2022 was 23.4% and 23.7%, 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, 2023 and 2022 were converted to an annual rate by multiplying the calculated return by 4. Returns for the nine months ended September 30, 2023 and 2022 were converted to an annual rate by dividing the calculated return by 3 and multiplying it by 4.


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 millionsIncome TaxesTax Rate
As reported$656 22.7 %
Discrete tax benefit related to the second quarter 202320 0.7 %
As adjusted$676 23.4 %

A reconciliation of the tax rate for the nine months ended September 30, 2022, excluding the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a U.S. tax audit, is as follows:


Nine Months Ended
September 30, 2022
Dollars in millionsIncome TaxesTax Rate
As reported$594 21.8 %
Discrete tax benefit related to the second quarter 202251 1.9 %
As adjusted$645 23.7 %





AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Twelve Months Ended
Dollars in millionsDecember 31, 2022
Numerator:
Net income$3,034 
Discrete tax benefit related to the fourth quarter 2022(32)
Discrete tax benefit related to the second quarter 2022(51)
Interest expense, net of tax (1)
156 
Other (income) expense, net of tax (1)
(196)
Operating income after taxes$2,911 
Denominator:
Invested capital:
Cash and equivalents$708 
Trade receivables3,171 
Inventories2,054 
Net assets held for sale7 
Net plant and equipment1,848 
Goodwill and intangible assets5,632 
Accounts payable and accrued expenses(2,322)
Debt(7,763)
Other, net(246)
Total net assets (stockholders' equity)3,089 
Cash and equivalents(708)
Debt7,763 
Total invested capital$10,144 
Average invested capital (2)
$10,017 
Net income to average invested capital30.3 %
After-tax return on average invested capital29.1 %

(1)    Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2022 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 2022 effective tax rate excluding the fourth quarter 2022 discrete tax benefit of $32 million related to the utilization of capital loss carryforwards and the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a U.S. tax audit is as follows:

Twelve Months Ended
December 31, 2022
Dollars in millionsIncome TaxesTax Rate
As reported$808 21.0 %
Discrete tax benefit related to the fourth quarter 202232 0.8 %
Discrete tax benefit related to the second quarter 202251 1.4 %
As adjusted$891 23.2 %


FREE CASH FLOW (UNAUDITED)

Three Months EndedNine Months Ended
September 30,September 30,
Dollars in millions2023202220232022
Net cash provided by operating activities$982 $713 $2,500 $1,537 
Less: Additions to plant and equipment(126)(101)(324)(256)
Free cash flow$856 $612 $2,176 $1,281 
Net income$772 $727 $2,240 $2,127 
Net cash provided by operating activities to net income conversion rate127 %98 %112 %72 %
Free cash flow to net income conversion rate111 %84 %97 %60 %


ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

Twelve Months Ended
December 31, 2022
As reported$9.77 
Net impact of gains from two divestitures in the fourth quarter 2022(0.60)
As adjusted$9.17