ITW Reports Second Quarter 2024 Results

Revenue of $4.0 billion, a decrease of 1% with flat organic growth
Operating income of $1.05 billion, an increase of 4.5%
Operating margin of 26.2%, an increase of 140 bps as enterprise initiatives contributed 140 bps
GAAP EPS of $2.54, an increase of 2%; Excl. a one-time 2023 tax item, EPS increased 5%
Narrowing full year GAAP EPS guidance to a range of $10.30 to $10.40 per share

GLENVIEW, Ill., July 30, 2024 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. ITW today reported its second quarter 2024 results and updated guidance for full-year 2024.

"While the demand environment continued to moderate across our portfolio, we delivered a solid quarter with strong operational execution and profitability," said Christopher A. O'Herlihy, President and Chief Executive Officer. "Our ability to overcome near-term macro challenges and expand our margin and profitability to record levels as evidenced by margin improvement of 140 basis points to 26.2 percent and EPS growth of more than five percent, is a direct result of the focused execution by our team of dedicated ITW professionals around the world."

"Looking ahead, we are lowering the top-end of our full year GAAP EPS guidance to reflect current levels of demand partially offset by better margin performance. We remain focused on managing and investing for the long-term as we build above-market organic growth, fueled by customer-back innovation, into a core ITW strength," O'Herlihy concluded.

Second Quarter 2024 Results

Second quarter revenue of $4.0 billion declined by 1.2 percent as organic growth declined 0.1 percent. Foreign currency translation impact reduced revenue by 1.2 percent and acquisitions added 0.1 percent.

GAAP EPS increased 2.4 percent to $2.54 and excluding a one-time tax item in 2023, EPS increased 5.4 percent. Operating income increased 4.5 percent to $1.05 billion, a second quarter record. Operating margin improved 140 basis points to 26.2 percent, a second quarter record, as enterprise initiatives contributed 140 basis points. Operating cash flow was $687 million, and free cash flow was $571 million with a conversion of 75 percent to net income. During the quarter, the company repurchased $375 million of its own shares and the effective tax rate was 24.4 percent.

2024 Guidance

ITW is lowering the top-end of its full year GAAP EPS guidance range of $10.30 to $10.70 per share to a narrower range of $10.30 to $10.40 per share, an increase of six percent compared to the prior year at the midpoint. Based on current levels of demand and foreign currency exchange rates exiting the second quarter, the company is projecting revenue growth and organic growth to be approximately flat for 2024. ITW is raising its operating margin guidance from 26 to 27 percent to a narrower range of 26.5 to 27 percent, an increase of 165 bps at the midpoint with enterprise initiatives projected to contribute more than 100 basis points. Free cash flow is expected to exceed 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate remains unchanged in the range of 24 to 24.5 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. For the same reasons, the company is unable to address the potential significance of the unavailable information, which could be material to future results.

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 to net income conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted income per share, expected dividend payments, after-tax return on invested capital, effective tax rates, exchange rates, expected timing and amount of share repurchases, end market economic and regulatory conditions, the impact of recent or potential acquisitions and/or divestitures, and the Company's 2024 guidance. These statements are subject to certain risks, uncertainties, assumptions, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that could cause actual results to differ materially from the Company's expectations include those that are detailed in ITW's Form 10-K for 2023 and subsequent reports filed with the SEC.

About Illinois Tool Works

ITW ITW is a Fortune 300 global multi-industrial manufacturing leader with revenue of $16.1 billion in 2023. 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 45,000 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		2024			2023			2024			2023
Operating Revenue	$	4,027		$	4,074		$	8,000		$	8,093
Cost of revenue		2,262			2,344			4,407			4,685
Selling, administrative, and research and development expenses		686			690			1,362			1,365
Amortization and impairment of intangible assets		25			30			50			61
Operating Income		1,054			1,010			2,181			1,982
Interest expense		(75	)		(69	)		(146	)		(129	)
Other income (expense)		26			20			42			30
Income Before Taxes		1,005			961			2,077			1,883
Income Taxes		246			207			499			415
Net Income	$	759		$	754		$	1,578		$	1,468

Net Income Per Share:
Basic	$	2.55		$	2.49		$	5.29		$	4.83
Diluted	$	2.54		$	2.48		$	5.27		$	4.81

Cash Dividends Per Share:
Paid	$	1.40		$	1.31		$	2.80		$	2.62
Declared	$	1.40		$	1.31		$	2.80		$	2.62

Shares of Common Stock Outstanding During the Period:
Average		297.6			303.3			298.3			304.1
Average assuming dilution		298.5			304.2			299.3			305.2

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

In millions	June 30, 2024			December 31, 2023
Assets
Current Assets:
Cash and equivalents	$	862		$	1,065
Trade receivables		3,250			3,123
Inventories		1,819			1,707
Prepaid expenses and other current assets		325			340
Total current assets		6,256			6,235

Net plant and equipment		2,011			1,976
Goodwill		4,910			4,909
Intangible assets		641			657
Deferred income taxes		448			479
Other assets		1,311			1,262
	$	15,577		$	15,518

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	2,044		$	1,825
Accounts payable		576			581
Accrued expenses		1,615			1,663
Cash dividends payable		416			419
Income taxes payable		153			187
Total current liabilities		4,804			4,675

Noncurrent Liabilities:
Long-term debt		6,429			6,339
Deferred income taxes		381			326
Noncurrent income taxes payable		—			151
Other liabilities		1,001			1,014
Total noncurrent liabilities		7,811			7,830

Stockholders' Equity:
Common stock		6			6
Additional paid-in-capital		1,636			1,588
Retained earnings		27,866			27,122
Common stock held in treasury		(24,622	)		(23,870	)
Accumulated other comprehensive income (loss)		(1,925	)		(1,834	)
Noncontrolling interest		1			1
Total stockholders' equity		2,962			3,013
	$	15,577		$	15,518

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

Three Months Ended June 30, 2024
Dollars in millions	Total Revenue			Operating Income			Operating Margin
Automotive OEM	$	815		$	157		19.4	%
Food Equipment		667			180		27.1	%
Test & Measurement and Electronics		678			159		23.5	%
Welding		466			153		32.9	%
Polymers & Fluids		454			128		28.2	%
Construction Products		504			148		29.4	%
Specialty Products		449			144		31.9	%
Intersegment		(6	)		—		—	%
Total Segments		4,027			1,069		26.6	%
Unallocated		—			(15	)	—	%
Total Company	$	4,027		$	1,054		26.2	%

Six Months Ended June 30, 2024
Dollars in millions	Total Revenue			Operating Income		Operating Margin
Automotive OEM	$	1,631		$	319	19.6	%
Food Equipment		1,298			344	26.5	%
Test & Measurement and Electronics		1,374			322	23.4	%
Welding		942			309	32.8	%
Polymers & Fluids		886			239	27.0	%
Construction Products		992			291	29.4	%
Specialty Products		889			274	30.8	%
Intersegment		(12	)		—	—	%
Total Segments		8,000			2,098	26.2	%
Unallocated		—			83	—	%
Total Company	$	8,000		$	2,181	27.3	%

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

Q2 2024 vs. Q2 2023 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products		Total ITW
Organic	0.4	%	2.5	%	(3.1) %		(4.7) %		2.6	%	(3.8) %		6.7	%	(0.1) %
Acquisitions/ Divestitures	—	%	—	%	0.8	%	—	%	—	%	—	%	—	%	0.1	%
Translation	(1.7) %		(0.4) %		(0.9) %		(0.3) %		(3.9) %		(0.5) %		(0.5) %		(1.2) %
Operating Revenue	(1.3) %		2.1	%	(3.2) %		(5.0) %		(1.3) %		(4.3) %		6.2	%	(1.2) %

Q2 2024 vs. Q2 2023 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

—

50 bps

(90) bps

(70) bps

50 bps

(80) bps

130 bps

—

Changes in Variable Margin & OH Costs

210 bps

(100) bps

190 bps

(50) bps

130 bps

150 bps

390 bps

140 bps

Total Organic

210 bps

(50) bps

100 bps

(120) bps

180 bps

70 bps

520 bps

140 bps

Acquisitions/

Divestitures

—

(50) bps

—

(10) bps

Restructuring/Other

50 bps

(20) bps

20 bps

50 bps

(60) bps

70 bps

10 bps

Total Operating Margin Change

260 bps

(70) bps

30 bps

(100) bps

230 bps

10 bps

590 bps

140 bps

Total Operating Margin % *

19.4

27.1

23.5

32.9

28.2

29.4

31.9

26.2

* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets

20 bps

40 bps

190 bps

—

150 bps

10 bps

20 bps

70 bps **

** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.06) on GAAP earnings per share for the second quarter of 2024.

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

H1 2024 vs. H1 2023 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products		Total ITW
Organic	1.9	%	0.6	%	(2.2) %		(4.1) %		0.9	%	(5.4) %		6.1	%	(0.4) %
Acquisitions/ Divestitures	—	%	—	%	0.8	%	—	%	—	%	—	%	(1.1	)%	—	%
Translation	(1.3) %		0.1	%	(0.7) %		(0.1) %		(3.2) %		(0.4) %		—	%	(0.8) %
Operating Revenue	0.6	%	0.7	%	(2.1) %		(4.2) %		(2.3) %		(5.8) %		5.0	%	(1.2) %

H1 2024 vs. H1 2023 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

40 bps

20 bps

(60) bps

20 bps

(90) bps

120 bps

(20) bps

Changes in Variable Margin & OH Costs

250 bps

(80) bps

80 bps

40 bps

130 bps

220 bps

300 bps

290 bps

Total Organic

290 bps

(60) bps

20 bps

(20) bps

150 bps

130 bps

420 bps

270 bps

Acquisitions/

Divestitures

—

(50) bps

—

30 bps

—

Restructuring/Other

30 bps

(10) bps

10 bps

30 bps

(30) bps

50 bps

10 bps

Total Operating Margin Change

320 bps

(70) bps

(40) bps

(10) bps

180 bps

100 bps

500 bps

280 bps

Total Operating Margin % *

19.6

26.5

23.4

32.8

27.0

29.4

30.8

27.3

* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets

30 bps

50 bps

190 bps

—

150 bps

10 bps

20 bps

70 bps **

** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.13) on GAAP earnings per share for the first half of 2024.

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		2024			2023			2024			2023
Numerator:
Net Income	$	759		$	754		$	1,578		$	1,468
Discrete tax benefit related to the second quarter 2023		—			(20	)		—			(20	)
Interest expense, net of tax⁽¹⁾		57			53			111			99
Other (income) expense, net of tax ⁽¹⁾		(20	)		(15	)		(32	)		(23	)
Operating income after taxes	$	796		$	772		$	1,657		$	1,524

Denominator:
Invested capital:
Cash and equivalents	$	862		$	922		$	862		$	922
Trade receivables		3,250			3,216			3,250			3,216
Inventories		1,819			1,921			1,819			1,921
Net plant and equipment		2,011			1,901			2,011			1,901
Goodwill and intangible assets		5,551			5,595			5,551			5,595
Accounts payable and accrued expenses		(2,191	)		(2,215	)		(2,191	)		(2,215	)
Debt		(8,473	)		(8,222	)		(8,473	)		(8,222	)
Other, net		133			(24	)		133			(24	)
Total net assets (stockholders' equity)		2,962			3,094			2,962			3,094
Cash and equivalents		(862	)		(922	)		(862	)		(922	)
Debt		8,473			8,222			8,473			8,222
Total invested capital	$	10,573		$	10,394		$	10,573		$	10,394

Average invested capital ⁽²⁾	$	10,480		$	10,366		$	10,357		$	10,292

Net income to average invested capital ⁽³⁾		29.0	%		29.1	%		30.5	%		28.5	%
After-tax return on average invested capital ⁽³⁾		30.4	%		29.8	%		32.0	%		29.6	%

⁽¹⁾Effective tax rate used for interest expense and other (income) expense for the three months ended June 30, 2024 and 2023 was 24.4% and 23.6%, respectively. Effective tax rate used for interest expense and other (income) expense for the six months ended June 30, 2024 and 2023 was 24.0% and 23.1%, 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 June 30, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 4. Returns for the six months ended June 30, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 2.

After-tax ROIC for the six months ended June 30, 2024 included 170 basis points of favorable impact related to the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax) in the first quarter of 2024.

A reconciliation of the tax rate for the three and six months ended June 30, 2023, excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:

	Three Months Ended				Six Months Ended
	June 30, 2023				June 30, 2023
Dollars in millions	Income Taxes		Tax Rate		Income Taxes		Tax Rate
As reported	$	207	21.4	%	$	415	22.0	%
Discrete tax benefit related to the second quarter 2023		20	2.2	%		20	1.1	%
As adjusted	$	227	23.6	%	$	435	23.1	%

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
	Twelve Months Ended
Dollars in millions	December 31, 2023
Numerator:
Net income	$	2,957
Discrete tax benefit related to the second quarter 2023		(20	)
Interest expense, net of tax⁽¹⁾		204
Other (income) expense, net of tax ⁽¹⁾		(38	)
Operating income after taxes	$	3,103

Denominator:
Invested capital:
Cash and equivalents	$	1,065
Trade receivables		3,123
Inventories		1,707
Net plant and equipment		1,976
Goodwill and intangible assets		5,566
Accounts payable and accrued expenses		(2,244	)
Debt		(8,164	)
Other, net		(16	)
Total net assets (stockholders' equity)		3,013
Cash and equivalents		(1,065	)
Debt		8,164
Total invested capital	$	10,112

Average invested capital ⁽²⁾	$	10,214

Net income to average invested capital		29.0	%
After-tax return on average invested capital		30.4	%

⁽¹⁾Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2023 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 2023 effective tax rate excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes is as follows:

	Twelve Months Ended
	December 31, 2023
Dollars in millions	Income Taxes		Tax Rate
As reported	$	866	22.6	%
Discrete tax benefit related to the second quarter 2023		20	0.6	%
As adjusted	$	886	23.2	%

FREE CASH FLOW (UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Dollars in millions		2024			2023			2024			2023
Net cash provided by operating activities	$	687		$	790		$	1,276		$	1,518
Less: Additions to plant and equipment		(116	)		(85	)		(211	)		(198	)
Free cash flow	$	571		$	705		$	1,065		$	1,320

Net income	$	759		$	754		$	1,578		$	1,468

Net cash provided by operating activities to net income conversion rate		91	%		105	%		81	%		103	%
Free cash flow to net income conversion rate		75	%		94	%		67	%		90	%

ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

	Three Months Ended
	June 30, 2023
As reported	$	2.48
Discrete tax benefit related to the second quarter 2023		(0.07	)
As adjusted	$	2.41