Illinois Tool Works Reports Record Operating Profit

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GLENVIEW, Ill. – Illinois Tool Works Inc. released its third quarter 2022 results on Tuesday.

“Despite slowing demand and destocking in some end markets, the ITW team delivered another quarter of strong performance with organic growth of 16%, operating margin of 24.5%, after-tax return on investment growth of 29.9% and earnings per share growth of 16%.,” said Chairman and Chief Executive Officer E. Scott Santi. “Our sales teams around the world continue to do an exceptional job navigating what remains a dynamic and stimulating operating environment to offer our customers and the company.

“Furthermore, we were pleased to see incremental margins return to our normal historical levels of over 30% in the third quarter as the impact of volume growth, corporate initiatives, pricing actions and a Some moderation in the pace of input cost inflation resulted in a 130 basis point improvement in our core business operating margin.

“While it is clear that the economic outlook is becoming increasingly uncertain, demand remains strong across the majority of our business portfolio and as a result ITW is well positioned to end what has been a very good year.”

Third quarter revenue of $4 billion increased 13% with organic revenue growth of 16%. The acquisition of MTS contributed 3% to revenue. Unfavorable foreign currency translation reduced revenues by 6%.

Five of the seven segments recorded double-digit organic growth in the quarter, led by automotive equipment manufacturers up 25% and food equipment up 23%. Test & Measurement and Electronics & Construction both increased by 17%, Welding by 14%, Polymers & Fluids by 8% and Specialty Products remained essentially flat, up 3% excluding significant product line simplification. 80/20 front-to-back oriented (“PLS”) products. At the corporate level, PLS reduced organic growth by (70) basis points. On a geographic basis, organic growth was 17% in North America, 14% in Europe and 15% in Asia-Pacific.

GAAP EPS was $2.35, an increase of 16%, and included $(0.13) of unfavorable currency translation impact and $(0.07) of an effective tax rate plus raised. Operating margin of 25.1% improved 130 basis points excluding the (60) basis point impact of the MTS acquisition. Business initiatives contributed 110 basis points. The price/cost ratio was positive dollar for dollar and the impact of margin dilution continued to moderate in the third quarter at (40) basis points compared to (200) basis points in the first half of 2022. cash from operations was $713 million and free cash flow was $612 million, an increase of 12% with a conversion rate to net income of 84%. The reported tax rate for the third quarter was 23.9%.

In accordance with a previously announced plan to divest certain business units, on October 3, ITW completed the sale of a division of the Polymers and Fluids segment for approximately $220 million, subject to certain closing adjustments. The division achieved annualized revenue of approximately $100 million in 2022. The gain from this divestment is expected to contribute $0.45 to fourth-quarter earnings per share.

ITW repurchased $500 million of stock in the third quarter and expects stock repurchases of $1.75 billion for the full year. On August 5, the company increased its dividend by 7% to an annualized rate of $5.24 per share.

Based on year-to-date organic growth of 12% and current demand levels, ITW expects organic growth of 11% to 12% and revenue growth of 9% to 10 %. The acquisition of MTS should add 3% to revenue. Foreign currency translation at current exchange rates is expected to reduce revenue by 5%.

Previous GAAP EPS guidance of $9.00-$9.40 has been adjusted to a narrower range of $9.00-$9.10 primarily to account for additional currency translation headwinds and increased by the estimated $0.45 disposal gain, which led the company to raise its GAAP EPS guidance for the full year to a range of $9.45 to $9.55 per share. For the full year, the operating margin is expected to be around 24%, with corporate initiatives contributing 100 basis points. Free cash flow should represent approximately 80% of net income.

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