GLENVIEW, Ill. — Illinois Tool Works Inc. (ITW) has reported 11.4 percent growth in 2008 first quarter revenues and a 16.2 percent decline in diluted income per share from continuing operations. The company said the earnings decline was directly attributable to impairment and European tax charges previously announced on March 17. These two charges, which had a pretax impact of $129 million or 22 cents per share after tax in the first quarter, reduced diluted income per share from continuing operations to 57 cents in the quarter. Absent these charges, the company’s income from continuing operations would have been at 79 cents per share, or a 16 percent increase versus the prior year period.
As part of the company’s annual testing of goodwill in the first quarter of each year, an impairment charge of $97 million was recorded related to the company’s industrial software businesses. Separately, a pretax charge of $32 million was recorded in the first quarter for European taxes on investment transfers related to legal entity structuring transactions.
The operating revenue increase of 11.4 percent in the quarter was due to a 6.3 percent contribution from acquisitions and a 4.8 percent contribution from translation. Base revenues increased 0.4 percent in the quarter, with international base revenues growing 4.6 percent and North American base revenues declining 2.5 percent. For the 2008 first quarter, revenues were $4.139 billion versus $3.717 billion for the prior year period. As a result of the aforementioned charges, first quarter operating income of $520 million declined 8.5 percent from the year earlier period. Additionally, income from continuing operations of $301.4 million was 21.7 percent lower than a year ago. Net income of $303.6 million declined 24.6 percent from the year-ago period.
First quarter operating margins of 12.6 percent were 270 basis points lower than a year ago due to impairment and acquisitions. Excluding the impact of impairment, margins would have been at 14.9 percent or 40 basis points lower than a year ago. Base margins improved 20 basis points in the quarter versus the year ago period.
"We are very pleased with our operating performance in the 2008 first quarter, especially in light of difficult end market conditions in North America and the modest slowing but still positive growth in international end markets," said David Speer, chairman and chief executive officer. "We believe end markets will continue to be challenging in North America over the foreseeable future. We also remain optimistic about our acquisition opportunities based on our strong pipeline of potential deals."
Looking ahead, the company is forecasting a full-year 2008 diluted income per share from continuing operations of $3.35 to $3.49. The full-year forecast assumes a total company revenue growth range of 8 percent to 12 percent. For the 2008 second quarter, the company is forecasting diluted income per share from continuing operations of 94 cents to $1. The 2008 second quarter forecast assumes a total company growth range of 9 percent to 12 percent.
