GLENVIEW, Ill. — Illinois Tool Works Inc. (ITW) reported diluted income per share from continuing operations of 36 cents in the 2009 second quarter as cumulative restructuring activities helped drive income and operating margins to significantly higher levels versus the 2009 first quarter. In the 2009 second quarter, operating income of $334.8 million equated to operating margins of 9.9 percent. Excluding the impact of impairment charges in the 2009 first quarter, second quarter operating margins were 410 basis points higher than the preceding quarter.

Second quarter 2009 operating revenues of $3.393 billion were 25.5 percent lower than the year-ago period as end markets stabilized but remained weak around the world. As a result, the company’s base revenues declined 22.2 percent in the 2009 second quarter versus a year ago, with North American base revenues decreasing 26.8 percent and international base revenues declining 17.3 percent. Second quarter operating margins of 9.9 percent were 670 basis points lower than the year-ago quarter, with base margins declining 400 basis points. Diluted income per share from continuing operations of 36 cents was 64.4 percent lower than the year-ago period. However, the company’s effective tax rate of 34 percent in the second quarter was higher than the April 2009 forecasted second quarter tax rate of 25 percent, resulting in five cents of reduced earnings. The higher tax rate in the second quarter was due to discrete tax adjustments related to German tax audits and the previously announced reclassification of Decorative Surfaces to continuing operations.

The company’s strong second quarter free operating cash flow of $567 million was $213 million higher than the year-ago period and was largely driven by reductions in working capital. In the quarter, the net income to free operating cash flow conversion rate was 321 percent. First half 2009 free operating cash flow totaled $950 million.

"We are pleased the company’s base revenues appear to have stabilized during the second quarter as well as with the significant improvement in our operating performance compared to the 2009 first quarter," said David Speer, ITW’s chairman and chief executive officer. "Notably, our operating margins of nearly 10 percent in the second quarter were driven by improved margin performance in all eight of our operating segments. These segments all benefited from our aggressive and targeted restructuring programs. We incurred $65 million of restructuring in the quarter, bringing our year-to-date total to $98 million. And we expect to incur an additional $50 million to $70 million of restructuring dollars in the second half of 2009. These decentralized restructuring activities will have both short-term and long-term benefits for our company and our earnings profile in 2009 and beyond."

Looking ahead, the company still believes it has limited visibility as to worldwide end markets. As a result, the company is limiting its current forecast to the 2009 third quarter. The company is forecasting third quarter 2009 diluted income per share from continuing operations to be in a range of 39 cents to 51 cents. The 2009 third quarter forecast range assumes a total revenue range of -2 percent to +4 percent versus the 2009 second quarter. The company expects to reinstate full-year guidance when longer-term visibility becomes more reliable.