Illinois Tool Works Inc. (ITW) reported its fourth quarter and full year 2017 results.
“The ITW team delivered another year of strong execution and performance in 2017,” said E. Scott Santi, chairman and CEO. “In 2017, excluding one-time tax and legal items, we grew EPS 16 percent, improved operating margin by 120 basis points to an all-time high of 23.7 percent and increased after-tax return on invested capital 230 basis points to a record 24.4 percent.
“We also continued to make meaningful progress on our focused efforts to accelerate organic growth. Our 2017 organic growth rate of 3 percent was up almost 2 percentage points versus 2016. In addition, our Q4 organic growth rate of 4 percent gives us good momentum going into 2018,” said Santi.
“Overall, these results demonstrate continued progress in our efforts to position ITW to generate consistent differentiated performance on a sustained basis,” he added. “Through the combination of ITW’s high-quality business portfolio and our ongoing focus on leveraging ITW’s powerful business model to full potential, we are well positioned to deliver strong results in 2018 and beyond.”
Fourth-quarter revenue grew 7 percent to $3.6 billion as organic revenue increased 4 percent and foreign currency translation increased revenue by 3 percent. GAAP EPS of (22 cents) includes a one-time $658 million charge associated with the passage of the “Tax Cuts and Jobs Act.” The charge encompasses several elements, including a repatriation tax on accumulated overseas earnings and a benefit from the revaluation of deferred tax assets and liabilities. Excluding this one-time item, EPS increased 17 percent to $1.70. Operating margin was 23.4 percent, an increase of 160 basis points, with enterprise initiatives contributing 140 basis points of margin improvement.
Organic revenue growth was positive in six of seven segments led by Test & Measurement and Electronics (+9 percent), Welding (+6 percent) and Specialty Products (+5 percent).
Full-year 2017 revenue increased 5 percent to $14.3 billion with organic growth of 3 percent. GAAP EPS of $4.86 includes the above-mentioned unfavorable tax impact and a $0.17 benefit from a previously disclosed favorable legal item. Excluding these one-time items, EPS was $6.59, an increase of 16 percent year-on-year. Operating margin was 24.4 percent and includes a 70 basis point benefit from the legal item. Excluding this item, operating margin was 23.7 percent, an increase of 120 basis points.
Full-Year and First Quarter 2018 Guidance
ITW is raising its 2018 full-year guidance by 40 cents at the midpoint to reflect the benefits of a reduction in the tax rate to an estimated range of 25 to 26 percent and current foreign exchange rates. The company expects 2018 GAAP earnings to be in the range of $7.45 to $7.65 per share with organic growth of 3 to 4 percent.
The company forecasts first quarter 2018 GAAP earnings to be in the range of $1.80 to $1.90 per share with organic growth of 3 to 4 percent.
Subject to formal board approval, ITW expects to accelerate previously announced plans to increase its dividend payout ratio from 43 percent to approximately 50 percent of Free Cash Flow on a run rate basis in August of 2018.
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.