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ITW Reports 4th Quarter, Full Year Results

The company delivered double-digit earnings growth in 2018.

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Illinois Tool Works Inc. (ITW) has reported its fourth-quarter and full-year 2018 results.

“The fourth quarter closed out another year of strong execution and financial performance by the ITW team,” said E. Scott Santi, chairman and CEO. “For the quarter, the company delivered 10 percent EPS growth excluding currency impact and the 2017 tax charge, operating margin expansion of 70 basis points and after-tax return on invested capital of 27.7 percent. For the year, excluding the 2017 one-time items, we grew EPS by 15 percent, expanded operating margin by 60 basis points to a record 24.3 percent, grew Free Cash Flow 10 percent and returned $3 billion cash to shareholders in the form of dividends and share repurchases. The fact that we achieved these results despite significant raw material cost headwinds and a decline in auto builds in North America, Europe and China clearly demonstrates the power of ITW’s highly differentiated business model and the resilience of our high quality diversified business portfolio.”

“We enter 2019 well-positioned to deliver another year of differentiated performance and continued progress in executing our long-term strategy to leverage the power of the ITW Business Model to its full potential,” Santi added.

Fourth-quarter revenue was essentially flat at $3.6 billion as organic growth of 1 percent was more than offset by the impact of foreign currency translation. Organic revenue growth increased four percent in North America, offset by a two percent decline in International. As expected, the company said product line simplification (PLS) activities reduced organic revenue growth by 90 basis points. Excluding a tax charge in the prior year, fourth quarter EPS increased eight percent to $1.83. Excluding the unfavorable foreign currency translation impact of $(4 cents) and one-time 2017 tax charge, EPS grew 10 percent. Operating margin was 24 percent, an increase of 70 basis points, with enterprise initiatives contributing 110 basis points and more than offsetting 40 basis points of price/cost headwind.

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Fourth quarter Free Cash Flow increased 18 percent to $727 million.

Full year revenue grew three percent to $14.8 billion, with organic growth of two percent. As previously disclosed, the company recorded a favorable legal settlement of $95 million in 2017. Excluding this settlement and the 2017 fourth quarter tax charge, 2018 full-year EPS increased 15 percent to $7.60.

2019 Guidance

The company has reaffirmed its full-year EPS guidance in a range of $7.90 to $8.20 per share. Organic growth is expected to be in the range of 1 to 3 percent, based on current run rates. Operating margin is expected to improve by approximately 100 basis points with enterprise initiatives contributing 100 basis points. Free cash flow is expected to be at or above 100 percent of net income. The company expects to repurchase approximately $1.5 billion of its shares in 2019.

For the first quarter 2019, the company expects EPS of $1.73 to $1.83. This incorporates higher estimated restructuring expense of 7 cents per share, foreign currency translation headwind of 7 cents per share and a tax rate in the range of 24.5 to 25.5 percent, which represents a 5 cents per share headwind year-over-year.

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