GLENVIEW, Ill. — Illinois Tool Works (ITW) has reported diluted income per share from continuing operations of 54 cents, a decrease of 34 percent in the 2008 fourth quarter versus the year earlier period. The results were above the December 2008 forecast range of 44 cents to 52 cents primarily due to a lower tax rate. In addition, revenues declined 5.9 percent due to significant base revenue and currency translation headwinds in the quarter.
Due to further weakening in worldwide end-markets, overall base revenues declined 9.2 percent in the fourth quarter versus the prior year, with North America decreasing 12.3 percent and international falling 6.2 percent. Fourth quarter base revenues were significantly weaker than the 2008 third quarter when base revenues declined 0.8 percent, with North America decreasing 2.1 percent and international growing 1.2 percent. The strengthening U.S. dollar negatively impacted revenues by 4.5 percent primarily related to major currencies such as the euro and the U.K. pound. Currency translation contributed 4.7 percent growth in the 2008 third quarter. Acquisitions contributed 7.8 percent of growth in the fourth quarter.
For the 2008 fourth quarter, revenues of $3.678 billion compared to $3.908 billion for the prior year period. Fourth quarter operating margins of 11.3 percent were 450 basis points lower than the year ago period due to lower base margins of 260 basis points associated with rapidly declining end-markets, increased restructuring costs of 80 basis points and the dilutive impact of acquisitions of 90 basis points. Operating income fell 33 percent versus a year ago due to lower base revenues, the negative impact of currency translation and increased restructuring costs of $26 million.
For full-year 2008, diluted income per share from continuing operations was $3.04, a 1 percent decline versus 2007. Operating revenues of $15.869 billion were 6.7 percent higher than full-year 2007. Base revenues declined 2.5 percent in 2008, with North America down 4.8 percent and international essentially flat for the year.
Acquisitions and currency translation contributed 6.6 percent and 2.8 percent, respectively, to the 2008 revenue increase. Operating income declined 4.5 percent and income from continuing operations was down 7.5 percent. Full-year operating margins of 14.7 percent were 180 basis points lower than the year-ago period.
"The 2008 fourth quarter represented a significant change in economic conditions for the Company both in North America and internationally. We experienced dramatic declines in most of our worldwide end-markets, especially in November and December," said David Speer, chairman and chief executive officer. "We believe we will be able to effectively manage through this very difficult economic environment in 2009 by focusing on time-tested ITW attributes: our decentralized, close-to-the-customer business units; our productivity enhancing 80/20 business process and tool box; our deeply experienced management team; our fundamentally sound capital structure; and our consistent ability to generate strong free operating cash flow. Our free operating cash flow in the fourth quarter was $509 million and was $1.9 billion for full-year 2008. That represents free operating cash flow to net income conversion rates of 218 percent and 123 percent, respectively."
