Illinois Tool Works Inc. has reported its fourth-quarter and full-year 2016 results.
“The fourth quarter closed out a year of record financial performance and strong execution by the ITW team. In 2016, we grew EPS 11 percent, improved operating margin by 110 basis points to an all-time high of 22.5 percent and increased after tax return on invested capital 170 basis points to a record 22.1 percent,” said E. Scott Santi, chairman and CEO. “Throughout 2016, we continued to invest in our businesses to sustain above-market organic growth, strengthened our highly differentiated business portfolio and returned more than $2.8 billion of surplus capital to shareholders. We continue to work hard to push our performance to best-in-class levels, and we are well-positioned to deliver continued progress and strong results in 2017.”
Fourth-quarter GAAP earnings were $1.45 per share, an increase of 18 percent versus the fourth quarter of 2015. Foreign currency translation reduced EPS by 2 percent year-on-year. Revenue grew 4 percent year-on-year to $3.4 billion. Organic revenue increased 2 percent while the 2016 acquisition of Engineered Fasteners & Components (EF&C) added 4 percent to revenue. Foreign currency translation reduced revenue by 2 percent year-on-year and Product Line Simplification (PLS) reduced revenue by approximately 1 percent.
During the fourth quarter the company recorded a net EPS benefit of 6 cents per share, related to a dividend distribution from its investment in Wilsonart, which was partially offset by one-time charges related to two small divestitures. Excluding these non-recurring items, fourth quarter earnings were $1.39 per share, an increase of 13 percent versus the prior year.
Operating income was $742 million and operating margin for the quarter was 21.8 percent, an increase of 110 basis points year-on-year. Excluding the margin dilution from the 2016 acquisition of EF&C, operating margin was 22.2 percent, an increase of 150 basis points year-on-year with 130 basis points of margin expansion coming from Enterprise Initiatives. Fourth-quarter net income was $507 million and the company converted 117 percent of net income to free cash flow.
Organic revenue growth was positive in five of seven segments: 7 percent in Automotive OEM, 3 percent in Food Equipment and Construction Products, 2 percent in Polymers & Fluids, 1 percent in Specialty Products with Test & Measurement/Electronics flat and a decline of 8 percent in Welding.
Full-year 2016 GAAP earnings were $5.70 per share, an increase of 11 percent. Total revenue increased 1 percent to $13.6 billion with organic growth of 1 percent. The acquisition of EF&C increased revenue 2 percent. Foreign currency translation reduced revenue by 2 percent.
Full-year operating margin was 22.5 percent, up 110 basis points versus 2015, or up 140 basis points to 22.8 percent excluding the margin dilution impact from EF&C. ITW converted 100 percent of net income to free cash flow for the year and generated 22.1 percent after-tax return on invested capital. For the full year, ITW paid $821 million in dividends to shareholders and repurchased $2 billion of its own shares.
Full-Year and First Quarter 2017 Guidance
ITW is reaffirming its 2017 full-year performance expectations. The company expects 2017 earnings to be in the range of $6 to $6.20 per share with organic growth of 1.5 to 3.5 percent. The company expects first quarter 2017 earnings to be in the range of $1.39 to $1.49 per share with organic growth of 1 to 2 percent. The company expects operating margin to exceed 22.5 percent.