Illinois Tool Works Inc. (ITW) has reported its fourth quarter and full year 2022 results and initiated guidance for full year 2023.
“We delivered a robust finish to a strong year of differentiated execution and performance by the ITW team. Fourth quarter organic growth was 12 percent, operating margin was 24.8 percent, and earnings per share increased 21 percent excluding divestiture gains,” said E. Scott Santi, chairman and CEO. We were very pleased with both our revenue growth and margin performance in the fourth quarter as we delivered eight percent overall revenue growth and a 210-basis point operating margin improvement.”
“For all of 2022, in a year marked by significant supply chain disruptions and cost inflation, ITW delivered organic growth of 12 percent for the second year in a row, operating margin of 24.4 percent in our base business, after tax return on invested capital of 29.1 percent, and record GAAP EPS of $9.77, an increase of 15 percent versus the prior year. There is no question that our decision to stay invested in our enterprise strategy and in our people throughout the pandemic and the quality of our teams’ execution of our ‘Win the Recovery’ focus coming out of it are powering the strong growth and financial performance ITW is currently delivering. As a result, we are very pleased with our momentum and positioning heading into 2023. I want to again thank my ITW colleagues around the world for their extraordinary dedication and commitment to serving our customers and executing our strategy with excellence,” Santi concluded.
Fourth Quarter 2022 Results
Fourth quarter revenue of $4 billion increased eight percent with organic revenue growth of 12 percent. The net impact from acquisitions and divestitures contributed one percent to revenue. Unfavorable foreign currency translation reduced revenue by five percent.
GAAP EPS increased 53 percent to $2.95 and included $0.61 of divestiture gains and $0.12 of unfavorable foreign currency translation impact. Excluding divestiture gains and foreign currency translation impact, EPS of $2.46 increased 27 percent. Operating income increased 18 percent to $986 million and incremental margin was 52 percent.
Full Year 2022 Results
Full year revenue of $15.9 billion increased 10 percent with organic revenue growth of 12 percent. The net impact from acquisitions and divestitures contributed two percent to revenue. Unfavorable foreign currency translation reduced revenue by four percent. Five of seven segments delivered double-digit organic growth for the year, led by Food Equipment up 23 percent, Welding up 16 percent, Construction Products up 14 percent, Automotive OEM up 12 percent, and Polymers & Fluids up 11 percent. Test & Measurement and Electronics was up nine percent and Specialty Products was up 0.4 percent. On a geographic basis, organic growth was 14 percent in North America, 10 percent in Europe, and eight percent in Asia Pacific.
GAAP EPS increased 15 percent to $9.77 including the abovementioned divestiture gains and $0.39 of unfavorable foreign currency translation impact. Excluding divestiture gains and foreign currency translation impact, EPS increased 12 percent.
Fourth Quarter Divestiture Update
As previously announced, on October 3, 2022, ITW closed the sale of a $100 million revenue division within the Polymers & Fluids segment for $220 million. On December 1, 2022, ITW closed the sale of a $35 million revenue business unit within the Food Equipment segment for $59 million. The gains on sale related to these two divestitures contributed $197 million to non-operating income and $0.61 to fourth quarter EPS.
2023 Guidance
The company is initiating 2023 guidance including GAAP EPS in the range of $9.40 to $9.80 per share and organic growth of three to five percent based on current levels of demand and anticipated further slowing in certain end markets. Foreign currency translation and the abovementioned divestitures are expected to reduce revenue by approximately 0.75 percent each, resulting in total revenue growth of 1.5 to 3.5 percent. Operating margin is projected to be in the range of 24.5 to 25.5 percent, with approximately 100 basis points contribution from enterprise initiatives. Free cash flow is expected to be greater than 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate is approximately 24 percent.
