Illinois Tool Works has reported its fourth-quarter and full-year 2019 results.
Fourth-quarter revenue of $3.5 billion declined 3.1 percent with organic revenue down 1.6 percent. Foreign currency translation and divestitures reduced revenues by 1 percent and 0.5 percent, respectively. Product Line Simplification (PLS) activities reduced organic revenue by 60 basis points. GAAP EPS increased nine percent to $1.99, including 11 cents divestiture gains from the sale of three businesses. Free cash flow was $692 million with a 114 percent conversion rate. The effective tax rate for the fourth quarter was 22.8 percent.
Full year revenue of $14.1 billion declined 4.5 percent with organic revenue down 1.9 percent and unfavorable foreign currency translation impact of 2.3 percent. PLS reduced organic revenue by 60 basis points versus 70 basis points in 2018. 2019 GAAP EPS increased two percent to $7.74 including 9 cents of net gains from divestitures. After-tax return on invested capital was 28.7 percent. Free cash flow increased nine percent to $2.7 billion. The company repurchased $1.5 billion of its own shares and raised its dividend seven percent in August 2019 to an annualized $4.28 per share. The effective tax rate for the full year was 23.3 percent.
“The ITW team closed out 2019 with another quarter of strong execution and resilient financial performance,” said E. Scott Santi, chairman and CEO. “Despite near-term macro challenges, we grew earnings per share nine percent, delivered 24.1 percent operating margin excluding higher restructuring expenses and improved after-tax return on invested capital 120 basis points to 28.9 percent.”
“For the year, in a contracting industrial demand environment including a six percent decline in global auto builds, ITW grew earnings per share five percent excluding the impact of foreign currency headwinds, higher restructuring expenses and divestiture gains. We expanded operating margin to 24.4 percent excluding higher restructuring expenses, improved after-tax return on invested capital to 28.7 percent, increased free cash flow nine percent and returned $2.8 billion to shareholders in the form of dividends and share repurchases. Throughout 2019, we executed very well on the things within our control and continued to make meaningful progress on our path to full-potential performance through the implementation of our ‘Finish the Job’ enterprise strategy agenda. ITW’s proprietary and powerful business model, diversified high-quality business portfolio and dedicated team of highly skilled ITW colleagues around the world position us well to continue to deliver differentiated performance in 2020 and beyond,” Santi concluded.
2020 Guidance
The company initiated full-year EPS guidance in a range of $7.65 to $8.05 per share. At current levels of demand, organic growth is forecast to be in the range of zero to two percent. Foreign currency translation and divestitures are projected to reduce revenues by one percentage point each. PLS impact is forecast to moderate to approximately 50 basis points. Operating margin is expected to improve and be in a range of 24.5 to 25 percent, with enterprise initiatives contributing approximately 100 basis points. Free cash flow is expected to be greater than 100 percent of net income. The company expects an effective tax rate in the range of 23.5 to 24.5 percent and plans to repurchase approximately $2 billion of its shares in 2020.
