Illinois Tool Works Inc. (ITW) has reported second quarter 2016 diluted earnings per share (EPS) of $1.46, a 12 percent increase compared to the year-ago period. Operating margin increased 180 basis points to 23.1 percent, operating income of $792 million was up 8 percent, and after-tax return on invested capital increased by 260 basis points to 22.9 percent.
ITW said second quarter results for all three of these key metrics were all-time highs for the company. Organic revenue increased 2 percent excluding Product Line Simplification (PLS) as six of the company’s seven segments delivered positive year on year growth, while the overall demand environment in the Welding segment remained challenging with revenue down 11 percent in the quarter. The company’s ongoing PLS activities reduced overall organic revenue growth by approximately 1 percentage-point resulting in net organic growth for the company of 1 percent in the quarter.
“I am very pleased with ITW’s performance in the quarter. The fact that we achieved best-ever operating income, operating margin and return on invested capital performance reinforces both our conviction in the strength of the differentiated performance potential that resides within the ITW business model and the excellent progress that our ITW colleagues around the world continue to make in positioning the company to leverage it to its full potential,” said E. Scott Santi, chairman and CEO. “I am also pleased with the progress that our segments are making in executing our framework for accelerated organic revenue growth, as evidenced by the fact that six of our seven segments delivered positive year-on-year organic growth in the quarter. As a result, we were able to overcome the continued challenging demand environment in our Welding segment and deliver 12 percent earnings per share growth.”
Total revenue was $3.4 billion, down 0.1 percent. Currency translation reduced revenue by 1.3 percent. Organic revenue grew 1.2 percent, as North America grew 0.4 percent and International grew 2.2 percent.
2016 Guidance
ITW is raising its 2016 full-year GAAP EPS guidance range by 10 cents to $5.50 to $5.70, a year-over-year increase of 9 percent at the mid-point. The company also is narrowing its full-year organic growth forecast to 1 percent to 2 percent (prior forecast of 1 percent to 3 percent) as a result of the lingering difficult market conditions being experienced by the Welding segment.
For the third quarter 2016, the company expects GAAP EPS to be in a range of $1.42 to $1.52, and operating margin to be approximately 23 percent. Organic revenue is forecast to be up 1 percent to 3 percent.
