GLENVIEW, IL — Illinois Tool Works Inc. (ITW) has reported 14 percent growth in diluted net income per share in the 2007 third quarter. Diluted net income per share was 89 cents versus 78 cents in the 2006 third quarter. Additionally, the company’s third quarter net income increased 10 percent.
The double-digit growth in third quarter earnings per share was in part due to ongoing strength from a broad variety of international end markets tempered by weaker North American end market activity. Total company revenues increased 15.7 percent in the quarter. While total base revenues grew 2.2 percent in the quarter, international base revenues increased 5.1 percent and North American base revenues were up modestly. Even with slower North American end markets, the company’s North American base revenue growth rate improved 160 basis points from the 2007 second quarter. Also, acquisitions net of divestitures added 10.3 percent of growth to revenues while translation contributed 3.8 percent. Other income decreased $16.8 million from the year ago period as a result of lower investment income.
For the 2007 third quarter, revenues were $4.094 billion versus $3.538 billion for the prior year period. Third quarter operating income improved to $696.3 million from $626.9 million a year ago. Net income was $491.1 million compared to $446.1 million in the prior year period. The company’s third quarter operating margins of 17 percent were 70 basis points lower than the year-ago period due to the significantly higher levels of acquisitions in the last half of 2006 and thus far in 2007. Excluding acquisitions, third quarter base margins improved 60 basis points versus the prior year period.
For the 2007 nine months, revenues increased 15 percent, operating income grew 8 percent, net income rose 9 percent and diluted net income per share was 12 percent higher than the year-ago period. Operating revenues were $12.013 billion versus $10.415 billion for the prior year period. Operating income improved to $1.964 billion from $1.827 billion a year ago. Net income was $1.399 billion compared to $1.278 billion and diluted net income per share was $2.50 versus $2.24 in the prior year period. The company’s 2007 nine month operating margins of 16.3 percent were 120 basis points lower than the year earlier period.
The company’s free operating cash flow was a strong $656 million in the third quarter. This cash was utilized to acquire 18 companies in the most recent quarter representing $218 million of annualized revenues. Through Sept. 30, the company acquired 37 companies totaling $830 million of annualized revenues and in aggregate paid less than one times revenues. In the third quarter, the company also repurchased $479 million of shares as part of its open-ended buyback program. Year to date, the company has spent a total of $959 million to repurchase shares.
"Despite continued headwinds in a number of North American end markets, we capitalized on stronger international end markets and our 80/20 operating discipline to post double-digit earnings growth for the quarter," said David Speer, chairman and chief executive officer. "We continue to be optimistic about our acquisition opportunities and, as a result, we have modified our acquisition range to $1 billion to 1.2 billion of annualized revenues for the full year."
Looking ahead, the company is forecasting a 2007 fourth quarter diluted earnings per share range of 86 cents to 90 cents and a full-year range of $3.36 to $3.40. Total company base revenues are expected to grow in a range of 2.1 percent to 4.1 percent in the fourth quarter and 1.9 percent to 2.5 percent for the full year. If the company achieves the midpoints of these forecasted ranges, the diluted earnings per share growth would be 14 percent for the fourth quarter and 12 percent for the full year.
