ITW Reports Third Quarter 2024 Results

Rhea-AI Summary

Illinois Tool Works (ITW) reported Q3 2024 results with revenue of $4.0 billion, showing a 2% decrease as organic growth declined 1.4%. Operating margin remained stable at 26.5%, with enterprise initiatives contributing 130 basis points. The company reported GAAP EPS of $3.91, including a $1.26 divestiture gain from the Wilsonart sale. Excluding this gain, EPS grew 4% to $2.65. ITW raised its full-year GAAP EPS guidance to $11.63-$11.73 per share. The company maintained strong cash flow with $891 million in operating cash flow and $783 million in free cash flow. During Q3, ITW repurchased $375 million of shares and increased its dividend by 7% to $6.00 per share annually.

Positive

• Operating margin stable at 26.5% with 130 basis points improvement from enterprise initiatives
• EPS grew 4% to $2.65 (excluding divestiture gain)
• Strong free cash flow of $783 million with 102% conversion rate
• 7% dividend increase to $6.00 per share annually
• Raised full-year GAAP EPS guidance to $11.63-$11.73

Negative

• Revenue declined 1.6% to $4.0 billion
• Organic growth declined 1.4%
• Foreign currency translation reduced revenue by 0.4%

News Market Reaction – ITW

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+3.24% News Effect

On the day this news was published, ITW gained 3.24%, reflecting a moderate positive market reaction.

Data tracked by StockTitan Argus on the day of publication.

• Revenue of $4.0 billion, a decrease of 2% as organic growth declined 1%
• Operating margin of 26.5% as enterprise initiatives contributed 130 basis points
• GAAP EPS of $3.91 included a divestiture gain of $1.26; ex-gain EPS of $2.65, an increase of 4%
• Raising full year GAAP EPS guidance by $1.33 to a range of $11.63 to $11.73 per share

GLENVIEW, Ill., Oct. 30, 2024 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2024 results.

“ITW delivered solid third quarter results, as our worldwide team continued to successfully navigate and overcome market challenges with strong operational execution as evidenced by operating margin of 26.5 percent, including 130 basis points contribution from enterprise initiatives, and EPS growth to $2.65 per share excluding a divesture gain,” said Christopher A. O’Herlihy, President and Chief Executive Officer. “All year, our focused execution and operational excellence have enabled the Company to effectively counter persistent market headwinds and achieve solid growth in margin and profitability while we continued to manage and invest in ITW to maximize growth and performance over the long term.”

“As we look ahead to the balance of the year and beyond, ITW remains well-positioned to continue to execute at a high level through these near-term end market macro challenges while we remain focused on driving continued progress on our long-term strategy to build above-market organic growth, fueled by customer-back innovation, into a core ITW strength,” O’Herlihy concluded.

Third Quarter 2024 Results
Third quarter revenue of $4.0 billion declined by 1.6 percent as organic growth declined by 1.4 percent. Foreign currency translation impact reduced revenue by 0.4 percent and acquisitions increased revenue by 0.2 percent.

GAAP EPS increased 53 percent to $3.91 per share and included a divestiture gain of $1.26 from the previously announced sale of the Company’s equity interest in Wilsonart International Holdings LLC (“Wilsonart”). Excluding this gain, EPS of $2.65 increased four percent.

Operating income was $1.05 billion and operating margin of 26.5 percent was flat with prior year. Enterprise initiatives contributed 130 basis points and six of seven segments expanded operating margin. Sequentially, operating margin improved 30 basis points from the second quarter of 2024.

Operating cash flow was $891 million, and free cash flow was $783 million, with a conversion rate to adjusted net income of 102 percent. During the quarter, the company repurchased $375 million of its own shares and raised its dividend seven percent to an annualized $6.00 per share. The effective tax rate for the third quarter was 14.9 percent.

Wilsonart Divestiture
On August 5, 2024, the company announced the sale of its noncontrolling equity interest in Wilsonart. Proceeds from the transaction, net of transaction costs, were $395 million, resulting in a pre-tax gain of $363 million. Income taxes on the gain were more than offset by a discrete tax benefit of $107 million related to the utilization of capital loss carryforwards which resulted in a favorable GAAP EPS impact of $1.26. The sale is not expected to have a material impact on the Company’s financial results in future quarters.

2024 Guidance
ITW is incorporating the impact of the divestiture gain and a lower projected effective tax rate for the full year of approximately 21.5 percent into its 2024 guidance and raising GAAP EPS by $1.33 from the previous range of $10.30 to $10.40 to a new range of $11.63 to $11.73 per share. Based on current levels of demand and foreign currency exchange rates, the Company is maintaining its previous guidance for revenue and organic growth to be approximately flat for 2024. Operating margin is projected to be in the range of 26.5 to 27 percent, an improvement of 165 basis points at the midpoint, with enterprise initiatives projected to contribute more than 100 basis points. Free cash flow is projected to be approximately 100 percent of adjusted net income and the company plans to repurchase approximately $1.5 billion of its own shares.

Non-GAAP Measures
This earnings release contains certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule. The estimated guidance of free cash flow to net income conversion rate is based on assumptions that are difficult to predict, and estimated guidance for the most directly comparable GAAP measure and a reconciliation of this forward-looking estimate to its most directly comparable GAAP estimate have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of reliable forward-looking cash flow information. For the same reasons, the company is unable to address the potential significance of the unavailable information, which could be material to future results.

Forward-looking Statements
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding global supply chain challenges, expected impact of inflation including raw material inflation and rising interest rates, the impact of enterprise initiatives, future financial and operating performance, free cash flow and free cash flow to net income conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted income per share, expected dividend payments, after-tax return on invested capital, effective tax rates, exchange rates, expected timing and amount of share repurchases, end market economic and regulatory conditions, the impact of recent or potential acquisitions and/or divestitures, and the Company’s 2024 guidance. These statements are subject to certain risks, uncertainties, assumptions, and other factors that could cause actual results to differ materially from those anticipated. Important risks that could cause actual results to differ materially from the Company’s expectations include those that are detailed in ITW’s Form 10-K for 2023 and subsequent reports filed with the SEC.

About Illinois Tool Works

ITW (NYSE: ITW) is a Fortune 300 global multi-industrial manufacturing leader with revenue of $16.1 billion in 2023. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW’s approximately 45,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com

Investor Relations & Media Contact:   
Erin Linnihan
Tel: 224.661.7431
investorrelations@itw.com | mediarelations@itw.com

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
In millions except per share amounts		2024				2023				2024				2023
Operating Revenue	$	3,966			$	4,031			$	11,966			$	12,124
Cost of revenue		2,230				2,319				6,637				7,004
Selling, administrative, and research and development expenses		658				615				2,020				1,980
Amortization and impairment of intangible assets		26				27				76				88
Operating Income		1,052				1,070				3,233				3,052
Interest expense		(69	)			(67	)			(215	)			(196	)
Other income (expense)		379				10				421				40
Income Before Taxes		1,362				1,013				3,439				2,896
Income Taxes		202				241				701				656
Net Income	$	1,160			$	772			$	2,738			$	2,240
Net Income Per Share:
Basic	$	3.92			$	2.55			$	9.20			$	7.38
Diluted	$	3.91			$	2.55			$	9.17			$	7.36
Cash Dividends Per Share:
Paid	$	1.40			$	1.31			$	4.20			$	3.93
Declared	$	1.50			$	1.40			$	4.30			$	4.02
Shares of Common Stock Outstanding During the Period:
Average		296.1				301.9				297.6				303.4
Average assuming dilution		297.0				303.0				298.5				304.5

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions	September 30, 2024				December 31, 2023
Assets
Current Assets:
Cash and equivalents	$	947			$	1,065
Trade receivables		3,226				3,123
Inventories		1,817				1,707
Prepaid expenses and other current assets		314				340
Total current assets		6,304				6,235
Net plant and equipment		2,071				1,976
Goodwill		4,980				4,909
Intangible assets		617				657
Deferred income taxes		468				479
Other assets		1,384				1,262
	$	15,824			$	15,518
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	1,768			$	1,825
Accounts payable		556				581
Accrued expenses		1,655				1,663
Cash dividends payable		443				419
Income taxes payable		205				187
Total current liabilities		4,627				4,675
Noncurrent Liabilities:
Long-term debt		6,578				6,339
Deferred income taxes		129				326
Noncurrent income taxes payable		—				151
Other liabilities		1,098				1,014
Total noncurrent liabilities		7,805				7,830
Stockholders' Equity:
Common stock		6				6
Additional paid-in-capital		1,651				1,588
Retained earnings		28,583				27,122
Common stock held in treasury		(25,000	)			(23,870	)
Accumulated other comprehensive income (loss)		(1,849	)			(1,834	)
Noncontrolling interest		1				1
Total stockholders' equity		3,392				3,013
	$	15,824			$	15,518

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended September 30, 2024
Dollars in millions	Total Revenue			Operating Income			Operating Margin
Automotive OEM	$	772		$	150		19.4	%
Food Equipment		677			193		28.4	%
Test & Measurement and Electronics		697			179		25.7	%
Welding		462			149		32.3	%
Polymers & Fluids		448			125		27.9	%
Construction Products		479			145		30.2	%
Specialty Products		438			136		31.1	%
Intersegment		(7	)		—		—	%
Total Segments		3,966			1,077		27.1	%
Unallocated		—			(25	)	—	%
Total Company	$	3,966		$	1,052		26.5	%

Nine Months Ended September 30, 2024
Dollars in millions	Total Revenue			Operating Income			Operating Margin
Automotive OEM	$	2,403		$	469		19.5	%
Food Equipment		1,975			537		27.2	%
Test & Measurement and Electronics		2,071			501		24.2	%
Welding		1,404			458		32.6	%
Polymers & Fluids		1,334			364		27.3	%
Construction Products		1,471			436		29.6	%
Specialty Products		1,327			410		30.9	%
Intersegment		(19	)		—		—	%
Total Segments		11,966			3,175		26.5	%
Unallocated		—			58		—	%
Total Company	$	11,966		$	3,233		27.0	%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q3 2024 vs. Q3 2023 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products		Total ITW
Organic	(3.0)	%	(0.3)	%	(1.5)	%	(1.0)	%	1.3	%	(8.8)	%	6.0	%	(1.4)	%
Acquisitions/ Divestitures	—	%	—	%	1.0	%	—	%	—	%	—	%	—	%	0.2	%
Translation	(0.3)	%	0.1	%	0.3	%	(0.3)	%	(3.2)	%	0.7	%	(0.3)	%	(0.4)	%
Operating Revenue	(3.3)	%	(0.2)	%	(0.2)	%	(1.3)	%	(1.9)	%	(8.1)	%	5.7	%	(1.6)	%

Q3 2024 vs. Q3 2023 Favorable/(Unfavorable)

Change in Operating Margin

Automotive OEM

Food Equipment

Test & Measurement and Electronics

Welding

Polymers & Fluids

Construction Products

Specialty Products

Total ITW

Operating Leverage

(60) bps

(10) bps

(40) bps

(20) bps

20 bps

(170) bps

100 bps

(20) bps

Changes in Variable Margin & OH Costs

80 bps

150 bps

270 bps

90 bps

10 bps

250 bps

270 bps

40 bps

Total Organic

20 bps

140 bps

230 bps

70 bps

30 bps

80 bps

370 bps

20 bps

Acquisitions/ Divestitures

—

—

(50) bps

—

—

—

—

(10) bps

Restructuring/Other

30 bps

(30) bps

10 bps

—

(50) bps

(50) bps

(40) bps

(10) bps

Total Operating Margin Change

50 bps

110 bps

190 bps

70 bps

(20) bps

30 bps

330 bps

—

Total Operating Margin % *

19.4%

28.4%

25.7%

32.3%

27.9%

30.2%

31.1%

26.5%

* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets

30 bps

50 bps

170 bps

- bps

150 bps

10 bps

20 bps

70 bps **

** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.06) on GAAP earnings per share for the third quarter of 2024.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

YTD 2024 vs. YTD 2023 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products			Total ITW
Organic	0.3	%	0.3	%	(2.0)	%	(3.1)	%	1.0	%	(6.5)	%	6.0	%		(0.7)	%
Acquisitions/ Divestitures	—	%	—	%	0.9	%	—	%	—	%	—	%	(0.7)	%		0.1	%
Translation	(1.0)	%	0.1	%	(0.3)	%	(0.1)	%	(3.2)	%	(0.1)	%	—	%		(0.7)	%
Operating Revenue	(0.7)	%	0.4	%	(1.4)	%	(3.2)	%	(2.2)	%	(6.6)	%	5.3	%		(1.3)	%

YTD 2024 vs. YTD 2023 Favorable/(Unfavorable)

Change in Operating Margin

Automotive OEM

Food Equipment

Test & Measurement and Electronics

Welding

Polymers & Fluids

Construction Products

Specialty Products

Total ITW

Operating Leverage

—

10 bps

(50) bps

(50) bps

20 bps

(130) bps

120 bps

(20) bps

Changes in Variable Margin & OH Costs

190 bps

—

140 bps

50 bps

90 bps

240 bps

290 bps

210 bps

Total Organic

190 bps

10 bps

90 bps

—

110 bps

110 bps

410 bps

190 bps

Acquisitions/ Divestitures

—

—

(50) bps

—

—

—

20 bps

(10) bps

Restructuring/Other

30 bps

(10) bps

—

10 bps

—

(40) bps

20 bps

—

Total Operating Margin Change

220 bps

—

40 bps

10 bps

110 bps

70 bps

450 bps

180 bps

Total Operating Margin % *

19.5%

27.2%

24.2%

32.6%

27.3%

29.6%

30.9%

27.0%

* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets

30 bps

40 bps

180 bps

10 bps

150 bps

20 bps

20 bps

70 bps **

** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.19) on GAAP earnings per share for the first nine months of 2024.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
Dollars in millions		2024				2023				2024				2023
Numerator:
Net Income	$	1,160			$	772			$	2,738			$	2,240
Net discrete tax benefit related to the third quarter 2024		(121	)			—				(121	)			—
Discrete tax benefit related to the second quarter 2023		—				—				—				(20	)
Interest expense, net of tax (1)		53				51				164				150
Other (income) expense, net of tax (1)		(288	)			(8	)			(320	)			(31	)
Operating income after taxes	$	804			$	815			$	2,461			$	2,339
Denominator:
Invested capital:
Cash and equivalents	$	947			$	990			$	947			$	990
Trade receivables		3,226				3,163				3,226				3,163
Inventories		1,817				1,799				1,817				1,799
Net plant and equipment		2,071				1,904				2,071				1,904
Goodwill and intangible assets		5,597				5,510				5,597				5,510
Accounts payable and accrued expenses		(2,211	)			(2,168	)			(2,211	)			(2,168	)
Debt		(8,346	)			(8,066	)			(8,346	)			(8,066	)
Other, net		291				(128	)			291				(128	)
Total net assets (stockholders' equity)		3,392				3,004				3,392				3,004
Cash and equivalents		(947	)			(990	)			(947	)			(990	)
Debt		8,346				8,066				8,346				8,066
Total invested capital	$	10,791			$	10,080			$	10,791			$	10,080
Average invested capital (2)	$	10,682			$	10,237			$	10,466			$	10,239
Net income to average invested capital (3)		43.4	%			30.1	%			34.9	%			29.2	%
After-tax return on average invested capital (3)		30.0	%			31.9	%			31.3	%			30.5	%

⁽¹⁾  Effective tax rate used for interest expense and other (income) expense for the three months ended September 30, 2024 and 2023 was 23.7% and 23.8%, respectively. Effective tax rate used for interest expense and other (income) expense for the nine months ended September 30, 2024 and 2023 was 23.9% and 23.4%, respectively.

⁽²⁾  Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within each of the periods presented.

⁽³⁾  Returns for the three months ended September 30, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 4. Returns for the nine months ended September 30, 2024 and 2023 were converted to an annual rate by dividing the calculated return by 3 and multiplying it by 4.

After-tax ROIC for the nine months ended September 30, 2024 included 110 basis points of favorable impact related to the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax) in the first quarter of 2024.

A reconciliation of the tax rate for the three and nine month periods ended September 30, 2024, excluding the third quarter 2024 net discrete tax benefit of $121 million, which included favorable discrete tax benefits of $107 million related to the utilization of capital loss carryforwards upon the sale of Wilsonart International Holdings LLC ("Wilsonart") and $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, is as follows:

	Three Months Ended						Nine Months Ended
	September 30, 2024						September 30, 2024
Dollars in millions	Income Taxes			Tax Rate			Income Taxes			Tax Rate
As reported	$	202		14.9	%		$	701		20.4	%
Net discrete tax benefit related to the third quarter 2024		121		8.8	%			121		3.5	%
As adjusted	$	323		23.7	%		$	822		23.9	%

A reconciliation of the tax rate for the nine months ended September 30, 2023, excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:

	Nine Months Ended
	September 30, 2023
Dollars in millions	Income Taxes			Tax Rate
As reported	$	656		22.7	%
Discrete tax benefit related to the second quarter 2023		20		0.7	%
As adjusted	$	676		23.4	%

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
	Twelve Months Ended
Dollars in millions	December 31, 2023
Numerator:
Net income	$	2,957
Discrete tax benefit related to the second quarter 2023		(20	)
Interest expense, net of tax (1)		204
Other (income) expense, net of tax (1)		(38	)
Operating income after taxes	$	3,103
Denominator:
Invested capital:
Cash and equivalents	$	1,065
Trade receivables		3,123
Inventories		1,707
Net plant and equipment		1,976
Goodwill and intangible assets		5,566
Accounts payable and accrued expenses		(2,244	)
Debt		(8,164	)
Other, net		(16	)
Total net assets (stockholders' equity)		3,013
Cash and equivalents		(1,065	)
Debt		8,164
Total invested capital	$	10,112
Average invested capital (2)	$	10,214
Net income to average invested capital		29.0	%
After-tax return on average invested capital		30.4	%

⁽¹⁾  Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2023 was 23.2%.

⁽²⁾  Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within the period presented.

A reconciliation of the 2023 effective tax rate excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:

	Twelve Months Ended
	December 31, 2023
Dollars in millions	Income Taxes			Tax Rate
As reported	$	866		22.6	%
Discrete tax benefit related to the second quarter 2023		20		0.6	%
As adjusted	$	886		23.2	%

FREE CASH FLOW (UNAUDITED)
	Three Months Ended									Nine Months Ended
	September 30,									September 30,
Dollars in millions		2024					2023				2024				2023
Net cash provided by operating activities	$	891				$	982			$	2,167			$	2,500
Less: Additions to plant and equipment		(108	)				(126	)			(319	)			(324	)
Free cash flow	$	783				$	856			$	1,848			$	2,176
Net income	$	1,160				$	772			$	2,738			$	2,240
Net cash provided by operating activities to net income conversion rate		77	%				127	%			79	%			112	%
Free cash flow to net income conversion rate		68	%	(1	)		111	%			67	%			97	%

⁽¹⁾  Excluding the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes, and a discrete tax benefit of $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, the free cash flow to net income conversion rate would have been 102% for the three months ended September 30, 2024.

ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)
	Three Months Ended
	September 30, 2024
As reported	$	3.91
Impact of sale of noncontrolling interest in Wilsonart (1)		(1.26	)
As adjusted	$	2.65

⁽¹⁾  Includes the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes.

FAQ

What was ITW's Q3 2024 revenue and how did it change year-over-year?

ITW's Q3 2024 revenue was $4.0 billion, representing a 1.6% decrease year-over-year, with organic growth declining 1.4%.

How much did ITW raise its full-year 2024 GAAP EPS guidance?

ITW raised its full-year 2024 GAAP EPS guidance by $1.33 to a new range of $11.63 to $11.73 per share.

What was ITW's operating margin in Q3 2024?

ITW's operating margin in Q3 2024 was 26.5%, remaining flat year-over-year, with enterprise initiatives contributing 130 basis points.

How much did ITW's dividend increase in Q3 2024?

ITW increased its dividend by 7% to an annualized $6.00 per share.