GlobeNewswire Inc | Oct 28, 2021 08:00AM EDT

October 28, 2021

-- Total revenue of $3.6 billion, an increase of 8% with organic revenue growth of 6% -- Operating margin of 23.8%; Enterprise initiatives contributed 100 basis points -- GAAP EPS of $2.02, an increase of 10% -- Updated full year guidance with organic growth of 11 to 12% and EPS growth of 25 to 28%

GLENVIEW, IL., Oct. 28, 2021 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2021 results.

We saw continued strong growth momentum in six of our seven segments in the third quarter, while our Automotive OEM segment continued to be impacted by auto production reductions associated with the well-publicized supply chain challenges affecting our customers, said E. Scott Santi, Chairman and Chief Executive Officer. Our teams around the world continue to do an exceptional job of executing for our customers and for the company in a very challenging environment as evidenced by the six percent organic growth and ten percent earnings per share growth that ITW delivered in the quarter. Moving forward, we remain highly focused on fully leveraging the competitive strength of the ITW Business Model and the investments we have made, and continue to make, in support of the execution of our enterprise strategy and our Win the Recovery positioning to their full potential.

Third Quarter 2021 ResultsThird quarter revenue grew eight percent to $3.6 billion, with six percent organic growth. Operating income grew seven percent to $845 million. Excluding Automotive OEM, revenue grew 12 percent and operating income grew 14 percent. Operating margin was 23.8 percent, flat year-over-year, with enterprise initiatives and volume leverage each contributing 100 basis points or more of positive margin impact offset by price/cost margin dilution impact of 200 basis points. Consistent with our strategy, price recovery actions offset raw material cost increases on a dollar-for-dollar basis in the third quarter. GAAP EPS of $2.02 increased 10 percent. The effective tax rate for the third quarter was 20.8 percent, in line with the third quarter of 2020, and included a $0.06 one-time tax benefit. Operating cash flow was $619 million, 97 percent of net income, and free cash flow was $548 million, 86 percent of net income.

Six of seven segments delivered strong organic growth in the quarter, led by Welding up 22 percent, Food Equipment up 19 percent, Test & Measurement and Electronics up 12 percent, and Specialty Products up 8 percent. Polymers & Fluids and Construction Products were both up 3 percent. Automotive OEM declined 11 percent.

Capital Allocation UpdatePending final regulatory approvals, ITW expects to complete its previously announced acquisition of the MTS Test & Simulation business in the fourth quarter of 2021. On August 6, 2021, ITW raised its dividend by seven percent to an annualized rate of $4.88 per share. The company is on pace to repurchase approximately $1 billion of its shares in 2021, having repurchased $750 million year-to-date.

2021 GuidanceITW expects total revenue growth of 13 to 14 percent and organic growth in the range of 11 to 12 percent. Foreign currency translation impact at current foreign exchange rates is projected to contribute two percentage points to revenue growth. GAAP EPS guidance is updated to a range of $8.30 to $8.50, due to actual and anticipated lower auto production levels in Q3 and Q4 versus previous guidance. Raw material cost increases are expected to be offset with price on a dollar-for-dollar basis and therefore EPS neutral. Full year margin dilution impact from price/cost is expected to be approximately 150 basis points, offset by more than 200 basis points of volume leverage and a contribution from enterprise initiatives of more than 100 basis points. Operating margin is expected to be in the range of 23.5 to 24.5 percent, an increase of more than 100 basis points at the midpoint versus 2020. Free cash flow is expected to be approximately 90 percent of net income adjusted for one-time tax benefits. Guidance excludes any impact from the acquisition of the MTS Test & Simulation business.

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 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 estimated free cash flow to the most directly comparable GAAP measure have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of availability of reliable forward-looking cash flow and operating information.

Forward-looking Statement 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 the duration and potential effects of the COVID-19 pandemic and global supply chain challenges, related government actions and the companys strategy in response thereto on the companys business, expected impact of tariffs and raw material inflation, product line simplification activities and enterprise initiatives, future financial and operating performance, free cash flow and free cash flow conversion rate, organic and total revenue, operating margin, price/cost impact, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation, after-tax return on invested capital, effective tax rates, exchange rates, expected access to liquidity sources, expected capital allocation, expected timing and amount of share repurchases, end market economic and regulatory conditions, potential acquisitions and dispositions and related impact on financial results, including statements with respect to the anticipated acquisition of the MTS Test & Simulation business, and the companys 2021 guidance. These statements are subject to certain risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those anticipated. Such factors include those contained in ITW's Form 10-K for 2020.

About Illinois Tool WorksITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $12.6 billion in 2020. The companys 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. ITWs approximately 43,000 dedicated colleagues around the world thrive in the companys decentralized and entrepreneurial culture. www.itw.com

Media Contact Investor RelationsIllinois Tool Works Illinois Tool WorksTel: 224.661.7451 Karen Fletchermediarelations@itw.com Tel: 224.661.7433 investorrelations@itw.com

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSTATEMENT OF INCOME (UNAUDITED)

Three Months Ended Nine Months Ended September 30, September 30,In millionsexcept per 2021 2020 2021 2020share amountsOperating $ 3,556 $ 3,307 $ 10,776 $ 9,099 RevenueCost of revenue 2,096 1,910 6,298 5,375 Selling,administrative,and research 581 560 1,735 1,606 and developmentexpensesAmortizationand impairment 34 48 100 119 of intangibleassetsOperating 845 789 2,643 1,999 IncomeInterest (49 ) (52 ) (153 ) (154 ) expenseOther income 10 2 44 35 (expense)Income Before 806 739 2,534 1,880 TaxesIncome Taxes 167 157 449 413 Net Income $ 639 $ 582 $ 2,085 $ 1,467 Net Income Per Share:Basic $ 2.03 $ 1.84 $ 6.61 $ 4.63 Diluted $ 2.02 $ 1.83 $ 6.58 $ 4.61 Cash Dividends Per Share:Paid $ 1.14 $ 1.07 $ 3.42 $ 3.21 Declared $ 1.22 $ 1.14 $ 3.50 $ 3.28 Shares ofCommon StockOutstanding During thePeriod:Average 314.6 316.5 315.6 316.9 Averageassuming 315.9 317.9 316.9 318.3 dilution

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSTATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millions September 30, December 31, 2020 2021Assets Current Assets: Cash and equivalents $ 1,987 $ 2,564 Trade receivables 2,729 2,506 Inventories 1,524 1,189 Prepaid expenses and other current assets 337 264 Total current assets 6,577 6,523 Net plant and equipment 1,744 1,777 Goodwill 4,610 4,690 Intangible assets 683 781 Deferred income taxes 580 533 Other assets 1,323 1,308 $ 15,517 $ 15,612 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 579 $ 350 Accounts payable 565 534 Accrued expenses 1,399 1,284 Cash dividends payable 383 361 Income taxes payable 70 60 Total current liabilities 2,996 2,589 Noncurrent Liabilities: Long-term debt 6,972 7,772 Deferred income taxes 633 588 Noncurrent income taxes payable 365 413 Other liabilities 1,058 1,068 Total noncurrent liabilities 9,028 9,841 Stockholders? Equity: Common stock 6 6 Additional paid-in-capital 1,416 1,362 Retained earnings 24,098 23,114 Common stock held in treasury (20,390 ) (19,659 ) Accumulated other comprehensive income (1,638 ) (1,642 ) (loss)Noncontrolling interest 1 1 Total stockholders? equity 3,493 3,182 $ 15,517 $ 15,612

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Three Months Ended September 30, 2021Dollars in millions Total Operating Operating Revenue Income MarginAutomotive OEM $ 647 $ 112 17.3 %Food Equipment 544 130 23.9 %Test & Measurement and Electronics 552 148 26.8 %Welding 425 128 30.0 %Polymers & Fluids 456 111 24.2 %Construction Products 478 133 27.8 %Specialty Products 459 126 27.3 %Intersegment (5 ) ? ? %Total Segments 3,556 888 24.9 %Unallocated ? (43 ) ? %Total Company $ 3,556 $ 845 23.8 %

Nine Months Ended September 30, 2021Dollars in millions Total Operating Operating Revenue Income MarginAutomotive OEM $ 2,137 $ 434 20.3 %Food Equipment 1,509 339 22.5 %Test & Measurement and Electronics 1,710 475 27.8 %Welding 1,228 364 29.6 %Polymers & Fluids 1,357 350 25.8 %Construction Products 1,465 406 27.7 %Specialty Products 1,387 380 27.4 %Intersegment (17 ) ? ? %Total Segments 10,776 2,748 25.5 %Unallocated ? (105 ) ? %Total Company $ 10,776 $ 2,643 24.5 %

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Q3 2021 vs. Q3 2020 Favorable/(Unfavorable) Test &Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalRevenue OEM Equipment and & Fluids Products Products ITW ElectronicsOrganic (10.7 ) % 18.9 % 11.8 % 22.0 % 3.4 % 3.4 % 8.3 % 6.3 %Acquisitions/ ? % ? % ? % ? % ? % (0.1 ) % ? % ? %DivestituresTranslation 1.3 % 2.1 % 1.1 % 0.9 % 0.7 % 1.7 % 1.1 % 1.2 %Operating (9.4 ) % 21.0 % 12.9 % 22.9 % 4.1 % 5.0 % 9.4 % 7.5 %Revenue

Q3 2021 vs. Q3 2020 Favorable/(Unfavorable) Test &Change in Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalMargin OEM Equipment and & Fluids Products Products ITW ElectronicsOperating Leverage (240) bps 410 bps 290 bps 290 bps 70 bps 50 bps 180 bps 130 bpsChanges in Variable (320) bps (140) bps (20) bps (40) (340) (120) bps 30 bps (210)Margin & OH Costs bps bps bpsTotal Organic (560) bps 270 bps 270 bps 250 bps (270) (70) bps 210 bps (80) bps bpsAcquisitions/ ? ? ? ? ? ? ? ?DivestituresRestructuring/Other 210 bps 160 bps 40 bps (40) 30 bps 40 bps ? 80 bps bpsTotal Operating (350) bps 430 bps 310 bps 210 bps (240) (30) bps 210 bps ?Margin Change bps Total Operating 17.3% 23.9% 26.8% 30.0% 24.2% 27.8% 27.3% 23.8%Margin % * *Includesunfavorableoperating margin 90impact of 40 bps 60 bps 170 bps 20 bps 240 bps 20 bps 80 bps bpsamortization **expense fromacquisition-relatedintangible assets** Amortization expense from acquisition-related intangible assets had anunfavorable impact of ($0.08) on GAAP earnings per share for the third quarterof 2021.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

YTD 2021 vs. YTD 2020 Favorable/(Unfavorable) Test &Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalRevenue OEM Equipment and & Fluids Products Products ITW ElectronicsOrganic 15.7 % 15.2 % 16.8 % 19.3 % 12.4 % 14.0 % 10.8 % 14.9 %Acquisitions/ ? % ? % ? % ? % ? % (0.1 ) % ? % ? %DivestituresTranslation 4.9 % 3.8 % 2.9 % 1.6 % 2.1 % 6.0 % 2.8 % 3.5 %Operating 20.6 % 19.0 % 19.7 % 20.9 % 14.5 % 19.9 % 13.6 % 18.4 %Revenue

YTD 2021 vs. YTD 2020 Favorable/(Unfavorable) Test &Change in Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalMargin OEM Equipment and & Fluids Products Products ITW ElectronicsOperating Leverage 310 bps 350 bps 380 bps 270 bps 240 bps 250 bps 210 bps 300 bpsChanges in Variable 150 bps (20) bps (100) bps 60 bps (130) (20) bps (20) bps (70)Margin & OH Costs bps bpsTotal Organic 460 bps 330 bps 280 bps 330 bps 110 bps 230 bps 190 bps 230 bpsAcquisitions/ ? ? ? ? ? ? ? ?DivestituresRestructuring/Other 70 bps 60 bps 20 bps (20) 10 bps 10 bps (20) bps 20 bps bpsTotal Operating 530 bps 390 bps 300 bps 310 bps 120 bps 240 bps 170 bps 250Margin Change bps Total Operating 20.3% 22.5% 27.8% 29.6% 25.8% 27.7% 27.4% 24.5%Margin % * *Includesunfavorableoperating margin 100impact of 40 bps 60 bps 160 bps 10 bps 250 bps 20 bps 70 bps bpsamortization **expense fromacquisition-relatedintangible assets** Amortization expense from acquisition-related intangible assets had anunfavorable impact of ($0.24) on GAAP earnings per share for the first ninemonths of 2021.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESGAAP 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 2021 2020 2021 2020millionsOperating $ 845 $ 789 $ 2,643 $ 1,999 incomeTax rate (asadjusted in 23.4 % 21.3 % 22.9 % 22.0 %2021)Income taxes (198 ) (168 ) (607 ) (439 ) Operatingincome after $ 647 $ 621 $ 2,036 $ 1,560 taxes Invested capital:Trade $ 2,729 $ 2,494 $ 2,729 $ 2,494 receivablesInventories 1,524 1,149 1,524 1,149 Net plant and 1,744 1,736 1,744 1,736 equipmentGoodwill andintangible 5,293 5,405 5,293 5,405 assetsAccountspayable and (1,964 ) (1,784 ) (1,964 ) (1,784 ) accruedexpensesOther, net (269 ) (527 ) (269 ) (527 ) Total invested $ 9,057 $ 8,473 $ 9,057 $ 8,473 capital Averageinvested $ 9,084 $ 8,394 $ 8,912 $ 8,536 capitalAfter-taxreturn onaverage 28.5 % 29.6 % 30.5 % 24.4 %investedcapital

A reconciliation of the tax rate for the three and nine month periods ended September 30, 2021, excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital losses and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate, is as follows:

Three Months Nine Months Ended Ended September 30, September 30, 2021 2021Dollars in millions Income Tax Income Tax Taxes Rate Taxes RateAs reported $ 167 20.8 % $ 449 17.7 %Discrete tax benefit related to the third 21 2.6 % 21 0.8 %quarter 2021Discrete tax benefit related to the ? ? % 112 4.4 %second quarter 2021As adjusted $ 188 23.4 % $ 582 22.9 %

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESGAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

FREE CASH FLOW (UNAUDITED)

Three Months Ended Nine Months Ended Twelve Months September 30, September 30, EndedDollars in 2021 2020 2021 2020 December 31,millions 2020Net cashprovidedby $ 619 $ 683 $ 1,783 $ 2,034 $ 2,807 operatingactivitiesLess:Additionsto plant (71 ) (52 ) (217 ) (168 ) (236 ) andequipmentFree cash $ 548 $ 631 $ 1,566 $ 1,866 $ 2,571 flow Net income $ 639 $ 582 $ 2,085 $ 1,467 $ 2,109 Net cashprovidedbyoperatingactivities 97 % 117 % 86 % 139 % 133 %to NetincomeconversionrateFree cashflow toNet income 86 % 108 % 75 % 127 % 122 %conversionrate