GlobeNewswire Inc | Jul 31, 2020 08:00AM EDT

July 31, 2020

-- Total revenue of $2.6 billion as organic revenue declined 27% -- Operating margin of 17.5% -- Operating income of $449 million -- GAAP EPS of $1.01 -- Free cash flow of $681 million, 213% of net income

GLENVIEW, Ill., July 31, 2020 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2020 results.

Our performance in the second quarter clearly demonstrates that the progress we have made on executing our long-term enterprise strategy has put ITW in a position of considerable strength in managing through the effects of the global pandemic, said E. Scott Santi, chairman and chief executive officer. Our powerful ITW Business Model and decentralized, entrepreneurial culture are never more valuable than during times of significant and rapid change, and I want to thank all of my ITW colleagues around the world for their incredible care and commitment to keeping their co-workers safe while continuing to serve our customers with excellence. Our people responded to an unprecedented health crisis and a 29 percent decline in revenues and still delivered $449 million in operating income, $681 million in free cash flow, and operating margin of 17.5 percent. Strong proactive divisional leadership and our flexible cost structure allowed us to reduce operating expenses by over $140 million in the quarter despite the fact that we made the decision to provide full compensation and benefits support to every ITW team member for the entirety of the second quarter.

Looking forward, while significant end-market disruption and uncertainties remain, we will continue to leverage our financial strength and ample liquidity to prioritize playing offense in the recovery over playing defense in the contraction and to ensure that every one of our businesses is strongly positioned to fully participate in the recovery. Despite the near-term challenges of the moment, we remain deeply committed to achieving and sustaining ITWs full-potential performance, and we will utilize our financial strength and flexible cost structure to protect investments in areas of strategic importance to the execution of our long-term strategy. I am confident that the strength and resilience of the ITW Business Model, our high-quality diversified business portfolio, and our people put us in a strong position to deal decisively and effectively with the effects of the pandemic however it plays out from here while remaining focused on executing our long-term enterprise strategy, Santi concluded.

Second Quarter Results

Second-quarter revenue of $2.6 billion declined 29 percent with organic revenue down 27 percent. Foreign currency translation and divestitures reduced revenues by 1.5 percent and 1.0 percent, respectively. Revenues improved sequentially as the quarter progressed.

Operating margin was 17.5 percent compared to 24.1 percent in the prior year period as the lower volume impact was partially offset by benefits from Enterprise Initiatives of 100 basis points. GAAP earnings per share (EPS) were $1.01 compared to $1.91 in the prior year period. Free cash flow increased 12 percent to $681 million with a 213 percent conversion rate. After-tax return on invested capital was 16.8 percent. The effective tax rate for the second quarter was 21.3 percent.

At quarter end, ITW had approximately $1.8 billion in cash and cash equivalents on hand, essentially no short-term debt and a revolving credit facility in place that could provide additional liquidity of up to $2.5 billion, if needed.

On May 5, 2020, ITW suspended annual guidance for 2020 due to uncertainties regarding the duration and severity of the COVID-19 pandemic.

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.

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 potential effects of the COVID-19 pandemic, related government actions and the Companys strategy in response thereto on the Companys business, the anticipated duration of the Companys COVID-19 containment and recovery phases, the Companys financial scenario planning and estimates, expected access to liquidity sources, expected capital allocation, diluted earnings per share, foreign exchange rates, total and organic revenue, operating margin, economic and regulatory conditions in various geographic regions, expected dividend payments, price/cost impact, restructuring expenses, expected adjustments to capacity and cost structure, free cash flow, effective tax rate, after-tax return on invested capital, timing and amount of share repurchases, if any, potential acquisitions and dispositions and related impact on financial results, and plans regarding the issuance of 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 ITWs Form 10-K for 2019 and subsequent reports filed with the SEC.

About Illinois Tool WorksITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.1 billion in 2019. 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 45,000 dedicated colleagues around the world thrive in the companys decentralized and entrepreneurial culture.www.itw.com

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

Three Months Ended Six Months Ended June 30, June 30,In millions except per 2020 2019 2020 2019share amountsOperating Revenue $ 2,564 $ 3,609 $ 5,792 $ 7,161 Cost of revenue 1,594 2,099 3,465 4,158 Selling, administrative,and research and 486 598 1,046 1,209 development expensesAmortization andimpairment of intangible 35 41 71 84 assetsOperating Income 449 871 1,210 1,710 Interest expense (51 ) (55 ) (102 ) (118 )Other income (expense) 8 9 33 23 Income Before Taxes 406 825 1,141 1,615 Income Taxes 87 202 256 395 Net Income $ 319 $ 623 $ 885 $ 1,220 Net Income Per Share: Basic $ 1.01 $ 1.92 $ 2.79 $ 3.74 Diluted $ 1.01 $ 1.91 $ 2.78 $ 3.72 Cash Dividends Per Share: Paid $ 1.07 $ 1.00 $ 2.14 $ 2.00 Declared $ 1.07 $ 1.00 $ 2.14 $ 2.00 Shares of Common StockOutstanding During the Period:Average 316.1 324.8 317.2 326.0 Average assuming dilution 317.4 326.6 318.6 327.9

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

In millions June 30, December 31, 2019 2020Assets Current Assets: Cash and equivalents $ 1,812 $ 1,981 Trade receivables 2,156 2,461 Inventories 1,167 1,164 Prepaid expenses and other current assets 253 296 Assets held for sale 221 351 Total current assets 5,609 6,253 Net plant and equipment 1,711 1,729 Goodwill 4,443 4,492 Intangible assets 801 851 Deferred income taxes 470 516 Other assets 1,229 1,227 $ 14,263 $ 15,068 Liabilities and Stockholders? Equity Current Liabilities: Short-term debt $ 4 $ 4 Accounts payable 402 472 Accrued expenses 1,106 1,217 Cash dividends payable 338 342 Income taxes payable 152 48 Liabilities held for sale 40 71 Total current liabilities 2,042 2,154 Noncurrent Liabilities: Long-term debt 7,765 7,754 Deferred income taxes 676 668 Noncurrent income taxes payable 413 462 Other liabilities 1,009 1,000 Total noncurrent liabilities 9,863 9,884 Stockholders? Equity: Common stock 6 6 Additional paid-in-capital 1,317 1,304 Retained earnings 22,612 22,403 Common stock held in treasury (19,669 ) (18,982 )Accumulated other comprehensive income (loss) (1,909 ) (1,705 )Noncontrolling interest 1 4 Total stockholders? equity 2,358 3,030 $ 14,263 $ 15,068

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Three Months Ended June 30, 2020Dollars in millions Total Operating Operating Revenue Income MarginAutomotive OEM $ 361 $ (28 ) (7.8 )%Food Equipment 336 31 9.2 %Test & Measurement and 455 117 25.7 %ElectronicsWelding 298 64 21.6 %Polymers & Fluids 354 82 23.1 %Construction Products 376 90 23.7 %Specialty Products 387 98 25.4 %Intersegment (3 ) ? ? %Total Segments 2,564 454 17.7 %Unallocated ? (5 ) ? %Total Company $ 2,564 $ 449 17.5 %

Six Months Ended June 30, 2020Dollars in millions Total Operating Operating Margin Revenue IncomeAutomotive OEM $ 1,057 $ 117 11.1 %Food Equipment 819 148 18.1 %Test & Measurement and 940 238 25.4 %ElectronicsWelding 670 173 25.8 %Polymers & Fluids 747 175 23.4 %Construction Products 766 181 23.6 %Specialty Products 801 207 25.9 %Intersegment (8 ) ? ? %Total Segments 5,792 1,239 21.4 %Unallocated ? (29 ) ? %Total Company $ 5,792 $ 1,210 20.9 %

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Q2 2020 vs. Q2 2019 Favorable/(Unfavorable) Test &Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalRevenue OEM Equipment and & Fluids Products Products ITW ElectronicsOrganic (52.6) % (37.6) % (10.6) % (24.9) % (14.4) % (9.1) % (16.1) % (26.5) %Acquisitions/ ? % ? % (3.0) % (3.9) % ? % ? % (0.8) % (1.0) %DivestituresTranslation (1.5) % (1.0) % (1.1) % (0.6) % (2.8) % (2.3) % (1.3) % (1.5) %Operating (54.1) % (38.6) % (14.7) % (29.4) % (17.2) % (11.4) % (18.2) % (29.0) %Revenue

Q2 2020 vs. Q2 2019 Favorable/(Unfavorable) Test &Change in Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalMargin OEM Equipment and & Fluids Products Products ITW ElectronicsOperating Leverage (1880) bps (1300) (300) bps (520) (380) bps (200) bps (380) bps (750) bps bps bpsChanges in Variable (1210) bps (470) bps 380 bps (330) 320 bps 40 bps 160 bps ?Margin & OH Costs bps (1770) (850) (220) Total Organic (3090) bps bps 80 bps bps (60) bps (160) bps bps (750) bpsAcquisitions/ 10 ? ? 40 bps 60 bps ? ? 50 bps bpsDivestituresRestructuring/ 100 bps 130 bps ? 70 bps 90 bps 30 bps 100 bps 80Other bpsTotal Operating (1640) (720) Margin Change (2990) bps bps 120 bps bps 30 bps (130) bps (70) bps (660) bps Total Operating (7.8)% 9.2% 25.7% 21.6% 23.1% 23.7% 25.4% 17.5%Margin % * * Includesunfavorableoperating margin 140impact of 110 bps 100 bps 180 bps 20 bps 390 bps 30 bps 100 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 second quarterof 2020.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

1H 2020 vs. 1H 2019 Favorable/(Unfavorable) Test &Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalRevenue OEM Equipment and & Fluids Products Products ITW ElectronicsOrganic (32.0) % (22.0) % (7.0) % (16.9) % (8.9) % (4.6) % (12.4) % (16.6) %Acquisitions/ ? % ? % (3.1) % (3.7) % ? % ? % (1.0) % (1.0) %DivestituresTranslation (1.7) % (1.2) % (1.0) % (0.5) % (2.5) % (2.5) % (1.2) % (1.5) %Operating (33.7) % (23.2) % (11.1) % (21.1) % (11.4) % (7.1) % (14.6) % (19.1) %Revenue

1H 2020 vs. 1H 2019 Favorable/(Unfavorable) Test &Change in Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalMargin OEM Equipment and & Fluids Products Products ITW ElectronicsOperating Leverage (840) bps (630) bps (200) bps (330) (230) bps (90) bps (270) bps (430) bps bpsChanges in Variable (370) bps (180) bps 250 bps (80) 280 bps 20 bps 90 bps 30Margin & OH Costs bps bps (810) (410) (180) Total Organic (1210) bps bps 50 bps bps 50 bps (70) bps bps (400) bpsAcquisitions/ 20 ? ? 50 bps 70 bps ? ? 60 bps bpsDivestituresRestructuring/ 80 180 bps 90 bps 10 bps 70 bps 80 bps 90 bps 80 bps bpsOtherTotal Operating (720) (270) Margin Change (1030) bps bps 110 bps bps 130 bps 20 bps (40) bps (300) bps Total Operating 11.1% 18.1% 25.4% 25.8% 23.4% 23.6% 25.9% 20.9%Margin % * * Includesunfavorableoperating margin 130impact of 70 bps 80 bps 170 bps 20 bps 370 bps 30 bps 90 bps bpsamortization **expense fromacquisition-relatedintangible assets** Amortization expense from acquisition-related intangible assets had anunfavorable impact of ($0.17) on GAAP earnings per share for the first half of2020.

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

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Three Months Ended Six Months Ended June 30, June 30,Dollars in millions 2020 2019 2020 2019Operating income $ 449 $ 871 $ 1,210 $ 1,710 Tax rate 21.3 % 24.5 % 22.4 % 24.5 %Income taxes (96 ) (213 ) (271 ) (418 )Operating income after $ 353 $ 658 $ 939 $ 1,292 taxes Invested capital: Trade receivables $ 2,156 $ 2,629 $ 2,156 $ 2,629 Inventories 1,167 1,256 1,167 1,256 Net assets held for 181 346 181 346 saleNet plant and 1,711 1,717 1,711 1,717 equipmentGoodwill and 5,244 5,431 5,244 5,431 intangible assetsAccounts payable and (1,508 ) (1,719 ) (1,508 ) (1,719 )accrued expensesOther, net (636 ) (433 ) (636 ) (433 )Total invested capital $ 8,315 $ 9,227 $ 8,315 $ 9,227 Average invested $ 8,431 $ 9,206 $ 8,557 $ 9,182 capitalReturn on average 16.8 % 28.6 % 22.0 % 28.1 %invested capital

FREE CASH FLOW (UNAUDITED)

Three Months Ended Six Months Ended June 30, June 30,Dollars in millions 2020 2019 2020 2019Net cash provided by $ 737 $ 685 $ 1,351 $ 1,301 operating activitiesLess: Additions to plant (56 ) (77 ) (116 ) (154 )and equipmentFree cash flow $ 681 $ 608 $ 1,235 $ 1,147 Net income $ 319 $ 623 $ 885 $ 1,220 Free cash flow to net 213 % 98 % 140 % 94 %income conversion rate

Media Contact Investor RelationsIllinois Tool Works Illinois Tool WorksTrisha Knych Karen FletcherTel: 224.661.7566 Tel: 224.661.7433mediarelations@itw.com investorrelations@itw.com