ITW Reports Diluted Income Per Share from Continuing Operations of $0.36 in the 2009 Second Quarter Despite Higher Than Expected Tax Rate
GLENVIEW, Ill., July 22 /PRNewswire-FirstCall/ — Illinois Tool Works Inc. (NYSE: ITW) today reported diluted income per share from continuing operations of $0.36 in the 2009 second quarter as cumulative restructuring activities helped drive income and operating margins to significantly higher levels versus the 2009 first quarter. In the 2009 second quarter, operating income of $334.8 million equated to operating margins of 9.9 percent. Excluding the impact of impairment charges in the 2009 first quarter, second quarter operating margins were 410 basis points higher than the preceding quarter.
Second quarter 2009 operating revenues of $3.393 billion were 25.5 percent lower than the year-ago period as end markets stabilized but remained weak around the world. As a result, the Company’s base revenues declined 22.2 percent in the 2009 second quarter versus a year ago, with North American base revenues decreasing 26.8 percent and international base revenues declining 17.3 percent. Second quarter operating margins of 9.9 percent were 670 basis points lower than the year-ago quarter, with base margins declining 400 basis points. Diluted income per share from continuing operations of $0.36 was 64.4 percent lower than the year-ago period. However, the Company’s effective tax rate of 34.0 percent in the second quarter was higher than the April 2009 forecasted second quarter tax rate of 25.0 percent, resulting in five cents of reduced earnings. The higher tax rate in the second quarter was due to discrete tax adjustments related to German tax audits and the previously announced reclassification of Decorative Surfaces to continuing operations.
The Company’s strong second quarter free operating cash flow of $567 million was $213 million higher than the year-ago period and was largely driven by reductions in working capital. In the quarter, the net income to free operating cash flow conversion rate was 321 percent. First half 2009 free operating cash flow totaled $950 million.
"We are pleased the Company’s base revenues appear to have stabilized during the second quarter as well as with the significant improvement in our operating performance compared to the 2009 first quarter," said David B. Speer, ITW’s chairman and chief executive officer. "Notably, our operating margins of nearly 10 percent in the second quarter were driven by improved margin performance in all eight of our operating segments. These segments all benefited from our aggressive and targeted restructuring programs. We incurred $65 million of restructuring in the quarter, bringing our year-to-date total to $98 million. And we expect to incur an additional $50 million to $70 million of restructuring dollars in the second half of 2009. These decentralized restructuring activities will have both short-term and long-term benefits for our Company and our earnings profile in 2009 and beyond."
Highlights for the 2009 second quarter include:
*Worldwide revenues for the Power Systems and Electronics segment declined 38.6 percent in the quarter, with base revenues decreasing 36.5 percent. Total worldwide welding base revenues fell 37.0 percent as demand for capital equipment was weak in the quarter. The PC board fabrication businesses’ base revenues declined 59.2 percent in the quarter. Ground support equipment’s base revenues increased 4.0 percent in the quarter. Segment operating margins of 15.3 percent were 660 basis points lower than the year-ago period. Excluding the impact of impairment charges in the 2009 first quarter, second quarter operating margins were 260 basis points higher than the preceding quarter.
*Worldwide revenues for the Transportation segment declined 20.3 percent in the quarter, with base revenues decreasing 23.7 percent. Both metrics were significantly better than the 2009 first quarter. The sequential quarter-to-quarter improvement in base revenues was largely attributable to increased auto builds in Europe. Worldwide automotive base revenues declined 30.2 percent in the second quarter as North American auto builds fell 49 percent and international auto builds decreased 31 percent. Comparable North American and international first quarter 2009 auto builds declined 51 percent and 43 percent, respectively. Automotive aftermarket base revenues decreased 12.7 percent in the quarter. Operating margins of 4.8 percent were 1100 basis points lower than the year-ago period. Excluding the impact of impairment charges in the 2009 first quarter, second quarter operating margins were 800 basis points higher than the preceding quarter.
*Worldwide revenues for the Food Equipment segment declined 16.2 percent in the second quarter, with base revenues decreasing 8.5 percent. North American food equipment base revenues decreased 8.4 percent while international food equipment base revenues declined 10.2 percent in the quarter. Operating margins of 12.9 percent were 80 basis points lower than the year ago period but 260 basis points higher than the 2009 first quarter.
Looking ahead, the Company still believes it has limited visibility as to worldwide end markets. As a result, the Company is limiting its current forecast to the 2009 third quarter. The Company is forecasting third quarter 2009 diluted income per share from continuing operations to be in a range of $0.39 to $0.51. The 2009 third quarter forecast range assumes a total revenue range of -2 percent to +4 percent versus the 2009 second quarter. The Company expects to reinstate full-year guidance when longer-term visibility becomes more reliable.
This Earnings Release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding operating performance, revenue growth, diluted income per share from continuing operations, restructuring expenses and related benefits, end market conditions and the Company’s related forecast. These statements are subject to certain risks, uncertainties and other factors which could cause actual results to differ materially from those anticipated. Important factors that could cause actual results to differ materially from the Company’s expectations are contained in ITW’s Form 10-K for 2008.
With $15.9 billion in 2008 revenues, ITW is a multinational manufacturer of a diversified range of value-adding and short lead-time industrial products and equipment. The Company consists of 875 business units in 54 countries and employs some 59,000 people.
ILLINOIS TOOL WORKS INC.
(In thousands except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
STATEMENT OF INCOME 2009 2008 2009 2008
------------------- ---- ---- ---- ----
Operating Revenues $3,392,906 $4,555,881 $6,539,285 $8,681,691
Cost of revenues 2,248,253 2,941,457 4,401,080 5,633,942
Selling,
administrative, and
R&D expenses 757,871 814,962 1,519,562 1,588,079
Amortization
of intangible
assets 51,947 42,303 102,517 82,442
Impairment of
goodwill and
other intangible
assets - - 89,997 1,438
--- --- ------ -----
Operating Income 334,835 757,159 426,129 1,375,790
Interest expense (43,886) (36,588) (75,322) (74,055)
Other income/
(expense) (19,839) 24,294 (24,180) 3,161
------- ------ ------- -----
Income from
Continuing
Operations Before
Taxes 271,110 744,865 326,627 1,304,896
Income taxes 92,167 216,161 155,700 380,854
------ ------- ------- -------
Income from
Continuing
Operations $178,943 $528,704 $170,927 $924,042
Loss from
Discontinued
Operations (2,378) (614) (33,736) (92,331)
------ ---- ------- -------
Net Income $176,565 $528,090 $137,191 $831,711
======== ======== ======== ========
Income Per Share
from Continuing
Operations:
Basic $0.36 $1.01 $0.34 $1.76
Diluted $0.36 $1.01 $0.34 $1.75
Loss Per Share from
Discontinued
Operations:
Basic $(0.00) $(0.00) $(0.07) $(0.18)
Diluted $(0.00) $(0.00) $(0.07) $(0.18)
Net Income Per
Share:
Basic $0.35 $1.01 $0.27 $1.59
Diluted $0.35 $1.01 $0.27 $1.58
Shares outstanding
during the period:
Average 499,389 521,488 499,290 523,894
Average
assuming
dilution 500,875 525,209 500,617 527,467
ESTIMATED FREE
OPERATING CASH FLOW THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- JUNE 30, JUNE 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
Net cash
provided by
operating
activities $624,082 $450,104 $1,071,083 $944,028
Less: Additions
to PP&E (57,402) (95,982) (121,338) (184,987)
------- ------- -------- --------
Free operating
cash flow $566,680 $354,122 $949,745 $759,041
======== ======== ======== ========
ILLINOIS TOOL WORKS INC.
(In thousands)
STATEMENT OF JUNE 30, MAR 31, DEC 31,
FINANCIAL POSITION 2009 2009 2008
------------------- ---- ---- ----
ASSETS
------
Cash & equivalents $616,403 $1,121,099 $742,950
Trade receivables 2,393,176 2,209,690 2,571,987
Inventories 1,438,637 1,566,564 1,774,697
Deferred income
taxes 218,125 208,018 206,496
Prepaids and other
current assets 453,424 372,234 375,778
Assets held for
sale 12,229 45,369 82,071
------ ------ ------
Total current
assets 5,131,994 5,522,974 5,753,979
--------- --------- ---------
Net plant &
equipment 2,137,982 2,068,742 2,109,432
Investments 450,889 458,502 465,894
Goodwill 4,677,193 4,410,202 4,517,550
Intangible assets 1,696,585 1,707,910 1,779,669
Deferred income
taxes 82,448 80,460 75,999
Other assets 564,584 506,893 501,028
------- ------- -------
$14,741,675 $14,755,683 $15,203,551
=========== =========== ===========
LIABILITIES and STOCKHOLDERS' EQUITY
------------------------------------
Short-term debt $180,511 $1,131,173 $2,433,973
Accounts payable 575,001 532,653 683,991
Accrued expenses 1,326,115 1,179,359 1,315,106
Cash dividends
payable 154,892 154,781 154,726
Income taxes
payable 206,219 173,416 216,751
Liabilities held
for sale 5,454 20,140 20,546
----- ------ ------
Total current
liabilities 2,448,192 3,191,522 4,825,093
--------- --------- ---------
Long-term debt 2,855,812 2,744,403 1,247,883
Deferred income
taxes 139,167 90,306 125,089
Other liabilities 1,372,380 1,355,785 1,330,395
--------- --------- ---------
Total noncurrent
liabilities 4,367,359 4,190,494 2,703,367
--------- --------- ---------
Common stock 5,323 5,320 5,318
Additional paid-in
capital 146,116 122,511 105,497
Income reinvested
in the business 9,022,927 9,001,254 9,196,465
Common stock held
in treasury (1,390,594) (1,390,594) (1,390,594)
Accumulated other
comprehensive
income 130,361 (376,219) (253,211)
Noncontrolling
interest 11,991 11,395 11,616
------ ------ ------
Total
stockholders'
equity 7,926,124 7,373,667 7,675,091
--------- --------- ---------
$14,741,675 $14,755,683 $15,203,551
=========== =========== ===========
Total Debt % to
Total
Capitalization 27.7% 34.5% 32.4%
SOURCE Illinois Tool Works Inc.