Illinois Tool Works Inc. (ITW, Financial) is a Fortune 200 global multi-industrial manufacturing leader with revenues totalling $13.4 billion in 2015.
The company’s seven industry-leading segments leverage the unique Illinois Tool Works business model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. Illinois Tool Works has nearly 50,000 dedicated colleagues in operations around the world who thrive in the company’s unique decentralized and entrepreneurial culture.
The company reported first quarter and witnessed strong organic growth, EPS, operating margin, return on invested capital and free cash flow.
First-quarter results
The company reported first-quarter diluted earnings per share (EPS) of $1.29, a 7% increase from the prior-year quarter.
Operating margin increased by 120 basis points and was 22.1%.
Organic revenue increased by 1%.
International revenue declined by 1%.
Consumer-facing businesses increased by 3%.
Industrial-facing businesses declined 3%.
Total revenue was $3.3 billion, which marked a decline of 2%.
After-tax return on invested capital improved by 180 basis points and was a record of 21.2%.
Free cash flow conversion was 90%.
Five of seven segments achieved positive organic revenue growth as Construction Products grew 5%, Automotive OEM, Food Equipment and Specialty Products all grew 3%, and Polymers and Fluids 1%. Welding and Test & Measurement Electronics declined by 9% and 2%.
Six of seven segments increased operating margins with Automotive OEM up 140 basis points to 26.4%, Food Equipment up 190 basis points to 24.5%, Test & Measurement Electronics up 80 basis points to 15.5%, Polymers & Fluids up 20 basis points to 20.2%, Construction Products up 440 basis points to 21.0% and Specialty Products up 350 basis points to 26.1%. Welding declined 300 basis points to 23.9%.
Dividend
The company declared a dividend on the company's common stock of 55 cents per share for the second quarter. The dividend equates to $2.20 per share on a full-year basis. The dividend will be paid on July 8 to shareholders of record as of June 30.
(Source: Company website)
Strong attributes of the quarter
- Solid above-market organic growth.
- Best-in-class margins and returns.
- Free cash flow.
Expectations for 2016
| Â | Full Year | Second Quarter |
| GAAP EPS | 5 cents to $5.40 to $5.60 | $1.34 to $1.44 |
| Organic revenue growth | To be in the range of 1% to 3% | To be flat to up 2% |
| Operating margin | To exceed around 22.5% | To be around 22.5% |
Strong attributes of the company
- Robust returns on capital.
- It has repositioned its business portfolio by exiting businesses operating in low-growth commoditized markets.
- Illinois Tool Works' current business portfolio is both highly profitable and highly diversified.
- Best-in-class operating margins.
On a concluding note
Illinois Tool Works' after-tax return on invested capital has increased by over 500 basis points since the launch of Enterprise Strategy. The company plans to achieve enterprise-level organic growth of 200 basis points or more above market by the end of 2017 and beyond. Over the course of the past three years, it has made significant progress in executing a multistep process to position the company to deliver on this key Enterprise Strategy objective.
As a result, Illinois Tool Works is now focused on seven core segments that each has strong sustainable competitive advantages and favorable long-term growth fundamentals. IIllinois Tool Works is well positioned to perform at a high level across a wide range of external market conditions and economic scenarios. The company is doing well, and adding it to a portfolio is going to create shareholder returns.
Disclosure: I do not hold any position in the company.
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