Illinois Tool Works Inc. (NYSE:ITW) Q4 2023 Earnings Conference Call February 1, 2024 10:00 AM ET Company Participants Karen Fletcher - Vice President of Investor Relations Christopher O'Herlihy - President and Chief Executive Officer Michael Larsen - Senior Vice President and Chief Financial Officer Conference Call Participants Tami Zakaria - JPMorgan Chase & Co. Stephen Volkmann - Jefferies Andrew Kaplowitz - Citigroup Inc. Joseph O'Dea - Wells Fargo Securities, LLC Sabrina Abrams - Bank of America Steven ...

February 1, 2024 Non-GAAP Measures Fourth Quarter 2023 Earnings Conference Call Safe Harbor Statement The Company uses certain non-GAAP measures in discussing the Company's performance. The reconciliation of those measures to the most directly comparable GAAP measures is detailed in ITW's press release for the fourth quarter of 2023, which is available at www.itw.com, together with this presentation. The estimated guidance of free cash flow to net income conversion rate and after-tax return on average inves ...

Financial Performance - Operating revenue for Q3 2023 was $4,031 million, a slight increase of 0.5% compared to $4,011 million in Q3 2022[14] - Net income for Q3 2023 reached $772 million, up 6.2% from $727 million in Q3 2022[17] - Basic net income per share increased to $2.55 in Q3 2023, compared to $2.36 in Q3 2022, reflecting a growth of 8.1%[14] - Comprehensive income for Q3 2023 was $690 million, significantly higher than $522 million in Q3 2022, marking a 32.2% increase[17] - Net income for the nine months ended September 30, 2023, was $2,240 million, an increase of 5.3% compared to $2,127 million in 2022[25] - Total operating revenue for the nine months ended September 30, 2023, was $12,124 million, up 1.4% from $11,961 million in 2022[31] - Operating income for Q3 2023 was $1.070 billion, an 8.9% increase from $983 million in Q3 2022[81] - Operating income for the nine months ended September 30, 2023, was $3,052 million, reflecting an 8.8% increase from $2,804 million in 2022[83] Assets and Liabilities - Total current assets as of September 30, 2023, were $6,288 million, slightly up from $6,270 million at the end of 2022[20] - Cash and equivalents increased to $990 million in Q3 2023, compared to $708 million at the end of 2022[20] - Total liabilities decreased to $12,391 million as of September 30, 2023, down from $12,333 million at the end of 2022[20] - Long-term debt increased to $6,818 million as of September 30, 2023, compared to $6,173 million at the end of 2022[20] - Total debt increased from $7,763 million as of December 31, 2022, to $8,066 million as of September 30, 2023, with short-term debt comprising $1,248 million[50] - Net working capital as of September 30, 2023, was $2,306 million, an increase of $496 million compared to $1,810 million as of December 31, 2022[129] Cash Flow and Investments - Net cash provided by operating activities increased to $2,500 million from $1,537 million, representing a growth of 62.5% year-over-year[25] - The company reported a net cash used for investing activities of $(283) million, compared to $(237) million in the same period last year[25] - Free cash flow for Q3 2023 was $856 million, up from $612 million in Q3 2022, while year-to-date free cash flow was $2,176 million compared to $1,281 million[121] Dividends and Share Repurchase - The company declared dividends of $1.40 per share in Q3 2023, totaling $422 million[21] - Cash dividends paid during the nine months ended September 30, 2023, totaled $1,194 million, compared to $1,139 million in 2022, marking a 4.8% increase[25] - The company announced a new stock repurchase program on August 4, 2023, allowing for the repurchase of up to $5.0 billion of common stock[125] - The company repurchased approximately 1.6 million shares for about $375 million in Q3 2023, totaling 4.8 million shares for $1.1 billion year-to-date[88] Segment Performance - Automotive OEM segment revenue for the nine months ended September 30, 2023, was $2,421 million, a 8.9% increase from $2,224 million in 2022[31] - Food Equipment segment revenue rose to $1,967 million, reflecting a 8.5% increase compared to $1,813 million in the previous year[31] - Operating revenue in the Automotive OEM segment increased by 6.0% in Q3 2023, with operating income rising by 14.5%[91] - Operating revenue for the Food Equipment segment increased by 7.2% to $678 million in Q3 2023, compared to $633 million in Q3 2022[94] - Operating revenue for the Welding segment declined by 1.8% to $468 million in Q3 2023, compared to $477 million in Q3 2022[107] Tax and Interest - The effective tax rate for the nine months ended September 30, 2023, was 23.4%, compared to 23.7% for the same period in 2022[128] - The effective tax rate for Q3 2023 was 23.8%, slightly down from 23.9% in Q3 2022[88] - Interest expense rose to $67 million in Q3 2023 from $52 million in Q3 2022, attributed to higher interest rates[117] Other Financial Metrics - The total debt to EBITDA ratio remained stable at 1.8 for the trailing twelve months ended September 30, 2023, consistent with the ratio as of December 31, 2022[136] - After-tax return on average invested capital was 31.9% for Q3 2023, compared to 29.9% in Q3 2022[127] - The company has a $3.0 billion revolving credit facility with no amounts outstanding as of September 30, 2023[135]

Financial Data and Key Metrics Changes - Operating margin improved by 200 basis points year-over-year to 26.5%, with enterprise initiatives contributing 140 basis points [10][34] - Quarterly operating income grew by 9% to $1.1 billion, and GAAP EPS increased by 9% to $2.55 [10][12] - Free cash flow rose by 40% to $856 million, with a conversion to net income of 111% [35] Business Line Data and Key Metrics Changes - Automotive OEM organic growth was 4%, with North America down 5%, Europe up 5%, and China up 18% [36] - Food Equipment achieved solid organic growth of 6%, with North America growing 10% [37] - Welding's organic revenue declined by 2%, with equipment revenue down 3% [38] - Construction organic revenue was down 2%, with North America growing 2% [39] - Specialty Products saw organic revenue down 6%, with North America down 9% [40] Market Data and Key Metrics Changes - North America revenue was down 3%, while international revenue was essentially flat [16] - Organic revenue growth by geography showed North America down 2%, Europe flat, and Asia Pacific up 6% [13] Company Strategy and Development Direction - The company aims to elevate high-quality organic growth and customer-back innovation as key differentiators [9] - The focus remains on leveraging ITW's unique strengths and capabilities to optimize long-term performance [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged uncertainties in the demand environment, including inventory normalization and elevated interest rates [42] - The company is projecting organic growth of 2% to 3% for the full year and has raised its operating margin guidance to 25% to 25.5% [41][18] Other Important Information - The company announced a CEO succession plan, with Chris O'Herlihy set to take over at year-end [6] - The impact of the auto strike is estimated to reduce Q4 earnings by $0.12 per share [14] Q&A Session Summary Question: What contributed to the operating margin expansion? - The operating margin expansion of 200 basis points was driven by enterprise initiatives and positive price/cost impacts, with some headwinds from investments in labor and compensation [51][67] Question: What is the outlook for price versus cost in 2024? - There is no significant deflation expected, but inflation levels have stabilized, indicating a tight environment for pricing [61] Question: How is the company managing inventory levels? - The company is currently running slightly above three months of inventory, with expectations to normalize by early to mid-next year [118] Question: What is the impact of the auto strike on Q4? - The $0.12 headwind from the auto strike assumes it continues through the end of the quarter, affecting organic growth [69] Question: How is the company performing in the Electronics segment? - The consumer electronics market remains weak, but the company is committed to investing in these businesses for future recovery [77][110]

October 24, 2023 Safe Harbor Statement Non-GAAP Measures 2 $2.35 - Foreign exchange translation impact of +1.5% $4.03B +0.2% Organic - Operating income grew 9% to $1.1B OPERATING MARGIN 24.5% Third Quarter 2023 Earnings Conference Call Forward-Looking Statements This presentation and related conference call contain 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 ch ...

Part I - Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Illinois Tool Works Inc. reported increased operating revenue to $8.09 billion and net income to $1.47 billion for the six months ended June 30, 2023, alongside improved operating cash flow [Statement of Income](index=3&type=section&id=Statement%20of%20Income) Statement of Income (Unaudited) | Metric | Three Months Ended June 30, 2023 (Millions USD) | Three Months Ended June 30, 2022 (Millions USD) | Six Months Ended June 30, 2023 (Millions USD) | Six Months Ended June 30, 2022 (Millions USD) | | :--- | :--- | :--- | :--- | :--- | | **Operating Revenue** | **$4,074** | **$4,011** | **$8,093** | **$7,950** | | Operating Income | $1,010 | $926 | $1,982 | $1,821 | | **Net Income** | **$754** | **$738** | **$1,468** | **$1,400** | | Diluted EPS | $2.48 | $2.37 | $4.81 | $4.48 | [Statement of Financial Position](index=5&type=section&id=Statement%20of%20Financial%20Position) Statement of Financial Position Highlights (Unaudited) | Metric | June 30, 2023 (Millions USD) | December 31, 2022 (Millions USD) | | :--- | :--- | :--- | | **Total current assets** | **$6,404** | **$6,270** | | Goodwill | $4,887 | $4,864 | | **Total assets** | **$15,652** | **$15,422** | | Total current liabilities | $4,040 | $4,460 | | Long-term debt | $6,947 | $6,173 | | **Total liabilities** | **$12,558** | **$12,333** | | **Total stockholders' equity** | **$3,094** | **$3,089** | [Statement of Cash Flows](index=7&type=section&id=Statement%20of%20Cash%20Flows) Cash Flow Summary (Unaudited, Six Months Ended June 30) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$1,518** | **$824** | | Net cash provided by (used for) investing activities | ($180) | ($146) | | Net cash provided by (used for) financing activities | ($1,117) | ($1,284) | | **Increase (decrease) in cash and equivalents** | **$214** | **($648)** | - The significant increase in operating cash flow was primarily due to a smaller increase in trade receivables (**$42 million** vs **$396 million**) and a decrease in inventories (**$140 million**) compared to a large increase in the prior year (**$374 million**)[24](index=24&type=chunk) [Notes to Financial Statements](index=8&type=section&id=Notes%20to%20Financial%20Statements) - In Q4 2022, the company divested two businesses (one in Polymers & Fluids, one in Food Equipment) for a total of **$279 million**, resulting in a combined pre-tax gain of **$197 million**. A third business in the Specialty Products segment was sold on April 3, 2023, with no significant gain or loss[28](index=28&type=chunk)[29](index=29&type=chunk) - The effective tax rate for Q2 2023 was **21.4%**, up from **18.3%** in Q2 2022. The 2023 rate included a **$20 million** discrete tax benefit, while the 2022 rate included a larger **$51 million** benefit from a U.S. tax audit resolution[42](index=42&type=chunk) - Total debt increased to **$8.22 billion** as of June 30, 2023, from **$7.76 billion** at year-end 2022. This was partly due to borrowing **€1.3 billion ($1.4 billion)** under a new Euro Credit Agreement in May 2023[47](index=47&type=chunk)[50](index=50&type=chunk) [Management's Discussion and Analysis (MD&A)](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) ITW's Q2 2023 saw operating revenue of $4.07 billion with 3.0% organic growth, operating margin expansion to 24.8%, and increased diluted EPS, reflecting successful enterprise strategy execution [ITW Business Model and Enterprise Strategy](index=15&type=section&id=ITW%20Business%20Model%20and%20Enterprise%20Strategy) - The ITW Business Model is the company's core source of value creation, based on three elements: - **80/20 Front-to-Back Process:** An operating system focusing on the most profitable 80% of opportunities and eliminating complexity from the less profitable 20% - **Customer-Back Innovation:** Developing unique solutions based on understanding the needs of key customers - **Decentralized, Entrepreneurial Culture:** Enabling businesses to be fast, focused, and responsive to their specific customer needs[61](index=61&type=chunk) - The company's next strategic phase (2023-2030) focuses on two key priorities: 1. Executing a growth agenda with high-quality organic growth and selective acquisitions 2. Sustaining foundational strengths, including high-quality ITW Business Model practice and leadership development[64](index=64&type=chunk)[68](index=68&type=chunk) [Consolidated Results of Operations](index=17&type=section&id=Consolidated%20Results%20of%20Operations) Consolidated Results of Operations | Metric | Q2 2023 (Millions USD) | Q2 2022 (Millions USD) | % Change | YTD 2023 (Millions USD) | YTD 2022 (Millions USD) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating Revenue** | **$4,074** | **$4,011** | **1.6%** | **$8,093** | **$7,950** | **1.8%** | | Organic Revenue Growth | 3.0% | - | - | 4.1% | - | - | | **Operating Income** | **$1,010** | **$926** | **9.0%** | **$1,982** | **$1,821** | **8.8%** | | **Operating Margin** | **24.8%** | **23.1%** | **+170 bps** | **24.5%** | **22.9%** | **+160 bps** | - Q2 operating margin increased by **170 bps**, primarily due to favorable price/cost of **260 bps** and benefits from enterprise initiatives of **130 bps**, partially offset by higher operating expenses[78](index=78&type=chunk) - Diluted EPS for Q2 2023 was **$2.48**, an increase of **4.6%** from **$2.37** in Q2 2022. Excluding discrete tax items in both years, EPS increased **9.0%**[78](index=78&type=chunk) [Results of Operations by Segment](index=20&type=section&id=Results%20of%20Operations%20by%20Segment) Segment Operating Revenue (Q2 2023 vs Q2 2022) | Segment | Q2 2023 Revenue (Millions USD) | Q2 2022 Revenue (Millions USD) | % Change | Organic Growth % | | :--- | :--- | :--- | :--- | :--- | | Automotive OEM | 826 | 711 | 16.2% | 16.3% | | Food Equipment | 654 | 614 | 6.3% | 6.9% | | Test & Measurement and Electronics | 700 | 696 | 0.7% | 1.1% | | Welding | 490 | 486 | 0.7% | 0.7% | | Polymers & Fluids | 459 | 496 | (7.6)% | (0.5)% | | Construction Products | 526 | 565 | (6.8)% | (5.7)% | | Specialty Products | 423 | 447 | (5.4)% | (3.6)% | Segment Operating Income (Q2 2023 vs Q2 2022) | Segment | Q2 2023 Income (Millions USD) | Q2 2022 Income (Millions USD) | % Change | Operating Margin % (Q2 2023) | | :--- | :--- | :--- | :--- | :--- | | Automotive OEM | 139 | 101 | 36.2% | 16.8% | | Food Equipment | 182 | 152 | 19.6% | 27.8% | | Test & Measurement and Electronics | 162 | 157 | 3.5% | 23.2% | | Welding | 167 | 142 | 16.8% | 33.9% | | Polymers & Fluids | 119 | 125 | (4.4)% | 25.9% | | Construction Products | 154 | 156 | (1.2)% | 29.3% | | Specialty Products | 109 | 121 | (8.6)% | 26.0% | [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary sources of liquidity are free cash flow and credit facilities. As of June 30, 2023, the company had **$922 million** in cash and no borrowings under its **$3.0 billion** revolving credit facility[124](index=124&type=chunk) Free Cash Flow (Unaudited) | Metric | Six Months Ended June 30, 2023 (Millions USD) | Six Months Ended June 30, 2022 (Millions USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,518 | $824 | | Additions to plant and equipment | ($198) | ($155) | | **Free cash flow** | **$1,320** | **$669** | - Under the 2021 Program, the company repurchased **1.6 million shares** for **$375 million** in Q2 2023. As of June 30, 2023, approximately **$740 million** remained authorized for repurchase[129](index=129&type=chunk)[150](index=150&type=chunk) - The After-tax Return on Average Invested Capital (ROIC) was **29.8%** for the three months ended June 30, 2023, an increase from **27.8%** in the prior-year period[130](index=130&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2023. No material changes to internal control over financial reporting were identified during the quarter - The Chairman & CEO and SVP & CFO concluded that as of June 30, 2023, the Company's disclosure controls and procedures were effective[144](index=144&type=chunk) - No changes in the Company's internal control over financial reporting were identified during the quarter ended June 30, 2023, that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[145](index=145&type=chunk) Part II - Other Information [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no material legal proceedings. The disclosure threshold for environmental legal proceedings involving potential monetary sanctions by a governmental authority is $1 million - The company reports no legal proceedings for the period[147](index=147&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - There have been no material changes to the risk factors described in the Company's 2022 Annual Report on Form 10-K[148](index=148&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company continued its 2021 stock repurchase program, buying back 1.6 million shares for approximately $375 million during the second quarter of 2023. As of June 30, 2023, $740 million remained available for future repurchases under this program - The Board of Directors authorized a **$3.0 billion** stock repurchase program on May 7, 2021. As of June 30, 2023, approximately **$740 million** of authorized repurchases remained under this program[150](index=150&type=chunk) Share Repurchase Activity (Q2 2023) | Period | Total Number of Shares Purchased (Millions) | Average Price Paid Per Share (USD) | Maximum Value Remaining Under Program (Millions USD) | | :--- | :--- | :--- | :--- | | April 2023 | — | $— | $1,115 | | May 2023 | 1.2 | $227.41 | $825 | | June 2023 | 0.4 | $235.96 | $740 | | **Total** | **1.6** | | |

Financial Data and Key Metrics Changes - Organic revenue growth was 3%, with stable underlying demand partially offset by inventory reductions impacting growth by 1 to 1.5 points [77][78] - GAAP EPS reached $2.48, a record for Q2, with a 9% increase excluding one-time tax items [84] - Operating margin expanded to 24.8%, a record for Q2, with a 170 basis point year-over-year improvement [84][79] Business Line Data and Key Metrics Changes - Automotive OEM segment led with 16% organic growth, with North America up 3% and Europe up 18% [79] - Food Equipment segment grew 7%, with service revenue up 16%, marking nine consecutive quarters of double-digit growth [87] - Welding segment achieved 1% organic growth, with operating margin expanding by 460 basis points to 33.9% [31] Market Data and Key Metrics Changes - North America revenue was flat, while Europe grew 5% and Asia Pacific grew 11%, with China up 22% [78] - Construction organic revenue declined 6%, with North America down 3% and Europe down 14% [3] - Specialty organic revenue was down 4%, with North America down 7% and international up 4% [3] Company Strategy and Development Direction - The company aims for a long-term operating margin goal of 30% by 2030, with ongoing enterprise initiatives contributing to margin improvements [79] - Continued focus on organic growth strategies, including investments in service capabilities and market share expansion [66][98] - The company is optimistic about the recovery in semiconductor-related revenues and expects stable demand in the automotive sector [91][114] Management's Comments on Operating Environment and Future Outlook - Management noted that supply chain performance is improving, leading to a reduction in backlogs, although still above normal levels [13] - The company anticipates continued strong margin and profitability performance through the remainder of the year, despite inventory normalization impacts [4][6] - Management expressed confidence in the underlying demand stability across most end markets, with some softness in specific areas [78][90] Other Important Information - Free cash flow grew 68% to $705 million, representing 94% of net income, aided by a 6% reduction in inventory [86] - The company raised its full-year 2023 EPS guidance by $0.10, reflecting strong first-half performance [4][77] Q&A Session Summary Question: Can you provide insights on the price-cost margin recovery? - Management indicated that price-cost margin impact was positive, with expectations of recovering 150 to 200 basis points at the enterprise level for the full year [11][12] Question: What is the status of backlogs and supply chain normalization? - Backlogs are decreasing as supply chain performance improves, with some businesses still operating at double normal levels [13] Question: How is the company managing inventory reductions from customers? - Inventory reduction impacts are embedded in guidance, with expectations of stable underlying demand in sectors like Automotive and Food Equipment [18] Question: What are the expectations for construction margins despite sales decline? - Construction margins expanded significantly due to enterprise initiatives, with expectations for continued positive price/cost impacts [19][22] Question: How is the company positioned in the Chinese market? - The company reported a strong performance in China, particularly in the automotive sector, with expectations for continued growth [63][114] Question: What are the long-term service opportunities in Food Equipment? - The service business is seen as a significant differentiator, with ongoing investments expected to enhance growth and profitability [97][98]

(Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number: 1-4797 ILLINOIS TOOL WORKS INC. (Exact name of registrant as specified in its charter) | Delaware | ...

Illinois Tool Works Inc. (NYSE:ITW) Q1 2023 Earnings Conference Call May 2, 2023 10:00 AM ET Company Participants Karen Fletcher - VP of IR Scott Santi - Chairman and CEO Michael Larsen - SVP and CFO Conference Call Participants Andrew Kaplowitz - Citigroup Tami Zakaria - JPMorgan Jeff Sprague - Vertical Research Partners Scott Davis - Melius Joe Ritchie - Goldman Sachs Steve Volkmann - Jefferies Chigusa Katoku - Credit Suisse Sabrina Abrams - Bank of America Joe O'Dea - Wells Fargo Nigel Coe - Wolfe Resea ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4797 ILLINOIS TOOL WORKS INC. (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incorporation or Organization) ( ...