ITW(ITW) - 2024 Q1 - Quarterly Results

Performance Overview and Outlook ITW delivered solid Q1 2024 performance with operating income and adjusted EPS growth, margin expansion, and raised full-year guidance First Quarter 2024 Results ITW's Q1 revenue declined slightly, but adjusted operating income and EPS grew, with operating margin expanding 120 basis points to 25.4% Q1 2024 Financial Highlights (vs. Q1 2023) | Metric | Q1 2024 Value | Change (YoY) | Note | | :--- | :--- | :--- | :--- | | Revenue | $4.0 billion | -1.0% | Organic growth declined (0.6)% | | GAAP Operating Income | $1.13 billion | +16% | Includes $117 million one-time benefit | | Adjusted Operating Income | $1.01 billion | +4% | Excludes one-time item | | GAAP Operating Margin | 28.4% | +420 bps | - | | Adjusted Operating Margin | 25.4% | +120 bps | Enterprise initiatives contributed 140 bps | | GAAP EPS | $2.73 | +17% | Includes $0.29 one-time benefit | | Adjusted EPS | $2.44 | +5% | Excludes one-time item | - Free cash flow was $494 million, with a conversion of 68% to net income when excluding the one-time accounting item[5] - The company repurchased $375 million of its own shares during the first quarter[5] One-Time LIFO Inventory Accounting Change ITW changed inventory accounting from LIFO to FIFO for certain U.S. businesses, resulting in a $117 million pre-tax benefit and impacting 23% of inventories - The company changed its inventory accounting method from LIFO to FIFO for certain U.S. businesses[6] - This change impacted approximately 23% of total inventories as of December 31, 2023[6] - The accounting change resulted in a pre-tax cumulative benefit of $117 million, recorded as a reduction in cost of revenue[6] 2024 Guidance ITW raised full-year 2024 GAAP EPS guidance, projecting 2-4% total revenue growth, 1-3% organic growth, 26-27% operating margin, and $1.5 billion in share repurchases Full-Year 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | GAAP EPS | $10.30 to $10.70 | | Operating Margin | 26% to 27% | | Revenue Growth | 2% to 4% | | Organic Growth | 1% to 3% | | Share Repurchases | ~$1.5 billion | | Effective Tax Rate | 24% to 24.5% | - Enterprise initiatives are expected to contribute more than 100 basis points to the full-year operating margin[7] - Free cash flow is projected to exceed 100% of net income for the full year[7] Financial Statements Unaudited Q1 2024 financial statements show higher net income from lower cost of revenue, stable total assets, and slight increases in inventories and short-term debt Statement of Income Q1 2024 operating revenue slightly decreased, but operating income and net income rose significantly due to reduced cost of revenue, with diluted EPS reaching $2.73 Q1 Statement of Income (in millions, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Operating Revenue | $3,973 | $4,019 | | Cost of revenue | $2,145 | $2,341 | | Operating Income | $1,127 | $972 | | Net Income | $819 | $714 | | Diluted EPS | $2.73 | $2.33 | Statement of Financial Position As of March 31, 2024, ITW's total assets were $15.65 billion, with inventories and short-term debt increasing, while total stockholders' equity remained stable Key Balance Sheet Items (in millions) | Metric | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $6,371 | $6,235 | | Total Assets | $15,653 | $15,518 | | Total current liabilities | $4,844 | $4,675 | | Total Liabilities | $12,632 | $12,505 | | Total stockholders' equity | $3,021 | $3,013 | Segment Performance ITW's segments showed varied Q1 2024 performance, with Automotive OEM and Specialty Products achieving positive organic growth, and Welding reporting the highest operating margin Segment Financials (Q1 2024) In Q1 2024, Automotive OEM generated the most revenue, while Welding was the most profitable segment with an operating margin of 32.7% Q1 2024 Performance by Segment (in millions) | Segment | Total Revenue (in millions) | Operating Income (in millions) | Operating Margin | | :--- | :--- | :--- | :--- | | Automotive OEM | $816 | $162 | 19.8% | | Food Equipment | $631 | $164 | 26.0% | | Test & Measurement and Electronics | $696 | $163 | 23.4% | | Welding | $476 | $156 | 32.7% | | Polymers & Fluids | $432 | $111 | 25.8% | | Construction Products | $488 | $143 | 29.4% | | Specialty Products | $440 | $130 | 29.7% | Segment Growth and Margin Analysis (YoY) Year-over-year, Specialty Products and Automotive OEM showed organic growth and significant margin expansion, while Construction Products experienced a decline Q1 2024 vs. Q1 2023 Segment Changes | Segment | Organic Revenue Change | Operating Margin Change | | :--- | :--- | :--- | | Automotive OEM | 3.4% | +370 bps | | Food Equipment | (1.4)% | (70) bps | | Test & Measurement and Electronics | (1.3)% | (110) bps | | Welding | (3.5)% | +80 bps | | Polymers & Fluids | (0.9)% | +140 bps | | Construction Products | (7.0)% | +190 bps | | Specialty Products | 5.5% | +410 bps | Non-GAAP Reconciliations and Key Metrics This section reconciles key non-GAAP metrics including After-Tax ROIC, Free Cash Flow, and Adjusted EPS, adjusted for the one-time LIFO-to-FIFO accounting change After-Tax Return on Average Invested Capital (ROIC) For Q1 2024, ITW's after-tax return on average invested capital improved to 30.1% from 29.4% in Q1 2023, adjusted for the inventory accounting change After-Tax Return on Average Invested Capital | Period | ROIC | | :--- | :--- | | Three Months Ended Mar 31, 2024 | 30.1% | | Three Months Ended Mar 31, 2023 | 29.4% | Free Cash Flow Q1 2024 free cash flow was $494 million, a decrease from Q1 2023, with a GAAP conversion rate of 60% to net income, or 68% adjusted Free Cash Flow (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $589 | $728 | | Additions to plant and equipment | $(95) | $(113) | | Free cash flow | $494 | $615 | - Excluding the impact of the LIFO-to-FIFO accounting change, the free cash flow to net income conversion rate would have been 68%[25] Adjusted EPS Reconciliation Q1 2024 GAAP diluted EPS was $2.73, adjusted to $2.44 after accounting for the $0.29 per share net-of-tax benefit from the inventory accounting change Q1 2024 EPS Reconciliation | Description | Per Share Amount | | :--- | :--- | | As reported (GAAP EPS) | $2.73 | | Cumulative effect of change in inventory accounting method, net of tax | $(0.29) | | As adjusted (Non-GAAP EPS) | $2.44 | Standard Disclosures This section provides legal and informational disclosures, clarifying non-GAAP financial measures, offering a safe harbor statement for forward-looking statements, and describing ITW - The earnings release contains non-GAAP financial measures, with reconciliations to comparable GAAP measures included in supplemental schedules[9] - Forward-looking statements regarding future performance are subject to risks and uncertainties, detailed in ITW's Form 10-K and other SEC filings[10] - ITW is a Fortune 200 global multi-industrial manufacturer with seven industry-leading segments and $16.1 billion in 2023 revenue[11]