ITW Reports Fourth Quarter and Full Year 2021 Results

Rhea-AI Summary

Illinois Tool Works reported Q4 2021 revenue of $3.7 billion, up 6% with organic growth at 5%. Full year 2021 revenue rose to $14.5 billion, a 15% increase, and operating income grew by 21% to $3.5 billion. Q4 GAAP EPS stood at $1.93, impacted by MTS acquisition costs. For 2022, ITW anticipates 7.5% to 10.5% revenue growth and GAAP EPS guidance between $8.90 to $9.30, reflecting a 10% to 15% increase from the previous year. The operating margin is projected between 24% to 25%.

Positive

• Q4 2021 revenue increased by 6%, totaling $3.7 billion.
• Full year 2021 revenue grew by 15%, reaching $14.5 billion.
• Operating income for 2021 was $3.5 billion, up 21%.
• GAAP EPS for 2021 was $8.51, a 28% increase.
• 2022 GAAP EPS guidance is $8.90 to $9.30, up to 15%.
• Operating margin guidance for 2022 is 24% to 25%.

Negative

• The Automotive OEM segment faced supply chain disruptions impacting revenue growth.
• MTS acquisition had a slight dilutive impact of $0.02 on Q4 GAAP EPS.
• Operating cash flow was $774 million, with a conversion rate of 114% of net income indicating higher working capital needs.

Fourth Quarter 2021 Highlights

• Total revenue of $3.7 billion, an increase of 6% with organic growth of 5%
• Operating margin of 22.7% as enterprise initiatives contributed 110 bps
• GAAP EPS of $1.93 including $(0.02) of MTS acquisition impact
  

Full Year 2021 Highlights

• Total revenue of $14.5 billion, an increase of 15% with organic growth of 12%
• Operating income of $3.5 billion, an increase of 21%
• Operating margin of 24.1%, an increase of 120 bps as enterprise initiatives contributed 110 bps
• Record GAAP EPS of $8.51, an increase of 28%

Full Year 2022 Guidance (including MTS)

• Total revenue growth of 7.5 to 10.5% with organic growth of 6 to 9%
• Operating margin of 24 to 25% with enterprise initiatives contributing 100 bps
• GAAP EPS of $8.90 to $9.30, an increase of 5 to 9% or 10 to 15% excluding 2021 one-time tax items
  

GLENVIEW, Ill., Feb. 03, 2022 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth quarter and full year 2021 results and initiated guidance for full year 2022.

“In the fourth quarter, we saw continued strong growth momentum as six of our seven segments delivered combined organic growth of 12 percent, while our Automotive OEM segment continued to be impacted by limitations on auto production due to component supply shortages,” said E. Scott Santi, Chairman and Chief Executive Officer. “In what remains a very challenging and volatile operating environment, our teams around the world continue to do an exceptional job of delivering for our customers, responding decisively to rapidly rising input costs, and executing our ‘Win the Recovery’ strategy to accelerate profitable market penetration and organic growth across our portfolio.”

“I want to again thank all of my ITW colleagues for their exceptional dedication and commitment to serving our customers and executing our strategy with excellence.  Their performance throughout 2021 provides another compelling proof point that ITW is a company that has the enduring competitive advantages, agility, and resilience necessary to consistently deliver top-tier performance in any environment,” Santi concluded.

Fourth Quarter 2021 Results
Fourth quarter revenue grew six percent to $3.7 billion with 5.3 percent organic growth. The MTS acquisition, which closed on December 1, 2021 as previously announced, contributed 1.3 percent, partially offset by unfavorable foreign currency translation impact of 0.7 percent. Operating margin was 22.7 percent, 23.1 percent excluding 40 basis points of margin dilution impact from MTS. Enterprise initiatives contributed 110 basis points. The margin dilution impact from price/cost was 200 basis points, while pricing actions more than offset raw material cost increases on a dollar-for-dollar basis in the quarter. GAAP EPS was $1.93, including $(0.02) of MTS acquisition impact. Operating cash flow was $774 million, and free cash flow was $695 million with a conversion of 114 percent of net income. The effective tax rate for the quarter was 23.1 percent.

Full Year 2021 Results
Revenue grew 15 percent to $14.5 billion with organic growth of 12.3 percent. All seven segments delivered strong organic growth, led by Welding up 18 percent, Food Equipment up 17 percent, Test & Measurement and Electronics up 15 percent, Construction Products up 14 percent, Specialty Products and Polymers & Fluids both up 10 percent and Automotive OEM up 6 percent. The MTS acquisition contributed 0.4 percent, and foreign currency translation impact was favorable 2.3 percent.

Operating margin was 24.1 percent, an increase of 120 basis points with enterprise initiatives contributing 110 basis points.  The margin dilution impact from price/cost was 150 basis points, while pricing actions more than offset raw material cost increases on a dollar-for-dollar basis for the full year.   GAAP EPS was $8.51, $8.09 excluding $0.42 of favorable one-time tax items, an increase of 22 percent versus the prior year excluding these tax items.   Operating cash flow was $2.6 billion, and free cash flow was $2.3 billion with a conversion of 84 percent of net income, which was below the Company’s 100 percent+ long-term target primarily due to higher working capital investments to support 15 percent revenue growth and the Company’s decision to increase inventory levels on select key raw materials, components, and finished goods to help mitigate supply chain risk and sustain customer service levels. The company repurchased $1.0 billion of its own shares, and the effective tax rate for the full year was 19.0 percent.

Full Year 2022 Guidance
The company is initiating full-year GAAP EPS guidance in the range of $8.90 to $9.30 per share, an increase of 10 to 15 percent, excluding the impact of the favorable one-time tax items in 2021. Total revenue growth is expected to be in the range of 7.5 to 10.5 percent with organic growth of six to nine percent. The acquisition of MTS is expected to add approximately three percent to revenue and be neutral to EPS. Foreign currency translation impact is expected to be unfavorable 1.5 percent at current exchange rates.   Operating margin is expected to be in the range of 24 to 25 percent, with 100 basis points contribution from enterprise initiatives, partially offset by approximately 50 basis points each of margin dilution from MTS and price/cost. The company plans to repurchase approximately $1.5 billion of its own shares. The expected effective tax rate is in the range of 23 to 24 percent.

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 duration and potential effects of the COVID-19 pandemic and global supply chain challenges, related government actions and the company’s strategy in response thereto on the company’s business, expected impact of raw material inflation, enterprise initiatives, future financial and operating performance, free cash flow and free cash flow conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation, after-tax return on invested capital, effective tax rates, exchange rates, expected access to liquidity sources, expected capital allocation, expected timing and amount of share repurchases, end market economic and regulatory conditions, potential acquisitions and dispositions and related impact on financial results, including statements with respect to the impact of the 2021 acquisition of the MTS Test & Simulation business, and the company’s 2022 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 ITW's Form 10-K for 2020 and subsequent reports filed with the SEC.

About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.5 billion in 2021. The company’s 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. ITW’s approximately 45,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
	Three Months Ended								Twelve Months Ended
	December 31,								December 31,
In millions except per share amounts	2021				2020				2021				2020
Operating Revenue	$	3,679			$	3,475			$	14,455			$	12,574
Cost of revenue		2,191				2,000				8,489				7,375
Selling, administrative, and research and development expenses		621				557				2,356				2,163
Amortization and impairment of intangible assets		33				35				133				154
Operating Income		834				883				3,477				2,882
Interest expense		(49	)			(52	)			(202	)			(206	)
Other income (expense)		7				(7	)			51				28
Income Before Taxes		792				824				3,326				2,704
Income taxes		183				182				632				595
Net Income	$	609			$	642			$	2,694			$	2,109
Net Income Per Share:
Basic	$	1.94			$	2.03			$	8.55			$	6.66
Diluted	$	1.93			$	2.02			$	8.51			$	6.63
Cash Dividends Per Share:
Paid	$	1.22			$	1.14			$	4.64			$	4.35
Declared	$	1.22			$	1.14			$	4.72			$	4.42
Shares of Common Stock Outstanding During the Period:
Average		313.6				316.7				315.1				316.9
Average assuming dilution		315.0				318.1				316.4				318.3

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions	December 31, 2021				December 31, 2020
Assets
Current Assets:
Cash and equivalents	$	1,527			$	2,564
Trade receivables		2,840				2,506
Inventories		1,694				1,189
Prepaid expenses and other current assets		313				264
Total current assets		6,374				6,523
Net plant and equipment		1,809				1,777
Goodwill		4,965				4,690
Intangible assets		972				781
Deferred income taxes		552				533
Other assets		1,405				1,308
	$	16,077			$	15,612
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	778			$	350
Accounts payable		585				534
Accrued expenses		1,648				1,284
Cash dividends payable		382				361
Income taxes payable		77				60
Total current liabilities		3,470				2,589
Noncurrent Liabilities:
Long-term debt		6,909				7,772
Deferred income taxes		654				588
Noncurrent income taxes payable		365				413
Other liabilities		1,053				1,068
Total noncurrent liabilities		8,981				9,841
Stockholders' Equity:
Common stock		6				6
Additional paid-in-capital		1,432				1,362
Retained earnings		24,325				23,114
Common stock held in treasury		(20,636	)			(19,659	)
Accumulated other comprehensive income (loss)		(1,502	)			(1,642	)
Noncontrolling interest		1				1
Total stockholders' equity		3,626				3,182
	$	16,077			$	15,612

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Three Months Ended December 31, 2021
Dollars in millions	Total Revenue			Operating Income			Operating Margin
Automotive OEM	$	663		$	111		16.8	%
Food Equipment		569			130		22.9	%
Test & Measurement and Electronics		636			168		26.4	%
Welding		422			126		30.0	%
Polymers & Fluids		447			107		24.1	%
Construction Products		480			124		25.8	%
Specialty Products		467			124		26.5	%
Intersegment		(5	)		—		—	%
Total Segments		3,679			890		24.2	%
Unallocated		—			(56	)	—	%
Total Company	$	3,679		$	834		22.7	%

Twelve Months Ended December 31, 2021
Dollars in millions	Total Revenue			Operating Income			Operating Margin
Automotive OEM	$	2,800		$	545		19.5	%
Food Equipment		2,078			469		22.6	%
Test & Measurement and Electronics		2,346			643		27.4	%
Welding		1,650			490		29.7	%
Polymers & Fluids		1,804			457		25.4	%
Construction Products		1,945			530		27.2	%
Specialty Products		1,854			504		27.2	%
Intersegment		(22	)		—		—	%
Total Segments		14,455			3,638		25.2	%
Unallocated		—			(161	)	—	%
Total Company	$	14,455		$	3,477		24.1	%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Q4 2021 vs. Q4 2020 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Organic	(16.2)%		20.9%	11.2%	14.7%	3.5%	12.5%	7.1%	5.3%
Acquisitions/ Divestitures	—%		—%	8.6%	—%	—%	(0.2)%	—%	1.3%
Translation	(0.9)%		(0.3)%	(0.6)%	—%	(1.3)%	(0.7)%	(0.8)%	(0.7)%
Operating Revenue	(17.1)%		20.6%	19.2%	14.7%	2.2%	11.6%	6.3%	5.9%

Q4 2021 vs. Q4 2020 Favorable/(Unfavorable)
Change in Operating Margin	Automotive OEM		Food Equipment		Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	(340) bps		410 bps		230 bps	210 bps	70 bps	210 bps	120 bps	100 bps
Changes in Variable Margin & OH Costs	(340) bps		(370) bps		(350) bps	(100) bps	(200) bps	(260) bps	(150) bps	(350) bps
Total Organic	(680) bps		40 bps		(120) bps	110 bps	(130) bps	(50) bps	(30) bps	(250) bps
Acquisitions/ Divestitures	—		—		(130) bps	—	—	10 bps	—	(20) bps
Restructuring/Other	(30) bps		20 bps		30 bps	—	—	—	(20) bps	—
Total Operating Margin Change	(710) bps		60 bps		(220) bps	110 bps	(130) bps	(40) bps	(50) bps	(270) bps
Total Operating Margin % *	16.8%		22.9%		26.4%	30.0%	24.1%	25.8%	26.5%	22.7%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	40 bps		60 bps		160 bps	10 bps	240 bps	20 bps	70 bps	90 bps**
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the fourth quarter of 2021.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Full Year 2021 vs Full Year 2020 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Organic	5.8%	16.7%	15.3%	18.1%	10.0%	13.6%	9.8%	12.3%
Acquisitions/ Divestitures	—%	—%	2.3%	—%	—%	(0.1)%	—%	0.4%
Translation	3.1%	2.8%	1.9%	1.1%	1.2%	4.2%	1.9%	2.3%
Operating Revenue	8.9%	19.5%	19.5%	19.2%	11.2%	17.7%	11.7%	15.0%

Full Year 2021 vs Full Year 2020 Favorable/(Unfavorable)
Change in Operating Margin	Automotive OEM	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	120 bps	370 bps	340 bps	260 bps	200 bps	240 bps	190 bps	250 bps
Changes in Variable Margin & OH Costs	—	(110) bps	(160) bps	10 bps	(150) bps	(80) bps	(50) bps	(150) bps
Total Organic	120 bps	260 bps	180 bps	270 bps	50 bps	160 bps	140 bps	100 bps
Acquisitions/ Divestitures	—	—	(40) bps	—	—	—	—	—
Restructuring/Other	50 bps	40 bps	20 bps	(10) bps	10 bps	10 bps	(20) bps	20 bps
Total Operating Margin Change	170 bps	300 bps	160 bps	260 bps	60 bps	170 bps	120 bps	120 bps
Total Operating Margin % *	19.5%	22.6%	27.4%	29.7%	25.4%	27.2%	27.2%	24.1%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	40 bps	60 bps	170 bps	10 bps	250 bps	20 bps	70 bps	90 bps**
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.32) on GAAP earnings per share for 2021.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
	Three Months Ended								Twelve Months Ended
	December 31,								December 31,
Dollars in millions	2021				2020				2021				2020
Numerator:
Net income	$	609			$	642			$	2,694			$	2,109
Discrete tax benefit related to the third quarter 2021		—				—				(21	)			—
Discrete tax benefit related to the second quarter 2021		—				—				(112	)			—
Interest expense, net of tax (1)		38				42				157				162
Other (income) expense, net of tax (1)		(5	)			5				(40	)			(22	)
Operating income after taxes	$	642			$	689			$	2,678			$	2,249
Denominator:
Invested capital:
Cash and equivalents	$	1,527			$	2,564			$	1,527			$	2,564
Trade receivables		2,840				2,506				2,840				2,506
Inventories		1,694				1,189				1,694				1,189
Net plant and equipment		1,809				1,777				1,809				1,777
Goodwill and intangible assets		5,937				5,471				5,937				5,471
Accounts payable and accrued expenses		(2,233	)			(1,818	)			(2,233	)			(1,818	)
Debt		(7,687	)			(8,122	)			(7,687	)			(8,122	)
Other, net		(261	)			(385	)			(261	)			(385	)
Total net assets (stockholders' equity)		3,626				3,182				3,626				3,182
Cash and equivalents		(1,527	)			(2,564	)			(1,527	)			(2,564	)
Debt		7,687				8,122				7,687				8,122
Total invested capital	$	9,786			$	8,740			$	9,786			$	8,740
Average invested capital (2)	$	9,421			$	8,606			$	9,087			$	8,576
Net income to average invested capital (3)		25.8	%			29.9	%			29.6	%			24.6	%
After-tax return on average invested capital (3)		27.2	%			32.0	%			29.5	%			26.2	%

⁽¹⁾  Effective tax rate used for interest expense and other (income) expense for the three months ended December 31, 2021 and 2020 was 23.1% and 22.1%, respectively, and 23.0% and 22.0% for the twelve months ended December 31, 2021 and 2020, respectively.

⁽²⁾  Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within each of the periods presented.

⁽³⁾  Returns for the three months ended December 31, 2021 and 2020 were converted to an annual rate by multiplying the calculated return by 4.

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

A reconciliation of the 2021 effective tax rate excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital losses and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate is as follows:

	Twelve Months Ended
	December 31, 2021
Dollars in millions	Income Taxes			Tax Rate
As reported	$	632		19.0	%
Discrete tax benefit related to the third quarter 2021		21		0.6	%
Discrete tax benefit related to the second quarter 2021		112		3.4	%
As adjusted	$	765		23.0	%

FREE CASH FLOW (UNAUDITED)

	Three Months Ended								Twelve Months Ended
	December 31,								December 31,
Dollars in millions	2021				2020				2021				2020
Net cash provided by operating activities	$	774			$	773			$	2,557			$	2,807
Less: Additions to plant and equipment		(79	)			(68	)			(296	)			(236	)
Free cash flow	$	695			$	705			$	2,261			$	2,571
Net income	$	609			$	642			$	2,694			$	2,109
Net cash provided by operating activities to net income conversion rate		127	%			120	%			95	%			133	%
Free cash flow to net income conversion rate		114	%			110	%			84	%			122	%

ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

	Twelve Months Ended
	December 31,
	2021				2020
As reported	$	8.51			$	6.63
Discrete tax benefit related to the third quarter 2021		(0.07	)			—
Discrete tax benefit related to the second quarter 2021		(0.35	)			—
As adjusted	$	8.09			$	6.63
Percentage increase in adjusted net income per share - diluted		22	%

Media Contact Tel: 224.661.7451 mediarelations@itw.com

Investor Relations Karen Fletcher Tel: 224.661.7433 investorrelations@itw.com

FAQ

What were the financial results for Illinois Tool Works in Q4 2021?

Illinois Tool Works reported Q4 2021 revenue of $3.7 billion, up 6% with organic growth of 5%.

How did Illinois Tool Works perform in full year 2021?

For the full year 2021, Illinois Tool Works reported a revenue of $14.5 billion, a 15% increase, with GAAP EPS at $8.51.

What is the guidance for Illinois Tool Works for 2022?

Illinois Tool Works anticipates total revenue growth of 7.5% to 10.5% and GAAP EPS between $8.90 and $9.30 for 2022.

What impact did the MTS acquisition have on Illinois Tool Works?

The MTS acquisition contributed 1.3% to Q4 revenue but resulted in a $0.02 dilutive impact on Q4 GAAP EPS.

What are the operating margin expectations for Illinois Tool Works in 2022?

The operating margin for 2022 is expected to range between 24% and 25%.