ITW Reports 11% Growth in Diluted Net Income Per Share for the 2005 Second Quarter; Company Raises Full-Year 2005 Earnings Forecast Range to $5.02 - $5.14
GLENVIEW, Ill., July 21 -- Illinois Tool Works Inc. today reported 11 percent growth in diluted net income per share in the 2005 second quarter. Diluted net income per share in the quarter was $1.29 versus $1.16 in the 2004 second quarter. In addition, the Company's second quarter revenues increased 10 percent, operating income grew 1 percent and net income rose 4 percent.
The growth in second quarter earnings occurred primarily due to a lower tax rate and fewer shares outstanding as a result of the Company's share repurchase program. The Company's tax rate moved to 31.6 percent in the 2005 second quarter from 34.0 percent in the year ago period. The combination of the lower tax rate and share repurchase program contributed approximately 13 cents of earnings in the quarter.
For the 2005 second quarter, operating revenues were $3.296 billion compared to $3.002 billion for the year earlier period. Operating income improved modestly to $566.9 million in the most recent quarter from $561.5 million in the prior year period largely as a result of $42.4 million decrease in Leasing and Investments income compared to a year ago and higher North American base income partially offset by weaker performance from the international units. Net income was $373.8 million in the second quarter compared to $360.4 million a year ago. The Company's second quarter overall operating margins of 17.2 percent were 150 basis points lower than a year ago largely due to the aforementioned decline in Leasing and Investments income. While some end markets moderated in the second quarter, manufacturing operating margins of 17.1 percent were only 30 basis points lower than a year ago.
For the first half of 2005, diluted net income per share of $2.35 was 12 percent higher than the $2.10 diluted net income per share for the year earlier period. In this same period, revenues grew 12 percent to $6.370 billion from $5.713 billion, operating income increased 4 percent to $1.045 billion from $1.009 billion, and net income of $686.1 million was 5 percent higher than the $650.5 million for the 2004 first half.
The Company's free operating cash flow continued to be strong in the 2005 second quarter at $429.9 million. The generation of free cash flow allowed the Company to continue its share repurchase program and to fund its acquisition activity. Acquisitions totaled $36 million of annualized acquired revenues in the second quarter and $187 million of annualized acquired revenues year to date. Based on a full pipeline of potential acquisitions, the Company continues to forecast acquired revenues of $600 to $800 million of annualized revenues for full-year 2005.
"Given the challenging year-over-year comparisons we had with our Leasing and Investments segment and the moderating growth we experienced in a variety of international and North American end markets, we were pleased we were able to produce four percent base revenue growth as well as a double-digit earnings increase in the quarter," said Chairman and Chief Executive Officer W. James Farrell.
Segment highlights for the 2005 second quarter include:
North American Engineered Products second quarter revenues increased 13 percent largely as a result of contributions from acquisitions as well as base revenue growth from the industrial and construction business units. Operating income increased 14 percent as base income growth from the construction and industrial units combined with contributions from acquisitions. As a result, operating margins of 18.2 percent were 30 basis points higher than the prior year period. For the 2005 first half, revenues and operating income grew 13 percent and 10 percent, respectively, and operating margins of 17.0 percent were 50 basis points lower than the year ago period.
International Engineered Products second quarter revenues grew 9 percent mainly as a result of contributions from currency translation and acquisitions. Due to weaker than expected end markets for the Company's automotive, industrial and construction products, base revenues declined 2 percent in the quarter. Operating income was flat in the quarter as contributions from translation and acquisitions were offset by declining base business activity and higher restructuring costs. Operating margins in the second quarter of 14.4 percent were 120 basis points lower than the year earlier period. For the 2005 first half, revenues and operating income were up 15 percent and 12 percent, respectively, and operating margins of 13.7 percent were 50 basis points lower than a year ago.
North American Specialty Systems second quarter revenues and operating income both increased 9 percent largely as a result of strong base revenue and income growth from the welding and food equipment units. Operating margins of 18.2 percent were flat with the year earlier period. For the 2005 first half, revenues grew 10 percent and operating income increased 13 percent. Operating margins of 17.9 percent were 50 basis points higher than a year ago.
International Specialty Systems second quarter revenues increased 15 percent primarily due to favorable currency translation and acquisitions as well as contributions from base revenues associated with the industrial packaging and welding units. Operating income grew 11 percent mainly as a result of contributions from currency translation and base income. Operating margins of 13.7 percent were 40 basis points lower than the year earlier period. For the 2005 first half, revenues and operating income grew 14 percent and 3 percent, respectively. Operating margins of 11.6 percent were 130 basis points lower than a year ago.
Leasing and Investments second quarter operating income of $6.3 million was 87 percent lower than the year ago period. The formidable decline in income was due to higher income realized last year from gains on sales in the commercial mortgage portfolio and mark-to-market adjustments on venture capital investments.
Looking ahead, while the Company expects base revenues to grow approximately 3.4 percent in the second half of the year, the reduction in the full-year tax rate to 32.0 percent and higher than anticipated income from Leasing and Investments in the third quarter have resulted in a higher forecasted earnings range of $5.02 to $5.14 for full-year 2005. The Company also is forecasting an earnings range of $1.33 to $1.39 for the 2005 third quarter. The midpoints of full-year and third quarter forecasts represent growth of 16 percent and 25 percent, respectively.
This Earnings Release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding end market conditions, base revenues, potential acquisitions and higher income from Leasing and Investments for the third quarter and full-year 2005 and the Company's related forecasts. 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 set forth in ITW's Form 10-Q for the 2005 First Quarter.
ITW is an $11.7 billion in revenues diversified manufacturer of highly engineered components and industrial systems and consumables. The Company consists of approximately 650 decentralized operations in 45 countries and employs some 49,000 people.
ILLINOIS TOOL WORKS INC.
(In thousands except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
STATEMENT OF INCOME 2005 2004 2005 2004
Operating Revenues $3,295,644 $3,002,271 $6,369,935 $5,712,620
Cost of revenues 2,156,602 1,929,803 4,178,939 3,680,146
Selling,
administrative, and
R&D expenses 556,975 502,880 1,105,050 986,221
Amortization and
impairment of
goodwill & other
intangibles 15,213 8,052 41,203 37,075
Operating Income 566,854 561,536 1,044,743 1,009,178
Interest expense (27,352) (18,991) (46,079) (34,873)
Other income 6,880 3,505 10,324 11,170
Income From Continuing
Operations Before
Income Taxes 546,382 546,050 1,008,988 985,475
Income taxes 172,600 185,700 322,900 335,100
Income From Continuing
Operations 373,782 360,350 686,088 650,375
Income From
Discontinued Operations - - - 171
Net Income $373,782 $360,350 $686,088 $650,546
Income Per Share from
Continuing Operations:
Basic $1.30 $1.17 $2.37 $2.11
Diluted $1.29 $1.16 $2.35 $2.09
Income Per Share from
Discontinued Operations:
Basic $- $- $- $-
Diluted $- $- $- $-
Net Income Per Share:
Basic $1.30 $1.17 $2.37 $2.11
Diluted $1.29 $1.16 $2.35 $2.10
Shares outstanding
during the period :
Average 287,902 308,086 289,639 308,168
Average assuming
dilution 290,015 310,638 291,800 310,504
ESTIMATED FREE
OPERATING CASH FLOW THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2005 2004 2005 2004
Net cash provided
by operating
activities $498,324 $376,818 $801,275 $696,518
Plus: Proceeds
from investments 12,246 19,640 27,638 38,452
Less: Additions to
PP&E (80,681) (69,259) (144,709) (129,772)
Free operating cash
flow $429,889 $327,199 $684,204 $605,198
ILLINOIS TOOL WORKS
INC.
(In thousands)
STATEMENT OF FINANCIAL JUNE 30, MAR 31, DEC 31,
POSITION ASSETS 2005 2005 2004
Cash & equivalents $858,679 $1,052,941 $667,390
Trade receivables 2,134,215 2,132,492 2,054,624
Inventories 1,274,538 1,361,403 1,281,156
Deferred income taxes 156,664 135,387 147,416
Prepaids and other
current assets 143,020 174,019 171,612
Total current assets 4,567,116 4,856,242 4,322,198
Net plant & equipment 1,822,236 1,875,221 1,876,875
Investments 971,354 981,028 912,483
Goodwill 2,834,779 2,848,698 2,753,053
Intangible assets 477,328 487,528 440,002
Deferred income taxes 121,159 115,341 233,172
Other assets 835,143 841,857 814,151
$11,629,115 $12,005,915 $11,351,934
LIABILITIES and
STOCKHOLDERS' EQUITY
Short-term debt $696,788 $785,985 $203,523
Accounts payable 555,804 600,272 603,811
Accrued expenses 946,668 890,264 959,380
Cash dividends payable 79,909 81,146 81,653
Income taxes payable 1,213 13,651 2,604
Total current
liabilities 2,280,382 2,371,318 1,850,971
Long-term debt 967,208 967,857 921,098
Other liabilities 954,324 958,047 952,255
Total non-current
liabilities 1,921,532 1,925,904 1,873,353
Common stock 3,117 3,116 3,114
Additional paid-in
capital 1,025,034 1,006,852 978,941
Income reinvested in
the business 8,488,550 8,194,678 7,963,518
Common stock held in
treasury (2,304,064) (1,921,110) (1,731,378)
Accumulated other
comprehensive income 214,564 425,157 413,415
Total stockholders'
equity 7,427,201 7,708,693 7,627,610
$11,629,115 $12,005,915 $11,351,934