ITW Reports Record Earnings as Diluted Net Income Per Share Grew 31 Percent for the 2005 Third Quarter; Revenues Increased 10 Percent, Operating Income Grew 21 Percent and Operating Margins Improved 170 Basis Points to 19.0 Percent in the Quarter
GLENVIEW, Ill., Oct. 19, 2005 -- Illinois Tool Works Inc. today reported record earnings as diluted net income per share grew 31 percent in the 2005 third quarter. Diluted net income per share was $1.43 versus $1.09 in the 2004 third quarter. In addition, the Company's revenues increased 10 percent, operating income grew 21 percent and net income rose 24 percent.
The significant growth in earnings took place as base revenues grew 4.1 percent in the quarter, with the majority of that contribution coming from North American end markets. Largely as a result of improved base margin performance and higher than anticipated Leasing and Investments income, diluted net income per share was seven cents higher than the Company's most recent forecast. Base margin improvement added three cents, Leasing and Investments contributed three cents, and earlier than expected completion of the share repurchase program added 1 cent.
For the 2005 third quarter, operating revenues were $3.258 billion compared to $2.967 billion for the year earlier period. Operating income increased to $619.2 million from $512.2 million in the prior year period. Net income was $408.2 million compared to $330.1 million a year ago. The Company's third quarter overall operating margin of 19.0 percent was 170 basis points higher than the year ago period.
For the first nine months of 2005, diluted net income per share of $3.78 was 18 percent higher than the $3.19 diluted net income per share for the year earlier period. In this same period, revenues grew 11 percent to $9.628 billion from $8.680 billion, operating income increased 9 percent to $1.664 billion from $1.521 billion, and net income of $1.094 billion was 12 percent higher than the $980.6 million for the 2004 nine month period. Operating margins of 17.3 were 20 basis points lower than the year ago period.
The Company's free operating cash flow continued to be strong in the 2005 third quarter at $506.6 million. The generation of free cash allowed the Company to complete its $2.8 billion share repurchase program and to fund improving acquisition activity. Acquisitions in the third quarter had $105 million of annualized revenues. In addition, in early October the Company completed its previously announced acquisition of Instron Corporation. Year to date, the Company has completed acquisitions with annualized revenues of $532 million. Based on a robust pipeline of potential acquisitions, the Company continues to forecast acquired revenues of $600 to $800 million of annualized revenues for full-year 2005.
"Our strong across-the-board financial performance in the third quarter underscores ITW's ability to maximize income and margins even though our base revenue growth was essentially the same as the second quarter," said David B. Speer, President and Chief Executive Officer. "We also remain encouraged by what we believe to be an improving acquisition environment both in terms of the quantity and quality of opportunities we are reviewing."
Segment highlights for the 2005 third quarter include:
North American Engineered Products third quarter revenues increased 10 percent largely as a result of contributions from acquisitions as well as base revenue growth from the construction, industrial and automotive business units. Operating income increased 21 percent mainly due to base income growth from construction and automotive combined with contributions from acquisitions. As a result, operating margins of 18.9 percent were 170 basis points higher than the prior year period. For the nine month period, revenues and operating income grew 12 percent and 14 percent, respectively, and operating margins of 17.6 percent were 20 basis points higher than the year ago period.
International Engineered Products third quarter revenues grew 5 percent mainly as a result of contributions from acquisitions and currency translation. Base revenues declined 1 percent in the quarter. Operating income increased 4.5 percent in the quarter as contributions from acquisitions, currency translation and base revenues were moderated by restructuring costs. Operating margins of 15.3 percent were 10 basis points lower than the year ago period. For the nine month period, revenues and operating income grew 12 percent and 9 percent, respectively, and operating margins of 14.2 percent were 40 basis points lower than a year ago.
North American Specialty Systems third quarter operating revenues increased 9 percent largely due to base revenue growth from the welding, marking and decorating, and finishing units. Operating income grew 28 percent mainly as a result of base income contributions from welding and food equipment. Operating margins of 20.1 percent were 290 basis points higher than the year earlier period. For the nine month period, revenues and operating income grew 10 percent and 18 percent, respectively. Operating margins of 18.6 percent were 130 basis points higher than a year ago.
International Specialty Systems third quarter revenues increased 8 percent primarily due to base revenue contributions from the industrial and consumer packaging units in Europe and Asia, welding, food equipment and finishing. Acquisitions also added to revenue growth. Operating income declined 10 percent in the quarter mainly due to a 14 percent income decline related to higher restructuring charges in the quarter. As a result, operating margins of 11.4 percent were 230 basis points lower than the year earlier period. For the nine month period, revenues increased 12 percent and operating income declined 2 percent. Operating margins of 11.5 percent were 170 basis points lower than a year ago.
Leasing and Investments third quarter operating income of $53.5 million was significantly higher than the year earlier period due to higher than expected income from gains on sales in the commercial mortgage portfolio and mark-to-market income on venture capital investments.
Looking ahead, the Company expects its base revenues to moderate to 3.0 percent growth in the fourth quarter due to anticipated higher energy costs and their impact on end markets and raw materials. As a result, the Company is forecasting an earnings range of $1.34 to $1.40 for the fourth quarter. For full-year 2005, the Company is forecasting an earnings range of $5.12 to $5.18. The midpoint of the 2005 forecast is predicated on base revenue growth of 4.3 percent.
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 revenue growth, higher energy costs and potential acquisitions for the fourth 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 Second 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
STATEMENT OF INCOME 2005 2004 2005 2004
Operating Revenues $3,257,600 $2,967,168 $9,627,535 $8,679,788
Cost of revenues 2,081,272 1,934,831 6,260,211 5,614,977
Selling,
administrative,
and R&D expenses 541,338 509,482 1,646,388 1,495,703
Amortization and
impairment of
goodwill & other
intangibles 15,770 10,617 56,973 47,692
Operating Income 619,220 512,238 1,663,963 1,521,416
Interest expense (18,243) (18,512) (64,322) (53,385)
Other income (expense) (775) 6,325 9,549 17,495
Income From Continuing
Operations Before
Income Taxes 600,202 500,051 1,609,190 1,485,526
Income taxes 192,000 170,000 514,900 505,100
Income From Continuing
Operations 408,202 330,051 1,094,290 980,426
Income From
Discontinued
Operations - - - 171
Net Income $408,202 $330,051 $1,094,290 $980,597
Income Per Share from
Continuing
Operations:
Basic $1.44 $1.10 $3.81 $3.21
Diluted $1.43 $1.09 $3.78 $3.19
Income Per Share from
Discontinued
Operations:
Basic $- $- $- $0.00
Diluted $- $- $- $0.00
Net Income Per Share:
Basic $1.44 $1.10 $3.81 $3.21
Diluted $1.43 $1.09 $3.78 $3.19
Shares outstanding
during the period :
Average 282,798 301,390 287,333 305,222
Average assuming
dilution 285,009 303,966 289,510 307,657
ESTIMATED FREE OPERATING
CASH FLOW
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2005 2004
Net cash provided by
operating activities $559,308 $452,084 $1,360,583 $1,148,602
Plus: Proceeds from
investments 18,580 18,837 46,218 57,289
Less: Additions to
PP&E (71,316) (67,670) (216,025) (197,442)
Free operating cash
flow $506,572 $403,251 $1,190,776 $1,008,449
ILLINOIS TOOL WORKS INC.
(In thousands)
SEPT 30, JUNE 30, DEC 31,
STATEMENT OF FINANCIAL POSITION 2005 2005 2004
ASSETS
Cash & equivalents $351,345 $858,679 $667,390
Trade receivables 2,168,592 2,134,215 2,054,624
Inventories 1,229,667 1,274,538 1,281,156
Deferred income taxes 158,953 156,664 147,416
Prepaids and other current
assets 144,268 143,020 171,612
Total current assets 4,052,825 4,567,116 4,322,198
Net plant & equipment 1,825,459 1,822,236 1,876,875
Investments 1,021,199 971,354 912,483
Goodwill 2,877,750 2,834,779 2,753,053
Intangible assets 499,463 477,328 440,002
Deferred income taxes 50,049 121,159 233,172
Other assets 908,462 835,143 814,151
$11,235,207 $11,629,115 $11,351,934
LIABILITIES and STOCKHOLDERS' EQUITY
Short-term debt $378,609 $696,788 $203,523
Accounts payable 543,897 555,804 603,811
Accrued expenses 975,001 946,668 959,380
Cash dividends payable 92,383 79,909 81,653
Income taxes payable 30,511 1,213 2,604
Total current liabilities 2,020,401 2,280,382 1,850,971
Long-term debt 965,535 967,208 921,098
Other liabilities 968,145 954,324 952,255
Total non-current
liabilities 1,933,680 1,921,532 1,873,353
Common stock 3,117 3,117 3,114
Additional paid-in capital 1,042,495 1,025,034 978,941
Income reinvested in the
business 8,804,369 8,488,550 7,963,518
Common stock held in treasury (2,773,176) (2,304,064) (1,731,378)
Accumulated other
comprehensive income 204,321 214,564 413,415
Total stockholders'
equity 7,281,126 7,427,201 7,627,610
$11,235,207 $11,629,115 $11,351,934