Illinois Tool Works Inc. · NYSE:ITW
Illinois Tool Works — Q1 2004 Earnings Presentation
36 slides from Illinois Tool Works's earnings presentation, Apr 20, 2004
Slide 1: ITW Conference Call First Quarter 2004
Exhibit 99.2 ITW Conference Call First Quarter 2004
Slide 2: Agenda
ITW Agenda 1. Introduction……………………..John Brooklier 2. Financial Overview……………...Jon Kinney 3. Manufacturing Segments……… John Brooklier 4. Share Repurchase……….………Jon Kinney 5. Forecast 2004………………….…Jon Kinney 6. Q & A………………...…………Kinney/Brooklier
Slide 3: Forward-Looking Statements
ITW Forward-Looking Statements This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding end market conditions and base business expectations for the second quarter and full
Slide 4: Conference Call Playback
Conference Call Playback Replay number: 402-220-4322 No pass code necessary Telephone replay available through midnight of May 4, 2004 Webcast / PowerPoint replay available at itw.com website
Slide 5: Quarterly Highlights
ITW Quarterly Highlights 2003 2004 F(U) Last Year Q1 Q1 Amount % Operating Revenues 2,313.8 2,710.3 396.5 17.1% Operating Income 321.0 447.6 126.6 39.4% % of Revenues 13.9% 16.5% 2.6% Income From Continuing Operations Income Amount 199.5 290.0 90.5 45.4% Income Per Share-Diluted 0.65 0.93 0.28 43.1%
Slide 6: Quarterly Operating Analysis
ITW Quarterly Operating Analysis Revenue Income Margins Base Manufacturing Business Operating Leverage 6.5% 19.2% 1.6% Non Volume Related 5.7% 0.8% Total 6.5% 24.9% 2.4% Acquisitions / Divestitures 4.0% 3.4% -0.2% Translation 6.7% 6.2% -0.2% Impairment -5.4% -0.7% Restructuring 4.9% 0.6% Leasing & I
Slide 7: Leasing & Investments
ITW Leasing & Investments 2003 2004 F(U) Last Year Q1 Q1 Amount % Operating Revenues 30.5 38.7 8.2 26.9% Operating Income 17.5 34.8 17.3 98.9% Operating Margins 57.4% 89.9% 32.5%
Slide 8: Non Operating & Taxes
ITW Non Operating & Taxes 2003 2004 F(U) Last Year Q1 Q1 Amount % Operating Income 321.0 447.6 126.6 39.4% Interest Expense (17.4) (15.9) 1.5 Other Income (Expense) 3.3 7.7 4.4 Income From Continuing Operations-P/T 306.9 439.4 132.5 43.2% Income Taxes 107.4 149.4 (42.0) % to Pre Tax Income 35% 34% 1
Slide 9: Invested Capital
ITW Invested Capital 3/31/03 12/31/03 3/31/04 Trade Receivables 1,562.3 1,721.2 1,909.6 Days Sales Outstanding 60.8 59.0 63.4 Inventories 1,009.0 992.0 1,070.5 Months on Hand 2.0 1.7 1.8 Other Current Assets 354.6 385.5 386.2 Accounts Payable & Accruals (1,383.8) (1,432.8) (1,647.4) Operating Workin
Slide 10: Debt & Equity
ITW Debt & Equity 3/31/03 12/31/03 3/31/04 Total Capital Short Term Debt 101.0 56.1 51.4 Long Term Debt 1,451.8 920.4 920.8 Total Debt 1,552.8 976.5 972.2 Stockholders' Equity 6,919.1 7,874.3 8,234.1 Total Capital 8,471.9 8,850.8 9,206.3 Less: Leasing & Investment Debt (812.1) (199.0) (191.8) Cash (
Slide 11: Cash Flow
ITW Cash Flow 2003 2004 Q1 Q1 Net Income 195.4 290.2 Adjust for Non-Cash Items 64.1 60.2 Changes in Operating Assets & Liab. (42.3) (30.7) Net Cash From Operating Activities 217.2 319.7 Additions to Plant & Equipment (56.2) (60.9) Proceeds from investments 15.7 19.3 Free Operating Cash Flow 176.7 27
Slide 12: Return on Average Invested Capital
ITW Return on Average Invested Capital 2003 2004 F(U) Current Quarter Q1 Q1 Prior Yr. Operating Income after taxes 208.7 295.4 86.7 Operating Margins 9.0% 11.0% 2.0% Average Invested Capital 6,468.7 7,126.4 657.7 Capital Turnover 1.43 1.52 0.09 Return on Average Invested Capital 12.9% 16.6% 3.7%
Slide 13: Acquisitions
ITW Acquisitions 2003 2004 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Annual Revenues Acquired 49 35 231 32 247 - - - Purchase Price Cash Paid 44 30 74 56 184 - - - Stock Issued - - - - 2 - - - Total 44 30 74 56 186 - - - Number of Acquisitions North America Engineered Products 1 - 3 3 2 - - - Specialty Systems - 2 1
Slide 14: Key Economic Data
Key Economic Data • March ’04 ISM: 62.5% is up from 61.4% in February ’04 • US Industrial Production (ex. Tech.): +2.2% in March ’04 compared to +1.5% in December ’03 • Euro-Zone Purchasing Managers’ Index remained flat at: 52.5% in February ’04 vs. January ’04 • Euro-Zone Industrial Production: +0.
Slide 15: Engineered Products – North America
ITW Engineered Products – North America 2003 2004 F(U) Last Year Q1 Q1 Amount % Operating Revenues 748.8 796.6 47.8 6.4% Operating Income 111.1 132.8 21.7 19.5% Operating Margins 14.8% 16.7% 1.9%
Slide 16: Engineered Products-North America Quarterly Analysis
Engineered Products-North America Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenue Income Margins Base Business Operating Leverage 6.6% 18.8% 1.7% Non Volume Related -1.0% -0.1% Total 6.6% 17.8% 1.6% Acquisitions / Divestitures -0.7% 1.7% 0.3% Translation 0.5% 0.5% Impairme
Slide 17: Engineered Products-North America Key Points
Engineered Products-North America Key Points • Total Construction: +9% • ITW construction (Paslode/Buildex/Ramset/ITW Brands) base revenues: +20% for Q1 – Commercial construction: +2% – New housing: +15% – Renovation/rehab: +15% • Wilsonart base revenues flat for the quarter; basic laminate product
Slide 18: Engineered Products-North America Key Points
Engineered Products-North America Key Points • Auto base revenues: flat for Q1 • Big 3 build rates: -3% for Q1 – GM: -7% – Ford: -2% – Chrysler: +3% • March Big 3 inventories: 81 days – GM: 83 days – Ford: 83 days – Chrysler: 76 days • ITW estimate for 2004: – Q2: -3% – FY: -3% • Industrial: base re
Slide 19: Engineered Products – International
ITW Engineered Products – International 2003 2004 F(U) Last Year Q1 Q1 Amount % Operating Revenues 405.8 518.0 112.2 27.6% Operating Income 42.4 63.9 21.5 50.7% Operating Margins 10.4% 12.3% 1.9%
Slide 20: Engineered Products-International Quarterly Analysis
Engineered Products-International Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenue Income Margins Base Business Operating Leverage 6.0% 22.5% 1.6% Non Volume Related 12.9% 1.3% Total 6.0% 35.4% 2.9% Acquisitions / Divestitures 3.0% 3.0% 0.0% Translation 18.6% 25.6% 0.3% Imp
Slide 21: Engineered Products-International Key Points
Engineered Products-International Key Points • Construction base revenues: +5% in Q1 – Europe: +6% growth (strength in France, Germany and UK) – Austral-Asia: +2% (Paslode/Australia) – Wilsonart Intl.: +6% (good activity in China) • Automotive base revenues: +9% in Q1 – Builds: -2% ytd – Ford: +7%;
Slide 22: Specialty Systems-North America
ITW Specialty Systems-North America 2003 2004 F(U) Last Year Q1 Q1 Amount % Operating Revenues 794.8 932.5 137.7 17.3% Operating Income 111.3 156.1 44.8 40.2% Operating Margins 14.0% 16.7% 2.7%
Slide 23: Specialty Systems-North America Quarterly Analysis
Specialty Systems-North America Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenue Income Margins Base Business Operating Leverage 11.4% 33.9% 2.8% Non Volume Related 3.4% 0.4% Total 11.4% 37.3% 3.2% Acquisitions / Divestitures 5.1% 4.3% -0.2% Translation 0.8% 0.7% 0.0% Impai
Slide 24: Specialty Systems-North America Key Points
Specialty Systems-North America Key Points • Welding base revenues: 20+% in Q1 due to stronger equipment sales to construction and other end markets; consumables and components units also grew sales • Industrial packaging: In total, group base revenues 15+%; Signode base revenue grew +11% in Q1; con
Slide 25: Specialty Systems-International
ITW Specialty Systems-International 2003 2004 F(U) Last Year Q1 Q1 Amount % Operating Revenues 425.1 525.8 100.7 23.7% Operating Income 38.7 60.1 21.4 55.3% Operating Margins 9.1% 11.4% 2.3%
Slide 26: Specialty Systems-International Quarterly Analysis
Specialty Systems-International Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenue Income Margins Base Business Operating Leverage -3.1% -12.9% -0.9% Non Volume Related 21.9% 2.1% Total -3.1% 9.0% 1.2% Acquisitions / Divestitures 10.5% 8.2% -0.5% Translation 16.3% 19.6% -0.1%
Slide 27: Specialty Systems-International Key Points
Specialty Systems-International Key Points . Total packaging: -2% base revenues in Q1 • Signode base revenues vary based on geography in Q1: -Europe: -6% -Asia/Pacific: +6% • Food Equipment: base revenues -4%; however, operating margins improve approximately 100 basis points in Q1 • Finishing: base
Slide 28: Share Repurchase
Share Repurchase Board of Directors Authorized Repurchase of 31 million shares or 10% of Current Outstanding Shares
Slide 29: Why Repurchase Shares?
Why Repurchase Shares? • Current excess cash balance of $1.7 billion and low debt to capital. • Future growth targets will be financed primarily by Free Cash flow. • Ample debt & equity capacity will be used for acquisitions in excess of target levels. • Interest rates are near historic lows. • Shar
Slide 30: Revenue & Income
25 Year- Revenue & Income 12000 1800 CAGR Recession Revenue 14% 1600 10000 Income/Share 13% 1400 ROIC 15% 8000 1200 Shareholder Return ------19% 1000 Revenue Income 6000 800 4000 Recession 600 400 2000 Recession 200 0 0 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 98 96 97 98 99 00 01 02 03 19 19
Slide 31: 5 Year Forecast
5 Year Forecast • Income Per Share 12% to 18% • Base revenue growth 3% to 5% • Acquisitions $600 to $1000 • Margin improvement 50 to 100 BP • Free cash financing 80% to 100%
Slide 32: Share Repurchase Plans
Share Repurchase Plans First Year Repurchase $1.7 Billion Stock Price $80 to $100/Share Shares Repurchased 17 to 21Million Future Years Remaining Authorization 10 to 14 Million Repurchase depends on future conditions
Slide 33: Share Repurchase Effect
Share Repurchase Effect Full Year Effect • Income Per Share $.16 to $.19 • Debt to Total Capital 14% • Return on Equity 16%
Slide 34: 2004 Forecast
ITW 2004 Forecast Mid Low High Point 2nd Quarter Base Revenues 4% 6% 5% Income Per Share-Diluted $1.04 $1.12 $1.08 %F(U) 2003 13% 22% 17% Full Year Base Revenues 4% 6% 5% Income Per Share-Diluted $4.06 $4.26 $4.16 %F(U) 2003 20% 26% 23%
Slide 35: 2004 Forecast Key Assumptions
ITW 2004 Forecast Key Assumptions • Exchange rates hold at current levels. • Acquired revenues in the $500 to $700 million range. • Restructuring cost of $55 to $65 million. • No further goodwill or intangible impairment cost. • Share repurchase will add 5 cents per share for the year. • Tax rate of
Slide 36: ITW Conference Call Q&A
ITW Conference Call Q&A First Quarter 2004