Illinois Tool Works Inc. · NYSE:ITW
Illinois Tool Works — Investor Day (December 2014)
26 slides from Illinois Tool Works's investor day presentation, Dec 5, 2014
Slide 1: 2014 ITW Investor Day
2014 ITW Investor Day E. Scott Santi, President & CEO David C. Parry, Vice Chairman Michael M. Larsen, Senior Vice President & CFO New York, December 5, 2014 Forward Looking Statements Safe Harbor Statement This meeting contains forward-looking statements within the meaning of the Private Securities
Slide 2: Presenters and Agenda
Presenters E. SCOTT SANTI DAVID C. PARRY MICHAEL M. LARSEN President & Chief Executive Officer Vice Chairman Senior Vice President & CFO 32 20 2 YEARS WITH ITW YEARS WITH ITW YEARS WITH ITW NAMED PRESIDENT & CEO IN NAMED VICE CHAIRMAN IN NAMED SVP & CFO IN 2012 2010 2013 3 Agenda 1 ITW’S ENTERPRISE
Slide 3: ITW's Enterprise Strategy
ITW’s Enterprise Strategy Best-in-Class Operator 6 3
Slide 4: The Core Concept and Updated Long-Term Performance Targets
The Core Concept Refocus the entire company to deliver on the compelling performance potential from ITW’s unique and highly differentiated business model BUSINESS MODEL Decentralized 80/20 Business Customer-Back Entrepreneurial Process Innovation Culture 7 Updated Long-Term Performance Targets This
Slide 5: ITW's Differentiated Business Model
ITW’s Differentiated Business Model ITW’s Business Model is the Core Source of Value Creation • Radically simplify and focus on high value items (the “80”) World-class 80/20 Business • Apply to the whole business (not just manufacturing) margins and returns and Process • Unique to ITW, deeply embedd
Slide 6: 80/20 Business Process
80/20 Business Process Core 80/20 principle: Complexity blurs focus and drives overhead costs 20% Customers, Products, the 80/20 structures and Processes “80” Conversely … focuses our businesses to uniquely satisfy the 80% … we handle less critical needs of our largest Revenue & customers/products/
Slide 7: 80/20 Financial Impact and the Power of 80/20
80/20 Financial Impact 80/20 is about driving total cost productivity … by focusing on customers, products, and processes that are best positioned for profitable, organic growth and mobilizing the organization to intensely focus on those opportunities Revenue Revenue Revenue Overhead Overhead Costs
Slide 8: Customer-Back Innovation
Customer-Back Innovation Key tenets of ITW’s approach to innovation 1 2 3 4 FOCUSED ON SOLVING FROM THE LOWER RISK, PATENTS “80” CUSTOMER HIGHER AND TRADE SECRETS CUSTOMER PAIN POINTS BACK, VELOCITY SUPPORT ITW’S NOT FROM THE COMPETITIVE EDGE Inventing solutions “Serial” innovation … COMPANY OUT for
Slide 9: ITW's Patent Portfolio and Decentralized Entrepreneurial Culture
ITW’s Patent Portfolio Protecting our customer-back innovation with an active patent portfolio 10,460 5,604 1,370 1,254 GRANTED PENDING NEW PATENT ITW PATENTS PATENT APPLICATIONS PATENT APPLICATIONS YTD 2014 SOCIETY MEMBERS 17 Decentralized Entrepreneurial Culture: One Enterprise / One Team … An int
Slide 10: Refocusing ITW (2013 – 2017)
At ITW, Culture Drives Performance ● ITW’s culture is one of “GETTING THINGS DONE!” – Long track record of operational excellence ● ITW’s decentralized entrepreneurial culture is one of the 3 CORE COMPONENTS of our unique and highly differentiated business model ● Quality of Enterprise Strategy exec
Slide 11: Enterprise Initiatives Update
Enterprise Initiatives Update • ~30 divestitures (~$5B of sales) since 2011 Ongoing division level product • “Heavy lifting” is done … continue to Portfolio This image cannot currently be monitor portfolio for risk of commoditization line & customer simplification creates ~100 bps drag on display ed
Slide 12: Growth (2015 and Beyond) and Organic Revenue Growth Framework
Organic Growth Growth (2015 and Beyond) Acquisitions ITW Organic Revenue Growth Framework 200 bps of organic revenue growth above global GDP beyond 2017 Organic Revenue Growth Rate and Path to Enterprise Target ~5% TARGET ~1% ITW Organic ~200 bps ~3.5% ~1% Revenue Growth ~50 bps 3% Assuming 3% Globa
Slide 13: ITW's Enterprise Strategy Growth Agenda
ITW’s Enterprise Strategy Growth Agenda Organic revenue growth is a key driver of financial performance. Targeting ~5% organic growth in a ~3% global GDP environment. PORTFOLIO QUALITY … every one of our segments is differentiated by: Favorable market attributes Focused strategic position Sust
Slide 14: ITW Welding and Food Equipment
ITW Welding FAVORABLE MARKET ATTRIBUTES GROWTH DRIVERS $20B global market of which about $10B is differentiated; Regulations drive innovation growing faster than global GDP due to infrastructure in the welding environment investment, emerging markets, and global investments in Demographics resul
Slide 15: ITW Test & Measurement and Electronics; Construction Products
ITW Test & Measurement and Electronics FAVORABLE MARKET ATTRIBUTES GROWTH DRIVERS • Significant opportunity in ~$5B addressable test and Test and Measurement: measurement space, largely for structural/mechanical quality Higher global quality standards, particularly in assurance emerging markets, r
Slide 16: ITW Polymers & Fluids; Specialty Products
ITW Polymers & Fluids FAVORABLE MARKET ATTRIBUTES GROWTH DRIVERS $30B+ market growing in-line with global GDP over time Significant positions in growth areas like wind energy, op. margin OEM’s tire repair kits, and +250 STRATEGIC POSITION/COMPETITIVE ADVANTAGES bps wiper blades Highly branded segm
Slide 17: Management Focus on Organic Revenue Growth
Management Focus on Organic Revenue Growth ●All of ITW’s division leaders and above are INCENTIVIZED on organic revenue growth ●Shifting management focus from 30 to 40 acquisitions annually to ORGANIC REVENUE GROWTH ●BSS better leverages 80/20 and our unique CUSTOMER- BACK INNOVATION FROM – 80/20 fo
Slide 18: The Role of Acquisitions
The Role of Acquisitions Current portfolio has everything we need to achieve our performance goals But, HIGHLY TARGETED acquisitions have a role to play in supplementing ITW’s GROWTH STRATEGY BOLT-ON acquisitions to support and accelerate organic revenue growth in a core segment NEW PLATFORM devel
Slide 19: New Platform Development
New Platform Development Current portfolio has all the potential PROVEN DEVELOPMENT PROCESS we need to achieve our performance • Attractive end market fundamentals with sustainable differentiation attributes goals … ̶ Potential / multiple paths to build $1B+ position over time • A piece at a time, n
Slide 20: Sustainable Financial Performance: Financial Highlights
Sustainable Financial Performance Financial Highlights ● STRONG 2014 RESULTS in year 2 of ITW’s 5-year Enterprise Strategy … PORTFOLIO WELL POSITIONED FOR ORGANIC REVENUE GROWTH ● Expect another strong 2015 … EPS $5.15 to $5.35, +12% to 16% OVER 2014E ● ON TRACK TO DELIVER ON UPDATED 2017 ENTERPRISE
Slide 21: Reaffirming 2014 Outlook
Reaffirming 2014 Outlook Strong progress in year 2 of ITW’s 5-year Enterprise Strategy • ~2.5% organic revenue growth after -1% drag from +27% EPS product line simplification $4.57 - $4.65 EPS $3.63 • ~20% operating margin … enterprise initiatives ~$14.5B contribute ~120 basis points Total Revenue $
Slide 22: 2015 Guidance and 2017 Enterprise Goals
2015 Guidance: EPS $5.15 to $5.35, up 12% to 16% • 2.5% to 3.5% organic revenue growth, includes -1% +14% EPS drag from product line simplification • Total revenue of 0.5% to 1.5%, includes -2% impact EPS $4.57 - $4.65 $5.15 - $5.35 from foreign currency translation at the current rates 2.5-3.5% org
Slide 23: Disciplined Capital Allocation Aligned with Enterprise Strategy
Disciplined Capital Allocation Aligned with Enterprise Strategy PRIORITIES 2015 FRAMEWORK 1 • Investments that support organic revenue • Expect to return ~$2B to shareholders growth and profitability … ~5% of sales • ~$1.5B share buyback • Cap Ex, customer-back innovation, restructuring • Dividend g
Slide 24: 15-Minute Break, Question and Answer
15-Minute Break Question and Answer 24
Slide 25: Appendix: ITW Definitions
Appendix ITW Definitions Peer Group Weighted Average Peer Group Operating Margin • Peer group data (3Q14 YTD) is from S&P Capital IQ as of November 6, 2014, and includes Welding: Colfax (Fabrication Technology segment), Lincoln; Food Equipment: Middleby, Dover (Refrigeration & Food Equipment segment
Slide 26: ITW Definitions and ROIC Reconciliation
ITW Definitions Free Operating Cash Flow The Company uses free operating cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. The Company believes this non-GAAP financial measure is useful to investors in evaluati