Illinois Tool Works Inc. · NYSE:ITW
Illinois Tool Works — Investor Day (December 2016)
78 slides from Illinois Tool Works's investor day presentation, Dec 2, 2016
Slide 1: Progress on our Path to Full Potential
Illinois Tool Works 2016 Investor Day Progress on our Path to Full Potential December 2, 2016
Slide 2: Presenters
Presenters E. SCOTT SANTI CHRISTOPHER A. O’HERLIHY DAVID C. PARRY MICHAEL M. LARSEN Chairman & CEO Vice Chairman Vice Chairman SVP & CFO 34 27 22 4 YEARS WITH ITW YEARS WITH ITW YEARS WITH ITW YEARS WITH ITW CEO SINCE VICE CHAIRMAN SINCE VICE CHAIRMAN SINCE CFO SINCE 2012 2015 2010 2013 2016 INVESTO
Slide 3: Forward-Looking Statements
Forward-Looking Statements SAFE HARBOR STATEMENT This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding the expected impact and timing of strategic initiatives and related be
Slide 4: Agenda
Agenda 1 ENTERPRISE STRATEGY UPDATE 2 FUTURE FINANCIAL PERFORMANCE AND TARGET UPDATES 3 2017 GUIDANCE 4 BREAK 5 Q&A 2016 INVESTOR DAY | 4
Slide 5: Enterprise Strategy Update
Illinois Tool Works 2016 Investor Day Enterprise Strategy Update
Slide 6: The Driver of ITW's Differentiated Performance
ITW BUSINESS MODEL The Driver of ITW’s Differentiated Performance • A set of HIGHLY POWERFUL AND PROPRIETARY business practices and capabilities • The CORE SOURCE of our COMPETITIVE ADVANTAGE • ITW’s “SECRET SAUCE” 2016 INVESTOR DAY | 6
Slide 7: 80/20 Business Management Process
ITW BUSINESS MODEL 80/20 Business Management Process • PROPRIETARY operating SYSTEM • Structure and FOCUS our businesses to UNIQUELY SATISFY the needs of our LARGEST and MOST PROFITABLE CUSTOMERS, and … • Minimize COST, COMPLEXITY and DISTRACTIONS associated with serving SMALL CUSTOMERS • Drives BES
Slide 8: Customer-Back Innovation
ITW BUSINESS MODEL Customer-Back Innovation • “Go-To” PROBLEM SOLVER for our “80” customers • We don’t invent new science, we INVENT NEW WAYS TO APPLY KNOWN SCIENCE • LOWER COST, LOWER RISK, HIGHER VELOCITY 80 • Has fueled DECADES OF PROFITABLE GROWTH at ITW • Portfolio of 16,000 PATENTS 2016 INVEST
Slide 9: Decentralized, Entrepreneurial Culture
ITW BUSINESS MODEL Decentralized, Entrepreneurial Culture • The engine that translates ITW’s STRATEGY INTO RESULTS • Our people thrive in ITW’s “FLEXIBILITY WITHIN OUR FRAMEWORK” culture: Our Framework: • ITW Business Model • ITW’s Enterprise Strategy • ITW Values • We think and act like ENTREPRENEU
Slide 10: Enterprise Strategy Update: 1985 to 2012
ENTERPRISE STRATEGY UPDATE 1985 to 2012 REVENUE GROWTH MARKET CAPITALIZATION Development of Acquisition 2007-2012: $29B $18B 80/20 as driven growth Sustaining $23B ITW’s strategy takes differentiated proprietary root and performance management accelerates over becoming process begins the period incr
Slide 11: 2010 to 2012: Running Out of Gas?
ENTERPRISE STRATEGY 2010 to 2012: UPDATE Senior Management Team Evaluates ITW’s Strategy and Performance What would it take to deliver Was the ITW Business Model BEST-IN-CLASS RUNNING OUT PERFORMANCE OF GAS? at the TOTAL ENTERPRISE LEVEL? Numerous individual NO ITW businesses were Answering that que
Slide 12: Drivers of ITW's Change in Strategy
ENTERPRISE STRATEGY UPDATE Drivers of ITW’s Change in Strategy Changes in the INTERNAL AND EXTERNAL environment drives the need to CHANGE OUR STRATEGY as to how we are applying the ITW BUSINESS MODEL: Increasing Increasingly GLOBAL ACQUISITION- COMPLEXITY / and DRIVEN GROWTH FRAGMENTATION COMPETITIV
Slide 13: ITW's Enterprise Strategy
ENTERPRISE STRATEGY UPDATE ITW’s Enterprise Strategy 1 2 3 4 NARROW THE SIMPLIFY AND BETTER LEVERAGE SHIFT PRIMARY FOCUS AND SCALE-UP ITW’S ITW’S SCALE TO GROWTH FOCUS IMPROVE THE OPERATING IMPROVE GLOBAL From acquisition QUALITY OF ITW’S STRUCTURE COMPETITIVENESS to organic BUSINESS Business Struct
Slide 14: Enterprise Strategy Performance
ENTERPRISE STRATEGY UPDATE Enterprise Strategy Performance We have essentially ACHIEVED OUR 2017 PERFORMANCE GOALS with more work to do to SUSTAIN ORGANIC GROWTH ACCELERATION OPERATING MARGIN AFTER-TAX ROIC ORGANIC GROWTH ~23%** 23%+ (excl. EF&C) ~22% 20%+ 15.9% 14.5% ~200 200 bps bps Above Above pe
Slide 15: Is ITW Getting Close to Maxing-Out our Current Strategy?
ENTERPRISE STRATEGY UPDATE Is ITW Getting Close to “Maxing-Out” our Current Strategy? We have And the fact that our significant opportunity Despite our performance is nearing for further improvement CONSIDERABLE “BEST-IN-CLASS” before ITW is PROGRESS LEVELS operating at its FULL POTENTIAL 2 0 1 6 I
Slide 16: Significant Opportunity Remains
ENTERPRISE STRATEGY UPDATE Significant Opportunity Remains 1 2 SUSTAINED ADDITIONAL ABOVE-MARKET STRUCTURAL ORGANIC MARGIN GROWTH WITH IMPROVEMENT STRONG POTENTIAL INCREMENTAL PROFITABILITY 2 0 1 6 I N V E S T O R D A Y | 16
Slide 17: Additional Structural Margin Improvement Potential
Illinois Tool Works 2016 Investor Day Additional Structural Margin Improvement Potential - 80/20 Performance Improvement - Strategic Sourcing
Slide 18: The 80/20 Management Process at ITW
80/20 MANAGEMENT PROCESS The 80/20 Management Process at ITW A UNIQUE and PROPRIETARY methodology used as the CORE operating framework in all ITW Divisions TRUE 80/20 IS A HOLISTIC BUSINESS RE-DESIGN PROCESS – Improves the whole business – Complete set of interconnected tools – Heavily data driven –
Slide 19: What Makes 80/20 Unique and Powerful?
80/20 MANAGEMENT PROCESS What Makes 80/20 Unique and Powerful? Our FOCUS on the “80” creates For For COMPETITIVE “80” PRODUCTS, “80” CUSTOMERS, ADVANTAGE we implement proprietary we deploy targeted resources over more traditional ITW Management to deliver superior added- Techniques value approaches
Slide 20: Enterprise Strategy Impact on 80/20 Performance
80/20 MANAGEMENT PROCESS Enterprise Strategy Impact on 80/20 Performance Execution of the Enterprise Results in step-change Strategy has raised the bar improvement in the on the MARGIN PERFORMANCE PERFORMANCE POWER POTENTIAL of our 80/20 of ITW’s 80/20 Management Process Management Process 2 0 1 6 I
Slide 21: Step Change in Margin Improvement Potential
80/20 MANAGEMENT PROCESS Step Change in Margin Improvement Potential In 2012, Operating Margins Today, “average” averaged at ITW = 23% 16% and 20%+ OPERATING margins were MARGIN considered “Best-in-Class” 2 0 1 6 I N V E S T O R D A Y | 21
Slide 22: Increase in Performance Potential of 80/20
80/20 MANAGEMENT PROCESS Increase in Performance Potential of 80/20 THREE KEY DRIVERS Portfolio Business Completely Quality Structure Re-designed Improvement Simplification 80/20 Application Methodology 2 0 1 6 I N V E S T O R D A Y | 22
Slide 23: Portfolio Quality Improvement
80/20 MANAGEMENT PROCESS Portfolio Quality Improvement The portfolio initiative “stacked Key criteria: the deck” by providing us with a SUSTAINABLE HIGHER QUALITY DIFFERENTIATION OF ASSETS is a must have and therefore better “raw material” to leverage 80/20 2 0 1 6 I N V E S T O R D A Y | 23
Slide 24: Business Structure Simplification
80/20 MANAGEMENT PROCESS Business Structure Simplification Scaled up Divisional structure created • Larger and more targeted opportunities to Business Structure Simplification implement holistic 80/20 was a big ENABLER • Higher caliber of ITW Leader to drive implementation • Easier to clarify expe
Slide 25: Implemented Re-Designed 80/20 Management Process
80/20 MANAGEMENT PROCESS Implemented Re-Designed 80/20 Management Process RE-DESIGNED and STANDARDIZED the entire process utilizing the BEST APPROACHES AND TECHNIQUES from across the company 2 0 1 6 I N V E S T O R D A Y | 25
Slide 26: Increase in Performance Potential of 80/20
80/20 MANAGEMENT PROCESS Increase in Performance Potential of 80/20 STEP CHANGE ONGOING SUSTAINABLE IMPROVEMENT IMPROVEMENT in Margin Improvement Potential: in Operating Margin: • Improved Portfolio Quality • Start of Enterprise Strategy: Avg = 16% • Business Structure Simplification • Current: Avg
Slide 27: Strategic Sourcing
Illinois Tool Works 2016 Investor Day Strategic Sourcing
Slide 28: Established Strategic Sourcing as a Core Capability
STRATEGIC SOURCING Established Strategic Sourcing as a Core Capability SAVINGS AS A % OF TOTAL SPEND 1.5% 1.3% 1%+ 0.8% Consistently exceeding our goal of 1% average reduction in spend per year Real SAVINGS, not “deferred increases” or “cost avoidance” 2013 2014 2015 2016E 2 0 1 6 I N V E S T O
Slide 29: Sourcing is a Core Element of ITW's Operational Excellence
STRATEGIC SOURCING Sourcing is a Core Element of ITW’s Operational Excellence Built a fit-for-purpose, Expect to achieve effective and well- A savings of integrated sourcing 80/20 SUSTAINABLE ~1% AVERAGE organization at both the enabled enterprise-wide REDUCTION ENTERPRISE and capability in spend/ye
Slide 30: Sustained Above-Market Organic Growth
Illinois Tool Works 2016 Investor Day Sustained Above-Market Organic Growth
Slide 31: Organic Growth Framework
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Organic Growth Framework OBJECTIVE: 1 PREPARE TO GROW Achieve ABOVE- 2 FOCUS ON BEST OPPORTUNITIES MARKET high quality ORGANIC “80” products/customers/end-markets and customer-back innovation opportunities GROWTH through the 3 EXECUTE ITW’s GROWTH LEVERS impleme
Slide 32: Prepare to Grow
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Prepare to Grow “READY TO GROW” STATUS • A CRITICAL PREPARATORY STEP is to be “READY TO GROW” … we optimize the existing division before growing it • Using this process, we ensure that each of our businesses ~85% are SIMPLIFIED, OPERATIONALLY SOLID, FINANCIALLY
Slide 33: Final Stages of our Portfolio Repositioning Efforts
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Final Stages of our Portfolio Repositioning Efforts PRODUCT LINE SIMPLIFICATION (PLS) IMPACT • PLS is a KEY PART of our overall Enterprise ~1% ~1% ~1% Portfolio Strategy • We ensure that our divisions have a simplified and focused product offering which is “READ
Slide 34: Organic Growth Framework: The Opportunity
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Organic Growth Framework The OPPORTUNITY Continue Investment in Strengthen CUSTOMER-BACK INNOVATION FOCUS ON MARKET PENETRATION A strength for many years 2 0 1 6 I N V E S T O R D A Y | 34
Slide 35: Customer-Back Innovation
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Customer-Back Innovation TARGET: SERIAL CUSTOMER-BACK Has fueled Sustain CURRENT INNOVATION DECADES OF level of innovation focused on PROFITABLE execution / productivity “80” CUSTOMERS GROWTH and END MARKETS at ITW Continued 1%+ ANNUAL CONTRIBUTION to Above-Mark
Slide 36: Market Penetration
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Market Penetration “80” Products to New “80” Customers “80” “80” Customers CUSTOMERS 25% Aggressively target Leverage proven competitive opportunities to fully leverage advantages in highly Significant opportunity to the considerable share gain differentiated pr
Slide 37: Leverage 80/20 to Deliver Best-in-Class Customer Facing Performance
SUSTAINED ABOVE-MARKET Leverage 80/20 Management Process to Deliver ORGANIC GROWTH Best-in-Class Customer Facing Performance On an ENTERPRISE WIDE basis, we have SERVICE and QUALITY 80/20 is also about excellence underappreciated the significant excellence are a natural “WHERE THE role that this com
Slide 38: Progress
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Progress Articulated ORGANIC GROWTH FOCUS and growth goals with mission clarity across the whole enterprise Completed major PORTFOLIO RESHAPING to align with organic growth focus Significant effort to PREPARE DIVISIONS (post-BSS) for growth ─ 80/20 enabled
Slide 39: Sustained Above-Market Organic Growth
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Sustained Above-Market Organic Growth 0.5%+ New “80” Customer 1%+ Development “80” Customer Penetration 2.5%+ Above 1%+ Market Potential Customer- Back Innovation Market Market Growth Rate Growth Rate CLEAR PATH TO SUSTAINED ABOVE-MARKET ORGANIC GROWTH 2 0 1 6 I
Slide 40: High Quality/Diversified Business Portfolio
Illinois Tool Works 2016 Investor Day High Quality/Diversified Business Portfolio
Slide 41: Portfolio Management
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Portfolio Management OBJECTIVE: Construct and maintain a business portfolio capable of delivering sustainable organic growth of 200+ bps above market • Markets with strong SUSTAINABLE A HIGHLY DIFFERENTIATION attributes DIFFERENTIATED • Positive long-term MACRO
Slide 42: Business Portfolio Quality
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Business Portfolio Quality High quality business portfolio with significant organic growth potential to deliver on ENTERPRISE ORGANIC GROWTH TARGET of 2%-pts. or MORE ABOVE MARKET Test & Automotive Food Polymers Construction Specialty Measurement Welding OEM Equ
Slide 43: Business Portfolio Quality
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Business Portfolio Quality LEVERAGING THE BUSINESS MODEL to generate best-in-class operating margin and return on capital performance Test & Automotive Food Polymers & Construction Specialty Measurement Welding OEM Equipment Fluids Products Products Electronics
Slide 44: ITW Automotive OEM
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Automotive OEM MARKET POSITION $2.8B ~24% ~4.5% Highly focused global niche supplier of solutions to top tier 2016E 2016E ORGANIC OEMs, providing unique innovation to address pain points REVENUES OPERATING REVENUE for sophisticated customers with complex pro
Slide 45: ITW Automotive OEM Key Growth Drivers
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Automotive OEM Key Growth Drivers GROWTH DRIVERS ORGANIC GROWTH POTENTIAL: +3-4% Above Market MARKET PENETRATION • ~$35/car current global penetration vs. ~$230/car potential • Expansion into top tier Chinese OEMs CUSTOMER BACK INNOVATION +400 bps • Fuel Eff
Slide 46: ITW Welding
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Welding MARKET POSITION $1.5B ~25% ~(9)% Highly focused supplier of value-added welding equipment and specialty consumables for a variety of 2016E 2016E ORGANIC commercial, industrial and infrastructure applications REVENUES OPERATING REVENUE MARGIN 2016E KE
Slide 47: Welding Key Growth Drivers
SUSTAINED ABOVE-MARKET ORGANIC GROWTH Welding Key Growth Drivers GROWTH DRIVERS ORGANIC GROWTH POTENTIAL: 2-3% Above Market MARKET PENETRATION • Segment specific solutions that deliver improved weld productivity, quality and compliance • Industrial Capex recovery • Oil & Gas recovery CUSTOMER BACK I
Slide 48: ITW Construction Products
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Construction Products MARKET POSITION $1.6B ~22% ~2.5% 2016E 2016E ORGANIC Global provider of innovative fastening solutions that REVENUES OPERATING REVENUE improve contractor productivity and building quality in MARGIN 2016E residential, commercial and reno
Slide 49: ITW Construction Products Key Growth Drivers
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Construction Products Key Growth Drivers GROWTH DRIVERS ORGANIC GROWTH POTENTIAL: +1-2% Above Market MARKET PENETRATION • Continued pneumatic to cordless conversion • Additional growth potential with key “big-box” channel partners • Unique concrete flooring
Slide 50: ITW Food Equipment
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Food Equipment MARKET POSITION $2.1B ~26% ~3% Leading global supplier of innovative food equipment 2016E 2016E ORGANIC and service solutions for the Commercial Food Service REVENUES OPERATING REVENUE and Food Retail Industry MARGIN 2016E KEY COMPETITIVE ADVA
Slide 51: ITW Food Equipment Key Growth Drivers
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Food Equipment Key Growth Drivers GROWTH DRIVERS ORGANIC GROWTH POTENTIAL: +2-3% Above Market MARKET PENETRATION • Current global equipment share in “80” product categories is ~15% • Service coverage of ITW equipment installed base is ~25% CUSTOMER BACK INNO
Slide 52: ITW Polymers & Fluids
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Polymers & Fluids MARKET POSITION $1.7B ~20% ~1% Specialized adhesives, lubricants and additives for industrial and consumer-related end-markets 2016E 2016E ORGANIC REVENUES OPERATING REVENUE MARGIN 2016E KEY COMPETITIVE ADVANTAGES • Innovative technologies
Slide 53: ITW Polymers & Fluids Key Growth Drivers
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Polymers & Fluids Key Growth Drivers GROWTH DRIVERS ORGANIC GROWTH POTENTIAL: +1-2% Above Market MARKET PENETRATION • Significant share gain opportunities for adhesives and lubricants with existing customers • Recently launched products driving market share
Slide 54: ITW Test and Measurement / Electronics
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Test and Measurement / Electronics MARKET POSITION $2.0B ~19% ~2% Leading global supplier of 2016E 2016E ORGANIC production and laboratory testing and assembly REVENUES OPERATING REVENUE equipment, accessories, consumables, and MARGIN 2016E aftermarket parts
Slide 55: ITW Test and Measurement / Electronics Key Growth Drivers
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Test and Measurement / Electronics Key Growth Drivers GROWTH DRIVERS ORGANIC GROWTH POTENTIAL: +2-3% Above Market MARKET PENETRATION • Significant share gain opportunity with existing customer base • Service and spare parts growth from large installed base o
Slide 56: ITW Specialty Products
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Specialty Products MARKET POSITION $1.9B ~26% ~1% Supplier of innovative value-added solutions for a variety of consumer packaging, product branding and other niche 2016E 2016E ORGANIC applications REVENUES OPERATING REVENUE MARGIN 2016E KEY COMPETITIVE ADVA
Slide 57: ITW Specialty Products Key Growth Drivers
SUSTAINED ABOVE-MARKET ORGANIC GROWTH ITW Specialty Products Key Growth Drivers GROWTH DRIVERS ORGANIC GROWTH POTENTIAL: +1-2% Above Market MARKET PENETRATION • Significant additional share gain potential with existing “80” customers • Major growth potential through new “80” customer development +40
Slide 58: Future Financial Performance and Target Updates
Illinois Tool Works 2016 Investor Day Future Financial Performance and Target Updates
Slide 59: Enterprise Strategy Performance 2012 - 2016
FUTURE FINANCIAL PERFORMANCE Enterprise Strategy Performance 2012 - 2016 OPERATING MARGIN AFTER-TAX ROIC GAAP EPS +710 +750 15% bps bps CAGR 22.5%+ ~22% $5.61 ~23% Mid-point Excl. EF&C 15.9% 14.5% $3.21 2012* 2016E 2012** 2016E 2012** 2016E *As reported in the 2012 Form 10-K **See appendix for the G
Slide 60: Total Shareholder Return (TSR) Performance 2012 - 2016
FUTURE FINANCIAL PERFORMANCE Total Shareholder Return (TSR) Performance 2012 - 2016 127% 65% 70% Peer Group S&P 500 Average* TSR is calculated from 12/14/2012 (launch of Enterprise Strategy) to 11/28/2016 *See Appendix for peer group definition 2 0 1 6 I N V E S T O R D A Y | 60
Slide 61: 2016 Guidance Reaffirmed
FUTURE FINANCIAL PERFORMANCE 2016 Guidance Reaffirmed 2016 GUIDANCE • 9% GAAP EPS growth at mid-point $5.56 to $5.66 • 1 to 2% organic growth incl. ~1% PLS impact GAAP EPS $5.13 • 22.5%+ operating margin … 100+ bps of margin expansion from Enterprise Initiatives $13.6B REVENUE $13.4B • Record operat
Slide 62: 12-14% Total Shareholder Returns over the Long Term
FUTURE FINANCIAL PERFORMANCE 12-14% Total Shareholder Returns over the Long Term ~5% 10-12% 12-14% ORGANIC 9-10% Total +200 bps Earnings Per ~35% Operating +1-2% +~2% Shareholder INCREMENTAL Income SHARE Share DIVIDEND Returns REPURCHASE/ Market MARGINS ACQUISITIONS YIELD THROUGH THE EXECUTION OF OU
Slide 63: Market Growth Rate Implications
FUTURE FINANCIAL PERFORMANCE Market Growth Rate Implications 12-14% TOTAL 10-12% SHAREHOLDER TOTAL RETURNS SHAREHOLDER 8-10% Operating Income RETURNS TOTAL SHAREHOLDER +200 bps RETURNS +200 bps +200 bps 3% Market 2% Market 1% Market 5% organic 4% organic 3% organic WELL POSITIONED FOR CONSISTENT OUT
Slide 64: Disciplined Capital Allocation Framework
FUTURE FINANCIAL PERFORMANCE Disciplined Capital Allocation Framework PRIORITIES % OF OPERATING CASH FLOW 1 INTERNAL INVESTMENTS to support organic growth and 25-30% sustain core businesses 2 An ATTRACTIVE DIVIDEND 30-35% 3 EXTERNAL INVESTMENTS: Focused on acquisitions that 40-45% expand long-term o
Slide 65: ITW Dividend Contributes 2%+ to Total Shareholder Returns
FUTURE FINANCIAL PERFORMANCE ITW Dividend Contributes 2%+ to Total Shareholder Returns Committed to RETURNING A MEANINGFUL PERCENTAGE of ITW cash flows to shareholders through an ATTRACTIVE DIVIDEND that grows in line with earnings over time ANNUALIZED DIVIDEND PER SHARE 14% $2.60 CAGR $2.20 ~2.1% $
Slide 66: Only Acquisitions That Expand ITW's Long-Term Organic Growth Potential
FUTURE FINANCIAL PERFORMANCE Only Acquisitions That Expand ITW’s Long-Term Organic Growth Potential EF&C EXAMPLE ~20% OPERATING MARGIN 1 TIGHT STRATEGIC FIT: Only acquisitions that expand ITW’s long term organic ~10% growth potential OPERATING $575M+ MARGIN AND … ~$485M* Revenue 2 80/20 IMPACT: Pote
Slide 67: Consistent Share Repurchases Contribute to TSR
FUTURE FINANCIAL PERFORMANCE Consistent Share Repurchases Contribute to TSR SHARE REPURCHASES 2013 - 2016 • $10B+ of “Surplus Capital” including divestiture proceeds and overseas cash allocated to share $4.3B repurchases • ITW share count reduced by 26% ... $86 average $2.1B $3.2B $2B $2B purchase p
Slide 68: Moving Forward: Continued Progress on our Path to Full Potential
Illinois Tool Works 2016 Investor Day Moving Forward: Continued Progress on our Path to Full Potential
Slide 69: 25%+ Operating Margin Exiting 2018
FUTURE FINANCIAL PERFORMANCE 25%+ Operating Margin Exiting 2018 ITW’s NEW ENTERPRISE STRATEGY OPERATING MARGIN TARGET IS 25%+ 25%+ 20%+ 200+ bps 12-14% OPERATING MARGIN AFTER-TAX ROIC ORGANIC REVENUE TOTAL GROWTH ABOVE- SHAREHOLDER MARKET RETURNS EXITING 2018 CLEAR LINE OF SIGHT TO AT LEAST 200 BASI
Slide 70: Sustained Above-Market Organic Growth with Strong Incremental Profitability
FUTURE FINANCIAL PERFORMANCE Sustained Above-Market Organic Growth with Strong Incremental Profitability ~50% Variable Margin* Operating Income • Expect ~35% CORE INCREMENTAL PROFITABILITY on every dollar of ~15% organic growth reinvestment • That rate INCORPORATES ~30% REINVESTMENT of gross cash fl
Slide 71: 2017 Guidance
Illinois Tool Works 2016 Investor Day 2017 Guidance
Slide 72: Organic Growth is Accelerating
2017 GUIDANCE Organic Growth is Accelerating ORGANIC GROWTH 85% Ready to Grow 60% Ready to Grow 1.5 to 1 to 2% 3.5% Peer Group Avg. 2015 2016 YTD* ~(0.5)% 2016E 2017E (1)% *See Appendix for peer group definition EXPECT ~100 BASIS POINT IMPROVEMENT IN 2017 ORGANIC GROWTH RATE 2 0 1 6 I N V E S T O R
Slide 73: Solid/Reliable Above Market Organic Growth
2017 GUIDANCE Solid/Reliable Above Market Organic Growth 2016 to 2017 ORGANIC GROWTH +0.5 to 1% (1)% +0.5 to 1% 1.5 to 3.5% Welding stable Lower Auto +0.5% Builds Accelerating Pivot to Growth 1 to 2% Lower PLS Organic Growth Organic Growth Incl. ~0.5% PLS Incl. ~1% PLS 2016E 2017E CLEAR PATH TO 2017
Slide 74: ITW is Well Positioned for Another Year of Outperformance
2017 GUIDANCE ITW is Well Positioned for Another Year of Outperformance 2017 GUIDANCE • 9% GAAP EPS growth at mid-point $6.00 to $6.20 • 1.5 to 3.5% organic growth incl. 0.5% PLS GAAP EPS $5.56 to $5.66 • 23.5%+ OPERATING MARGIN … ~100 bps of margin expansion from $13.8 - Enterprise Initiatives REVE
Slide 75: 15 Minute Break
Illinois Tool Works 2016 Investor Day 15 Minute Break
Slide 76: Q&A
Illinois Tool Works 2016 Investor Day Q&A
Slide 77: Appendix
Illinois Tool Works 2016 Investor Day Appendix
Slide 78: GAAP to Non-GAAP Reconciliations and Peer Group Definitions
Appendix GAAP to Non-GAAP Reconciliations and Peer Group Definitions Adjusted Return on Average Invested Capital For the Years Ended Diluted EPS For the Year Dollars in millions December 31, Ended December 31, 2012 2012 2015 As reported $ 4.72 Operating income, as reported $ 2,475 $ 2,867 Decorative