Illinois Tool Works Inc. · NYSE:ITW
Illinois Tool Works — Q3 2006 Earnings Presentation
29 slides from Illinois Tool Works's earnings presentation, Oct 18, 2006
Slide 1: ITW Conference Call Third Quarter 2006
Exhibit 99.2 ITW Conference Call Third Quarter 2006
Slide 2: Agenda
ITW Agenda 1. Introduction…………………….. John Brooklier 2. Financial Overview……………... Ron Kropp 3. Manufacturing Segments……… John Brooklier 4. Forecast 2006………………….… Ron Kropp 5. Q & A………………......……………John Brooklier/Ron Kropp
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, base revenue growth, earnings growth, operating income, tax
Slide 4: Conference Call Playback
Conference Call Playback Replay number: 402-220-9741 No pass code necessary Telephone replay available through midnight of November 1, 2006 Webcast / PowerPoint replay available at itw.com website
Slide 5: Quarterly Highlights
ITW Quarterly Highlights 2005 2006 F(U) Last Year Q3 Q3 Amount % Operating Revenues 3,200.2 3,538.0 337.8 10.6% Operating Income 565.2 626.9 61.7 10.9% % of Revenues 17.7% 17.7% 0.0% Net Income Income Amount 408.2 446.1 37.9 9.3% Income Per Share-Diluted 0.72 0.78 0.06 8.3% Average Invested Capital
Slide 6: Quarterly Operating Analysis
ITW Quarterly Operating Analysis % F(U) Prior Year Operating Operating Operating Revenues Income Margins Base Manufacturing Business Operating Leverage 2.4% 5.5% 0.5% Nonvolume-related - -0.5% -0.1% Total 2.4% 5.0% 0.4% Acquisitions / Divestitures 7.5% 2.4% -0.9% Translation 1.6% 1.1% - Impairment -
Slide 7: Non Operating & Taxes
ITW Non Operating & Taxes 2005 2006 F(U) Last Year Q3 Q3 Amount % Operating Income 565.2 626.9 61.7 10.9% Interest Expense (20.5) (20.8) (0.3) Investment Income 56.3 28.2 (28.1) Other Income(Expense) (0.8) 7.6 8.4 Net Income-P/T 600.2 641.9 41.7 6.9% Income Taxes 192.0 195.8 (3.8) % to Pre Tax Incom
Slide 8: Invested Capital
ITW Invested Capital 9/30/05 6/30/06 9/30/06 Trade Receivables 2,168.6 2,374.2 2,369.7 Days Sales Outstanding 61.0 59.7 60.3 Inventories 1,229.7 1,370.0 1,444.6 Months on Hand 1.8 1.8 1.9 Other Current Assets 303.2 612.9 659.6 Accounts Payable & Accruals (1,641.8) (1,880.4) (1,919.0) Operating Worki
Slide 9: Debt & Equity
ITW Debt & Equity 9/30/05 6/30/06 9/30/06 Total Capital Short Term Debt 378.6 91.7 524.6 Long Term Debt 965.5 960.2 964.3 Total Debt 1,344.1 1,051.9 1,488.9 Stockholders' Equity 7,281.1 8,593.9 8,711.2 Total Capital 8,625.2 9,645.8 10,200.1 Less: Cash (351.3) (459.2) (617.9) Net Debt & Equity 8,273.
Slide 10: Cash Flow
ITW Cash Flow 2005 2006 Q3 Q3 Net Income 408.2 446.1 Adjust for Non-Cash Items 119.5 137.1 Changes in Operating Assets & Liabilities 31.6 (18.7) Net Cash From Operating Activities 559.3 564.5 Additions to Plant & Equipment (71.3) (77.8) Free Operating Cash Flow 488.0 486.7 Share Repurchases (469.1)
Slide 11: Return on Average Invested Capital
ITW Return on Average Invested Capital 2005 2006 F(U) Current Quarter Q3 Q3 Prior Yr. Operating Income after Taxes 384.3 435.7 51.4 Operating Margins - A/T 12.0% 12.3% 0.3% Average Invested Capital 8,253.2 9,384.4 (1,131.2) Capital Turnover 1.55 1.51 (0.04) Return on Average Invested Capital 18.6% 1
Slide 12: Acquisitions
ITW Acquisitions 2005 2006 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Annual Revenues Acquired 151 36 105 292 353 154 388 Purchase Price Net Cash Paid 188 12 113 314 199 82 447 Stock Issued - - - - 163 - - Total 188 12 113 314 362 82 447 Number of Acquisitions North America Engineered Products 1 1 5 4 2 4 5 Specialty Sys
Slide 13: Key Economic Data
Key Economic Data • Reverse of trends from prior quarters: In Q3, international growth trended up; North American growth moderated • International fundamentals support growth – Euro-Zone ISM: 56.6% in September ’06 vs. 56.6% August ’06 – EuroZone industrial production: +3.3% in July – Germany indust
Slide 14: Engineered Products - North America
ITW Engineered Products - North America 2005 2006 F(U) Last Year Q3 Q3 Amount % Operating Revenues 959.6 1,029.5 69.9 7.3% Operating Income 180.9 181.4 0.5 0.3% Operating Margins 18.9% 17.6% -1.3%
Slide 15: Engineered Products - North America Quarterly Analysis
Engineered Products - North America Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenues Income Margins Base Business Operating Leverage -1.9% -4.0% -0.4% Nonvolume-related - 1.8% 0.3% Total -1.9% -2.2% -0.1% Acquisitions / Divestitures 8.9% 4.0% -0.8% Translation 0.3% 0.4% -
Slide 16: Engineered Products - North America Key Points
Engineered Products - North America Key Points • Total construction: -5% for Q3 ’06 • ITW construction (tools and fasteners) base revenues: -8% for Q3 ’06 - new housing and renovation were negative in Q3 ’06 - commercial: 3% growth in Q3 ’06 • Wilsonart (high pressure laminate): base revenues -1% in
Slide 17: Engineered Products - North America Key Points
Engineered Products - North America Key Points • Auto base revenues: -8% for Q3 ’06 • Big 3 build rates: -13% for Q3 ’06 – GM: -8% – Ford: -12% – Chrysler: -21% • New domestics’ builds: Flat • Big 3 inventories: 77 days at 9-30-06 – GM: 76 days – Ford: 74 days – Chrysler: 83 days • New domestics’ in
Slide 18: Engineered Products - International
ITW Engineered Products - International 2005 2006 F(U) Last Year Q3 Q3 Amount % Operating Revenues 660.7 724.0 63.3 9.6% Operating Income 100.9 109.6 8.7 8.6% Operating Margins 15.3% 15.1% -0.2%
Slide 19: Engineered Products - International Quarterly Analysis
Engineered Products - International Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenues Income Margins Base Business Operating Leverage 4.5% 12.1% 1.1% Nonvolume-related - -10.7% -1.6% Total 4.5% 1.4% -0.5% Acquisitions / Divestitures 1.7% -0.1% -0.3% Translation 3.4% 2.7% -0
Slide 20: Engineered Products - International Key Points
Engineered Products - International Key Points • Construction base revenues: +6% in Q3 ’06 – Europe: +4% (improvement in wide variety of countries) – Austral-Asia: +9% (commercial/new housing strength in Australia/New Zealand/Asia) – Wilsonart Intl.: +5% (growth in UK and Germany) • Automotive base
Slide 21: Specialty Systems - North America
ITW Specialty Systems - North America 2005 2006 F(U) Last Year Q3 Q3 Amount % Operating Revenues 1,054.3 1,164.0 109.7 10.4% Operating Income 210.9 227.1 16.2 7.7% Operating Margins 20.0% 19.5% -0.5%
Slide 22: Specialty Systems - North America Quarterly Analysis
Specialty Systems - North America Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenues Income Margins Base Business Operating Leverage 2.8% 5.7% 0.6% Nonvolume-related - -1.6% -0.3% Total 2.8% 4.1% 0.3% Acquisitions / Divestitures 7.3% 3.7% -0.7% Translation 0.3% 0.4% - Impair
Slide 23: Specialty Systems - North America Key Points
Specialty Systems - North America Key Points • Welding base revenues: 12% growth in Q3 ’06 due to full array of products serving strong markets such as energy, heavy fabricators, general industrial • Food Equipment base revenues: +2% in Q3 ’06; restaurant/institutional and service side of business c
Slide 24: Specialty Systems - International
ITW Specialty Systems - International 2005 2006 F(U) Last Year Q3 Q3 Amount % Operating Revenues 635.0 758.6 123.6 19.5% Operating Income 72.4 108.8 36.4 50.1% Operating Margins 11.4% 14.3% 2.9%
Slide 25: Specialty Systems - International Quarterly Analysis
Specialty Systems - International Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenues Income Margins Base Business Operating Leverage 5.4% 18.5% 1.4% Nonvolume-related - 11.6% 1.3% Total 5.4% 30.1% 2.7% Acquisitions / Divestitures 10.8% -1.5% -1.6% Translation 3.3% 3.0% -0.2%
Slide 26: Specialty Systems - International Key Points
Specialty Systems - International Key Points • Welding: base revenue +27% in Q3 ’06 due to strong consumables and equipment sales in Asia and Europe • Finishing: base revenues grew 12% in Q3 ’06 thanks to sales of Gema powder based products in Europe and finishing equipment in Asia • Total packaging
Slide 27: 2006 Forecast
ITW 2006 Forecast Mid Low High Point 4th Quarter Base Revenues 3.1% 5.1% 4.1% Income Per Share-Diluted $0.77 $0.81 $0.79 %F(U) 2005 8% 14% 11% Full Year Base Revenues 4.0% 4.6% 4.3% Income Per Share-Diluted $3.01 $3.05 $3.03 %F(U) 2005 16% 17% 17%
Slide 28: 2006 Forecast Key Assumptions
ITW 2006 Forecast Key Assumptions • Exchange rates hold at current levels. • Acquired revenues in the $1.1 billion to $1.4 billion range. • Share repurchases of $350 million to $450 million for the year. • Restructuring cost of $25 to $30 million. • No further impairment of goodwill/intangibles. • N
Slide 29: ITW Conference Call Q&A
ITW Conference Call Q&A Third Quarter 2006