Illinois Tool Works Inc. · NYSE:ITW
Illinois Tool Works — Q4 2007 Earnings Presentation
33 slides from Illinois Tool Works's earnings presentation, Jan 30, 2008
Slide 1: ITW Conference Call Fourth Quarter 2007
Exhibit 99.2 ITW Conference Call Fourth Quarter 2007
Slide 2: Agenda
ITW Agenda 1. Introduction…………………….. John Brooklier/David Speer 2. Financial Overview…………….. Ron Kropp 3. Operating Segments………..…. John Brooklier 4. Forecast 2008……….…….….… Ron Kropp 5. Q & A………………......………… John Brooklier/Ron Kropp/David Speer
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, revenue growth, earnings growth, operating income, tax rate
Slide 4: Conference Call Playback
Conference Call Playback Replay number: 203-369-3229 No pass code necessary Telephone replay available through midnight of February 13, 2008 Webcast / PowerPoint replay available at itw.com website
Slide 5: Quarterly Highlights
ITW Quarterly Highlights 2006 2007 F(U) Last Year Q4 Q4 Amount % Operating Revenues 3,570.4 4,244.1 673.7 18.9% Operating Income 582.5 665.7 83.2 14.3% % of Revenues 16.3% 15.7% -0.6% Income from Continuing Operations Income Amount 416.8 469.9 53.1 12.7% Income Per Share-Diluted 0.73 0.87 0.14 19.2%
Slide 6: Quarterly Operating Analysis
ITW Quarterly Operating Analysis % F(U) Prior Year Operating Operating Operating Revenues Income Margins Base Manufacturing Business Operating Leverage 2.5% 6.2% 0.6% Nonvolume-related - -1.6% -0.3% Total 2.5% 4.6% 0.3% Acquisitions 10.8% 3.5% -1.1% Divestitures -0.2% -0.1% - Translation 6.1% 5.8% -
Slide 7: Full Year Highlights
ITW Full Year Highlights 2006 2007 F(U) Last Year Amount % Operating Revenues 13,799.0 16,170.6 2,371.6 17.2% Operating Income 2,385.4 2,623.8 238.4 10.0% % of Revenues 17.3% 16.2% -1.1% Income from Continuing Operations Income Amount 1,680.6 1,826.1 145.5 8.7% Income Per Share-Diluted 2.95 3.28 0.3
Slide 8: Full Year Operating Analysis
ITW Full Year Operating Analysis % F(U) Prior Year Operating Operating Operating Revenues Income Margins Base Manufacturing Business Operating Leverage 1.8% 4.3% 0.4% Nonvolume-related - -0.1% - Total 1.8% 4.2% 0.4% Acquisitions 11.3% 2.1% -1.5% Divestitures -0.1% - - Translation 4.1% 3.7% - Impairm
Slide 9: Non Operating & Taxes
ITW Non Operating & Taxes 2006 2007 F(U) Last Year Q4 Q4 Amount % Operating Income 582.5 665.7 83.2 14.3% Interest Expense (26.9) (26.3) 0.6 Other Income 17.8 2.0 (15.8) Income from Continuing Operations-Pretax 573.4 641.4 68.0 11.9% Income Taxes 156.6 171.5 (14.9) % to Pretax Income 27.3% 26.7% 0.6
Slide 10: Invested Capital
ITW Invested Capital 12/31/06 9/30/07 12/31/07 Trade Receivables 2,471.3 2,842.4 2,915.5 Days Sales Outstanding 62.3 62.8 61.8 Inventories 1,482.5 1,607.8 1,625.8 Months on Hand 1.9 1.8 1.8 Prepaids and Other Current Assets 465.5 431.9 607.7 Accounts Payable & Accrued Expenses (1,895.2) (2,027.2) (2
Slide 11: Debt & Equity
ITW Debt & Equity 12/31/06 9/30/07 12/31/07 Total Capital Short Term Debt 462.7 101.4 410.5 Long Term Debt 955.6 1,573.1 1,888.8 Total Debt 1,418.3 1,674.5 2,299.3 Stockholders' Equity 9,017.5 9,386.5 9,351.3 Total Capital 10,435.8 11,061.0 11,650.6 Less: Cash (590.2) (602.1) (827.5) Net Debt & Equi
Slide 12: Cash Flow
ITW Cash Flow 2006 2007 Q4 Q4 Net Income 439.3 470.7 Adjust for Non-Cash Items 172.2 141.8 Changes in Operating Assets & Liabilities 131.9 180.6 Net Cash From Operating Activities 743.4 793.1 Additions to Plant & Equipment (78.2) (98.7) Free Operating Cash Flow 665.2 694.4 Stock Repurchase (198.9) (
Slide 13: Return on Average Invested Capital
ITW Return on Average Invested Capital 2006 2007 F(U) Q4 Q4 Prior Yr. Operating Income after Taxes 423.4 487.7 64.3 Operating Margins 11.9% 11.5% -0.4% Average Invested Capital 9,713.9 10,641.0 (927.1) Capital Turnover 1.47 1.60 0.13 Return on Average Invested Capital 17.4% 18.3% 0.9% 2006 2007 F(U)
Slide 14: Acquisitions
ITW Acquisitions 2006 2007 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Annual Revenues Acquired 353 154 388 820 399 213 218 165 Purchase Price Cash Paid 199 82 447 650 263 216 235 163 Stock Issued 163 - - - - - - - Total 362 82 447 650 263 216 235 163 Number of Acquisitions North America Engineered Products 2 4 5 4 2 3
Slide 15: Segment Reporting Change
SEGMENT REPORTING CHANGE • In 4Q07, a change was made to how the operations were internally reported to top management. • The company’s 825 business units have been organized into 56 operating segments. • The 56 operating segments have been aggregated into eight reportable segments. • Restatements o
Slide 16: New Segments Revenues
NEW SEGMENTS Revenues (in millions) 2007 2006 2005 Industrial Packaging 2,401 2,165 2,098 Power Systems & Electronics 2,246 1,848 1,493 Transportation 2,215 1,962 1,913 Construction Products 2,064 1,898 1,727 Food Equipment 1,930 1,521 1,484 Decorative Surfaces 1,239 1,004 940 Polymers & Fluids 1,00
Slide 17: Key Economic Data
Key Economic Data • Fundamentals declining but still “relatively strong” in Europe – EuroZone industrial production: 2.9% in November ’07 vs. 4.0% in August ’07 – EuroZone Purchasing Managers Index: 52.6% in December ’07 vs. 53.2% in September ’07 • Ongoing weakening of macro data for North America
Slide 18: Engineered Products - North America
ITW Engineered Products - North America 2006 2007 F(U) Last Year Q4 Q4 Amount % Operating Revenues 927.9 952.5 24.6 2.7% Operating Income 142.1 147.2 5.1 3.6% Operating Margins 15.3% 15.5% 0.2%
Slide 19: 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 -1.8% -4.6% -0.5% Nonvolume-related - 4.8% 0.8% Total -1.8% 0.2% 0.3% Acquisitions 3.6% 1.5% -0.3% Divestitures - - - Translation 0.8% 1.0%
Slide 20: Engineered Products - North America Key Points
Engineered Products - North America Key Points • Total construction base revenues: -4% for Q4 ’07 vs. -5% for Q3 ’07 • ITW construction (tools/fasteners/trusses) base revenues: -10% for Q4 ’07 vs. -8% for Q3 ’07 - new housing: -16% in Q4 ’07 vs. -19% in Q3 ’07 (-24% decline in housing starts in Q4 ’
Slide 21: Engineered Products - North America Key Points
Engineered Products - North America Key Points • ITW’s Automotive base revenues: 0% for Q4 ’07 vs. +2% for Q3 ’07 • Detroit 3 build rates: -3%for Q4 ’07 vs. +1% for Q3 ’07 – GM: -7% for Q4 ’07; -8% for FY ’07 – Ford: +3% for Q4 ’07; -7% for FY ’07 – Chrysler: -3% for Q4 ’07; 0 for FY ’07 • New domes
Slide 22: Engineered Products - International
ITW Engineered Products - International 2006 2007 F(U) Last Year Q4 Q4 Amount % Operating Revenues 816.4 1,108.5 292.1 35.8% Operating Income 135.0 163.9 28.9 21.4% Operating Margins 16.5% 14.8% -1.7%
Slide 23: Engineered Products - International Quarterly Analysis
Engineered Products - International Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenues Income Margins Base Business Operating Leverage 6.6% 15.8% 1.4% Nonvolume-related - -11.3% -1.7% Total 6.6% 4.5% -0.3% Acquisitions 16.2% 6.9% -1.2% Divestitures -0.4% -0.3% - Translation
Slide 24: Engineered Products - International Key Points
Engineered Products - International Key Points • Construction base revenues: +7% in Q4 ’07 vs. +8% in Q3 ’07 – Europe: +4% (growth in many countries: France, Germany and Nordic countries) – Asia-Pacific: +13% (commercial/retail strength in Australia) – Wilsonart Intl.: +3% (strength in Germany) • Au
Slide 25: Specialty Systems - North America
ITW Specialty Systems - North America 2006 2007 F(U) Last Year Q4 Q4 Amount % Operating Revenues 1,131.6 1,224.2 92.6 8.2% Operating Income 193.2 206.1 12.9 6.7% Operating Margins 17.1% 16.8% -0.3%
Slide 26: 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 2.9% 7.0% 0.7% Nonvolume-related - -2.8% -0.5% Total 2.9% 4.2% 0.2% Acquisitions 4.5% -0.8% -0.9% Divestitures - - - Translation 0.8% 0.8% - I
Slide 27: Specialty Systems - North America Key Points
Specialty Systems - North America Key Points • Segment base revenues increased nearly 3% in Q4 ’07 as U.S. industrial production rate grew less than 1.0% in Q4 ’07 – Food Equipment base revenues: 6% growth in Q4 ’07 vs. 9% growth in Q3 ’07; restaurant/institutional/service segments of business prosp
Slide 28: Specialty Systems - International
ITW Specialty Systems - International 2006 2007 F(U) Last Year Q4 Q4 Amount % Operating Revenues 798.8 1,077.8 279.0 34.9% Operating Income 112.2 148.5 36.3 32.3% Operating Margins 14.0% 13.8% -0.2%
Slide 29: Specialty Systems - International Quarterly Analysis
Specialty Systems - International Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenues Income Margins Base Business Operating Leverage 2.5% 6.8% 0.6% Nonvolume-related - 4.2% 0.6% Total 2.5% 11.0% 1.2% Acquisitions 21.2% 9.5% -1.5% Divestitures -0.4% -0.2% - Translation 11.7%
Slide 30: Specialty Systems - International Key Points
Specialty Systems - International Key Points • Relatively strong economic/end market fundamentals serve as backdrop for business units in segment – Food Equipment: base revenues +10% in Q4 ’07 vs. +14% in Q3 ’07; Q4 growth largely in Europe (Germany and France); YTD growth: +10% – Welding: base reve
Slide 31: 2008 Forecast
ITW 2008 Forecast Mid Low High Point 1st Quarter Total Revenues 8% 11% 10% Diluted Income per Share - Continuing $0.72 $0.78 $0.75 % F(U) 2007 6% 14% 10% Full Year Total Revenues 6% 10% 8% Diluted Income per Share - Continuing $3.47 $3.61 $3.54 % F(U) 2007 6% 10% 8%
Slide 32: 2008 Forecast Key Assumptions
ITW 2008 Forecast Key Assumptions • Exchange rates hold at current levels. • Acquired revenues in the $0.8 billion to $1.2 billion range. • Share repurchases of $0.8 billion to $1.0 billion for the year. • Impairment of goodwill/intangibles of $2 million to $6 million in 1st quarter. • Net nonoperat
Slide 33: ITW Conference Call Q & A
ITW Conference Call Q&A Fourth Quarter 2007