Illinois Tool Works Inc. · NYSE:ITW
Illinois Tool Works — Q3 2003 Earnings Presentation
30 slides from Illinois Tool Works's earnings presentation, October 2003
Slide 1: ITW Conference Call Third Quarter 2003
ITW Conference Call Third Quarter 2003
Slide 2: Agenda
ITW Agenda 1. Introduction……………………..John Brooklier 2. Financial Overview……………..Jon Kinney 3. Manufacturing Segments……… John Brooklier 4. Forecast…………………………Jon Kinney 5. 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 full year 2003 and the comp
Slide 4: Conference Call Playback
Conference Call Playback Replay number: 402-998-1849 Replay available through midnight of October 30, 2003 No pass code necessary
Slide 5: Quarterly Highlights
ITW Quarterly Highlights 2002 2003 F(U) Last Year Q3 Q3 Amount % Operating Revenues 2,401.0 2,531.9 130.9 5.4% Operating Income 396.9 426.7 29.8 7.5% % of Revenues 16.5% 16.9% 0.4% Income From Continuing Operations Income Amount 244.3 269.8 25.5 10.4% Income Per Share-Diluted 0.79 0.87 0.08 10.1% Av
Slide 6: Quarterly Operating Analysis
ITW Quarterly Operating Analysis Revenue Income Margins Base Manufacturing Business Operating Leverage -2.9% -7.1% -0.7% Non Volume Related 10.0% 1.7% Total -2.9% 2.9% 1.0% Acquisitions / Divestitures 3.5% 2.1% -0.2% Translation 4.9% 4.3% 0.0% Restructuring -3.4% -0.6% Leasing & Investment -0.3% 1.6
Slide 7: Leasing & Investment
ITW Leasing & Investment 2002 2003 F(U) Last Year Q3 Q3 Amount % Operating Revenues 34.8 28.4 (6.4) -18.4% Operating Income 18.5 24.7 6.2 33.5% Operating Margins 53.1% 87.0% 33.9%
Slide 8: Non Operating & Taxes
ITW Non Operating & Taxes 2002 2003 F(U) Last Year Q3 Q3 Amount % Operating Income 396.9 426.7 29.8 7.5% Interest Expense (14.6) (16.1) (1.5) Other Income (Expense) (6.5) 4.5 11.0 Income From Continuing Operations-P/T 375.8 415.1 39.3 10.5% Income Taxes 131.5 145.3 13.8 % to Pre Tax Income 35% 35% 0
Slide 9: Invested Capital
ITW Invested Capital 9/30/02 12/31/02 9/30/03 Trade Receivables 1,574.9 1,500.0 1,701.9 Days Sales Outstanding 59.0 55.6 60.5 Inventories 981.9 962.7 980.0 Months on Hand 1.9 1.8 1.8 Other Current Assets 233.2 354.3 353.0 Accounts Payable & Accruals (1,386.0) (1,445.6) (1,452.4) Operating Working Ca
Slide 10: Debt & Equity
ITW Debt & Equity 9/30/02 12/31/02 9/30/03 Total Capital Short Term Debt 132.8 121.6 70.2 Long Term Debt 1,474.7 1,460.4 926.2 Total Debt 1,607.5 1,582.0 996.4 Stockholders Equity 6,498.2 6,649.0 7,399.7 Total Capital 8,105.7 8,231.0 8,396.1 Less: Leasing & Investment Debt (795.5) (770.1) (239.4) Ca
Slide 11: Cash Flow
ITW Cash Flow 2002 2003 Q3 Q3 Net Income 245.5 268.9 Adjust for Non-Cash Items 78.5 69.2 Changes in Operating Assets & Liab. 55.9 57.1 Net Cash From Operating Activities 379.9 395.2 Additions to Plant & Equipment (59.8) (60.8) Proceeds from investments 21.2 15.6 Free Cash 341.3 350.0 Acquisitions (1
Slide 12: Return on Invested Capital
ITW Return on Invested Capital 2002 2003 F(U) Current Quarter Q3 Q3 Prior Yr. Operating Income after taxes 258.0 277.3 19.3 Operating Margins 10.7% 11.0% 0.3% Average Invested Capital 6,604.9 6,823.1 218.2 Capital Turnover 1.45 1.48 0.03 Return on Average Invested Capital 15.6% 16.3% 0.7% 2002 2003
Slide 13: Acquisitions
ITW Acquisitions 2002 2003 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Annual Revenues Acquired 31 59 33 72 49 35 231 Purchase Price Cash Paid 35 57 14 82 44 30 74 Stock Issued - - - - - - - Total 35 57 14 82 44 30 74 Number of Acquisitions North America Engineered Products 2 1 1 1 1 - 3 Specialty Systems - 2 1 2 - 2 1 In
Slide 14: Key Economic Data
Key Economic Data • Sept. ’03 ISM: 53.7% is down slightly from 54.7% in August…but above 50 is good (growth/no growth line) • US Industrial Production (ex. Tech.): -2.3% in Aug. ’03 compared to -2.0% in July ‘03 • Euro-Zone Industrial Production Index: 50.1% in Sept. ’03 vs. 49.1% in Aug. ’03 • Othe
Slide 15: Engineered Products – North America
ITW Engineered Products – North America 2002 2003 F(U) Last Year Q3 Q3 Amount % Operating Revenues 766.0 774.9 8.9 1.2% Operating Income 128.0 130.8 2.8 2.2% Operating Margins 16.7% 16.9% 0.2%
Slide 16: Engineered Products-North America Quarterly Analysis
Engineered Products-North America Quarterly Analysis Revenue Income Margins Base Business Operating Leverage -2.6% -6.4% -0.7% Non Volume Related 3.2% 0.6% Total -2.6% -3.2% -0.1% Acquisitions / Divestitures 3.7% 2.7% -0.2% Translation 0.3% 0.4% 0.0% Restructuring 2.3% 0.4% Other Revenue -0.2% 0.1%
Slide 17: Engineered Products-North America Key Points
Engineered Products-North America Key Points • ITW construction base revenues: +2% for Q3 -Commercial construction: slightly positive -New housing: slightly positive -Renovation/rehab: high single digit growth • Wilsonart revenues flat for the quarter; flooring leads the way • We expect commercial c
Slide 18: Engineered Products-North America Key Points
Engineered Products-North America Key Points • Auto base revenues: -8% for Q3 • Big 3 build rates: -9% for Q3 – GM: -5% – Ford: -18% – Chrysler: -6% • ITW estimate for Q4 builds: -8 to -10%; Wards: -4% • ITW FY ’03 estimate: -8%; Wards: -6% • August Big 3 inventories: 62 days…better than 81 days on
Slide 19: Engineered Products – International
ITW Engineered Products – International 2002 2003 F(U) Last Year Q3 Q3 Amount % Operating Revenues 394.7 460.9 66.2 16.8% Operating Income 59.2 63.6 4.3 7.3% Operating Margins 15.0% 13.8% -1.2%
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 0.7% 1.9% 0.2% Non Volume Related -1.1% -0.2% Total 0.7% 0.8% 0.0% Acquisitions / Divestitures 2.2% 1.3% -0.1% Translation 13.9% 15.0% 0.3% Res
Slide 21: Engineered Products-International Key Points
Engineered Products-International Key Points • Construction base revenues: +2% in Q3 – Europe: +1% growth (strength in UK, France and Germany) – Australia: +1% (better new housing) – Wilsonart Intl.: +6% (good activity in China/UK) • Automotive base revenues: -1% in Q3 – Builds: -3% ytd – BMW: -3.5%
Slide 22: Specialty Systems-North America
ITW Specialty Systems-North America 2002 2003 F(U) Last Year Q3 Q3 Amount % Operating Revenues 857.1 849.2 (7.9) -0.9% Operating Income 145.4 154.2 8.8 6.1% Operating Margins 17.0% 18.2% 1.2%
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 Base Operating Leverage -3.6% -9.2% -1.0% Base Non Volume 13.8% 2.5% Total -3.6% 4.6% 1.5% Acquisitions / Divestitures 2.2% 0.9% -0.3% Translation 0.5% 0.6% 0.0% Re
Slide 24: Specialty Systems-North America Key Points
Specialty Systems-North America Key Points • Food Equipment base revenues: -8% in Q3; supermarkets the weakest; restaurants better but still negative; parts and service positive revenues; • Food Equipment operating margins improve +500 basis points in Q3 due to 80/20 programs • Industrial packaging:
Slide 25: Specialty Systems-International
ITW Specialty Systems-International 2002 2003 F(U) Last Year Q3 Q3 Amount % Operating Revenues 441.0 502.4 61.5 14.0% Operating Income 45.8 53.5 7.6 16.6% Operating Margins 10.4% 10.6% 0.2%
Slide 26: Specialty Systems-International Quarterly Analysis
Specialty Systems-International Quarterly Analysis % F(U) Prior Year Operating Operating Operating Revenue Income Margins Base Business Base Operating Leverage -4.7% -16.6% -1.3% Base Non Volume 34.7% 3.8% Total -4.7% 18.1% 2.5% Acquisitions / Divestitures 6.3% 6.0% 0.0% Translation 12.4% 15.1% 0.2%
Slide 27: Specialty Systems-International Key Points
Specialty Systems-International Key Points . Total packaging: -9% base revenues in Q3 • Signode led decline for industrial packaging: -Europe: -10% -Asia/Pacific: -2% -sales due to consumables rather than machinery • Food Equipment: base revenues +3%…operating margins improve more than 400 basis poi
Slide 28: 2003 Forecast
ITW 2003 Forecast Mid %F(U) Low High Point 2002 4th Quarter Base Revenues -4% 0% -2% Income Per Share-Diluted $0.79 $0.89 $0.84 13% Full Year Base Revenues -3% -2% -3% Income Per Share-Diluted $3.23 $3.33 $3.28 9%
Slide 29: 2003 Forecast Key Assumptions
ITW 2003 Forecast Key Assumptions • Exchange rates hold at September 30, 2003 levels. • Acquired revenues in the $400 to $600 million range. • Restructuring cost of $65 to $70 million. • Tax rate of 35%
Slide 30: Conference Call Q & A
ITW Conference Call Q&A Third Quarter 2003