Organic Revenues Increase 2.3 Percent; Operating Margins Improve 110 Basis Points to 16.5 Percent; Company Repurchases $526 Million of Shares; Company Lowers Full-Year Earnings Forecast
Illinois Tool Works Inc. (NYSE: ITW) today reported second quarter 2012 diluted income per share from continuing operations of $1.11, a 16 percent increase versus the 2011 second quarter. While revenue growth moderated in the second quarter due to the higher-than-expected negative impact of currency translation and slowing demand in a variety of international end markets, operating margins of 16.5 percent improved 110 basis points versus the year-ago period.
Second quarter 2012 financial and operating highlights versus the prior year included:
-- Total revenues of $4.655 billion increased 0.9 percent. Organic or base
revenues grew 2.3 percent, with North American organic revenues
increasing 5.3 percent and international organic revenues declining 0.8
percent. European organic revenues decreased 1.7 percent. Asia Pacific
organic revenues underperformed company expectations, growing only 1.8
percent. Notably, China organic revenues declined 0.5 percent.
-- Acquisitions net of divestitures added 3.0 percent to revenues while
currency translation negatively impacted revenues by 4.5 percent. The
declining value of the Euro accounted for the major currency headwind in
the quarter.
-- Operating income of $770.0 million grew 8.3 percent.
-- Operating margins improved due to favorable raw material price/cost
dynamics as well as effective management of overheads within the
decentralized businesses.
-- Total revenues for the Power Systems and Electronics segment increased
7.7 percent. Segment organic revenues grew 5.2 percent based on
continuing strength in the worldwide welding businesses and improvement
in the electronics assembly businesses. Worldwide welding's organic
revenues grew 8.8 percent, with North American and international growing
11.4 percent and 2.1 percent, respectively. Segment operating margins of
21.2 percent improved 60 basis points from the prior year period.
-- The Company returned nearly $700 million to shareholders through share
repurchases of $526 million and dividends paid of $172 million. At the
end of the 2012 second quarter, the Company had $2.9 billion remaining
in its share repurchase authorization.
"Despite slowing in a variety of international end markets and significant currency translation headwinds, we were very pleased with our second quarter operating performance," said David B. Speer, chairman and chief executive officer. "Based on our differentiated 80/20 operational focus, our businesses produced very strong operating margin improvement in the quarter with excellent management of input and overhead costs. In addition, we continued to return significant levels of cash to our shareholders through our share repurchase program as well as our strong dividend payout."
Given the ongoing negative impact of currency translation, additional restructuring expenditures that will now total over $100 million for the year, and expected continued sluggish demand in international markets, the Company is lowering its forecast for revenue growth from continuing operations to be in a range of 1 percent to 3 percent versus the prior range of 5 percent to 7 percent. As a result, full-year diluted income per share from continuing operations is expected to be in a range of $4.03 to $4.19 versus the prior range of $4.14 to $4.38. For third quarter 2012, the Company is forecasting revenue growth to be in a range from -1 percent to 1 percent and diluted income per share from continuing operations to be in a range of $1.03 to $1.11.
