Illinois Tool Works · Earnings release

ITW Reports Fourth Quarter and Full Year 2024 Results

Fourth Quarter 2024 Highlights

•Revenue of $3.9 billion, a decrease of 1.3% as organic growth declined 0.5%; Organic growth of 0.4% turned positive excluding Product Line Simplification (PLS) reduction of 0.9%

•Record operating margin of 26.2%, an increase of 140 bps as enterprise initiatives contributed 120 bps

•Operating cash flow of $1.1B; record free cash flow of $1B, an increase of 10% with a conversion of 133%

•GAAP EPS of $2.54, an increase of 7%

•Revenue of $15.9 billion, a decrease of 1.3% as organic growth declined 0.7% in markets that were down low to mid-single digits

•Record operating margin of 26.8% as enterprise initiatives contributed 130 bps

•Record GAAP EPS of $11.71, an increase of 20%

•Above-market organic growth of 0 to 2% based on current levels of demand; Organic growth of 1 to 3% excluding PLS reduction of approximately 1%-point

•Enterprise initiatives contributing approximately 100 bps to margin improvement

•GAAP EPS of $10.15 to $10.55 including foreign currency translation headwind of $0.30

GLENVIEW, IL., February 5, 2025 - Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth quarter and full year 2024 results and initiated guidance for full year 2025.

“ITW delivered a solid finish to the year as we outperformed underlying end markets, expanded operating margin by 140 basis points, generated record free cash flow, and delivered seven percent earnings per share growth in the fourth quarter,” said Christopher A. O’Herlihy, President and Chief Executive Officer.

“Throughout 2024, the ITW team delivered a year of solid operational and financial performance, achieving record financial results by consistently exceeding market growth and significantly improving profitability and margins. Building on this momentum, we will continue to outperform our key end markets in 2025 as we build above-market organic growth, driven by continuous improvement in Customer-Back Innovation, into a core ITW strength. I extend my sincere gratitude to our global colleagues for their unwavering dedication to serving our customers and executing our strategy with excellence,” O’Herlihy concluded.

Fourth Quarter 2024 Results

Fourth quarter revenue of $3.9 billion decreased by 1.3 percent as organic revenue declined 0.5 percent. Organic revenue growth was positive 0.4 percent adjusted for PLS reduction of 0.9 percent. Foreign currency translation reduced revenue by one percent and acquisitions added 0.2 percent.

GAAP EPS of $2.54 increased seven percent. Operating margin of 26.2 percent increased 140 basis points as enterprise initiatives contributed 120 basis points. Operating cash flow was $1.1 billion, and free cash flow grew 10 percent to $1.0 billion, with a conversion of 133 percent to net income. During the quarter, the company repurchased $375 million of its own shares and the effective tax rate was 23.7 percent.

Full year revenue of $15.9 billion declined 1.3 percent as organic revenue declined 0.7 percent. Organic revenue growth was essentially flat adjusted for PLS reduction of 0.6 percent. Foreign currency translation reduced revenue by 0.7 percent and acquisitions contributed 0.1 percent to revenues.

GAAP EPS of $11.71 included two previously disclosed favorable one-time items; $0.30 from a LIFO inventory accounting change in the first quarter, and $1.26 from the sale of the Company’s equity interest in Wilsonart in the third quarter. Excluding these items, EPS was $10.15.

Operating income of $4.3 billion grew six percent, and operating margin increased 170 basis points to 26.8 percent with enterprise initiatives contributing 130 basis points. Excluding 70 basis points of favorable impact from the above-mentioned LIFO inventory accounting change, operating margin increased 100 basis points to 26.1 percent. Six of seven segments expanded margins in 2024 with two segments achieving margins above 30 percent.

Operating cash flow was $3.3 billion and free cash flow was $2.8 billion, with a conversion of 94 percent to adjusted net income. The company invested approximately $0.8 billion to support the long-term profitable growth of its businesses and returned $3.2 billion to shareholders through dividends and share repurchases. The effective tax rate was 21.1 percent.

G1The company is initiating 2025 guidance including GAAP EPS in the range of $10.15 to $10.55 per share which includes a foreign currency translation headwind of $0.30. The company projects above-market organic growth of zero to two percent based on current levels of demand, including an expected PLS reduction of approximately one percentage point. Organic revenue growth is projected to be one to three percent adjusted for the above-mentioned PLS. G2Based on current foreign exchange rates, foreign currency translation is expected to reduce revenue by three percent, resulting in a projected total revenue decline of one to three percent.

G3Operating margin is projected to be in the range of 26.5 to 27.5 percent, an improvement of approximately 100 basis points excluding the above-mentioned 2024 LIFO inventory accounting change, with enterprise initiatives contributing approximately 100 basis points.

Free cash flow is projected to be greater than 100 percent of net income, and the company plans to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate is 24 to 24.5 percent.

Non-GAAP Measures

This earnings release contains certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule. The estimated guidance of free cash flow to adjusted net income conversion rate is based on assumptions that are difficult to predict, and estimated guidance for the most directly comparable GAAP measure and a reconciliation of this forward-looking estimate to its most directly comparable GAAP estimate have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of reliable forward-looking cash flow information. For the same reasons, the company is unable to address the potential significance of the unavailable information, which could be material to future results.

Forward-looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding global supply chain challenges, expected impact of inflation including raw and specialty material inflation and fluctuating interest rates, the impact of enterprise initiatives, future financial and operating performance, free cash flow and free cash flow to net income conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted income per share, restructuring expenses and related benefits, expected dividend payments, after-tax return on invested capital, effective tax rates, exchange rates and the impact of foreign currency translation, expected access to liquidity sources, expected capital allocation, expected timing and amount of share repurchases, end market economic and regulatory conditions, the impact of recent or potential acquisitions and/or divestitures, and the Company’s 2025 guidance.

These statements are subject to certain risks, uncertainties, assumptions, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that could cause actual results to differ materially from the Company’s expectations include those that are detailed in ITW’s Form 10-K for 2023 and subsequent reports filed with the SEC.

About Illinois Tool Works

ITW (NYSE: ITW) is a Fortune 300 global multi-industrial manufacturing leader with revenue of $15.9 billion in 2024. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW’s approximately 44,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF INCOME (UNAUDITED)

Three Months Ended

Twelve Months Ended

In millions except per share amounts

Operating Revenue

$

$

$

$

Cost of revenue

Selling, administrative, and research and development expenses

Amortization and impairment of intangible assets

Operating Income

Interest expense

Other income (expense)

9

Income Before Taxes

Income taxes

Net Income

$

$

$

$

Net Income Per Share:

Basic

$

$

$

$

Diluted

$

$

$

$

Cash Dividends Per Share:

Paid

$

$

$

$

Declared

$

$

$

$

Shares of Common Stock Outstanding During the Period:

Average

Average assuming dilution

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millions

Assets

Current Assets:

Cash and equivalents

$

$

Trade receivables

Inventories

Prepaid expenses and other current assets

Total current assets

Net plant and equipment

Goodwill

Intangible assets

Deferred income taxes

Other assets

$

$

Liabilities and Stockholders' Equity

Current Liabilities:

Short-term debt

$

$

Accounts payable

Accrued expenses

Cash dividends payable

Income taxes payable

Total current liabilities

Noncurrent Liabilities:

Long-term debt

Deferred income taxes

Noncurrent income taxes payable

—

Other liabilities

Total noncurrent liabilities

Stockholders' Equity:

Common stock

6

6

Additional paid-in-capital

Retained earnings

Common stock held in treasury

Accumulated other comprehensive income (loss)

Noncontrolling interest

1

1

Total stockholders' equity

$

$

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Dollars in millions

Total Revenue

Operating Income

Operating Margin

Automotive OEM

$

$

%

Food Equipment

%

Test & Measurement and Electronics

%

Welding

%

Polymers & Fluids

%

Construction Products

%

Specialty Products

%

Intersegment

(3)

—

—

%

Total Segments

%

Unallocated

—

(9)

—

%

Total Company

$

$

%

Dollars in millions

Total Revenue

Operating Income

Operating Margin

Automotive OEM

$

$

%

Food Equipment

%

Test & Measurement and Electronics

%

Welding

%

Polymers & Fluids

%

Construction Products

%

Specialty Products

%

Intersegment

—

—

%

Total Segments

%

Unallocated

—

—

%

Total Company

$

$

%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Operating Revenue

Automotive OEM

Food Equipment

Test & Measurement and Electronics

Welding

Polymers & Fluids

Construction Products

Specialty Products

Total ITW

Organic

%

%

%

%

%

%

%

%

Acquisitions/

Divestitures

—

%

—

%

%

—

%

—

%

—

%

—

%

%

Translation

%

%

%

%

%

%

%

%

Operating Revenue

%

%

%

%

%

%

%

%

Change in Operating Margin

Automotive OEM

Food Equipment

Test & Measurement and Electronics

Welding

Polymers & Fluids

Construction Products

Specialty Products

Total ITW

Operating Leverage

Changes in Variable Margin & OH Costs

Total Organic

Acquisitions/

Divestitures

—

—

—

—

—

—

Restructuring/Other

Total Operating Margin Change

Total Operating Margin % *

* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets

** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.06) on GAAP earnings per share for the fourth quarter of 2024.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Full Year 2024 vs Full Year 2023 Favorable/(Unfavorable)

Operating Revenue

Automotive OEM

Food Equipment

Test & Measurement and Electronics

Welding

Polymers & Fluids

Construction Products

Specialty Products

Total ITW

Organic

%

%

%

%

%

%

%

%

Acquisitions/

Divestitures

—

%

—

%

%

—

%

—

%

—

%

%

%

Translation

%

%

%

%

%

—

%

%

%

Operating Revenue

%

%

%

%

%

%

%

%

Full Year 2024 vs Full Year 2023 Favorable/(Unfavorable)

Change in Operating Margin

Automotive OEM

Food Equipment

Test & Measurement and Electronics

Welding

Polymers & Fluids

Construction Products

Specialty Products

Total ITW

Operating Leverage

Changes in Variable Margin & OH Costs

Total Organic

Acquisitions/

Divestitures

—

—

—

—

—

Restructuring/Other

Total Operating Margin Change

—

Total Operating Margin % *

* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets

** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.26) on GAAP earnings per share for 2024.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Three Months Ended

Twelve Months Ended

Dollars in millions

Numerator:

Net income

$

$

$

$

Net discrete tax benefit related to the third quarter 2024

—

—

—

Discrete tax benefit related to the second quarter 2023

—

—

—

Interest expense, net of tax (1)

Other (income) expense, net of tax (1)

(7)

Operating income after taxes

$

$

$

$

Denominator:

Invested capital:

Cash and equivalents

$

$

$

$

Trade receivables

Inventories

Net plant and equipment

Goodwill and intangible assets

Accounts payable and accrued expenses

Debt

Other, net

Total net assets (stockholders' equity)

Cash and equivalents

Debt

Total invested capital

$

$

$

$

Average invested capital (2)

$

$

$

$

Net income to average invested capital (3)

%

%

%

%

After-tax return on average invested capital (3)

%

%

%

%

(1) Effective tax rate used for interest expense and other (income) expense for the three months ended December 31, 2024 and 2023 was 23.7% and 22.6%, respectively, and 23.8% and 23.2% for the twelve months ended December 31, 2024 and 2023, respectively.

(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within each of the periods presented.

(3) Returns for the three months ended December 31, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 4.

A reconciliation of the 2024 effective tax rate excluding the third quarter 2024 net discrete tax benefit of $121 million, which included favorable discrete tax benefits of $107 million related to the utilization of capital loss carryforwards upon the sale of Wilsonart and $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, is as follows:

Twelve Months Ended

Dollars in millions

Income Taxes

Tax Rate

As reported

$

%

Net discrete tax benefit related to the third quarter 2024

%

As adjusted

$

%

A reconciliation of the 2023 effective tax rate excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes is as follows:

Twelve Months Ended

Dollars in millions

Income Taxes

Tax Rate

As reported

$

%

Discrete tax benefit related to the second quarter 2023

%

As adjusted

$

%

FREE CASH FLOW (UNAUDITED)

Three Months Ended

Twelve Months Ended

Dollars in millions

Net cash provided by operating activities

$

$

$

$

Less: Additions to plant and equipment

Free cash flow

$

$

$

$

Net income

$

$

$

$

Net cash provided by operating activities to net income conversion rate

%

%

%

%

Free cash flow to net income conversion rate

%

%

%

(1)

%

(1) Excluding the impact of the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax), the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes, and a discrete tax benefit of $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, the free cash flow to net income conversion rate would have been 94% for the twelve months ended December 31, 2024.

Three Months Ended

Dollars in millions

Net cash provided by operating activities

$

$

$

Less: Additions to plant and equipment

Free cash flow

$

$

$

Net income

$

$

$

Net cash provided by operating activities to net income conversion rate

%

%

%

Free cash flow to net income conversion rate

%

(1)

%

%

(2)

(1) Excluding the impact of the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax), the free cash flow to net income conversion rate would have been 68% for the three months ended March 31, 2024.

(2) Excluding the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes, and a discrete tax benefit of $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, the free cash flow to net income conversion rate would have been 102% for the three months ended September 30, 2024.

ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

Twelve Months Ended

As reported

$

Impact of sale of noncontrolling interest in Wilsonart (1)

Cumulative effect of change in inventory accounting method, net of tax (2)

As adjusted

$

(1) Includes the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes.

(2) Represents the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax).