Illinois Tool Works (ITW) Q4 2003 earnings summary

Executive summary

• FY 2003 revenue rose 6% to $10.04B and operating income rose 8% to $1.63B; continuing-operations income increased 11.6% to $1.04B, or $3.37 diluted EPS.

• Operating margin reached 16.3%, up 40 bps; operational cost savings and favorable currency helped offset weaker base-business revenue and higher corporate costs.

• Q4 revenue was $2.63B, operating income $431.7M and continuing-operations income $286.9M; diluted EPS was $0.93 versus $0.74 in Q4 2002.

Financial highlights

• FY revenue increased 6%: favorable currency added 6%, acquisitions 3%, while manufacturing base-business revenue declined 2%.

• Operating income increased 8%; cost savings contributed 9% and currency 5%, partly offset by base-revenue declines (-6%) and higher corporate expenses (-4%).

• Net income was $1.024B versus $712.6M in 2002, which included a $221.9M after-tax cumulative goodwill-accounting charge; 2003 included a $16.5M discontinued-operations loss.

• Operating cash flow was $1.369B and free operating cash flow $1.170B; cash and equivalents ended the year at $1.684B.

Outlook and guidance

• 2004 continuing-operations diluted EPS forecast: $3.66–$3.96; management expected gradual improvement in North American end markets.

• Forecast assumptions: base-business revenue growth 1%–4%, acquisitions $500M–$700M, restructuring costs $55M–$65M, impairment expenses $5M–$15M, 34% tax rate and FX at year-end 2003 levels.

• Internally generated cash flow was expected to support dividends, internal growth, small- to medium-sized acquisitions and additional investments.