Illinois Tool Works (ITW) Q4 2005 earnings summary

Executive summary

• FY 2005 operating revenue rose to $12.922B from $11.731B; operating income reached $2.259B and income from continuing operations was $1.495B, or $5.20 diluted EPS.

• Q4 2005 revenue was $3.294B, operating income $535.2M, continuing income $400.6M and diluted EPS $1.42.

• Manufacturing growth and acquisitions lifted results, while lower Leasing and Investments income and higher raw material, restructuring and stock compensation costs were offsets.

Financial highlights

• Operating revenue increased 10.1% YoY; operating income rose 9.9%, with reported operating margin steady at 17.5%.

• Continuing income increased 11.6% to $1.495B; diluted continuing EPS was $5.20 versus $4.39 in 2004.

• Net income was $1.495B versus $1.339B in 2004; 2005 had no discontinued-operations loss, compared with $0.9M in 2004.

• Operating income benefited from base-business leverage, acquisitions and favorable currency translation; higher raw material and restructuring costs, stock compensation and lower investment income partly offset gains.

Outlook and guidance

• FY 2006 diluted continuing EPS forecast: $5.60–$5.78; base-business revenue growth assumption 3.2%–5.2%, with FX held at year-end 2005 levels.

• Guidance assumes acquired-company annualized revenue of $800M–$1.0B, restructuring costs of $30M–$50M, impairment charges of $15M–$25M and a 31.5% effective tax rate.

• Operating income excluding Leasing and Investments forecast to increase 9.4%–13.0%; nonoperating investment income forecast at $45M–$55M, down $75M–$85M from 2005.

• End markets expected to remain relatively stable in 2006; Leasing and Investments contribution expected to diminish substantially.