Illinois Tool Works (ITW) Q4 2007 earnings summary

Executive summary

• FY 2007 revenue rose 17.2% to $16.17B; operating income increased to $2.62B, while operating margin declined to 16.2% from 17.3%.

• Net income was $1.87B and diluted EPS was $3.36; income from continuing operations was $1.83B and diluted continuing-operations EPS was $3.28.

• Q4 revenue was $4.24B, operating income $665.7M, net income $470.7M and diluted EPS $0.87.

Financial highlights

• Revenue growth reflected acquisitions, favorable currency translation and base-business growth; operating income benefited from base-business leverage and currency, offset by lower acquired-business margins.

• Excluding discontinued operations, income from continuing operations rose 8.7% YoY to $1.83B; diluted EPS increased to $3.28 from $2.95.

• A weaker U.S. dollar added $546M to operating revenue and approximately $0.11 to continuing-operations diluted EPS in 2007.

• Operating cash flow reached $2.48B; free operating cash flow was $2.13B after $353.4M of plant and equipment additions.

Outlook and guidance

• Management expected internally generated free operating cash flow to cover debt service, dividends, internal growth, acquisitions and share repurchases.

• Dividend payout guideline remained 25%–35% of the prior two years’ average income from continuing operations.