Illinois Tool Works (ITW) Q4 2008 earnings summary

Executive summary

• 2008 revenue rose 6.7% to $15.9B, driven by acquisitions and currency translation; base revenue weakened as the global downturn intensified, and operating income fell 4.5%.

• A decentralized model, 875 operations across 54 countries, and the 80/20 process supported cost controls and responses to deteriorating markets.

Financial highlights

• Operating revenue was $15.869B vs. $14.871B in 2007; operating income was $2.338B vs. $2.449B, with operating margin at 14.7% vs. 16.5%.

• Income from continuing operations was $1.583B, down 7.5% YoY; diluted continuing-operations EPS was $3.04 vs. $3.08.

• Net income was $1.519B vs. $1.870B; diluted net EPS was $2.91 vs. $3.36, including a $64.3M discontinued-operations loss in 2008.

• Operating cash flow was $2.223B and free operating cash flow was $1.867B; capital expenditures were $355.5M.

Outlook and guidance

• 2009 results were forecast below 2008 levels as the global downturn was expected to persist through 2009, with recovery not expected until at least 2010.

• Most key end markets were expected to contract in 2009; strong balance sheet, decentralized operations, and the 80/20 process were cited as tools to address conditions.

• Decorative Surfaces, Click Commerce, and an automotive components business were expected to be disposed of during 2009; the automotive components sale was expected in H1.