ITW Driving Profitable Growth, Generating Strong Returns. Robert W. Baird Industrial Conference November 8, 2011 Chicago

Transcription

1 ITW Driving Profitable Growth, Generating Strong Returns Robert W. Baird Industrial Conference November 8, 2011 Chicago 1

2 Today s Topics Organizational Structure and Business Process Company Snapshot Longer-Term Growth Initiatives Q&A 2

3 Organizational Structure ITW s Key Platforms Long-term operational strategy and capital allocation driven by CEO, three vice chairmen and 10 executive vice presidents Industrial Packaging Automotive Food Equipment Welding Construction Electronics Test & Measurement Polymers & Fluids Automotive Aftermarket Decorative Surfaces 50+ major businesses managed by group presidents Executed at local level by general managers 3

4 Tools: ITW s Business Process: The ITW Toolbox A proven and continuously evolving set of tools and processes that drive performance improvements across ITW companies 80/20 Strategic Portfolio Management Product Line Simplification Outside-In Strategic Perspective Market Rate of Demand Innovation USa Leadership Development Market Segment Focus Competitive Advantage: Focuses on the major profit drivers in a business (customers, market segments, products, etc.) Creates significant opportunities for streamlining, simplification and enhanced customer satisfaction Acts as a catalyst for financial performance improvement Focuses innovation efforts and investments for maximum impact Allows facilitation of step change in financial performance and customer-facing execution for acquisitions End Result: Focused Profitable Market Share Growth 4

5 Company Snapshot Comparative Revenues by Geography % 8% 66% North America Europe, Middle East and Africa Asia Pacific and Other 20% 32% 48% North America Europe, Middle East and Africa Asia Pacific and Other $9.2 Billion $15.4 Billion* *Restated for 2011 discontinued operations and elimination of the one-month reporting lag 5

6 Company Snapshot Results by Geography Worldwide Revenue Growth Rates Q YTD vs. PY North America 9.0% 5.3% 14.3% EMEA 6.6% 4.0% 10.6% Asia/Pacific 6.4% 0.5% 6.9% Central/South America 6.4% 39.5% 45.9% Total WW 8.0% 4.8% 12.8% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% Base Acquisition % based on seller s country at constant f/x rates 6

7 Company Snapshot Emerging Markets: 20% of 2010 Revenues BRIC Other Emerging Markets Rest of World 7% 13% 80% 2010 Revenues Emerging markets include Asia, Latin America and Eastern Europe 7

8 Company Snapshot Results by Geography BRIC Revenue Growth Rates Q YTD vs. PY China 15.9% 0.4% 16.3% India 20.5% Russia 16.1% Brazil 5.3% 43.1% 48.4% Total BRIC 13.9% 12.1% 26.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Base Acquisition % based on seller s country at constant f/x rates 8

9 Company Snapshot Total Company Revenues: 2010 Revenues by Product Category 12% 23% 65% Consumables Equipment and Tools Service and Parts 9

10 Company Snapshot Revenue Growth by Category Q YTD vs. PY Consumables 7.9% 5.2% 13.1% Equipment & Tools 12.1% 4.1% 16.2% Service & Parts 3.5% 4.3% 7.8% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% Base Acquisition % based on customer sales at constant f/x rates 10

11 Company Snapshot Third Quarter Financial Highlights $ in Millions Q3 10 Q3 11 % Inc/ (Dec) Operating Revenues $3,941.1 $4, % Operating Income $619.7 $ % Operating Margin 15.7% 15.6% (0.1) pts Income from continuing operations Diluted income per share from continuing operations $403.1 $ % $0.80 $ % Organic revenue growth: 6.2% Acquired 8 companies: nearly $300 million of annualized revenues Generated $704 million of free operating cash flow Issued $1 billion of longterm debt at attractive rates All 2010 and 2011 data have been restated for 2011 discontinued operations and the elimination of the one month reporting lag 11

12 Company Snapshot Acquisition Activity $ in Millions 2009 (FY) 2010 (FY) 3Q 11 YTD Annualized Revenues Acquired $290 $530 $781 Cash Paid $286 $531 $1,226 Number of Acquisitions % of acquired revenues (Q3 11 YTD) directly tied to emerging market and platform growth initiatives ITW Global Brands and Despatch: key platform acquisitions Completed seven emerging market-related acquisitions through Q3 11 Margins for newly acquired businesses were 14.6% for Q3 11 YTD (excluding amortization) 12

13 Company Snapshot 25 Year Revenue/Operating Income $18,000 $3,100 $15,000 $12,000 CAGR Revenue: 14% CAGR Net Income: 17% Average ROIC: 14% CAGR Shareholder Return: 15% $2,600 $2,100 $9,000 $1,600 $6,000 $1,100 $3,000 $600 $0 $ Revenues (in millions) Operating Income (in millions) Source: 2010 ITW Annual Report; Numbers not restated for discontinued operations or the elimination of the one month reporting lag 13

14 Company Snapshot ITW demonstrates strong returns to investors 20% 18% 16% Return on average invested capital Average ROIC : 14.8% 17.6% 18.3% 18.0% 16.8% 16.0% 15.3% 14% 13.7% 13.7% 12% 10.6% 12.3% 10.7% 10% 8% Source: 2010 ITW Annual Report; Numbers not restated for discontinued operations or the elimination of the one month reporting lag 14

15 20% Company Snapshot Historical ROIC: ITW vs. Peer Group 18% 16% 14% 12% 10% ITW ITW Peer Group US-Based Diversified Industrials 5-yr Average 15.7% 14.9% FY2006A FY2007A FY2008A FY2009A FY2010A Source: 2010 ITW Annual Report; Numbers not restated for discontinued operations or the elimination of the one month reporting lag Peer group includes: Caterpillar, Cooper, Danaher, Deere, Dover, Eaton, Emerson, Honeywell, 3M, Masco, Ingersoll Rand, Parker Hannifin, Textron, Tyco, United Technologies 15

16 Company Snapshot Capital Structure Uses of free cash flow/debt Strong generator of free cash flow, even in recessionary periods Credit line of $2.5 billion backstops commercial paper program Issued new long-term debt of $1.0 billion in August 2011 at attractive rates Target debt-to-capital range of 20% to 30% Currently above target range due to significant acquisitions and share repurchase activity Primary uses of free operating cash flow and debt capacity: Dividends Acquisitions Share repurchases Larger than normal share repurchase activity over the last 10 years due to previous leverage levels below target range 16

17 Company Snapshot Balanced Uses of Capital Dividends Guidelines: 30% to 45% of the last two years average free operating cash flow Increased dividend 6% in August 2011 to an annual rate of $1.44 per share Current dividend yield of approximately 3% Acquisitions Preferred use of free operating cash flow and available debt capacity Forecasted to hit acquired revenue range of $800 million to $1.0 billion in 2011 Long-term acquisition target of 5% to 7% of total revenues Share Repurchase Program August 2007: $3 billion authorization (completed in 3Q 11) New $4 billion authorization in May 2011 Repurchased $400 million in 3Q2011 and $950 million YTD 17

18 Longer-Term Growth Initiatives Organic Growth Performance ( ) base growth CAGR: 3% excluding automotive OEM and construction: 4% Continued focus on: Innovation Emerging Markets New Platforms ITW s Organic Growth Rate Goal : 5% to 6% 18

19 Longer-Term Growth Initiatives Innovation: A Core Performance Driver Throughout Our History Over 19,000 active patents currently Ranked in top 100 companies for new U.S. patents issued since 2002 Worldwide patents issued last two years: 2,245 ITW Patent Society members: 1,065 Innovation Investment 15% increase in combined R&D, marketing and product development spend in 2010 vs Expect similar increases over the next five years 19

20 Longer-Term Growth Initiatives Emerging Markets: China 2010 Revenues $678M* # of Units 45 # of Employees 4,800 Key Market Segments Oil and Gas Shipyards Electronics and Telecom Industry (OEM and MRO) Auto Aftermarket Auto (OEM and Tier) *includes export sales into China Strategy End market / value-added focused must be able to sustain meaningful differentiation Localization of manufacturing and R&D Develop local leadership and organizational capabilities based on future potential, not current size / scale 20

21 Longer-Term Growth Initiatives Three New Platforms for Growth Automotive Aftermarket Test and Measurement Electronics 21

22 Longer-Term Growth Initiatives : What to Expect Organic revenue: 5% to 6% Innovation Emerging markets New platforms Acquired revenues: 5% to 7% Privately held companies Private equity Public companies Revenues Operating margins for base businesses 50 to 70 basis points higher than prior peak periods 2009 restructuring and ongoing leverage drive margin improvement Operating Margins ROIC remains in sweet spot of 15% to 17% over next cycle We will continue to make growth investments that achieve returns above our cost of capital ROIC 22

23 ITW Forward - Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that may be identified by the use of words such as believe, expect, plans, intends, strategy, prospects, estimate, project, target, anticipate, guidance, and other similar words. These statements are subject to certain risks, uncertainties 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

24 Q & A 24