Illinois Tool Works Inc. (NYSE:ITW) Q4 2014 Earnings Conference Call - Final Transcript

Jan 27, 2015 • 10:00 am ET

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Illinois Tool Works Inc. (NYSE:ITW) Q4 2014 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Welcome, and thank you for standing by. At this time all participants are in a listen-only mode. (Operator Instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time. And now, I'd turn today's meeting over to Aaron Hoffman, Vice President of Investor Relations. Thank you sir, you may begin

Executive
Aaron Hoffman

Thank you. Good morning and welcome to ITW's Fourth Quarter 2014 Conference Call. Joining me this morning on our call our CEO, Scott Santi and Michael Larsen our CFO.During today's call, we will discuss our Q4 and full year financial results and update you on our earnings forecast. (Cautionary Forward-Looking Statements) With that, I will turn the call over to Scott.

Executive
Scott Santi

Thanks, Aaron and good morning. Overall we were pleased with our performance in the fourth quarter and for the full year as we continue to execute well on our enterprise strategy. In the fourth quarter earnings per share came in at $1.18, which was an increase of 28% versus Q4 of last year and $0.07 above the midpoint of our forecast. This above forecast earnings performance was driven primarily by margin performance that came in at the high end of what we expected heading into the quarter. Q4 operating margin improved to 190 basis points year-on-year with a 120 basis points of that improvement coming from enterprise strategy initiatives.

Organic revenues in the quarter were up 2.3% largely in line with our forecast with ongoing product line simplification activities reducing organic growth by roughly 1%. The quarter kept the solid year for ITW for the full year earnings per share increased 29%, operating income of 2.9 billion and operating margin of 19.9% were above all time records for the company. After tax return on invested capital improved 260 basis points to 18.9%. In 2014 we made significant progress on the execution of our strategy as we simplified the company through our business structure simplification initiative and generated cost savings from our strategic sourcing initiative that exceeded our plan.

We also completed the heavy lifting with regard to divestitures associated with our portfolio management initiative while our divisions continue to be very active in refining and narrowing the focus of their business portfolios to the implementation of our product line and customer base simplification initiatives. Free cash flow was strong in 2014

Executive
Scott Santi

and came in at 110% of adjusted net income through the combination of our strong free cash flow and divestiture proceeds in 2014 we were able to return a record 5 billion to our shareholders in the form of share repurchases and increased dividends.In summary ITW's unique and highly differentiated business model is delivering strong results as we continue to execute our strategy. As we enter year three of our five year plan we are well positioned to deliver another year of solid progress in 2015. I'd like to close by thanking all of our people around the world for the great job that they continue to do in serving our customers and