Illinois Tool Works Inc. · NYSE:ITW
Illinois Tool Works — Investor Day (December 2012)
121 slides from Illinois Tool Works's investor day presentation, Dec 14, 2012
Slide 1: Welcome to ITW's Annual Investor Meeting
Welcome to ITW’s Annual Investor Meeting New York City December 14, 2012 SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR.
Slide 2: David B. Speer 1951-2012
David B. Speer 1951-2012 SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 2
Slide 3: Today's Agenda
Today’s Agenda 9:00 to 9:10am Welcome and Meeting Overview John Brooklier, Vice President Investor Relations 9:10 to 9:30am 2012 Financial Update 2013 Organic Growth Perspectives Ron Kropp, Senior Vice President & CFO BREAK 9:45 to 11:45am Enterprise Strategy • ITW Core Capabilities • Key Enterprise
Slide 4: Today's Presenters
Today’s Presenters Scott Santi, President & Chief Executive Officer ● 30-year tenure with ITW ● Named president & chief executive officer in 2012 David Parry, Vice Chairman ● 18-year tenure with ITW ● Named vice chairman in 2010 Ron Kropp, Senior Vice President & Chief Financial Officer ● 19-year te
Slide 5: Forward-Looking Statements; Non-GAAP Measures
Forward-Looking Statements The remarks made by ITW representatives at this meeting contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding operating income, organic revenue growth, growth in ope
Slide 6: Financial Update
Financial Update Ron Kropp, SVP & CFO SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR.
Slide 7: 2012 Forecast
2012 Forecast Q4 Full Year October Current October Current Forecast (2) Forecast Forecast (2) Forecast Total Revenue (1%) - (4%) (1%) - (4%) 0% - 1% 0% - 1% Diluted EPS from Continuing Operations $0.86 - $0.94 $1.99 - $2.09 $4.06 - $4.14 $5.19 - $5.29 % F/(U) to 2011 Diluted EPS from (4%) - 4% NM 8%
Slide 8: 2012 Forecast Reconciliation
2012 Forecast Reconciliation Q4 Full Year EPS EPS range range December forecast $1.99 - $2.09 $5.19- $5.29 Divestitures, including $1.30 - $1.36 $1.30 - $1.36 Decorative Surfaces net gain Decorative Surfaces equity ($0.04) ($0.04) interest Q4 discrete corporate items ($0.04) ($0.04) Q4 discrete tax
Slide 9: Decorative Surfaces Ongoing Impact
Decorative Surfaces Ongoing Impact ● Historical financials will not be restated to Discontinued Operations as ITW will retain a significant continuing interest ● Decorative Surfaces proforma impact*: Year Revenue Operating Margins 2012 (through 10/31/12) $923 million 15.7% 2011 $1,084 million 14.2%
Slide 10: 2012 Capital Allocation
2012 Capital Allocation Use of Capital 2012(F) ● Strong balance sheet with disciplined and return-focused capital allocation approach ● Expect to convert ~100% of income from continuing operations to free 29% 25% cash in 2012(F) ● Cash balances overseas ($2.1 billion as of September 30, 2012) used m
Slide 11: What We Said vs. What Happened
Geography Overview What We Said vs. What Happened 2012(F) 2012(F) Organic Organic Geography Factors Revenue Growth Revenue Growth December 2011 December 2012* U.S. driven by solid North America 4% to 5% 5% industrial/auto production Weaker European EMEA Flat -3% economic environment Asia Pacific & W
Slide 12: ITW 2013 Growth Assumptions
Summary ITW 2013 Growth Assumptions North America, Europe and Asia Pacific expected to perform at different levels North America: 2% to 4% Europe: flat ? Asia Pacific & Other: 2% to 4% ITW 2013 total company organic growth rate(F): 1% to 3% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 12
Slide 13: Q&A
Q&A SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR.
Slide 14: BREAK
BREAK SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR.
Slide 15: Enterprise Strategy
Enterprise Strategy Scott Santi, President & CEO David Parry, Vice Chairman Ron Kropp, SVP & CFO SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR.
Slide 16: Enterprise Strategy: 2012 – 2017
Enterprise Strategy: 2012 – 2017 ITW’s Unique Differentiated Core Capabilities Performance 80/20 Business Model Position the company to generate Solid Growth maximum leverage and performance impact from ITW’s unique core capabilities in the Sustainable context of an increasingly Strong Differentiati
Slide 17: Enterprise Strategy: 2012 – 2017
Enterprise Strategy: 2012 – 2017 ITW’s Unique Differentiated Core Capabilities Performance Increasingly Challenging 80/20 Business External Environment Solid Growth Model Key Enterprise Initiatives • Portfolio Management Sustainable Strong Differentiation • Business Structure Returns Simplification
Slide 18: Financial Performance Scenarios
Enterprise Strategy: 2012 – 2017 Financial Performance Scenarios Organic Total Global Divestitures Revenue Revenue EPS Industrial Net of Growth Growth CAGR Production Acquisitions CAGR CAGR Low 2% 3.5% -2.5% 1% 7% to 9% Mid 3% 4.5% -2.5% 2% 9% to 11% High 4% 5.5% -2.5% 3% 11% to 13% SOLID GROWTH. ST
Slide 19: Performance Goals
Enterprise Strategy: 2012 – 2017 Performance Goals • 200 basis points above global Organic growth industrial production by 2017 Operating margins • 20%+ by 2017 Return on invested • 20%+ by 2017 capital Free operating cash • 100%+ over five-year period flow conversion EPS Growth Target: 12%+ CAGR be
Slide 20: Enterprise Strategy: 2012 – 2017
Enterprise Strategy: 2012 – 2017 ITW’s Unique Differentiated Core Capabilities Performance 80/20 Increasingly Challenging Business External Environment Solid Growth Model Key Enterprise Initiatives • Portfolio Management Sustainable Strong Differentiation • Business Structure Returns Simplification
Slide 21: Operating Environment
Operating Environment The external operating environment continues to evolve… Fundamental Continued changes in the globalization of Slower growth competitive end markets landscape SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 21
Slide 22: Enterprise Strategy: 2012 – 2017
Enterprise Strategy: 2012 – 2017 ITW’s Unique Differentiated Core Capabilities Performance Increasingly Challenging 80/20 Business External Environment Solid Growth Model Key Enterprise Initiatives • Portfolio Management Sustainable Strong Differentiation • Business Structure Returns Simplification
Slide 23: 80/20 Business Model
ITW’s Unique Core Capabilities 80/20 Business Model 80/20 Sustainable Entrepreneurial Business Model Differentiation Culture ITW’s 80/20 business model is a proprietary operating process that identifies the key customer and product profit drivers in a business and structures the entire business to f
Slide 24: 80/20 Impact on Acquisitions
ITW’s Unique Core Capabilities 80/20 Impact on Acquisitions Acquisition A – Financial/Operating Progress 2005 to 2012 Before After Revenue $220 million $390 million Operating Margins 12% 27% ROIC 6% 22% Number of Products 4,010 2,328 Number of Customers 2,217 1,744 80/20 drives improved performance!
Slide 25: 80/20 Impact on Acquisitions
ITW’s Unique Core Capabilities 80/20 Impact on Acquisitions Acquisition B – Financial/Operating Progress 2005 to 2012 Before After Revenue $114 million $150 million Operating Margins 17% 26% ROIC 11% 24% Number of Products 1,435 718 Number of Customers 1,938 906 80/20 drives improved performance! SO
Slide 26: 80/20 Impact on Core Businesses: Food Machines
ITW’s Unique Core Capabilities 80/20 Impact on Core Businesses Segment: Food Equipment Division: Food Machines ● ITW food machines are known for quality, reliability and superb performance for the food service industry RESULTS Operating Margins +800 bps Number of Products 64% reduction SOLID GROWTH.
Slide 27: 80/20 Impact on Core Businesses: Thermal Chambers
ITW’s Unique Core Capabilities 80/20 Impact on Core Businesses Segment: Instron Division: Thermal Chambers ● Instron thermal chambers are the accessories that control the temperature of specimens undergoing testing on an Instron machine RESULTS Operating Margins +540 bps Number of Products 88% reduc
Slide 28: 80/20 drives improved performance
ITW’s Unique Core Capabilities 80/20 Business Model 80/20 drives improved performance Operating margins, ROIC Customer service profitability, attributes: cash flow delivery, cost, quality SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 28
Slide 29: Sustainable Differentiation
ITW’s Unique Core Capabilities Sustainable Differentiation 80/20 Sustainable Entrepreneurial Business Model Differentiation Culture ITW’s business model is squarely centered on constantly seeking ways to deliver differentiated value-add for our key (“80”) customers SOLID GROWTH. STRONG RETURNS. BEST
Slide 30: Sustainable Differentiation: Innovation
ITW’s Unique Core Capabilities Sustainable Differentiation 80/20 enabled Small-scale differentiation Game changing innovation Innovation is a critical element of differentiation SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 30
Slide 31: Miller PipeWorx
ITW’s Unique Core Capabilities Sustainable Differentiation Platform: Oil & Gas Customer/End Market: Process pipe installers ●Key customer pain points: – Extremely demanding welding field environment – Downtime cost a major issue for customers – Fewer skilled welders ●ITW solution: Miller PipeWorx –
Slide 32: ITW Warehouse Automation
ITW’s Unique Core Capabilities Sustainable Differentiation Platform: Global Packaging Solutions Customer/End Market: Beverage manufacturers ●Key customer pain points: – Managing increasing SKU counts and mixed pallet requirements – Productivity and accuracy ●ITW solution: ITW Warehouse Automation –
Slide 33: Video – ITW Warehouse Automation
ITW’s Unique Core Capabilities Sustainable Differentiation VIDEO – ITW Warehouse Automation SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 33
Slide 34: Ball Stat
ITW’s Unique Core Capabilities Sustainable Differentiation Platform: Engine Thermo Management Customer/End Market: OEM/Tiers ●Key customer pain points: – Need for improved fuel efficiency – Increasingly challenging vehicle emissions standards ●ITW solution: Ball Stat® – Replaces conventional thermos
Slide 35: Entrepreneurial Culture
ITW’s Unique Core Capabilities Entrepreneurial Culture 80/20 Sustainable Entrepreneurial Business Model Differentiation Culture Flexibility Results Autonomy + Decentralized within a driven accountability framework SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 35
Slide 36: Entrepreneurial Culture
ITW’s Unique Core Capabilities Entrepreneurial Culture ITW’s people and our culture are key elements of our competitive advantage! Ability to react quickly and Superior financial effectively to: performance •Customer needs for the company •Market conditions SOLID GROWTH. STRONG RETURNS. BEST-IN-CLAS
Slide 37: Video – Innovation
ITW’s Unique Core Capabilities Entrepreneurial Culture VIDEO – Innovation SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 37
Slide 38: Video – Decentralization
ITW’s Unique Core Capabilities Entrepreneurial Culture VIDEO – Decentralization Operations Manager SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 38
Slide 39: Portfolio Management
Key Initiatives Portfolio Management ITW’s Unique Differentiated Core Capabilities Performance 80/20 Increasingly Challenging Business External Environment Solid Growth Model Key Enterprise Initiatives • Portfolio Management Sustainable Strong Differentiation • Business Structure Simplification Retu
Slide 40: Portfolio Management
Key Initiatives Portfolio Management Focus the company on the businesses best positioned to fully leverage all of ITW’s unique core capabilities in an increasingly challenging future operating environment SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 40
Slide 41: Portfolio Composition
Key Initiatives Portfolio Management Portfolio Portfolio Composition Segmentation Shift sustainable Align performance differentiation from a objectives, resources, and desirable to a “must have” capital allocation with attribute profitable growth potential SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS
Slide 42: Portfolio Segmentation – Three Groups
Key Initiatives Portfolio Management Portfolio Segmentation – Three Groups 40% of Accelerated Growth portfolio 35% of Market Rate Growth portfolio 25% of Commoditizing portfolio SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 42
Slide 43: Commoditization Impact
Key Initiatives Portfolio Management Portfolio Composition: Commoditization Impact Operational Shifting Commoditizing We will divest excellence alone sustainable businesses commoditizing is no longer differentiation currently in our businesses: up enough from a portfolio to 25% of “desirable” to a n
Slide 44: Key Divestitures – 2012
Key Initiatives Portfolio Management Key Divestitures – 2012 DECORATIVE OTHER NON-CORE FINISHING SURFACES BUSINESSES • Retained a 49% equity • Cash proceeds of • Divested several smaller interest approximately $650 businesses • Cash proceeds of million • Other divested revenues: approximately $1.05
Slide 45: Portfolio Segmentation – Three Groups
Key Initiatives Portfolio Management Portfolio Segmentation – Three Groups ATTRIBUTES STRATEGIES • Robust core competitive advantages • Accelerated growth • Strong sustainable differentiation posture 40% Accelerated attributes • Investments in organic of Growth • Positive long-term growth and strate
Slide 46: Accelerated Growth: Welding Oil and Gas
Key Initiatives Portfolio Management Accelerated Growth: Segment: Welding Platform: Oil and Gas ● Competitive advantages: Strong market position/customer knowledge Customer specific innovation Simpler user interfaces Orbital cutting, heating and insulation technologies ● Market attributes:
Slide 47: Portfolio Segmentation – Three Groups
Key Initiatives Portfolio Management Portfolio Segmentation – Three Groups ATTRIBUTES STRATEGIES • Robust core competitive advantages • Accelerated growth • Strong sustainable differentiation posture 40% Accelerated attributes • Investments in organic of Growth • Positive long-term growth and strate
Slide 48: Market Rate Growth: Construction Products
Key Initiatives Portfolio Management Market Rate Growth: Segment: Construction Products Platform: Residential Construction ● Competitive advantages: Industry leading brands Cordless fastening technology Innovative fastening solutions ● Market attributes: Average overall market growth Above
Slide 49: Segment Structure
Key Initiatives Portfolio Management Current 2012 Segment Structure New 2013 Automotive aftermarket moved to Polymers & Fluids. Transportation Automotive OEM Truck remanufacture & service moved to Specialty Products Power Systems & Welding becomes independent segment. Electronics Welding Electronics
Slide 50: Disciplined portfolio management strategy
Key Initiatives Portfolio Management Disciplined portfolio management strategy Acquisitions focused on accelerated growth platforms Divest differentiation “challenged” businesses SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 50
Slide 51: Business Structure Simplification
Key Initiatives Business Structure Simplification ITW’s Unique Differentiated Core Capabilities Performance 80/20 Increasingly Challenging Business External Environment Solid Growth Model Key Enterprise Initiatives • Portfolio Management Sustainable Strong Differentiation • Business Structure Simpli
Slide 52: Business Structure Simplification
Key Initiatives Business Structure Simplification Simplify and scale up operating approach and structure in order to improve focus and enhance global competitiveness SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 52
Slide 53: Number of Divisions and Average Division Revenue
Key Initiatives Business Structure Simplification Number of Divisions Average Division Revenue ~800 $100M ~150 $25M Before After Before After SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 53
Slide 54: Business Structure Simplification Benefits
Key Initiatives Business Structure Simplification Benefits More focused growth investments: Profitable – Marketing Growth – Innovation – Emerging markets Significant margin improvement from: Improved – Reduced management infrastructure Margins – “Front to back” reapplication of 80/20 to the scaled-u
Slide 55: What it looks like
Key Initiatives Business Structure Simplification What it looks like… BEFORE AFTER NA EUROPE GLOBAL $35M $35M $100M • Global market view China Brazil • From regional to global $15M $15M management structure • Simplified back offices • Streamlined manufacturing footprint SOLID GROWTH. STRONG RETURNS.
Slide 56: Automotive OEM Simplification
Key Initiatives Business Structure Simplification Automotive OEM General Management Business Divisions Positions 76 67 23 13 Before After Before After SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 56
Slide 57: Polymers & Fluids Simplification
Key Initiatives Business Structure Simplification Polymers & Fluids General Management Business Divisions Positions 56 56 23 17 Before After Before After SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 57
Slide 58: Business Structure Simplification Summary
Key Initiatives Business Structure Simplification Simplified and scaled up operating approach to improve focus and improve margins while preserving ITW’s entrepreneurial culture SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 58
Slide 59: Strategic Sourcing
Key Initiatives Strategic Sourcing ITW’s Unique Differentiated Core Capabilities Performance 80/20 Increasingly Challenging Business External Environment Solid Growth Model Key Enterprise Initiatives • Portfolio Management Sustainable Strong Differentiation • Business Structure Simplification Return
Slide 60: Strategic Sourcing
Key Initiatives Strategic Sourcing Leverage purchasing scale to enhance profitability and global competitiveness SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 60
Slide 61: Strategic Sourcing: $11 billion addressable spend
Key Initiatives Strategic Sourcing … To highly From highly fragmented, coordinated, under-leveraged… heavily-leveraged $ $11 billion addressable spend SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 61
Slide 62: Strategic Sourcing: Transform, Build, Execute
Key Initiatives Strategic Sourcing sourcing into a core strategic Transform… function sourcing organization and Build… capabilities at both the Enterprise and Segment levels sequential waves from 2012 to 2017 Execute… SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 62
Slide 63: Addressable Spend
Key Initiatives Strategic Sourcing Addressable Spend: ~$11 billion ● Enterprise-led Spend 53% – Global direct materials or indirect materials/services used widely across the company ● Segment-led Spend 47% – Direct and indirect materials specific to segment SOLID GROWTH. STRONG RETURNS. BEST-IN-CLAS
Slide 64: Build a Sourcing Organization and Leverage Scale
Key Initiatives Strategic Sourcing Build a Sourcing Organization and Leverage Scale Enterprise • Chief procurement officer Leadership • Major commodity lead sourcing Enterprise Level professionals Segment • Segment sourcing directors Level Transition • PwC as external consultants Support SOLID GROWT
Slide 65: Sourcing Process
Key Initiatives Strategic Sourcing Sourcing Process 100% Commodity Sourcing 80% Changing Five Step Process: specifications 1. Analyze Data Percentage of savings 60% 2. Bid Process 3. Implementation 40% Switching suppliers 4. Savings • Back leverage • Switching suppliers 20% • Changing specifications
Slide 66: Sourcing Waves
Key Initiatives Strategic Sourcing Sourcing Waves 2012 2013 2014 2015 2016 2017 Wave 1: 30% of addressable spend Wave 2: 30% of addressable spend Wave 3 Waves 3-5: 40% of Wave 4 addressable spend Wave 5 SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 66
Slide 67: Sourcing Wave 1
Key Initiatives Strategic Sourcing Wave 1 Spend Lead Commodity Category Logistics, Distribution, Energy, Packaging, Temp Labor, Indirect Enterprise Travel, IT, Telecom Steel (coil and wire) Direct Enterprise Steel (other), chemicals, fasteners Direct Segment 2-3 key categories per segment SOLID GROW
Slide 68: Strategic Sourcing Summary
Key Initiatives Strategic Sourcing Leverage scale to enhance profitability and global competiveness Transform sourcing into a core strategic function SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 68
Slide 69: Enterprise Strategy: 2012 – 2017
Enterprise Strategy: 2012 – 2017 ITW’s Unique Differentiated Core Capabilities Performance 80/20 Increasingly Challenging Business External Environment Solid Growth Model Key Enterprise Initiatives • Portfolio Management Sustainable Strong Differentiation • Business Structure Returns Simplification
Slide 70: Capital Allocation Strategy Priorities
Capital Allocation Strategy Priorities Organic Investments Dividends External Investments Allocated based on best risk-adjusted returns Share Repurchases Acquisitions SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 70
Slide 71: Organic Investments
Capital Allocation Strategy Organic Investments Focus on investments that drive organic growth and/or improve margins R&D/Innovation Capital Geographic and Restructuring expenditures end market projects penetration SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 71
Slide 72: Dividends
Capital Allocation Strategy Dividends $ per Share Paid $1.84** ● Fifty consecutive years of $1.38 increasing dividends per share* $1.24 $1.27 $1.15 ● Expect to continue strong return to shareholders via dividends ● Dividend payout guideline of 30% to 45% of the average of the last two years free ope
Slide 73: External Investments: Share Repurchases
Capital Allocation Strategy External Investments: Share Repurchases U.S. after-tax proceeds of divestitures will be used for share repurchases Share repurchases are a consistent part of capital allocation strategy Normal share repurchases will be a minimum of $300 to $500 million annually SOLID GROW
Slide 74: External Investments: Acquisitions
Capital Allocation Strategy External Investments: Acquisitions Strong sustainable Focus on differentiation Meaningful accelerated potential margin growth segments improvement and platforms potential from 80/20 Highly disciplined and focused acquisition strategy Target: ROIC significantly above the c
Slide 75: Enterprise Strategy: 2012 – 2017
Enterprise Strategy: 2012 – 2017 ITW’s Unique Differentiated Core Capabilities Performance 80/20 Increasingly Challenging Business External Environment Solid Growth Model Key Enterprise Initiatives • Portfolio Management Sustainable Strong Differentiation • Business Structure Returns Simplification
Slide 76: Enterprise Strategy: 2012 – 2017 Targets
Enterprise Strategy: 2012 – 2017 Organic growth: • Portfolio mix and larger- Solid Growth scale businesses 200 bps • Focused acquisitions above global IP by 2017 EPS Growth • Highly disciplined ROIC: Target : capital allocation Strong Returns strategy 20%+ 12%+ • Key enterprise initiatives by 2017 C
Slide 77: Timing of Key Initiatives
Enterprise Strategy: 2012 – 2017 Timing of Key Initiatives 2013 2014 2015 2016 2017 Portfolio Management / Divestitures Business Structure Simplification Strategic Sourcing more impact → less impact SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 77
Slide 78: Enterprise Performance 2012 – 2017
Enterprise Performance 2012 – 2017 2017 and Continual improvement beyond: 20%+ in total ITW operating margins over next 5 years 2012: 16.0% 2012 2017 SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 78
Slide 79: Enterprise Strategy: 2012 – 2017
Enterprise Strategy: 2012 – 2017 ITW’s Unique Differentiated Core Capabilities Performance Increasingly Challenging 80/20 Business External Environment Solid Growth Model Key Enterprise Initiatives • Portfolio Management Sustainable Strong Differentiation • Business Structure Returns Simplification
Slide 80: Summary
Summary “We are moving to a different strategic view of our business, but not destroying the culture that has made this a strong company. We didn't get to be 100 years old by not changing.” ‒David B. Speer Wall Street Journal, August 31, 2012 We will be the same ITW — only more focused, more efficie
Slide 81: Q&A
Q&A SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR.
Slide 82: Appendix
Appendix SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR.
Slide 83: Supplemental Data: 2012 and 2013 Trends
Supplemental Data 2012 and 2013 Trends SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 83
Slide 84: 2012 Economic Trend Review
2012 Economic Trend Review U.S. Industrial Production 1.7% (October 2012) U.S. ISM 51.7% (October 2012) NA Auto Builds 15.2 million units (2012 Forecast) U.S. Housing Starts 780k (2012 Forecast) EuroZone Industrial Production -2.9% (September 2012) EuroZone PMI 45.4% (October 2012) Euro Auto Builds
Slide 85: 2012 Economic Trend Review
2012 Economic Trend Review Except for the U.S., Global Markets Underperformed IHS Forecasts Provided Last Year IHS Global Insight 2012 Industrial Production World U.S. 2012 Forecast: November 2012 2012 Forecast: November 2011 2012 Forecast: 2012 Forecast: November 2011 November 2012 3.9% 3.7% 1.9% 2
Slide 86: 2013 Economic Trend Outlook
2013 Economic Trend Outlook IHS Global Insight 2013 Projections* Industrial Production 4.9% 2.4% 2.0% -0.8% World U.S. EuroZone Asia Pacific *as of November 23, 2012 SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 86
Slide 87: 2013 Key End Market Outlook
2013 Key End Market Outlook 2013 2012 950k 780k U.S. Housing Starts (Source: John Burns) (Source: John Burns) NA Auto Builds 15.4 to 15.6 million units (Source: CSM) 15.2 million units (Source: CSM) Euro Auto Builds 18.5 to 18.7 million units (Source: CSM) 19.0 million units (Source: CSM) Rest o
Slide 88: Supplemental Data: End Market and Geographic Diversification
Supplemental Data End Market and Geographic Diversification ITW Reporting Segment Overview SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 88
Slide 89: End Market and Geographic Diversification
End Market and Geographic Diversification SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR.
Slide 90: End Market Diversification
End Market Diversification Percent of Total Company Revenues Revenues $8.7 billion* $17 billion 11% All Other 17% General Industrial 16% Food Institutional / Service 20% Auto OEM & Tiers 15% Primary Metals 12% Electronics 17% 13% Consumer Durables 3% Beverage & Food 3% 4% 4% 4% 6% 4% Auto Aftermarke
Slide 91: Geographic Diversification
Geographic Diversification Emerging Markets Help Drive Asia Pacific/Other Growth by 2017 North America 49% 66% EMEA 30% Asia Pacific/Other 26% 21% 8% 2002 2012(F) SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 91
Slide 92: Total Company Revenues by Product Category
Total Company Revenues 2012(F) Revenues by Product Category Equipment & Tools 27% Service & Parts 11% Consumables 62% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 92
Slide 93: ITW Reporting Segment Overview
ITW Reporting Segment Overview SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR.
Slide 94: New 2013 External Segment Structure
Key Initiatives Portfolio Composition New 2013 External Segment Structure 2012(F) Revenues by Segment Test & Industrial Measurement Automotive Polymers & Food Construction Specialty Welding Packaging and OEM Fluids Equipment Products Products Electronics 14% 14% 13% 13% 11% 11% 11% 13% of total of t
Slide 95: Industrial Packaging
Industrial Packaging Steel, plastic and paper products used for bundling, shipping and protecting transported goods 14% 13% 11% 14% 11% 13% 11% 13% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 95
Slide 96: Industrial Packaging Revenues
Industrial Packaging Worldwide Revenues 2012(F) By End Market By Geography 22% 18% 24% 48% 8% 9% 23% 34% 14% General Industrial Primary Metals North America Food & Beverage Paper Products EMEA Construction Other Asia Pacific/Other SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 96
Slide 97: Industrial Packaging by Product Category
Industrial Packaging Worldwide Revenues 2012(F) By Product Category Equipment and Tools Consumables 12% 80% Service and Parts 8% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 97
Slide 98: Test & Measurement and Electronics
Test & Measurement and Electronics Equipment and related software for testing and measuring of materials and structures, metal solder materials for PC board fabrication, and equipment and services for microelectronics assembly 13% 14% 11% 14% 11% 13% 11% 13% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLA
Slide 99: Test & Measurement and Electronics Revenues
Test & Measurement and Electronics Worldwide Revenues 2012(F) By End Market By Geography 30% 27% 38% 41% 5% 5% 6% 27% 21% General Industrial Electronics North America Auto OEM & Tiers Consumer Durables EMEA Energy Other Asia Pacific/Other SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 99
Slide 100: Test & Measurement and Electronics by Product Category
Test & Measurement and Electronics Worldwide Revenues 2012(F) By Product Category Equipment and Tools 54% Service and Parts 12% Consumables 34% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 100
Slide 101: Automotive OEM
Automotive OEM Components and fasteners for transportation-related applications. 13% 14% 11% 14% 11% 13% 11% 13% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 101
Slide 102: Automotive OEM Revenues
Automotive OEM Worldwide Revenues 2012(F) By End Market By Geography 8% 18% 7% 47% 35% 85% North America Auto OEM/Tiers General Industrial Other EMEA Asia Pacific/Other SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 102
Slide 103: Automotive OEM by Product Category
Automotive OEM Worldwide Revenues 2012(F) By Product Category Consumables 100% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 103
Slide 104: Polymers & Fluids
Polymers & Fluids Adhesives, sealants, lubrication and cutting fluids, and janitorial and sanitation supplies; and fluids and polymers for auto aftermarket maintenance and appearance 13% 14% 11% 14% 11% 13% 11% 13% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 104
Slide 105: Polymers & Fluids Revenues
Polymers & Fluids Worldwide Revenues 2012(F) By End Market By Geography 21% 22% 39% 3% 49% 8% 10% 29% 19% Automotive Aftermarket General Industrial North America MRO Construction EMEA Consumer Durables Other Asia Pacific/Other SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 105
Slide 106: Polymers & Fluids by Product Category
Polymers & Fluids Worldwide Revenues 2012(F) By Product Category Consumables 98% Equipment and Tools 1% Service and Parts 1% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 106
Slide 107: Food Equipment
Food Equipment Commercial food equipment and related service 13% 14% 11% 14% 11% 13% 11% 13% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 107
Slide 108: Food Equipment Revenues
Food Equipment Worldwide Revenues 2012(F) By End Market By Geography 4% 8% 16% 44% 52% 40% 36% Food Institutional/Restaurant North America Food Service EMEA Food Retail Other Asia Pacific/Other SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 108
Slide 109: Food Equipment by Product Category
Food Equipment Worldwide Revenues 2012(F) By Product Category Service and Parts 35% Equipment and Tools 65% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 109
Slide 110: Construction Products
Construction Products Design and manufacture construction fastening systems and truss products for the commercial, residential and remodeling/rehab sectors 13% 14% 11% 14% 11% 13% 11% 13% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 110
Slide 111: Construction Products Revenues
Construction Products Worldwide Revenues 2012(F) By End Market By Geography 24% 32% 32% 48% 28% 36% Residential Construction North America Renovation Construction EMEA Commercial Construction Asia Pacific/Other SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 111
Slide 112: Construction Products by Product Category
Construction Products Worldwide Revenues 2012(F) By Product Category Equipment and Tools 13% Consumables Service and 84% Parts 3% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 112
Slide 113: Welding
Welding Design and manufacture arc welding equipment, consumables, and accessories for a wide array of industrial and commercial applications 13% 14% 11% 14% 11% 13% 11% 13% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 113
Slide 114: Welding Revenues
Welding Worldwide Revenues 2012(F) By End Market By Geography 17% 21% 33% 3% 4% 6% 12% 9% 67% 16% 12% General Industrial Energy North America Shipbuilding MRO EMEA Commercial Construction Primary Metals Auto OEM & Tiers Other Asia Pacific/Other SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 1
Slide 115: Welding by Product Category
Welding Worldwide Revenues 2012(F) By Product Category Equipment and Tools 53% Service and Parts 7% Consumables 40% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 115
Slide 116: Specialty Products
Specialty Products Specialty Products includes beverage multi-pack, plastic reclosable packaging, plastic consumables, and truck remanufacture and service 13% 14% 11% 14% 11% 13% 11% 13% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 116
Slide 117: Specialty Products Revenues
Specialty Products Worldwide Revenues 2012(F) By End Market By Geography 12% 25% 27% 4% 29% 59% 12% 16% 16% Beverage & Food Truck Remanufacturing North America General Industrial Consumer Durables EMEA Airlines Other Asia Pacific/Other SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 117
Slide 118: Specialty Products by Product Category
Specialty Products Worldwide Revenues 2012(F) By Product Category Equipment and Tools 21% Service and Parts 22% Consumables 57% SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR. 118
Slide 119: ITW Segment Overview
ITW Segment Overview 2012(F) 2013(F) Segment Organic Revenue Growth Organic Revenue Growth Industrial Packaging 1% -1% to 1% Test & Measurement 4% 1% to 3% and Electronics Automotive OEM 7% 5% to 7% Polymers & Fluids -4% -2% to flat Food Equipment 1% 1% to 3% Construction Products -2% 1% to 3% Weldi
Slide 120: Non-GAAP Reconciliation
Non-GAAP Reconciliation SOLID GROWTH. STRONG RETURNS. BEST-IN-CLASS OPERATOR.
Slide 121: Free Operating Cash Flow
Free Operating Cash Flow The Company uses free operating cash flow to measure cash flow generated by operations that is available for dividends, acquisitions, share repurchases and debt repayment. Free operating cash flow represents net cash provided by operating activities less additions to plant a