ITW reports 3 % decline in revenues for Q3 2001

Illinois Tool Works Inc., Glenview, IL, reported that 2001 third quarter diluted earnings per share decreased 25 % versus the prior year period primarily as a result of continued slowing in many of the company's North American end markets, many of which were further weakened in the aftermath of the events of Sept. 11.

Operating revenues were down 3% and operating income and net income both declined 25% during the 2001 third quarter.

Net income for the 2001 third quarter decreased to $199.1 million from $264.1 million for the 2000 third quarter.

The decrease in third quarter earnings primarily was the result of declines in North American base business revenues, especially during the month of Sept. when the company experienced a further fall off in demand due to disruptions tied to Sept. 11. Base business declined 7 % for the third quarter, similar to the first two quarters of the year. For the 2001 third quarter, operating revenues were $2.40 billion versus $2.47 billion from the year earlier period. Operating income was $327.6 million compared to $434.3 million for the same period.


Nine month 2001 net income of $614.6 million decreased 19 % compared with $756.5 million for the 2000 period. Diluted earnings per share of $2.01 was 19 % lower than the $2.49 for the year earlier period. Operating revenues and operating income also declined 2 % and 19 %, respectively, versus the prior year period.


The Company's cash generation from operations continued to be strong in the quarter and reflected reduced working capital and capital expenditures as a result of the slower economy. On a year to date basis, the company's invested capital declined $145 million, excluding the effect of acquisitions. Coupled with $615 million of net income, these two components resulted in free cash of $760 million year to date. As a result, the company has been able to fund a $530 million acquisition program, pay dividends of $182 million and hold $48 million in reserve.


"In light of the events of Sept. 11, and its impact on an already weak economy and our related end markets, we continue to focus on a variety of projects to improve the long-term operating performance of the company," said W. James Farrell, chairman and CEO. "For the longer-term, during the third quarter we invested approximately $14 million in restructuring projects in a variety of our businesses which will give us significant paybacks when our end markets return to more normalized growth rates. Shorter term, we are focusing on cost reductions to help offset end market dislocations. Our SG&A costs actually declined 4 % for the third quarter when you exclude costs associated with acquisitions."


Third quarter 2001 segment highlights include:

North American Engineered Products revenues and operating income declined 5 % and 24 %, respectively, primarily due to the slowdown in ITW businesses manufacturing short-lead time products for the automotive, construction, consumer durable and electronic component packaging sectors. The falloff in revenues, combined with lower margin acquired businesses and restructuring costs, translated into a 420 basis point decline in third quarter operating margins.

International Engineered Products revenues dropped 9 % as a result of the impact of translation. Base business revenues were flat as growth in construction and auto was offset by declines in the industrial and electronics businesses. Operating income declined 27 % due to weakness in industrial and electronics end markets, and the effect of translation. As a result, operating margins were down 250 basis points.

North American Specialty Systems revenues increased 5 % largely due to contributions from acquisitions which offset weaker base business performance. Operating income declined 26 % as demand for both systems and consumables in the finishing, industrial packaging and food equipment slackened in the

third quarter. Sales volume declines, together with acquisition and restructuring costs, translated into an operating margin decline of 530 basis points for the quarter.

International Specialty Systems revenues and operating income decreased 8 % and 32 %, respectively, due to the impact of translation and weakness in the industrial and consumer packaging businesses. The drop in operating income for the packaging and other specialty businesses more than offset growth from the food equipment, finishing and welding businesses. This translated into a margin decline of 310 basis points for the quarter.

Consumer Products revenues declined 16 % and operating income grew 3 % mainly due to improved operating performance at Florida Tile. Operating margins also improved 60 basis points in the third quarter.
Leasing and Investments operating income was flat in the third quarter based on the segment's predictable income streams.

Looking ahead, the Company is revising its previous forecast based on what it believes will be slower than originally anticipated end market conditions for the 2001 fourth quarter. The Company is forecasting fourth quarter earnings per share on a fully diluted basis to be in the range of 59 cents to 69 cents. For the full year, the Company is forecasting earnings per share on a fully diluted basis to be in the range of $2.60 to $2.70.