— llinois Tool Works Inc. on Friday outlined a five-year plan to cuts costs by consolidating units in the highly fragmented company.
"It's pretty though out there and it's only going to get tougher as we go forward," Scott Santi, ITW's chief executive, said at the company's annual meeting of investors held in New York City.
The strategy, Santi said, will allow the company to compete in a slower growth environment by focusing on a smaller number of business units. In total, ITW plans to divest up to 25 percent of its portfolio.
The Glenview-based diversified manufacturer operates as a decentralized conglomerate with roughly 800 business units that each generate annual revenue of $25 million to $30 million. As part of its strategy to cut costs and increase profit, the company plans to consolidate its businesses into about 150 units. Each is expected to generate average revenue of about $100 million a year.
For example, the company's 76 business units in its automotive segment will be reduced to 13. As a result, management positions will be reduced from 67 to 23.
"This is not about reinventing the company," Santi said. "It's about repositioning the company."
The plan, which was put into motion this year, is expected to be completed by 2017. It also calls for fewer and lumpier acquisitions and for the company to buy raw materials in bulk to negotiate better prices.
Restructuring expenses are projected to be between $100 million to $110 million in 2013.
ITW upgraded its fourth-quarter forecast to reflect the October sale of Wilsonart International and other businesses in its decorative surfaces segment. The deal, valued at $1.05 billion, represented about 51 percent of the company's stake in that segment.
Ron Kropp, ITW's senior vice president and chief financial officer, said that while he still expects negative revenues between 1 percent and 4 percent in fourth quarter, earnings are now expected to be between $1.99 and $2.09 per share. The previous forecast called for earnings between 86 cents and 94 cents per share.
The full year earnings estimate is now between $5.19 and $5.29 per share on a revenue range between breakeven and 1 percent. The previous full-year earnings forecast was between $4.06 and $4.14 per share.
Next year, the company expects revenue growth between 2 percent and 4 percent in North America and Asia Pacific, with flat sales from Europe.
The forecast, Kropp said, assumes that the U.S. economy will not fall off the so-called Fiscal Cliff and enter a recession. If it does, the impact will be impossible to predict, he said.
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