Illinois Tool Works Inc. ( ITW - Analyst Report ) reported its financial results for the fourth quarter and fiscal year 2011 on January 31. Earnings per share from continuing operations were 90 cents, an increase of 36.4% year over year and two cents above the Zacks Consensus Estimate of 88 cents and in line with the mid-point of management’s guidance range of 86-94 cents.

The reported quarter’s earnings excluded one cent of income from discontinued operations, including which earnings came in for roughly $1.00 per share.

For the fiscal year 2011, earnings per share came in at $4.08, excluding 11 cents of income from the continuing operations. Results surpassed the Zacks Consensus Estimate of $3.73.

Revenue

Operating revenue in the fourth quarter increased 10.4% year over year to $4,319.3 million, but failed to surpass the Zacks Consensus Estimate of $4,357 million.The year-over-year increase in operating revenue symbolized continued improvement in end-market demand. The year-over-year improvement was in line with management’s projected growth range of 9.5%-12.5%.

Of the total revenue, base revenue in the quarter grew 5.9% year over year, registering an 8.7% increase in North American and a 3.0% hike in international revenues. Acquisitions added 4.7% while currency translation negatively impacted revenue growth by 0.4%.

Revenue in the Power Systems and Electronics segment rose increased 16.0% year over year to $714.3 million in the quarter with base revenue increase of 10.2%, due to strong performance in the wielding and consumable business. Revenue in the Transportation segment soared 20.9% year over year to $757.4 million, with a base revenue increase of 8.7%.

Industrial Packaging soared 7.2% to $618.9 million while Food Equipment rose 3.8% to $507.0 million. Construction Products revenue increased 3.3% to $461.5 million; Polymers & Fluids revenue was $316.7 million, up 11.7% year over year; Decorative Surfaces revenue increased 2.9% to $248.1 million; and revenue from All Other sources increased 8.3% to $711.6 million. Intercompany revenue in the quarter was ($16.2) million.

For the fiscal year 2011, operating revenues were $17,786.6 million, an increase of 15.4% year over year. Results, however, lagged behind the Zacks Consensus of $17,877 million.

Margins

Cost of goods sold in the quarter increased 7.4% year over year and represented 64.8% of total revenue; slightly down from 66.6% in the year-ago quarter. Selling, administrative and R&D expenses, as a percentage of total revenue, stood at 18.6%. Operating margin in the quarter was 15.0%, up 270 basis points year over year.

Balance Sheet

Exiting the fourth quarter, Illinois Tool Works’ cash and cash equivalents decreased 10.7% sequentially to approximately $1,177.9 million. Long-term debt, net of current portion decreased to $3,488.2 million from $3,522.1 million in the third quarter of 2011.

Cash Flow

Net cash flow from operating activities in the quarter was $711.7 million, up from $356.2 million in the year-ago quarter. Capital expenditure increased to $94.5 million versus $88.1 million in the year-ago quarter. Free cash flow was approximately $617.2 million versus $268.0 million in the third quarter of 2010.

Outlook

For full-year 2012, management expects earnings in the range of $4.02-$4.26 based on total revenue growth assumption of 5.0%-8.0%. Earnings for the first quarter of 2012 are expected to be within the 89-97 cents range based on total revenue growth assumption of 6.0%-9.0%.

Illinois Tool Works is one of the leading manufacturers of industrial products and equipment. The company’s chief competitors include Cooper Industries plc ( ) , General Electric Co. ( GE - Analyst Report ) and Manitowoc Co. Inc. ( MTW - Analyst Report ) .

We currently maintain a Neutral recommendation on the stock.