Earnings Scorecard: Illinois Tool

Illinois Tool Works Inc’s ( ITW - Analyst Report ) first quarter 2012 results not only highlighted the company’s growth on a year-over-year basis but also impressed all by the future outlook as communicated by management. Let’s take a brief look at the company’s financials for the first quarter 2012:

Earnings Review

The tool-maker registered a 10.2% year-over-year earnings growth and 6.4% top-line increase. Earnings per share settled at 97 cents, at the top-end of management’s guidance range of 89-97 cents and 2 cents above the Zacks Consensus Estimate.

Revenue at roughly $4.5 billion improved on the back of healthy end market demand, but failed to surpass the Zacks Consensus Estimate of $4.6 billion and ended with growth at the low-end of management’s guidance range of 6.0%-9.0%.

Please follow the link for further details on Illinois Tool’s first quarter 2012 financials: ITW Beats Est., Ups FY12 Outlook

Agreement/Magnitude of Estimate Revisions

Analysts covering the stock are unanimously positive about the company’s future prospects, thus we see 12 upward revisions in earnings estimate for the second quarter of 2012, in the last 7 days. A similar trend can be noticed for the fiscal years 2012 and 2013, with 15 and 13 positive estimate revision, respectively. We also see a downward revision for the second quarter and for the fiscal year 2013.

Magnitude of estimate revision, in the last 7 days, shows how fervently the brokerage firms expect the company to perform well in the quarter ahead. Estimate for the second quarter inched up 3 cents to $1.11, representing a 15.95% year-over-year growth. For fiscal year 2012 estimate escalated 10 cents to $4.25 while for 2013 estimate increased 8 cents to $4.70 per share, reflecting a year-over-year increase of 4.15% and 10.51%, respectively.

Our Take

Prospects look bright for the tool-maker, as management upped its earnings guidance for 2012 and estimated sequential increase for the second quarter. Focus on portfolio management through strategic acquisitions and divestment of non-core assets is noteworthy. Moreover, the company’s shareholder friendly capital allocation priorities—share repurchases and dividend payments—make the company an attractive investment option.

Despite these, we prefer remaining on the sidelines based on a slightly downward revision in the company’s revenue guidance. Moreover, rising debt levels, higher cost of sales as well as restructuring expenses are the prime causes of concern.

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. The company also bears a Zacks #3 Rank, implying a short-term Hold rating.