Illinois Tool Works Inc. ( ITW - Analyst Report ) reported fourth quarter 2012 earnings per share from continuing operations, adjusted for one-time items, of 89 cents, a cent above the year-ago adjusted results of 88 cents.

The results, however, were a cent short of the Zacks Consensus Estimate of 90 cents and within management’s guidance range, excluding a gain on divestiture of Decorative Surfaces and other discrete corporate and tax items of 86-94 cents.

For 2012, adjusted earnings came in at $4.09 per share, up 9.9% year over year. The results were in line with the Zacks Consensus Estimate of $4.09 and within management’s guidance range, excluding a gain on divestiture of Decorative Surfaces and other discrete corporate and tax items of $4.06-$4.14 per share.

Revenue

Decorative Surfaces divestiture and negative foreign currency translation impact pulled down operating revenue in the fourth quarter by 2.3% year over year to $4,221.0 million. The results, however, surpassed the Zacks Consensus Estimate of $4,149.0 million and the year-over-year decrease was within management’s expectation of a 1% to 4% decline in the quarter.

Base revenue in the quarter grew 0.6% year over year, registering a 1.6% increase in North American and 0.5% decline in international revenues.

On a segmental basis, Transportation revenue increased 4.8% year over year; Power Systems & Electronics declined 1.2%; Industrial Packaging plummeted 1.2%; Food Equipment went down by 1.8% while Construction increased 1.3%; Polymers & Fluids dropped by 2.9%; and All Other jumped 6.9%.

For 2012, operating revenue was $17,924.0 million, up 0.8% year over year and above the Zacks Consensus Estimate of $17,856.0 million. The yearly growth was within management’s expected range of 0%-1%.

Margins

Cost of goods sold in the fourth quarter went down 2.6% year over year and represented 64.6% of total revenue; down from 64.8% in the year-ago quarter. Selling, administrative and R&D expenses, as a percentage of total revenue, stood at 19.3%. Operating margin in the quarter was 14.4%, down 60 basis points year over year.

Balance Sheet

Exiting the fourth quarter, Illinois Tool Works’ cash and cash equivalents stood at $2,779.0 million, up 35.3% sequentially. Long-term debt, net of current portion also registered a sequential increase from $4,572.0 million in the previous quarter to $4,589.0 million in the fourth quarter 2012.

Cash Flow

Net cash flow from operating activities in the quarter was $605.0 million, down from $712.0 million in the year-ago quarter while capital expenditure increased 14.9% to $108.0 million. Free cash flow was approximately $497.0 million in the fourth quarter versus $618.0 million in the comparable quarter last year.

In the quarter, the company distributed $350 million as dividends and repurchased shares worth $604 million.

Outlook

For 2013, management anticipates organic revenue to grow 1% to 3% as both North America and international operating regions of the company witness modest growth while total revenue is expected to grow within the 3%-5% range. For the first quarter, total revenue growth is expected to be flat to down 2%.

For the first quarter 2013, earnings per share from continuing operations are expected to be within 91-99 cents and within $4.13-$4.37 range for full year 2013.

Illinois Tool Works is one of the leading manufacturers of industrial products and equipment. The stock currently has a Zacks Rank #3 (Hold). Other stocks to watch out for are Altra Holdings, Inc. ( AIMC - Snapshot Report ) and Metso Corp. ( MXCYY ) , both with a Zacks Rank #1 (Strong Buy) and Gorman-Rupp Co. ( GRC - Snapshot Report ) with a Zacks Rank #2 (Buy).