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Analyst Blog

Illinois Tool Works Inc. (ITW - Analyst Report) reported quite decent financial results for the first quarter 2013. Earnings per share from continuing operations, adjusted for one-time items, came in at 96 cents. This denotes an increase of 8% over the year-ago quarter while the earnings per share remain in line with the Zacks Consensus Estimate.

Including a gain on incremental 51% acquisition, earnings per share in the quarter were $1.01, up 6% year over year.


Illinois Tool reported operating revenue of $4,009 million, down 8% year over year and below the Zacks Consensus Estimate of $4,278 million. The poor results were due to the Decorative Surfaces divestiture and weak organic revenue performance.

Organic revenue in the quarter was down by 2.7%, registering a 1.9% decline in North American and 3.5% decline in international revenues.

Illinois Tool has realigned its revenue segments, effective the first quarter 2013; a brief discussion on the segments performance is given below:

Test & Measurement and Electronics revenue declined 2.1% year over year; Automotive OEM revenue increased 4.0%; Polymers & Fluids dived south by 5.9%; Food Equipment went down by 1.2%; Wielding was down by 4.8%; Construction Products declined 3.3%; Specialty Products increased 3.6% and Industrial Packaging plummeted 4.7%.  


Cost of revenue for Illinois Tool in the first quarter went down 9.4% year over year and represented 62.4% of total revenue; down from 63.4% in the year-ago quarter. Selling, administrative and R&D expenses, as a percentage of total revenue, stood at 19.4%. Adjusted operating margin in the quarter was 18.2%, up 60 basis points year over year.

Balance Sheet

Exiting the first quarter 2013, Illinois Tool Work's cash and cash equivalents stood at $2,662 million, down from $2,779.0 million in the previous quarter. Long-term debt, net of current portion, also registered a sequential decline from $4,589.0 million in the previous quarter to $4,556.0 million in this quarter.
Cash Flow

Illinois Tool reported net cash flow from operating activities of $366.0 million in the quarter, up from $323.0 million in the year-ago quarter while capital expenditure was at $89 million versus $84 million in the year-ago quarter. Free cash flow was approximately $277.0 million as compared with $239 million in the first quarter of 2012.


For 2013, management of Illinois Tool now anticipates organic revenue to grow in the range of 0%-2% as against 1% to 3% expected earlier while total revenue growth is expected to be in the range of 2%-4%. Mid-point of earnings per share from continuing operations of $4.25 has been kept constant by the company, though the range is now predicted to be $4.15-$4.35 versus $4.13-$4.37 expected earlier.  

For the second quarter 2013, earnings per share from continuing operations are expected to be within the $1.04-$1.12 range and total revenue growth to vary within 2.5%-3.5%.

Also separately, Illinois Tool mentioned that the reclassification of certain existing and previously divested business to discontinued operations will dilute in earnings to the extent of 6 cents through the reminder of the year 2013.

Illinois Tool Works is one of the leading manufacturers of industrial products and equipment. The stock currently has a Zacks Rank #4 (Sell). Other stocks to watch out for are Tri-Tech Holding, Inc. , EnPro Industries, Inc. (NPO - Snapshot Report) and The Babcock & Wilcox Co. , each holding a Zacks Rank #1 (Strong Buy).