llinois Tool Works Inc. (ITW - Free Report) has delivered better-than-expected results for second-quarter 2020, with an earnings surprise of 55.71%. This was the eighth consecutive quarter of impressive results. Also, the quarter’s sales surpassed estimate by 8.66%.
The industrial tool maker’s earnings in the reported quarter were $1.09 per share, surpassing the Zacks Consensus Estimate of 70 cents. However, the bottom line declined from the year-ago reported number of $2.00.
Illinois Tool generated revenues of $2,564 million in the reported quarter, reflecting a decline of 29% from the year-ago figure. Top-line results were affected by a 1.5% impact of unfavorable foreign currency movement, 1% from divestitures/acquisitions, and a 26.5% drop in organic sales.
However, the top line surpassed the Zacks Consensus Estimate of $2,360 million.
Illinois Tool reports revenues under the segments discussed below:
Test & Measurement and Electronics’ revenues in the second quarter decreased 14.7% year over year to $455 million. Revenues from Automotive OEM (Original Equipment Manufacturer) declined 54.1% to $361 million. Food Equipment generated revenues of $336 million, decreasing 38.6% year over year.
Welding revenues were $298 million, declining 29.4% year over year. Construction Products’ revenues were down 11.4% to $376 million. Further, revenues of $387 million from Specialty Products reflected a decline of 18.2%. Polymers & Fluids’ revenues of $354 million declined 17.2% year over year.
In the reported quarter, Illinois Tool’s cost of sales declined 24.1% year over year to $1,594 million. Selling, administrative, and research and development expenses declined 18.7% year over year to $486 million. It represented 19% of the second quarter’s revenues.
Operating margin was 17.5% in the quarter, down from 24.1% reported in the year-ago quarter due to lower volumes. However, enterprise initiatives contributed 100 bps to operating margin and cost reduction of $140 million aided.
Interest expenses in the quarter declined 7.3% year over year to $51 million.
Balance Sheet and Cash Flow
Exiting the second quarter, Illinois Tool had cash and cash equivalents of $1,812 million, up 26.7% from $1,430 million recorded at the end of the last reported quarter. Long-term debt inched up 1% sequentially to $7,765 million.
In the second quarter, the company generated net cash of $737 million from operating activities, reflecting growth of 7.6% from the year-ago quarter. Capital spending on the purchase of plant and equipment was $56 million, down 27.3% year over year. Free cash flow was $681 million, reflecting a year-over-year increase of 12%.
In the second quarter, the company’s dividend payments amounted to $1.07 per share.
In the quarters ahead, Illinois Tool anticipates benefiting from its diversified businesses, solid product offerings, cost-management actions and healthy liquidity position. However, due to uncertainties related to the pandemic, the company kept its 2020 projections suspended.