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Illinois Tool Earnings Lag Behind Est.

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Illinois Tool Works Inc. (ITW - Free Report) reported earnings per share from continuing operations, adjusted for one-time items, of $1.08 in the second quarter 2013. The result was up 5.9% compared with the year-ago quarter but a cent below the Zacks Consensus Estimate of $1.09.

Including charges related to pension settlement amounting to 5 cents, Illinois Tool Works reported earnings per share of $1.03 in the quarter, down 5.5% year over year.


Illinois Tool reported operating revenues of $4,219 million, down 5.5% year over year and below the Zacks Consensus Estimate of $4,305 million. The poor results were due to the Decorative Surfaces divestiture, excluding which revenue grew 1% year over year.

Organic revenue in the quarter was flat year over year, registering roughly a 1.0% decline in North American and 1.1% growth in international revenues.

Illinois Tool reports its revenues under the following heads/segments; a brief discussion has been provided below:

Test & Measurement and Electronics revenues declined 8.5% year over year; Automotive OEM revenues increased 12.3%; Polymers & Fluids dived south by 4.2%; Food Equipment went up by 3.0%; Wielding revenues grew by 2.4%; Construction Products segment was flat; Specialty Products increased 5.2% while Industrial Packaging went down 0.6%.  


Cost of revenue in the second quarter went down 6.9% year over year and represented 62.1% of total revenue; down from 63.1% in the year-ago quarter. Selling, administrative and R&D expenses, as a percentage of total revenue, stood at 19.7%. Adjusted operating margin in the quarter was 17.4%, up 40 basis points year over year.

Balance Sheet

Exiting the second quarter 2013, Illinois Tool Works’ cash and cash equivalents stood at $2,768 million, up from $2,662 million in the previous quarter. Long-term debt, net of current portion also registered a sequential decline from $4,556.0 million in the previous quarter to $3,771.0 million in this quarter.
Cash Flow

Illinois Tool Works’ net cash flow from operating activities in the quarter was $643.0 million, up from $509.0 million in the year-ago quarter while capital expenditure was at $89 million, down from $100 million in the year-ago quarter. Free cash flow was approximately $554.0 million as compared with $409 million in the second quarter of 2012.


For 2013, management of Illinois Tool Works now anticipates total revenue to grow 0.5%-2.5% as against the 2%-4% range expected earlier. Earnings per share are expected to range within $4.10-$4.30 down from the $4.15-$4.35 per share range. This revision includes the impact of 5 cents per share dilution caused due to pension settlement charges incurred in the second quarter.
For the third quarter 2013, earnings per share from continuing operations are expected to be within the $1.06-$1.16 range and total revenue growth to vary within 3.0%-5.0%.

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 Chart Industries Inc. (GTLS - Free Report) , Dover Corporation (DOV - Free Report) and Gardner Denver Inc. (GDI - Free Report) , each with a Zacks Rank #2 (Buy).

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