Illinois Tool Works Inc. ( ITW Quick Quote ITW - Free Report) has reported better-than-expected results for fourth-quarter 2020, with earnings surpassing the Zacks Consensus Estimate of $1.77. This was the tenth consecutive quarter of impressive bottom-line results. Also, the quarter’s sales surpassed estimates of $3.3 billion. The industrial tool maker’s earnings in the reported quarter were $2.02 per share. Also, the bottom line increased 1.5% from the year-ago reported number of $1.99 on the back of sales generation and operating margin improvement. For 2020, the company’s earnings were $6.63, below the year-ago figure of $7.74. Revenue Details
Illinois Tool generated revenues of $3,475 million in the reported quarter, reflecting growth of 0.2% from the year-ago figure. Top-line results were affected by a 0.7% decline from divestitures/acquisitions and a 0.9% drop in organic sales. However, movements in foreign currencies positively impacted results by 1.8%.
Illinois Tool reports revenues under the segments discussed below: Test & Measurement and Electronics’ revenues in the fourth quarter decreased 3.3% year over year to $534 million. Revenues from Automotive OEM (Original Equipment Manufacturer) increased 10.4% to $800 million. Food Equipment generated revenues of $471 million, decreasing 17.3% year over year. Welding revenues were $368 million, declining 4.8% year over year. Construction Products’ revenues were up 11.9% to $430 million. Further, revenues of $439 million from Specialty Products reflected a decline of 1.6%. Polymers & Fluids’ revenues of $437 million grew 7% year over year. For 2020, the company’s revenues were $12.6 billion, down from the year-ago figure of $14.1 billion. Margin Profile
In the reported quarter, Illinois Tool’s cost of sales declined 1.8% year over year to $2,000 million. Selling, administrative, and research and development expenses declined 4.9% year over year to $557 million. It represented 16% of fourth-quarter revenues.
Operating margin was 25.4% in the quarter, up from 23.8% reported in the year-ago quarter. Enterprise initiatives contributed 130 bps to operating margin. Interest expenses in the quarter increased 2% year over year to $52 million. Effective tax rate in the quarter was 22.1%. Balance Sheet and Cash Flow
Exiting the fourth quarter, Illinois Tool had cash and cash equivalents of $2,564 million, up 18.2% from $2,169 million recorded at the end of the last reported quarter. Long-term debt increased 2.4% sequentially to $7,772 million.
In the fourth quarter, the company generated net cash of $773 million from operating activities, reflecting a decline of 0.1% from the year-ago quarter. Capital spending on the purchase of plant and equipment was $68 million, down 17.1% year over year. Free cash flow was $705 million, reflecting year-over-year growth of 1.9%. Outlook
For 2021, Illinois Tool anticipates organic revenue growth of 7-10% year over year, with a 9-12% rise in total revenues. Foreign currency translation is expected to positively impact sales by 2%.
Earnings (GAAP) are expected to be $7.60-$8.00 per share, suggesting an increase of 15-21% from the previous year. Free cash is anticipated to be in excess of 100% of net income.