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Illinois Tool (ITW) Tops on Q1 Earnings, Increases 2021 View

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Illinois Tool Works Inc. (ITW - Free Report) has delivered impressive results for the first quarter of 2021. Its earnings surpassed estimates by 11.1, whereas sales beat the same by 3.3%. This was the eleventh consecutive quarter of impressive bottom-line results.

 The industrial tool maker’s earnings in the reported quarter were $2.11 per share, surpassing the Zacks Consensus Estimate of $1.90. Also, the bottom line increased 19.2% from the year-ago reported number of $1.77 on the back of sales generation and operating margin improvement.

Revenue Details

Illinois Tool generated revenues of $3,544 million in the reported quarter, reflecting growth of 9.8% from the year-ago figure. Top-line results benefitted from a 6.1% increase in organic sales and a 3.7% contribution from movements in foreign currencies.

Also, the top line surpassed the Zacks Consensus Estimate of $3,430 million.

Illinois Tool reports revenues under the segments discussed below:

Test & Measurement and Electronics’ revenues in the first quarter increased 14% year over year to $552 million. Revenues from Automotive OEM (Original Equipment Manufacturer) grew 12.6% to $783 million. Food Equipment generated revenues of $451 million, decreasing 6.5% year over year.

Welding revenues were $401 million, growing 7.5% year over year. Construction Products’ revenues were up 20.2% to $469 million. Further, revenues of $457 million from Specialty Products reflected an increase of 10.4%. Polymers & Fluids’ revenues of $435 million grew 10.7% year over year.

Margin Profile

In the reported quarter, Illinois Tool’s cost of sales increased 9% year over year to $2,039 million. It represented 57.5% of the quarter’s revenues versus 58% in the year-ago quarter. Selling, administrative, and research and development expenses expanded 1.1% year over year to $566 million. It represented 16% of first-quarter revenues versus 17.4% in the year-ago quarter.

Operating margin was 25.5% in the quarter, up 190 basis points from the year-ago quarter. Enterprise initiatives contributed 120 bps to operating margin.

Interest expenses in the quarter increased 2% year over year to $52 million. Effective tax rate in the quarter was 22.4%.

Balance Sheet and Cash Flow

Exiting the first quarter, Illinois Tool had cash and cash equivalents of $2,484 million, down 3.1% from $2,564 million recorded at the end of the last reported quarter. Long-term debt decreased 2.2% sequentially to $7,599 million.

In the first quarter, the company generated net cash of $609 million from operating activities, reflecting a decline of 0.8% from the year-ago quarter. Capital spending on the purchase of plant and equipment was $68 million, up 13.3% year over year. Free cash flow was $541 million, reflecting a year-over-year decline of 2.3%.

Outlook

For 2021, Illinois Tool increased its financial projections. It now expects organic revenue growth of 10-12% as compared with an increase of 7-10% mentioned previously. Total revenues are projected to increase 12-14% versus 9-12% mentioned earlier.

Foreign currency translation is expected to positively impact sales by 2%.

Earnings (GAAP) are expected to be $8.20-$8.60 per share, up from $7.60-$8.00 mentioned previously. The revised projection suggests an increase of 27% (at the mid-point) from the year-ago .quarter.

Operating margin is expected to be 25-26% and enterprise initiatives are likely to contribute 100 bps. Free cash is anticipated to be in excess of 100% of net income. In the year, the company intends to buy back $1 billion worth of shares.

Illinois Tool Works Inc. Price, Consensus and EPS Surprise

 

Illinois Tool Works Inc. Price, Consensus and EPS Surprise

Illinois Tool Works Inc. price-consensus-eps-surprise-chart | Illinois Tool Works Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $72.8 billion, Illinois Tool currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are Dover Corporation (DOV - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Graco Inc. (GGG - Free Report) . While Dover currently sports a Zacks Rank #1 (Strong Buy), both Applied Industrial and Graco carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these companies improved for the current year. Further, earnings surprise for the last reported quarter was 23.13% for Dover, 28.95% for Applied Industrial and 16.00% for Graco.

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