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Illinois Tool (ITW) Beats Q2 Earnings Estimates, Ups '21 View

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Illinois Tool Works Inc. (ITW - Free Report) has reported better-than-expected results for second-quarter 2021. Its earnings surpassed estimates by 1.45% and sales beat the same by 3%. This was the 12th consecutive quarter of impressive bottom-line results.

The industrial tool maker’s earnings in the reported quarter were $2.45 per share, including 35 cents of one-time benefits. Excluding this gain, adjusted earnings in the quarter were $2.10, surpassing the Zacks Consensus Estimate of $2.07.

On a year-over-year basis, earnings of $2.10 per share increased 92.7% from the year-ago reported number of $1.09 on the back of sales generation and operating margin improvement. However, disruptions in the supply chain and a hike in raw material costs played spoilsport.

Revenue Details

Illinois Tool generated revenues of $3,676 million in the reported quarter, reflecting growth of 43.4% from the year-ago figure. Top-line results benefitted from a 37.2% increase in organic sales and a 6.2% contribution from movements in foreign currencies.

Also, the top line surpassed the Zacks Consensus Estimate of $3,570 million.

Illinois Tool reports revenues under the segments discussed below:

Test & Measurement and Electronics’ revenues in the second quarter increased 33% year over year to $606 million. Revenues from Automotive OEM (Original Equipment Manufacturer) grew 95.3% to $707 million. Food Equipment generated revenues of $514 million, increasing 52.9% year over year.

Welding revenues were $402 million, growing 35.2% year over year. Construction Products’ revenues were up 37.7% to $518 million. Revenues of $471 million from Specialty Products reflected an increase of 21.6%. Polymers & Fluids’ revenues of $466 million grew 31.7% year over year.

Margin Profile

In the reported quarter, Illinois Tool’s cost of sales increased 35.7% year over year to $2,163 million. It represented 58.8% of the quarter’s revenues versus 62.2% in the year-ago quarter. Selling, administrative, and research and development expenses expanded 21% year over year to $588 million. It represented 16% of second-quarter revenues versus 19% in the year-ago quarter.

Operating margin was 24.3% in the quarter, up 680 basis points from the year-ago quarter. Enterprise initiatives contributed 150 bps to the operating margin, while price/cost had adverse impacts of 120 bps. Interest expenses in the quarter increased 2% year over year to $52 million. Effective tax rate in the quarter was 23%.

Balance Sheet and Cash Flow

Exiting the second quarter, Illinois Tool had cash and cash equivalents of $2,058 million, down 17.1% from $2,484 million recorded at the end of the last reported quarter. Long-term debt decreased 7.1% sequentially to $7,056 million.

In the second quarter, the company generated net cash of $555 million from operating activities, reflecting a decline of 24.7% from the year-ago quarter. Capital spending on the purchase of plant and equipment was $78 million, up 39.3% year over year. Free cash flow was $477 million, reflecting a year-over-year decline of 30%.

Outlook

For 2021, Illinois Tool increased its financial projections. It now expects organic revenue growth of 11-13% as compared with an increase of 10-12% mentioned previously. Total revenues are projected to increase 14-16% versus 12-14% growth mentioned earlier.

Foreign currency translation is expected to positively impact sales by 3% (higher than 2% mentioned earlier).

Earnings (GAAP) are expected to be $8.55-$8.95 per share, up from $8.20-$8.60 mentioned previously. The revised projection suggests an increase of 32% (at the mid-point) from the previous year. On a dollar-for-dollar basis, the impact of a hike in raw material costs will be offset by gains from pricing actions, and, thus, will have a neutral impact on earnings.

Operating margin is expected to be 24.5-25.5% (lower than 25-26% mentioned previously) and enterprise initiatives are likely to contribute 100 bps. However, dilution from price/costs is expected to lower margin by 100 bps.

Free cash is anticipated to be 100% of net income (adjusted). 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 $72.2 billion, Illinois Tool currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are Altra Industrial Motion Corp. (AIMC - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Dover Corporation (DOV - Free Report) . All companies presently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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 8.54% for Altra Industrial, 35.64% for Applied Industrial and 11.96% for Dover.