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Illinois Tool Works Inc. (ITW - Free Report) has reported weaker-than-expected third-quarter 2021 results. Its earnings missed estimates by 0.98% and sales lagged the same by 1.57%.
The industrial tool maker’s adjusted earnings in the quarter were $2.02, missing the Zacks Consensus Estimate of $2.04.
Earnings increased 10.4% from the year-ago reported number of $1.83 on the back of higher sales generation. However, disruptions in the supply chain and a hike in raw material costs played spoilsport.
Revenue Details
Illinois Tool generated revenues of $3,556 million in the reported quarter, reflecting growth of 7.5% from the year-ago figure. Top-line results benefited from a 6.3% increase in organic sales and a 1.2% contribution from movements in foreign currencies.
However, the top line lagged the Zacks Consensus Estimate of $3,613 million.
Illinois Tool reports revenues under the segments discussed below:
Test & Measurement and Electronics’ revenues in the third quarter increased 12.9% year over year to $552 million. Revenues from Automotive OEM (Original Equipment Manufacturer) declined 9.4% to $647 million. Food Equipment generated revenues of $544 million, increasing 21.2% year over year.
Welding revenues were $425 million, growing 22.8% year over year. Construction Products’ revenues were up 4.8% to $478 million. Revenues of $459 million from Specialty Products reflected an increase of 9.3%. Polymers & Fluids’ revenues of $456 million grew 4.1% year over year.
Illinois Tool Works Inc. Price, Consensus and EPS Surprise
In the reported quarter, Illinois Tool’s cost of sales increased 9.7% year over year to $2,096 million. It represented 58.9% of the quarter’s revenues compared with 57.8% in the year-ago quarter. Selling, administrative, and research and development expenses expanded 3.8% to $581 million. It represented 16.3% of third-quarter revenues compared with 16.9% in the year-ago quarter.
Operating margin was 23.8% in the quarter, unchanged year over year. Enterprise initiatives and volume leverage each contributed 100 basis points (bps) to the operating margin while price/cost had an adverse impact of 200 bps. Interest expenses in the quarter decreased 5.8% year over year to $49 million. Effective tax rate in the quarter was 20.8%.
Balance Sheet and Cash Flow
Exiting the third quarter, Illinois Tool had cash and cash equivalents of $1,987 million, down 3.4% from $2,058 million recorded at the end of the last reported quarter. Long-term debt decreased 1.2% sequentially to $6,972 million.
In the third quarter, the company generated net cash of $619 million from operating activities, reflecting a decline of 9.4% from the year-ago quarter. Capital spending on the purchase of plant and equipment was $71 million, up 36.5%. Free cash flow was $548 million, reflecting a year-over-year decline of 13.2%.
Outlook
For 2021, Illinois Tool updated its financial projections. It now expects organic revenue growth of 11-12% compared with an increase of 11-13% mentioned previously. Total revenues are projected to increase 13-14% compared with 14-16% growth estimated earlier.
Foreign currency translation is expected to positively impact sales by 2% (lower than 3% mentioned earlier).
Earnings (GAAP) are expected to be $8.30-$8.50 per share, down from $8.55-$8.95 estimated previously. The revised projection suggests an increase of 27.5% (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 23.5-24.5% (lower than 24.5-25.5% mentioned previously). Volume leverage is likely to contribute more than 200 bps to the margin and enterprise initiatives are likely to contribute more than 100 bps. However, dilution from price/costs is expected to lower the margin by about 150 bps.
Free cash flow is anticipated to be 90% of net income (adjusted). In the year, the company is in track to buy back $1 billion worth of shares.
Zacks Rank & Stocks to Consider
The company currently carries a Zacks Rank #3 (Hold).
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Illinois Tool (ITW) Misses Q3 Earnings & Revenue Estimates
Illinois Tool Works Inc. (ITW - Free Report) has reported weaker-than-expected third-quarter 2021 results. Its earnings missed estimates by 0.98% and sales lagged the same by 1.57%.
The industrial tool maker’s adjusted earnings in the quarter were $2.02, missing the Zacks Consensus Estimate of $2.04.
Earnings increased 10.4% from the year-ago reported number of $1.83 on the back of higher sales generation. However, disruptions in the supply chain and a hike in raw material costs played spoilsport.
Revenue Details
Illinois Tool generated revenues of $3,556 million in the reported quarter, reflecting growth of 7.5% from the year-ago figure. Top-line results benefited from a 6.3% increase in organic sales and a 1.2% contribution from movements in foreign currencies.
However, the top line lagged the Zacks Consensus Estimate of $3,613 million.
Illinois Tool reports revenues under the segments discussed below:
Test & Measurement and Electronics’ revenues in the third quarter increased 12.9% year over year to $552 million. Revenues from Automotive OEM (Original Equipment Manufacturer) declined 9.4% to $647 million. Food Equipment generated revenues of $544 million, increasing 21.2% year over year.
Welding revenues were $425 million, growing 22.8% year over year. Construction Products’ revenues were up 4.8% to $478 million. Revenues of $459 million from Specialty Products reflected an increase of 9.3%. Polymers & Fluids’ revenues of $456 million grew 4.1% year over year.
Illinois Tool Works Inc. Price, Consensus and EPS Surprise
Illinois Tool Works Inc. price-consensus-eps-surprise-chart | Illinois Tool Works Inc. Quote
Margin Profile
In the reported quarter, Illinois Tool’s cost of sales increased 9.7% year over year to $2,096 million. It represented 58.9% of the quarter’s revenues compared with 57.8% in the year-ago quarter. Selling, administrative, and research and development expenses expanded 3.8% to $581 million. It represented 16.3% of third-quarter revenues compared with 16.9% in the year-ago quarter.
Operating margin was 23.8% in the quarter, unchanged year over year. Enterprise initiatives and volume leverage each contributed 100 basis points (bps) to the operating margin while price/cost had an adverse impact of 200 bps. Interest expenses in the quarter decreased 5.8% year over year to $49 million. Effective tax rate in the quarter was 20.8%.
Balance Sheet and Cash Flow
Exiting the third quarter, Illinois Tool had cash and cash equivalents of $1,987 million, down 3.4% from $2,058 million recorded at the end of the last reported quarter. Long-term debt decreased 1.2% sequentially to $6,972 million.
In the third quarter, the company generated net cash of $619 million from operating activities, reflecting a decline of 9.4% from the year-ago quarter. Capital spending on the purchase of plant and equipment was $71 million, up 36.5%. Free cash flow was $548 million, reflecting a year-over-year decline of 13.2%.
Outlook
For 2021, Illinois Tool updated its financial projections. It now expects organic revenue growth of 11-12% compared with an increase of 11-13% mentioned previously. Total revenues are projected to increase 13-14% compared with 14-16% growth estimated earlier.
Foreign currency translation is expected to positively impact sales by 2% (lower than 3% mentioned earlier).
Earnings (GAAP) are expected to be $8.30-$8.50 per share, down from $8.55-$8.95 estimated previously. The revised projection suggests an increase of 27.5% (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 23.5-24.5% (lower than 24.5-25.5% mentioned previously). Volume leverage is likely to contribute more than 200 bps to the margin and enterprise initiatives are likely to contribute more than 100 bps. However, dilution from price/costs is expected to lower the margin by about 150 bps.
Free cash flow is anticipated to be 90% of net income (adjusted). In the year, the company is in track to buy back $1 billion worth of shares.
Zacks Rank & Stocks to Consider
The company currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Zacks Industrial Products sector are Nordson Corporation (NDSN - Free Report) , AZZ Inc. (AZZ - Free Report) , and Brady Corporation (BRC - Free Report) . While Nordson currently sports a Zacks Rank #1 (Strong Buy), AZZ and Brady carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Nordson delivered an earnings surprise of 17.77%, on average, in the trailing four quarters.
AZZ delivered an earnings surprise of 25.47%, on average, in the trailing four quarters.
Brady delivered an earnings surprise of 2.49%, on average, in the trailing four quarters.