Back to top

Image: Bigstock

Illinois Tool Works (ITW) Q2 Earnings & Revenues Top Estimates

Read MoreHide Full Article

Illinois Tool Works Inc. (ITW - Free Report) reported better-than-expected second-quarter 2022 results. Its earnings surpassed estimates by 7.2%, while sales beat the same by 1%.

The industrial tool maker’s adjusted earnings (excluding a 15-cent impact of unfavorable foreign currency translation) in the quarter were $2.37, surpassing the Zacks Consensus Estimate of $2.21. Earnings increased 12.9% from the year-ago figure of $2.10.

Revenue Details

Illinois Tool generated revenues of $4,011 million in the reported quarter, reflecting growth of 9% from the year-ago figure. The top-line results benefited from a 10% increase in organic sales and a 3% contribution from the MTS acquisition. Foreign currency movements had an adverse impact of 4%.

Except for the Specialty Products segment, sales increase in other segments supported the quarterly sales rise of 9%.

The top line surpassed the Zacks Consensus Estimate of $3,970 million.

Illinois Tool reports revenues under the segments discussed below:

Test & Measurement and Electronics’ revenues in the first quarter increased 14.9% year over year to $696 million. Revenues from Automotive OEM (Original Equipment Manufacturer) increased 0.6% to $711 million. Food Equipment generated revenues of $614 million, increasing 19.6% year over year.

Welding revenues were $486 million, growing 20.8% year over year. Construction Products’ revenues were up 9.1% to $565 million. Revenues of $447 million from Specialty Products reflected a decrease of 5%. Polymers & Fluids’ revenues of $496 million grew 6.7% year over year.

Margin Profile

In the reported quarter, Illinois Tool’s cost of sales increased 10.6% year over year to $2,392 million. It represented 59.6% of the quarter’s revenues compared with 58.8% in the year-ago quarter. Selling, administrative, and research and development expenses expanded 12.1% to $659 million. The same represented 16.6% of second-quarter revenues compared with 16% in the year-ago quarter.

The operating margin was 23.1% in the quarter, down 120 basis points (bps) year over year. Enterprise initiatives contributed 90 bps to the operating margin, while price/cost had an adverse impact of 160 bps. Interest expenses in the quarter decreased 9.6% year over year to $47 million. The effective tax rate in the quarter was 23.9%.

Balance Sheet and Cash Flow

At the time of exiting the second quarter, Illinois Tool had cash and cash equivalents of $879 million, down 42.4% from $1,527 million recorded at the end of the fourth quarter of 2021. Long-term debt decreased 11.5% to $6,115 million.

In the first six months of 2022, Illinois Tool generated net cash of $824 million from operating activities, reflecting a decline of 29.2% from the year-ago period’s number. Capital spending on the purchase of plant and equipment was $155 million, up 6.2% year over year. Free cash flow was $669 million, reflecting a year-over-year decline of 34.3%.

Outlook

For 2022, Illinois Tool expects organic revenue growth of 7-10% and a 6-9% rise in total revenues from the respective year-ago actuals.

Foreign currency translation is expected to adversely impact sales by 4% and EPs by 35 cents, while the MTS acquisition is likely to boost the top line by 3%.

The operating margin is expected to be 24-25%. Enterprise initiatives are likely to contribute 100 bps to the operating margin. However, dilution from price/costs and MTS buyouts is predicted to lower the margin 100 bps, each.

Free cash flow conversion rate is expected to be 85-95% of net income. The tax rate (effective) is expected to be 22-23%.

Zacks Rank & Stocks to Consider

ITW currently carries a Zacks Rank #3 (Hold). Some better-ranked companies from the industrial products sector are discussed below:

Greif, Inc. (GEF - Free Report) presently sports a Zacks Rank #1 (Strong Buy). GEF delivered a trailing four-quarter earnings surprise of 22.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

GEF’s earnings estimates have increased 17.8% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have risen 19.9% in the past six months.

Titan International, Inc. presently flaunts a Zacks Rank of 1. Its earnings surprise in the last four quarters was 56.4%, on average.

In the past 60 days, TWI’s earnings estimates have increased 43.3% for 2022. The stock has surged 74.6% in the past six months.

Valmont Industries, Inc. (VMI - Free Report) presently has a Zacks Rank #2 (Buy). VMI’s earnings surprise in the last four quarters was 13.7%, on average.

In the past 60 days, Valmont’s earnings estimates have increased 3.8% for 2022. The stock has rallied 27.5% in the past six months.

Published in