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Illinois Tool Works Tops Q1 Earnings and Revenue Estimates

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Industrial tool maker Illinois Tool Works Inc. (ITW - Free Report) reported better-than-expected first-quarter 2016 results.

The company’s quarterly adjusted earnings came in at $1.29 per share, which beat the Zacks Consensus Estimate of $1.26. Also, earnings improved 6.6% from the year-ago figure of $1.21. However, adverse foreign currency translation hampered quarterly earnings by 4 cents.

Illinois Tool Works Inc. (ITW - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany


Illinois Tool Works generated operating revenues of $3,274 million in the quarter, down 2% year over year but above the Zacks Consensus Estimate of $3,247 million. Adverse impacts of foreign currency translations led to the year-over-year decline in revenues.

Illinois Tool Works reports its revenues under the following segments:

Test & Measurement and Electronics revenues slipped 3.9% year over year to $464 million, whereas revenues from Automotive OEM (Original Equipment Manufacturer) segment inched up 0.4% to $656 million. Food Equipment segment generated revenues of $499 million, up 0.8% year over year.

Welding revenues were $389 million, down 10% year over year. Construction Products revenues dipped 0.8% to $384 million, while revenues of $468 million from Specialty Products declined 1.4%. Polymers & Fluids segment revenues were $418 million, down 5.1%.


Illinois Tool Works’ cost of sales declined 3.8% year over year to $1,896 million. Selling, administrative, and research and development expenses, as a percentage of total revenues came in at 18.2%.

Operating margin improved 120 basis points (bps) year over year to 22.1% on contribution from enterprise initiatives.

Balance Sheet & Cash Flow

Illinois Tool Works exited the  first quarter with cash and cash equivalents of $2,448 million, down from $3,090 million as of Dec 31, 2015. The company’s long-term debt decreased 7.9% sequentially to $6,353 million.

In the quarter under review, Illinois Tool Works’ net cash generation from operating activities improved 8.4% year over year to $479 million. Capital expenditure on purchase of plant and equipment totaled $57 million, which resulted in free cash flow of $422 million.

Outlook: Illinois Tool Works expects to maintain its robust organic growth trajectory going ahead. The company intends to improve its operations to boost its performance. GAAP earnings per share are expected to be in the range of $1.34–$1.44 in second-quarter 2016. The company now expects full-year GAAP earnings in the $5.40–$5.60 per share range, up by 5 cents from the previous guidance. Operating margin is expected to increase by 100 bps at the end of the current year.

Zacks Rank and Stocks to Consider

Illinois Tool Works presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Altra Industrial Motion Corp. (AIMC - Free Report) , Colfax Corporation (CFX - Free Report) and Xylem Inc. (XYL - Free Report) . All three companies currently hold a Zacks Rank #2 (Buy).

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