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Illinois Tool (ITW) Gains From Business Strength, Risks Remain
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Illinois Tool Works Inc. (ITW - Free Report) has been benefiting from stable demand environment and improving supply chains. Strong market share and penetration gains in the rapidly growing electric vehicle markets are boosting revenues in the Automotive Original Equipment Manufacturer segment. The company’s Food Equipment segment is being aided by growth in the institutional, retail and service end markets. Driven by strength across its businesses, the company expects organic revenues to increase 1-3% and total revenues to rise 2-4% from the year-ago reported figure.
The company’s focus on cost management and enterprise initiatives are supporting its margin performance. For instance, its cost of sales declined 1.2% year over year in 2023. Also, in the year, the operating margin of 25.1% increased 130 basis points due to the contribution of enterprise initiatives. Management expects the operating margin in the range of 25.5–26.5% for 2024 compared with 25.1% in 2023. Enterprise initiatives are expected to contribute 100 basis points to the operating margin in 2024.
ITW remains committed on rewarding its shareholders through dividend payouts and share buybacks. In 2023, the company paid dividends worth $1.6 billion and repurchased shares worth $1.5 billion. Also, in August 2023, it hiked its dividend by 7%. Simultaneously, the company’s board approved a new $5 billion buyback program. In 2024, Illinois Tool expects to repurchase $1.5 billion worth of shares.
Image Source: Zacks Investment Research
In the past three months, the Zacks Rank #3 (Hold) company has gained 7.6% compared with the industry’s 17.8% growth.
However, the company has been experiencing softness in the semiconductor, equipment and consumables end markets, of late. Also, weakness in the consumables business has been affecting its Specialty Products segment. Softness in the housing market has been weighing on the Construction Products segment, revenues from which declined 5.4% year over year in the fourth quarter of 2023.
Also, weak liquidity position remains concerning for Illinois Tool. Exiting the fourth quarter, its cash and cash equivalents were $1.1 billion, lower than the short-term debt of $1.8 billion.
Nordson delivered a trailing four-quarter average earnings surprise of 5.2%. In the past 60 days, the Zacks Consensus Estimate for NDSN’s 2024 earnings has increased 1.1%.
Parker-Hannifin delivered a trailing four-quarter average earnings surprise of 14.4%. In the past 60 days, the Zacks Consensus Estimate for PH’s 2024 earnings has increased 2.6%.
Ingersoll-Rand delivered a trailing four-quarter average earnings surprise of 15.9%. In the past 60 days, the Zacks Consensus Estimate for IR’s 2024 earnings has increased 3.6%.
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Illinois Tool (ITW) Gains From Business Strength, Risks Remain
Illinois Tool Works Inc. (ITW - Free Report) has been benefiting from stable demand environment and improving supply chains. Strong market share and penetration gains in the rapidly growing electric vehicle markets are boosting revenues in the Automotive Original Equipment Manufacturer segment. The company’s Food Equipment segment is being aided by growth in the institutional, retail and service end markets. Driven by strength across its businesses, the company expects organic revenues to increase 1-3% and total revenues to rise 2-4% from the year-ago reported figure.
The company’s focus on cost management and enterprise initiatives are supporting its margin performance. For instance, its cost of sales declined 1.2% year over year in 2023. Also, in the year, the operating margin of 25.1% increased 130 basis points due to the contribution of enterprise initiatives. Management expects the operating margin in the range of 25.5–26.5% for 2024 compared with 25.1% in 2023. Enterprise initiatives are expected to contribute 100 basis points to the operating margin in 2024.
ITW remains committed on rewarding its shareholders through dividend payouts and share buybacks. In 2023, the company paid dividends worth $1.6 billion and repurchased shares worth $1.5 billion. Also, in August 2023, it hiked its dividend by 7%. Simultaneously, the company’s board approved a new $5 billion buyback program. In 2024, Illinois Tool expects to repurchase $1.5 billion worth of shares.
Image Source: Zacks Investment Research
In the past three months, the Zacks Rank #3 (Hold) company has gained 7.6% compared with the industry’s 17.8% growth.
However, the company has been experiencing softness in the semiconductor, equipment and consumables end markets, of late. Also, weakness in the consumables business has been affecting its Specialty Products segment. Softness in the housing market has been weighing on the Construction Products segment, revenues from which declined 5.4% year over year in the fourth quarter of 2023.
Also, weak liquidity position remains concerning for Illinois Tool. Exiting the fourth quarter, its cash and cash equivalents were $1.1 billion, lower than the short-term debt of $1.8 billion.
Key Picks
We have highlighted three better-ranked stocks from the same space, namely Nordson Corporation (NDSN - Free Report) , Parker-Hannifin Corporation (PH - Free Report) and Ingersoll-Rand plc (IR - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nordson delivered a trailing four-quarter average earnings surprise of 5.2%. In the past 60 days, the Zacks Consensus Estimate for NDSN’s 2024 earnings has increased 1.1%.
Parker-Hannifin delivered a trailing four-quarter average earnings surprise of 14.4%. In the past 60 days, the Zacks Consensus Estimate for PH’s 2024 earnings has increased 2.6%.
Ingersoll-Rand delivered a trailing four-quarter average earnings surprise of 15.9%. In the past 60 days, the Zacks Consensus Estimate for IR’s 2024 earnings has increased 3.6%.