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Industrial tool maker Illinois Tool Works Inc. (ITW - Free Report) kept its earnings streak alive in first-quarter 2017, posting positive earnings and sales surprises of 6.2% and 2.1%, respectively. Earnings came in at $1.54 per share, surpassing the Zacks Consensus Estimate of $1.45 and roughly 19% above the year-ago tally of $1.29. Also, the bottom line exceeded the guidance range of $1.39−$1.49.
The year-over-year improvement can be attributed to a 4.1% reduction in the company’s share count due to its ongoing share buyback activity. Earnings were also boosted by its enterprise initiatives. However, unfavorable foreign currency movements adversely impacted results by 2%.
The company’s revenues totaled $3.471 billion, slightly above the Zacks Consensus Estimate of $3.4 billion. Also, the top line grew 6% year over year. The improvement was driven by 3.5% positive impact from organic revenue growth and 3.8% gain from the acquired assets of Engineered Fasteners & Components (completed in 2016). However, the positives were partially offset by 1% adverse impact from unfavorable foreign currency movements.
Segmental Details
Illinois Tool Works reports its revenues under the segments discussed below:
Test & Measurement and Electronics’ revenues increased 3.5% year over year to $480 million. Revenues from Automotive OEM (Original Equipment Manufacturer) grew 26.3% to $828 million. Food Equipment generated revenues of $497 million, dipping 0.4% year over year.
Welding revenues came in at $387 million, down 0.6% year over year. Construction Products’ revenues were up 2.7% to $395 million while revenues of $463 million from Specialty Products reflected a decline of 1.2%. Polymers & Fluids’ revenues of $426 million grew 2% year over year.
Margins
In the quarter, Illinois Tool Works’ cost of sales increased 5.7% year over year, representing 57.7% of total revenue compared with 57.9% in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of total revenue, came in at 17.4%.
Operating margin improved 120 basis points (bps) year over year to 23.3%, driven by roughly 100 bps contributions from enterprise initiatives. Excluding the impact from the Engineered Fasteners and Components business (EF&C) acquisition, operating margin in the quarter was 23.8%.
Balance Sheet & Cash Flow
Exiting the first quarter, Illinois Tool Works had cash and cash equivalents of approximately $2,493 million, slightly above $2,472 million recorded in the previous quarter. The company’s long-term debt inched up 0.4% sequentially to $7,205 million.
In the quarter, Illinois Tool Works generated net cash of $463 million from its operating activities, down 3.3% year over year. Capital expenditure on purchase of plant and equipment totaled $64 million, resulting in free cash flow of $399 million.
Outlook: Impressed with its first-quarter results, Illinois Tool Works increased its earnings guidance to $6.20−$6.40 per share for 2017, from the earlier projection of $6.00−$6.2..
Organic revenue growth is expected to be 2−4%, an improvement over the prior forecast of 1.5−3.5%. Operating margin is expected to exceed 23.5%. Full-year free cash flow is anticipated to be 100% of net income. Effective tax rate will be roughly 29% versus 29−30% expected earlier, resulting in earnings gain of 4 cents per share.
For second-quarter 2017, earnings per share are expected within $1.55−$1.65. Organic revenues are expected to be 2−4%.
Zacks Rank & Stocks to Consider
With a market capitalization of $46.6 billion, Illinois Tool Works carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the machinery industry include Parker-Hannifin Corporation (PH - Free Report) , Broadwind Energy, Inc. (BWEN - Free Report) and DXP Enterprises, Inc. (DXPE - Free Report) . While Parker-Hannifin sports a Zacks Rank #1 (Strong Buy), both Broadwind Energy and DXP Enterprises carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Parker-Hannifin Corporation reported better-than-expected results in the last four quarters, with an average positive earnings surprise of 12.44%. Also, earnings expectations for fiscal 2017 and fiscal 2018 improved over the past 60 days.
Broadwind Energy’s earnings estimates for 2017 were revised upward over the last 60 days.
DXP Enterprises witnessed positive revisions in earnings estimates for 2017 and 2018, over the past 60 days. Also, it delivered an average positive earnings surprise of 50.37% for the last four quarters.
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Illinois Tool (ITW) Tops Q1 Earnings & Sales, Ups '17 View
Industrial tool maker Illinois Tool Works Inc. (ITW - Free Report) kept its earnings streak alive in first-quarter 2017, posting positive earnings and sales surprises of 6.2% and 2.1%, respectively. Earnings came in at $1.54 per share, surpassing the Zacks Consensus Estimate of $1.45 and roughly 19% above the year-ago tally of $1.29. Also, the bottom line exceeded the guidance range of $1.39−$1.49.
The year-over-year improvement can be attributed to a 4.1% reduction in the company’s share count due to its ongoing share buyback activity. Earnings were also boosted by its enterprise initiatives. However, unfavorable foreign currency movements adversely impacted results by 2%.
The company’s revenues totaled $3.471 billion, slightly above the Zacks Consensus Estimate of $3.4 billion. Also, the top line grew 6% year over year. The improvement was driven by 3.5% positive impact from organic revenue growth and 3.8% gain from the acquired assets of Engineered Fasteners & Components (completed in 2016). However, the positives were partially offset by 1% adverse impact from unfavorable foreign currency movements.
Segmental Details
Illinois Tool Works reports its revenues under the segments discussed below:
Test & Measurement and Electronics’ revenues increased 3.5% year over year to $480 million. Revenues from Automotive OEM (Original Equipment Manufacturer) grew 26.3% to $828 million. Food Equipment generated revenues of $497 million, dipping 0.4% year over year.
Welding revenues came in at $387 million, down 0.6% year over year. Construction Products’ revenues were up 2.7% to $395 million while revenues of $463 million from Specialty Products reflected a decline of 1.2%. Polymers & Fluids’ revenues of $426 million grew 2% year over year.
Margins
In the quarter, Illinois Tool Works’ cost of sales increased 5.7% year over year, representing 57.7% of total revenue compared with 57.9% in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of total revenue, came in at 17.4%.
Operating margin improved 120 basis points (bps) year over year to 23.3%, driven by roughly 100 bps contributions from enterprise initiatives. Excluding the impact from the Engineered Fasteners and Components business (EF&C) acquisition, operating margin in the quarter was 23.8%.
Balance Sheet & Cash Flow
Exiting the first quarter, Illinois Tool Works had cash and cash equivalents of approximately $2,493 million, slightly above $2,472 million recorded in the previous quarter. The company’s long-term debt inched up 0.4% sequentially to $7,205 million.
In the quarter, Illinois Tool Works generated net cash of $463 million from its operating activities, down 3.3% year over year. Capital expenditure on purchase of plant and equipment totaled $64 million, resulting in free cash flow of $399 million.
Outlook: Impressed with its first-quarter results, Illinois Tool Works increased its earnings guidance to $6.20−$6.40 per share for 2017, from the earlier projection of $6.00−$6.2..
Organic revenue growth is expected to be 2−4%, an improvement over the prior forecast of 1.5−3.5%. Operating margin is expected to exceed 23.5%. Full-year free cash flow is anticipated to be 100% of net income. Effective tax rate will be roughly 29% versus 29−30% expected earlier, resulting in earnings gain of 4 cents per share.
For second-quarter 2017, earnings per share are expected within $1.55−$1.65. Organic revenues are expected to be 2−4%.
Zacks Rank & Stocks to Consider
With a market capitalization of $46.6 billion, Illinois Tool Works carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the machinery industry include Parker-Hannifin Corporation (PH - Free Report) , Broadwind Energy, Inc. (BWEN - Free Report) and DXP Enterprises, Inc. (DXPE - Free Report) . While Parker-Hannifin sports a Zacks Rank #1 (Strong Buy), both Broadwind Energy and DXP Enterprises carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Parker-Hannifin Corporation reported better-than-expected results in the last four quarters, with an average positive earnings surprise of 12.44%. Also, earnings expectations for fiscal 2017 and fiscal 2018 improved over the past 60 days.
Broadwind Energy’s earnings estimates for 2017 were revised upward over the last 60 days.
DXP Enterprises witnessed positive revisions in earnings estimates for 2017 and 2018, over the past 60 days. Also, it delivered an average positive earnings surprise of 50.37% for the last four quarters.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere
1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging
phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>