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Illinois Tool (ITW) Earnings Likely to Beat Estimates in Q1

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Illinois Tool Works Inc. (ITW - Free Report) is scheduled to release first-quarter 2018 results on Apr 26, before the market opens.

The industrial products and equipment manufacturer’s financial performance in the last four quarters was impressive. Illinois Tool Works pulled off an average positive earnings surprise of 4.16%. In the last reported quarter, its earnings of $1.70 per share surpassed the Zacks Consensus Estimate of $1.62 by 4.94%.

However, its share price movements have not been impressive. In the last six months, the company’s shares have declined 0.6%, below 1.2% gain recorded by the industry it belongs to.

Let us see how things are shaping up for Illinois Tool Works this quarter.

Factors to Affect Q1 Results

Based on available data for few economic indicators, we can ascertain that operating conditions were quite favorable for industrial machinery companies in the first quarter of 2018. Industrial production in the quarter grew at an annual rate of 4.5%. Also, ISM Purchasing Managers’ Index for March pointed toward an expanding manufacturing sector — reflecting growth in new orders, production activities, employment, new export orders and inventories. New orders of U.S.-made machinery increased roughly 9.2% year over year in the first two months of 2018.

Besides these, favorable growth in the U.S. housing markets, as well as growing domestic and world economy, might have proved beneficial for industrial machinery stocks. In the first quarter, housing starts increased roughly 4.9% compared with the previous quarter. Also, the implementation of the Tax Cut and Jobs Act in December last year will have its positive impacts in forms of lower tax rates.

Narrowing down to the company level, we believe that Illinois Tool Works’ greatest strength is its diversified business portfolio. It operates through seven business segments, which lowers risks of losses due to weakness in one or more segments. Rising production of cars in the U.S. in the first quarter compared with the previous quarter will support growth of the Automotive OEM segment. Also, the company’s efforts to increase content per vehicle, as well as content-demand from international buyers and growing acceptance of electric vehicles globally, will be a boon.

The Zacks Consensus Estimate for the Automotive OEM segment’s revenues stands at $893 million for the first quarter, above $828 million and $828 million reported in the previous quarter and the year-ago quarter, respectively. Also, the segment’s average sales surprise for the last four quarters was a positive 2.88%.

For the Construction Products segment, the first quarter might be a surprise. Its sales in the quarter are predicted to be $434 million, above $412 million and $395 million reported in the previous and the year-ago quarter, respectively. Likewise, the Polymers & Fluids, Specialty Products and Welding segments are set for a likely sales surprise in the first quarter.

In the first quarter of 2018, Illinois Tool Works anticipates organic revenue growth to be 3-4%. Tax rate is anticipated to be 24.5-25.5%.

However, we remain cautious of the Food Equipment segment. Its sales are forecasted at $526 million, below $548 million reported in the previous quarter but above the year-ago tally of $497 million. The major concerning factor is the average sales surprise of -1.93% in the last four trailing quarters. Also, price cost headwind might be an issue, as the company predicts 30-40 basis points of price cost headwind for 2018.

Earnings Whispers

Our proven model provides some idea about the stocks that are about to release their earnings results. Per the model, a stock needs a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) for a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The case with Illinois Tool Works has been provided below.

Zacks ESP: Illinois Tool Works has an Earnings ESP of +1.02%, with the Most Accurate estimate of $1.87 exceeding the Zacks Consensus Estimate of $1.85.

Illinois Tool Works Inc. Price and EPS Surprise

Illinois Tool Works Inc. Price and EPS Surprise | Illinois Tool Works Inc. Quote

Zacks Rank: Illinois Tool Works’ Zacks Rank #3 increases the predictive power of ESP.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies in the industry that you may want to consider, as they have the right combination of elements to post an earnings beat this quarter, according to our model.

Graco Inc. (GGG - Free Report) has an Earnings ESP of +0.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEX Corporation (IEX - Free Report) has an Earnings ESP of +0.41% and a Zacks Rank #2.

Nordson Corporation (NDSN - Free Report) has an Earnings ESP of +0.12% and a Zacks Rank #3.

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