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Illinois Tool (ITW) Tops Q1 Earnings Estimates, Ups '18 View

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Illinois Tool Works Inc. (ITW - Free Report) kept its earnings streak alive in the first quarter of 2018 and delivered a positive earnings surprise of 2.7%. Including this quarter’s results, the average four-quarter surprise is 3.28%.

The industrial tool maker’s earnings in the quarter came in at $1.90 per share, above the Zacks Consensus Estimate of $1.85. Also, the bottom line reflects 23% growth from the year-ago tally of $1.54 on the back of sales growth, benefits from enterprise initiatives and a 1.8% fall in the company’s share count.

Segmental Performance Drive Top Line

In the quarter, Illinois Tool Works’ revenues totaled $3,744 million, up 7.9% from the year-ago tally. The improvement came on the back of 2.6% organic gains and a 5.3% positive impact of foreign currency movements.

Also, the top line surpassed the Zacks Consensus Estimate of $3.67 billion.

Illinois Tool Works reports its revenues under the segments discussed below:

Test & Measurement and Electronics’ revenues in the first quarter increased 13.1% year over year to $543 million. Revenues from Automotive OEM (Original Equipment Manufacturer) grew 8.8% to $901 million. Food Equipment generated revenues of $527 million, up 6% year over year.

Welding revenues came in at $423 million, reflecting 9.4% year-over-year growth. Construction Products’ revenues increased 8.3% to $428 million, while revenues of $485 million from Specialty Products reflect growth of 4.9%. Polymers & Fluids’ revenues of $442 million increased 3.8% year over year.

Margin Improves

In the reported quarter, Illinois Tool Works’ cost of sales increased 8.9% year over year to $2,181 million. It represented 58.3% of the quarter’s revenues versus 57.7% in the year-ago quarter. Selling, administrative, and research and development expenses inched up 0.7% year over year and came in at 16.3% of revenues versus 17.5% in the year-ago quarter.

Operating margin improved 90 basis points (bps) year over year to 24.1%. The improvement was driven by a 110-bp contribution from enterprise initiatives, offsetting a 50-bps adverse impact from unfavorable price/costs.

Balance Sheet and Cash Flow

Exiting the first quarter, Illinois Tool Works’ cash and cash equivalents were approximately $1,940 million, down from $3,094 million recorded at the end of the previous quarter. Long-term debt decreased 7.9% sequentially to $6,889 million.

In the first quarter, net cash generation from operating activities totaled $538 million, reflecting growth of 16.2% over the year-ago quarter. Capital spending on purchase of plant and equipment was $94 million, higher than $64 million used in the year-ago quarter. Free cash flow was $444 million, reflecting year-over-year growth of 11.3%.

Outlook

For 2018, Illinois Tool Works anticipates gaining from strengthening demand, enterprise initiatives and a healthy business portfolio. It increased its earnings guidance to $7.60-$7.80 per share, reflecting growth of 15 cents at mid-point from the previous projection of $7.45-$7.65. This current projection reflects year-over-year growth of 17% at mid-point.

Organic growth is expected to be 3-4%, while operating margin will likely be within 25-25.5%. The expected tax rate is roughly 25%. Free cash flow will likely be roughly at 100% of net income.

For second-quarter 2018, earnings per share are expected within $1.90-$2.00, reflecting year-over-year growth of 15% at the mid-point. Organic revenue growth is expected to be 3-4%.

Illinois Tool Works Inc. Price, Consensus and EPS Surprise
 

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

Zacks Rank & Key Picks

With a market capitalization of approximately $51.4 billion, Illinois Tool Works currently carries a Zacks Rank #3 (Hold).

Some stocks in the machinery space that are expected to release their financial results soon are Rexnord Corporation (RXN - Free Report) , Kennametal Inc. (KMT - Free Report) and IDEX Corporation (IEX - Free Report) .

Rexnord Corporation currently carries a Zacks Rank #2 (Buy). It is expected to release fourth-quarter fiscal 2018 (ended March 2018) results on May 16. Its Earnings ESP for the to-be-reported quarter is +1.82%. Per our in-house model, stocks -- having a combination of favorable Zacks Rank #1 (Strong Buy), 2 or 3 and a positive Earnings ESP -- have higher chances of surpassing estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Kennametal Inc. currently carries a Zacks Rank #2. It is slated to report third-quarter fiscal 2018 (ended March 2018) results on May 3, before the market opens. Its Earnings ESP for the quarter is +0.69%.

IDEX Corporation currently carries a Zacks Rank #2. It is slated to report first-quarter 2018 results on Apr 30, before the market opens. Its Earnings ESP for the quarter is +0.41%.

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