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.
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%.
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