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ITW Beats Est., Ups FY12 Outlook

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Illinois Tool Works Inc. (ITW - Free Report) reported its financial results for the first quarter 2012 on April 24. Earnings per share from continuing operations were 97 cents, representing a year-over-year increase of 10.2%. Earnings were 2 cents above the Zacks Consensus Estimate of 95 cents and at the top-end of management’s guidance range of 89-97 cents.


Operating revenue in the first quarter increased 6.4% year over year to $4,547 million, but failed to surpass the Zacks Consensus Estimate of $4,598 million. The year–over-year increase in operating revenue symbolized continued improvement in end market demand. The year-over-year improvement was towards the lower-end of management’s projected growth range of 6.0%-9.0%.

Of the total revenue, base revenue in the quarter grew 3.2% year over year, registering a 6.6% increase in North American and flat international revenues. Acquisitions added 4.4% while currency translation negatively impacted revenue growth by 1.3%.


Cost of goods sold in the quarter increased 5.4% year over year and represented 64.0% of total revenue; down from 64.7% in the year-ago quarter. Selling, administrative and R&D expenses, as a percentage of total revenue, stood at 18.9%. Operating margin in the quarter was 15.5%, up 10 basis points year over year.

Balance Sheet

Exiting the first quarter, Illinois Tool Works’ cash and cash equivalents increased 10.7% sequentially to approximately $1,304.0 million. Long-term debt, net of current portion increased to $3,521.0 million from $3,488.2 million in the fourth quarter of 2011.

Cash Flow

Net cash flow from operating activities in the quarter was $323.0 million, up from $145.0 million in the year-ago quarter. Capital expenditure decreased to $84.0 million versus $89.0 million in the year-ago quarter. Free cash flow was approximately $239.0 million versus $56.0 million in the first quarter of 2011.

In the first quarter, the company distributed $174 million as dividends and repurchased shares worth $474 million. The company is still left with $3.4 billion in its share buyback program.


Driven by impressive first quarter results and share buyback activities, management raised its fiscal year 2012 earnings guidance from its earlier range of $4.02-$4.26 to $4.14-$4.38 per share. Revenue growth forecast were revised from 5%-8% range to 5%-7% range. Earnings for the second quarter of 2012 are expected to be within the $1.08-$1.16 range based on total revenue growth assumption of 3.5%-6.0%.

Pre-tax gains of $450 million incurred from the divestment of non-core assets to Graco Inc. (GGG - Free Report) will be recorded in the second quarter financials.

Illinois Tool Works is one of the leading manufacturers of industrial products and equipment. The company’s chief competitors include Cooper Industries plc , General Electric Co. (GE - Free Report) and Manitowoc Co. Inc. (MTW - Free Report) .

We currently maintain a Neutral recommendation on the stock.

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