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Earnings Above Ests at ITW - Analyst Blog

By: Zacks.com
Posted: 1/28/2014 10:41:00 AM
Referenced Stocks: AIMC;B;ITW;MIDD

Illinois Tool Works Inc. ( ITW ) reported an impressive result for the fourth quarter of 2013. Earnings per share from continuing operations, excluding one-time items, were recorded at 92 cents, reflecting an increase of 41.5% over the year-ago earnings of 65 cents. The result also surpassed the Zacks Consensus Estimate of 91 cents and was above the mid-point of the company's guidance range of 85-93 cents.

The earnings improvement was the result of organic growth increases witnessed in North American and in international operations. Enterprise initiatives of Illinois Tool Works were also a strong contributor to earnings growth.

In 2013, earnings per share from continuing operations, excluding one-time items, were $3.63, up compared with $3.21 earned in 2012 and above the Zacks Consensus Estimate of $3.61. Results also surpassed the mid-point of Illinois Tool Works' guidance range of $3.56-$3.64.

Revenue

Illinois Tool's operating revenues in the fourth quarter increased 4.8% year over year to $3,554 million. The increase was above the mid-point of the company's guidance range of 2.0%-5.0% and also marks an improvement over a fall of 4.4% recorded in the previous quarter. Results also surpassed the Zacks Consensus Estimate of $3,519 million.

Organic revenue in the quarter grew 2.8% year over year, registering roughly 2.6% increase in North America and an increase of 3.3% in international revenues.

Illinois Tool Works reports its revenues under the following heads/segments. A brief discussion has been provided below:

Test & Measurement and Electronics revenues increased 1.2% year over year in the fourth quarter 2013; Automotive OEM revenues were up 12.4%; Polymers & Fluids decreased by 2.4%; Food Equipment went up 9.7%; Welding revenues increased by 1.7%; Construction Products revenue were down 0.1% and Specialty Products increased 9.1%.  

In 2013, Illinois Tool Works' operating revenues came in at $14,135 million, up 1.9% year over year and above the Zacks Consensus Estimate of $14,098 million.

Margins

Cost of revenue in the fourth quarter went down 0.2% year over year and represented 61.1% of total revenue, down from 62.5% in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of total revenue, were recorded at 19.4%. Adjusted operating margin in the quarter was 17.7%, up 270 basis points year over year.

Balance Sheet

Exiting the fourth-quarter 2013, Illinois Tool Works' cash and cash equivalents were $3,618 million, up compared with $3,018 million in the previous quarter. Long-term debt was down 26.7% sequentially, to $2,793 million.

Cash Flow

Illinois Tool Works generated $708 million net cash flow from its operating activities in the fourth quarter of 2013. This was an increase over $605 million generated in the year-ago quarter. The company used $111 million for additions to plant and equipments, an increase over $108 million spent in the year-ago quarter.

Free cash flow in the quarter was $597 million, way above $497 million generated in the year-ago quarter.

Outlook

For 2014, management of Illinois Tool Works anticipates total revenue to grow in a range of 2.0%-4.0%. Organic revenue is expected to grow within a 2.0%-3.0% range. Earnings per share are expected to range within $4.30-$4.50.

For the first quarter of 2014, earnings per share from continuing operations are expected to be within a range of 93 cents to $1.01 and total revenue growth is expected to vary within 3.0%-6.0%.

Illinois Tool Works is one of the leading manufacturers of industrial products and equipments. The company has a $34.8 billion market capitalization and carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry include Middleby Corp. ( MIDD ), Altra Industrial Motion Corp. ( AIMC ) and Barnes Group Inc. ( B ). All these companies hold a Zacks Rank #2 (Buy).



ALTRA HOLDINGS (AIMC): Free Stock Analysis Report

BARNES GRP (B): Free Stock Analysis Report

ILL TOOL WORKS (ITW): Free Stock Analysis Report

MIDDLEBY CORP (MIDD): Free Stock Analysis Report

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