Illinois Tool Works Inc. ITW has been benefiting from positive momentum in the Automotive Original Equipment Manufacturer (OEM) segment driven by strength in the electric vehicles market and higher content in the Chinese OEM market. Organic revenues from the segment increased 1.9% in the first six months of 2024.
The company is also experiencing strength in the Specialty Products segment, driven by increased equipment sales in the aerospace sector, primarily in Europe and North America. Organic revenues from the segment jumped 6.1% in the first half of 2024.
ITW remains committed to enterprise initiatives, which focus on enhancing operational efficiency, optimizing the supply chain and building innovative solutions based on demand. In the first half of 2024. its operating margin increased 280 basis points to 27.3% driven by the contribution of 130 basis points from enterprise initiatives.
Illinois Tool expects the 2024 operating margin to be in the range of 26.5–27%, higher than 25.1% in 2023. For 2024, enterprise initiatives are anticipated to contribute more than 100 basis points to the operating margin.
Management is committed to rewarding shareholders through dividend payouts and share repurchases. In the first six months of 2024, ITW paid dividends worth $837 million and repurchased shares worth $750 million. Also, in August 2024, it hiked its dividend by 7% to $1.50 per share.
ITW Stock’s Price Performance
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In the past three months, the Zacks Rank #3 (Hold) company has gained 3.2% compared with the industry’s 2.2% growth.
Despite the positives, softness in the consumer electronics, semiconductor and general industrial end markets is denting revenues at Illinois Tool’s Test & Measurement and Electronics segment. The segment’s organic revenues fell 2.2% year over year in the first six months of 2024.
Weakness in the consumables and equipment business due to declining demand in the commercial, industrial, general industrial and oil and gas end markets is worrisome for the Welding segment. The segment’s revenues declined 4.1% year over year in the first half of the year.
Also, the high debt level remains a concern. Exiting the second quarter, ITW’s long-term debt remained high at $6.4 billion, up 2.4% on a sequential basis. Its long-term debt/capital ratio is currently 0.69, much higher than 0.34 of the industry.
Key Picks
Some better-ranked stocks from the same space are discussed below.
Crane Company CR presently carries a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company delivered a trailing four-quarter average earnings surprise of 11.2%. In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 2%.
Ferguson Enterprises Inc. FERG currently carries a Zacks Rank of 2. FERG delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Ferguson’s fiscal 2025 earnings has remained steady.
Flowserve Corporation FLS presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 18.2%.
In the past 60 days, the Zacks Consensus Estimate for FLS’ fiscal 2024 earnings has increased 3.8%.
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Flowserve Corporation (FLS) : Free Stock Analysis Report
Crane Company (CR) : Free Stock Analysis Report
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