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Illinois Tool (ITW) Beats Q4 Earnings, Reaffirms 2017 View

Industrial tool maker Illinois Tool Works Inc.ITW reported better-than-expected bottom-line results for fourth-quarter 2016. Earnings, excluding non-recurring items of 6 cents per share, came in at $1.39 per share, roughly 1.5% above the Zacks Consensus Estimate of $1.37. Also, the bottom line exceeded the mid-point of the guidance range of $1.31−$1.41.

The company's bottom line improved 13% from the year-ago figure on the back of a 4.2% reduction in the company's share count due to its ongoing share buyback activity. Earnings were also boosted by its enterprise initiatives. However, unfavorable foreign currency movements adversely impacted results by 2%.

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For 2016, the company GAAP earnings were $5.70 per share.

Revenues

In the quarter, Illinois Tool Works generated revenues of approximately $3.40 billion, in line with the Zacks Consensus Estimate, and increasing roughly 3.7% year over year. The improvement was driven by 3.8% positive impact from divestiture gains and 1.5% organic revenue growth. The organic revenue growth included roughly 1% adverse impacts from the company's Product Line Simplification initiative. However, the positives were partially offset by 1.6% adverse impact from unfavorable foreign currency movements

Segmental Details:

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

Test & Measurement and Electronics' revenues decreased 2.4% year over year to $487 million, and revenues from Automotive OEM (Original Equipment Manufacturer) were up 25.8% to $773 million. Food Equipment generated revenues of $532 million, down 0.2% year over year.

Welding revenues came in at $361 million, down 8.6% year over year. Construction Products' revenues were up 2.0% to $386 million, while revenues of $456 million from Specialty Products reflected a decline of 0.5%. Polymers & Fluids' revenues of $408 million grew 1.3% year over year.

For 2016, the company's revenues totaled approximately $13.6 billion, in line with the Zacks Consensus Estimate. However, the results increased 1.4% year over year.

Margins

In the quarter, Illinois Tool Works' cost of sales increased 3.3% year over year, representing 59% of total revenue compared with 59.3% in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of total revenue, came in at 17.6%.

Operating margin improved 110 basis points (bps) year over year to 21.8%, driven by roughly 130 bps contributions from enterprise initiatives. Excluding dilution caused by the acquisition of the Engineered Fasteners and Components business (EF&C) from ZF TRW, operating margin in the quarter was 22.2%.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Illinois Tool Works had cash and cash equivalents of approximately $2,472 million, above $2,299 million in the previous quarter. The company's long-term debt increased 13.4% sequentially to $7,177 million.

In the quarter, Illinois Tool Works generated net cash of $664 million from its operating activities, down 5.5% year over year. Capital expenditure on purchase of plant and equipment totaled $71 million, resulting in free cash flow of $593 million.

During 2016, the company bought back shares worth $2 billion, while paid dividends of $821 million.

Outlook

For 2017, Illinois Tool Works reaffirmed its previously provided guidance. Earnings are anticipated to come in within $6.00−$6.20 per share range, representing 9% year-over-year growth at mid point.

Organic revenue growth is expected to be 1.5−3.5%. Total revenue will likely be $13.8−$14.1 billion. Operating margin is expected to exceed 23.5%, driven by 100 bps contribution from the company's enterprise initiatives. Full-year free cash flow is anticipated to be 100% of net income (or approximately above $2 billion). Share repurchase will likely be roughly $1 billion.

For first-quarter 2017, earnings per share are expected within $1.39−$1.49. Organic revenue is expected to be 1−2% while operating margin will be likely exceed 22.5%.

Illinois Tool Works Inc. Price and Consensus

Illinois Tool Works Inc. Price and Consensus | Illinois Tool Works Inc. Quote

Zacks Rank & Other Stocks to Consider

With a market capitalization of $44.6 billion, Illinois Tool Works Inc. carries a Zacks Rank #2 (Buy). Other stocks worth considering in the machinery industry include Altra Industrial Motion Corp. AIMC , RBC Bearings Incorporated ROLL and Sun Hydraulics Corporation SNHY . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Altra Industrial Motion Corporation reported better-than-expected results in the last four quarters, with an average positive earnings surprise of 8.06%. Also, earnings expectations for 2017 improved over the past 60 days.

RBC Bearings Incorporated's earnings estimates for fiscal 2018 have been revised upward over the last 60 days. Also, the company has an average positive earnings surprise of 1.60%.

Sun Hydraulics Corporation has witnessed positive revisions in earnings estimates for 2017, over the past 60 days.

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Illinois Tool Works Inc. (ITW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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