Illinois Raises $1.1B via Notes

Zacks

Industrial tool maker, Illinois Tool Works Inc. (ITW) recently opted for raising funds from the market through issuance of $1.1 billion principal amount of Senior Unsecured Notes due to mature on September 1, 2042. The notes, expected to yield 3.995% at maturity, were offered at 99.038% of the principal amount.

The notes carry a coupon rate of 3.9% to be paid semi-annually by the company with the first installment accruing on March 1, 2013. The notes carry an A1 rating from Moody’s and A-PLUS from S&P.

Illinois Tool Works estimates collection of approximately $1.078 billion, net of underwriting expenses and other issue expenses from the notes offering, and intends to repay its near-term maturing debts and meet its general corporate purposes by using the amount. As of six months ended June 30, 2012, the company had earnings to fixed charges ratio of 11.8x as against 11.3x ending year 2011. Exiting the second quarter 2012, Illinois Tool Works had a cash and cash equivalents balance of $1,692.0 million and long-term debt balance, net of current portion, of $3,468.0 million.

This announcement succeeds the company’s announcement of a 51% stake divestment in its Decorative Surfaces division to a fund managed by Clayton, Dubilier & Rice, LLC (CD&R) for approximately $1.09 billion in cash.

In the second quarter 2012, Illinois Tool Works reported an EPS from continuing operations of $1.11, up 16% year over year. Operating revenue grew marginally by 0.87% to $4,655 million, lower than management’s projected growth range of 3.5%-6.0%. For the third quarter 2012, management anticipates that earnings per share would be within the $1.03-$1.11 range.

The Zacks Consensus Estimate for the third quarter 2012 stand at $1.06, up 6.2% year over year. Estimates for 2012 and 2013 are at $4.12 and $4.51, representing year-over-year growth of 0.94% and 9.57%, respectively.

Illinois Tool Works is one of the leading manufacturers of industrial products and equipment operating through 800 business units in 57 countries. It competes with companies like Cooper Industries plc. (CBE), General Electric Co. (GE), and Manitowoc Co. Inc. (MTW).

We currently maintain a Neutral recommendation on Illinois Tools. The stock also bears a Zacks #4 Rank, implying a short-term Sell rating.

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