Can Illinois Tool (ITW) Deliver Upbeat Results This Quarter?

Zacks Equity Research

Industrial products and equipments manufacturer, Illinois Tool Works Inc. (ITW), is scheduled to report its second-quarter 2014 results on Jul 29 before the market opens. The Zacks Consensus Estimate for the quarter is pegged at $1.20.

Illinois Tool Works reported better-than-expected results in the first quarter, with an earnings surprise of 3.06%. Let's see how things are shaping up and whether the company will be able to post another quarter of upbeat results.

Factors to Influence Q2 Results

Illinois Tool Works’ second-quarter results will largely be influenced by lower share count, due to the company’s accelerated share buyback activity associated with the divestment of the Industrial Packaging segment. The company had planned a 50 million share-buyback program, targeting to complete it by Jun 30.

Moreover, improving operating conditions in the U.S and Europe as well as growing demand for Illinois Tool Works’ products in the construction end market, will help push organic growth in the quarter. Further, the company’s enterprise initiatives are likely to contribute nearly 100 bps to the operating margin.
 
Industrial activities in the second quarter were impressive in the U.S. Industrial production grew 5.5% year over year, including a 6.7% annual hike in manufacturing production and an 18.8% increase in mining production. Favourable industrial activities indicate a healthy demand for industrial tool makers.

However, there are certain near-term risks arising from foreign currency translation and competitive pressure, among others, that might act as potential headwinds to growth.

Earnings Whispers?

Our proven model does not conclusively show that Illinois Tool Works is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Illinois Tool Works has an ESP of 0.0% for second-quarter 2014. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.20.

Zacks Rank: Illinois Tool Works’ Zacks Rank #3 (Hold), when combined with a 0.00% ESP, makes surprise predictions difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.
 
Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Nordson Corporation (NDSN), with Earnings ESP of +1.77% and a Zacks Rank #2.

Lincoln Electric Holdings Inc. (LECO), with Earnings ESP of +1.10% and a Zacks Rank #3.

Altra Industrial Motion Corp. (AIMC), with Earnings ESP of +4.00% and a Zacks Rank #3.

Read the Full Research Report on ITW
Read the Full Research Report on LECO
Read the Full Research Report on NDSN
Read the Full Research Report on AIMC


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