Illinois Tool Works' Q2 Earnings Beat Estimates, Ups Outlook


Industrial tool maker, Illinois Tool Works Inc. (ITW) reported earnings from continuing operations, excluding one-time items, of $1.21 per share for second-quarter 2014, up 31.5% year over year. The results, surpassing the Zacks Consensus Estimate of $1.20, came in the guidance range of $1.16−$1.24 projected by the company.

The earnings improvement was driven by a 9.9% fall in share count, due to the completion of the accelerated share buyback activity associated with the divestment of the Industrial Packaging segment. Also, enterprise initiatives aided growth.



Illinois Tool Works’ operating revenues were $3,719 million, up 3.5% year over year. The increase was within the company’s guidance range of 3−5%. Organic revenue climbed 1.4% year over year, registering roughly 1.0% increase in North America, and a 2% rise in international revenues. This was, however, partially offset by 1% decline owing to activities associated with enterprise strategies.

However, Illinois Tool Works' top-line result lagged the Zacks Consensus Estimate of $3,754 million.

Illinois Tool Works reports its revenues under the following segments; a brief discussion on which has been provided below:

Test & Measurement and Electronics revenues increased 2.7% year over year; Automotive OEM (Original Equipment Manufacturer) revenues grew 9.2%; Polymers & Fluids recorded a 3.5% decline in revenues; Food Equipment revenues went up by 9.5%; Welding revenues were down 2.0%; Construction Products revenues inched down 0.4% and Specialty Products revenues increased 6.8%.  


Cost of revenues advanced 3% year over year and represented 59.7% of total revenue, down from 60% in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of total revenue, was 18.2%. Operating margin in the quarter was 20.5%, up 300 basis points (bps) year over year. Enterprise initiatives contributed nearly 120 bps to operating margin.  

Balance Sheet

Exiting second-quarter 2014, Illinois Tool Works had cash and cash equivalents of $5,297 million, up 49.3% from $3,547 million in the previous quarter. Long-term debt increased 28.2% sequentially to $6,140 million.
Cash Flow

Illinois Tool Works generated cash of $573 million from its operating activities, down from $643 million in the year-ago quarter. Capital spending declined 12.4% year over year to $78 million.

Free cash flow was $495 million as against $554 million recorded in the comparable year-ago quarter.


For 2014, Illinois Tool Works maintained its revenue growth guidance in the 3−4% range. Earnings guidance has been revised to a range of $4.50−$4.62 per share as against the prior expectation of $4.45−$4.65. The new mid-point of $4.56 represents a year-over-year increase of 26%.

For third-quarter 2014, earnings per share from continuing operations are expected to be within $1.19−$1.27 and total revenue growth is expected to vary within the 3−4% range.

With a market capitalization of nearly $35 billion, Illinois Tool Works presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include The Babcock & Wilcox Company (BWC), Blount International Inc. (BLT) and Dover Corporation (DOV). While The Babcock & Wilcox Company and Blount International sport a Zacks Rank #1 (Strong Buy), Dover Corporation holds a Zacks Rank #2 (Buy).

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