Illinois Tool (ITW) Beats on Q2 Earnings, Raises '23 EPS View
Illinois Tool Works Inc. ITW reported second-quarter 2023 adjusted earnings (excluding 7 cents from non-recurring items) of $2.41 per share, which surpassed the Zacks Consensus Estimate of $2.39. Earnings increased year over year.
Illinois Tool’s revenues of $4,074 million missed the Zacks Consensus Estimate of $4,132.4 million. The top line inched up 1.6% year over year due to a 2% increase in organic sales. Foreign currency headwinds and divestitures had an adverse impact of 1.4%.
Segmental Performance
Test & Measurement and Electronics’ revenues inched up 0.7% year over year to $700 million. Our estimate for segmental revenues was $715.5 million. Revenues from Automotive OEM (Original Equipment Manufacturer) increased 16.2% to $826 million. Our estimate for segmental revenues was $733.1 million.
Illinois Tool Works Inc. Price, Consensus and EPS Surprise
Illinois Tool Works Inc. price-consensus-eps-surprise-chart | Illinois Tool Works Inc. Quote
Amid a general softness across end markets, we anticipated muted growth for the segment. Food Equipment generated revenues of $654 million, increasing 6.3% year over year. Our estimate for segmental revenues was $628.6 million. Welding revenues were $490 million, up 0.7% year over year. Our estimate for segmental revenues was $499.4 million.
Construction Products’ revenues were down 6.8% to $526 million. Revenues of $423 million from Specialty Products reflected a decrease of 5.4%. Our estimate for segmental revenues was $448.8 million. Polymers & Fluids’ revenues of $459 million declined 7.6% year over year.
Margin Profile
In the reported quarter, Illinois Tool’s cost of sales dipped 2% year over year to $2,344 million. Selling, administrative, and research and development expenses increased 4.7% to $690 million.The operating margin was 24.8% in the quarter, up 170 basis points (bps) year over year. Enterprise initiatives contributed 130 bps to the operating margin.
Balance Sheet and Cash Flow
At the end of the second quarter, Illinois Tool had cash and equivalents of $922 million compared with $708 million at the end of December 2022. Long-term debt was $6,947 million compared with $6,173 million at the end of December 2022.
In the first half of 2023, Illinois Tool generated net cash of $1,518 million from operating activities, reflecting a surge of 84.2% from the year-ago reported number. Capital spending on the purchase of plant and equipment was $198 million, up 27.7% year over year. Free cash flow of $1,320 million surged 97.3% year over year.
2023 EPS Guidance Raised
Anticipating stable underlying demand for the rest of 2023, Illinois Tool has raised its earnings guidance for 2023. The company now expects earnings of $9.55-$9.95 per share for the current year compared with $9.45-$9.85 anticipated earlier. The mid-point of the guided range — $9.75 — lies above the Zacks Consensus Estimate of $9.64.
Anticipating steady demand levels, ITW expects organic growth to increase 3-5%. The company expects total revenues to increase 2-4% from the year-ago reported figure. This includes 1% negative impact from divestitures. Operating margin is expected to be 24.5-25.5% for the year. Enterprise initiatives are expected to contribute more than 100 basis points to operating margin.
Illinois Tool, carrying a Zacks Rank #3 (Hold), projects free cash flow to be more than 100% of net income in 2023. The company expects to repurchase about $1.5 billion worth of shares in the year. Tax rate is expected to be 22.5-23.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks.
Performance of Other Industrial Companies
A. O. Smith Corporation’s AOS second-quarter 2023 adjusted earnings (excluding 3 cents from non-recurring items) of $1.01 per share surpassed the Zacks Consensus Estimate of adjusted earnings of 91 cents per share. The bottom line jumped 23.2% year over year.
A. O. Smith’s net sales of $960.8 million underperformed the consensus estimate of $971 million. The top line dipped 0.5% year over year.
Allegion plc’s ALLE second-quarter 2023 adjusted earnings of $1.76 per share surpassed the Zacks Consensus Estimate of $1.69. The bottom line increased 28.5% year over year.
Allegion’s revenues of $912.5 million missed the Zacks Consensus Estimate of $927 million. However, the top line jumped 18% from the year-ago quarter.
IDEX Corporation’s IEX second-quarter 2023 adjusted earnings of $2.18 per share surpassed the Zacks Consensus Estimate of adjusted earnings of $2.12 per share. On a year-over-year basis, the bottom line increased 7.9%.
IDEX’s net sales of $846.2 million underperformed the Zacks Consensus Estimate of $847 million. However, the top line increased 6.3% year over year. Organic sales in the quarter increased 3% year over year.
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Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report
A. O. Smith Corporation (AOS) : Free Stock Analysis Report
IDEX Corporation (IEX) : Free Stock Analysis Report
Allegion PLC (ALLE) : Free Stock Analysis Report
