Illinois Tool (ITW) Beats on Q3 Earnings, Narrows '23 EPS View
Illinois Tool Works Inc. ITW reported third-quarter 2023 adjusted earnings of $2.55 per share, which surpassed the Zacks Consensus Estimate of adjusted earnings of $2.44 per share. Earnings increased 8.5% year over year.
Illinois Tool’s revenues of $4,031 million missed the consensus estimate of $4,079 million. The top line inched up 0.5% year over year due to a 0.2% increase in organic sales. Divestitures reduced revenues by 1.2% and foreign currency translation had an adverse impact of 1.5%.
Segmental Performance
Test & Measurement and Electronics’ revenues were down 2% year over year to $698 million. Our estimate for segmental revenues was $722.3 million. Revenues from Automotive Original Equipment Manufacturer increased 6% to $799 million. Our estimate for segmental revenues was $770.5 million.
Food Equipment generated revenues of $678 million, increasing 7% year over year. Our estimate for segmental revenues was $645.2 million. Welding revenues were $468 million, down 2% year over year. Our estimate for segmental revenues was $477.7 million.
Construction Products’ revenues were down 1% to $522 million. Our estimate for segmental revenues was $534.3 million. Revenues of $414 million from Specialty Products reflected a decrease of 6%. Our estimate for segmental revenues was $438.8 million. Polymers & Fluids’ revenues of $458 million declined 3% year over year. Our estimate for segmental revenues was $483.7 million.
Illinois Tool Works Inc. Price, Consensus and EPS Surprise
Illinois Tool Works Inc. price-consensus-eps-surprise-chart | Illinois Tool Works Inc. Quote
Margin Profile
In the reported quarter, Illinois Tool’s cost of sales dipped 2.2% year over year to $2,319 million. Selling, administrative, and research and development expenses decreased 1.4% to $615 million. The operating margin was 26.5% in the quarter, up 200 basis points (bps) year over year. Enterprise initiatives contributed 140 bps to the operating margin.
Balance Sheet and Cash Flow
At the end of the third quarter, Illinois Tool had cash and equivalents of $990 million compared with $708 million at the end of December 2022. Long-term debt was $6,818 million compared with $6,173 million at the end of December 2022.
In the first nine months of 2023, Illinois Tool generated net cash of $2,500 million from operating activities, reflecting a surge of 62.7% from the year-ago reported number. Capital spending on the purchase of plant and equipment was $324 million, up 26.6% year over year. Free cash flow of $2,176 million surged 69.9% year over year.
2023 EPS Guidance Raised
Due to the ongoing automotive industry labor actions, Illinois Tool has narrowed its earnings guidance for 2023. The company now expects earnings of $9.65-$9.85 per share for the current year compared with earnings of $9.55-$9.95 per share anticipated earlier. The midpoint of the guided range — $9.75 — is in line with the Zacks Consensus Estimate.
Due to ongoing automotive industry labor actions, ITW expects organic revenues to increase 2-3%. The company expects total revenues to increase 1-2% from the year-ago reported figure. This includes a 1% negative impact from divestitures and foreign currency translation. Operating margin is expected to be 25-25.5% for the year. Enterprise initiatives are expected to contribute more than 100 basis points to the operating margin.
Illinois Tool 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. The tax rate is expected to be 22.5-23.5%.
Zacks Rank & Stocks to Consider
Illinois Tool currently carries a Zacks Rank #3 (Hold). Some better-ranked companies from the Industrial Products sector are discussed below:
Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy) and a trailing four-quarter earnings surprise of 15%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
AIT’s earnings estimates have increased 1.8% for fiscal 2024 (ending June 2024) in the past 60 days. Shares of Applied Industrial have risen 32.5% in the past year.
Axon Enterprise, Inc. AXON currently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter earnings surprise of approximately 60.2%, on average.
In the past 60 days, estimates for Axon’s earnings have increased 0.3% for 2023. The stock has soared 53.2% in the past year.
Caterpillar Inc. CAT presently carries a Zacks Rank of 2. CAT’s earnings surprise in the last four quarters was 18.5%, on average.
In the past 60 days, estimates for Caterpillar’s 2023 earnings have increased 0.7%. The stock has gained 26.9% in the past year.
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Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report
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