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Illinois Tool (ITW) to Post Q2 Earnings: What to Expect?

Zacks Equity Research

Illinois Tool Works Inc. ITW is scheduled to release second-quarter 2019 results on Jul 26, before the market opens.

The company delivered better-than-expected results in three of the last four quarters while lagged estimates once. Average earnings surprise was a positive 0.28%. In the last reported quarter, its earnings of $1.81 surpassed the Zacks Consensus Estimate of $1.80 by 0.56%.

In the past three months, shares of this industrial products and equipment manufacturer have gained 3.7% compared with the industry’s growth of 1.5%.

Let us see how things are shaping up for Illinois Tool this quarter.

Factors to Affect Q2 Results

Illinois Tool’s results can be influenced by several company-specific matters. Of all, the company’s Enterprise Strategy — including Business Structure Simplification, Portfolio Management and Strategic Sourcing initiatives — as well as its well-diversified business structure, a solid product portfolio and share buyback activities will be boons. These tailwinds supported results in the first quarter and must have had positive impacts in the second quarter of 2019 as well.

On the flip side, certain headwinds, which adversely impacted first quarter 2019 results, might be seen as problems for the second quarter. A high tax rate, woes arising from unfavorable movements in foreign currencies, weakness in auto production in China and Europe, restructuring activities, and softness in organic sales might be prime troubling factors.

Of the above-mentioned headwinds, high tax rates are predicted to adversely influence results in the first half more than the second half of the year. Notably, earnings were lowered by 3 cents in the first quarter due to high tax rate. Also, forex woes are expected to lower second-quarter earnings by 6 cents while restructuring activities will have a dilutive impact of 9 cents.

In addition to these company-specific factors, we believe that industrial machinery companies are gaining from infrastructure investments, use of sophisticated technologies in manufacturing process, favorable policy changes in the country, growing use of e-retail, and new construction and remodeling activities. However, slower pace of growth in industrial production might be concerning.

The Food Equipment segment might benefit from strengthening demand and product introductions. The Zacks Consensus Estimate for the segment’s revenues stands at $558 million for the second quarter, suggesting roughly 0.9% rise in revenues from the figure generated in the year-ago quarter and 7.7% growth from the previous quarter.

In addition, the Welding segment might suffer from softness in organic growth (expected to be 3-6% growth in 2019 versus 10% increase recorded in 2018). The segment’s Zacks Consensus Estimate for revenues is pegged at $441 million, suggesting slight gain from $440 million revenues recorded in the year-ago quarter. Notably, revenue surprise in the first quarter of 2019 was -1.87%.
The Automotive OEM segment’s results might be influenced by the company’s program wins and solid product offerings. However, prevailing softness in some markets might be challenging. The Zacks Consensus Estimate for the segment’s revenues is pegged at $808 million, indicating an 8.1% decline from the year-ago quarter’s reported figure and growth of 0.2% from the sequential figure.

Earnings Whispers

Our proven model provides some idea about the stocks that are about to release their earnings results. Per the model, a stock needs a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The case with Illinois Tool has been provided below.

Earnings ESP: The company has an Earnings ESP of +0.30%.

Illinois Tool Works Inc. Price, Consensus and EPS Surprise


Illinois Tool Works Inc. Price, Consensus and EPS Surprise

Illinois Tool Works Inc. price-consensus-eps-surprise-chart | Illinois Tool Works Inc. Quote

Zacks Rank: Illinois Tool currently carries a Zacks Rank #3.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies in the Zacks Industrial Products sector that you may want to consider as these too have the right combination of elements to post an earnings beat this quarter, according to our model.

John Bean Technologies, Inc. JBT presently has an Earnings ESP of +1.71% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise, Inc. AAXN has an Earnings ESP of +10.96% and a Zacks Rank #2 at present.

Terex Corporation TEX currently has an Earnings ESP of +1.56% and a Zacks Rank #3.

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