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Illinois Tool (ITW) Tops on Q4 Earnings, Gives Impressive View

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Illinois Tool Works Inc. ITW has reported better-than-expected fourth-quarter 2021 results. Its earnings surpassed estimates by 3.17% and sales beat the same by 3.87%.

The industrial tool maker’s adjusted earnings (excluding impacts of2 cents from the MTS buyout) in the quarter were $1.95, surpassing the Zacks Consensus Estimate of $1.89. Earnings decreased 3.5% from $2.02 reported a year ago as supply-chain restrictions and high costs more than offset the increase in revenues.

In 2021, the company’s earnings (on a reported basis) were $8.51 per share, increasing from the previous year’s $6.63. Excluding the impacts of the MTS buyout, adjusted earnings were $8.53 per share.

Notably, Illinois Tool acquired the test & simulation business of Eden Prairie, MN-based MTS Systems Corporation last December. (For more information, please read: Illinois Tool Acquires MTS Test & Simulation Unit)

Revenue Details

Illinois Tool generated revenues of $3,679 million in the reported quarter, reflecting growth of 5.9% from the year-ago figure. The top-line results benefited from a 5.3% increase in organic sales and a 1.3% contribution from the MTS acquisition. Foreign currency movements had an adverse impact of 0.7%.

Except for the Automotive OEM segment, sales increase in other segments supported the quarterly sales increase of 5.9%. Supply-chain restrictions had adverse impacts on auto production and, hence, affected Automotive OEM in the quarter.

The top line surpassed the Zacks Consensus Estimate of $3,542 million.

Illinois Tool reports revenues under the segments discussed below:

Test & Measurement and Electronics’ revenues in the fourth quarter increased 19.2% year over year to $636 million. Revenues from Automotive OEM (Original Equipment Manufacturer) declined 17.1% to $663 million. Food Equipment generated revenues of $569 million, increasing 20.6% year over year.

Welding revenues were $422 million, growing 14.7% year over year. Construction Products’ revenues were up 11.6% to $480 million. Revenues of $467 million from Specialty Products reflected an increase of 6.3%. Polymers & Fluids’ revenues of $447 million grew 2.21% year over year.

In 2021, the company’s revenues totaled $14.46 billion, reflecting an increase of 15% from the previous year. The top line surpassed the Zacks Consensus Estimate of $14.32 billion.

Margin Profile

In the reported quarter, Illinois Tool’s cost of sales increased 9.6% year over year to $2,191 million. It represented 59.6% of the quarter’s revenues compared with 57.6% in the year-ago quarter. Selling, administrative, and research and development expenses expanded 11.5% to $621 million. It represented 16.9% of fourth-quarter revenues compared with 16% in the year-ago quarter.

The operating margin was 22.7% in the quarter, down 270 basis points (bps) year over year. Enterprise initiatives contributed 110 bps to the operating margin, while price/cost had an adverse impact of 200 bps. Interest expenses in the quarter decreased 5.8% year over year to $49 million. The effective tax rate in the quarter was 23.1%.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Illinois Tool had cash and cash equivalents of $1,527 million, down 23.2% from $1,987 million recorded at the end of the last reported quarter. Long-term debt decreased 0.9% sequentially to $6,909 million.

In 2021, the company generated net cash of $2,557 million from operating activities, reflecting a decline of 8.9% from the previous year. Capital spending on the purchase of plant and equipment was $296 million, up 25.4% year over year. Free cash flow was $2,261 million, reflecting a year-over-year decline of 12.1%.

Outlook

For 2022, Illinois Tool expects organic revenue growth of 6-9% and a 7.5-10.5% rise in total revenues on a year-over-year basis.

Foreign currency translation is expected to adversely impact sales by 1.5%, while the MTS acquisition is likely to boost the top line by 3%. Notably, the buyout’s impact on earnings is expected to be neutral.

Earnings (GAAP) are expected to be $8.90-$9.30 per share, suggesting an increase of 10-15% from the previous year’s reported number.

The operating margin is expected to be 24-25%. Enterprise initiatives are likely to contribute 100 bps to the operating margin. However, dilution from price/costs and MTS buyouts are predicted to lower the margin by 50 bps each.

In the year, the company intends on repurchasing $1.5 billion worth of shares. The tax rate (effective) is expected to be 23-24%.

Illinois Tool Works Inc. Price, Consensus and EPS Surprise

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 & Other Important Earnings Releases

With a market capitalization of $73.2 billion, Illinois Tool currently carries a Zacks Rank #3 (Hold).

Three companies from the industry to soon report results are discussed below:

RBC Bearings Incorporated ROLL will release fourth-quarter results on Feb 10, before market open. It presently carries a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company reported better-than-expected results in three of the last four quarters and lagged estimates once. The earnings surprise was -1.11%, on average. In the past 60 days, the Zacks Consensus Estimate for RBC Bearings’fourth-quarter earnings has been revised up 20%.

Colfax Corporation CFX is slated to release fourth-quarter results on Feb 22, before market open. It presently carries a Zacks Rank #4 (Sell).

In the last four quarters, the company recorded better-than-expected resultsthrice and in-line results once. It pulled off a trailing four-quarter earnings surprise of 5.64%, on average. The Zacks Consensus Estimate for CFX’s fourth-quarter earnings has been increased by 1.8% in the past 60 days.

Barnes Group Inc. B presently carries a Zacks Rank #4. The company is slated to report fourth-quarter 2021 results on Feb 18, before market open.

The company reported better-than-expected results in the last four quarters. The earnings beat for the quarters is 10.99%, on average. The Zacks Consensus Estimate for B’s fourth-quarter earnings has decreased 6.1% in the past 60 days.


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Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report

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