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

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-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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