A month has gone by since the last earnings report for Illinois Tool Works (ITW). Shares have added about 5.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Illinois Tool Works due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Illinois Tool's Q3 Earnings Surpass Estimates, Revenues Miss
Illinois Tool reported third-quarter 2024 adjusted earnings of $2.65 per share, which surpassed the Zacks Consensus Estimate of $2.53. Earnings increased 4% year over year.
Illinois Tool’s revenues of $3.97 billion missed the consensus estimate of $4.01 billion. The top line declined 1.6% year over year owing to a decrease of 1.4% in organic sales. While acquisition increased revenues by 0.2%, unfavorable foreign currency translation had an adverse impact of 0.4%.
ITW’s Segmental Performance
Test & Measurement and Electronics’ revenues were down 0.2% year over year to $697 million. Revenues from Automotive Original Equipment Manufacturer decreased 3.3% year over year to $772 million.
Food Equipment generated revenues of $677 million, down 0.2% year over year. Welding revenues were $462 million, down 1.3% year over year.
Construction Products’ revenues were down 8.1% year over year to $479 million. Revenues of $438 million from Specialty Products reflected an increase of 5.7% year over year. Polymers & Fluids’ revenues of $448 million declined 1.9% year over year.
ITW’s Margin Profile
Illinois Tool’s cost of sales decreased 3.8% year over year to $2.23 billion. Selling, administrative and research and development expenses increased 7% year over year to $658 million. The operating margin was 26.5%, stable from the year-ago quarter. Enterprise initiatives contributed 130 basis points (bps) to the operating margin.
Balance Sheet and Cash Flow
At the end of the third quarter, Illinois Tool had cash and equivalents of $947 million compared with $1.1 billion at the end of December 2023. Long-term debt was $6.6 billion compared with $6.3 billion at the end of December 2023.
In the first nine months of 2024, Illinois Tool generated net cash of $2.2 billion from operating activities, reflecting a decline of 13.3% from the year-ago number. Capital spending on the purchase of plant and equipment was $319 million, down 1.5% year over year. Free cash flow of $1.85 billion decreased 15.1% year over year.
ITW’s 2024 Guidance
Illinois Tool expects earnings to be in the range of $11.63-$11.73 per share, higher than the earlier guidance of $10.30-$10.40. Total revenues and organic revenues are expected to be flat. Operating margin is expected to be in the band of 26.5-27%. Enterprise initiatives are expected to contribute more than 100 bps to the operating margin.
Illinois Tool projects free cash flow to be approximately 100% of net income. The company expects to repurchase about $1.5 billion worth of shares. The effective tax rate is expected to be 21.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Illinois Tool Works has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Illinois Tool Works has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Illinois Tool Works belongs to the Zacks Manufacturing - General Industrial industry. Another stock from the same industry, Crane (CR), has gained 15.5% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Crane reported revenues of $597.2 million in the last reported quarter, representing a year-over-year change of +12.7%. EPS of $1.38 for the same period compares with $1.03 a year ago.
Crane is expected to post earnings of $1.24 per share for the current quarter, representing a year-over-year change of +37.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.2%.
Crane has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report
Crane Company (CR) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
