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Illinois Tool Works (ITW) Down 3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
·4-min read

It has been about a month since the last earnings report for Illinois Tool Works (ITW). Shares have lost about 3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Illinois Tool Works due for a breakout? 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 catalysts.

Illinois Tool Q1 Earnings Beat Estimate, Revenues Miss

Illinois Tool reported first-quarter 2024 adjusted earnings of $2.44 per share, which surpassed the Zacks Consensus Estimate of $2.35. Earnings increased 5% year over year.

Illinois Tool’s revenues of $3.97 billion missed the consensus estimate of $4.02 billion. The top line inched down 1.1% year over year due to an unfavorable foreign currency translation of 0.4%. Also, organic sales decreased 0.5% and divestitures reduced revenues by 0.6%.

Segmental Performance

Test & Measurement and Electronics’ revenues were down 0.9% year over year to $696 million. Revenues from Automotive Original Equipment Manufacturer increased 2.5% year over year to $816 million.

Food Equipment generated revenues of $631 million, decreasing 0.7% year over year. Welding revenues were $476 million, down 3.4% year over year.

Construction Products’ revenues were down 7.3% year over year to $488 million. Revenues of $440 million from Specialty Products reflected an increase of 3.4% year over year. Polymers & Fluids’ revenues of $432 million declined 3.3% year over year.

Margin Profile

Illinois Tool’s cost of sales decreased 8.4% year over year to $2.1 billion. Selling, administrative, and research and development expenses decreased 0.2% year over yer to $676 million. The operating margin was 28.4%, up 420 basis points (bps) from the year-ago quarter. Enterprise initiatives contributed 140 bps to the operating margin.

Balance Sheet and Cash Flow

At the end of the first quarter, Illinois Tool had cash and equivalents of $959 million compared with $1.1 billion at the end of December 2023. Long-term debt was $6.25 billion compared with $6.33 billion at the end of December 2023.

In the first three months of 2024, Illinois Tool generated net cash of $589 million from operating activities, reflecting a decline of 19.1% from the year-ago reported number. Capital spending on the purchase of plant and equipment was $95 million, down 15.9% year over year. Free cash flow of $494 million decreased 19.7% year over year.

2024 Guidance

Illinois Tool expects earnings of $10.30-$10.70 per share for 2024. Organic revenues are expected to increase 1-3%. The company anticipates total revenues to increase 1-3% from the year-ago reported figure. Operating margin is expected to be 26-27%. Enterprise initiatives are expected to contribute more than 100 bps to the operating margin.

Illinois Tool projects free cash flow to be more than 100% of net income in 2024. The company expects to repurchase about $1.5 billion worth of shares. The tax rate is expected to be 24-24.5%.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Illinois Tool Works has a nice Growth Score of B, a grade with the same score on the momentum front. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly 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 is part of the Zacks Manufacturing - General Industrial industry. Over the past month, Dover Corporation (DOV), a stock from the same industry, has gained 2.1%. The company reported its results for the quarter ended March 2024 more than a month ago.

Dover reported revenues of $2.09 billion in the last reported quarter, representing a year-over-year change of +0.7%. EPS of $1.95 for the same period compares with $1.94 a year ago.

For the current quarter, Dover is expected to post earnings of $2.22 per share, indicating a change of +8.3% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Dover. Also, the stock has a VGM Score of C.

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

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