Following the company’s earnings release on April 20, 2010, sentiments were overall positive for Illinois Tools Works Inc. (ITW), which was largely fueled by strong quarter results for the first quarter 2010, and robust guidance. The company revised its earnings guidance for full-year 2010 upwards from a range of $2.43-$2.93 to $2.72-$3.08, reflecting an improving business environment.
Earnings Review
Reported net income in the first quarter of 2010 was $294.3 million, or 58 cents per diluted share, up compared with a net income loss of $39.4 million, or a loss of 2 cents per diluted share in the year-ago quarter, and slightly above the Zacks Consensus Estimate of 56 cents. Improved year-over-year results reflect stronger revenue results and lower overhead manufacturing costs.
Considering the top line in the first quarter of 2010, operating revenue increased 14.6% to $3,606.4 million, from $3,146.4 million in the same quarter of the previous year. Growth stemmed from revenue improvement in all segments (except Food Equipment, which declined 0.4% year over year) reflecting an improvement in consumer buying patterns as well as a pick up in industrial production and underlying end market activity.
Detailed discussion on earnings release can be found here: Illinois Tool Works Swings, Beats
Agreement of Analysts
Following the earnings release, 18 analysts provided upwardly revised estimates for the second quarter 2010, and of the 19 analysts providing estimates for the full year, 14 analysts raised their estimates for 2010, and 18 increased their estimates for 2011.
Magnitude of Estimate Revisions
In the same 30-day period, the Zacks Consensus estimate for the second quarter moved upward from 69 cents earlier to 81 cents, and for full-year 2010, the consensus moved from $2.75 to $3.01. For full year 2011, estimate increased from $3.38 to $3.62.
Neutral Reiterated
Illinois Works remains a well-positioned company, having historical records of returning value to shareholders via strong growth through acquisitions and its ability to develop new and improved products. Illinois Tool Works also excels in enhancing existing product lines with new and innovative offerings.
Its 80/20 business strategy helps the company focus more on important aspects of the business (20.0% of the items having 80.0% of the value) and less on others (80.0% of the items having 20.0% of the value). Also, commercial availability of its raw material reduces risks from price hikes and supply shortages.
However, growing international presence has made the company more sensitive to fluctuations in foreign currencies and exposed it to geopolitical risks. Additionally, increasing competitive forces around the company’s large diverse products and end markets served raises a cause of concern. We thus prefer to remain Neutral on Illinois Works, which is supported by Zack #3 Rank (Hold) and a long-term recommendation of Neutral.
Read the full analyst report on “ITW”
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