Illinois Tool Works (ITW) Q4 Earnings Miss, Revenues Beat
Illinois Tool Works Inc. ITW reported mixed fourth-quarter 2022 results. Its earnings missed estimates by 10%, while sales beat the same by 2.5%.
The industrial tool maker’s adjusted earnings (excluding a 12-cent impact of unfavorable foreign currency translation) in the quarter were $2.34, missing the Zacks Consensus Estimate of $2.60. Our estimate for fourth-quarter adjusted earnings was $2.62. Earnings increased 20% from the year-ago figure of $1.95.
Illinois Tool generated revenues of $3,971 million in the reported quarter, reflecting growth of 7.9% from the year-ago figure. Our estimate for net sales in the reported quarter was $3,836.6 million. The top-line results benefited from a 12% increase in organic sales and a 1% contribution from the MTS acquisition. Foreign currency movements had an adverse impact of 5%.
Except for the Specialty Products and Construction segment, the increase in sales in other segments supported the quarterly sales rise of 7.9%.
The top line surpassed the Zacks Consensus Estimate of $3,875 million.
Illinois Tool reports revenues under the segments discussed below:
Test & Measurement and Electronics’ revenues in the third quarter increased 15% year over year to $732 million. Our estimate for segmental revenues was $705.0 million. Revenues from Automotive OEM (Original Equipment Manufacturer) increased 12% to $745 million. Our estimate for segmental revenues was $736.5 million. Food Equipment generated revenues of $631 million, increasing 11% year over year. Our estimate for segmental revenues was $579.0 million.
Welding revenues were $481 million, growing 14% year over year. Our estimate for segmental revenues was $439.2 million. Construction Products’ revenues were down 2% to $470 million. Our estimate for segmental revenues was $498.3 million. Revenues of $462 million from Specialty Products reflected a decrease of 1%. Our estimate for segmental revenues was $434.8 million. Polymers & Fluids’ revenues of $455 million grew 2% year over year. Our estimate for segmental revenues was $449.2 million.
Illinois Tool Works Inc. Price, Consensus and EPS Surprise
Illinois Tool Works Inc. price-consensus-eps-surprise-chart | Illinois Tool Works Inc. Quote
In the reported quarter, Illinois Tool’s cost of sales increased 5.4% year over year to $2,309 million. It represented 58.1% of the quarter’s revenues compared with 59.6% in the year-ago quarter. Selling, administrative, and research and development expenses expanded 3.7% to $644 million. The same represented 16.2% of fourth-quarter revenues compared with 16.9% in the year-ago quarter.
The operating margin was 24.8% in the quarter, up 210 basis points (bps) year over year. Enterprise initiatives contributed 110 bps to the operating margin, while price/cost had a favorable impact of 70 bps. Interest expenses in the quarter increased 14.3% year over year to $56 million. The effective tax rate in the quarter was 22%.
Balance Sheet and Cash Flow
At the time of exiting the fourth quarter, Illinois Tool had cash and cash equivalents of $708 million, down 53.6% from $1,527 million recorded at the end of the fourth quarter of 2021. Long-term debt decreased 10.7% to $6,173 million.
In 2022, Illinois Tool generated net cash of $2,348 million from operating activities, reflecting a decline of 8.2% from the year-ago period. Capital spending on the purchase of plant and equipment was $412 million, up 39.2% year over year. Free cash flow was $1,936 million, reflecting a year-over-year decline of 14.4%.
For 2023, Illinois Tool expects organic revenue growth of 3-5% and a 1.5-3.5% rise in total revenues from the year-ago actuals. GAAP EPS for the year is anticipated to be $9.40-$9.80.
Foreign currency translation and divestitures are expected to adversely impact sales by 0.75% each.
The operating margin is expected to be 24.5-25.5%. Enterprise initiatives are likely to contribute 100 bps to the operating margin.
The free cash flow conversion rate is expected to be more than 100% of net income. The tax rate (effective) is expected to be 24%.
Zacks Rank & Stocks to Consider
ITW currently carries a Zacks Rank #3 (Hold). Some better-ranked companies from the Industrial Products sector are discussed below:
Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy) and has a trailing four-quarter earnings surprise of 20.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.
AIT’s earnings estimates have increased 6.5% for fiscal 2023 (ending June 2023) in the past 60 days. Shares of Applied Industrial have risen 42.1% in the past six months.
Allegion plc ALLE presently carries a Zacks Rank #2 (Buy). ALLE’s earnings surprise in the last four quarters was 8.8%, on average.
In the past 60 days, Allegion’s earnings estimates have been unchanged for 2022. The stock has gained 16% in the past six months.
Valmont Industries, Inc. VMI presently has a Zacks Rank of 2. VMI’s earnings surprise in the last four quarters was 12.5%, on average.
In the past 60 days, Valmont’s earnings estimates have increased by a penny. The stock has rallied 22.4% in the past six months.
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