Zacks_Analysts' Blog : ITW's 4Q Outperforms Estimate - Analyst Blog

Illinois Tool Works Inc. (ITW) reported its financial results for the fourth quarter and fiscal year 2011 on January 31. Earnings per share from continuing operations were 90 cents, an increase of 36.4% year over year and two cents above the Zacks Consensus Estimate of 88 cents and in line with the mid-point of management’s guidance range of 86-94 cents.

The reported quarter’s earnings excluded one cent of income from discontinued operations, including which earnings came in for roughly $1.00 per share.

For the fiscal year 2011, earnings per share came in at $4.08, excluding 11 cents of income from the continuing operations. Results surpassed the Zacks Consensus Estimate of $3.73.

Revenue

Operating revenue in the fourth quarter increased 10.4% year over year to $4,319.3 million, but failed to surpass the Zacks Consensus Estimate of $4,357 million.The year-over-year increase in operating revenue symbolized continued improvement in end-market demand. The year-over-year improvement was in line with management’s projected growth range of 9.5%-12.5%.

Of the total revenue, base revenue in the quarter grew 5.9% year over year, registering an 8.7% increase in North American and a 3.0% hike in international revenues. Acquisitions added 4.7% while currency translation negatively impacted revenue growth by 0.4%. 

Revenue in the Power Systems and Electronics segment rose increased 16.0% year over year to $714.3 million in the quarter with base revenue increase of 10.2%, due to strong performance in the wielding and consumable business. Revenue in the Transportation segment soared  20.9% year over year to $757.4 million, with a base revenue increase of 8.7%.

Industrial Packaging soared 7.2% to $618.9 million while Food Equipment rose 3.8% to $507.0 million. Construction Products revenue increased 3.3% to $461.5 million; Polymers & Fluids revenue was $316.7 million, up 11.7% year over year; Decorative Surfaces revenue increased 2.9% to $248.1 million; and revenue from All Other sources increased 8.3% to $711.6 million. Intercompany revenue in the quarter was ($16.2) million.

For the fiscal year 2011, operating revenues were $17,786.6 million, an increase of 15.4% year over year. Results, however, lagged behind the Zacks Consensus of $17,877 million.

Margins

Cost of goods sold in the quarter increased 7.4% year over year and represented 64.8% of total revenue; slightly down from 66.6% in the year-ago quarter. Selling, administrative and R&D expenses, as a percentage of total revenue, stood at 18.6%. Operating margin in the quarter was 15.0%, up 270 basis points year over year.

Balance Sheet

Exiting the fourth quarter, Illinois Tool Works’ cash and cash equivalents decreased 10.7% sequentially to approximately $1,177.9 million. Long-term debt, net of current portion decreased to $3,488.2 million from $3,522.1 million in the third quarter of 2011.

Cash Flow

Net cash flow from operating activities in the quarter was $711.7 million, up from $356.2 million in the year-ago quarter. Capital expenditure increased to $94.5 million versus $88.1 million in the year-ago quarter. Free cash flow was approximately $617.2 million versus $268.0 million in the third quarter of 2010.

Outlook

For full-year 2012, management expects earnings in the range of $4.02-$4.26 based on total revenue growth assumption of 5.0%-8.0%.  Earnings for the first quarter of 2012 are expected to be within the 89-97 cents range based on total revenue growth assumption of 6.0%-9.0%.

Illinois Tool Works is one of the leading manufacturers of industrial products and equipment. The company’s chief competitors include Cooper Industries plc (CBE), General Electric Co. (GE) and Manitowoc Co. Inc. (MTW).

We currently maintain a Neutral recommendation on the stock.