ITW lowered its third quarter guidance for net income to between 78 cents and 80 cents a share from the previous range of 78 cents to 82 cents and for the year to between $3.03 and $3.07 a share, citing the slowdown in the U.S. home construction market and production cuts at North American automakers. The upper end of the earlier forecast was for $3.11 a share. ITW is beginning to miss its profit targets; this is hardly surprising given the size and disparate nature of the group. ITW recently announced that it was paying $292 million cash, a 27% premium to the share price, for Click Commerce, which helps companies get up to speed in using radio frequency identification technology [RFID]. While I expect contributions from acquisitions, combined with favorable conditions in many of ITW's end markets to continue over the next 12 months, in my opinion that is largely reflected in the price of the stock. According to S&P analyst Anthony Fiore, the industry encompasses a wide range of industrial firms that supply the equipment that other companies need to run their manufacturing operations. Longer term, S&P believes that the Asian-driven industrial overcapacity could trigger a deflationary cycle, and with corporate profit margins likely to get squeezed in that environment. This could also cause manufacturers to cut back on production, employment levels, and spending on new machinery and equipment.
Even though the sale of shares may not be significant enough, investors might want to consider following Speer and Smith out the door.