Illinois Tool Earnings Preview

Oct.24.11 | About: Illinois Tool (ITW)

Illinois Tool Works Inc. (NYSE:ITW) is slated to release its third quarter 2011 results on Tuesday, October 25. The current Zacks Consensus Estimate for earnings per share (EPS) is 98 cents, representing an annualized growth of 17.61%.

With respect to earnings surprises, over the trailing four quarters, Illinois Tool outperformed the Zacks Consensus Estimate in two quarters, while underperforming in the other two quarters. The average earnings surprise was a positive 0.61%, implying that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Second Quarter Highlights

Illinois Tool’s second quarter results were impressive as earnings per share from continuing operations escalated 21.5% year over year to 96 cents. However, the results were below the Zacks Consensus Estimate of $1.02 and toward the lower-end of management’s guidance range of $0.95-$1.01.

With regard to the top line, operating revenue in the quarter increased 17.5% year over year to $4,614.9 million but lagged behind the Zacks Consensus Estimate of $4,667.0 million. The year–over-year increase in operating revenue symbolized continued improvement in end market demand. The year-over-year improvement was toward the lower-end of the company’s projected growth range of 17%-20%.

Agreement & Magnitude of Estimate Revisions

In the last 30 days, out of the 13 analysts providing estimates, one increased his EPS estimate for the third quarter, while four analysts lowered their estimates. For the fiscal year 2011, out of the 12 analyst estimates, there were three downward revisions, while for 2012 fiscal year; four analysts lowered their estimates.

In the last 30 days, the magnitude of revision was not very substantial for the third quarter and fiscal year 2011. Estimate for the quarter remained stable at 98 cents, which represented a year-over-year growth of 17.61%.

Fiscal year 2011 estimate moved downward to $3.74 from $3.76 while fiscal year 2012 estimate plummeted from $4.32 to $4.25. The current estimates for 2011 and 2012 represent year-over -year growth of 23.43% and 13.54%, respectively.

Our Take

Most of the negative revisions in estimates take into account the company’s below-average exposure to the emerging markets and significant exposure to consumer and construction markets, which still remain in doldrums. Moreover, downward revisions account for expectations of depressed margins due to the headwinds emanating from higher input costs. To add to the peril, rising competitive threats are augmenting problems for the Company.

Current Zacks Consensus Estimate of 98 cents for the third quarter 2011 is within management’s earnings guidance of $0.95-$1.03.

Illinois Tool Works is one of the leading manufacturers of industrial products and equipment. The company faces stiff competitions from its peers including Cooper Industries plc (CBE), General Electric Co. (NYSE:GE) and Manitowoc Co. Inc. (NYSE:MTW).