Illinois Tool Works Beats Earnings and Revenue Estimates


A strong earnings report from Illinois Tool Works (ITW) calmed investors worried about the impact of coronavirus on the global manufacturer. ITW addressed the issue, while reporting earnings and revenue in line with expectations.

The company was able to grow earnings per share 9%, and 5% for all of 2019, while executing in a declining demand market. Revenue declined 3.1% in the quarter, and 4.5% for all of 2019. Full year revenue came in at $14.1 billion, with $3.5 billion being tacked on in the fourth quarter. 

E. Scott Santi, chairman and chief executive officer, praised the company’s execution, saying despite currency headwinds and a tough operating environment, the company “expanded operating margin to 24.4 percent excluding higher restructuring expenses, improved after-tax return on invested capital to 28.7 percent, increased free cash flow nine percent and returned $2.8 billion to shareholders in the form of dividends and share repurchases.”

Related: ITW Raises Dividend for 45th Year in a Row

The stock news had little impact on the share price of ITW, as the stock was steady in the face of a weaker global manufacturing numbers throughout most of 2019. As Santi described it in the company’s conference call, the manufacturing environment went from “decelerating” in the first half of 2019, to “contracting” as the year ended.

Over the course of 2019 ITW invested $600 million into what the company terms its “full potential performance” plan. Santi credited the focus on execution, and improving business unit performance across the board, to the full potential performance plan. Excluding restructuring charges, operating margins increased 10 basis point to 24.1%.

Related: ITW Surpasses Q4 Earnings and Revenue Estimates 

A cautionary note was sounded by Michael Larsen, ITW’s CFO, who stated that while America and European manufacturing was flat to down for 2019, organic growth in the company’s China portfolio was 7%. 

That growth will likely take a hit in the first quarter of 2020 as the manufacturer adjusts to business closings forced by the outbreak of the coronavirus. Larsen said forward guidance accounted for business closings forecast through February 10, but not beyond. 

ITW issued a 2020 earnings forecast in the range of $7.65 to $8.05 per share. Operating margins are expected to improve further, and are projected to be in the 24.5 to 25% range. 

The forecast was disseminated before manufacturing data, released this week, which may indicate a bottom was reached in U.S. manufacturing as 2019 came to a close. 

Steven Adams’s personal position in Illinois Tool Works: none.

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