Illinois Tool (ITW) Beats Q2 Earnings Estimates, Ups '21 View

·5 min read

Illinois Tool Works Inc. ITW has reported better-than-expected results for second-quarter 2021. Its earnings surpassed estimates by 1.45% and sales beat the same by 3%. This was the 12th consecutive quarter of impressive bottom-line results.

The industrial tool maker’s earnings in the reported quarter were $2.45 per share, including 35 cents of one-time benefits. Excluding this gain, adjusted earnings in the quarter were $2.10, surpassing the Zacks Consensus Estimate of $2.07.

On a year-over-year basis, earnings of $2.10 per share increased 92.7% from the year-ago reported number of $1.09 on the back of sales generation and operating margin improvement. However, disruptions in the supply chain and a hike in raw material costs played spoilsport.

Revenue Details

Illinois Tool generated revenues of $3,676 million in the reported quarter, reflecting growth of 43.4% from the year-ago figure. Top-line results benefitted from a 37.2% increase in organic sales and a 6.2% contribution from movements in foreign currencies.

Also, the top line surpassed the Zacks Consensus Estimate of $3,570 million.

Illinois Tool reports revenues under the segments discussed below:

Test & Measurement and Electronics’ revenues in the second quarter increased 33% year over year to $606 million. Revenues from Automotive OEM (Original Equipment Manufacturer) grew 95.3% to $707 million. Food Equipment generated revenues of $514 million, increasing 52.9% year over year.

Welding revenues were $402 million, growing 35.2% year over year. Construction Products’ revenues were up 37.7% to $518 million. Revenues of $471 million from Specialty Products reflected an increase of 21.6%. Polymers & Fluids’ revenues of $466 million grew 31.7% year over year.

Margin Profile

In the reported quarter, Illinois Tool’s cost of sales increased 35.7% year over year to $2,163 million. It represented 58.8% of the quarter’s revenues versus 62.2% in the year-ago quarter. Selling, administrative, and research and development expenses expanded 21% year over year to $588 million. It represented 16% of second-quarter revenues versus 19% in the year-ago quarter.

Operating margin was 24.3% in the quarter, up 680 basis points from the year-ago quarter. Enterprise initiatives contributed 150 bps to the operating margin, while price/cost had adverse impacts of 120 bps. Interest expenses in the quarter increased 2% year over year to $52 million. Effective tax rate in the quarter was 23%.

Balance Sheet and Cash Flow

Exiting the second quarter, Illinois Tool had cash and cash equivalents of $2,058 million, down 17.1% from $2,484 million recorded at the end of the last reported quarter. Long-term debt decreased 7.1% sequentially to $7,056 million.

In the second quarter, the company generated net cash of $555 million from operating activities, reflecting a decline of 24.7% from the year-ago quarter. Capital spending on the purchase of plant and equipment was $78 million, up 39.3% year over year. Free cash flow was $477 million, reflecting a year-over-year decline of 30%.


For 2021, Illinois Tool increased its financial projections. It now expects organic revenue growth of 11-13% as compared with an increase of 10-12% mentioned previously. Total revenues are projected to increase 14-16% versus 12-14% growth mentioned earlier.

Foreign currency translation is expected to positively impact sales by 3% (higher than 2% mentioned earlier).

Earnings (GAAP) are expected to be $8.55-$8.95 per share, up from $8.20-$8.60 mentioned previously. The revised projection suggests an increase of 32% (at the mid-point) from the previous year. On a dollar-for-dollar basis, the impact of a hike in raw material costs will be offset by gains from pricing actions, and, thus, will have a neutral impact on earnings.

Operating margin is expected to be 24.5-25.5% (lower than 25-26% mentioned previously) and enterprise initiatives are likely to contribute 100 bps. However, dilution from price/costs is expected to lower margin by 100 bps.

Free cash is anticipated to be 100% of net income (adjusted). In the year, the company intends to buy back $1 billion worth of shares.

Illinois Tool Works Inc. Price, Consensus and EPS Surprise

Illinois Tool Works Inc. Price, Consensus and EPS Surprise
Illinois Tool Works Inc. Price, Consensus and EPS Surprise

Illinois Tool Works Inc. price-consensus-eps-surprise-chart | Illinois Tool Works Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $72.2 billion, Illinois Tool currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are Altra Industrial Motion Corp. AIMC, Applied Industrial Technologies, Inc. AIT and Dover Corporation DOV. All companies presently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, earnings estimates for these companies improved for the current year. Further, earnings surprise for the last reported quarter was 8.54% for Altra Industrial, 35.64% for Applied Industrial and 11.96% for Dover.

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Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report

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Altra Industrial Motion Corp. (AIMC) : Free Stock Analysis Report

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