Illinois Tool Works Inc. (ITW) is slated to release its second quarter 2011 results on Tuesday, July 26. The current Zacks Consensus Estimate for earnings per share (EPS) is $1.02, representing an annualized growth of 23.05%.
With respect to earnings surprises, over the trailing four quarters, Illinois Tool outperformed the Zacks Consensus Estimate in two quarters, while underperforming in one quarter and was the same as the Zacks Estimate in another. The average earnings surprise was a positive 2.77%, implying that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.
First Quarter Highlights
Illinois Tool’s first quarter results were impressive as earnings per share from continuing operations escalated 30% year over year to 91 cents. The results were above the Zacks Consensus Estimate of 84 cents and management’s guidance range of 81-87 cents.
With regard to the top line, operating revenue in the quarter increased 17.4% year over year to $4,387.6 million and surpassed the Zacks Consensus Estimate of $4,134.0 million. Growth in operating revenue symbolized continued improvement in end market demand. The year-over-year increase was above the company’s projected growth range of 12%-15%.
Agreement & Magnitude of Estimate Revisions
In the last 30 days, out of the 15 analysts providing estimates, 2 increased their earnings per share (EPS) estimates for the second quarter of 2011, while seven analysts lowered their estimates. For the fiscal year 2011, out of the 17 analysts, there were two positive revisions and six negative revisions, while for 2012 fiscal year; six analysts revised their estimates downwards.
The magnitude of revision was not very substantial as estimates moved in the range of 2 to 4 cents for the quarter and the fiscal year 2011 and 2012. Second quarter 2011 estimate fell two cents from $1.04 to $1.02. The current estimate represents a year-over-year growth of 23.05%.
Fiscal year 2011 estimate moved south to $3.93 from $3.97 in the last 30 days while fiscal year 2012 estimate moved from $4.61 to $4.58. The current estimates for 2011 and 2012 represent year-over -year growth of 29.70% and 16.61%, respectively.
Our Take
Most of the negative revisions in estimates take into account the impact of the company’s discontinued operations and share repurchase activity.
Recently, a consummated $550 million or 9.7 million share buyback program is expected to boost the fiscal year 2011 earnings by 5 cents. However, the impact of the buyback gets subdued as the company now considers the results from its finishing group businesses, consumer packaging and electronics businesses, and two other businesses as discontinued operations.
Per a definitive agreement entered into in April 2011, Illinois Tools will divest its finishing group businesses to Graco Inc. The finishing group generated revenue of $305 million in 2010. In addition, the company also endorsed plans to sell its consumer packaging and electronics businesses which fetched combined revenue of $100 million in 2010.
Current Zacks Consensus estimate of $1.02 for the second quarter 2011 is ahead of management’s earnings guidance of $0.95-$1.01.
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. (GE), and Manitowoc Co. Inc. (MTW).
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