Industrial tool maker, Illinois Tool Works Inc. (ITW) reported earnings from continuing operations of $1.18 per share for fourth-quarter 2014. The bottom line increased 28.3% from the year-ago earnings of 92 cents per share. Also, the result surpassed the Zacks Consensus Estimate of $1.13, coming above the projected range of $1.07−$1.15.
The improvement in earnings was driven by an 11.7% fall in share count due to the ongoing share buyback activity, apart from solid revenue growth and contributions from enterprise initiatives.
For 2014, earnings from continuing operations came in at $4.67 per share, above $3.63 per share recorded in 2013. Moreover, the result surpassed the Zacks Consensus Estimate of $4.62 per share.
Revenue
Illinois Tool Works’ revenues in the quarter were $3,504 million, down 1.4% year over year. The year-over-year decline was lower than the company’s expectation of a flat top-line result. Organic revenues climbed 2.3% year over year, registering roughly a 3% increase in North America, along with a 2% rise in international revenues. This was, however, offset by a decline of 1% owing to activities associated with enterprise strategies.
Moreover, revenues came below the Zacks Consensus Estimate of $3,588 million.
Illinois Tool Works reports its revenues under the following segments, a brief discussion on which has been provided below:
Test & Measurement and Electronics revenues declined 3.3% year over year to $541 million, while revenues from Automotive OEM (Original Equipment Manufacturer) segment were up 2.7% to $620 million. Food Equipment segment generated revenues of $554 million, increasing 1.4% year over year.
Welding revenues came in at $458 million, up 2.3% year over year. Construction Products revenues were down 4.7% to $402 million, while revenues of $482 million from Specialty Products reflected a decline of 5.4%. Polymers & Fluids segment’s revenues of $452 million were down by 4.2%.
For 2014, Illinois Tool Works’ revenues came in at $14,484 million, up 2.5% year over year but below the Zacks Consensus Estimate of $14,568 million.
Margins
Illinois Tool Works’ cost of revenues decreased 2.7% year over year and represented 60.3% of total revenue versus 61.1% reported in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of total revenue, stood at 18.4%.
Operating margin in the quarter was 19.6%, up 190 basis points (bps) year over year. Enterprise initiatives contributed nearly 120 bps to operating margin.
Balance Sheet
Exiting fourth-quarter 2014, Illinois Tool Works’ cash and cash equivalents were $3,990 million, down compared with $4,820 million recorded in the previous quarter. Long-term debt was down 0.9% sequentially to $5,981 million.
Cash Flow
In the fourth quarter, Illinois Tool Works generated cash of $458 million from its operating activities, significantly below $708 million generated in the year-ago quarter. Also, capital spending declined 19.8% year over year to $89 million.
Adjusted free cash flow was $560 million as against $597 million recorded in the comparable year-ago quarter.
For 2014, Illinois Tool Works distributed $5 billion in the form of dividends and share buybacks.
Outlook
For 2015, Illinois Tool Works reaffirmed its earnings guidance in the range of $5.15−$5.35 per share, reflecting year-over-year growth of 12%.
Total revenue is estimated to decline in the range of 1−2% due to adverse foreign currency impact. Organic revenue growth is predicted to come within 2.5−3.5%.
For first-quarter 2015, earnings per share are expected within $1.13−$1.21. Total revenue is expected to decline in the range of 2−3%, while organic revenue is projected to grow within 2−3%.
With a market capitalization of nearly $36.6 billion, Illinois Tool Works presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the machinery industry include Graham Corp. (GHM), Graco Inc. (GGG) and Kadant Inc. (KAI). While Graham sports a Zacks Rank #1 (Strong Buy), both Graco and Kadant carry a Zacks Rank #2 (Buy).
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