Illinois Tool Works (ITW 136.93, -9.93, -6.76%) is trading lower after the company
reported in-line second quarter earnings while lowering earnings guidance for
the year. ITW is an industrial manufacturing company that operates in seven segments:
Automotive OEM; Food Equipment; Test & Measurement and Electronics;
Welding; Polymers & Fluids; Construction Products; and Specialty Products.
"ITW delivered another strong quarter with good growth momentum and excellent operational execution," said E. Scott Santi, the company’s Chairman and CEO. "The company's ability to overcome near-term inflationary and currency challenges and generate four percent organic revenue growth, core operating earnings growth of nine percent, core EPS growth of 19 percent, and continue to expand margins is a direct result of the strength and resilience of the ITW Business Model and the dedicated team of ITW professionals around the world who leverage it to serve our customers and execute our strategy with excellence each and every day."
Second quarter revenue was up 7% with 4% organic growth. All seven of the company's business segments delivered positive year on year organic revenue growth, led by Welding, which saw organic growth of 13%. Overall organic growth of 4% was driven by 5% growth in North America.
However, ITW lowered fiscal 2018 EPS guidance to $7.50-7.70 from $7.60-7.80 because second half earnings per share are projected to have a $0.12 negative currency impact versus prior guidance.
The company also revised its outlook for operating margin to 24-25% from 25.0-25.5%, reflecting price/cost related margin dilution. The company continues to expect to recover the impact of raw material cost increases through price actions on a dollar for dollar basis for the full year and as a result expects the full year price/cost impact on the company's earnings per share to be neutral (as it was in the first half of 2018). The company continues to expect organic growth of 3-4% and free cash flow at or above 100% of net income.
ITW also guided third quarter EPS towards the low end of expectations.
At $138/share (indicated down 6% pre-market), ITW has a $47 bln market value and trades at ~18x EPS, roughly in-line with large cap industrial peers.
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