Illinois Tool Works (ITW 176.27, +3.21, +1.9%) is a multi-industrial manufacturing company. Its largest market is the Automotive OEM business and that business is doing fine along with most other areas where Illinois Tool Works has a presence.
The latter conclusion can be drawn from the understanding that ITW delivered organic revenue growth in the fourth quarter in six of the seven segments in which it operates. The lone exception was the food equipment business, which saw a 0.4% year-over-year decline in organic revenue.
The best-performing segment was Test & Measurement and Electronics, which posted an 8.8% increase in organic revenue growth. The Automotive OEM business delivered a 2.5% increase in organic revenue growth.
Altogether Illinois Tool Works reported fourth quarter revenue of $3.6 billion, up 7% and paced by a 4% increase in organic growth. Excluding a one-time charge associated with the tax reform act, the company's operating margin increased 160 basis points to 23.4%.
The sales strength and improved operating margin helped drive a 17% increase in adjusted earnings of $1.70 per share. The company's sales and earnings per share results comfortably exceeded analysts' average expectations.
Looking to 2018, Illinois Tool Works expects first quarter GAAP earnings to be $1.80 to $1.90 per share with organic growth of 3% to 4%.
For the full-year, the company raised its GAAP EPS guidance to a range of $7.45 to $7.65 from $7.05 to $7.25. The upward revision was attributed to the benefits of a reduction in the tax rate. Organic growth is expected to be 3% to 4%.
The earnings guidance for the first quarter and the full year is above analysts' average expectations.
The added good news for shareholders is that Illinois Tool Works, pending formal Board approval, plans to boost its dividend payout ratio from 43% to approximately 50% of free cash flow on a run rate basis in August 2018.
Entering today's trading, ITW was up 3.7% in 2018 and up 36.2% over the last 52 weeks. At its current price, it is trading at roughly 23.3x estimated 2018 earnings.