Industrial equipment and component manufacturer Illinois Tool Works (ITW 154.64, -0.39 -0.25%) made all-time highs earlier this morning in reaction to the company’s Q3 earnings beat and FY17 guidance raise.
For those who may not be familiar, the Illinois-based industrial equipment maker serves seven main markets: Automotive OEMs, Food Equipment, Test & Measurement and Electronics, Welding, Polymers & Fluids, Construction Products, Specialty Products, and Intersegment. In FY16, total revenues among these areas reached $13.6 billion.
Getting into the results, ITW reported both better than expected Q3 earnings per share and revenues of $1.71 and $3.62 billion, respectively. Organic revenue growth was positive in six of seven segments led by Specialty Products (+5%), Welding (+4%) and Construction (+4%). Additionally, excluding a one-time item, operating margin was 24.4%, an increase of 130 basis points, with enterprise initiatives contributing 110 basis points of margin improvement.
By segment, Automotive OEM sales were $795 million but margins were down due to the margin dilution impact from last year’s Engineered Fasteners and Components business (EF&C) acquisition. Excluding the 160 basis points of dilution from EF&C, Automotive OEM margins were up 20 basis points to 24.3%.
In Food Equipment, organic revenues were flat as strength in international markets was offset by market softness and difficult comparisons in North America. Management wrapped up comments in the segment by stating demand saw a little bit of a pullback and that the company is not seeing anything in the near term which would help the segment return to growth.
As for Test & Measurement and Electronics, management highlighted strength in Instron, where demand is tied more closely to the Capital Expenditure cycle. The Electronics section was down 3% due to a tough comparison versus last year when the business was up 13% due to some large one-time large equipment purchases.
Positive momentum in Welding continued in Q3 with organic growth of 4%. Margins here were impacted by steel price inflation. Related to the impact of the storms in the south due to the recent hurricanes in the area, ITW commented that it saw a bit of an uptick on the Welding side as well as the Construction side.
ITW’s Polymers & Fluids business saw organic revenue improve 1% due to strength in the Automotive Aftermarket. Polymers, which are tied mostly to the sale of adhesives and sealants for industrial OEM applications, saw a decline of 1% in Q3.
Construction Products saw organic revenue up 4% with demand in North America up 4% as residential led the space with 7% organic growth. Commercial, which represents about 20% of the North America construction business, was down 3%.
Specialty Products saw organic revenue growth of 5% in the period, led by the International side, which was up 7% and operating margins of 27.7% -- the highest in the company – due to volume leverage and Enterprise Initiatives.
As for guidance, ITW impressed investors by raising FY17 EPS expectations to $6.62-6.72 (up from $6.37-6.47). Also, ITW expects full-year organic revenue growth of 2-3% and operating margin of about 24.5%.