Earlier today, Illinois Tool Works (ITW) reported earnings. They reported third quarter 2011 diluted income per share from continuing operations of $1.00 compared to the estimated $0.98, a 25 percent increase compared to the 2010 third quarter. Total revenues of $4.581 billion compared to the estimate of $4.56, increased 16.2 percent versus the year-ago period.
Revenues increased 16% primarily due to higher base revenues, acquisition and translation. Operating income was $714 million, which was higher than last year by $95 million. Operating margins of 15.6% were lower by 10 basis points versus last year. The 16.2% revenue increase was primarily due to 3 factors. First, base revenues were up 6.2%, with North American base revenues increasing 7.8% and international base revenues up 4.2%. Next, currency translation increased revenues by 4.7%. Lastly, acquisitions net of divestitures added 5.3% to revenue growth. In addition, margins were lower by 20 basis points due to higher restructuring expenses and the dilutive impact of acquisitions reduced margins by 30 basis points.
The company has now seen net income rise in three straight quarters. In the second quarter, net income rose 18.5% and in the first quarter, the figure rose more than twofold. The company topped expectations last quarter after falling short of forecasts in the second quarter with net income of 96 cents versus a mean estimate of net income of $1.02 per share. “Our financial performance in the third quarter was helped by solid growth in both our total revenues and our organic revenues,” said David B. Speer, chairman and chief executive officer. “Overall, end market demand in the quarter was essentially in line with second quarter levels and our forecast expectations. We also generated strong free operating cash flow in the quarter, allowing us to continue to have a well balanced capital allocation approach around dividends, acquisitions and share repurchase.”
Looking forward, analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the fourth quarter has moved down from 95 cents a share to 90 cents over the last ninety days. For the fiscal year, the average estimate has moved down from $3.94 a share to $3.74 over the last ninety days. Today as a result of this report, shares of ITW were down $2.58 (-5.35%) to $45.65 per share due to the fact that there is a negative outlook on the fourth quarter and the current situation in Europe.
-John Astarita
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