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Manufacturing company Illinois Tool Works (NYSE:ITW) missed analysts' expectations in Q2 CY2024, with revenue down 1.2% year on year to $4.03 billion. It made a GAAP profit of $2.54 per share, improving from its profit of $2.48 per share in the same quarter last year.
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Illinois Tool Works (ITW) Q2 CY2024 Highlights:
- Revenue: $4.03 billion vs analyst estimates of $4.08 billion (1.3% miss)
- EPS: $2.54 vs analyst estimates of $2.47 (2.7% beat)
- Full year EPS guidance $10.35 at the midpoint vs analyst estimates of $10.20 (1.5% beat)
- Gross Margin (GAAP): 43.8%, up from 42.5% in the same quarter last year
- Free Cash Flow of $571 million, up 15.6% from the previous quarter
- Organic Revenue was flat year on year (3% in the same quarter last year)
- Market Capitalization: $74.01 billion
Founded by Byron Smith, an investor who held over 100 patents, Illinois Tool Works (NYSE:ITW) manufactures engineered components and specialized equipment for numerous industries.
General Industrial MachineryAutomation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Illinois Tool Works grew its sales at a weak 2.2% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Illinois Tool Works's annualized revenue growth of 2.7% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.
We can dig further into the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Illinois Tool Works's organic revenue averaged 4.4% year-on-year growth. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline performance.
This quarter, Illinois Tool Works missed Wall Street's estimates and reported a rather uninspiring 1.2% year-on-year revenue decline, generating $4.03 billion of revenue. Looking ahead, Wall Street expects sales to grow 3.3% over the next 12 months, an acceleration from this quarter.
Operating MarginIllinois Tool Works has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 24.4%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Illinois Tool Works's annual operating margin rose by 3.7 percentage points over the last five years, showing its efficiency has improved.
This quarter, Illinois Tool Works generated an operating profit margin of 26.2%, up 1.4 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Illinois Tool Works's EPS grew at an unimpressive 6.5% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 2.2% annualized revenue growth and tells us the company became more profitable as it expanded.
We can take a deeper look into Illinois Tool Works's earnings to better understand the drivers of its performance. As we mentioned earlier, Illinois Tool Works's operating margin expanded by 3.7 percentage points over the last five years. On top of that, its share count shrank by 8.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Illinois Tool Works, its two-year annual EPS growth of 10% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, Illinois Tool Works reported EPS at $2.54, up from $2.48 in the same quarter last year. This print beat analysts' estimates by 2.7%. Over the next 12 months, Wall Street expects Illinois Tool Works to grow its earnings. Analysts are projecting its EPS of $10.20 in the last year to climb by 1.5% to $10.36.
Key Takeaways from Illinois Tool Works's Q2 Results It was good to see Illinois Tool Works beat analysts' EPS expectations this quarter. The company also updated its full year EPS guidance, the midpoint of which is above expectations. On the other hand, its revenue unfortunately missed and its organic revenue fell short Wall Street's estimates. Overall, this was a mixed quarter for Illinois Tool Works with EPS guidance as a bright spot. The stock traded up 3.6% to $256.96 immediately following the results.
