Illinois Tool’s ‘Record’ Operating Margin Drives 4Q Profit Beat

Illinois Tool Works reported better-than-expected results in the fourth quarter. Shares of the industrial products and equipment manufacturer closed 2.6% higher on Friday.

Illinois Tool’s (ITW) 4Q earnings of $2.02 per share exceeded the Street estimates of $1.79 and increased 7.5% year-over-year, as its operating margin expanded by 170 basis points to a “record” 25.4%.

The company’s 4Q revenues showed marginal growth of 0.2% to $3.48 and surpassed analysts’ expectations of $3.33 billion. Organic revenues fell 0.9%, while divestitures had a negative impact of 0.7% on total sales. However, foreign currency exchange rates favorably impacted revenues by 1.8% during the reported quarter.

As for 2021, Illinois Tool projects earnings in the range of $7.60-$8 per share, reflecting year-over-year growth of 15%-21%. Analysts expect 2021 earnings to come in at $7.68 per share.

Illinois Tool forecasted 2021 revenues to grow in the range of 9%-12% year-over-year, driven by currency tailwinds of about 2%. Further, the company plans to repurchase about $1 billion worth of shares this year. (See Illinois Tool Works stock analysis on TipRanks)

Following the results, Robert W. Baird analyst Mircea Dobre raised the stock’s price target to $214 (5.8% upside potential) from $210. The analyst was positive about the company’s “good execution” during 4Q and cited its strong operating margins, though organic sales were “nearly flat.”

However, Dobre maintained a Hold rating as believes that there will be “limiting factors” to the company’s margin expansion into the second half of the year as demand normalizes.

The Street has a cautious outlook with a Hold consensus rating based on 6 Holds, 3 Buys and 1 Sell. The average analyst price target of $218.40 implies upside potential of about 8% to current levels. Shares have gained about 13.9% in one year.

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