Illinois Tool Works Inc. (ITW) reported first quarter 2011 earnings per share from continuing operations of 91 cents, up 30% year over year.
The result was also above the Zacks Consensus Estimate of 84 cents and management’s guidance range of 81-87 cents.
The reported quarter’s earnings excluded 33 cents of one-time benefit related to the settlement of an Australian tax case in the first quarter of 2011.
Operating revenue in the first quarter increased 17.4% to $4,387.6 million, compared with $3,737.6 million in the year-ago quarter and above the Zacks Consensus Estimate of $4,134.0 million.
Growth in operating revenue symbolized continued improvement in end market demand. The year-over-year increase was above the company’s projected growth range of 12%-15%.
Of the total revenue, base revenue in the quarter grew 11.7% year over year, registering a 12.2% increase in North American and an 11.0% hike in international revenues. Acquisitions added 4.2% while currency translation contributed 1.6% to the total revenue growth.
Revenue in the Power Systems and Electronics segment increased 20.8% year over year, with a base revenue increase of 16.4%, due to a strong end market demand. Revenue in the Transportation segment rose 23.6% year over year with a base revenue increase of 15.1%.
The cost of goods sold increased 18.3% year over year and represented 64.4% of total revenue, versus 63.9% in the year-ago quarter. Selling, administrative and R&D expenses, as a percentage of total revenue, declined to 18.7% in the quarter from 20.2% in the year-ago quarter due to benefits realized from the company’s restructuring activities in the past years.
Better end market demand and benefits of restructuring activities fueled a 110 basis point increase in operating margin to 15.6% in the first quarter of 2011.
Exiting the first quarter, Illinois Tool Works’ cash and cash equivalents decreased 8.9% sequentially to approximately $1,084.5 million, versus $1,190.0 million in the fourth quarter of 2010. Long-term debt, net of current portion, increased to $2,597.3 million from $2,511.9 million in the previous quarter.
Net cash flow from operating activities was $144.6 million, down from $274.8 million in the year-ago quarter. Capital expenditure increased to $88.4 million versus $59.2 million in the year-ago quarter. Lower operating cash flow and higher capital expenditures led to free cash flow of $56.2 million versus $215.6 million in the first quarter of 2010.
For the second quarter of fiscal 2011, Illinois Tool Works expects EPS to be $0.99 to $1.05, based on total revenue growth expectations of 17% to 20%.
For full-year 2011, management raised its expectation to between $4.16 and $4.34 from its prior expected range of $3.93 to $4.17. The guidance range includes a 33-cent benefit related to the settlement of an Australian tax case in the first quarter of 2011 and operating results from the finishing business to be sold to Graco Inc. Revenue growth is assumed to be roughly 16%-18% versus 11.5%-14.5% expected earlier.
Illinois Tool Works, operating through 800 business units in 57 countries, is one of the leading manufacturers of industrial products and equipment. The company’s chief competitors include Cooper Industries plc (CBE), General Electric Co. (GE), and Manitowoc Co. Inc. (MTW).
We currently maintain a Neutral recommendation on the stock.
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