Illinois Tool Works Inc. (ITW: 42.02 -0.73 -1.71%) reported encouraging results for the second quarter of 2010. Earnings per share from continuing operations were 83 cents, up 131% compared with 36 cents in the comparable quarter of 2009. EPS in the quarter was in line with the Zacks Consensus Estimate of 83 cents and at the mid-point of the company’s guidance range of 80 - 86 cents, with results pulled down by 3 cents due to higher taxes.Net income from continuing operations soared 135.2% year over year to $420.8 million, compared with $178.9 million in the second quarter of 2009. Increase in net income was primarily due to growth in revenue that more than offset increases in tax rate and operating expense. Second quarter tax rate was 31.6%, up 260 basis points from the company’s expectation of 29%.
Revenue
Operating revenue in the second quarter 2010 increased 20.1% year over year to $4,076.3 million, compared with $3,392.9 million in the second quarter of 2009. Growth in operating revenue symbolized continued improvement in end market demand, particularly automotive OEM, industrial packaging, welding, electronics and polymers and fluids businesses. The year-over-year increase was at the high-end of the company’s projected growth range of 18% - 20%.
Of the total revenue, base revenue in the quarter increased 15.1% year over year, registering a 15.8% increase in North American and a 14.2% hike in international revenues. Acquisitions added 3.0% and currency translation added 2.3% to the total revenue growth.
Revenue in the Power Systems and Electronics segment increased 24.6% year over year, with base revenue increase of 22.6%, due to strong demand for welding (especially in North America) and electronics businesses.
Revenue in the Industrial Packaging segment increased 23.5% year over year, with base revenue increase of 17.7%, due to strengthening demand for automotive, construction and appliance for plastic and steel strapping consumables in North America .
Margins
Cost of goods sold increased roughly 15.5% year over year and represented 63.7% of total revenue versus 66.3% in the year-ago quarter. Selling, administrative and R&D expenses, as a percentage of total revenue, declined to 19% in the quarter from 22% in the year-ago quarter due to benefits realized from the company’s restructuring activities in the past years.
Better end market demands and benefits of restructuring activities fueled 610 basis points increase in operating margin to 16.0% in the second quarter of 2010. Base businesses accounted for roughly 470 basis points increase in margin.
Balance Sheet
Exiting the second quarter, Illinois Tool Works’ cash and cash equivalents fell 10.7% sequentially to approximately $1,265.2 million compared with $1,417.6 million in the first quarter of 2010. Long-term debt, net of current portion improved slightly to $2,724.3 million versus $2,807.2 million in the first quarter of 2010.
Cash Flow
Net cash flow from operating activities was approximately $338.4 million in the second quarter, compared with $624.1 million in the second quarter of 2009. Capital expenditure increased to $62.7 million versus $57.4 million in the second quarter of 2010.
Lower operating cash flow and higher capital expenditures led to 51.3% year over year decline in free cash flow (net cash flow from operating activities minus capital expenditure) totaling $275.8 million, compared with $566.7 million in the second quarter of 2009.
Outlook
For the third quarter of fiscal 2010, Illinois Tool Works expects EPS from continuing operations to be in the range of 72 to 84 cents. The guidance is based on total revenue growth expectations in the range of 9% to 13%.
For full-year 2010, the company expects EPS to be within $2.82 - $3.08 range compared with the prior guidance range of $2.72 to $3.08, reflecting an increase in the mid-point from $2.90 to $2.95. Revenue growth for the year is expected to be within 11% to 13% versus the prior forecast of 10% to 14%. Revenue contribution from acquisitions is expected to be roughly within $500 to $700 million range versus $300 to $500 million expected earlier.
Base revenue growth in the second half of 2010 is expected to be in the range of 7% to 10% compared with the second half of 2009.
Illinois Tool Works, operating through 800 business units in 57 countries, is one of the leading manufacturers of industrial products and equipment. Prime competitors include Cooper Industries plc (CBE: 46.75 +1.23 +2.70%), General Electric Co.(GE: 14.785 -0.155 -1.04%), and Manitowoc Co. Inc. (MTW: 9.36 -0.11 -1.16%).
| Analysts' Targets | |
| Deutsche Bank Securities | $59 |
| Accumulate | |
| Tuesday, July 13, 2010 | |
| Barclays Capital | $61 |
| Equalweight | |
| Thursday, May 27, 2010 | |
| UBS Securities | $60 |
| Hold | |
| Wednesday, April 21, 2010 | |
| Sterne, Agee & Leach | $58 |
| Outperform | |
| Tuesday, April 13, 2010 | |
| Barrington Research | $55 |
| Outperform | |
| Thursday, January 28, 2010 | |
No comments:
Post a Comment