Illinois Tool Benefits From Business Strength Amid Headwinds

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Illinois Tool Works Inc. ITW has been benefiting from strength in the Automotive Original Equipment Manufacturer segment, supported by the electric vehicles market. Organic revenues from the segment inched up 0.3% in the first nine months of 2024. The company is benefiting from strength in the Specialty Products segment, driven by strong momentum in the ground support equipment, specialty films and consumer packaging businesses and increasing demand in the appliance business. Organic revenues from the segment jumped 6% in the first nine months of 2024. 

Also, growth in the institutional end markets in North America, along with higher demand in the European warewash and cooking end markets, has been aiding the Food Equipment segment. Organic revenues from the segment inched up about 0.3% in the first nine months of the year.

The company is also benefiting from its enterprise initiatives, which focus on enhancing operational efficiency, optimizing the supply chain and building innovative solutions based on demand. Its cost of sales decreased 5.2% year over year in the first nine months of 2024. Also, in the same period, its operating margin of 30.9% increased 450 basis points as enterprise initiatives contributed 130 basis points.

The company expects the operating margin to be in the range of 26.5-27% for 2024 compared with 25.1% in 2023. Enterprise initiatives are expected to contribute more than 100 basis points to the operating margin in 2024.

Management is committed to rewarding shareholders through dividend payouts and share repurchases. In the first nine months of 2024, ITW paid dividends worth $1.3 billion and repurchased shares worth $1.1 billion. In August 2024, it hiked its dividend by 7% to $1.50 per share.

ITW Stock’s Price Performance

Zacks Investment Research
Zacks Investment Research


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In the past three months, this Zacks Rank #3 (Hold) company has gained 3.8% compared with the industry’s 1.5% growth.

However, softness in the MTS test & simulation business and lower demand in the semiconductor and consumer electronics end markets are denting revenues at the Test & Measurement and Electronics segment. The segment’s organic revenues fell 2% year over year in the first nine months of 2024. 

Also, softness in the consumables and equipment business due to declining demand in the commercial, industrial, general industrial, and oil and gas end markets is worrisome for the Welding segment. The segment’s revenues declined 3.1% year over year in the first nine months of 2024.

The company's high debt level remains another concern. Its long-term debt balance at the end of third-quarter 2024 remained high at $6.6 billion, up 3.1% on a sequential basis. Exiting the third quarter, its short-term debt totaled $1.8 billion. Considering its high debt level, the company’s cash and cash equivalents of $947 million do not look impressive.