Illinois Tool Works (ITW) is a serious manufacturer of "stuff." The business includes 825 companies in more than 50 countries. The range of products produced is diverse, including industrial packaging materials, electronic equipment such as arc welders and airport ground support equipment, fasteners for the automotive and truck industries, tools and fasteners for the construction industry, commercial food equipment, and a range of fluids with industrial uses.
Recently, management released updated earnings guidance slightly below Wall Street estimates and the market value of ITW took a 25 percent hit. For the second quarter of 2011, the company reported net income of 96 cents per share, up 22 percent from a year earlier. Revenues of $4.615 billion equaled a 17.5 percent increase.
Excluding charges for discontinued operations, the net income of 99 cents per share still missed the consensus estimate of $1.02. A few weeks after the earnings release, the ITW board announced a 6 percent increase in the dividend, putting the current yield close to 3 percent.
Included in the second quarter earnings report was third quarter guidance of 95 cents to $1.03 per share and full year earnings of $3.80 excluding a one-time gain. Projected earnings and revenue growth rates were similar to the numbers posted for the second quarter.
Wall Street had predicted $1.06 and $3.93 respectively, before the company guidance. It appears this new, slightly lower guidance still shows nice growth rates. Nevertheless, Illinois Tool Works losing a quarter of its stock market value in the space of two weeks.
Analysts are split on the stock. The analysts at Goldman Sachs have downgraded the stock to sell with a $48 target price. The folks at Jefferies are maintaining their buy rating, trimming the target price slightly to $65. The company next reports on Sept. 17.
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