Illinois Tool (ITW) Likely To Beat Q4 Earnings: Here's Why

Industrial products and equipment manufacturer, Illinois Tool Works Inc. (NYSE:ITW) is scheduled to release fourth-quarter 2017 results on Jan 24, before the market opens.

The company delivered better-than-expected results in the last four quarters, pulling off an average positive earnings surprise of 3.29%. Notably, in the last reported quarter, the company’s earnings of $1.71 per share surpassed the Zacks Consensus Estimate of $1.65 by 3.64%.

In the last three months, the company’s shares have yielded 10.8% return, marginally outperforming 9.2% gain of the industry it belongs to.



Let us see how things are shaping up for Illinois Tool Works this quarter.

Factors to Affect Q4 Results

We believe that industrial machinery stocks in the United States will gain traction from a strengthening domestic economy and healthy global growth backdrop. Continuous advancements in technologies applied in agriculture, mining, packaged foods and beverages, construction and other industries will keep demand strong for industrial machineries. Growth in the country’s industrial production and export machinery orders as well as strengthening housing market is expected to boost their prospects. Also, the government’s promised growth policies, especially the $1 trillion spending on infrastructure improvement will be advantageous.

Besides a favorable operating environment, we believe that Illinois Tool’s Automotive OEM segment has strong growth potential on the back of growing acceptance of electric vehicles globally and the company’s penetration in international markets. The segment’s organic growth is anticipated to be within 5-6% in 2017 while acquired assets like Engineered Fasteners and Components business have been increasing opportunities since July 2016.

The Zacks Consensus Estimate for the Automotive OEM segment’s revenues stands at $817 million for the fourth quarter, above $795 million reported in the third quarter. Also, the segment’s average sales surprise for the last three quarters was a positive 3.39%.

Prospects seem bright for the Food Equipment segment as well. Organic growth is anticipated to be within 4-5% in 2017. Innovative products with low costs and high safety standards are the keys to success. The segment’s revenues are anticipated to be $552 million in the fourth quarter, above $549 million reported in the third quarter.

Also, Welding segment’s revenues for the fourth quarter are estimated to be $383 million, above $378 million reported in the previous quarter. The segment will gain from rising infrastructure investments, recovering demand in the heavy equipment, onshore oil & gas and general fabrication end markets.

Illinois Tool Works anticipates its organic revenue growth to come within 2-3% in the fourth quarter and 2017.

Earnings Whispers

Our proven model provides some idea about the stocks that are about to release their earnings results. Per the model, a stock needs a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) for a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The case with Illinois Tool Works has been provided below.

Zacks ESP: Illinois Tool Works has an Earnings ESP of +0.72%, with the Most Accurate estimate of $1.64 exceeding the Zacks Consensus Estimate of $1.62.

Illinois Tool Works Inc. Price and EPS Surprise