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Illinois Tool (ITW) To Report Q1 Earnings: What to Expect?

Industrial products and equipment manufacturer Illinois Tool Works Inc. ITW is scheduled to report first-quarter 2016 results on Apr 20, before the market opens. The Zacks Consensus Estimate is pegged at $1.26.

Illinois Tool Works has performed well in the last four quarters, with a positive average earnings surprise of 2.21%. Last quarter, the company’s earnings of $1.23 per share surpassed the Zacks Consensus Estimate of $1.21 by 1.65%. Let us see how things are shaping up prior to this announcement.

Factors to Influence Q1 Results

Though macro headwinds have eased a bit, we believe industrial products stocks like Illinois Tool Works are still negatively influenced by them. Talking of industrial production in the U.S., an annual fall of 2.2% was recorded in first-quarter 2016. Also, unfavorable foreign currency movements and weak economic conditions in some developed and developing nations were major concerns.

Illinois Tool Works serves a vast customer base in various end markets, which leaves it highly susceptible to global economic conditions as well as the extent of industrial activities in the U.S. Also, the company expects adverse foreign currency movements to affect earnings growth for 2016 by 4%. Total revenue is projected to be down 2% to flat, while the same will likely fall 1−2% in the first quarter. Moreover, the company is exposed to risks arising from high debt levels and stiff competition in the industry.

Notwithstanding these adversities in the near term, Illinois Tool Works’ efforts for improving its businesses through organic and inorganic means will prove beneficial, going forward. Also, a cash position will prompt the company in rewarding its shareholders handsomely through dividend payments and share buybacks.

Earnings Whispers

Our proven model does not conclusively show that Illinois Tool Works will be able to pull a surprise this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for a likely earnings beat. That is not the case here as you will see below.
 
Zacks ESP: Illinois Tool Works has an ESP of 0.00% for first-quarter 2016, with both the Most Accurate Estimate and the Zacks Consensus Estimate pegged at $1.26.

Zacks Rank: Illinois Tool Works currently carries a Zacks Rank #4 (Sell). As it is, we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the industrial products sector you may want to consider, as they have the right combination of elements to post an earnings beat this quarter, according to our model.

Nordson Corporation NDSN, with an Earnings ESP of +1.09% and a Zacks Rank #2.

Parker-Hannifin Corporation PH, with an Earnings ESP of +1.38% and a Zacks Rank #2.

Graco Inc. GGG, with an Earnings ESP of +1.33% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
PARKER HANNIFIN (PH): Free Stock Analysis Report
 
GRACO INC (GGG): Free Stock Analysis Report
 
ILL TOOL WORKS (ITW): Free Stock Analysis Report
 
NORDSON CORP (NDSN): Free Stock Analysis Report
 
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