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Can Illinois Tool Works (ITW) Beat Earnings Estimates in Q2?

Industrial products and equipment manufacturer, Illinois Tool Works Inc. ITW is set to release second-quarter 2017 results on Jul 24, before the market opens.

The company’s financial performance in the last four quarters was impressive, with better-than-expected results in each. Average earnings surprise was a positive 3.16%. Notably, in the last quarter, the company’s earnings of $1.54 per share topped the Zacks Consensus Estimate by 6.21%. We believe that sound financial performance and growth prospects have lifted investor sentiments for the company. In the last three months, the company’s shares have yielded 9.50% return, outperforming the gain of 7.24% recorded by the Zacks categorized Machinery General Industrial industry.


Let us see whether Illinois Tool Works will be able to maintain its earnings streak this quarter.

Why a Likely Positive Surprise?

Our proven model shows that Illinois Tool Works is likely to beat estimates in the second quarter. This is because the company has the combination of two key ingredients for a possible earnings beat – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Illinois Tool Works has an ESP of +1.84%, with the Most Accurate Estimate of $1.66 exceeding the Zacks Consensus Estimate of $1.63.

Illinois Tool Works Inc. Price and EPS Surprise

 

Illinois Tool Works Inc. Price and EPS Surprise | Illinois Tool Works Inc. Quote

Zacks Rank: Illinois Tool Works’ Zacks Rank #2 increases the predictive power of ESP. Moreover, its positive ESP makes us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

What is Driving the Better-than-Expected Earnings?

We believe that operating conditions in the industry have been favorable for machinery companies like Illinois Tool Works in the quarter ended Jun 30, 2017. Industrial production –
a measure of the level of output of manufacturing, mining and utilities sectors in a country – grew at an annual rate of 4.7% in the second quarter, driven by impressive growth in mining and utilities. New orders for U.S.-manufactured machinery increased 4.6% in the first five months of 2017. Also, the government’s policies encouraging better trade relations, increase in infrastructural investments, job creation and high consumer-end demand will support growth of machinery companies.

In addition, Illinois Tool Works’ focus on business structure simplification, portfolio management and sourcing strategies will prove beneficial in the quarter. Also, acquired assets, including Engineered Fasteners and Components business (bought in Jul 2016), will contribute to top-line growth.

For the second quarter, the company anticipates earnings per share in a $1.55−$1.65 range, representing an improvement over $1.54 recorded in the first quarter. Organic revenues are predicted to grow 2−4%.

Other Stocks to Consider

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

Dover Corporation DOV, with an Earnings ESP of +4.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar Inc. CAT, with an Earnings ESP of +4.92% and a Zacks Rank #2.

Terex Corporation TEX, with an Earnings ESP of +2.38% and a Zacks Rank #2.

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