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Illinois Tool Works Inc. Q4 Earnings: What’s in Store For ITW Investors?

Mixed earnings messages will require a deeper dive into ITW

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Industrial products and equipment manufacturer Illinois Tool Works Inc. (ITW) is set to release fourth quarter and full-year 2016 results on Jan 25, before the market opens.

The company posted better-than-expected results, with an average positive earnings surprise of 2.25% in the last four quarters. Its shares yielded 52.67% return, outperforming the return of 41.33% recorded by the Zacks categorized Machinery-General Industrial industry in the last one year.

Let us see how things are shaping up for Illinois Tool Works prior to this earnings announcement.

Factors to Influence Q4 Results

We believe that Illinois Tool Works’ organic and inorganic growth tactics, its Enterprise Strategy and sound capital allocation schemes will prove beneficial in the fourth quarter. The company anticipates earnings per share to be within $1.31−$1.41 in the quarter, above $1.23 recorded in the year-ago quarter. Organic revenue is expected to be 0−2%, while operating margin will be roughly 21.5%.

For the fourth quarter, the Zacks Consensus Estimate for revenues is $3.40 billion and for earnings is $1.37 per share, representing year-over-year growth of 3.97% and 11.56%, respectively.

Despite the positives, we believe that Illinois Tool Works’ exposure to near-term headwinds, including uncertain global economic conditions, unfavorable foreign currency movements, industry rivalry and volatilities in input price & supply might have impacted its results in the to-be-reported quarter.

Also, we believe that one of the leading economic indicators for industrial stocks like Illinois Tool Works is industrial production. It measures the level of output of manufacturing, mining and utilities sectors in a country. In fourth-quarter 2016, industrial production in the U.S. fell 0.6% from the year-ago quarter.

ITW’s ESP Numbers Advise Caution 

Our proven model does not conclusively show that Illinois Tool Works will beat estimates in fourth quarter. This is because the company lacks 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 0.00%, with both the Most Accurate estimate and the Zacks Consensus Estimate pegged at $1.37.

Illinois Tool Works Inc. Price, Consensus and EPS Surprise


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

Zacks Rank: Illinois Tool Works currently carries a Zacks Rank #2. This when combined with a 0.00% ESP makes earnings beat prediction difficult.

Note that 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.

Here are three other companies in the 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.

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