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Illinois Tool Works Inc. ITW has been benefiting from a stable demand environment and improving supply chains. Strong momentum in the transportation market, customer mix and product line simplification activities are boosting revenues in the Automotive Original Equipment Manufacturer.

The company’s Specialty Products segment is being aided by increased equipment sales, driven by higher demand in Europe and North America. Also, strength in the consumer packaging businesses and increasing demand in the appliance business bode well for the segment.

ITW’s focus on cost management and enterprise initiatives has been supporting its margin performance. For instance, the company’s cost of sales decreased 8.4% year over year in first-quarter 2024 due to lower input costs. Also, in the same period, the operating margin of 28.4% increased 420 basis points as enterprise initiatives contributed 140 basis points. Management expects the operating margin in the range of 26–27% for 2024 compared with 25.1% reported in 2023. Enterprise initiatives are expected to contribute more than 100 basis points to the operating margin in 2024.

Illinois Tool remains focused on rewarding its shareholders through dividend payments and share buybacks. In the first three months of 2024, it paid dividends worth $419 million and repurchased shares for $375 million. Also, in August 2023, it hiked its dividend by 7%. Simultaneously, the company’s board approved a new $5 billion buyback program. In 2024, Illinois Tool expects to repurchase $1.5 billion worth of shares.

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In the past month, the Zacks Rank #3 (Hold) company has lost 4.6% compared with the industry’s 6.7% decline.

However, softness in the consumer electronics and semiconductor end markets is affecting revenues at Illinois Tool’s Test & Measurement and Electronics segment (revenues down 0.9% year over year in the first quarter). Also, lower demand in North America and Asia Pacific is affecting the segment’s electronics assembly businesses.

Weak liquidity position remains concerning for Illinois Tool. Exiting the first quarter, its cash and cash equivalents were $959 million, lower than the short-term debt of $2.1 billion.

Key Picks

Some better-ranked companies from the same space are discussed below.

Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

It has a trailing four-quarter average earnings surprise of 8.2%. The consensus estimate for AIT’s fiscal 2024 earnings has improved 1.4% in the past 60 days.

Ingersoll Rand Inc. IR presently carries a Zacks Rank #2 (Buy) and has a trailing four-quarter earnings surprise of 12.9%, on average.

The Zacks Consensus Estimate for IR’s 2024 earnings has grown 1.9% in the past 60 days.

Crane Company CR carries a Zacks Rank #2 and has a trailing four-quarter earnings surprise of 15.2%, on average.

The Zacks Consensus Estimate for CR’s 2024 earnings has grown 4% in the past 60 days.

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Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report

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Ingersoll Rand Inc. (IR) : Free Stock Analysis Report

Crane Company (CR) : Free Stock Analysis Report

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