ITW posts higher profit, tightens 2007 outlook
Diversified manufacturer Illinois Tool Works posted a better-than-expected 10 percent increase in third-quarter profit today as strength overseas offset weaker demand in North America.
The Glenview-based company, which makes fasteners, food-service and welding equipment, countertop materials and other products, also narrowed its view for full-year profit and reduced its full-year forecast for growth in sales of ongoing businesses.
"International continues to carry the day here, offsetting continued weakness in domestic end markets," said Shawn Campbell, principal with Chicago-based Campbell Asset Management, which owns ITW shares.
"I was actually a little concerned about this quarter," he added. "I wouldn't have been surprised to see the weaker end markets in the U.S. actually pull the company earnings down."
Campbell said the cut in ITW's full-year sales outlook and the refined profit view were signs that international markets may not be able to bail out the weak North American market in the fourth quarter.
Investors watch large manufacturers like ITW for clues on the strength of the U.S. economy.
On Tuesday, the Federal Reserve reported that U.S. industrial production rose slightly in September, suggesting manufacturing is stable despite a tight credit market and the slumping housing sector.
ITW's net income in the third quarter rose to $491.1 million, or 89 cents a share, from $446.1 million, or 78 cents a share, a year earlier. The results beat analysts' average profit forecast by 2 cents, according to Reuters Estimates.
ITW benefited overseas from a combination of the weak dollar, underlying growth, and sales added through acquisitions.
The company had expected a profit of 85 cents to 89 cents a share.
Sales rose 15.7 percent to $4.09 billion, below the $4.11 billion forecast by analysts. The weak dollar boosted sales by 3.8 percentage points.
Sales in ongoing businesses, also known as base revenue, rose 2.2 percent, below the 3 percent to 5 percent growth the company had forecast.
International demand was up 5.1 percent and domestic sales increased modestly.
ITW now expects to earn a 2007 profit of $3.36 to $3.40 a share. It previously forecast $3.31 to $3.41.
It cut its forecast for growth in sales in ongoing business to a range of 1.9 percent to 2.5 percent, from its prior forecast of 2.1 percent to 4.1 percent.
Analysts were expecting 2007 earnings of $3.38 a share on sales of $16.19 billion.
For the fourth quarter, ITW expects to earn 86 cents to 90 cents a share, while base revenue is expected to rise 2.1 percent to 4.1 percent.
Analysts were expecting a fourth-quarter profit of 89 cents a share on sales of $4.2 billion.