Illinois Tool (ITW) To Report Q2 Earnings: What's In Store?

Industrial products and equipment manufacturer Illinois Tool Works Inc. (NYSE:ITW) is set to release second-quarter 2016 results on Jul 20, before the market opens. The Zacks Consensus Estimate is pegged at $1.40.

Illinois Tool Works delivered better-than-expected results over the four trailing quarters, with an average positive earnings surprise of 1.95%. A sneak peek into the last quarter’s results reveals that the company’s earnings of $1.29 per share exceeded the Zacks Consensus Estimate by 2.38%. Let us see how things are shaping up prior to this announcement.

Factors to Influence Q2 Results

The financial performance of Illinois Tool Works is highly correlated to economic conditions as well as industrial production of the U.S. In second-quarter 2016, the country’s industrial output fell roughly 1% year over year. Also, unfavorable foreign currency movements and weak economic conditions in some developed and developing nations were major concerns. We believe such headwinds might have adversely impacted the demand for the company’s products in the quarter.

Offsetting these adversities, we believe Illinois Tool Works is well positioned to reap benefits from its technologically advanced product portfolio and vast clientele. Also, its enterprise initiatives are anticipated to improve margin profile, while inorganic expansion is likely to strengthen businesses in the existing as well as unexplored markets.

For second-quarter 2016, Illinois Tool Works predicts earnings to be within $1.34−$1.44 per share. Organic revenue is expected to be flat to up 2% while operating margin to be roughly 22.5%.

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 second-quarter 2016, with both the Most Accurate Estimate and the Zacks Consensus Estimate pegged at $1.40.

Zacks Rank: Illinois Tool Works’ Zacks Rank #3, when combined with a 0.00% ESP, makes surprise prediction difficult.

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.

ILL TOOL WORKS Price and EPS Surprise

ILL TOOL WORKS Price and EPS Surprise | ILL TOOL WORKS Quote

Stocks to Consider

Here are some 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.

Hubbell Inc. (NYSE:HUBB) , with an Earnings ESP of +0.70% and a Zacks Rank #2.

Ingersoll-Rand Plc (NYSE:IR) , with an Earnings ESP of +0.77% and a Zacks Rank #2.

Caterpillar Inc. (NYSE:CAT) , with an Earnings ESP of +2.08% and a Zacks Rank #3.