Thursday, January 29, 2009

ITW 4Q Highlights
-Diluted EPS $0.54 – decrease of 34% YOY. Did beat guidance of $0.44 - $0.52 due to a favorable tax rate.
- Revenues feel 5.9% due to significant loss in base revenues and currency translation.
-Due to the strengthening of the US dollar – ITW revenues were negatively impacted by 4.5% - primarly related to major currencies like the Euro and Pound.
-Non Organic growth such as acquisitions contributed 7.8% to revenues – which is a strength of ITW’s and was a primary catalyst in purchasing this security.
- Operating Margins were 450 basis points YOY due to:
-Rapid declines in their end markets (260 bps)
-increased restructuring cost (80 bps)
-dilutive impact of acquisitions (90 bps)
-Free operating cash flow was $509 million and their cash flow to net income was 218%.
Fourth Quarter 2008 was a very difficult quarter for ITW as well as the rest of the industrials sector. They experienced rapid declines in all of their end markets especially during the months of November and December. When pitching this stock, I felt that ITW end markets would experience a softening, which definitely did occur, more than I expected. This softening was known as one the main concerns with ITW but we felt they could weather the storm better than any other company within this industry because of its proven track record during economic slowdowns and expect ITW to be one of the first to bounce back (expected 4Q 09, 1Q 10).

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