Research

ITW – Market expectations are for Uniform ROA expansion, but management has concerns about operating margins, capacity, and food retail growth

  • Illinois Tool Works Inc. (ITW:USA) trades near corporate averages relative to UAFRS-based (Uniform) Earnings, with a 19.8x P/E. At these levels, the market has bullish expectations for the firm, but management has concerns about their operating margins, manufacturing capacity, and food retail growth
  • Specifically, management may be concerned about the sustainability of recent operating margins, and they may be exaggerating their ability to take costs out of the business during a downturn. Furthermore, they may lack confidence in their ability to continue growing their businesses and manage manufacturing capacity. Moreover, they appear concerned about the sustainability of recent margin improvements from their Enterprise Initiatives, and they may be concerned about ongoing restructuring costs in their Welding business. Finally, they may be concerned about the sustainability of recent food retail growth.