ITW – Market expectations are for Uniform ROA expansion, but management has concerns about raw material costs, revenue declines, and restructuring

• Illinois Tool Works Inc. (ITW:USA) trades near corporate averages relative to UAFRS-based (Uniform) Earnings, with a 20.3x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management has concerns about raw material cost inflation, organic revenue declines, and the progress of restructuring efforts
• Specifically, management may lack confidence in their ability to offset raw material cost inflation and tariff headwinds with their differentiated product offerings. In addition, they may be concerned about international organic revenue declines, flat revenue in their Test & Measurement and Electronics segments, and new platform testing requirements in Europe. Moreover, they may be exaggerating their cost structure flexibility, the quality of contingency planning, and the progress of their restructuring efforts and performance initiatives. Furthermore, they may lack confidence in their ability to sustain Test & Measurement margin improvement, meet their EPS guidance, and increase share repurchases.