Illinois Tool Works Earnings: Operational Improvements Offset Weaker Demand and Currency Headwinds

Illinois Tool Works reported mixed second-quarter results with revenue down 1.1% year over year and management reducing the high end of EPS guidance to $10.40 from $10.70 ($10.30-$10.40 is the new guidance). Operating margin increased by 140 basis points to a second-quarter record 26.2% thanks to the firm’s continued relentless focus on operational efficiencies. Diluted EPS of $2.54 beat the $2.48 LSEG consensus and increased 5.4% excluding a tax benefit in the prior year’s quarter. The quarter brought lower customer demand across most segments, but we are leaving our fair value estimate in place. A fair value estimate decrease at a future earnings release date could be needed should the demand environment drastically worsen, but we think it’s too early to make that call.