Illinois Tool Works Inc.

Illinois Tool Works had a strong start to the year, with results beyond Wall Street expectations. Organic growth was 5%, with 4 of the 7 categories seeing positive growth. In terms of Automotive OEM margins, the company regained the cost margin effect that has decreased margins in this market by around 450 basis points over the previous two years. Because of this, they anticipate a favorable change in the cost margin effect starting in Q2. When combined with favorable volume leverage and contributions from enterprise efforts, they will result in improved margins sequentially and yearly. Another solid quarter was provided by Food Equipment, with organic growth of 16%. Restaurants also saw an increase of almost 30%. International sales increased by 9%. A strong margin improvement was also seen in the first quarter, with an operating margin of 26.7%. Despite a double-digit decline in semiconductor-related revenues, Test & Measurement and Electronics produced organic growth. Specialty and Construction were down 5% and 1%, respectively. However, Polymers & Fluids was unchanged in the quarter. Given these strong results, Illinois anticipates performing better than its competitors throughout the remainder of 2023. We give Illinois Tool Works, Inc. a ‘Hold’ rating with a revised target price.