By Penny Yi Wang for Medill News Service
Illinois Tool Works Inc. shares soared 3.8 percent on Tuesday after reporting third-quarter earnings that beat analysts’ expectations, as the company sheds unprofitable product lines.
For the quarter ended September 14th, the company’s net income rose 17.5 percent, to $531 million, or $1.34 per diluted share, from the year-ago period’s $452 million, or $1.01 per diluted share. Revenue increased 3.5 percent, to $3.69 billion from $3.57 billion a year ago.
Income per diluted share from continuing operations rose to $1.28, surpassing the average estimate of $1.23.
“People are surprised at ITW’s EPS growth in the current global situation,” said analyst James Krapfel at MorningStar, referring to signs of slowing growth overseas.
Krapfel said though the company saw little impact from the strong U.S. dollar in the third quarter, he expects it will subtract four cents from the fourth quarter earnings per share.
The growth in net income is mainly due to increased operating margins as the company reduces costs and unprofitable product lines, and the EPS growth can be attributed to the repurchase of more than 50 million shares in the past year, said Krapfel.
The Chicago-based manufacturing company has acquired subsidiaries over several decades. In 2012, the company announced a long-term restructuring strategy to simplify product lines and cut out 25 percent of products with the lowest profit and sales volume, said Krapfel.
Streamlining has a negative impact on growth, but “it’s encouraging to see some early signs of progress in the organic growth front,” said Chief Executive Officer E. Scott Santi in a conference call. The restructuring process will take another three to four quarters, he said.
Shares of Illinois Tool Works closed Tuesday at $86.60, up 80 cents or 3.8 percent.