I'm not entirely sure why, but I've been spending a fair bit more time lately on companies that could generally be described as industrial or manufacturing companies. Actually, the "why" is pretty simple on one level: I'm moving in the direction where I think I see value. Perhaps because of worries about energy, raw-material prices, and the future of the U.S. economy, a lot of industrial companies have interesting valuations.
Today's subject is Illinois Tool Works
It's also pretty easy to like the earnings for the third quarter. Although sales were up just 10%, and up only 4% on an organic basis, margins expanded significantly, and operating income grew by 21%. And it gets better as you go along. Net income rose 24%, and earnings per share climbed 31%. Even free cash flow has been strong on a year-to-date basis, although I calculate that figure differently than the company does in its press release.
What's interesting about the company's performance is that it is heavily exposed to the construction, automotive, and general industrial markets, which haven't been all that hot lately. Many other companies are talking about commercial construction markets improving, but I think that's still to come. Likewise, while recent sales promotions from the likes of Ford
After my last column on Illinois Tool Works, I had an unpleasant email exchange with a company functionary who didn't like my take on the company's guidance. Fear not, my readers -- I'm neither a toady nor a flack for any company. So I'll continue to give my views on the company. To that end, the margin improvements at ITW have been excellent, even if organic revenue growth has been less so. Although I'm innately skeptical of companies that rely on acquisitions for growth, I don't see any way to say that it hasn't been working very well for this company.
In any event, I'm finding some points of interest in a lot of large conglomerate-type companies. I own shares of 3M
For more heavy-duty commentary:
3M is a Motley Fool Inside Value recommendation.
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