Illinois Tool Works Inc.
Itw Welding

ITW CFO: ‘It Makes Sense to Be More Cautious’

Feb. 2, 2023
But the holding company’s leaders say 75% of their portfolio is on track for another good year.

With the economy increasingly shaking off its pandemic-warped conditions, trade patterns are reverting to trend and that’s showing up in the forecasts of companies such as Illinois Tool Works Inc.

Acknowledging that the “demand picture is becoming increasingly uncertain,” CFO Michael Larsen said Feb. 2 the ITW team is forecasting organic sales growth of 3% to 5% this year, a range he said reflects a higher level of risk that demand could slow or even retreat a bit in some of the company’s numerous divisions. That outlook comes after two years in which Glenview, Illinois-based ITW produced organic growth of 12% and after a 2022 that saw five of its seven segments (testing/measurements and specialty products being the outliers) put up double-digit growth.

About a quarter of ITW’s end markets are showing signs of slowing growth, Larsen said, up from about 20% three months ago. Notable among them are construction, commercial welding, aftermarket auto parts and semiconductor-related products.

“It made sense to take a more cautious approach,” Larsen told analysts on a conference call discussing ITW’s fourth-quarter results and early 2023 outlook—during which he also noted that the three-quarters of segments not showing demand drags are performing “at a really high level” and that early January numbers showed that 2023 is “off to the start we thought we would have.”

ITW produced a net profit of $907 million in the last three months of 2022 on revenues of nearly $4 billion. Those numbers were up 49% and 8%, respectively, with the bottom line boosted by two divestitures. Without those, earnings per share were up 21% year over year. A sales standout was food equipment, which put up 23% growth for all of 2022 and is expected to grow another 8% to 10% this year.

Chairman and CEO Scott Santi said on the conference call that, while the macro picture is “certainly dynamic,” his team has seen meaningful improvements in its supply chain of late and looking to grow its operating margin to between 24.5% and 25.5% this year from 23.8% in 2022. Also along the lines of a normalizing economy, Larsen noted that quarter-to-quarter sales this year should be more in line with ITW’s historical cadence.

“We’re not baking in a back-half acceleration or a back-half deceleration,” he said.

Investors liked the sound of the update and guidance provided by Santi and Larsen: Shares of ITW (Ticker: ITW) were up 5% to more than $251 in midday trading Feb. 2. Over the past six months, they have risen more than 20%, growing the company’s market capitalization to about $77 billion.

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