Illinois Tool Works' Commentary Illustrates the Push-Pull of an Economy in Flux

Aug. 3, 2022

Bellwether manufacturing company executives stick to their 2022 forecast and say July is bucking a trend.

Speaking to analysts after reporting second-quarter results, Illinois Tool Works Inc. Chairman and CEO Scott Santi and CFO Michael Larsen acknowledged that parts of their business are showing signs of stress. High gas prices, they said, have hamstrung demand for automotive aftermarket products as people drive less, construction demand is tailing off in some international markets and there’s no sign yet that supply chain problems will be resolved soon.

But those factors are negative outliers for ITW, which in the second quarter earned $738 million on revenues of $4.0 billion and which sells everything from auto components and food slicers to welding equipment and wood and metal fasteners. Santi and Larsen are sticking to their full-year forecast of organic revenue growth of between 7% and 10% and operating margins of around 25%. And the beginning of the third quarter is backing up their confidence.

“Food equipment, welding, test and measurement [and] electronics are off to a really strong start,” Larsen said on a conference call. “If you just look at our July numbers overall for the company, on a year-over-year basis, we're up 18%. That is the highest monthly organic growth rate that we've seen all year.”

Larsen added that five of ITW’s seven segments grew at a double-digit pace in July, which typically sees business slow down a bit from June.

So what do those data points from ITW, which has about half of its revenue linked to the spending of consumers, say about the state of the economy? That things are complicated. That for each negative statistic about sentiment or activity—this week’s Manufacturing ISM Report On Business showed that new orders had contracted further in July—there are other indicators that demand is broadly holding up even if it is slowing. And it says that the industrial economy is in many ways still serving up oxymoronic signals as it deals with warped demand cycles and still-snarled supply chains.

For instance: Asked about the chances that Europe is slipping into recession, Larsen noted that a number of ITW’s automotive customers on the continent have signaled that they intend to ramp up production starting in September or October. Summing it up, he said something a number of his peers in manufacturing—as well as in trucking, energy and even healthcare—have told analysts during this earnings reporting season.

“I hope you get the sense there’s a lot of puts and takes across the company.”

Shares of ITW (Ticker: ITW) fell about 1% after reporting its results Aug. 2. Year to date, they’re down about 15%, shrinking the company’s market capitalization to about $64 billion.

About the Author

Geert De Lombaerde | Senior Editor

A native of Belgium, Geert De Lombaerde has been in business journalism since the mid-1990s and writes about public companies, markets and economic trends for Endeavor Business Media publications, focusing on IndustryWeek, FleetOwner, Oil & Gas Journal, T&D World and Healthcare Innovation. He also curates the twice-monthly Market Moves Strategy newsletter that showcases Endeavor stories on strategy, leadership and investment and contributes to other Market Moves newsletters.

With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati in 1997, initially covering retail and the courts before shifting to banking, insurance and investing. He later was managing editor and editor of the Nashville Business Journal before being named editor of the Nashville Post in early 2008. He led a team that helped grow the Post's online traffic more than fivefold before joining Endeavor in September 2021.