Illinois Tool Works Inc. ITW is poised to benefit from growth in the institutional end markets in North America, along with higher demand in the European warewash and cooking end markets within the Food Equipment segment. Strong momentum in the ground support equipment, appliance, consumer packaging and strength films businesses is aiding the Specialty Products segment.

Strength in the polymers businesses and growth in the fluids businesses, driven by higher demand in Europe arising from increasing demand in the life sciences end market, have been aiding the Polymers & Fluids segment. Recovery in the MTS Test & Simulation business and consumable semiconductor end market is expected to aid the Test & Measurement and Electronics segment in the near term.

Illinois Tool’s focus on cost management and enterprise initiatives is supporting its margin performance. ITW is benefiting from its enterprise initiatives, which focus on enhancing operational efficiency, optimizing the supply chain and building innovative solutions based on demand. Its cost of sales decreased 4.9% year over year in 2024. Also, in the same period, the operating margin of 26.8% increased 170 basis points as enterprise initiatives contributed 130 basis points. The company expects the operating margin to be in the range of 26.5–27.5% for 2025. Enterprise initiatives are expected to contribute approximately 100 basis points to the operating margin in 2025.

Illinois Tool’s commitment to rewarding shareholders through dividends and share buybacks is encouraging. In 2024, the company paid dividends worth $1.7 billion and bought back common stock for approximately $1.5 billion. In August 2024, it hiked its dividend by 7% to $1.50 per share. Also in August 2023, the company’s board approved a new $5 billion buyback program. In 2025, Illinois Tool expects to repurchase approximately $1.5 billion worth of shares. Exiting fourth-quarter 2024, the company was left to buy back shares worth $3.5 billion under the 2023 program.

In the year-to-date period, this Zacks Rank #3 (Hold) company’s shares have gained 0.4% against the industry’s 4.5% decline.

Image Source: Zacks Investment Research

Downsides of ITW

A decrease in North American auto build rate due to unfavorable customer mix and product line simplification activities are denting revenues at Illinois Tool’s Automotive OEM segment. Softness in the consumables and equipment business due to declining demand in the industrial and commercial end markets is worrisome for the Welding segment. Lower demand in the United States, North American and European commercial and residential end markets is weighing on the Construction Products segment.

ITW intends to boost its revenues and profitability through overseas business expansion. However, this exposes the company's financial performance to various risks like political, environmental and foreign currency exchange rate fluctuations. In the fourth quarter of 2024, foreign currency translation had an adverse impact of 1% on Illinois Tool’s revenues.

Stocks to Consider

Some better-ranked companies are discussed below.

RBC Bearings Incorporated RBC currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

RBC delivered a trailing four-quarter average earnings surprise of 4.9%. In the past 60 days, the Zacks Consensus Estimate for RBC’s fiscal 2025 earnings has increased 1.3%.

Allegion plc ALLE presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 9.9%.

In the past 60 days, the consensus estimate for ALLE’s 2025 earnings has increased 1.6%.

The Middleby Corporation MIDD presently carries a Zacks Rank of 2. MIDD delivered a trailing four-quarter average earnings surprise of 1.9%.

In the past 60 days, the consensus estimate for MIDD’s 2025 earnings has inched up 1%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report

RBC Bearings Incorporated (RBC) : Free Stock Analysis Report

The Middleby Corporation (MIDD) : Free Stock Analysis Report

Allegion PLC (ALLE) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research