Zacks Analyst Blog Highlights: Illinois Tool Works, Cooper Industries, General Electric, Manitowoc Co and Royal Caribbean Cruises

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Feb 01, 2011, 09:30 ET

CHICAGO, Feb. 1, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Illinois Tool Works Inc. (NYSE: ITW), Cooper Industries plc (NYSE: CBE), General Electric Co. (NYSE: GE), Manitowoc Co. Inc. (NYSE: MTW) and Royal Caribbean Cruises Ltd. (NYSE: RCL).

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Here are highlights from Monday's Analyst Blog:

ITW's 4Q Falls Short of Expectations

Illinois Tool Works Inc. (NYSE: ITW) reported results for the fourth quarter of 2010 with earnings per share from continuing operations of 79 cents, down 19% from 98 cents in the comparable quarter of 2009. The results were below the Zacks Consensus Estimate of 80 cents, but were within management's guidance range of 74-82 cents.

For the fiscal year 2010, earnings per share were $3.03, below the Zacks Consensus Estimate of $3.08. The results were within the company's guidance range of $2.99-$3.07 and above $1.93 reported in the fiscal year 2009.

Revenue

Operating revenue in the fourth quarter increased 11.0% year over year to $4,169.3 million, compared with $3,757.4 million in the year-ago quarter and above the Zacks Consensus Estimate of $4,089.0 million.

Growth in operating revenue symbolized continued improvement in end market demand. The year-over-year increase was above the company's projected growth range of 7%-9%.

Of the total revenue, base revenue in the quarter grew 9.1% year over year, registering an 8.9% increase in North American and a 9.2% hike in international revenues. Acquisitions added 3.6% while currency translation had a negative impact of 1.4% to the total revenue growth.

For the fiscal year 2010, total revenue was $15,870.4 million, up 14.4% year over year. The growth rate was above the company's projected range of 13%-14% and above the Zacks Consensus Estimate of $15,785 million.

Revenue in the Power Systems and Electronics segment increased 22.8% year over year in the quarter, with base revenue increase of 21.4%, due to strong demand for welding (especially in North America) and electronics businesses.

Revenue in the Industrial Packaging segment rose 12.6% year over year, with base revenue increase of 12.6%, due to growing demand for consumable plastic and steel strapping products.

Revenue in All Other segment increased 14.0% year over year, with base revenue increase of 11.2%, due to strengthening test & measurement and finishing businesses.

Margins

Cost of goods sold increased 12.8% year over year and represented 65.7% of total revenue versus 64.6% in the year-ago quarter. Selling, administrative and R&D expenses, as a percentage of total revenue, declined to 19.1% in the quarter from 21.2% in the year-ago quarter due to benefits realized from the company's restructuring activities in the past years.

Better end-market demands and benefits of restructuring activities fueled a 120 basis point increase in operating margin to 13.9% in the fourth quarter of 2010.

Balance Sheet

Exiting the fourth quarter, Illinois Tool Works' cash and cash equivalents decreased 27.8% sequentially to approximately $1,190.0 million compared with $1,649.1 million in the third quarter of 2010. Long-term debt, net of current portion plummeted to $2,511.9 million versus $2,737.4 million in the third quarter of 2010.

Cash Flow

Net cash flow from operating activities was $459.0 million, down from $506.3 million in the year-ago quarter. Capital expenditure increased to $90.6 million versus $72.7 million in the year-ago quarter. Lower operating cash flow and higher capital expenditures led to free cash flow of $368.4 million versus $433.6 million in the fourth quarter of 2009.

In the fiscal year, net cash flow from operating activities was $1,560.8 million, capital expenditure was $286.2 million and free cash flow was $1,274.6 million.

Outlook

For the first quarter of fiscal 2011, Illinois Tool Works expects EPS from continuing operations to be in a range of 81-87 cents. The guidance is based on total revenue growth expectations in the range of 12%–15%.

For full-year 2011, the company expects EPS from continuing operations to be within the $3.60-$3.84 range. Revenue growth for the year is expected to be within 11.5%-14.5%.

Illinois Tool Works, operating through 800 business units in 57 countries, is one of the leading manufacturers of industrial products and equipment. The company's chief competitors include Cooper Industries plc (NYSE: CBE), General Electric Co. (NYSE: GE) and Manitowoc Co. Inc. (NYSE: MTW).

We currently maintain a Neutral recommendation on the stock.

Royal Caribbean Beats

Royal Caribbean Cruises Ltd. (NYSE: RCL), the world's second-largest cruise operator reported fourth-quarter 2010 earnings of 20 cents per share, well ahead of the Zacks Consensus Estimate of 12 cents - a strong improvement from the year-earlier quarter's earnings of 2 cents.

The quarter's earnings also inched past management's guidance range of 8 cents to 12 cents per share. However, bad weather conditions and unfavorable currency impacted earnings by 3 cents per share.

The fiscal 2010 earnings were $2.51 which surpassed the Zacks Consensus Estimate of $2.45 and also 75 cents posted in 2009. Strong results came on the back of an improvement in close-in bookings and strict cost control.

Quarter Highlights

Total revenue in the quarter increased 10.5% year over year to $1.6 billion. The prominent year-over-year increase in revenue was driven by a rise in capacity and net yield.

Net yield upped 3.2% year over year, wiping out adverse effects from the ongoing economic uncertainty. The rise in yield was driven by an 11.4% improvement in net ticket revenue and moderate increase in on-board revenue.

Net yields at Royal Caribbean were up 4.2% on a constant currency basis, the upside was partially offset by adverse weather conditions. Occupancy rate also rose to 103.1% from 100.8% in the prior-year quarter.

Total cruise operating expenses grew 6.7% year over year to $1.1 billion in the fourth quarter. Net cruise costs per passenger including fuel were flat and jumped 1.7% year over year excluding fuel.

Outlook

For the first quarter, Royal Caribbean expects EPS to range between 10 cents to 15 cents, below the Zacks Consensus Estimate of 25 cents. Net revenue yields are expected to increase from 2% to 3% (at constant currency to be up 1% to 2%).

Including fuel expenses, net cruise costs are expected to be up 1% (same at constant currency). Fuel costs are expected to be $168 million in the upcoming quarter.

For full-year 2011, management expects EPS in the range of $3.25 to $3.45. Net revenue yield is expected to be up 4%–6% (at constant currency to raise 4%-5%). Net cruise cost including fuel is projected to spike 2% (up 1% to 2% at constant currency). Fuel expenses for 2011 are expected to be $705 million per metric ton.

Our Take

Though the company has reported better-than-expected results, the outlook provided by the company was below expectations. Hence, we expect estimates to go down in the coming days.

We remain positive on the stock based on a host of factors including strong booking momentum, improvement in net yield, efficient expense control especially fuel conservation efforts, extraordinary performance of new ships, strong demand for wave-season and the slowdown in industry capacity.

Additionally, management continues to remain focused on cash flow generation as the company has only one ship delivery in 2011. Management stated that the company will de-lever in the coming years. Royal Caribbean currently retains the Zacks #3 Rank, which translates into a short-term Neutral rating.

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