Two Quarterly Reports: EMC and Illinois Tool Works

EMC was pretty pleased with itself, pointing out that the business went beyond its own outlook and highlighting improved gross and operating margins. Free cash flow was also impressive.

The good news doesn't stop there. According to Reuters, guidance for the full fiscal year is looking fine. Overall, I like the fundamentals behind this company and appreciate the effort being made to keep the engine of efficiency running as smoothly as possible.

Looking at the chart, it's obvious the stock has been acting in sideways fashion over the last few months. Long-term, though, the bias should be to the upside. I don't find the shares terribly expensive, but I wouldn't mind having more of a discount to work with. EMC closed on Wednesday at $17.58 per share; a lower price would ensure a more optimal margin of safety.

Now, let's check out Illinois Tool Works (ITW). Shares didn't perform Wednesday; they were down by 2.7% at the end of the session, with above-average volume backing the sell-off. An earnings miss helped to bring on the shareholder pain.

For the fourth quarter, the company brought in an adjusted 61 cents per share from continuing operations. That was way off the mark, as Earnings.com says, the market was projecting 74 cents per share. Sales went down 5%.

While the differential between expectations and actual results is disheartening, let's keep a couple points in mind. First, Illinois Tool Works made 54 cents per share from continuing operations in last year's comparable period, so the company at least grew the bottom line. Second, cash flow did okay for the quarter; it declined, but management defended free cash flow rather decently. Also, full-year cash generation was very stable.

Guidance for the next fiscal year is for earnings from continuing operations to fall somewhere between $2.43 per share and $2.93 per share. This could mean the stock is reasonable; however, I'd rather own shares at a higher dividend yield.

EMC clearly had a better report than Illinois Tool Works, but I come away from both situations with a similar feeling: with a possible correction on the horizon, lower entry points are currently very desirable.

Disclosure: I don't own any company mentioned; positions can change without notice.