UPDATE: Illinois Tool 4th-Quarter Profit Soars; 2013 Outlook Cautious

--Illinois Tool Works' 2013 outlook below expectations

--ITW's 2013 emphasis on business portfolio overhaul

--Acquisitions are low priority, CEO says.

(Updates with comments from CEO and analyst. Adds detail throughout on businesses units and strategy.)

By Bob Tita

Illinois Tool Works Inc.'s ( ITW ) fourth-quarter earnings surged on a gain from the sale of its laminates business, but the industrial conglomerate's profit outlooks for the first-quarter and 2013 were lower than expected.

ITW's offered a cautious forecast that reflects a host of uncertainties about the company's performance while executives overhaul ITW's business portfolio to focus on faster-growing businesses and higher operating margins. ITW intends to consolidate hundreds of smaller business units into larger-scale businesses that the company expects will be more competitive in global markets and generate higher profits. ITW expects to shrink the size of its business portfolio by about 25% in the coming years, as it abandons slow-growing markets and sheds businesses with commodity-type product lines. The realignment, which the company calls its business enterprise strategy, is expected to eliminate hundreds of managers and reduce expenses for materials and services.

The Glenview, Ill., company has abandoned an aggressive acquisition strategy that used to add a $1 billion a year to the top-line revenue from dozens of mostly small deals. In 2012, the company's acquired revenue totaled about $500 million from a handful of acquisitions.

"We're certainly not ruling acquisitions out, but it's not high on the priority list," said Chief Executive Scott Santi during a conference call Tuesday with analysts. "My priorities are really simple. We have to execute. We are in execution mode in 2013 in a big way around our business enterprise strategy."

ITW operates several hundred businesses in industrial sectors that include automotive components, welding equipment, testing and measurement devices, industrial packaging and commercial kitchen appliances. Since the end of the 2008 recession, ITW's businesses groups have had an uneven recovery. Sales of welding gear and auto parts have rebounded sharply, while businesses such as construction products and industrial packaging that are exposed to the long-suffering U.S. housing market or struggling European economies have lagged.

"ITW's transformation holds large potential rewards, with simple steps to centralization unveiling the margin power of the company," said Rob Wertheimer, an analyst for Vertical Research Partners, in a note Tuesday to investors. " However, there are cultural and operational risks to the base business and financial risk from announced divestiture plans."

ITW in October completed the sale of a majority stake in its laminate surfaces business to private-equity firm Clayton, Dubilier & Rice LLC for about $1 billion. The company decided to sell the business after years of anemic sales growth. Last April, ITW completed the sale of its paint finishings business to Graco Inc. for $650 million.

The sale of the laminates business added $1.37 a share to fourth-quarter per-share profit. ITW reported a profit of $ 979 million, or $2.11 a share, up from $442 million, or 91 cents a share, a year earlier. Excluding the gain from the laminates business, income from continuing operations edged up to 89 cents a share from 88 cents a year earlier Revenue decreased 2.3% to $4.22 billion. Excluding the impact of the laminates sale, revenue rose up 2%.

Analysts had expected the company to earn 89 cents a share from $4.15 billion of revenue.

ITW forecast 2013 earnings of $4.13 to $4.37 per share on revenue growth of 3% to 5%. Analysts had expected per-share profit of $4.38 with revenue decreasing 2% to $17.61 billion. For the current quarter, ITW projected earnings of 91 cents to 99 cents a share with revenue ranging from flat to down 2%. Analysts had forecast $1.02 per share and a 2% decrease in revenue $4.38 billion.

Investors disappointed in the company's 2013 forecast bailed out of the stock Tuesday. ITW was recently down 2.8% at $ 63.60 a share.