Illinois Tool Works — Third Quarter 2026 Earnings Summary

Financial Performance:

• Third quarter revenue was $4.24 billion, a 4.4% increase year-over-year, with organic growth of 3.8% (4% excluding the impact of a tornado affecting the Welding segment).
• GAAP operating income reached a record $1.18 billion, up 5.9% year-over-year, while operating margin expanded 40 basis points to 27.8%.
• GAAP EPS grew 6.8% to $3.00 per share.
• Operating cash flow was $953 million, and free cash flow was $851 million, representing a 100% conversion of net income.
• The effective tax rate for the quarter was 24.4%.
• Nine months ended September 30, 2026 revenue was $12.55 billion, up 5.0% year-over-year, with operating income of $3.34 billion and an operating margin of 26.6%.
• Nine months ended September 30, 2026 GAAP EPS was $8.49, up from $7.77 in the prior year period.

Guidance and Future Outlook:

• Full year 2026 GAAP EPS guidance was raised by $0.05 at the midpoint to a narrowed range of $11.45 to $11.55 per share, representing 10% growth at the midpoint.
• Revenue growth guidance for 2026 was raised to 4.5% to 5.5%, while organic growth guidance remains 3% to 4%.
• Projected 2026 operating margin is 26.5% to 27.5%, with enterprise initiatives expected to contribute more than 100 basis points.
• Free cash flow is projected to be approximately 100% of net income.
• The projected effective tax rate for 2026 is 23% to 24%.

Business Segments and Product Lines:

• Test & Measurement and Electronics segment reported 17.3% total revenue growth and 330 basis points of operating margin expansion in Q3 2026.
• Polymers & Fluids segment saw 8.1% total revenue growth and 280 basis points of operating margin expansion in Q3 2026.
• Welding segment reported 7.3% total revenue growth; excluding tornado impact, organic growth was estimated at approximately 15%.
• Food Equipment segment reported 0.7% total revenue growth and 60 basis points of operating margin expansion in Q3 2026.
• Automotive OEM segment reported a 1.8% decline in total revenue and a 170 basis point decline in operating margin in Q3 2026.
• Construction Products segment reported 0% total revenue growth and a 170 basis point decline in operating margin in Q3 2026.
• Specialty Products segment reported a 1.1% decline in total revenue and a 90 basis point decline in operating margin in Q3 2026.
• Customer-Back Innovation efforts contributed meaningfully to revenue growth, with a strategic goal of 3%-plus yield.

Market and Competitive Landscape:

• Demand is accelerating in capex-related segments, specifically Welding, Test & Measurement, and Electronics.
• The company is positioning to deliver consistent, above-market organic growth.
• Foreign currency translation contributed 0.3% to revenue growth in Q3 2026.
• Acquisitions contributed 0.3% to revenue growth in Q3 2026.

Risks and Challenges:

• A tornado affecting two Welding facilities in late July reduced third-quarter revenue by an estimated $40 million.
• Rising raw material costs were largely offset by price increases and other actions.
• Forward-looking statements are subject to risks including supply chain challenges, inflation, rising interest rates, tariffs, and exchange rates.
• Actual results may differ from expectations due to uncertainties detailed in the company's Form 10-K.

Management Commentary and Tone:

• Christopher A. O'Herlihy, President and CEO, stated the team delivered strong operational execution and financial performance.
• Management expressed confidence in entering the fourth quarter with strong operational momentum.
• The company aims to advance enterprise strategy priorities, including the 3%-plus Customer-Back Innovation yield goal.

Other Key Points:

• The company repurchased $187 million of its own shares during the quarter.
• The dividend was raised 7%, bringing the annualized payout to $6.88 per share; this marks the 63rd consecutive year of dividend increases.
• The loss of operating income from the Welding tornado was largely offset by business interruption insurance, and the impact is expected to be immaterial going forward.
• Amortization expense from acquisition-related intangible assets had an unfavorable impact of $0.04 on GAAP EPS for the third quarter of 2026.
• After-tax return on average invested capital was 30.3% for the three months ended September 30, 2026, compared to 29.8% in the prior year period.