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    ITW
    Earnings call· Mar 2026(Q1 FY26)

    ILLINOIS TOOL WORKS Q1 FY26 earnings call ITW

    Apr 30, 2026 Source

    Executive summary

    Illinois Tool Works Q1 FY26 — Solid Start with Strong CapEx Segment Performance

    ITW delivered a solid Q1 FY26, meeting expectations with strong performance in CapEx-related segments like Welding and Test & Measurement, which saw robust order activity. Despite headwinds in consumer-facing markets and specific challenges in Food Equipment, the company's enterprise initiatives drove significant margin expansion. Management raised full-year GAAP EPS guidance, reflecting confidence in continued operational execution and positive demand trends in key areas.

    Highlights

    5

    • Revenue grew 5% with 0.4% organic growth, outperforming underlying end markets.

    • GAAP EPS increased 12% to $2.66, exceeding expectations.

    • Operating margin expanded 60 basis points to 25.4%, driven by disciplined execution.

    • CapEx-related segments, Welding and Test & Measurement and Electronics, delivered strong organic growth of 6% and 5% respectively.

    • Enterprise Initiatives contributed 120 basis points to operating margin improvement in the quarter.

    Concerns

    4

    • Consumer-facing businesses contended with challenging end market dynamics.

    • Product Line Simplification (PLS) efforts and delayed Middle East sales reduced organic growth by approximately 1 percentage point.

    • Food Equipment organic revenue declined 3%, with equipment sales down 6% and a slower start in institutional demand.

    • Automotive OEM organic revenue declined 1%, as global automotive builds were down more than 3%, with China builds down 10%.

    Guidance & targets

    14
    CategoryTargetConfidence
    Full year GAAP EPS
    $11.10 to $11.50
    high materiality
    High
    Full year organic growth
    1% to 3%
    high materiality
    High
    Full year operating margin expansion
    approximately 100 basis points
    high materiality
    High
    Full year operating margin range
    26.5% to 27.5%
    high materiality
    High
    Full year Enterprise Initiatives contribution to margin
    approximately 100 basis points
    medium materiality
    High
    Full year incremental margins
    mid- to high 40s
    medium materiality
    High
    Full year effective tax rate
    23% to 24%
    medium materiality
    High
    Full year free cash flow conversion
    exceed 100% of net income
    medium materiality
    High
    Full year share repurchases
    approximately $1.5 billion
    high materiality
    High
    Full year EPS split
    48-52
    low materiality
    High
    Q2 EPS contribution
    about 25%
    low materiality
    High
    Q2 sequential operating margin improvement
    more than 100 basis points
    medium materiality
    High
    CBI contribution to revenue
    3%+
    medium materiality
    High
    Total revenue growth
    2% to 4%
    high materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Automotive OEM
    Outperformed global automotive builds despite a decline in organic revenue. China significantly outperformed its market builds. Expects 200-300 bps outperformance vs. builds for full year.
    Organic revenue: declined 1%Outperformed global automotive builds: down more than 3%North America organic growth: down 5%Europe organic growth: flatChina organic growth: declined 3%China automotive builds: down 10%Operating margin improvement: 170 basis points
    		increased 4%——21%
    Food Equipment
    Strength in service partially offset equipment decline. Slower institutional demand in North America, but gradual improvement seen since January. International projected to deliver positive organic growth starting in Q2.
    Organic revenue: down 3%Service growth: 3%Equipment decline: 6%North America organic growth: down 5%International organic growth: flatQSR growth: double digits
    		2%———
    Test & Measurement and Electronics
    Standout quarter with highest organic growth in 3 years, indicating a sustainable recovery. Strong order activity and market indicators support positive demand trends.
    Organic growth: 5%Electronics growth: 10%Semi-related businesses growth: more than 15%Semi-related businesses annual revenue: ~$500 million (15% of segment)
    		10%———
    Welding
    Strong top-line performance driven by new products and broad-based growth in North America across industrial and commercial. International faced a difficult comparison.
    Organic growth: 6%Equipment growth: 8%North America growth: 8%Filler metals growth: mid-single-digitInternational organic growth: down 6%
    		7%——32.1%
    Polymers & Fluids
    Growth driven by new products and market share gains in automotive aftermarket. Polymers and Fluids were flat against tough comparisons.
    Organic growth: 2%Automotive aftermarket growth: 3%Polymers organic growth: flatFluids organic growth: flatOperating margin expansion: 150 basis points
    		5%——28%
    Construction Products
    Best organic growth performance in 4 years despite overall decline. Residential and renovation showed positive growth in North America.
    Organic growth: declined 1%North America organic growth: flatResidential and renovation organic growth: 1%Europe organic growth: down 3%Australia, New Zealand organic growth: down 2%
    		3%———
    Specialty Products
    Organic revenue impacted by PLS activities and delayed Middle East sales. Despite top-line pressure, expanded operating margin due to margin tailwind from recent PLS activities.
    Organic revenue: down 5%Operating margin expansion: 40 basis points
    		down 1%——31.3%

    Operational metrics

    8
    Free cash flow conversion rate
    69%
    Q1 FY26

    Reflecting typical first quarter seasonality.

    Share repurchases
    $375 million
    Q1 FY26

    Amount repurchased during the quarter.

    Enterprise Initiatives contribution to operating margin
    120 basis points
    Q1 FY26

    In line with expectations, from strategic sourcing and 80/20 activities.

    Incremental margins
    approximately 40%
    Q1 FY26

    Expected to move higher as the year progresses.

    Annual sales to Middle East
    approximately $100 million
    Annual

    Represents less than 1% of ITW's total annual sales, impacted by delayed sales in Q1.

    Product Line Simplification (PLS) and Middle East sales impact on organic growth
    approximately 1 percentage point
    Q1 FY26

    Reduced the organic growth rate in Q1.

    Patent filings growth
    18%YoY
    2024

    Strong leading indicator of CBI and future revenue growth.

    Patent filings growth
    9%YoY
    2025

    Strong leading indicator of CBI and future revenue growth.

    Industry KPIs

    7
    MetricValueDetails
    Tariff cost impact—
    Price realization vs costmodestly accretive
    Parts aftermarket business3%%
    Data center prime power demand—
    Incremental margin operating leverage~40%%
    Order backlog order intake by segment—
    Industry production market size forecastsdown >3%%

    Orderbook & backlog

    1
    Order activitystrongQ1 FY26

    Strong order activity in CapEx-related segments (Welding, Test & Measurement and Electronics) and continued into Q2. Specialty Products has significant order and backlog.

    Risks & headwinds

    5
    Challenging end market dynamics for consumer-facing businessesQ1 FY26

    Automotive OEM organic revenue down 1%; Food Equipment organic revenue down 3%; Construction Products organic growth declined 1%.

    Mitigation: Outperforming underlying markets; disciplined operational execution on profit drivers.

    Impact of Product Line Simplification (PLS) and delayed Middle East salesQ1 FY26

    Reduced Q1 organic growth rate by approximately 1 percentage point; Specialty Products organic revenue down 5%.

    Mitigation: PLS activities provide margin tailwind; Middle East sales expected to come back.

    Slower institutional demand in Food EquipmentQ1 FY26

    North America Food Equipment organic growth down 5%, particularly in the education end market.

    Mitigation: Gradual improvement in institutional demand trends since January; strong innovation in Food Equipment.

    Global automotive builds declineQ1 FY26

    Global automotive builds down more than 3%; China builds down 10% in Q1.

    Mitigation: Outperforming global automotive builds by 200-300 basis points; China builds projected to improve sequentially in Q2.

    Inflationary pressuresFull year 2026

    Not explicitly quantified in Q1, but expected to be managed.

    Mitigation: Price/cost expected to be modestly accretive to margins; divisions have reacted with increased pricing expected in Q2-Q4; supply chain actions.

    Q&A highlights

    8

    Are CapEx businesses (T&M, Welding) trending ahead of expectations, while consumer/institutional (Food Equipment, Specialty) are below, and do they net out?

    CapEx segments like T&M (especially semi-related) and Welding are seeing very strong trends and order activity, exceeding expectations. Consumer-facing markets are challenged but ITW is outperforming them. All 7 segments are still expected to show positive organic growth for the year.

    “I think it's a tale of 2 markets right now. We're seeing the industrial markets, CapEx market is very strong, [indiscernible] order activity, but even in those consumer-facing markets, which are improving a little bit, we're all growing those markets.”

    asked by Andrew Kaplowitz · answered by Christopher O'Herlihy

    2 min read6 chapters

    Detailed Narrative

    01

    Enterprise Initiatives Driving Margin Expansion

    ITW's enterprise initiatives, encompassing strategic sourcing and 80/20 front-to-back activities, significantly contributed 120 basis points to operating margin in Q1. This performance aligns with the full-year expectation of approximately 100 basis points impact, independent of volume. These initiatives are crucial for the company's long-term goal of achieving a 30% operating margin by 2030, demonstrating consistent execution on core operational strategies.

    02

    Progress on Customer-Backed Innovation (CBI)

    The company is making strong strides in its customer-backed innovation (CBI) agenda, aiming for a consistent 3%+ contribution to revenue by 2030. This is identified as a primary driver for achieving 4%+ high-quality organic growth across the enterprise. Patent filings, which increased 18% in 2024 and 9% in 2025, are considered a strong leading indicator, reflecting ITW's focus on protecting important customer solutions and correlating with future revenue growth.

    03

    Divergent Market Trends: CapEx vs. Consumer

    ITW observed a clear divergence in market dynamics, with robust demand and strong order activity in CapEx-related segments such as Test & Measurement and Welding. Welding, in particular, showed broad-based growth across both industrial and commercial platforms. Conversely, consumer-facing businesses faced challenging end markets, though ITW continued to outperform global automotive builds and demonstrated healthy market growth in the automotive aftermarket, showcasing resilience in tougher environments.

    04

    Q1 Performance and Increased Outlook Confidence

    The first quarter results were in line with ITW's internal plan, with total revenue growth of 4.6% and organic growth of 0.4%, leading to a 12% increase in GAAP EPS to $2.66. Management expressed increased confidence in achieving the full-year organic growth guidance of 1% to 3%, citing strong order rates in CapEx-related segments that are meaningfully higher than the Q1 organic growth rates, providing positive momentum for the remainder of the year.

    05

    Strategic Pricing and Cost Management

    ITW anticipates that price/cost dynamics will be modestly accretive to margins for the full year, effectively managing recent tariff changes and material cost increases through corresponding pricing and supply chain actions. Divisions have implemented increased pricing in response to inflationary pressures, with the impact expected to materialize primarily in the second quarter and continue through the third and fourth quarters, ensuring margin protection.

    06

    Impact of PLS and Middle East Sales on Growth

    The company's Product Line Simplification (PLS) efforts, which were front-end loaded in the quarter, combined with delayed sales to the Middle East (representing approximately $100 million annually), collectively reduced the Q1 organic growth rate by about 1 percentage point. These factors particularly affected the Specialty Products segment, contributing to its 5% organic decline, but are expected to normalize📎 as the year progresses.

    AI-generated summary of the company’s earnings call. Not investment advice.