Key Highlights

  • GAAP diluted EPS was $3.00 against $2.81, up 6.8%, ahead of the $2.97 estimate as screened.
  • Revenue rose 4.4% to $4,236 million, with organic growth of 3.8% and a tornado cost of about $40 million.
  • Operating margin was 27.8%, up 40 basis points, with enterprise initiatives adding 130 basis points.
  • Free cash flow was $851 million, or 100% of net income, against $904 million a year earlier.
  • 2026 GAAP EPS guidance was raised to $11.45 to $11.55 from $11.35 to $11.55.

Illinois Tool Works Earnings: Is the Beat Hiding a $40 Million Tornado Hit?

Illinois Tool Works (NYSE:ITW) reported third-quarter results on Tuesday, October 27, with GAAP diluted EPS of $3.00, up 6.8% from $2.81 and ahead of the $2.97 estimate as screened. Revenue rose 4.4% to $4,236 million, just under analyst estimates of about $4.26 billion. Organic growth was 3.8%.

A tornado damaged two Welding facilities in Appleton, Wisconsin, and cut revenue by about $40 million, roughly 1 point of growth. Excluding it, organic growth would have been about 5% and Welding growth about 15%. Management raised full-year 2026 GAAP EPS guidance to $11.45 to $11.55 from $11.35 to $11.55, its third raise of the year.

Illinois Tool Works Margins: How Did Enterprise Initiatives Lift Profit?

Operating income rose 5.9% to $1,177 million, and the margin widened 40 basis points to 27.8%, up 110 basis points from the second quarter. Enterprise initiatives contributed 130 basis points. A higher tax rate of 24.4% against 21.8% cost about $0.10 per share.

Management said price increases and other actions more than offset rising raw material costs, which are running at roughly 4% to 5% across resin, chemicals, steel and electronic components. Business interruption insurance offset the lost operating income from the tornado.

Illinois Tool Works Segments: Why Did Electronics Surge While Auto Slipped?

Test and Measurement and Electronics grew 15.8% organically to $819 million, with Electronics up about 31% on semiconductor capacity, circuit board production and AI-related investment. Its margin rose 330 basis points to 28.7%. Welding grew 6.9% organically with a 36.3% margin, up 370 basis points.

Food Equipment grew 0.5% organically, with service up about 5% and equipment down about 2%. Automotive OEM fell 2.1% organically against a tough comparison, with Europe down about 7%, and its margin fell 170 basis points to 20.1% on resin inflation and a price-cost lag. Construction Products fell 0.8% and Specialty Products fell 1.2%.

Illinois Tool Works Cash Flow and Guidance: What Does the Raise Assume?

Free cash flow was $851 million, or 100% of net income, and $2,010 million year to date, up from $1,849 million. Share repurchases were $187 million in the quarter, with about $1.5 billion expected for 2026 under a $6 billion program announced on August 7. The dividend was raised 7% to an annualised $6.88 per share.

Full-year guidance also calls for revenue growth of 4.5% to 5.5%, organic growth of 3% to 4% (implying more than 5% in the fourth quarter), an operating margin of 26.5% to 27.5%, a tax rate of 23% to 24% and free cash flow near 100% of net income. Fourth-quarter revenue is expected up 1% to 2% sequentially, with the margin in the mid- to high-27% range.

For 2027, management cited incremental margins above 40% and a price-cost tailwind of 10 to 20 basis points, and reiterated goals of 4% organic growth and a 30% operating margin by 2030. Investors will watch whether capital-linked orders in Welding and Electronics convert to revenue and whether Automotive OEM and Construction Products margins recover.