Illinois Tool Works Inc. (ITW) FY2025 10-K and Q2 FY2026 10-Q Summary

Business

Source: Annual Report on Form 10-K for the fiscal year ended December 31, 2025, accession 0000049826-26-000008.

Illinois Tool Works makes a broad range of engineered industrial products and equipment: components and fasteners for car makers, commercial kitchen equipment and its servicing, test and measurement instruments and electronics-production equipment, arc welding equipment and consumables, adhesives, fluids and car-care products, construction fasteners, and specialty packaging, coding and appliance components. It sells mainly direct to industrial manufacturers and also through independent distributors. Most of its products ship on short lead times, so backlog is not a significant factor. Operating revenue was $16.04 billion in 2025. Customers in the United States accounted for $7,395 million of that, and more than half of net sales come from customers outside the US. No single customer accounted for more than 5% of revenue. The company runs 88 divisions in 49 countries and had about 43,000 employees at December 31, 2025, roughly 16,000 of them in the United States.

The company reports seven segments. 2025 operating revenue and operating margin for each were:

• Automotive OEM ($3.29 billion; 21.1% margin): plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses, made mostly to customer specification under long-term supply agreements with car makers and top-tier suppliers. Brands include Deltar and Shakeproof.
• Test & Measurement and Electronics ($2.83 billion; 24.6%): equipment, consumables and software for testing materials, structures, gases and fluids (Instron, MTS), plus electronic assembly equipment, components and packaging, static and contamination control for clean rooms, and pressure-sensitive adhesives.
• Food Equipment ($2.70 billion; 27.9%): warewashing, cooking, refrigeration, food processing, and kitchen exhaust and ventilation equipment, along with food equipment service, maintenance and repair. Hobart is the main brand.
• Welding ($1.89 billion; 32.9%): arc welding equipment and metal arc welding consumables and accessories (Miller), serving fabrication, shipbuilding, construction, energy, MRO and automotive markets. Its global competitors are Lincoln Electric Holdings and ESAB.
• Construction Products ($1.82 billion; 30.2%): fasteners and fastening tools for wood, metal and concrete, metal plate truss components and software, and packaged hardware for retail (Paslode). It serves residential construction, renovation/remodel and commercial construction.
• Specialty Products ($1.78 billion; 31.2%): beverage multi-pack consumables and equipment (Hi-Cone), conveyor and line automation, decorating foils and films, product coding and marking, appliance closures and components, airport ground support equipment, and medical device components.
• Polymers & Fluids ($1.77 billion; 27.9%): engineered adhesives, sealants, lubrication and cutting fluids, industrial cleaners, and auto aftermarket products such as body fillers and car care (Rain-X, Permatex).

How it makes money: the ITW Business Model. The company attributes its margins to three linked practices:

• 80/20 Front-to-Back: each division concentrates resources on its largest and most profitable customers and products (the "80") and strips cost and complexity out of serving the rest (the "20").
• Customer-Back Innovation: development work starts from key customers' problems rather than from a central R&D lab. ITW holds about 21,800 granted and pending patents, including roughly 4,200 unexpired US patents and 10,400 unexpired foreign patents.
• A decentralized, entrepreneurial culture: divisions have wide operating autonomy within the framework.

Under its 2012 enterprise strategy the company exited commoditized businesses and product lines, consolidated into 88 larger divisions, and built a strategic sourcing function that it says has cut spend by about 1% a year since 2013. For its "Next Phase" (2024 to 2030), the company says its top priority is high-quality organic growth of 4% or more through the cycle, driven mainly by Customer-Back Innovation. That goal is stated in the June 2026 10-Q (accession 0000049826-26-000049).

Portfolio activity has been small. In the Test & Measurement and Electronics segment, ITW bought one business on January 2, 2024 for $57 million, one on April 1, 2024 for $59 million, and one on October 1, 2025 for $120 million (all net of cash acquired). It described these acquisitions as not material and did not name the businesses. In August 2024 it sold its noncontrolling stake in Wilsonart International Holdings to affiliates of Clayton, Dubilier & Rice for $398 million, booking a $363 million pre-tax gain. The company operated about 410 plants and offices at year-end 2025, about 270 of them outside the US, mainly in China, Germany, France and the United Kingdom. Its principal raw materials are steel, resins and chemicals, which are available from numerous commercial sources.

Risk factors

Source: 10-K for fiscal 2025, accession 0000049826-26-000008. The June 2026 10-Q (accession 0000049826-26-000049) reports no material changes to these risk factors.

• Cyclical end-market demand. Results depend on industrial, automotive, construction, food service and capital-goods activity worldwide. Slower growth, inflation, supply-chain disruption or higher interest rates can cut demand, delay orders and weaken customers' ability to pay.
• Global operations, trade policy and tariffs. More than half of sales come from outside the US. The company names tariffs and retaliatory measures, sanctions on Russia, US-China trade relations, price and exchange controls, limits on repatriating earnings, and expropriation as risks. It says it largely manufactures in the markets where it sells and expects to recover tariff costs through price. It also warns that tariff policy has added uncertainty and may reduce customer demand.
• Currency. A large share of sales and costs is in other currencies, with the largest foreign concentration in Europe. A stronger US dollar, especially against the euro, reduces reported profit.
• Enterprise strategy execution. Product line and customer simplification under 80/20 is expected to hold back organic revenue in the short term. It reduced organic revenue by 60 basis points in 2025. If the strategy, including Customer-Back Innovation, does not deliver the expected benefits, the company may miss its long-term financial targets.
• Share repurchases. Buybacks are a significant part of capital allocation and have historically been funded with free cash flow and short-term borrowing. They could be limited by market conditions, the share price, financing costs or the availability of US cash.
• Innovation and intellectual property. Delays in new products or in adopting technologies such as AI could hurt competitiveness. IP can be challenged or infringed, particularly in countries with weak protection.
• Goodwill and intangibles. The company carried about $5.7 billion of goodwill and intangible assets at year-end 2025. Negative industry trends, business disruption or more competition could lead to impairment charges.
• Raw material costs and supply. Inflation, tariffs, conflicts and severe weather can raise the price or cut the availability of materials, and the company may not be able to pass higher costs through to customers quickly or in full.
• Pension funding. Falling interest rates or investment losses on plan assets can raise funding obligations.
• Cybersecurity and data privacy. Breaches of the company's systems or those of its vendors, including increasingly AI-assisted attacks, could disrupt operations, expose data and create liability under laws such as the EU GDPR. The company reports minor breaches from time to time and no material cybersecurity incident in 2023 to 2025.
• Acquisitions and divestitures. Acquired businesses may fail to adapt to the ITW Business Model, bring unknown liabilities or control deficiencies, or lead to impairments. Indemnities given to buyers of divested businesses leave the company with retained liabilities, including lawsuits, taxes, product liability and environmental matters.
• Tax. The effective tax rate is exposed to changes in the earnings mix across countries, valuation allowances, tax law changes and audits in the US and abroad. The June 2026 10-Q names ongoing audits by the IRS, UK HMRC, and the German, French and Australian tax authorities.
• Litigation, regulation and compliance. Product liability, toxic tort, IP and employment claims, and government investigations could result in judgments or fines, and insurance may not fully cover them. Because divisions operate with wide autonomy, they could violate anti-bribery, competition, trade-sanctions, data-privacy, AI or human-rights laws despite compliance programs.
• Climate and environmental rules. Stricter limits on emissions or single-use plastics, and the physical effects of climate change, could raise costs, disrupt operations or reduce demand.

Management's discussion: fiscal 2025

Source: 10-K for fiscal 2025, Item 7, accession 0000049826-26-000008.

In 2025 organic revenue was flat, and the underlying operating margin edged up as enterprise initiatives more than offset higher employee costs. Two one-time 2024 items distort comparisons with 2024: a $117 million pre-tax benefit from switching certain US inventories from LIFO to FIFO, and the gain on the Wilsonart stake sale.

• Revenue: $16.04 billion, up 0.9%. Organic revenue was flat, foreign currency added 0.8%, and product line simplification cost 60 basis points. Organic revenue fell 0.7% in North America and 2.2% in Europe, Middle East and Africa, and rose 6.3% in Asia Pacific, including 8.7% in China.
• Operating income: $4.22 billion, down 1.1%, or up 1.7% excluding the 2024 LIFO benefit. Operating margin was 26.3%, down 50 basis points. Excluding the 70 basis points that the LIFO change added in 2024, margin rose 20 basis points: enterprise initiatives contributed 130 basis points and price/cost 10 basis points, partly offset by higher employee costs, including health and welfare expenses.
• Earnings: diluted EPS was $10.49, down 10.4%. Excluding the 2024 Wilsonart gain ($1.26 per share) and the LIFO change ($0.30 per share), EPS rose 3.3%. Net income was $3.07 billion. The effective tax rate was 22.7%, against 21.1% in 2024.
• Segments: Automotive OEM grew organic revenue 2.0%, while worldwide auto builds rose 4%. China organic revenue rose 11.8%, helped by electric vehicles and share gains with Chinese car makers, and segment margin rose 150 basis points to 21.1%. Construction Products was the weakest segment: organic revenue fell 5.1%, including a 6.4% drop in the US residential market, although margin still rose 90 basis points to 30.2%. In Test & Measurement and Electronics, organic revenue fell 1.4% as demand at MTS Test & Simulation and in general industrial markets declined while semiconductor demand grew. Welding organic revenue rose 2.0%, with equipment up 3.6%, and its margin of 32.9% was the highest of any segment. Food Equipment organic revenue rose 0.8%, with service up 2.8% and equipment down 0.3%.
• Cash and capital returns: operating cash flow was $3.13 billion and free cash flow $2.71 billion after $419 million of capital spending. The company paid $1.79 billion of dividends and spent $1.5 billion buying back about 6.0 million shares. It raised the quarterly dividend from $1.50 to $1.61 per share. About $2.0 billion remained under the $5.0 billion 2023 repurchase program at year-end.
• Balance sheet: total debt rose to $8.97 billion from $7.86 billion. Short-term debt of $2.29 billion included $1.3 billion of commercial paper and $999 million of 2.65% notes due November 15, 2026. Total debt to EBITDA was 1.9 times, and after-tax return on average invested capital was 29.3%, down 190 basis points. Cash was $851 million. The company had euro-denominated debt with a carrying value of $5.0 billion, designated as a hedge of its net investment in European operations.
• Tariffs: the company said its practice of producing in the markets where it sells, together with price increases, positioned it to minimize the impact of the tariffs announced in April 2025.

Current quarter: second quarter 2026 (three months ended June 30, 2026)

Source: Quarterly Report on Form 10-Q, accession 0000049826-26-000049; second-quarter earnings release (Exhibit 99.1 to Form 8-K, accession 0000049826-26-000047) for guidance and cash-flow commentary.

Growth picked up sharply in the second quarter, driven by the capital-equipment businesses. The company called it the most profitable quarter in its history.

• Revenue: $4.30 billion, up 6.1%. Organic revenue rose 4.5%, foreign currency added 1.4%, and the October 2025 acquisition added 0.2%. Product line simplification cost 60 basis points. Organic revenue rose 6.4% in North America and 5.6% in Asia Pacific, including 3.4% in China, and was flat in Europe, Middle East and Africa.
• Profit: operating income was $1.15 billion, up 7.4%, and operating margin was 26.7%, up 40 basis points. Enterprise initiatives added 120 basis points and operating leverage 90 basis points. Higher employee costs and unfavorable price/cost of 40 basis points worked against margin. The company said price increases more than covered higher raw material costs in dollar terms, but the lag between inflation and price adjustments diluted margins slightly. Diluted EPS was $2.84, up 10.1%, on net income of $815 million. The effective tax rate was 24.4%, the same as a year earlier.
• First half: revenue of $8.32 billion rose 5.4%, with organic growth of 2.5%. Operating margin was 26.1%, and diluted EPS was $5.50, up 11.1%. The first-half tax rate of 22.6% includes a $34 million discrete benefit, recorded in the first quarter, mainly from resolving a US tax audit.
• Segments:
  • Test & Measurement and Electronics: revenue up 12.1%, organic up 10.0%, on semiconductor demand. Electronics organic revenue rose 21.0%, including 49.2% in electronics assembly. Margin rose 240 basis points to 25.2%.
  • Welding: revenue up 14.7%, organic up 13.9%. North America rose 18.5% on infrastructure, energy, aerospace and defense demand, while international fell 6.4%. Margin was 32.4%, down 70 basis points, on employee costs, price/cost and restructuring.
  • Polymers & Fluids: organic revenue up 7.3% across all major regions. Margin rose 160 basis points to 29.3%.
  • Construction Products: organic revenue up 2.0%, with the US commercial market up 12.9%.
  • Specialty Products: organic revenue up 1.6%. Margin fell 110 basis points to 31.5% on 160 basis points of unfavorable price/cost.
  • Food Equipment: organic revenue flat. North American equipment fell 8.2% on weaker institutional and restaurant demand, while service grew 5.0%.
  • Automotive OEM: organic revenue down 0.4% while worldwide auto builds were flat. Europe fell 5.3%. In China, organic revenue rose 0.5% while auto builds fell 3%.
• Cash and capital returns: operating cash flow was $723 million and free cash flow $631 million, up from $449 million a year earlier. The company said this was a 77% conversion of net income. ITW bought back about 2.9 million shares for $750 million in the quarter, and 4.3 million shares for about $1.1 billion in the first half. It paid a quarterly dividend of $1.61. At June 30, $865 million of repurchase authorization remained under the 2023 program.
• Balance sheet: total debt rose to $9.69 billion from $8.97 billion at year-end. Commercial paper was $2.1 billion, and short-term debt also included $1.0 billion of 2.65% notes due November 15, 2026. The company had $856 million outstanding under its euro credit agreement at 2.90%. It intends to exercise its option to extend that agreement beyond February 28, 2027, to September 15, 2027. Trailing-twelve-month total debt to EBITDA was 2.0 times. Cash was $839 million and stockholders' equity $2,895 million. Annualized after-tax return on average invested capital was 29.7% for the quarter.
• Liquidity: nothing was drawn at June 30, 2026 on the $3.0 billion revolving credit facility. That facility, which also backs the commercial paper program, was put in place on February 20, 2026 and now runs to February 20, 2031.
• Tariffs: on February 20, 2026, the US Supreme Court invalidated many of the tariffs imposed under the International Emergency Economic Powers Act. A temporary 10% global tariff then imposed under the Trade Act expired in July 2026 and was effectively replaced by similar tariffs on numerous countries under other provisions of that Act. The company still expects to recover tariff costs through price, but warns that the policy may weigh on demand.

2026 guidance. With its second-quarter results on July 28, 2026, ITW raised its full-year outlook for the second time this year. It now expects:

• GAAP EPS of $11.35 to $11.55, about 9% growth at the midpoint. The initial February range was $11.00 to $11.40.
• Revenue growth of 4% to 5% and organic growth of 3% to 4%, up from 2% to 4% and 1% to 3%.
• Operating margin of 26.5% to 27.5%, unchanged, with enterprise initiatives contributing more than 100 basis points.
• Free cash flow above 100% of net income, about $1.5 billion of share repurchases, and a tax rate of 23% to 24%.

Guidance sources: earnings releases filed as Exhibit 99.1 to Forms 8-K, accessions 0000049826-26-000003 (February 3, 2026) and 0000049826-26-000047 (July 28, 2026).

Subsequent events

Source: Form 8-K dated August 11, 2026, accession 0001193125-26-349149, including the underwriting agreement (Exhibit 1.1) and officers' certificate (Exhibit 4.3); Form 10-Q, accession 0000049826-26-000049.

The June 2026 10-Q has no separate subsequent-events note, and it reports no acquisitions or divestitures after the quarter. The October 2025 Test & Measurement and Electronics purchase remains the latest acquisition disclosed. Events after June 30, 2026 were:

• $1.5 billion bond issue (August 13, 2026). ITW issued $1.5 billion of 4.650% notes due August 13, 2029. Citigroup Global Markets and J.P. Morgan Securities represented the underwriters. The notes were priced at 99.748% of face value (a 4.741% yield to maturity, 45 basis points over the benchmark Treasury), for net proceeds of $1.49 billion after the underwriting discount and before expenses. Interest is payable semi-annually on February 13 and August 13, starting February 13, 2027. Before July 13, 2029 the notes can be redeemed at a make-whole price (Treasury rate plus 10 basis points); from that date they can be redeemed at par. ITW intends to use the proceeds to repay part of its commercial paper borrowings, and any remainder for general corporate purposes, which may include repaying other debt.
• Tariff change (July 2026). The temporary 10% global Trade Act tariff expired and was effectively replaced by similar country tariffs, as described above.