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ILLINOIS TOOL WORKS INC (ITW)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $3.839B, down 3.4% (organic -1.6%, flat on equal-days), with GAAP EPS of $2.38 and operating margin of 24.8%; execution outperformed end markets and EPS was ahead of internal plan expectations .
  • Enterprise Initiatives contributed 120 bps to margin; margin declined year over year due to non-repeat of a 300 bps LIFO accounting benefit in Q1 2024 and higher restructuring tied to 80/20 projects .
  • Guidance maintained: FY25 GAAP EPS $10.15–$10.55, organic growth 0–2%, operating margin 26.5–27.5%, FCF >100% of net income; tax rate guided to ~24% and ~$1.5B of buybacks planned .
  • Management expects ongoing pricing and supply chain actions to offset tariff costs (EPS neutral or better by year-end), chose not to include an FX tailwind (~$0.30) in EPS guidance—de-risking the outlook and setting up a potential positive revision if demand holds .

What Went Well and What Went Wrong

What Went Well

  • EPS ahead of plan with strong cash generation: GAAP EPS $2.38; operating cash flow $592M, FCF $496M (71% conversion) .
  • Enterprise Initiatives drove resilient profitability: +120 bps to margin despite mixed volume and tariff uncertainty .
  • Geographic/segment positives: Asia Pacific +7% and China +12% with Auto China +14%; Food Equipment organic +1% (+3% equal-days), Welding equipment +1% and International +14% with >30% growth in China energy-related products .
  • CEO reiterated strategic strengths: “produce where we sell” footprint (>90%), decentralized “read and react,” diversified portfolio—positioned to outperform in volatility .

What Went Wrong

  • Top-line softness and FX headwinds: revenue -3.4% with FX -1.8%; organic -1.6% (PLS reduced revenue by 50 bps) .
  • Margin compression YoY: operating margin 24.8% (-60 bps) primarily due to non-repeat of Q1 2024 LIFO benefit (+300 bps last year) and higher restructuring .
  • End-market challenges: Construction Products organic -7% (North America -10%, residential automation -12%); Test & Measurement down 5% organically, partly due to MTS -19% .

Financial Results

Core P&L vs Prior Quarters (actuals)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Billions)$3.966 $3.932 $3.839
GAAP Diluted EPS ($)$3.91 $2.54 $2.38
Operating Margin (%)26.5% 26.2% 24.8%

Q1 YoY Comparison

MetricQ1 2024Q1 2025
Revenue ($USD Billions)$3.973 $3.839
GAAP Diluted EPS ($)$2.73 (incl. $0.29 LIFO benefit) $2.38
Operating Margin (%)28.4% (incl. ~300 bps LIFO benefit) 24.8%
Organic Growth (%)N/A-1.6% (flat equal-days)

Actual vs Consensus (S&P Global)

MetricConsensusActualSurprise
Revenue ($USD)$3,842,934,060*$3,839,000,000 Miss (~$3.9M)
GAAP Diluted EPS ($)$2.3544*$2.38 Beat (+$0.0256)
EBITDA ($USD)$1,065,687,530*~$1,057,000,000

Values retrieved from S&P Global.*

Segment Breakdown – Q1 2025

SegmentRevenue ($M)Operating Income ($M)Operating Margin (%)
Automotive OEM$786 $151 19.3%
Food Equipment$627 $166 26.5%
Test & Measurement & Electronics$652 $139 21.4%
Welding$472 $153 32.5%
Polymers & Fluids$429 $114 26.5%
Construction Products$443 $130 29.2%
Specialty Products$435 $135 30.9%
Total Company$3,839 $951 24.8%

KPIs (chronological: oldest → newest)

KPIQ1 2024Q4 2024Q1 2025
Operating Cash Flow ($M)$589 $1,114 $592
Free Cash Flow ($M)$494 $996 $496
FCF to Net Income Conversion (%)60% (68% adj) 133% 71%
Effective Tax Rate (%)23.8% (FY adj) 23.7% (Q4) 21.7% (incl. $21M discrete benefit)
Share Repurchases ($M)$375 (Q3 example) $375 $375
Cash & Equivalents ($M)$959 (Mar-24) $948 (Dec-24) $873 (Mar-25)
Total Debt ($M)$8,325 (Mar-24) $7,863 (Dec-24) $8,263 (Mar-25)
After-tax ROIC (%)30.1% (Q1 2024 annualized) 29.9% (Q4 annualized) 27.7% (Q1 2025 annualized)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP EPSFY 2025$10.15–$10.55 incl. ~$0.30 FX headwind $10.15–$10.55; management did not incorporate current FX tailwind (~$0.30) Maintained (de-risked EPS despite FX tailwind)
Organic GrowthFY 20250–2% (1–3% ex-PLS ~1%) 0–2% with incremental tariff pricing; equal-days basis approach Maintained
Operating MarginFY 202526.5–27.5%, EI ~+100 bps 26.5–27.5%, EI ≥+100 bps Maintained
Free Cash FlowFY 2025>100% of net income >100% of net income Maintained
Share RepurchasesFY 2025~$1.5B ~$1.5B Maintained
Effective Tax RateFY 202524–24.5% ~24% (CFO: lowered from ~24.25%) Lowered
DividendQ2 2025—Declared $1.50 per share (annualized $6.00) Maintained payout cadence

Earnings Call Themes & Trends

TopicQ3 2024 (Prior-2)Q4 2024 (Prior-1)Q1 2025 (Current)Trend
Enterprise Initiatives (EI)EI +130 bps; margin 26.5% EI +120 bps; record margin 26.2% EI +120 bps; margins to improve sequentially in all segments Consistent EI contribution; sequential margin uplift expected
Tariffs & Pricing PowerNot a major driverNot a major driverPricing/supply chain actions to offset tariffs (EPS neutral or better); faster “read & react” this cycle New headwind; management confident pricing neutralizes costs
Product Line Simplification (PLS)PLS reduced revenue; Specialty strength PLS ~1% headwind; org turned positive ex-PLS PLS -50 bps revenue; strategic repositioning ongoing Ongoing strategic headwind; supports long-term mix
Automotive OEMOutgrowing markets by 200–300 bps; EV momentum Margin expansion; 19.8% NA builds down; China +14%; margins 19.3% with 80 bps restructuring Mixed: NA weakness offset by China EV
Food EquipmentEquipment/service balanced; margin 28.4% Segment margin 27.2% Service +3%; institutional up double digits; margin 26.5% Healthy service/institutional backstop
WeldingMargin 32.3% Margin 31.2% Equipment +1% (first in 2 years); International +14% (China >30%) Signs of cycle stabilizing with new products
FXLower 2024 ETR aided EPS FY25 guide included ~$0.30 FX headwind Current rates imply ~$0.30 tailwind not in EPS guidance Potential upside if FX persists

Management Commentary

  • CEO: “ITW is built to outperform in today's volatile environment… ‘produce where we sell’ manufacturing strategy, decentralized operating culture… diversified high-quality business portfolio” .
  • CEO on tariffs: “Our people are reading and reacting rapidly… working closely with suppliers and customers… ongoing pricing actions are projected to offset the cost impact of tariffs and… be EPS neutral or better by year-end” .
  • CFO: “We are maintaining our EPS guidance for the year without incorporating the upside from our first quarter results and more favorable foreign exchange rates… enterprise initiatives… will contribute 100 bps or more of margin expansion, independent of volume” .
  • CFO on Auto: “We expect this segment will outperform relevant builds by the usual 200 to 300 basis points as we continue to grow our content per vehicle” .

Q&A Highlights

  • Tariffs and pricing mechanics: Management already implemented pricing and supply chain actions across divisions; combination of surcharges and list price increases depending on market dynamics; goal is EPS neutral or better by year-end .
  • Demand contingency: Playbook emphasizes staying invested in growth and leveraging flexible cost structure; EI provides self-help to protect margins in downturns .
  • Q2 modeling color: Typical +2% sequential revenue from Q1 to Q2 and one extra shipping day; margins step up sequentially; EPS “mid-$2.50s,” first-half ~$4.90 (~48% of full-year midpoint) .
  • CBI and PLS: On track for 2.3–2.5% CBI contribution in FY25; PLS ~100 bps headwind concentrated in Specialty, Auto, Construction .
  • Segment read-through: Food Equipment confidence high (service unique, institutional strength); Welding seeing equipment uptick and China energy wins; Auto China EV growth offsets North America weakness .

Estimates Context

  • Q1 2025 results vs consensus: EPS beat ($2.38 vs $2.3544*), revenue slight miss ($3.839B vs $3.843B*), EBITDA slight miss (~$1.057B vs ~$1.066B*) .
  • Recent quarters: Q4 2024 EPS beat ($2.54 vs $2.50184*), revenue miss ($3.932B vs $3.982B*); Q3 2024 GAAP EPS inflated by divestiture ($3.91 vs $2.53474*), but adjusted EPS $2.65 exceeded consensus .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Execution remains resilient with EPS ahead of plan and strong FCF conversion; EI continues to underpin margins despite mixed volume and restructuring headwinds .
  • Guidance prudently de-risked: Management excluded FX tailwind and Q1 upside, setting up potential positive revisions if demand holds; tax rate lowered to ~24% .
  • Tariffs are manageable: Pricing power and supply chain adjustments expected to offset costs (EPS neutral or better) given >90% local production footprint .
  • Segment mix supports stability: Food service/institutional strength and Welding’s improving equipment trends offset Construction softness; China EV growth a key offset in Auto .
  • Near-term trading setup: Small EPS beat vs consensus, slight revenue/EBITDA misses; sequential margin improvement expected in Q2 with typical seasonality and one extra ship day—watch for confirmation vs modeling color .
  • Medium-term thesis: Continued EI-driven margin expansion, CBI-led above-market growth (2.3–2.5% target), disciplined PLS repositioning, and robust capital return ($1.5B buybacks, $6/share annual dividend) .
  • Risks: Construction end-market softness, Auto NA builds down, potential macro demand fade; however, decentralized structure and flexible cost base provide mitigation levers .