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ILLINOIS TOOL WORKS INC (ITW)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered modest top-line growth and record profitability metrics: revenue $4.053B (+1% total, flat organic), GAAP EPS $2.58, and operating margin 26.3% as enterprise initiatives added 130 bps .
  • Results modestly beat Wall Street consensus: EPS $2.58 vs $2.56*, revenue $4.05B vs $4.02B*, EBITDA $1.18B vs $1.15B*; FX was a small tailwind and price actions offset tariffs, though price/cost was slightly margin dilutive .
  • Guidance raised: FY25 GAAP EPS narrowed and lifted to $10.35–$10.55 (from $10.15–$10.55), revenue growth to 1–3%, organic flat–2%, operating margin outlook trimmed to 26–27% (from 26.5–27.5%) as price/cost dilutes margin near term .
  • Sequential momentum strong across all segments; China standout (+15% overall, +22% auto), with CBI-driven share gains in EVs; welding new products and semiconductor-related businesses supported pockets of strength .

What Went Well and What Went Wrong

What Went Well

  • Record Q2 profitability: GAAP EPS $2.58 and operating margin 26.3%; enterprise initiatives contributed 130 bps, showcasing controllables execution .
  • China acceleration: +15% overall, +22% auto, with margins in China comparable to NA/EU—management highlights sustained, differentiated positioning and CBI-led patenting and partnerships .
  • Sequential improvement: Q2 vs Q1 revenue +6%, operating income +12%, margin +150 bps; all seven segments grew revenue and expanded margins sequentially .
  • Quote: “Pricing actions more than offset the tariff cost impact in the quarter,” underscoring resilience in an uncertain environment .

What Went Wrong

  • Price/cost dynamics modestly margin dilutive in Q2; margin guide trimmed to 26–27% despite EPS uplift, reflecting timing of price recapture at the margin level .
  • Consumer-oriented end markets (notably Construction Products) remain challenged; segment organic –6.9% YoY despite margin resilience (+140 bps to 30.8%) .
  • Polymers & Fluids declined (–3.4% total; –3.7% organic) YoY; automotive aftermarket within this segment remained soft .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)$4,027 $3,839 $4,053
GAAP Diluted EPS ($)$2.54 $2.38 $2.58
Operating Margin (%)26.2% (derived from +10 bps YoY to 26.3%) 24.8% 26.3%
Operating Income ($USD Millions)$1,054 $951 $1,068
Net Income ($USD Millions)$759 $700 $755
EBITDA ($USD Millions)$1,161*$1,057*$1,177*
Operating Cash Flow ($USD Millions)$687 $592 $550
Free Cash Flow ($USD Millions)$571 $496 $449
Effective Tax Rate (%)24.4% 21.7% (includes $21M discrete) 24.4%

Values with asterisk are retrieved from S&P Global.

Segment performance (sequential comparison):

SegmentQ1 2025 Revenue ($mm)Q1 2025 Op Margin (%)Q2 2025 Revenue ($mm)Q2 2025 Op Margin (%)
Automotive OEM$786 19.3% $845 21.3%
Food Equipment$627 26.5% $680 27.7%
Test & Measurement & Electronics$652 21.4% $686 22.8%
Welding$472 32.5% $479 33.1%
Polymers & Fluids$429 26.5% $438 27.7%
Construction Products$443 29.2% $473 30.8%
Specialty Products$435 30.9% $455 32.6%

YoY segment organic revenue growth and margin change (Q2 2025 vs Q2 2024):

SegmentOrganic Rev Growth (%)Total Rev Growth (%)Op Margin Change (bps)
Automotive OEM+2.4% +3.8% +190 bps
Food Equipment+0.8% +2.1% +60 bps
Test & Measurement & Electronics–0.7% +1.2% –70 bps
Welding+2.8% +2.9% +20 bps
Polymers & Fluids–3.7% –3.4% –50 bps
Construction Products–6.9% –6.1% +140 bps
Specialty Products+0.3% +1.1% +70 bps
Total ITW–0.4% +0.7% +10 bps; 26.3% total

KPIs and cash returns:

KPIQ2 2024Q1 2025Q2 2025
FCF to Net Income Conversion (%)75% 71% 59%
OCF to Net Income Conversion (%)91% 85% 73%
Share Repurchases ($mm)—$375 $375
Average Diluted Shares (mm)298.5 294.5 292.9

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP EPSFY 2025$10.15–$10.55 $10.35–$10.55 Raised, narrowed
Total Revenue GrowthFY 20250–2% 1–3% Raised
Organic GrowthFY 20250–2% Flat–2% Slightly lowered low end
Operating MarginFY 202526.5–27.5% 26–27% Lowered
FCF / Net IncomeFY 2025>100% >100% Maintained
Share RepurchasesFY 2025~$1.5B ~$1.5B Maintained
Effective Tax RateFY 2025~24% ~24% Maintained
FX AssumptionFY 2025Headwind (~$0.30 EPS) Modest tailwind currently (rates as of Q2) Improved
DividendQ3 2025$1.50 paid in Q2 $1.61 declared; +7%, $6.44 annualized Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
Tariffs/macro & price/costExecuted controllables; enterprise initiatives +120 bps; FX headwind in FY25 guide Maintaining FY guide; price actions expected to offset tariffs Price actions offset tariffs; price/cost modestly margin dilutive; margin guide trimmed Improving execution, cautious margin recovery timing
China & regional trends——China +15% overall, +22% auto; margins comparable to NA/EU; strong CBI, patents, local production Strengthening; sustainable differentiation
CBI (Customer-Back Innovation)—Emphasized for long-term above-market growth Strong pipeline; welding standout (>3% CBI yield), food equipment energy/water savings, auto content gains; 2025 CBI yield on track at 2.3–2.5% Building momentum
Segment performanceRecord margin in Q4; 6/7 segments expanded margins in 2024 Mixed; consumer-oriented weakness; Polymers & Fluids aftermarket soft All seven segments grew and expanded margins sequentially; Construction margins +140 bps despite –6.9% organic; T&M orders improved late Q2 Sequential broad-based improvement
FXFY25 headwind indicated (~$0.30) FX headwind/unfavorable impacted EPS ~$0.10 in Q1 Modest FX favorability in Q2 (~$0.03), cautious assumption in guide Turning tailwind, management conservative
Restructuring/80/20—Higher restructuring expenses weighed on Q1 margin $20M H1, ~$20M H2; year over year flat; projects <1-year payback Stable spend cadence

Management Commentary

  • “Pricing actions more than offset the tariff cost impact in the quarter,” reinforcing controllables focus and resilience .
  • “China… margins… at the same level as North America or Western Europe… strong CBI efforts… long-lasting customer partnerships,” underscoring sustainable differentiation and local production strategy .
  • CFO on guidance cadence: “47% [EPS] in the first half and 53% in the second half,” implying stronger H2 on pricing, FX, and segment improvements .
  • CEO framing the quarter: “The ITW team outpaced underlying end market growth… achieving EPS of $2.58… operating margin of 26.3 percent, all second-quarter records” .

Q&A Highlights

  • Margin outlook trimmed due to price/cost margin dilution despite EPS positivity; recovery expected over time as in prior cycles .
  • Auto OEM margins improved 190 bps to 21.3%; expected solidly >20% in H2 and likely full year, aligning with long-term low–mid-20s target .
  • CBI progress: welding standout (>3%), food equipment product launches (energy/water savings), auto content gains in China; CBI yield on track at 2.3–2.5% for 2025 .
  • T&M & capital equipment: encouraging late-Q2 order activity; semiconductor-related businesses growing double digits; biggest margin step-up expected in H2 .
  • Restructuring spend ~$20M H1 and ~$20M H2; PLS remains ~100 bps headwind to organic growth in 2025 but improves portfolio quality and margins .

Estimates Context

MetricPeriodConsensusActualSurprise
EPS ($)Q2 20252.564*2.58 +$0.02*
Revenue ($mm)Q2 20254,024.45*4,053 +$28.55*
EBITDA ($mm)Q2 20251,146.78*1,177*+$30.92*
EPS ($)Q1 20252.354*2.38 +$0.03*
Revenue ($mm)Q1 20253,842.93*3,839 –$3.93*
EPS ($)Q2 20242.469*2.54 +$0.07*
Revenue ($mm)Q2 20244,079.38*4,027 –$52.38*

Values with asterisk are retrieved from S&P Global.

Implications: modest beat on both EPS and revenue supports raised FY EPS guide; EBITDA also ahead. Caution on margin trajectory likely tempers estimate upgrades to margins but supports EPS revisions higher given FX tailwind and pricing offsets .

Key Takeaways for Investors

  • Earnings quality remains high: record Q2 EPS/margins; enterprise initiatives delivering 130 bps; sequential incrementals >50% signal strong operating leverage when growth returns .
  • Guidance raised despite macro/tariff uncertainty; EPS range tightened to $10.35–$10.55 with H2 EPS 53% of annual, driven by pricing, FX, and segment margin uplift—monitor delivery of ~27% H2 operating margin .
  • China is a durable growth engine across segments (auto, T&M, welding, P&F) with CBI-led share gains and margins comparable to developed markets; sustained differentiation underpins trajectory .
  • Consumer-exposed segments (Construction, aftermarket) remain headwinds; yet Construction margins expanded +140 bps to 30.8%—portfolio quality and PLS initiatives are working even in weak demand .
  • Near-term margin headwind from price/cost is timing-related; management expects eventual recapture—watch cadence through Q3/Q4 .
  • Capital returns intact (repurchases ~$1.5B FY25); dividend increased to $1.61 for Q3 (+7%), $6.44 annualized—supportive for income-focused holders .
  • Trading lens: catalysts include H2 margin expansion, continued China EV/content gains, T&M order follow-through, and potential estimate upgrades to EPS; risk is renewed tariff waves or consumer segment weakness pressuring volumes/margins .