ILLINOIS TOOL WORKS (ITW)·Q4 2025 Earnings Summary
ITW Beats on EPS and Revenue as Margins Expand, Stock Rises 1%
February 3, 2026 · by Fintool AI Agent
Illinois Tool Works delivered another beat-and-raise quarter, extending its streak of consistent execution in a challenging demand environment. Q4 2025 GAAP EPS of $2.72 beat consensus by 1.1%, while revenue of $4.1B topped estimates by 0.9% . Operating margin expanded 30 basis points year-over-year to 26.5%, driven by 140 bps of enterprise initiative contributions and effective tariff mitigation .
The industrials conglomerate guided 2026 EPS of $11.00-$11.40, roughly in line with consensus, with continued margin expansion expected from disciplined execution on controllables.
Did ITW Beat Earnings?
ITW delivered a clean beat on both top and bottom lines:
*Values retrieved from S&P Global
Key drivers of the beat:
- Enterprise initiatives contributed 140 bps to margins, consistent with the company's long-term margin expansion playbook
- Pricing and supply chain actions fully offset tariff costs while positively impacting both EPS and margins
- Revenue growth of 4.1% outpaced end markets, with organic growth of 1.3% despite markets declining low-single-digits
- Sequential momentum: Q3-to-Q4 growth of 4% vs. historical 2% typical seasonal pattern
Ask Fintool AI AgentWhat Did Management Guide for 2026?
ITW provided 2026 guidance that signals continued steady execution:
*Values retrieved from S&P Global
2026 guidance implies:
- Revenue growth of +2% to +4% based on current demand levels and FX rates
- ~100 bps margin expansion from enterprise initiatives
- Free cash flow conversion of 100%+ of net income
- Share repurchases of ~$1.5B
2026 quarterly cadence:
- First half/second half EPS split: ~47%/53% (consistent with 2025)
- Q1 EPS expected to contribute ~23% of full year total
- ~$100M sequential revenue decline from Q4 to Q1 (typical seasonality)
- Margin expansion expected every quarter YoY, more modest in Q1, accelerating through the year
The guidance midpoint of $11.20 EPS sits slightly below consensus of $11.26, suggesting management maintains its typically conservative approach. ITW has a strong track record of "do what we say" execution, having narrowed and delivered on guidance throughout 2025 .
Segment Performance: Who Won and Lost?
All seven segments delivered positive operating margin expansion in Q4 2025 :
Standout performers:
- Polymers & Fluids led with +5% organic growth. Key drivers: Rain-X wiper blade new product launch in auto aftermarket, China polymers up double digits on EV share gains, and biopharma reagents up 20%+
- Welding delivered 33.3% operating margin — the highest segment margin — with equipment demand up 4% and filler metals up high single digits
- Test & Measurement saw semi-related businesses up mid-single digits as the semiconductor cycle shows signs of recovery. Semi represents ~15% of T&M revenue. Management noted fab utilization improving and "more than green shoots at this point."
- Automotive OEM continued gaining share in China EVs with +5% Q4 organic growth and +12% for full year 2025. ITW now has 70%+ position with Chinese OEMs, who represent 70% of the China auto market
Challenge area:
- Construction Products remained the only segment with negative organic growth (-4%), reflecting continued housing and commercial construction headwinds . Residential renovation down 5%, though commercial construction (20% of segment) saw pockets of strength from data centers . Even here, operating margin expanded to 29.0%, demonstrating ITW's ability to manage through downturns .
2026 Segment Growth Projections
Management provided organic growth outlooks for each segment based on current run rates :
All seven segments are positioned to deliver above-market organic growth and expand operating margins in 2026 .
2026 geographic outlook:
Ask Fintool AI AgentHow Did the Stock React?
ITW shares rose 1.1% to $264.21 following the earnings release, reflecting investor approval of the beat-and-raise quarter. The muted reaction suggests the results were largely in line with elevated expectations heading into the print.
Stock performance context:
- 52-week range: $214.66 - $278.13
- Current price: $264.21 (up 1.1% on earnings day)
- Market cap: ~$77B
- Year-to-date performance: Trading above 50-day ($252.54) and 200-day ($252.02) moving averages
Beat streak continues: This marks ITW's 8th consecutive quarterly EPS beat, demonstrating the consistency of the company's "do what we say" execution philosophy .
What Changed From Last Quarter?
Comparing Q4 2025 to Q3 2025 guidance and actual results:
Key improvements:
- Customer-Back Innovation (CBI) contribution increased to 2.4% for full year 2025, up from 2.0% in 2024, tracking toward 3%+ by 2030
- Patent filings increased 9% in 2025, supporting the innovation pipeline
- Dividend raised for the 62nd consecutive year (+7% per share)
Full Year 2025 Results
*2024 one-time items included Q3 Wilsonart sale gain ($1.26 EPS) and Q1 LIFO accounting change ($0.30 EPS) **ROIC decline reflects normalization after one-time gains
2025 capital allocation:
- $3.3B returned to shareholders through dividends and buybacks
- $1.5B in share repurchases
- $0.8B invested in core businesses for organic growth and productivity
Key Management Commentary
On 2025 execution:
"Solid Q4 execution and results to close out 2025... Revenue growth of +4.1% outpacing end markets with organic growth of +1.3%."
On enterprise initiatives:
"Enterprise initiatives contribution of +140 bps... Pricing & supply chain actions offset tariff impact."
On 2026 positioning:
"Well-positioned to outperform end markets again in 2026... Disciplined execution on the controllables delivering margin expansion of ~100 bps."
On China EV leadership (CEO Chris O'Herlihy):
"We're in a very strong position with Chinese OEMs, which is now over 70% of the market. China still represents about 65% of worldwide EV builds, and we're growing very nicely there."
On M&A strategy (CFO Michael Larson):
"It's not necessarily an easy time to be a disciplined acquirer, and often the challenge is really around valuation. We're not gonna do deals that don't make sense to ITW, which means we're not gonna do deals where we can't generate a reasonable risk-adjusted rate of return."
On sustainable incrementals:
"We can't really think of a reason why this wouldn't be sustainable over the long term. The quality of the portfolio has never been better than it is today." — CFO Michael Larson on mid-to-high 40s incremental margins.
From the Q3 2025 call, CEO Chris O'Herlihy emphasized the durable nature of ITW's strategy:
"ITW is built to outperform in challenging environments... We remain laser-focused on making above-market organic growth powered by customer-backed innovation a defining ITW strength."
Q&A Highlights
Semiconductor Recovery (Andy Kaplowitz, Citi): Management confirmed a more definitive turn in semiconductor demand after previous "head fakes." Semi represents ~15% of Test & Measurement (3% of total ITW). Fab utilization is improving, orders are up, and semi-related businesses grew mid-single digits in Q4. CFO Larson noted: "It's looking pretty promising as we just start 2026."
Incremental Margins Sustainability (Jamie Cook, Truist): Management expects mid-to-high 40s incrementals to be sustainable — above the historical 35-40% range. Key drivers: decade of enterprise initiatives improving portfolio quality, higher-margin new products from CBI, and continued investment in organic growth (~$800M in 2025). CEO O'Herlihy attributed this to "improvement in the quality of our portfolio from many years of thoughtful PLS, coupled with continuous improvement in the practice of the business model."
CBI Added to Long-Term Incentives (Scott Davis, Melius): The board added CBI yield as a key metric in long-term incentive plans, alongside margins, returns, and EPS growth — signaling strategic importance. Patent filings up 18% in 2024 and another 9% in 2025 are a leading indicator of future CBI contribution. CEO: "All the pieces are in place, and it's now a question of just building momentum."
China Growth Outlook (Tami Zakaria, JPM): China ($1.2B revenue, 8% of sales) expected to grow mid-to-high single digits in 2026. Automotive OEM in China up 12% for full year 2025, driven by EV penetration and Chinese OEM share gains. Other China strength: Test & Measurement up high single digits, Welding up mid-teens. Margins in China are "the same as everywhere else around the world."
Polymers & Fluids Strength (Sabrina Abrams, BofA): Q4 outperformance driven by: (1) Rain-X wiper blade new product launch in auto aftermarket, (2) China polymers gaining EV share with double-digit growth, and (3) biopharma reagents business up 20%+. CFO: "What you're seeing is more CBI, a little less PLS, and we're expecting more of the same in 2026."
January Trends (David Rosso, Evercore): January is "right on track" with expectations. Q1 organic growth will be positive but lower than Q2-Q4 due to typical seasonality. Revenue expected to decline ~$100M sequentially from Q4 to Q1 (normal pattern). Currency provides a Q1 tailwind that fades through the year.
Commercial Construction Bright Spot (Steven Fisher, UBS): Commercial construction (20% of Construction segment exposure) saw pickup from data centers, though management cautioned it's a small portion of the company. Residential renovation remains stuck with housing starts down mid-single digits. CFO: "Perhaps 2026 could be the year this really turns around — that's not included in our guidance."
Forward Catalysts and Risks
Catalysts to watch:
- Semiconductor cycle recovery — Semi-related businesses up mid-single digits in Q4, fab utilization improving, management sees "more than green shoots." Above-average incrementals when semi picks up.
- Customer-Back Innovation (CBI) tracking to 3%+ contribution by 2030 from current 2.4%. Now included in executive long-term incentive compensation.
- China EV market share gains — 70%+ position with Chinese OEMs, Auto OEM up 12% in China for full year 2025
- Margin expansion runway — Mid-to-high 40s incrementals now expected to be sustainable; 30% operating margin target by 2030
- Construction recovery — Potential inflection when housing markets stabilize; not included in guidance, would be upside
Risk factors:
- Tariff uncertainty — While 2025 tariffs were offset, new trade policies could create headwinds
- Construction weakness — 11th consecutive quarter of organic decline in construction segment
- Auto build volatility — Guidance incorporates lower Q1 2026 auto build forecasts
- FX exposure — Current guidance assumes present exchange rates
Ask Fintool AI AgentThe Bottom Line
Illinois Tool Works delivered another quarter of disciplined execution, beating on both lines while maintaining its streak of consistent outperformance. The 26.5% operating margin and 140 bps enterprise initiative contribution demonstrate the company's ability to drive profitability even in a challenging demand environment.
Key takeaways:
- ✅ Beat both EPS and revenue — 8th consecutive quarterly EPS beat
- ✅ Margin expansion continues — +30 bps YoY to 26.5%
- ✅ Enterprise initiatives delivering — 140 bps contribution in Q4
- ✅ Tariff impact fully offset — Pricing and supply chain actions effective
- ⚠️ 2026 guidance roughly in line — Midpoint slightly below consensus
- ⚠️ Construction remains weak — -4% organic, but margins still expanding
ITW remains a quintessential "quality compounder" — not flashy, but reliably delivering margin expansion and shareholder returns through disciplined execution on controllables. The 62nd consecutive dividend increase and path to 30% operating margins by 2030 support the long-term investment thesis.
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