Illinois Tool Works NYSE: ITW reported record second-quarter operating income as growth accelerated in several capital-expenditure-related businesses, prompting the company to raise its full-year organic growth and earnings outlook.
Chief Executive Officer Chris O'Herlihy said the company generated 4.5% organic growth in the second quarter, expanded operating margin to 26.7%, and increased GAAP earnings per share 10% to $2.84. Operating income rose 7.4% to $1.15 billion, which O'Herlihy described as the most profitable quarter in the company's history.
Total revenue increased 6.1%, including 4.5% organic growth, a 1.4% benefit from foreign currency translation, and a 0.2% contribution from an acquisition, according to Chief Financial Officer Michael Larsen.
CapEx, Semiconductor Businesses Lead Growth
ITW's strongest second-quarter growth came from businesses tied to capital spending and semiconductor production. Welding posted 14% organic growth, while Test & Measurement and Electronics grew 10%. Polymers and Fluids recorded 7% organic growth.
Within Test & Measurement and Electronics, electronics revenue climbed 21%. Larsen said the principal drivers were electronic assembly operations serving the printed circuit board market and semiconductor-related operations serving chip manufacturers. He said the businesses have expanded capacity, differentiated product portfolios, and customer-facing capabilities that have enabled them to capture demand and gain share.
Welding generated record revenue, with equipment sales rising 19%. North America, which represents roughly 85% of the segment, grew 19% amid broad-based demand across industrial and commercial markets, including infrastructure, energy, aerospace and defense. The segment's operating margin remained 32.4%.
Larsen said order growth continued to exceed revenue growth in both welding and Test & Measurement and Electronics, resulting in somewhat more backlog than normal for ITW. However, he said the company generally does not carry a large backlog and bases its forecasts primarily on current run rates and customer feedback.
“We’re very confident going into the back half of the year based on what we see in terms of the order rates, based on what we hear from our customers,” Larsen said.
A storm damaged one manufacturing facility and one warehouse at two ITW welding locations in Appleton, Wisconsin, shortly before the call. Larsen said all employees were safe and accounted for, contingency plans were being executed, and the company did not expect a material effect on its guidance.
Innovation Contribution Builds
Management highlighted Customer-Back Innovation, or CBI, as a key contributor to first-half results. CBI contributed 3% to revenue growth in the first half, up from 2.4% for full-year 2025.
O'Herlihy said sustaining a CBI contribution above 3% is central to ITW's objective of generating enterprise organic growth of 4% or more over time. He said the company launched its innovation framework in the second half of 2024 and has implemented it across divisions and segments.
Management measures CBI as incremental revenue from products introduced during the prior three years, net of any cannibalization of existing products. O'Herlihy said it is also one of four long-term performance metrics used in employee compensation.
Polymers and Fluids was a notable beneficiary of the initiative, with CBI contributing nearly 5% in the segment during the quarter, according to O'Herlihy. The segment's 7% organic growth included 7% growth in automotive aftermarket, 7% growth in polymers, and 8% growth in fluids. Its operating margin expanded 160 basis points to a record 29.3%.
Margins Expand Despite Price-Cost Timing Effects
Companywide operating margin rose 40 basis points from a year earlier to 26.7%, aided by 120 basis points from enterprise initiatives. Price increases exceeded higher raw-material costs in dollar terms, Larsen said, though the timing lag between inflation and pricing actions reduced margin by 40 basis points in the quarter.
The company cited inflation in crude-oil derivatives such as resins and chemicals, along with logistics, freight and electronic components. Larsen said ITW expects to recover the margin effect over time through pricing, productivity and strategic sourcing efforts. Resin and crude-oil prices were trending lower in the third quarter while price increases were moving through, he said.
Among other segments, Automotive OEM revenue was roughly flat organically, with North America and China each up 1% and Europe down 5%. The segment's operating margin improved 30 basis points to 21.6%. Food Equipment was flat organically, as 5% service growth offset a 2% decline in equipment revenue. ITW expects Food Equipment organic growth and margins to improve in the second half.
Construction Products posted 2% organic growth, its highest rate in four years, while Specialty Products revenue rose 3%, including 2% organic growth. Specialty Products margin faced the company's largest price-cost headwind during the quarter, Larsen said.
Full-Year Outlook Raised Again
ITW raised its 2026 organic growth forecast to 3% to 4%, from a prior range of 1% to 3%. The new midpoint of 3.5% represents a 1.5-percentage-point increase from prior guidance and implies 4.5% organic growth during the second half, management said.
- GAAP EPS guidance was raised by $0.15 to $11.35 to $11.55, with a midpoint of $11.45.
- Operating margin guidance was maintained at 26.5% to 27.5%.
- Free cash flow conversion is expected to exceed 100% of net income.
- Full-year share repurchases are projected at about $1.5 billion.
ITW bought back $750 million of stock during the second quarter, or about 1% of its outstanding shares, at an average price of $255 per share. The company said it pulled forward repurchases that had originally been planned for the third quarter. ITW also returned more than $1.2 billion to shareholders during the quarter through dividends and repurchases.
Larsen said the company has not included any material potential tariff refunds in its updated outlook.
About Illinois Tool Works (NYSE:ITW)
Illinois Tool Works Inc (ITW) is a diversified industrial manufacturer that designs and produces a broad array of engineered products, consumables and related service solutions for industrial customers. Its offerings span engineered fastening systems, specialty components, industrial equipment, welding products, foodservice and packaging equipment, adhesives and polymer products, and test-and-measurement technologies. These products are used as critical inputs by customers across automotive, construction, electronics, foodservice, maintenance and other industrial end markets.
The company operates a decentralized business model in which independently managed businesses focus on niche product lines and close customer relationships.
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