ITW Illinois Tool Works 10-Q 2026-09-30 section summaries

Illinois Tool Works (ITW) — Q3 and nine months ended September 30, 2026

Performance and earnings

Q3 revenue increased 4.4% to $4.236B from $4.059B. Cost of revenue rose to $2.326B from $2.253B, while operating income increased to $1.177B from $1.112B. Net income was $855M versus $821M, and diluted EPS was $3.00 versus $2.81. Interest expense rose to $83M from $75M; other income increased to $37M from $12M.

For 9M 2026, revenue was $12.553B versus $11.951B, and cost of revenue was $6.985B versus $6.685B. Operating income rose to $3.344B from $3.131B; net income was $2.438B versus $2.276B, and diluted EPS was $8.49 versus $7.77. Interest expense was $235M versus $217M, and other income was $69M versus $28M. The 9M effective tax rate was 23.3% versus 22.7%; 2026 included a $34M Q1 discrete tax benefit, primarily from resolution of a U.S. tax audit. Q3’s tax rate was 24.4% versus 21.8%, with prior-year rates affected by discrete tax items.

Q3 segment results

Growth in revenue and operating income was led by Test & Measurement and Electronics, Welding, and Polymers & Fluids. Automotive OEM revenue and profit declined; Construction Products and Specialty Products also had lower profit. Segment revenue totaled $4.240B versus $4.065B, with intersegment revenue of $4M versus $6M deducted to reconcile to consolidated revenue of $4.236B versus $4.059B. Segment operating income totaled $1.222B versus $1.138B; unallocated costs were $(45)M versus $(26)M, reconciling to consolidated operating income of $1.177B versus $1.112B.

Balance sheet, debt, and cash flows

At September 30, 2026, total assets were $16.497B (December 31, 2025: $16.148B) and stockholders’ equity was $3.142B (from $3.226B). Goodwill was $5.073B (from $5.098B), and intangible assets other than goodwill were $543M (from $591M). Equity less goodwill and other intangible assets implies tangible common equity of negative $2.474B. Cash and equivalents were $809M, down from $851M.

Total debt, on a carrying-value basis, was $9.372B, up from $8.969B: short-term debt was $2.219B versus $2.286B, and long-term debt was $7.153B versus $6.683B. Short-term debt included $369M of commercial paper (down from $1.3B), $1.0B of 2.65% notes due November 2026, and $850M under the Euro Credit Agreement, reclassified as short-term in Q3. ITW issued $1.5B of 4.65% notes due August 2029 at 99.748% of face value, using proceeds to repay commercial paper. Long-term debt including current maturities had a $8.497B fair value versus $9.003B carrying value. A new $3.0B revolving facility maturing in February 2031 replaced the prior facility; neither had borrowings at the reported dates.

For 9M, operating cash flow was $2.299B versus $2.163B, and capital expenditures (plant and equipment additions) were $289M versus $314M; operating cash flow less capex was $2.010B versus $1.849B. Dividends paid were $1.386B versus $1.318B, and repurchases were $1.312B versus $1.125B. Cash interest paid was $254M versus $243M. Shares outstanding fell from 288.6M at December 31, 2025 to 284.2M at September 30, 2026; diluted weighted-average shares were 285.3M versus 291.7M in Q3 and 287.1M versus 293.0M for 9M. Stock-based compensation expense was $60M versus $52M for 9M.

Other developments and exposures

In September 2026, the IRS issued a Notice of Deficiency concerning 2018–2021, assessing $23M of additional taxes plus interest and penalties and disallowing $47M of refund claims; potential taxes for subsequent years total $148M. ITW plans to petition U.S. Tax Court and believes it will prevail, but the outcome is uncertain. The 2025 acquisition in Test & Measurement and Electronics cost $120M; purchase-price allocation was completed in Q3 2026, and the acquisition was not material.

Euro-denominated debt designated as a net-investment hedge had a $4.8B carrying value at September 30. Currency movements produced pretax OCI gains of $39M in Q3 and $176M for 9M, versus $23M and a $584M loss, respectively, in 2025. AOCI was a $1.718B loss, including $1.5B of after-tax cumulative translation losses. Annual goodwill and indefinite-lived intangible impairment assessments resulted in no charges in 2026 or 2025.

ITW — Q3 and first nine months of 2026

Consolidated performance

For the quarter ended September 30, 2026, revenue was $4.236B, up 4.4% from $4.059B; for the first nine months (9M), revenue was $12.553B, up 5.0% from $11.951B. Organic growth was 3.8% in Q3 and 2.9% in 9M, with acquisitions adding 0.3% in each period. Currency added 0.3% in Q3 and 1.8% in 9M, while product-line simplification (PLS) reduced organic growth by 0.4 and 0.6 percentage points, respectively.

Operating income increased to $1.177B from $1.112B in Q3 and $3.344B from $3.131B in 9M. Operating margin expanded 40 basis points to 27.8% in Q3 and 40 basis points to 26.6% in 9M. Enterprise initiatives and positive operating leverage supported margins; favorable price/cost also helped in Q3. Higher overhead, particularly employee-related costs, partly offset these benefits. Restructuring and currency also contributed to operating-income growth.

Cost of revenue was $2.326B from $2.253B in Q3 and $6.985B from $6.685B in 9M. It declined as a share of revenue to 54.9% from 55.5% in Q3 and to 55.6% from 55.9% in 9M, reflecting initiative benefits partly offset by higher employee costs. Selling, administrative and R&D expense was $717M from $676M in Q3 and $2.174B from $2.075B in 9M. Intangible amortization and impairment was $16M from $18M in Q3 and $50M from $60M in 9M, mainly as certain intangibles became fully amortized.

Diluted EPS was $3.00 in Q3, up 6.8%, and $8.49 in 9M, up 9.3%. 9M net income was $2.438B, up from $2.276B. The effective tax rate was 24.4% versus 21.8% in Q3 and 23.3% versus 22.7% in 9M; the 2026 9M rate included a $34M discrete benefit, primarily from resolving a U.S. tax audit.

Segment results

Q3 revenue and operating income, with prior-year comparisons:

Segment operating income totaled $1.222B from $1.138B; unallocated expense of $45M from $26M reconciled this to consolidated operating income. Higher employee-related costs contributed to the increase in unallocated expense.

Test & Measurement and Electronics was the strongest growth contributor: Q3 organic revenue rose 15.8%, led by electronics and semiconductor demand; electronics assembly alone grew 86.0%. Welding and Polymers & Fluids also delivered broad growth and margin gains. Welding’s Q3 margin benefited partly from an insurance recovery related to severe weather. Food Equipment’s service growth offset weaker equipment demand, particularly in North American institutional and restaurant markets. Automotive OEM declined broadly in line with global auto builds, while Construction Products faced weaker residential demand. Specialty Products was mixed: Q3 equipment sales fell 15.1% while consumables grew 3.2%; PLS reduced its organic revenue by 1.3 percentage points in Q3. Across segments, employee costs were a recurring pressure, while enterprise initiatives supported margins.

Cash flow, capital allocation and liquidity

Q3 operating cash flow was $953M from $1.021B, capital expenditures $102M from $117M, and free cash flow $851M from $904M. For 9M, operating cash flow was $2.299B from $2.163B, capital expenditures $289M from $314M, and free cash flow $2.010B from $1.849B. Dividends paid were $458M from $438M in Q3 and $1.386B from $1.318B in 9M.

Share repurchases were $187M in Q3 from $375M and $1.312B in 9M from $1.125B. ITW repurchased 0.7M shares at an average $278.04 in Q3 and 5.0M at $262.89 in 9M. At quarter-end, $678M remained under the 2023 authorization; a new $6.0B authorization approved in August remained unused.

Cash and equivalents were $809M, with no borrowings under the $3.0B revolving facility. Total debt was $9.372B, up from $8.969B at year-end 2025, comprising $2.219B short-term and $7.153B long-term. In August, ITW issued $1.5B of 4.65% notes due 2029, using proceeds to repay commercial paper. Trailing-12-month EBITDA was $4.829B, and total debt/EBITDA was 1.9x. Interest expense rose to $83M from $75M in Q3 and $235M from $217M in 9M.

Strategy and risks

ITW’s 2024–2030 strategy prioritizes at least 4% high-quality organic growth through the cycle, using its 80/20 operating model, customer-led innovation and decentralized execution. Strategic sourcing has reduced spend by an average 1% annually since 2013. North America led geographic organic growth (6.0% Q3); EMEA declined 0.4%, and China declined 2.3% against strong prior-year comparisons.

Tariff policy remains uncertain following 2025 actions, the February 2026 Supreme Court decision invalidating many IEEPA tariffs and subsequent replacement tariffs. ITW expects local manufacturing and price recovery to mitigate direct exposure, but demand could weaken. Other cited risks include economic, geopolitical and market deterioration; foreign exchange, inflation, interest rates and input costs; execution of growth initiatives and acquisitions; financing, pension and impairment exposures; cybersecurity, privacy, legal, tax, environmental and regulatory matters. ITW warns that its risk list is not exhaustive and refers investors to its FY2025 Form 10-K.

Market Risk

The section reports no market-risk metrics or new developments. For quantitative and qualitative market-risk disclosures, it refers readers to the Company’s 2025 Form 10-K, Part I, Item 7A. Details on outstanding debt and the net investment hedge are provided in Notes 9 and 10, respectively, of the current filing.

Disclosure controls and internal control over financial reporting

Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2026. No changes to internal control over financial reporting during the quarter were identified as having materially affected, or being reasonably likely to materially affect, those controls.

This section reports no financial metrics or other material business developments.

Risk Factors

ITW reported no material changes to the risk factors disclosed in its 2025 Form 10-K. This section identifies no new specific risks or financial metrics. The company’s actual business, financial condition, operating results, and cash flows remain subject to risks that could cause them to differ materially from recent results or anticipated results.

No legal proceedings were reported. For environmental proceedings involving a governmental authority and potential monetary sanctions, ITW’s disclosure threshold is $1 million.