Illinois Tool Works (ITW) Q3 2026 Earnings: Electronics Up 30.5%, Pricing Beats Inflation

Illinois Tool Works (ITW) Q3 2026 earnings showed faster growth in its capital-spending businesses and pricing that caught up with raw material inflation at the company level, according to the third-quarter 2026 results release (quarter ended September 30) published on October 27, 2026 [1]. Earlier research on ITW focused on four questions: whether semiconductor and electronics assembly demand was a one-quarter spike, whether Welding orders could keep producing double-digit growth after a storm, whether price increases could catch up with inflation, and whether North American food equipment demand could turn positive. In the third quarter, Test & Measurement and Electronics grew 15.8% organically and its operating margin rose to 28.7% [2]. The company-level net effect of price versus cost moved from a second-quarter drag to a 40-basis-point contribution to operating margin [2]. Management said Welding demand remained strong, but a tornado reduced revenue by about $40 million [1]. In Food Equipment, the decline in North American equipment narrowed to 6.9%, and the business has not yet turned positive [2]. Overall, the quarter strengthens the view on growth and margins. Third-quarter margin, however, includes an undisclosed insurance recovery, and price catch-up in Automotive OEM and Construction Products is not complete.

ITW is a diversified industrial manufacturer with about 88 divisions grouped into seven reporting segments, selling equipment and consumables to automotive, food service, electronics, construction and general industrial customers [2]. The company uses its 80/20 process to concentrate on core customers and raises margins through enterprise initiatives [2]. Third-quarter revenue was $4.24 billion, up 4.4% year over year, and operating income was a quarterly record of $1.18 billion [1].

Semiconductor and electronics assembly demand accelerated again

Growth in the Test & Measurement and Electronics segment sped up further in the third quarter. Segment organic growth was 15.8%, up from 10.0% in the second quarter. Electronics grew 30.5%, the electronics assembly businesses that serve the printed circuit board industry grew 86.0%, and the test and measurement businesses grew 8.1% [2]. Management said orders continue to outpace revenue by a wide margin and attributed demand to customers adding fab and circuit board capacity for AI [3].

Higher volume turned into higher profit. Segment revenue was $819 million, up 17.3%, with 1.8 percentage points coming from an acquisition completed in October 2025 [2]. Segment operating margin rose 330 basis points to 28.7%, driven mainly by 370 basis points of operating leverage, meaning higher volume spread over fixed costs, while the acquisition diluted margin by 60 basis points [2]. Orders and backlog were not quantified, the AI attribution comes from management, and the very high electronics assembly growth rate starts from a low 2025 base.

Pricing caught up with inflation company-wide, but lags moved to Auto and Construction

The company-wide net effect of price versus cost turned favorable in the third quarter. Operating margin was 27.8%, up 40 basis points, with enterprise initiatives contributing 130 basis points, operating leverage 80 and price/cost 40 [2]. In the second quarter this item was a 40-basis-point drag, and management then expected the lag to continue partly into the third quarter. The CFO estimated raw material inflation at about 4% to 5% but did not quantify the price/cost basis points on the call [3].

Pricing progress varied by segment. Automotive OEM margin fell 170 basis points to 20.1%, including a 100-basis-point price/cost drag, and Construction Products margin also fell 170 basis points to 29.9% [2]. ITW raised its full-year GAAP EPS guidance to $11.45 to $11.55 but kept its operating margin guidance at 26.5% to 27.5% [1]. Management expects fourth-quarter margin in the mid to high 27s [3].

The tornado disrupted Welding deliveries, and insurance lifted margin

The tornado distorted Welding's third-quarter figures. Damage to two facilities reduced revenue by about $40 million, and the company estimates Welding organic growth would have been about 15% excluding that impact [1]. As reported, Welding organic growth was 6.9%, equipment grew only 5.2%, and North America grew 7.7% [2]. Management said operations have been restored, order growth is running well ahead of revenue, and it expects Welding to return to strong growth in the fourth quarter [3].

Welding's 36.3% operating margin should not be treated as normal. The 10-Q states that the 370-basis-point year-over-year increase was primarily due to an insurance recovery related to the severe weather event [2], and management expects margins to return to a 32% to 34% range [3]. The insurance amount was not disclosed.

Conclusion

The quarter strengthens the view on growth and profit conversion: growth is concentrated in the two capital-spending segments, and pricing has caught up with inflation at the company level [2]. Cash generation still needs confirmation. Third-quarter free cash flow was $851 million, or 100% of net income, but year-to-date conversion was only 82% [1], so the full-year goal of about 100% requires working capital to be released in the fourth quarter. ITW's full-year guidance implies fourth-quarter organic growth of 5% or more [3], without support from insurance recoveries. The next quarter will test whether Electronics keeps growing at a high rate, whether Welding returns to double digits, and whether Automotive OEM and Construction Products recover price.

Sources

[1] ITW 8-K filed 2026-10-27 Exhibit 99.1 (3Q26 press release), 2026-10-27, Illinois Tool Works Form 8-K exhibit, https://www.sec.gov/Archives/edgar/data/49826/000004982626000057/a20260930-3q26ex991pressre.htm

[2] ITW 10-Q filed 2026-10-28 · Item 2 MD&A (3Q26), 2026-10-28, Illinois Tool Works Form 10-Q, https://www.sec.gov/Archives/edgar/data/49826/000004982626000060/itw-20260930.htm

[3] ITW 3Q26 earnings call 2026-10-27 · transcript (Drillr earning_call_summary.content), 2026-10-27, earnings call transcript