ITW 2025-26: 27.7% Margin Q4, FY26 Op Margin 26.5-27.5%
FY25 revenue $16.04B (+1%); Op income $4.22B (-1%); NI $3.07B (-12% on FY24 tax base); EPS $10.49. Q4 revenue +4% / GAAP EPS +7% / segment margins 27.7% (+120bp incl. 140bp from enterprise initiatives). Auto OEM margins +150bp to 21.1%. FY26 guide: revenue +2-4%, organic +1-3%, GAAP EPS $11-$11.20 (+7%), op margin +100bp to 26.5-27.5%, $1.5B buyback.
Key takeaways
- 27.7% segment margin in Q4 — best in industrial peer group. Enterprise initiatives (cost discipline + sourcing + process improvement) contributed 140bp of the 120bp YoY expansion. Persistent operating margin advantage vs other diversified industrials.
- Auto OEM segment outperforming category. Q4 +6% revenue, +2% organic; FY25 margin +150bp to 21.1%. ITW outperforming relevant build rates by 200-300bp expected for FY26. Differentiation: highly-engineered fastening + specialty components + automation systems.
- Demand recovery starting Q4. 4% sequential growth Q3 → Q4. Mgmt called it improvement after multi-quarter softness. FY26 organic +1-3% reflects modest recovery + continued mix improvement.
- FY26 guide implies +100bp op margin expansion. From 26.3% FY25 to 26.5-27.5% range. Driven by enterprise initiatives + sourcing + automation + portfolio mix toward higher-margin product lines.
- $1.5B buyback authorized for FY26. Continuation of the consistent capital return philosophy. FCF conversion remains best-in-class.
Business
Illinois Tool Works is a diversified industrial conglomerate operating 7 reporting segments through ~80 highly-decentralized business units. The model: small, focused niche businesses with deep customer intimacy + pricing power.
- Automotive OEM (~16% of revenue, ~21% margin): Engineered fastening + finishing + specialty components for car manufacturers. Outperforming relevant builds.
- Food Equipment (~17% of revenue): Commercial food prep + warewashing + ovens + specialty cooking. Service growing; equipment volume tied to restaurant/institutional cycle.
- Test & Measurement / Electronics (~14% of revenue): Instron testing systems + Brooks instruments + electronics assembly. Long-cycle capex.
- Welding (~12% of revenue): Welding equipment + consumables. Industrial cycle exposed.
- Polymers & Fluids (~11% of revenue): Specialty adhesives + sealants + lubricants for industrial + automotive aftermarket.
- Construction Products (~10% of revenue): Fasteners + anchors + power tools for residential + commercial construction.
- Specialty Products (~20% of revenue): Catch-all of niche businesses including consumer packaging + industrial appliances + medical equipment.
The model: 80% revenue / 80% earnings from market leadership positions. Pricing power + niche market dynamics drive structural margin advantage vs broader industrial peer set.
FY25 financial performance
| Metric (FY) | 2023 | 2024 | 2025 |
|---|---|---|---|
| Revenue ($B) | 16.11 | 15.90 | 16.04 |
| Gross profit ($B) | 6.68 | 6.94 | 7.08 |
| Op income ($B) | 4.04 | 4.26 | 4.22 |
| Op margin | 25.1% | 26.8% | 26.3% |
| EBITDA ($B) | 4.48 | 5.11 | 4.65 |
| Net income ($B) | 2.96 | 3.49 | 3.07 |
| Diluted EPS ($) | 9.74 | 11.71 | 10.49 |
| FCF ($B) | 3.08 | 2.84 | 2.71 |
| Capex ($M) | -455 | -437 | -419 |
| Total debt ($B) | 8.37 | 8.08 | 8.97 |
| Dividends ($B) | -1.62 | -1.70 | -1.79 |
| Buyback ($B) | -1.50 | -1.50 | -1.50 |
The earnings print:
- Revenue +1% YoY ($16.0B → $16.0B essentially flat) with organic + low-single-digit; price/mix net positive offset by FX + portfolio.
- Op margin slightly compressed to 26.3% on FY24 base normalization, but Q4 hit 27.7%.
- EPS dropped to $10.49 (vs $11.71 FY24) — the FY24 base had a tax benefit; underlying earnings power is stable.
Q4 segment performance:
- Auto OEM: +6% revenue (+2% organic, NA +2%, EU -1%, China +5%)
- Food Equipment: +4% revenue (+1% organic; equipment flat, service +3%)
- T&M / Electronics: continued recovery
- Welding: stable
- Polymers & Fluids: stable
- Construction Products: housing-cycle exposed, soft
- Specialty Products: stable
Capital allocation
- Capex: $-419M FY25 (2.6% of revenue). Consistent capital intensity.
- Dividends: $-1.79B FY25, +5% raise. ~58% payout ratio. Steady raise cadence.
- Buybacks: $-1.50B FY25, consistent with prior years. FY26: $1.5B authorized.
- M&A: Minimal organic dollars in FY25 deals. The strategy is selective bolt-ons.
- Debt: $8.97B (+$0.89B YoY) — modest expansion.
FY26 outlook (per Q4 2025 call, 2026-02-03)
| FY26 guide | Range |
|---|---|
| Total revenue | +2% to +4% |
| Organic revenue | +1% to +3% |
| GAAP EPS | $11.00 to $11.20 (midpoint +7%) |
| Operating margin | 26.5% to 27.5% (+100bp midpoint) |
| Buyback | $1.5B authorized |
| FCF conversion | Continued >100% of NI |
| Auto OEM outperformance | 200-300bp above relevant builds |
The +100bp operating margin guide is the headline — driven by enterprise initiatives. The Auto OEM 21.1% margin (+150bp FY25) is expected to expand further in FY26.
Key risks
- Industrial cycle: ITW is exposed to broad industrial demand. A meaningful recession would compress organic growth + margin.
- Auto cycle: Auto OEM 16% of revenue, 21% margin. Light-vehicle build rate softness (already showing in some regions) compresses segment.
- Construction cycle: Construction Products 10% of revenue exposed to housing.
- Commodity costs: Steel + plastics + chemicals input cost pass-through generally works but with lag.
- FX: International revenue ~50% of mix; EUR + JPY + CNY exposure.
- Tariff regime: Sourcing complexity given diversified portfolio; potential pass-through frictions.
Bottom line
ITW FY25 is the operating margin discipline + capital return year. Revenue +1%, op margin held in mid-26% with Q4 hitting 27.7% (best in peer group), GAAP EPS $10.49 normalized for FY24 tax base. FY26 guide +2-4% revenue + +100bp op margin + $11-$11.20 EPS + $1.5B buyback. The structural read: the 80% leadership-position model with enterprise initiatives + portfolio mix continues to compound margin even on flat revenue. Risks are cyclical (auto + construction + industrial) but managed through portfolio diversification.
Citations
- Illinois Tool Works Inc. FY25 Form 10-K (filed February 2026, SEC EDGAR).
- ITW Q4 2025 earnings call, 2026-02-03 — Q4 segment margin 27.7% (+120bp incl 140bp enterprise initiatives), Q4 demand recovery (+4% sequential), Auto OEM margin 21.1% (+150bp), FY26 guide (revenue +2-4%, organic +1-3%, GAAP EPS $11-$11.20, op margin +100bp to 26.5-27.5%, $1.5B buyback).
- Internal financial_statements view (consolidated annual + cash flow + capital return).