Illinois Tool Works Inc. (NYSE:ITW) stock traded lower Tuesday after the industrial manufacturer reported third-quarter 2026 results that topped earnings expectations but fell short of revenue estimates. The company also raised its full-year guidance.
Earnings Beat, Revenue Misses Estimates
Illinois Tool Works reported third-quarter earnings of $3 per share, up 6.8% year over year and above the analyst estimate of $2.97.
Revenue rose 4.4% to $4.236 billion, missing the consensus estimate of $4.259 billion. Organic revenue increased 3.8%, driven by 6% growth in North America.
Operating income climbed 5.9% to a quarterly record of $1.18 billion, while operating margin expanded 40 basis points to 27.8%.
Enterprise initiatives contributed 130 basis points to operating margin, while pricing actions and other measures more than offset higher raw material costs.
After-tax return on invested capital improved to 30.3% from 29.8% a year earlier.
“Overall, price/cost was favorable in the third quarter, but as you can see in a few segments such as Automotive OEM and Construction Products, we have some catching up to do,” CEO Christopher A. O’Herlihy said during the company’s earnings call.
Welding and Electronics Fuel Growth
Test & Measurement and Electronics revenue jumped 17% to $819 million, supported by 16% organic growth. Welding revenue increased 7% to $513 million.
Polymers & Fluids revenue rose 8% to $477 million, while Food Equipment revenue increased 1% to $698 million.
Management said improving demand was broad-based rather than concentrated in a single customer or product category.
“What’s also encouraging is that in Welding and Test & Measurement, the growth is pretty broad-based,” O’Herlihy said.
The company identified artificial intelligence-related semiconductor investments as a key demand driver for its electronics business.
“I mean these customers are working very hard to increase fab capacity, produce printed circuit boards and meet the growing needs of AI,” O’Herlihy said.
Welding orders also continued to outpace shipments, supporting expectations for stronger growth.
“With welding order growth running well ahead of revenue, we expect welding to return to strong growth again in the fourth quarter and carry good momentum into next year,” he said.
Meanwhile, Automotive OEM revenue declined 2% to $814 million. Construction Products revenue was roughly flat at $472 million, while Specialty Products revenue fell 1% to $447 million.
A tornado that affected two Welding facilities reduced third-quarter revenue by an estimated $40 million. Excluding the disruption, Welding organic revenue would have grown approximately 15%.
The company expects the disruption’s future impact to be immaterial.
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Cash Flow and Shareholder Returns
Illinois Tool Works generated $953 million in operating cash flow during the quarter, while free cash flow totaled $851 million, representing 100% of net income.
The company ended the quarter with $809 million in cash and $9.372 billion in total debt.
ITW repurchased $1.3 billion in shares year to date and increased its dividend by 7%, marking its 63rd consecutive annual dividend increase.
ITW Raises 2026 Earnings and Sales Guidance
Illinois Tool Works raised its 2026 GAAP earnings guidance to $11.45 to $11.55 per share, compared with its previous forecast of $11.35 to $11.55. Analysts expect earnings of $11.43 per share.
The company also increased its full-year revenue forecast to $16.766 billion to $16.926 billion, up from its previous range of $16.686 billion to $16.846 billion. The consensus revenue estimate stands at $16.817 billion.
ITW maintained its organic revenue growth forecast of 3% to 4%, implying fourth-quarter organic growth of more than 5%.
The company continues to expect a full-year operating margin of 26.5% to 27.5%.
Management also expressed optimism about demand trends heading into 2027, particularly in Welding and Test & Measurement and Electronics.
“Looking ahead to 2027—and with the caveat that we haven’t developed our annual plans yet—demand momentum continues to build across several of our end markets, notably in Welding and Test & Measurement and Electronics,” O’Herlihy said.
ITW Price Action: Illinois Tool Works shares were down 0.26% at $275.50 at the time of publication on Tuesday, according to Benzinga Pro data.
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