Illinois Tool Works (ITW) Q3 2026 Earnings Call: Q&A Summary

Q: Jamie Cook with Truth Securities asked about the price/cost headwind in the quarter compared to expectations, and what pricing actions are being taken in automotive and construction to improve margins.

A: Michael Larsen stated that price/cost was modestly favorable in the third quarter with raw material inflation in the 4% to 5% range, and expects full year price/cost to be neutral. Chris O'Herlihy added that the company is actively recovering price in auto and construction, while enterprise initiatives and innovation remain the primary margin drivers.

Q: Jamie Cook with Truth Securities asked a follow-up about where the biggest benefits of customer-backed innovation are being seen outside of auto and if momentum will improve into 2027.

A: Chris O'Herlihy answered that customer-backed innovation contributed over 3% and should incrementally improve next year, serving as the most actionable way to drive sustainable organic growth.

Q: Andrew Kaplowitz of Citigroup asked about backlog levels in CapEx-focused businesses and how that positions the company for 2027 against the 4% organic growth algorithm.

A: Michael Larsen explained that while they carry slightly more backlog than usual in welding, test and measurement, and food equipment, ITW remains a short-cycle business due to its 80/20 operating system. Chris O'Herlihy added that broad-based order activity in welding and test and measurement provides strong confidence going into 2027.

Q: Andrew Kaplowitz of Citigroup asked for more color on the sustainability of the 8% organic growth in Polymers and Fluids.

A: Chris O'Herlihy noted that growth is broad-based across automotive aftermarket, polymers, and fluids, driven by high-growth adhesive bonding applications and biopharma markets, positioning the segment as a consistent 4% plus grower.

Q: An analyst from JPMorgan asked about the underlying margins in welding in the third quarter once insurance offsets are excluded.

A: Michael Larsen stated that they expect welding margins to return to typical best-in-class levels in the 32% to 34% range.

Q: An analyst from JPMorgan asked if Polymers and Fluids margins can stay in the 30s or push higher.

A: Michael Larsen replied that while operating leverage might be slightly lower in the fourth quarter, margins for the segment remain very healthy.

Q: Steven Fisher with UBS asked if higher interest rates and financing costs are impacting large commercial dishwashers or other products within Food Equipment.

A: Michael Larsen responded that interest rate sensitivity is mainly concentrated in construction and automotive, while Food Equipment and industrial businesses show strong underlying demand, noting that automotive significantly outperformed build rates in North America and China.

Q: Steven Fisher with UBS asked about regional momentum and expectations, specifically whether Europe can hold flat and if North America will accelerate.

A: Michael Larsen stated that North America is the fastest-growing region at 6% and momentum is expected to continue, whereas Europe remains flat with limited improvement expected, and China has slowed down into low single-digit declines.

Q: Nicole DeBlase of Deutsche Bank asked what drives flat sequential margins in the fourth quarter given the absence of the welding insurance gain and lower polymer margins.

A: Michael Larsen explained that sequential revenue growth of 1% to 2% and enterprise initiative contributions over 100 basis points will support year-over-year margin improvement and defy typical seasonality.

Q: Nicole DeBlase of Deutsche Bank asked about the sustainability of the 31% organic growth in electronics into the fourth quarter and 2027.

A: Chris O'Herlihy answered that the growth is very sustainable based on strong customer order activity for semi and electronics to meet the growing needs of artificial intelligence.