ITW · Q2 2026 Earnings

Bullish

Illinois Tool Works

Reported July 28, 2026

30-second summary

30-second take: ITW put up Q2 revenue of $4.30B (+6.1% YoY reported), beat consensus by 2.7%, delivered organic growth of 4.5% — a step-change from Q1's 0.4% — and raised FY2026 EPS guidance by another $0.15 to $11.35–$11.55 while lifting organic growth guidance by 1.5 percentage points to 3–4%. The capex-exposed segments flagged last quarter now validated in the organic print (T&M/Electronics organic +10.0%, welding organic +13.9%), operating margin expanded 40bps YoY to 26.7% (inside the FY range), and the range narrowing on EPS (from $0.40 to $0.20 spread) signals hardened execution conviction. The bear tell: FCF conversion of 77% remains well below the >100% FY target, and Automotive OEM organic of −0.4% suggests the China rollover is real.

Headline numbers

EPS

Q2 FY2026

$2.84

+1.4% vs est.

Revenue

Q2 FY2026

$4.30B

+6.1% YoY

+2.7% vs est.

Gross margin

Q2 FY2026

44.1%

Free cash flow

Q2 FY2026

$0.63B

Operating margin

Q2 FY2026

26.7%

Key financials

Q2 FY2026

Metric	Q2 FY2026	Q2 FY2025	YoY	Q1 FY2026	QoQ
Revenue	$4.30B	$4.05B	+6.1%	$4.02B	+7.1%
EPS	$2.84	$2.58	+10.1%	$2.66	+6.8%
Gross margin	44.1%	44.0%	+10bps	43.8%	+30bps
Operating margin	26.7%	26.3%	+40bps	25.4%	+130bps
Free cash flow	$0.63B	$0.45B	+40.5%	$0.53B	+19.5%

Guidance

ITW raised full-year FY2026 EPS guidance by $0.15 to $11.35–$11.55 (with tighter range), and raised organic and total revenue growth guidance by 1.5 percentage points, citing strong operational momentum and meaningful segment acceleration, while reaffirming margin and FCF targets.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
EPS (GAAP)	FY 2026	$11.10 to $11.50	$11.35 to $11.55	+$0.25 at midpoint (+2.3%); range narrowed by $0.10	Raised
Revenue	FY 2026	2% to 4%	4% to 5%	+1.5 percentage points at midpoint (from 3% to 4.5%)	Raised
Organic Revenue Growth	FY 2026	1% to 3%	3% to 4%	+1.5 percentage points at midpoint (from 2% to 3.5%)	Raised

Reaffirmed unchanged this quarter: Operating Margin (26.5% to 27.5%), Operating Margin Expansion (~100 basis points YoY (implied)), Enterprise Initiatives Contribution (100+ basis points (implied)), Free Cash Flow Conversion (>100% of net income), Share Repurchases ($1.5 billion), Effective Tax Rate (23% to 24%)

Segment KPIs

Q2 FY2026

Segment	Q2 FY2026	Q2 FY2025	YoY
Automotive OEM	$0.857B	$0.845B	+1.4%
Food Equipment	$0.692B	$0.68B	+1.8%
Test & Measurement and Electronics	$0.769B	$0.686B	+12.1%
Welding	$0.549B	$0.479B	+14.6%
Polymers & Fluids	$0.476B	$0.438B	+8.7%
Construction Products	$0.494B	$0.473B	+4.4%
Specialty Products	$0.468B	$0.455B	+2.9%

Other KPIs

Q2 FY2026

Segment	Q2 FY2026	Q2 FY2025	YoY
Organic Revenue Growth	4.5%	—	—
Operating Margin Expansion	40 bps YoY to 26.7%	—	—
Enterprise Initiatives Contribution	120 bps	130 basis points	—
Free Cash Flow Conversion Rate	77% of net income	—	—
Operating Cash Flow	$723 million	$550 million	—
Share Repurchases	$750 million	$375 million	—
Dividend Payments	$450 million (est.)	—	—
After-Tax Return on Average Invested Capital (Annualized)	29.7%	—	—

Management tone

Q3 2025 measured caution → Q4 2025 broad-based recovery posture → Q1 2026 bullish demand inflection narrative → Q2 2026 execution mode.

The capex-exposed segment recovery has now printed. Three quarters ago T&M/Electronics organic growth was minimal and management was defensive about capital equipment weakness. This quarter T&M/Electronics printed +10.0% organic and welding +13.9% organic, with the press release citing "meaningful acceleration in our capex-related segments, led by double-digit organic growth in Welding and Test & Measurement and Electronics." The forward claim about a capex recovery is no longer speculative — it's in the organic numbers, and the guide has been raised to match. This is the single most important tone shift in the four-quarter arc.

Range narrowing signals a posture change from forecasting to executing. The EPS range compressed from $0.40 in Q1 to $0.20 in Q2, an unusually tight window for a mid-year guide at a diversified industrial. The press release language shifted to "strong operational momentum" and "well-positioned to drive consistent, above-market organic growth" — the phrase "above-market" is more assertive than any framing offered in the prior three quarters. Combined with the $0.25 cumulative EPS raise from the Q4 2025 initial guide, management is now signaling that FY2026 is a delivery quarter, not a probability distribution.

Enterprise initiatives quietly over-delivering. Q2 contribution was 120bps, above the ~100bps FY guide, and the raised FY guide language now points to enterprise initiatives contributing "more than 100 basis points." If Q3 and Q4 track at 120bps as well, the operating margin guide has structural buffer that hasn't been priced into the raised EPS midpoint.

Automotive is the one segment where the tone-print gap runs the other direction. Q2 auto organic came in at −0.4% — the only segment with negative organic growth. The press release did not call out China auto specifically, but the deceleration (the only segment with negative organic) is consistent with a China auto rollover. Watch whether this becomes a two-quarter drag on the aggregated organic growth ramp.

Answers to last quarter's watch list

Q2 organic growth print versus the capex-recovery claim. Organic came in at 4.5% — well above the 1.5% threshold set for validation, and more than triple Q1's 0.4%. T&M/Electronics organic (+10.0%) and welding organic (+13.9%) delivered the double-digit growth management had telegraphed. The FY organic growth guide was raised from +1–3% to +3–4%, decisively resolving the H2 ramp question. Status: Resolved positively

Q2 operating margin recovery toward the FY floor. Q2 landed at 26.7%, inside the 26.5–27.5% FY range. YoY expansion was 40bps. The margin guide range was reaffirmed unchanged, which combined with enterprise initiatives running at 120bps versus the 100bps guide implies buffer into H2. Status: Resolved positively

FCF conversion recovery. Q2 conversion of 77% is materially better than the year-ago Q2 (59%) but remains well short of the >100% FY commitment. H1 conversion tracks at 73%, meaning H2 needs sustained conversion well above 100% to hit the FY target — achievable but requires meaningful cash-quality acceleration. Status: Continue monitoring

Automotive OEM China trajectory. Automotive segment organic growth was −0.4% in Q2 — the only negative organic print in the portfolio. The China auto rollover the company had been telegraphing is now confirming in the segment print. Status: Resolved negatively

M&A pipeline disclosure. No M&A announcement on the print. YTD buyback of $750M is on pace with the $1.5B FY commitment, which was reaffirmed. Continued silence — with 2x leverage capacity still sitting unused — hardens the signal that valuations remain the gating issue. Status: Continue monitoring

What to watch into next quarter

Whether Q3 organic sustains above 3.5%. The raised FY organic guide of +3–4% requires H2 average organic in the mid-3s (with Q1 0.4% + Q2 4.5% averaging 2.5% in H1). A Q3 print below 3% would put the raised FY guide back in the low-end-trending pattern; sustained 4%+ would suggest the +3–4% range is conservative and set up another raise in October.

Automotive OEM re-acceleration or further deceleration. Q2's −0.4% organic is the outlier in an otherwise broad-based positive-organic portfolio. A Q3 organic print materially more negative would confirm China auto has structurally rolled over, forcing organic guide dependencies to shift heavier onto capex-exposed segments. A return to positive organic would suggest Q2 was a comp-driven trough.

Operating margin path toward the FY 26.5–27.5% midpoint. Q2 at 26.7% is inside the range but only 20bps above the floor. Sustained margin above 27% in H2 — supported by enterprise initiatives tracking 120bps rather than the guided 100bps — would validate the mid-to-high 40s incremental margin structural claim; sustained sub-27% with organic at 3.5%+ would call the incremental margin story into question.

FCF conversion in Q3 and cumulative H2 print. Needs to average well above 100% across Q3 and Q4 to land at the >100% FY commitment. Q3 conversion below 100% would force an FCF guide cut by year-end.

M&A announcement or explicit softening of M&A language. Continued quarters of silence with unused leverage. Either a deal announcement — which would resolve the capital allocation question favorably — or explicit acknowledgment that valuations remain prohibitive would clear the ambiguity. Continued silence into Q3 becomes a soft-signal that buybacks are the default channel through 2026.

Sources

ITW Q2 2026 press release: https://www.sec.gov/Archives/edgar/data/49826/000004982626000047/a20260630-2q26ex991pressre.htm

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