Manufacturing company Illinois Tool Works (NYSE:ITW) announced better-than-expected revenue in Q2 CY2025, but sales were flat year on year at $4.05 billion. Its GAAP profit of $2.58 per share was 0.8% above analysts’ consensus estimates.
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Illinois Tool Works (ITW) Q2 CY2025 Highlights:
- Revenue: $4.05 billion vs analyst estimates of $4.02 billion (flat year on year, 0.9% beat)
- EPS (GAAP): $2.58 vs analyst estimates of $2.56 (0.8% beat)
- Adjusted EBITDA: $1.16 billion vs analyst estimates of $1.15 billion (28.7% margin, 1.5% beat)
- EPS (GAAP) guidance for the full year is $10.45 at the midpoint, beating analyst estimates by 1.4%
- Operating Margin: 26.4%, in line with the same quarter last year
- Organic Revenue was flat year on year, in line with the same quarter last year
- Market Capitalization: $74.88 billion
StockStory’s Take
Illinois Tool Works navigated a mixed second quarter, with flat organic sales masking notable differences across its business segments. Management cited strong execution on pricing actions to offset tariffs and highlighted sequential improvement in both revenue and operating income compared to the prior quarter. CEO Chris O’Herlihy pointed to "meaningful strategic progress" and emphasized the company’s ability to control margin drivers, while CFO Michael Larsen acknowledged that some price increases were "modestly margin dilutive" in the quarter. Strength in Asia Pacific and key product lines was offset by ongoing weakness in consumer-oriented and construction markets.
Looking ahead, Illinois Tool Works’ updated full-year guidance is underpinned by expectations for stronger pricing realization, easier year-over-year comparisons, and continued progress on enterprise initiatives such as product line simplification and customer-backed innovation. Management projects all seven segments to grow revenue and improve margins in the second half, with particular optimism around the automotive business in China and the welding segment. CFO Michael Larsen stated, “We expect reasonable organic growth with strong incrementals,” while O’Herlihy stressed the importance of “consistent execution on our long-term enterprise strategy” to manage uncertainty and volatility.
Key Insights from Management’s Remarks
Illinois Tool Works’ management attributed second quarter performance to disciplined pricing, margin-focused initiatives, and varied demand across end markets, while raising guidance based on improved auto sector forecasts and foreign exchange tailwinds.
- Automotive Outperformance in China: Management noted double-digit growth in China’s automotive segment, driven by new product introductions targeting the electric vehicle market and increased content per vehicle. This was a major contributor to overall Asia Pacific growth and is expected to sustain momentum into the second half of the year.
- Enterprise Initiatives Drive Margins: The company’s enterprise initiatives, which include operational efficiency programs and product line simplification (PLS), delivered 130 basis points of operating margin improvement in Q2, helping offset margin pressure from tariffs and flat organic revenue trends.
- Pricing Actions Offset Tariffs: While pricing actions more than covered incremental tariff costs, CFO Michael Larsen cautioned that these actions were "modestly margin dilutive" in the quarter but resulted in positive earnings per share impact. Management expects to recover the margin impact over time as cost structures adjust.
- Divergent Segment Momentum: While segments like Welding and Food Equipment demonstrated growth through new product launches and demand from institutional and industrial end markets, consumer-oriented businesses such as Construction Products and polymers experienced ongoing headwinds due to macroeconomic pressures and interest rate sensitivity.
- Positive Signs in Capital Equipment: Late-quarter order activity in Test & Measurement and Electronics improved, especially for semiconductor-related products, with management highlighting better order flow and a more favorable outlook for capital spending in these verticals.
Drivers of Future Performance
Illinois Tool Works’ outlook for the remainder of the year centers on sustained execution of pricing, continued innovation, and geographic and sector diversification to offset macroeconomic headwinds.
- Automotive Strength in Asia: Management anticipates the automotive segment—particularly in China—to continue outperforming industry builds, driven by customer-backed innovation and increased content per vehicle. The segment is projected to deliver above-market growth and maintain operating margins above 20%.
- Margin Expansion Initiatives: Ongoing enterprise initiatives are expected to contribute at least 100 basis points to operating margin in the second half, regardless of volume changes, while implemented pricing strategies are set to more than offset tariff impacts, supporting both profit growth and stability.
- Macro and End-Market Risks: Leadership acknowledged persistent weakness in consumer and construction-related markets, with headwinds from interest rates and global demand. While sequential improvement is expected, management remains cautious about external volatility and is not assuming a significant pickup in demand in its guidance.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will closely monitor (1) whether positive momentum in the automotive and welding segments continues, especially in China and other Asia Pacific markets; (2) the impact of enterprise initiatives and pricing strategies on operating margin improvement across all business lines; and (3) any signs of stabilization or recovery in construction and consumer-facing segments. Progress on capital equipment orders and further evidence of innovation-driven market share gains will be key markers for Illinois Tool Works’ ability to execute its strategy.
Illinois Tool Works currently trades at $256.89, in line with $259.27 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).
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