Good day, everyone, and thank you for joining us for today's ITW Third Quarter 2025 Earnings Webcast. During today's call, we will discuss ITW's third quarter financial results and provide an update on our outlook for full year 2025. For the third quarter, revenue increased 3%, excluding a 1% reduction related to our ongoing strategic product line simplification efforts. Organic growth was 1%, a solid performance relative to end markets that we estimate declined low single digits and a 1 percentage point improvement from our second quarter growth rate.
Focusing on the bottom line, we achieved GAAP EPS of $2.81, grew operating income by 6% to a record $1.1 billion, and significantly improved our operating margin by 90 basis points to 27.4%. Consistent with our long-term commitment to increasing annual cash returns to shareholders, on August 1, we announced our 62nd consecutive dividend increase, raising our dividend by 7%. Furthermore, I'm encouraged by the significant progress on our next phase strategic growth priorities. We remain laser-focused on making above-market organic growth powered by customer-backed innovation a defining ITW strength.
I will now turn the call over to Michael to discuss our third quarter performance and full year 2025 outlook in more detail. Starting with the top line, total revenue increased by more than 2%, driven in part by 1% organic growth, an improvement of a percentage point from Q2. Geographically, while North America organic revenue was flat and Europe was down 1%, Asia Pacific was a standout performer with a 7% increase, which included 10% growth in China. Our enterprise initiatives were particularly effective this quarter, contributing 140 basis points to a record operating margin of 27.4%, which expanded by 90 basis points year over year.
| Metric | Period | Current guidance |
|---|---|---|
| Organic growth | FY2025 | 0% to 2% (trending toward low end) (Maintained range, narrowed expectation toward low end) |
| Total revenue | FY2025 | Up 1% to 3% |
| EPS | FY2025 | Narrowed range (Narrowed; lower tax rate benefit not flowed through due to revenue trending lower) |
| Effective tax rate | FY2025 | 23% full year |
| Effective tax rate | Q4 2025 | 24% to 25% |
| Automotive OEM outperformance vs industry builds | FY2025 | 200 to 300 basis points |
| Metric | YoY | Note |
|---|---|---|
| Total revenue | Up ~2% (3% excluding 1% PLS reduction) | 1% organic growth plus 2% favorable foreign currency, partly offset by strategic product line simplification |
| Operating margin | Up 90 bps to 27.4% (record) | Enterprise initiatives contributed 140 basis points; pricing and supply chain actions more than covered tariff costs |
| GAAP EPS | Up 6% to $2.81 (ex prior year divestiture gain) | Operating income growth and margin expansion; effective tax rate of 21.8% aided by 2024 U.S. tax return filing benefit, partly offset by foreign tax audit settlement |
| Free cash flow | Up 15% to more than $900 million | Strong operational execution, 110% conversion |
| Automotive OEM operating margin | Up 240 bps to 21.8% | Strong organic growth and customer-backed innovation contribution |
| China revenue | Up 12% year to date | Automotive up 15%, test & measurement/electronics mid-teens, welding up 20% plus, fueled by customer-backed innovation and EV penetration with Chinese OEMs |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Enterprise initiatives driving margin | Consistently ~100 bps annually over the past decade | 140 bps contribution in the quarter; expected to continue in 2026 | Strengthening |
| Customer-backed innovation (CBI) | 2% contribution last year, doubled since 2018 | Trending 2.3% to 2.5% this year, on track for 3% plus by 2030 | Rising |
| Tariff and price/cost | Earlier-year exposure being mitigated | Price cost positive on dollar-for-dollar and margin basis; back to a more normal environment | Improving |
| Demand environment | Mixed/challenging | Choppy, with month-to-month swings; still challenging | Stable but soft |
| Product line simplification (PLS) | ~50 bps maintenance run rate long term | Slightly elevated this year, especially in specialty products repositioning | Elevated near term |