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Founded as a company of Chicago tool inventors in 1912, who were brought together through an ad in The Economist, ITW is now a global supplier of tools, parts, and equipment for manufacturers of everything from dishwashers to cars. Decades ago, the company was perhaps best known for inventing the self-drilling screw (the tip of which is shaped into a bit that digs into the surface it is being driven into—and is still commonly used in construction today). ITW prides itself on maintaining profitability even during the Great Depression. Today, the company operates through seven divisions: automotive, construction, food equipment, polymers and fluids, speciality products, testing and measurement products, and welding. Its longstanding motto, “You're never more than a few feet away from a product of ITW,” remains as true today as it was during the golden age of American manufacturing.

Q2 2026

Q1 2026

Q4 2025

Q2 2025

Q1 2025

Q4 2024

Illinois Tool Works (ITW): Company Profile, Stock Price, News, Rankings

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Illinois Tool Works

illinois tool works

Good morning. My name is Janine, and I will be your conference operator for today. At this time, I would like to welcome everyone to the ITW's Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Thank you. Erin Linehan, Vice President of Investor Relations, you may begin your conference.

Thank you, Janine. Good morning, and welcome to ITW's second quarter twenty twenty five conference call. Today, I'm joined by our President and CEO, Chris O'Hearlihy and Senior Vice President and CFO, Michael Larson. During today's call, we will discuss ITW's second quarter financial results and provide an update on our outlook for full year 2025. Slide two is a reminder that this presentation contains forward looking statements.

We refer you to the company's 2024 Form 10 ks and subsequent reports filed with the SEC for more detail about important risks that could cause actual results to differ materially from our expectations. This presentation uses certain non GAAP measures and a reconciliation of those measures to the most directly comparable GAAP measures is contained in the press release. Please turn to slide three, and it's now my pleasure to turn the call over to our President and CEO, Chris O'Harelihy. Chris?

Thank you, Aaron, and good morning, everyone. As you saw in our press release this morning, the ITW team outpaced underlying end market growth and delivered solid financial performance in the second quarter. Total revenue increased 1% as foreign currency translation increased revenue by 1% while product line simplification or PLS accounted for a 1% reduction. We achieved GAAP EPS of 2.58 operating income of $1,100,000,000 and operating margin of 26.3%, which are all second quarter records. We continue to execute well in controlling the controllables as evidenced by enterprise initiatives, which contributed 130 basis points to operating margin and pricing actions that more than offset the tariff cost impact in the quarter.

Furthermore, I am very encouraged by the meaningful strategic progress we made in the first half of the year, diligently advancing our next phase growth priorities to make above market organic growth powered by customer back innovation a defining ITW strength. We remain firmly on track to deliver on our 2030 performance goals including customer back innovation yield of 3% plus. These results are a direct testament to the strength of the ITW business model, the quality of our diversified and resilient portfolio and the unwavering dedication of our global ITW colleagues to serving our customers and executing our strategy with excellence. Looking ahead, ITW is inherently built to outperform in uncertain and volatile environments. And therefore, we are raising our full year guidance.

Confident in our ability to successfully navigate the current environment and deliver differentiated performance through 2025 and beyond. I will now turn the call over to Michael to discuss our second quarter performance in more detail as well as our updated full year guidance. Michael?

Thank you, Chris, and good morning, everyone. The ITW team achieved solid operational and financial performance in Q2. Our top line saw a 1% increase in total revenue, driven in part by a 1% positive impact from foreign currency translation. Our organic growth rate was essentially flat, marking an improvement of over a percentage point from Q1. Geographically, while North America posted a 2% organic revenue decline and Europe was down 3%, Asia Pacific stood out with a 9% increase with impressive growth of 15% in China.

We experienced encouraging sequential revenue growth of 6% from Q1 along with some positive signs in end markets such as semiconductors, electronics, welding, specialty products, equipment and an improved outlook for auto builds. On the other hand, more consumer oriented end markets, notably construction products remained challenging. The ITW team continued to demonstrate strong execution on all controllable factors, positively impacting our bottom line. Our enterprise initiatives were particularly effective this quarter contributing 130 basis points to the operating margin of 26.3%. Although our decisive pricing actions more than cover tariff costs and positively impacted EPS in Q2, the overall price cost dynamic was modestly dilutive to our margin.

Finally, we generated $449,000,000 in free cash flow, representing a 59% conversion rate. Although this was modestly below our historical average, primarily due to the timing of certain onetime items, we're still on track to reach 100% plus conversion for the full year as planned. To summarize the quarter, we continued to significantly outperform our underlying end markets in a tough macro environment. Our solid financial performance includes organic growth of 1%, excluding PLS, incremental margin of 49%, operating margin of 26.3% and GAAP EPS of $2.58 Let's turn to Slide four for a closer look at our sequential performance from Q1 to Q2, which was quite encouraging. Revenue grew 6%, operating income improved 12% and operating margin expanded by 150 basis points.

Notably, every one of our seven segments grew revenue and expanded operating margin sequentially with three segments exceeding 30%. Let's dive into our segment results, beginning with Automotive OEM. Revenue here was up 4%, driven by 2% organic growth in the quarter. Strategic PLS reduced revenue by over 1%. Regionally, while North America was down 7% and Europe up 1%, China was a standout with impressive 22% growth.

Our local team continues to innovate and gain market share in the rapidly expanding EV market with customer back innovation efforts driving increased content per vehicle. We anticipate this strong momentum will carry into the second half of twenty twenty five and beyond. For the full year, we project the Automotive OEM segment will outperform relevant industry builds by 200 to 300 basis points as we continue to consistently grow our content per vehicle. We've updated our guidance to incorporate the latest more positive auto build forecasts, which are as follows. Worldwide auto builds are now projected to be about flat with North American builds down mid single digits and Europe down low single digits, partially offset by mid single digit growth in China builds.

Overall, our relevant markets are expected to be down in the low single digits in 2025, is which an improvement from the down mid single digit projection in our prior guide. The bottom line performance was a significant highlight for Automotive OEM with operating margin improving 190 basis points to 21.3%. This marks our highest margin since 2021, firmly placing us on track to achieve our long term goal of low to mid-20s operating margin by next year. Turning to Food Equipment on Slide five. Revenue increased 2% with 1% organic growth.

Equipment sales were flat, while our service business grew by 3%. Regionally, North America grew a solid 5%, driven by 4% growth in equipment and 6% in service. This growth was notably strong in the institutional end markets. International, however, was down 5%. For Test and Measurement and Electronics, revenue was up 1% as organic revenue saw a 1% decline.

Demand for our test and measurement capital equipment continues to be challenging. However, we noted encouraging order activity late in the second quarter. Meanwhile, our Electronics business grew 4%, fueled by heightened activity in the semiconductor related businesses that achieved double digit growth. Despite being impacted by onetime items this quarter, operating margin is projected to recover to the mid to high 20s in the second half. Moving to slide six.

Welding was a bright spot, delivering 3% organic growth. Equipment sales increased four percent with strong new product contributions, while consumables grew 1%. These represent the highest growth rates for both businesses in two years. Industrial sales also increased 1% with every region contributing to growth this quarter. North America was up 1% and international sales grew 11%, largely driven by 28% growth in China, a direct result of new product introductions targeting the energy sector.

Our 33.1% operating margin remained essentially flat year over year, demonstrating sustained strong profitability. Revenue in Polymers and Fluids declined 3%, which included a percentage point headwind from PLS. Organic revenue was down 5% in Polymers and 3% in both Fluids and the more consumer oriented automotive aftermarket. Let's look at Construction Products on Slide seven. This, our most interest rate sensitive segment, continues to contend with global demand challenges on the residential side.

Revenue declined 6% in markets we estimate are down even more significantly and were further impacted by a 1% reduction from strategic PLS. Regionally, revenues on North America declined 7%, Europe was down 5% and Australia and New Zealand decreased 10%. However, despite these persistent market headwinds, the segment demonstrated remarkable resilience improving its operating margin by 140 basis points to 30.8%, a testament to strong execution in a difficult environment. For Specialty Products, revenue increased 1% with flat organic revenue this quarter due to a challenging seven percent organic growth comparison with last year. Revenue also included over one percentage point from strategic PLS.

On a positive note, equipment sales, which rose 8%, were fueled by sustained strength in our Packaging and Aerospace Equipment businesses. Operating margin improved 70 basis points to 32.6, significantly benefiting from enterprise initiatives. With that, let's move to Slide eight for an update on our full year 2025 guidance. We've often reiterated our high confidence in successfully navigating challenging macro conditions and delivering solid financial performance. Our decision to raise GAAP EPS guidance by zero zero dollars at the midpoint, narrowing the range to $10.35 to $10.55 serves as clear evidence of this capability.

We're well positioned to outperform our end markets and continue to project organic growth of 0% to 2%. Per our usual process, our projection factors in current demand levels, the incremental pricing related to tariffs, our updated automotive build projections and an easier year over year comparison in the second half of the year. Total revenue is now projected to be up 1% to 3%, reflecting current more favorable foreign exchange rates. As we look at the second half, we fully expect to continue to execute at our usual high level on all the key profitability drivers within our control. This includes already implemented pricing actions, which we project will more than offset tariff costs and favorably impact EPS.

Additionally, we expect our enterprise initiatives to contribute 100 basis points or more to the operating margin independent of volume. Notably, all seven of our segments are projected to grow revenue and improve margins in the second half relative to the first half. Our full year GAAP EPS cadence remains consistent. We expect 47% in the first half and 53% in the second half. This reflects our typical business seasonality, along with expected benefits in the second half from stronger pricing and more favorable foreign exchange rates.

Implied in our guidance is solid second half financial performance with reasonable organic growth, substantial margin improvement and strong free cash flows. To wrap up, we're confident that the enhanced strength and resilience of the ITW business model, coupled with our high quality diversified business portfolio and crucially, our dedicated people equip us to decisively and effectively manage the current environment, no matter how it evolves and all while steadfastly pursuing our long term enterprise strategy. With that, Erin, I'll turn it back to you.

Janine, will you please open the call for questions and answers?

Thank you. Your first question comes from the line of Tami Zakaria from JPMorgan. Please go ahead.

Hi, good morning. Thank you so much. Just wanted to ask about the new operating margin outlook. I think you reduced it at the mid point. I just wanted to get some color on it.

Are price increases causing more than expected volume headwind, which is driving the reduced operating margin outlook? Or is there anything that you didn't anticipate, but now are seeing and are expecting for the back half? So any color on what's driving that outlook versus the last time you spoke?

Yes, Tami, it's a pretty straightforward answer, right? Essentially, while our price actions to offset tariffs have been quite successful and we are ahead on a dollar for dollar basis, as you know, that can be can mean that it is still dilutive from a margin standpoint, which is what I mentioned in the prepared remarks that price cost was modestly margin dilutive in Q2. And so that's really what's driving it. And I think just taking a step back, if you look at the last time we were together, we said that we expected price cost to be neutral or better. And I think our teams have done a great job putting us in a position where these price actions are EPS positive, but slightly margin dilutive, which is what you're seeing in the updated margin guidance.

Now that to us is just a timing issue. We will recover that margin just like we did every other cycle that we've been through. And whether that happens by the end of the year or next year, I think is a little uncertain at this point. But as we've talked about before, companies will offset the cost impact and eventually recuperate the margin impact as well. And so that's what you're seeing in our updated margin guidance.

Got it. That's very helpful color. And a follow-up on the auto segment specifically. I think margins came in at least better than what I was modeling. So as I think about the back half as we think about the back half, should we expect sequential improvement versus 2Q?

So I think we're very pleased with the progress in our Automotive segment, both on the top line in the quarter and the improved outlook for the back half and also on the margin side. 21.3%, an improvement of 190 basis points. I think as you look forward into the balance of the year, I think we'll be solidly above 20% both for the second half and likely for the full year as well, which puts us in a great position to reach our long term goal kind of low to mid-20s sometime next year.

Thank you. Just support that, Tammy. The other thing I would say on auto is that when we looked at our auto margins back at Investor Day, we forecast that we get ongoing significant contributions from enterprise initiatives and from higher margin innovation. And that's very much what's playing out here in 2025.

Thank you. Our next question comes from the line of Jamie Cook from Truitt Securities. Sir, please go ahead.

Hi, good morning. I guess two questions. It sounds like on CBI you guys think you're doing you're sort of gaining traction there. So can you help me understand outside of automotive where you're seeing the most success? And is the do we still expect CVI to contribute the 2.3% to 2.5% that you initially laid out?

And then I guess my second question, just a follow-up. Michael, just what's implied in the new guide in terms of FX? I know in the initially, it was, I think, a negative $0.30 headwind and it went neutral last quarter. Just trying to understand what's implied in the new updated guidance. Yes.

Let me answer the FX question. So basically, what we've incorporated now are current foreign exchange rates. And so we've gone from anticipating a significant headwind going into the year. We now expect some modest favorability based on rates as we sit here today. Now I say modest because on a year over year basis, the contribution to EPS in Q2, for example, was about $03 a share.

So we're not talking about huge tailwind from foreign exchange, but that's kind of the modeling assumption. Current foreign exchange rates and assuming that they stay where they are, which obviously can change quickly as we've seen this year. But and with that up,

on the CBI side, Chris? Sure. So Jimmy, CBI, we're certainly encouraged by the progress that we're making across the company. Great pipeline of new products really across all seven segments. It's one of the reasons that we would say we're outperforming our end markets at the enterprise level.

Several successful product launches this year across the portfolio. You asked for some segment color. I would say welding has been a standout. You've seen that in terms of welding growth of 3%. We believe our CVI contribution in welding is above 3% right now.

But also, I'd say, equipment where we continue to have product launches across all our product categories, all real tangible areas like energy and water savings and then automotive where we see it particularly in China where we're certainly growing market share through CBI. So off to a solid start here in 2025. To your question, well on track to deliver on our CVI yield goal of 2.3% to 2.5% this year.

Thank you. Our next question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.

Chris or Michael, you mentioned encouraging sequential growth of 6%. I think usually you get a couple of percentage points of growth sequentially in Q1 to Q2. I think you had one extra selling day, if I remember correctly, for Q2. But would you say you're seeing incremental continued improvement in short cycle businesses such as semicon that you saw last quarter? How are your longer cycle customers?

What are the conversations like? You mentioned welding a little bit better. You mentioned test and measurement getting better at the end of Q2. Maybe give a little more color on that.

Yes. I think, Andy, those are fair points on the sequentials. I think really the point of putting that slide in there was that this is certainly not a company that's slowing down. We were really encouraged. If you look back to where we were on the last earnings call, we're talking about a slowdown and some real concerns around tariffs.

I think at this point, we're talking about some really encouraging positive momentum. And you can see what happens when you get just a little bit of growth, 6% growth equated to 12% income growth on a sequential basis. Incremental margins sequentially are above 50% and year over year 49%. So that was really the point that we were trying to make here. I think we still see some challenges as you heard as we went through the segments on the consumer oriented side.

Construction products is the obvious one, which I think is not going to be a surprise to anybody at this point. A little bit of softness maybe in automotive aftermarket, which in Polymers and Fluids, which also tends to be more consumer oriented, but also some positive signs as we went through the quarter in the kind of the more general industrial CapEx space. We saw order activity really pick up in Test and Measurement towards the end of the quarter. We saw a significant increase in the number of big orders that were taken relative to last quarter. We saw some good progress also in Welding.

We talked about the growth rates there. Semi, which is a fairly small percentage of our total revenues, about 3%, I think it is last time we looked at it, growing double digits. And so that's really what we want to try to highlight that there are some positive things going on here. The automotive build forecast improved. And I think all those things are obviously not just market tailwind, but it's all the work that we're doing around customer back innovation and new products to gain market share.

And if you were an optimist, you would say we're seeing the first encouraging signs that this is really working. And it gives us a lot of confidence not only going into the back half of the year, but also going into next year and the commitments we've made kind of in terms of our long term performance goals that even when macro conditions are maybe not very supportive of the growth that we're trying to achieve, We're still delivering solid performance and in a position where halfway through the year we can raise our guidance. So that's how I would characterize it Andy.

Michael to that point you've always been good in China, but it seems like you're getting better, particularly in China automotive. Chris talked about CVI. If I look by region, China just such a standout versus your other regions, especially versus industrial peers. So is it really just CBI or maybe it's just China EV? Is there anything that you can do for the other geographies to really sort of support or improve that growth and maybe the durability?

I think you just answered it, Michael. Durability in China seems seems there.

Yes. Andy, I would just add to that, that we would certainly see you saw a 15% growth in China, 2022% in automotive. But the growth is really sustainable for a number of reasons and not just in automotive. Our business in China across all segments are highly differentiated. The proof point that I would offer here is that our margins in China are at the same level as North America or Western Europe, which really speaks to the whole kind of focus on differentiation.

We have very strong customer back innovation efforts in China. China actually generates a disproportionate percent of our patents protecting customer solutions. We have these very long very strong long lasting customer partnerships in China. As an example, our auto business in China has been there close to 30. A reminder again, we produce in China for the China market.

But last and I say by no means least, we have a very highly tenured, highly talented and experienced leadership team who are ITW business model experts and who execute for the company every day. So we really feel well positioned across all seven segments in China. Innovation is certainly a part of it. But I think our customer relationships, the quality of our team and most importantly, our focus on sustainable differentiation is really what underpins our future growth prospects in China.

Thank you. Our next question comes from the line of Julian Mitchell from Barclays. Your line is open.

Yes, hi. Good morning. Good morning. Maybe just my first question, trying to understand the sort of FX dynamics in the EPS guide. So I think maybe sort of versus the beginning of the year, there's about a $0.30 $0.40 tailwind to EPS from the FX change.

What are sort of the offsets in that sort of blunting that because the drop through to the overall EPS guide is much smaller and I think price cost is dollar positive? Thank you.

Yes. I think, Julian, we're still taking a fairly cautious approach here. I think as we said in Chris' opening remarks, I mean, we remain in a really uncertain and pretty volatile environment where things can change quickly, whether it be the tariff environment or foreign exchange rates. And so I think the reason why you're not seeing us take guidance up by $0.30 is exactly that, that we're maintaining an appropriately conservative approach here given the current macro conditions that we're dealing with. And I would say given, again, the conditions that we're dealing with, feel pretty good about the type of performance that we're putting up and the confidence that we're trying to convey in the second half, which based on our everything I talked about, we're going to be putting up some reasonable organic growth implied in our guidance is kind of 2% to 3% organic growth, 100 basis points plus of margin improvement year over year in the back half, really strong incremental margins and also really strong free cash flows.

So given the conditions we're dealing with, we feel like we're in a pretty good position here going into the back half of the year.

That's helpful. Thank you, Michael. And then maybe just a second one kind of trying to follow-up on sort of within the back half third versus fourth quarter. I know there was a little bit of conversation of that already. But any sort of shift in terms of demand patterns, let's say, recent weeks into Q3?

And when you're thinking about that price cost margin headwind, how are we thinking about that in sort of the third versus the fourth quarter? Maybe just sort of flesh out anything about

Yes. That, think, Julian, mean, from Q3 to Q4 is kind of our typical sequentials. We typically, revenues go up a little bit from Q2 to Q3 and into Q4. The kind of the traditional run rates are not as accurate as usual because of all the price that we're getting. So if you think about these price related tariff related price increases, those are really only starting to flow through here in Q3 and Q4.

And so that's why we're effectively guiding to something that's a little above our typical run rate. But again, we should expect, like we talked about on the last call, good sequential improvement from Q2 into Q3, Q3 into Q4, both really on all the key elements here, the top line margin improvement, I think we talked about every segment improving margins and revenue in the second half relative to the first half. And that's not assuming a pickup in demand. That's basically, like I said, current run rates. It's the price, current FX rates, which I think you asked about, and then an updated outlook for automotive and then a more about zero five point of easier comps in the back half of the year.

So you put all that together, that's how we end up with a pretty solid second half. Just to wrap up your question around what did you see in Q2, nothing really unusual going through the quarter other than in June. June was our strongest month. It typically is. And then some of these more positive signs that we talked about around some of the order activity in the CapEx equipment businesses became more encouraging as we went through towards the end of the quarter. That's great. Thank you. Sure.

Thank you. Our next question comes from the line of Stephen Volkmann from Jefferies. Your line is open.

I guess I'm trying to say I know you don't like to talk in too much detail about this, but I'm assuming in your 0% to 2% organic, your volumes must be down like low to mid single digits or something. And the reason I'm curious about that is because, obviously, you're putting up pretty good incrementals on lower volumes, I guess. So I'm trying to think about when volumes do come back, did the enterprise initiatives mean we'll have higher incremental margins? Or how should I think about that? Sorry, it's a little complicated.

No, that's okay. Me just start by saying that your volume assumptions are not entirely correct, even though we don't guide volume versus price. And then your second point, we put up incremental margins of 49% year over year in Q2. And that is some of these price cost actions related to tariffs are basically coming through at a fairly low incremental. So if that's the case, you have to believe that the core incrementals are significantly higher at this point in time relative to our kind of historical 35% to 40%.

And I think you can see in a couple of places here, automotive is maybe the better example this quarter. What happens when we get just a little bit of growth. I mean automotive with 2% organic, margins are up 190 basis points. And so, you look at the sequential growth and the incrementals from Q1 to Q2. So to answer your question, it's reasonable to assume that incrementals are above historical, and you'll see some of that in the second half.

We expect reasonable kind of 2% to 3% organic growth with some very strong incrementals.

And Steve, over long term, the incremental is strong incremental is predominantly driven by the quality of the portfolio and continuous improvement in the quality of the portfolio and execution of the business model against that portfolio is ultimately what drives the incremental hire.

Got it. Okay. Thank you. And then maybe specifically on construction, sort of amazing to see 140 bps of growth on 6% decline in revenue. And it doesn't look like there was a geographic mix issue there.

Was that all just kind of enterprise or CBI? Or is there some sort of mix there? Any detail there would be great.

Yes. I mean the biggest driver, as usual, are the enterprise initiatives. We're well above company average at about 160 basis points. So that's really the key driver. I think that we agree with you that the fact that we have a construction business that for over a year has been putting up margins in that 29%, 30% range in some of the most challenging end markets that we've seen in a long time is pretty remarkable.

And I think the team frankly gets a lot of credit for trying to find a way to make the best of a tough macro.

Yes, and all underpinned with great brands and technology, very focused on the most attractive parts of the construction market.

Thank you. Our next question comes from the line of Sir, please go ahead.

Yes. Thank you for taking the question and good morning. Good morning. Q2 was just such a strange quarter, not so much in your reporting, but the broader backdrop, right? I mean, started in April with Liberation Day and a lot of volatility, I guess, in the financial markets and then we exited feeling very different.

And I'm kind of curious how your business experienced all of this. Have you, at any point in time through the quarter maybe actually felt an economic effect from this tariff uncertainty? And obviously the quarter all in on a surface looked fine. So I'm wondering about the cadence. And the reason why I'm asking the question is because if we end up with another wave of disruption related to these tariffs, based on your learnings from Q2, how disruptive do you think that could end up being or maybe not at all to your business going forward?

Yes. So Samik, I would say just as well as a reminder and you characterized Q2 very accurately in terms of how it played out. But from our standpoint and particularly relating to the tariffs, we go back to the point that we're over 90% produced what we sell. So the direct impact of tariffs is largely mitigated. And to the extent that we need to get price, we are able to get price due to the high levels of differentiation across the business.

Both in 2018 and in this past round, tariffs were manageable for us. And based on what we know today and even if tariffs were increased, we'd expect the tariff cost to be manageable going forward. Certainly, we would hold to our EPS neutral or better, I'd say, no matter what happens from here on out.

Okay. But you didn't experience that whole customer freezing up or anything of the sort as they were seeking for more clarity that was just not a factor in your business you're saying?

Yes. There was a little bit of that in one segment. We have one segment where we have some shipments to China from The U. S. Particularly relating to customer requests for us to do it that way. And certainly with the enormous China tariffs at the beginning of the quarter, there certainly was a freeze and that has no freed up since then.

And also we've had several through our read and react capabilities in our businesses, we've been able to read and react very successfully to that. So if it was to happen again, we'd have mitigation plans in place where it wouldn't be as much of an issue.

Got it. And my follow-up, if I may, just kind of a bigger picture capital allocation question. I'd love to hear as to how you're thinking about your M and A pipeline. And in terms of returning capital to shareholders if M and A is not available for whatever reason, is there an argument to be made for taking a more aggressive approach at this point in a cycle where maybe you're dealing with lower growth, knowing that obviously as growth reaccelerates eventually, you'll be able to hopefully create some value with more aggressive buybacks in this lower part of the cycle? Thank you.

Yes. So with respect to M and A Mig, what I would say is that first and foremost, we're very confident in our the ability of our current portfolio to grow at four plus over time. And so we comfortable in really sticking to our disciplined portfolio management strategy around M and A. We've got a very clear and well defined view of what we think fits our strategy. So it's just a matter of us finding the right opportunities focused on those high quality acquisitions that could extend our long term growth potential to grow at a minimum at 4% plus at high quality while being able to leverage the business model to improve margins.

That's typically how we think about these things. We do review opportunities for this on an ongoing basis but we continue to be very selective and very selective being mindful of the fact that we've got all this organic growth potential that we're working on. We're very active in terms of reviewing M and A opportunities. And to the extent that we find the right opportunities then we will certainly be appropriately aggressive in pursuing them I would say. And obviously MTS was one that we did.

That's the criteria we use to evaluate and to acquire MTS and it's proved to be a really great acquisition for us on that basis. And that's the lens by which we look at acquisitions remaining selective but appropriately aggressive when we see the right ones.

And I would just add on to the other elements of our capital allocation strategy. Mig, we obviously constantly review, debate, discuss our strategy, and we are still coming to conclusion that it's pretty optimal and pretty well aligned with our enterprise strategy with number one priority being the internal investments to support all the organic growth initiatives that are going on inside the company and maintain core profitability in these highly differentiated core businesses. We have an attractive dividend. If you look at our payout ratio, we're probably and rightfully so towards the higher end of the peer group just given our margins and our best in class balance sheet and highest credit rating in the peer group. We'll continue to grow that dividend in line with long term earnings.

And then we allocate surplus cash to the buybacks, which is about $1,500,000,000 this year, about 2% of our outstanding shares. And so as we sit here today, we feel like we've optimized this. And as Chris said, we'd love to do M and A given the criteria that Chris outlined. And as you know, this is it's not an easy market given often the valuations are what's making this pretty challenging.

Thank you. Our next question comes from the line of Sabrina Abrams from Bank of America. Your line is open.

Hey, good morning. I think my understanding was that there would be some more restructuring in the first half. So I think there were comments about 80% of the full year, 15 to 20% 15 to 20¢ headwind in the first half. So I guess just looking at the components of the margin bridge, it doesn't seem like we had I think restructuring year over year was a tailwind this quarter, and there wasn't a ton in 1Q. So just any color you could provide on restructuring this year, how it's changed?

Is that still the right full year number? And how has the cadence evolved relative to your expectations? Thank you.

Sabrina, so I think restructuring with everything going on in the quarter, a couple of things did move around. At the end of the day, we ended up spending $20,000,000 in the first half of this year, which is the same as what we spent in the first half of last year. These are all projects tied to kind of our eightytwenty front to back process, all projects with less than a one year payback. We had a few projects that just from a timing standpoint moved into July. Those have been approved and are well underway.

Illinois Tool Works Q2 2025 Earnings Call Transcript | Fortune

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Illinois Tool Works (ITW) Q2 2025 Earnings Call Transcript

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