ILLINOIS TOOL WORKS INC — Call Transcript 2026

Good morning. My name is Cath, and I will be your conference operator today. At this time, I would like to welcome everyone to the ITW's first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. For those participating in the Q&A, you will have the opportunity to ask one question and if needed, one follow-up question. Thank you. Erin Linnihan, Vice President of Investor Relations, you may begin your conference. Thank you, Cath. Good morning, and welcome to ITW's first quarter 2026 conference call. I'm joined by our President and CEO, Chris O'Herlihy, and Senior Vice President and CFO, Michael Larsen. During today's call, we will discuss ITW's first quarter 2026 financial results and provide an update on our outlook for full year 2026. Slide two is a reminder that this presentation contains forward-looking statements. Please refer to the company's 2025 Form 10-K 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. A reconciliation of those measures to the most directly comparable GAAP measures is contained in the press release. Please turn to slide three. It's now my pleasure to turn the call over to our President and CEO, Chris O'Herlihy. Chris? Thank you, Erin. Good morning, everyone. As you saw in our press release this morning, ITW delivered a solid start to the year with results that were in line with our expectations. In the first quarter, we continued to outperform our underlying end markets, delivering revenue growth of 5% and a 12% increase in GAAP EPS to $1.66. Through disciplined operational execution, we expanded operating margin by 60 basis points to 25.4%. We continued to capitalize on positive demand trends in our CapEx-related segments, with organic growth in Welding up 6% and Test & Measurement and Electronics up 5%. While our consumer-facing businesses contended with challenging end market dynamics, the ITW team executed at a high level on the profit drivers within our control. Our enterprise initiatives contributed 120 basis points to the bottom line, driving that 60 basis point overall margin improvement. We were equally encouraged by our continued progress on ITW's organic growth agenda, specifically on Customer-Back Innovation, or CBI as we call it. We are positioning the company to consistently deliver 3% plus CBI contribution to revenue by 2030. As we've noted before, this is the key driver of our ability to consistently deliver 4%+ high-quality organic growth at the enterprise level. As we look ahead and based on our solid Q1 results, we are raising our full year GAAP EPS guidance by $0.10. Our new guidance midpoint of $11.30 incorporates a slightly lower tax rate and represents 8% year-over-year growth. Our full year organic growth projection of 1% to 3% remains unchanged, reflecting current demand levels adjusted for seasonality. For the full year, we expect operating margin expansion of approximately 100 basis points, powered by our enterprise initiatives. Notably, all seven segments are projected to deliver positive organic growth and margin expansion in 2026. As we've said before, ITW's unique business model, resilient portfolio, and do what we say execution demonstrated daily by our colleagues worldwide ensure we are well-positioned to deliver robust financial performance in any environment and remain invested in our long-term strategy through any business cycle. As order activity continues to strengthen across several of our end markets, our production capacity, new product pipeline, and best-in-class customer-facing metrics position us to take market share and fully capitalize on these positive demand trends that we are now beginning to see. With that, I'll now turn the call over to Michael to provide more detail on the quarter and our guidance for 2026. Michael? Thank you, Chris. Good morning, everyone. In Q1, the ITW team delivered a solid operational and financial start to the year. Starting with the top line, revenue growth was 4.6%, driven by organic growth of 0.4%, a 3.9% contribution from foreign currency translation, and 0.3% from an acquisition. As Chris said, we were particularly encouraged by positive demand trends and strong order activity in our CapEx and semi-related segments. The combination of our product line simplification, PLS efforts, and delayed sales to the Middle East reduced our organic growth rate by approximately one percentage point. For context, our annual sales to the Middle East represent approximately $100 million, which is less than 1% of ITW's total annual sales. On the bottom line, operating margin improved by 60 basis points to 25.4%, with Enterprise Initiatives contributing 120 basis points. Incremental margins were approximately 40% in the quarter, and we expect both operating margin and incremental margins to move higher as the year progresses. Free cash flow grew 6% with a 69% conversion rate reflecting typical first quarter seasonality. We also repurchased $375 million of shares during the quarter. Overall, a solid start to the year with revenue growth of 5%, earnings growth of 12%, and some encouraging demand trends that bode well for the balance of the year. Please turn to slide four for a brief update on our Enterprise Initiatives. Since 2012, our strong execution on the Enterprise Initiatives have been the most impactful driver of margin improvement at ITW. The 120 basis points contribution this quarter from our strategic sourcing and 80/20 Front-to-Back activities was in line with our expectations, and we remain on track for a full year impact of approximately 100 basis points independent of volume. Looking ahead, we expect these initiatives to continue to drive meaningful gains through 2030 as we track toward our 30% margin goal. Now let's move to the segment highlights, starting with Automotive OEM, where revenue increased 4%. While organic revenue declined 1%, we outperformed global Automotive builds, which were down more than 3%. On a regional basis, North America was down 5%, while Europe was flat. China declined 3% but significantly outperformed Automotive builds, which were down 10%. Builds in China are projected to meaningfully improve sequentially in the 2nd quarter, including double-digit growth in EVs, where we are particularly well-positioned. At the segment level, we continue to expect our typical 200-300 basis points of outperformance versus builds that are now expected to be down approximately 2% for the full year. Operating margin improved by 170 basis points to 21%. Turning to slide five, Food Equipment delivered revenue growth of 2%, with organic revenue down 3%. Strength in service, which grew 3%, partially offset a 6% decline in equipment. North America was down 5%. A slower start than expected on the institutional side, particularly in the education end market, was partially offset by growth in restaurants, including QSR, which was up double digits, and service, which grew more than 4%. Encouragingly, since January, we have seen gradual improvement in institutional demand trends. At the Food Equipment segment level, we continue to expect positive organic growth and margin improvement for the full year. The international business was flat and is projected to deliver positive organic growth starting in Q2. Test & Measurement and Electronics had a standout quarter, with 10% revenue growth and 5% organic growth. The highest growth rate in three years as the green shoots we talked about last quarter begin to look more like a sustainable recovery. Through this recent down cycle, our divisions stayed invested in their long-term growth strategies, including capacity and new products, and they are uniquely positioned to meet growing customer demand and fully capitalize on the growth opportunities in front of them. As a result, Electronics grew 10% this quarter, and the semi-related businesses, which represent about $500 million of annual revenues or about 15% of the segment, grew more than 15%. Looking ahead, market indicators like increasing fab utilization, encouraging customer signals, and response to new products, as well as strong order activity, all support the view that the positive demand trends that we're seeing in this segment today are sustainable in the near term. Moving on to slide six. Welding delivered another strong top-line performance as revenue grew 7% with organic growth of 6%. Equipment grew 8% with a strong contribution from new products. North America was the primary growth engine, up 8%, with mid-single-digit growth in filler metals. The growth was broad-based, with mid to high single-digit growth across our businesses, including in both industrial and commercial. International was down 6% due to a difficult comparison of +14% in the year-ago quarter. Operating margin was best in class at 32.1%. Polymers & Fluids delivered 5% revenue growth and organic growth of 2%, driven by new products and robust market share gains, primarily in Automotive aftermarket, which grew 3%. Polymers was flat against a tough comparison of +6%, and Fluids was also flat. Operating margin expanded 150 basis points to 28%. Turning to slide seven. In Construction Products, revenue was up 3%, and encouragingly this quarter marked the best organic growth performance in four years. Overall, organic growth declined 1%. North America was flat as our residential and renovation business delivered positive organic growth of 1%. In this segment, we remain well-positioned for the inevitable housing recovery down the road. Europe was down 3% and Australia/New Zealand was down 2%. Specialty Products revenue was down 1%, with organic revenue down 5% due to the impact of PLS activities and delayed Middle East sales. Despite the top-line pressure and with the margin tailwind from recent PLS activities, the segment expanded operating margin by 40 basis points to 31.3%. With that, let's turn to slide eight for an update on our guidance. As we've said before, ITW is well-positioned to deliver meaningful progress on both the top and bottom lines in 2026. On the top line, we're maintaining our total revenue growth projection of 2%-4% and organic growth projection of 1%-3%. Per our usual process, this is based on current levels of demand, adjusted for typical seasonality and prevailing foreign exchange rates. On the bottom line, we continue to expect operating margin to improve by approximately 100 basis points to a range of 26.5%-27.5% as enterprise initiatives contribute approximately 100 basis points. We continue to expect that price costs will be modestly accretive to margins after factoring in recent tariff changes and all known material cost increases offset by corresponding pricing and supply chain actions. Our projection for incremental margins in the mid-to-high 40s remain unchanged. Incorporating our first quarter results and the lower effective tax rate projection for the year of 23%-24%, we are raising our GAAP EPS guidance by $0.10 to a new range of $11.10-$11.50, representing 8% growth at the $11.30 midpoint. In terms of cadence, we are projecting a 48/52 EPS split between the first and second half of the year, which is less back-end loaded than 2025 and our previous guidance. Finally, we expect free cash flow conversion to exceed 100% of net income, and we are on track to repurchase approximately $1.5 billion of our shares in 2026. In summary, we're heading into the balance of the year with positive momentum on both the top and bottom line. All seven segments are projecting positive organic growth and further improvement in their industry-leading margins. Overall, ITW is well-positioned to deliver on our guidance, including solid organic growth with best-in-class margins and returns. With that, Erin, I'll turn it back to you. Thank you, Michael. Cath, will you please open the line and inform callers on how to get back into the queue? Thank you. At this time, I would like to remind everyone to ask question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Andy Kaplowitz with Citigroup. Your line is open. Close enough. How's everyone doing? Good morning. Good morning. Good morning. I know it's early in the year, but when you think about growth in the segments, is it fair to say that your CapEx businesses, such as Test & Measurement and Welding, are trending ahead of your expectations? Maybe Consumer, you know, Specialty, I guess, and Food Equipment was more institutional or a little below, and they just kinda net out. How are you thinking about growth by segment versus your original expectations? Yeah. Andy, as we've indicated, we expect all seven segments to show a positive organic growth this year. I think you've characterized the first quarter pretty well. You know, I think what we saw is those CapEx-related segments like Test & Measurement and Welding. Your Test & Measurement, obviously, particularly in Semiconductors and Electronics, as Michael indicated, you know, grew more than 15%. I would say with continued order strength here into Q2. Welding, you know, it's been a tough environment for a few years, but we grew 6% in Q1. Mixture of some strong order activity, again, which continues into Q2 and continued improvement in CBI. And I think encouraging on Welding, the strength was pretty broad-based. It wasn't just in industrial markets, which we started seeing in Q4, it also in Q1 bled into the commercial platforms as well. Certainly on those CapEx-related markets, I think very strong strength, strong order activity. On the more challenged consumer-facing markets, even though they're challenged, we continue to outgrow those markets. If we look at Automotive as a prime example, where we again demonstrated, you know, a couple of hundred basis points of improvement over the market. Similarly, in construction and even in areas like Polymers & Fluids where Automotive aftermarket, we showed a very healthy market outgrowth versus retail point of sales and Automotive aftermarket. You know, I think it's a tale of two markets right now. We're seeing the industrial markets, CapEx markets, very strong, great order activity. Even in those consumer-facing markets, which are improving a little bit, you know, we're outgrowing those markets. It's helpful, Chris. Maybe similar question on margin for you or Michael. Like, you reiterated the incrementals for the year in the mid to high 40s%. Are you getting there at all differently? 'Cause, I mean, Test & Measurement and Auto look good, but Food Equipment obviously was lower. Was that just lower absorption in the quarter and it gets better from here? Are you seeing increased inflation sort of impact you at all? Like, how do you think about that? Yeah. I think, Andy, overall, the incremental margin assumptions, the operating margin assumptions are unchanged from where we were when we gave guidance on our last call. We continue to expect incrementals in the mid to high forties, and we expect to improve operating margins by 100 basis points this year. You know, seasonally, Q1, as we talked about on the last call, always starts out a little lower, and then margins and incrementals improve sequentially as we go through the year. We also expect, based on current run rates, you know, that we will see some increased operating leverage as we go through from Q1 to Q2 and into the back half of the year. Overall, the margin expectations, as I think Chris said, is that every one of our segments will improve operating margins this year. Obviously, the ones that are benefiting from some positive demand trends in particular should be expected to maybe outperform a little bit on those incrementals. Just a word on Food Equipment. I'd say, certainly an anomaly in that segment in terms of the margin performance and the incrementals in the first quarter. It's really an isolated challenge in one particular end market on the institutional side, and it relates back to the month of January. We did see improving demand trends in FEG, in Food Equipment, as well as in that particular end market as we went through February, March, and April. It's certainly something we will continue to keep a close eye on. I would just add, while we're on margins that, while some of the more growth challenged businesses that we Chris talked about, Polymers & Fluids, maybe Automotive, Construction, continue to execute at a very high level. You see that despite some of these top-line challenges, they continue to expand margins, which is really encouraging. Very helpful. Your next question comes from the line of Jamie Cook with Truist Securities. Your line is open. Hi. Good morning. I guess just my first- Good morning. My first question, can you just, you know, help us understand, I mean, last quarter it sounded like you were pretty, you know, positive on, you know, short cycle momentum, things improving, you know, your confidence level today with some of the, you know, uncertainty related to, you know, the war with Iran and macro and whether you saw any change in sort of the cadence of sales throughout the quarter or into April? My second question, can you just give us an update on, you know, CBI, the contribution expected for 2026 and, you know, whether you're contemplating other parts of the portfolio that, we're having a harder time with CBI, so perhaps there's opportunities to, you know, refocus, you know, to certain product lines which are being more successful versus not. Thank you. Yeah. Thank you, Jamie. Maybe I'll take the first part and then hand it over to you, Chris, for the CBI question. I'd say in terms of overall confidence, you know, let's start with the context that we came in right along with our plan for the first quarter. You know, we talked about on the last call that we expected a step down from Q4 to Q1. We actually on the top line did a little bit better than that. I would say if anything, we are more confident today as we sit here today. I think it's important to mention that our guidance today is based on the current levels of demand that we're seeing in these businesses. In some of these businesses, maybe Welding and Test & Measurement in particular, we are seeing order rates that are meaningfully higher than the organic growth rates that those segments put up in the first quarter. That is not included in our guidance today. Again, based on kind of our past practice, this is based on, you know, current run rates. I think certainly, maybe a little bit more of a challenge in maybe a place like Food Equipment, which we just talked about. We believe as we sit here today, we have more than enough strength in those CapEx related and semi-related segments to offset any challenges there. Like I said, we're more confident in our organic growth guidance of 1%-3% today than we were on the last call. That's maybe how I would think about it. I would just one last word on Automotive, 'cause Automotive did have a slower start in China, you need to factor in that Automotive builds in China were down 10% in Q1, and they're projected to be flat here in Q2. We're expecting a pretty meaningful ramp from Q4, from Q1 to Q2, with sequential growth in kind of the low to mid-single digits. We expect meaningful sequential margin improvement, more than 100 basis points. We expect incremental margins to improve. If you just look at the cadence that we outlined, which I think was your other question, you know, the EPS bid 48/52. We just did $23 in Q1, which is exactly what we said on the call last time. That would imply that for the second quarter, the EPS contribution would be about 25% to the full year. As we sit here today, we feel very confident in our ability to deliver both Q2 and the full year. Jamie, on your question on CBI and, you know, although the opportunity profile on CBI can look a little different segment to segment, division to division, what I would say is that, you know, we have strong momentum right across the company on CBI, and we're really encouraged by the progress that we're making in every segment. We continue to see this in increasing strength in our pipeline of new products. It's one of the reasons why even in some of these slower growth markets, we're outperforming those markets. We've several successful new product launches this year across the portfolio. If it was the call-out segments, I could call out on seven, but I would say Welding, Test & Measurement, Food Equipment, and Automotive. You know, good progress in 2025, obviously, in CBI yield, 40 basis points of improvement. Based on what we see in Q1, we were tracking really well here to deliver incremental improvement in 2026, on the path to 3%+ here, by 2030, if not before. Patent filings as well continue to be strong, obviously up very strongly the last couple of years, 18% in 2024, 9% in 2025. We see additional increases in 2026. As we said before, you know, patent filings continues to be a very strong leading indicator of CBI at ITW, given the customer-backed nature of our innovation, which means that more often than not, patent filings are there to protect important customer solutions. Increased patent activity is often pretty well correlated with future revenue growth. Really feel very positive of what we're seeing in terms of the engagement, the enthusiasm, the followership around CBI, and we're now starting to see this come through in patent filings and yield. Thank you. Your next question comes from the line of Tami Zakaria with JPMorgan. Your line is open. Hi, good morning. Thank you so much. You're welcome. I have one question, and it's rather long-term driven question. As you think about your Food Equipment business, how do you view the proliferation of GLP-1 drugs and its impact on demand from restaurants and the hospitality industry? I see you had really strong growth in the quarter from restaurants. You mentioned QSRs. Just longer term, is GLP-1 on your radar as you plan for this segment over the coming few years? I would say, Tami, it's not something we're giving a lot of thought to. I would say GLP-1, early days. I would also say that if you look at Food Equipment, you know, restaurants still represents a smaller, particularly QSR represents a smaller portion of our business. The biggest portion is institutional. We have a sizable restaurant business, but, you know, smaller piece certainly is in QSR, which is probably more directly impacted. I'd say early to tell. It's not something that's on our radar at this point. Like I say, I think particularly as you mentioned QSR, it's not a huge part of our business, although it's growing nicely. And I would just add, we've said before, Chris, Food Equipment is one of the most fertile segments from an innovation standpoint. There's so much room for customer back innovation. And we would expect that to continue to really accelerate from here and offset any pressures like the ones that you're talking about. Understood. Your next question comes from the line of Stephen Volkmann with Jefferies. Your line is open. Hi. Good morning, everybody. I was gonna stick with Food as well because that QSR comment kinda caught my attention. Do you think that that market is actually turning or is there something that you're doing that's kinda ITW specific there? Yeah. I'll leave it there. Yeah. I think it's hard to say the market's turning, Steve. I do think that we've got some interesting innovations going on in that space. You know, a large, as Michael mentioned, I mean, the Food Equipment space, very fertile from an innovation standpoint. We have new product launches in all product categories in 2026 here, really, you know, driven around critical customer pain points like, you know, energy, water, labor savings. All those trends are very relevant in QSR. I'm pretty sure that a large part of our QSR growth is coming from innovation. I would just add, and we always talk about this, is the strength of the service business. While there may be, you know, QSR, in particular can be a little bit lumpy, I think, the service business is more of an annuity type business. You know, our ability to put up 3%, 4%, 5% organic growth on a consistent basis at attractive margins kinda buffers any kinda some of that lumpiness that you might see in the businesses that you're talking about. Got it. Okay. Thank you for that. Michael, it sounded like there was a margin thing that happened in the quarter that was very specific. Should we assume Q2 is kind of back to normal? Yeah. I think there's really nothing unusual about Q1, I would say, other than the slow start maybe in Food Equipment. I think if you look at kind of how the quarter progressed, you know, January started out a little bit slower because of Food Equipment, and then we improved from a growth standpoint in February. Got even better in March. I think March organic was up 4%. In April, we're off to a really good start with organic growth. If you look at our full year guidance range, 1%-3%, we're probably trending towards the high end of that range here in April. That's really the top line. On, and on, and on margins, we expect a sequential improvement, like I said, from Q1 to Q2. We just did 25.4%. We would expect more than 100 basis points of improvement sequentially from Q1 to Q2. That will put it somewhere around, you know, 26.5%, 27-ish%. A little bit of improvement further from Q2 to Q3 on margins, and as well in Q4. From a growth standpoint, from Q2 to Q3, revenues based on run rates again are kind of about the same in Q3 and Q4. That is all that we need to deliver some meaningful organic growth towards the higher end of the range in the second half of this year. Hopefully that gives you a little bit of context. Very much so. Appreciate it. Thanks. Sure. Your next question comes from the line of Julian Mitchell with Barclays. Your line is open. Hi. Good morning. Good morning. Michael, sorry, there were a couple of other calls going on, just to clarify, your comments on the top line, just now, were you referring to sort of total company there, in terms of the confidence of getting to the higher end of the range? You know, obviously we've had some questions on you are just over flat in Q1, you know, you've got sort of 2% pegged at the midpoint for the year, and you tend to just guide with run rates, as you say. Is there anything happening on price later in the year maybe that comes in because of cost inflation that gets the growth moving up? I think, Julian, as we've said before, the first quarter was right in line with our plan. The organic growth rate was as we described it on the last earnings call, and how the year is projected to unfold, the way we've modeled it is based on our typical, you know, seasonality. In terms of maybe just to comment on price, since you asked, I mean, we had a plan assumption going into the year around price as well as price cost. Given some of the inflationary pressures that we're seeing, just like everybody else, our divisions have reacted from a price standpoint. We now expect a little bit more price, and that will start to come through primarily in the second quarter and then carry forward into Q3 and Q4. I think it's fair to say maybe there might be a little bit more of a price impact there. Broadly, we are very close to our original plan as we sit here today, including the organic growth projection of 1%-3%. Nothing has really, you know, changed relative to our guidance, other than, as we said, we've seen some really positive demand trends in two segments in particular. That's helpful. Thank you. When we're looking at the operating margin guidance, you know, you're off to a good start versus that, 70 basis points or so, acceleration that's guided for margins at the midpoint for the year as a whole. If we're thinking about some of the margins that were weakest, I think Food Equipment you've dealt with already. Anything in Welding that we should think about over the balance of the year, the margins there perhaps picking up steam? Yeah Sort of company-wide, is operating leverage fairly steady as you move through 2026? I mean, what I can tell you, Julian, is that as we sit here today, we would expect every segment to improve margins in Q2 relative to Q1. Then we would expect sequential improvement to those margins again in every segment in Q3 and into Q4. Like we've said before, you mentioned Welding specifically, you know, those are, as you know, best in class operating margins by a fair margin. You would expect maybe to see less improvement in the segments that have margins at or above 30%, and you should expect to see a lot more improvement in places like Test & Measurement. Which there's a little bit of impact from some recent acquisition activity. As volume and price begins to pick up, as we go through the year, you're gonna see some really solid operating leverage in the Test & Measurement business as well. Julian, I would just add that we have really good line of sight on at least 100 basis points of improvement net of price initiatives. That's helpful. Thank you. Your next question comes from the line of Andrew Obin with Bank of America. Your line is open. Morning. This is David Ridley-Lane on for Andrew Obin. Morning. Morning. Look, I think you've been very clear on expecting improvements in organic growth into the second quarter, calling out specifically for the Food Equipment segment that's positive. What about the Specialty Products segment? Yeah. I think a little bit of an impact from the Middle East, kind of delayed sales in the aerospace business, which is sitting on, you know, significant order and backlog, that those sales have been delayed. That and the combination of PLS efforts that are somewhat, I'd say, front end loaded this year, reduced the overall organic growth rate by three points in specialty in the first quarter. We would expect that growth rate in Specialty to improve from here. I'd say the equipment businesses in Specialty are performing very well. In some of the more consumer-oriented businesses, there are some challenges, as we, as you are well aware, as Chris talked about. There are places like the medical business that is growing leaps and bounds at this point in time. It's really, you know, all those factors offsetting each other. As we said, we expect the specialty business to deliver positive organic growth this year, and meaningful margin improvement based on what we're seeing in the businesses that make up specialty as we sit here today. Thank you. With the Supreme Court's ruling against the IEEPA tariffs, several manufacturing companies have filed for refunds. Where do you stand in that process for yourself? Given we expect tariff recovery, I mean, given our producer resell philosophy, I mean, you know, the reality is the direct impact of tariffs was largely mitigated at ITW. you know, to the extent that there was an impact, we were able to recover this in price. In this regard, tariff recovery is not something that's on our radar, I would say, and we certainly don't have anything in our guidance for it. Thank you very much. Sure. That concludes today's session. Thank you for participating in today's conference call. All lines may disconnect at this time.

Speaker 8: Good morning. My name is Cath, and I will be your conference operator today. At this time, I would like to welcome everyone to the ITW's first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. For those participating in the Q&A, you will have the opportunity to ask one question and if needed, one follow-up question. Thank you. Erin Linnihan, Vice President of Investor Relations, you may begin your conference. Good morning. good morning My name is Cath, and I will be your conference operator today. my name is cath and i will be your conference operator today At this time, I would like to welcome everyone to the ITW's first quarter earnings conference call. at this time i would like to welcome everyone to the itw's first quarter earnings conference call All lines have been placed on mute to prevent any background noise. all lines have been placed on mute to prevent any background noise After the speaker's remarks, there will be question and answer session. after the speaker's remarks there will be question and answer session If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. if you would like to ask a question during this time simply press star followed by the number one on your telephone keypad If you would like to withdraw your question, press star one again. if you would like to withdraw your question press star one again For those participating in the Q&A, you will have the opportunity to ask one question and if needed, one follow-up question. for those participating in the q&a you will have the opportunity to ask one question and if needed one follow-up question Thank you. thank you Erin Linnihan, Vice President of Investor Relations, you may begin your conference. erin linnihan vice president of investor relations you may begin your conference

Speaker 4: Thank you, Cath. Good morning, and welcome to ITW's first quarter 2026 conference call. I'm joined by our President and CEO, Chris O'Herlihy, and Senior Vice President and CFO, Michael Larsen. During today's call, we will discuss ITW's first quarter 2026 financial results and provide an update on our outlook for full year 2026. Slide two is a reminder that this presentation contains forward-looking statements. Please refer to the company's 2025 Form 10-K 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. A reconciliation of those measures to the most directly comparable GAAP measures is contained in the press release. Please turn to slide three. It's now my pleasure to turn the call over to our President and CEO, Chris O'Herlihy. Chris? Thank you, Cath. thank you cath Good morning, and welcome to ITW's first quarter 2026 conference call. good morning and welcome to itw's first quarter 2026 conference call I'm joined by our President and CEO, Chris O'Herlihy, and Senior Vice President and CFO, Michael Larsen. i'm joined by our president and ceo chris o'herlihy and senior vice president and cfo michael larsen During today's call, we will discuss ITW's first quarter 2026 financial results and provide an update on our outlook for full year 2026. during today's call we will discuss itw's first quarter 2026 financial results and provide an update on our outlook for full year 2026 Slide two is a reminder that this presentation contains forward-looking statements. slide two is a reminder that this presentation contains forward-looking statements Please refer to the company's 2025 Form 10-K and subsequent reports filed with the SEC for more detail about important risks that could cause actual results to differ materially from our expectations. please refer to the company's 2025 form 10-k 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. this presentation uses certain non-gaap measures A reconciliation of those measures to the most directly comparable GAAP measures is contained in the press release. a reconciliation of those measures to the most directly comparable gaap measures is contained in the press release Please turn to slide three. please turn to slide three It's now my pleasure to turn the call over to our President and CEO, Chris O'Herlihy. it's now my pleasure to turn the call over to our president and ceo chris o'herlihy Chris? chris

Speaker 2: Thank you, Erin. Good morning, everyone. As you saw in our press release this morning, ITW delivered a solid start to the year with results that were in line with our expectations. In the first quarter, we continued to outperform our underlying end markets, delivering revenue growth of 5% and a 12% increase in GAAP EPS to $1.66. Through disciplined operational execution, we expanded operating margin by 60 basis points to 25.4%. We continued to capitalize on positive demand trends in our CapEx-related segments, with organic growth in Welding up 6% and Test & Measurement and Electronics up 5%. While our consumer-facing businesses contended with challenging end market dynamics, the ITW team executed at a high level on the profit drivers within our control. Thank you, Erin. thank you erin Good morning, everyone. good morning everyone As you saw in our press release this morning, ITW delivered a solid start to the year with results that were in line with our expectations. as you saw in our press release this morning itw delivered a solid start to the year with results that were in line with our expectations In the first quarter, we continued to outperform our underlying end markets, delivering revenue growth of 5% and a 12% increase in GAAP EPS to $1.66. in the first quarter we continued to outperform our underlying end markets delivering revenue growth of 5% and a 12% increase in gaap eps to $1.66 Through disciplined operational execution, we expanded operating margin by 60 basis points to 25.4%. through disciplined operational execution we expanded operating margin by 60 basis points to 25.4% We continued to capitalize on positive demand trends in our CapEx-related segments, with organic growth in Welding up 6% and Test & Measurement and Electronics up 5%. we continued to capitalize on positive demand trends in our capex-related segments with organic growth in welding up 6% and test & measurement and electronics up 5% While our consumer-facing businesses contended with challenging end market dynamics, the ITW team executed at a high level on the profit drivers within our control. while our consumer-facing businesses contended with challenging end market dynamics the itw team executed at a high level on the profit drivers within our control Our enterprise initiatives contributed 120 basis points to the bottom line, driving that 60 basis point overall margin improvement. We were equally encouraged by our continued progress on ITW's organic growth agenda, specifically on Customer-Back Innovation, or CBI as we call it. We are positioning the company to consistently deliver 3% plus CBI contribution to revenue by 2030. As we've noted before, this is the key driver of our ability to consistently deliver 4%+ high-quality organic growth at the enterprise level. As we look ahead and based on our solid Q1 results, we are raising our full year GAAP EPS guidance by $0.10. Our new guidance midpoint of $11.30 incorporates a slightly lower tax rate and represents 8% year-over-year growth. Our enterprise initiatives contributed 120 basis points to the bottom line, driving that 60 basis point overall margin improvement. our enterprise initiatives contributed 120 basis points to the bottom line driving that 60 basis point overall margin improvement We were equally encouraged by our continued progress on ITW's organic growth agenda, specifically on Customer-Back Innovation, or CBI as we call it. we were equally encouraged by our continued progress on itw's organic growth agenda specifically on customer-back innovation or cbi as we call it We are positioning the company to consistently deliver 3% plus CBI contribution to revenue by 2030. we are positioning the company to consistently deliver 3% plus cbi contribution to revenue by 2030 As we've noted before, this is the key driver of our ability to consistently deliver 4% + high-quality organic growth at the enterprise level. as we've noted before this is the key driver of our ability to consistently deliver 4% + high-quality organic growth at the enterprise level As we look ahead and based on our solid Q1 results, we are raising our full year GAAP EPS guidance by $0.10. as we look ahead and based on our solid q1 results we are raising our full year gaap eps guidance by $0.10 Our new guidance midpoint of $11.30 incorporates a slightly lower tax rate and represents 8% year-over-year growth. our new guidance midpoint of $11.30 incorporates a slightly lower tax rate and represents 8% year-over-year growth Our full year organic growth projection of 1% to 3% remains unchanged, reflecting current demand levels adjusted for seasonality. For the full year, we expect operating margin expansion of approximately 100 basis points, powered by our enterprise initiatives. Notably, all seven segments are projected to deliver positive organic growth and margin expansion in 2026. As we've said before, ITW's unique business model, resilient portfolio, and do what we say execution demonstrated daily by our colleagues worldwide ensure we are well-positioned to deliver robust financial performance in any environment and remain invested in our long-term strategy through any business cycle. As order activity continues to strengthen across several of our end markets, our production capacity, new product pipeline, and best-in-class customer-facing metrics position us to take market share and fully capitalize on these positive demand trends that we are now beginning to see. Our full year organic growth projection of 1% to 3% remains unchanged, reflecting current demand levels adjusted for seasonality. our full year organic growth projection of 1% to 3% remains unchanged reflecting current demand levels adjusted for seasonality For the full year, we expect operating margin expansion of approximately 100 basis points, powered by our enterprise initiatives. for the full year we expect operating margin expansion of approximately 100 basis points powered by our enterprise initiatives Notably, all seven segments are projected to deliver positive organic growth and margin expansion in 2026. notably all seven segments are projected to deliver positive organic growth and margin expansion in 2026 As we've said before, ITW's unique business model, resilient portfolio, and do what we say execution demonstrated daily by our colleagues worldwide ensure we are well-positioned to deliver robust financial performance in any environment and remain invested in our long-term strategy through any business cycle. as we've said before itw's unique business model resilient portfolio and do what we say execution demonstrated daily by our colleagues worldwide ensure we are well-positioned to deliver robust financial performance in any environment and remain invested in our long-term strategy through any business cycle As order activity continues to strengthen across several of our end markets, our production capacity, new product pipeline, and best-in-class customer-facing metrics position us to take market share and fully capitalize on these positive demand trends that we are now beginning to see. as order activity continues to strengthen across several of our end markets our production capacity new product pipeline and best-in-class customer-facing metrics position us to take market share and fully capitalize on these positive demand trends that we are now beginning to see With that, I'll now turn the call over to Michael to provide more detail on the quarter and our guidance for 2026. Michael? With that, I'll now turn the call over to Michael to provide more detail on the quarter and our guidance for 2026. with that i'll now turn the call over to michael to provide more detail on the quarter and our guidance for 2026 Michael? michael

Speaker 7: Thank you, Chris. Good morning, everyone. In Q1, the ITW team delivered a solid operational and financial start to the year. Starting with the top line, revenue growth was 4.6%, driven by organic growth of 0.4%, a 3.9% contribution from foreign currency translation, and 0.3% from an acquisition. As Chris said, we were particularly encouraged by positive demand trends and strong order activity in our CapEx and semi-related segments. The combination of our product line simplification, PLS efforts, and delayed sales to the Middle East reduced our organic growth rate by approximately one percentage point. For context, our annual sales to the Middle East represent approximately $100 million, which is less than 1% of ITW's total annual sales. Thank you, Chris. thank you chris Good morning, everyone. good morning everyone In Q1, the ITW team delivered a solid operational and financial start to the year. in q1 the itw team delivered a solid operational and financial start to the year Starting with the top line, revenue growth was 4.6%, driven by organic growth of 0.4%, a 3.9% contribution from foreign currency translation, and 0.3% from an acquisition. starting with the top line revenue growth was 4.6% driven by organic growth of 0.4% a 3.9% contribution from foreign currency translation and 0.3% from an acquisition As Chris said, we were particularly encouraged by positive demand trends and strong order activity in our CapEx and semi-related segments. as chris said we were particularly encouraged by positive demand trends and strong order activity in our capex and semi-related segments The combination of our product line simplification, PLS efforts, and delayed sales to the Middle East reduced our organic growth rate by approximately one percentage point. the combination of our product line simplification pls efforts and delayed sales to the middle east reduced our organic growth rate by approximately one percentage point For context, our annual sales to the Middle East represent approximately $100 million, which is less than 1% of ITW's total annual sales. for context our annual sales to the middle east represent approximately $100 million which is less than 1% of itw's total annual sales On the bottom line, operating margin improved by 60 basis points to 25.4%, with Enterprise Initiatives contributing 120 basis points. Incremental margins were approximately 40% in the quarter, and we expect both operating margin and incremental margins to move higher as the year progresses. Free cash flow grew 6% with a 69% conversion rate reflecting typical first quarter seasonality. We also repurchased $375 million of shares during the quarter. Overall, a solid start to the year with revenue growth of 5%, earnings growth of 12%, and some encouraging demand trends that bode well for the balance of the year. Please turn to slide four for a brief update on our Enterprise Initiatives. Since 2012, our strong execution on the Enterprise Initiatives have been the most impactful driver of margin improvement at ITW. On the bottom line, operating margin improved by 60 basis points to 25.4%, with Enterprise Initiatives contributing 120 basis points. on the bottom line operating margin improved by 60 basis points to 25.4% with enterprise initiatives contributing 120 basis points Incremental margins were approximately 40% in the quarter, and we expect both operating margin and incremental margins to move higher as the year progresses. incremental margins were approximately 40% in the quarter and we expect both operating margin and incremental margins to move higher as the year progresses Free cash flow grew 6% with a 69% conversion rate reflecting typical first quarter seasonality. We also repurchased $375 million of shares during the quarter. free cash flow grew 6% with a 69% conversion rate reflecting typical first quarter seasonality. we also repurchased $375 million of shares during the quarter Overall, a solid start to the year with revenue growth of 5%, earnings growth of 12%, and some encouraging demand trends that bode well for the balance of the year. overall a solid start to the year with revenue growth of 5% earnings growth of 12% and some encouraging demand trends that bode well for the balance of the year Please turn to slide four for a brief update on our Enterprise Initiatives. please turn to slide four for a brief update on our enterprise initiatives Since 2012, our strong execution on the Enterprise Initiatives have been the most impactful driver of margin improvement at ITW. since 2012 our strong execution on the enterprise initiatives have been the most impactful driver of margin improvement at itw The 120 basis points contribution this quarter from our strategic sourcing and 80/20 Front-to-Back activities was in line with our expectations, and we remain on track for a full year impact of approximately 100 basis points independent of volume. Looking ahead, we expect these initiatives to continue to drive meaningful gains through 2030 as we track toward our 30% margin goal. Now let's move to the segment highlights, starting with Automotive OEM, where revenue increased 4%. While organic revenue declined 1%, we outperformed global Automotive builds, which were down more than 3%. On a regional basis, North America was down 5%, while Europe was flat. China declined 3% but significantly outperformed Automotive builds, which were down 10%. The 120 basis points contribution this quarter from our strategic sourcing and 80/20 Front-to-Back activities was in line with our expectations, and we remain on track for a full year impact of approximately 100 basis points independent of volume. the 120 basis points contribution this quarter from our strategic sourcing and 80/20 front-to-back activities was in line with our expectations and we remain on track for a full year impact of approximately 100 basis points independent of volume Looking ahead, we expect these initiatives to continue to drive meaningful gains through 2030 as we track toward our 30% margin goal. looking ahead we expect these initiatives to continue to drive meaningful gains through 2030 as we track toward our 30% margin goal Now let's move to the segment highlights, starting with Automotive OEM, where revenue increased 4%. now let's move to the segment highlights starting with automotive oem where revenue increased 4% While organic revenue declined 1%, we outperformed global Automotive builds, which were down more than 3%. while organic revenue declined 1% we outperformed global automotive builds which were down more than 3% On a regional basis, North America was down 5%, while Europe was flat. on a regional basis north america was down 5% while europe was flat China declined 3% but significantly outperformed Automotive builds, which were down 10%. china declined 3% but significantly outperformed automotive builds which were down 10% Builds in China are projected to meaningfully improve sequentially in the 2nd quarter, including double-digit growth in EVs, where we are particularly well-positioned. At the segment level, we continue to expect our typical 200-300 basis points of outperformance versus builds that are now expected to be down approximately 2% for the full year. Operating margin improved by 170 basis points to 21%. Turning to slide five, Food Equipment delivered revenue growth of 2%, with organic revenue down 3%. Strength in service, which grew 3%, partially offset a 6% decline in equipment. North America was down 5%. A slower start than expected on the institutional side, particularly in the education end market, was partially offset by growth in restaurants, including QSR, which was up double digits, and service, which grew more than 4%. Builds in China are projected to meaningfully improve sequentially in the 2nd quarter, including double-digit growth in EVs, where we are particularly well-positioned. builds in china are projected to meaningfully improve sequentially in the 2nd quarter including double-digit growth in evs where we are particularly well-positioned At the segment level, we continue to expect our typical 200-300 basis points of outperformance versus builds that are now expected to be down approximately 2% for the full year. at the segment level we continue to expect our typical 200-300 basis points of outperformance versus builds that are now expected to be down approximately 2% for the full year Operating margin improved by 170 basis points to 21%. operating margin improved by 170 basis points to 21% Turning to slide five, Food Equipment delivered revenue growth of 2%, with organic revenue down 3%. turning to slide five food equipment delivered revenue growth of 2% with organic revenue down 3% Strength in service, which grew 3%, partially offset a 6% decline in equipment. strength in service which grew 3% partially offset a 6% decline in equipment North America was down 5%. north america was down 5% A slower start than expected on the institutional side, particularly in the education end market, was partially offset by growth in restaurants, including QSR, which was up double digits, and service, which grew more than 4%. a slower start than expected on the institutional side particularly in the education end market was partially offset by growth in restaurants including qsr which was up double digits and service which grew more than 4% Encouragingly, since January, we have seen gradual improvement in institutional demand trends. At the Food Equipment segment level, we continue to expect positive organic growth and margin improvement for the full year. The international business was flat and is projected to deliver positive organic growth starting in Q2. Test & Measurement and Electronics had a standout quarter, with 10% revenue growth and 5% organic growth. The highest growth rate in three years as the green shoots we talked about last quarter begin to look more like a sustainable recovery. Through this recent down cycle, our divisions stayed invested in their long-term growth strategies, including capacity and new products, and they are uniquely positioned to meet growing customer demand and fully capitalize on the growth opportunities in front of them. Encouragingly, since January, we have seen gradual improvement in institutional demand trends. encouragingly since january we have seen gradual improvement in institutional demand trends At the Food Equipment segment level, we continue to expect positive organic growth and margin improvement for the full year. at the food equipment segment level we continue to expect positive organic growth and margin improvement for the full year The international business was flat and is projected to deliver positive organic growth starting in Q2. the international business was flat and is projected to deliver positive organic growth starting in q2 Test & Measurement and Electronics had a standout quarter, with 10% revenue growth and 5% organic growth. test & measurement and electronics had a standout quarter with 10% revenue growth and 5% organic growth The highest growth rate in three years as the green shoots we talked about last quarter begin to look more like a sustainable recovery. the highest growth rate in three years as the green shoots we talked about last quarter begin to look more like a sustainable recovery Through this recent down cycle, our divisions stayed invested in their long-term growth strategies, including capacity and new products, and they are uniquely positioned to meet growing customer demand and fully capitalize on the growth opportunities in front of them. through this recent down cycle our divisions stayed invested in their long-term growth strategies including capacity and new products and they are uniquely positioned to meet growing customer demand and fully capitalize on the growth opportunities in front of them As a result, Electronics grew 10% this quarter, and the semi-related businesses, which represent about $500 million of annual revenues or about 15% of the segment, grew more than 15%. Looking ahead, market indicators like increasing fab utilization, encouraging customer signals, and response to new products, as well as strong order activity, all support the view that the positive demand trends that we're seeing in this segment today are sustainable in the near term. Moving on to slide six. Welding delivered another strong top-line performance as revenue grew 7% with organic growth of 6%. Equipment grew 8% with a strong contribution from new products. North America was the primary growth engine, up 8%, with mid-single-digit growth in filler metals. The growth was broad-based, with mid to high single-digit growth across our businesses, including in both industrial and commercial. As a result, Electronics grew 10% this quarter, and the semi-related businesses, which represent about $500 million of annual revenues or about 15% of the segment, grew more than 15%. as a result electronics grew 10% this quarter and the semi-related businesses which represent about $500 million of annual revenues or about 15% of the segment grew more than 15% Looking ahead, market indicators like increasing fab utilization, encouraging customer signals, and response to new products, as well as strong order activity, all support the view that the positive demand trends that we're seeing in this segment today are sustainable in the near term. looking ahead market indicators like increasing fab utilization encouraging customer signals and response to new products as well as strong order activity all support the view that the positive demand trends that we're seeing in this segment today are sustainable in the near term Moving on to slide six. moving on to slide six Welding delivered another strong top-line performance as revenue grew 7% with organic growth of 6%. welding delivered another strong top-line performance as revenue grew 7% with organic growth of 6% Equipment grew 8% with a strong contribution from new products. equipment grew 8% with a strong contribution from new products North America was the primary growth engine, up 8%, with mid-single-digit growth in filler metals. north america was the primary growth engine up 8% with mid-single-digit growth in filler metals The growth was broad-based, with mid to high single-digit growth across our businesses, including in both industrial and commercial. the growth was broad-based with mid to high single-digit growth across our businesses including in both industrial and commercial International was down 6% due to a difficult comparison of +14% in the year-ago quarter. Operating margin was best in class at 32.1%. Polymers & Fluids delivered 5% revenue growth and organic growth of 2%, driven by new products and robust market share gains, primarily in Automotive aftermarket, which grew 3%. Polymers was flat against a tough comparison of +6%, and Fluids was also flat. Operating margin expanded 150 basis points to 28%. Turning to slide seven. In Construction Products, revenue was up 3%, and encouragingly this quarter marked the best organic growth performance in four years. Overall, organic growth declined 1%. North America was flat as our residential and renovation business delivered positive organic growth of 1%. International was down 6% due to a difficult comparison of + 14% in the year-ago quarter. international was down 6% due to a difficult comparison of + 14% in the year-ago quarter Operating margin was best in class at 32.1%. operating margin was best in class at 32.1% Polymers & Fluids delivered 5% revenue growth and organic growth of 2%, driven by new products and robust market share gains, primarily in Automotive aftermarket, which grew 3%. polymers & fluids delivered 5% revenue growth and organic growth of 2% driven by new products and robust market share gains primarily in automotive aftermarket which grew 3% Polymers was flat against a tough comparison of + 6%, and Fluids was also flat. polymers was flat against a tough comparison of + 6% and fluids was also flat Operating margin expanded 150 basis points to 28%. operating margin expanded 150 basis points to 28% Turning to slide seven. turning to slide seven In Construction Products, revenue was up 3%, and encouragingly this quarter marked the best organic growth performance in four years. in construction products revenue was up 3% and encouragingly this quarter marked the best organic growth performance in four years Overall, organic growth declined 1%. overall organic growth declined 1% North America was flat as our residential and renovation business delivered positive organic growth of 1%. north america was flat as our residential and renovation business delivered positive organic growth of 1% In this segment, we remain well-positioned for the inevitable housing recovery down the road. Europe was down 3% and Australia/New Zealand was down 2%. Specialty Products revenue was down 1%, with organic revenue down 5% due to the impact of PLS activities and delayed Middle East sales. Despite the top-line pressure and with the margin tailwind from recent PLS activities, the segment expanded operating margin by 40 basis points to 31.3%. With that, let's turn to slide eight for an update on our guidance. As we've said before, ITW is well-positioned to deliver meaningful progress on both the top and bottom lines in 2026. On the top line, we're maintaining our total revenue growth projection of 2%-4% and organic growth projection of 1%-3%. In this segment, we remain well-positioned for the inevitable housing recovery down the road. in this segment we remain well-positioned for the inevitable housing recovery down the road Europe was down 3% and Australia/New Zealand was down 2%. europe was down 3% and australia/new zealand was down 2% Specialty Products revenue was down 1%, with organic revenue down 5% due to the impact of PLS activities and delayed Middle East sales. Despite the top-line pressure and with the margin tailwind from recent PLS activities, the segment expanded operating margin by 40 basis points to 31.3%. specialty products revenue was down 1% with organic revenue down 5% due to the impact of pls activities and delayed middle east sales. despite the top-line pressure and with the margin tailwind from recent pls activities the segment expanded operating margin by 40 basis points to 31.3% With that, let's turn to slide eight for an update on our guidance. with that let's turn to slide eight for an update on our guidance As we've said before, ITW is well-positioned to deliver meaningful progress on both the top and bottom lines in 2026. as we've said before itw is well-positioned to deliver meaningful progress on both the top and bottom lines in 2026 On the top line, we're maintaining our total revenue growth projection of 2%-4% and organic growth projection of 1%-3%. on the top line we're maintaining our total revenue growth projection of 2%-4% and organic growth projection of 1%-3% Per our usual process, this is based on current levels of demand, adjusted for typical seasonality and prevailing foreign exchange rates. On the bottom line, we continue to expect operating margin to improve by approximately 100 basis points to a range of 26.5%-27.5% as enterprise initiatives contribute approximately 100 basis points. We continue to expect that price costs will be modestly accretive to margins after factoring in recent tariff changes and all known material cost increases offset by corresponding pricing and supply chain actions. Our projection for incremental margins in the mid-to-high 40s remain unchanged. Per our usual process, this is based on current levels of demand, adjusted for typical seasonality and prevailing foreign exchange rates. per our usual process this is based on current levels of demand adjusted for typical seasonality and prevailing foreign exchange rates On the bottom line, we continue to expect operating margin to improve by approximately 100 basis points to a range of 26.5%-27.5% as enterprise initiatives contribute approximately 100 basis points. on the bottom line we continue to expect operating margin to improve by approximately 100 basis points to a range of 26.5%-27.5% as enterprise initiatives contribute approximately 100 basis points We continue to expect that price costs will be modestly accretive to margins after factoring in recent tariff changes and all known material cost increases offset by corresponding pricing and supply chain actions. we continue to expect that price costs will be modestly accretive to margins after factoring in recent tariff changes and all known material cost increases offset by corresponding pricing and supply chain actions Our projection for incremental margins in the mid-to-high 40s remain unchanged. our projection for incremental margins in the mid-to-high 40s remain unchanged Incorporating our first quarter results and the lower effective tax rate projection for the year of 23%-24%, we are raising our GAAP EPS guidance by $0.10 to a new range of $11.10-$11.50, representing 8% growth at the $11.30 midpoint. In terms of cadence, we are projecting a 48/52 EPS split between the first and second half of the year, which is less back-end loaded than 2025 and our previous guidance. Finally, we expect free cash flow conversion to exceed 100% of net income, and we are on track to repurchase approximately $1.5 billion of our shares in 2026. In summary, we're heading into the balance of the year with positive momentum on both the top and bottom line. Incorporating our first quarter results and the lower effective tax rate projection for the year of 23%-24%, we are raising our GAAP EPS guidance by $0.10 to a new range of $11.10-$11.50, representing 8% growth at the $11.30 midpoint. incorporating our first quarter results and the lower effective tax rate projection for the year of 23%-24% we are raising our gaap eps guidance by $0.10 to a new range of $11.10-$11.50 representing 8% growth at the $11.30 midpoint In terms of cadence, we are projecting a 48/ 52 EPS split between the first and second half of the year, which is less back-end loaded than 2025 and our previous guidance. in terms of cadence we are projecting a 48/ 52 eps split between the first and second half of the year which is less back-end loaded than 2025 and our previous guidance Finally, we expect free cash flow conversion to exceed 100% of net income, and we are on track to repurchase approximately $1.5 billion of our shares in 2026. finally we expect free cash flow conversion to exceed 100% of net income and we are on track to repurchase approximately $1.5 billion of our shares in 2026 In summary, we're heading into the balance of the year with positive momentum on both the top and bottom line. in summary we're heading into the balance of the year with positive momentum on both the top and bottom line All seven segments are projecting positive organic growth and further improvement in their industry-leading margins. Overall, ITW is well-positioned to deliver on our guidance, including solid organic growth with best-in-class margins and returns. With that, Erin, I'll turn it back to you. All seven segments are projecting positive organic growth and further improvement in their industry-leading margins. all seven segments are projecting positive organic growth and further improvement in their industry-leading margins Overall, ITW is well-positioned to deliver on our guidance, including solid organic growth with best-in-class margins and returns. overall itw is well-positioned to deliver on our guidance including solid organic growth with best-in-class margins and returns With that, Erin, I'll turn it back to you. with that erin i'll turn it back to you

Speaker 4: Thank you, Michael. Cath, will you please open the line and inform callers on how to get back into the queue? Thank you, Michael. thank you michael Cath, will you please open the line and inform callers on how to get back into the queue? cath will you please open the line and inform callers on how to get back into the queue

Speaker 8: Thank you. At this time, I would like to remind everyone to ask question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Andy Kaplowitz with Citigroup. Your line is open. Thank you. thank you At this time, I would like to remind everyone to ask question, press star, then the number one on your telephone keypad. at this time i would like to remind everyone to ask question press star then the number one on your telephone keypad We will pause for just a moment to compile the Q&A roster. we will pause for just a moment to compile the q&a roster Your first question comes from the line of Andy Kaplowitz with Citigroup. your first question comes from the line of andy kaplowitz with citigroup Your line is open. your line is open

Speaker 1: Close enough. How's everyone doing? Close enough. close enough How's everyone doing? how's everyone doing

Speaker 7: Good morning. Good morning. good morning

Speaker 2: Good morning. Good morning. good morning

Speaker 1: Good morning. I know it's early in the year, but when you think about growth in the segments, is it fair to say that your CapEx businesses, such as Test & Measurement and Welding, are trending ahead of your expectations? Maybe Consumer, you know, Specialty, I guess, and Food Equipment was more institutional or a little below, and they just kinda net out. How are you thinking about growth by segment versus your original expectations? Good morning. good morning I know it's early in the year, but when you think about growth in the segments, is it fair to say that your CapEx businesses, such as Test & Measurement and Welding, are trending ahead of your expectations? i know it's early in the year but when you think about growth in the segments is it fair to say that your capex businesses such as test & measurement and welding are trending ahead of your expectations Maybe Consumer, you know, Specialty, I guess, and Food Equipment was more institutional or a little below, and they just kinda net out. maybe consumer you know specialty i guess and food equipment was more institutional or a little below and they just kinda net out How are you thinking about growth by segment versus your original expectations? how are you thinking about growth by segment versus your original expectations

Speaker 2: Yeah. Andy, as we've indicated, we expect all seven segments to show a positive organic growth this year. I think you've characterized the first quarter pretty well. You know, I think what we saw is those CapEx-related segments like Test & Measurement and Welding. Your Test & Measurement, obviously, particularly in Semiconductors and Electronics, as Michael indicated, you know, grew more than 15%. I would say with continued order strength here into Q2. Welding, you know, it's been a tough environment for a few years, but we grew 6% in Q1. Mixture of some strong order activity, again, which continues into Q2 and continued improvement in CBI. And I think encouraging on Welding, the strength was pretty broad-based. Yeah. yeah Andy, as we've indicated, we expect all seven segments to show a positive organic growth this year. andy as we've indicated we expect all seven segments to show a positive organic growth this year I think you've characterized the first quarter pretty well. i think you've characterized the first quarter pretty well You know, I think what we saw is those CapEx-related segments like Test & Measurement and Welding. you know i think what we saw is those capex-related segments like test & measurement and welding Your Test & Measurement, obviously, particularly in Semiconductors and Electronics, as Michael indicated, you know, grew more than 15%. your test & measurement obviously particularly in semiconductors and electronics as michael indicated you know grew more than 15% I would say with continued order strength here into Q2. i would say with continued order strength here into q2 Welding, you know, it's been a tough environment for a few years, but we grew 6% in Q1. welding you know it's been a tough environment for a few years but we grew 6% in q1 Mixture of some strong order activity, again, which continues into Q2 and continued improvement in CBI. mixture of some strong order activity again which continues into q2 and continued improvement in cbi And I think encouraging on Welding, the strength was pretty broad-based. and i think encouraging on welding the strength was pretty broad-based It wasn't just in industrial markets, which we started seeing in Q4, it also in Q1 bled into the commercial platforms as well. Certainly on those CapEx-related markets, I think very strong strength, strong order activity. On the more challenged consumer-facing markets, even though they're challenged, we continue to outgrow those markets. If we look at Automotive as a prime example, where we again demonstrated, you know, a couple of hundred basis points of improvement over the market. Similarly, in construction and even in areas like Polymers & Fluids where Automotive aftermarket, we showed a very healthy market outgrowth versus retail point of sales and Automotive aftermarket. You know, I think it's a tale of two markets right now. It wasn't just in industrial markets, which we started seeing in Q4, it also in Q1 bled into the commercial platforms as well. it wasn't just in industrial markets which we started seeing in q4 it also in q1 bled into the commercial platforms as well Certainly on those CapEx-related markets, I think very strong strength, strong order activity. certainly on those capex-related markets i think very strong strength strong order activity On the more challenged consumer-facing markets, even though they're challenged, we continue to outgrow those markets. on the more challenged consumer-facing markets even though they're challenged we continue to outgrow those markets If we look at Automotive as a prime example, where we again demonstrated, you know, a couple of hundred basis points of improvement over the market. if we look at automotive as a prime example where we again demonstrated you know a couple of hundred basis points of improvement over the market Similarly, in construction and even in areas like Polymers & Fluids where Automotive aftermarket, we showed a very healthy market outgrowth versus retail point of sales and Automotive aftermarket. similarly in construction and even in areas like polymers & fluids where automotive aftermarket we showed a very healthy market outgrowth versus retail point of sales and automotive aftermarket You know, I think it's a tale of two markets right now. you know i think it's a tale of two markets right now We're seeing the industrial markets, CapEx markets, very strong, great order activity. Even in those consumer-facing markets, which are improving a little bit, you know, we're outgrowing those markets. We're seeing the industrial markets, CapEx markets, very strong, great order activity. we're seeing the industrial markets capex markets very strong great order activity Even in those consumer-facing markets, which are improving a little bit, you know, we're outgrowing those markets. even in those consumer-facing markets which are improving a little bit you know we're outgrowing those markets

Speaker 1: It's helpful, Chris. Maybe similar question on margin for you or Michael. Like, you reiterated the incrementals for the year in the mid to high 40s%. Are you getting there at all differently? 'Cause, I mean, Test & Measurement and Auto look good, but Food Equipment obviously was lower. Was that just lower absorption in the quarter and it gets better from here? Are you seeing increased inflation sort of impact you at all? Like, how do you think about that? It's helpful, Chris. it's helpful chris Maybe similar question on margin for you or Michael. maybe similar question on margin for you or michael Like, you reiterated the incrementals for the year in the mid to high 40s%. like you reiterated the incrementals for the year in the mid to high 40s% Are you getting there at all differently? 'Cause, I mean, Test & Measurement and Auto look good, but Food Equipment obviously was lower. are you getting there at all differently 'cause i mean test & measurement and auto look good but food equipment obviously was lower Was that just lower absorption in the quarter and it gets better from here? was that just lower absorption in the quarter and it gets better from here Are you seeing increased inflation sort of impact you at all? are you seeing increased inflation sort of impact you at all Like, how do you think about that? like how do you think about that

Speaker 7: Yeah. I think, Andy, overall, the incremental margin assumptions, the operating margin assumptions are unchanged from where we were when we gave guidance on our last call. We continue to expect incrementals in the mid to high forties, and we expect to improve operating margins by 100 basis points this year. You know, seasonally, Q1, as we talked about on the last call, always starts out a little lower, and then margins and incrementals improve sequentially as we go through the year. We also expect, based on current run rates, you know, that we will see some increased operating leverage as we go through from Q1 to Q2 and into the back half of the year. Yeah. yeah I think, Andy, overall, the incremental margin assumptions, the operating margin assumptions are unchanged from where we were when we gave guidance on our last call. i think andy overall the incremental margin assumptions the operating margin assumptions are unchanged from where we were when we gave guidance on our last call We continue to expect incrementals in the mid to high forties, and we expect to improve operating margins by 100 basis points this year. we continue to expect incrementals in the mid to high forties and we expect to improve operating margins by 100 basis points this year You know, seasonally, Q1, as we talked about on the last call, always starts out a little lower, and then margins and incrementals improve sequentially as we go through the year. you know seasonally q1 as we talked about on the last call always starts out a little lower and then margins and incrementals improve sequentially as we go through the year We also expect, based on current run rates, you know, that we will see some increased operating leverage as we go through from Q1 to Q2 and into the back half of the year. we also expect based on current run rates you know that we will see some increased operating leverage as we go through from q1 to q2 and into the back half of the year Overall, the margin expectations, as I think Chris said, is that every one of our segments will improve operating margins this year. Obviously, the ones that are benefiting from some positive demand trends in particular should be expected to maybe outperform a little bit on those incrementals. Just a word on Food Equipment. I'd say, certainly an anomaly in that segment in terms of the margin performance and the incrementals in the first quarter. It's really an isolated challenge in one particular end market on the institutional side, and it relates back to the month of January. We did see improving demand trends in FEG, in Food Equipment, as well as in that particular end market as we went through February, March, and April. Overall, the margin expectations, as I think Chris said, is that every one of our segments will improve operating margins this year. overall the margin expectations as i think chris said is that every one of our segments will improve operating margins this year Obviously, the ones that are benefiting from some positive demand trends in particular should be expected to maybe outperform a little bit on those incrementals. obviously the ones that are benefiting from some positive demand trends in particular should be expected to maybe outperform a little bit on those incrementals Just a word on Food Equipment. just a word on food equipment I'd say, certainly an anomaly in that segment in terms of the margin performance and the incrementals in the first quarter. i'd say certainly an anomaly in that segment in terms of the margin performance and the incrementals in the first quarter It's really an isolated challenge in one particular end market on the institutional side, and it relates back to the month of January. it's really an isolated challenge in one particular end market on the institutional side and it relates back to the month of january We did see improving demand trends in FEG, in Food Equipment, as well as in that particular end market as we went through February, March, and April. we did see improving demand trends in feg in food equipment as well as in that particular end market as we went through february march and april It's certainly something we will continue to keep a close eye on. I would just add, while we're on margins that, while some of the more growth challenged businesses that we Chris talked about, Polymers & Fluids, maybe Automotive, Construction, continue to execute at a very high level. You see that despite some of these top-line challenges, they continue to expand margins, which is really encouraging. It's certainly something we will continue to keep a close eye on. it's certainly something we will continue to keep a close eye on I would just add, while we're on margins that, while some of the more growth challenged businesses that we Chris talked about, Polymers & Fluids, maybe Automotive, Construction, continue to execute at a very high level. i would just add while we're on margins that while some of the more growth challenged businesses that we chris talked about polymers & fluids maybe automotive construction continue to execute at a very high level You see that despite some of these top-line challenges, they continue to expand margins, which is really encouraging. you see that despite some of these top-line challenges they continue to expand margins which is really encouraging

Speaker 1: Very helpful. Very helpful. very helpful

Speaker 8: Your next question comes from the line of Jamie Cook with Truist Securities. Your line is open. Your next question comes from the line of Jamie Cook with Truist Securities. your next question comes from the line of jamie cook with truist securities Your line is open. your line is open

Speaker 5: Hi. Good morning. I guess just my first- Hi. hi Good morning. good morning I guess just my first- i guess just my first-

Speaker 7: Good morning. Good morning. good morning

Speaker 5: My first question, can you just, you know, help us understand, I mean, last quarter it sounded like you were pretty, you know, positive on, you know, short cycle momentum, things improving, you know, your confidence level today with some of the, you know, uncertainty related to, you know, the war with Iran and macro and whether you saw any change in sort of the cadence of sales throughout the quarter or into April? My second question, can you just give us an update on, you know, CBI, the contribution expected for 2026 and, you know, whether you're contemplating other parts of the portfolio that, we're having a harder time with CBI, so perhaps there's opportunities to, you know, refocus, you know, to certain product lines which are being more successful versus not. Thank you. My first question, can you just, you know, help us understand, I mean, last quarter it sounded like you were pretty, you know, positive on, you know, short cycle momentum, things improving, you know, your confidence level today with some of the, you know, uncertainty related to, you know, the war with Iran and macro and whether you saw any change in sort of the cadence of sales throughout the quarter or into April? my first question can you just you know help us understand i mean last quarter it sounded like you were pretty you know positive on you know short cycle momentum things improving you know your confidence level today with some of the you know uncertainty related to you know the war with iran and macro and whether you saw any change in sort of the cadence of sales throughout the quarter or into april My second question, can you just give us an update on, you know, CBI, the contribution expected for 2026 and, you know, whether you're contemplating other parts of the portfolio that, we're having a harder time with CBI, so perhaps there's opportunities to, you know, refocus, you know, to certain product lines which are being more successful versus not. my second question can you just give us an update on you know cbi the contribution expected for 2026 and you know whether you're contemplating other parts of the portfolio that we're having a harder time with cbi so perhaps there's opportunities to you know refocus you know to certain product lines which are being more successful versus not Thank you. thank you

Speaker 7: Yeah. Thank you, Jamie. Maybe I'll take the first part and then hand it over to you, Chris, for the CBI question. I'd say in terms of overall confidence, you know, let's start with the context that we came in right along with our plan for the first quarter. You know, we talked about on the last call that we expected a step down from Q4 to Q1. We actually on the top line did a little bit better than that. I would say if anything, we are more confident today as we sit here today. I think it's important to mention that our guidance today is based on the current levels of demand that we're seeing in these businesses. Yeah. yeah Thank you, Jamie. thank you jamie Maybe I'll take the first part and then hand it over to you, Chris, for the CBI question. maybe i'll take the first part and then hand it over to you chris for the cbi question I'd say in terms of overall confidence, you know, let's start with the context that we came in right along with our plan for the first quarter. i'd say in terms of overall confidence you know let's start with the context that we came in right along with our plan for the first quarter You know, we talked about on the last call that we expected a step down from Q4 to Q1. you know we talked about on the last call that we expected a step down from q4 to q1 We actually on the top line did a little bit better than that. we actually on the top line did a little bit better than that I would say if anything, we are more confident today as we sit here today. i would say if anything we are more confident today as we sit here today I think it's important to mention that our guidance today is based on the current levels of demand that we're seeing in these businesses. i think it's important to mention that our guidance today is based on the current levels of demand that we're seeing in these businesses In some of these businesses, maybe Welding and Test & Measurement in particular, we are seeing order rates that are meaningfully higher than the organic growth rates that those segments put up in the first quarter. That is not included in our guidance today. Again, based on kind of our past practice, this is based on, you know, current run rates. I think certainly, maybe a little bit more of a challenge in maybe a place like Food Equipment, which we just talked about. We believe as we sit here today, we have more than enough strength in those CapEx related and semi-related segments to offset any challenges there. In some of these businesses, maybe Welding and Test & Measurement in particular, we are seeing order rates that are meaningfully higher than the organic growth rates that those segments put up in the first quarter. in some of these businesses maybe welding and test & measurement in particular we are seeing order rates that are meaningfully higher than the organic growth rates that those segments put up in the first quarter That is not included in our guidance today. that is not included in our guidance today Again, based on kind of our past practice, this is based on, you know, current run rates. again based on kind of our past practice this is based on you know current run rates I think certainly, maybe a little bit more of a challenge in maybe a place like Food Equipment, which we just talked about. i think certainly maybe a little bit more of a challenge in maybe a place like food equipment which we just talked about We believe as we sit here today, we have more than enough strength in those CapEx related and semi-related segments to offset any challenges there. we believe as we sit here today we have more than enough strength in those capex related and semi-related segments to offset any challenges there Like I said, we're more confident in our organic growth guidance of 1%-3% today than we were on the last call. That's maybe how I would think about it. I would just one last word on Automotive, 'cause Automotive did have a slower start in China, you need to factor in that Automotive builds in China were down 10% in Q1, and they're projected to be flat here in Q2. We're expecting a pretty meaningful ramp from Q4, from Q1 to Q2, with sequential growth in kind of the low to mid-single digits. We expect meaningful sequential margin improvement, more than 100 basis points. We expect incremental margins to improve. Like I said, we're more confident in our organic growth guidance of 1%-3% today than we were on the last call. like i said we're more confident in our organic growth guidance of 1%-3% today than we were on the last call That's maybe how I would think about it. that's maybe how i would think about it I would just one last word on Automotive, 'cause Automotive did have a slower start in China, you need to factor in that Automotive builds in China were down 10% in Q1, and they're projected to be flat here in Q2. i would just one last word on automotive 'cause automotive did have a slower start in china you need to factor in that automotive builds in china were down 10% in q1 and they're projected to be flat here in q2 We're expecting a pretty meaningful ramp from Q4, from Q1 to Q2, with sequential growth in kind of the low to mid-single digits. we're expecting a pretty meaningful ramp from q4 from q1 to q2 with sequential growth in kind of the low to mid-single digits We expect meaningful sequential margin improvement, more than 100 basis points. we expect meaningful sequential margin improvement more than 100 basis points We expect incremental margins to improve. we expect incremental margins to improve If you just look at the cadence that we outlined, which I think was your other question, you know, the EPS bid 48/52. We just did $23 in Q1, which is exactly what we said on the call last time. That would imply that for the second quarter, the EPS contribution would be about 25% to the full year. As we sit here today, we feel very confident in our ability to deliver both Q2 and the full year. If you just look at the cadence that we outlined, which I think was your other question, you know, the EPS bid 48/52. if you just look at the cadence that we outlined which i think was your other question you know the eps bid 48/52 We just did $23 in Q1, which is exactly what we said on the call last time. we just did $23 in q1 which is exactly what we said on the call last time That would imply that for the second quarter, the EPS contribution would be about 25% to the full year. that would imply that for the second quarter the eps contribution would be about 25% to the full year As we sit here today, we feel very confident in our ability to deliver both Q2 and the full year. as we sit here today we feel very confident in our ability to deliver both q2 and the full year

Speaker 2: Jamie, on your question on CBI and, you know, although the opportunity profile on CBI can look a little different segment to segment, division to division, what I would say is that, you know, we have strong momentum right across the company on CBI, and we're really encouraged by the progress that we're making in every segment. We continue to see this in increasing strength in our pipeline of new products. It's one of the reasons why even in some of these slower growth markets, we're outperforming those markets. We've several successful new product launches this year across the portfolio. If it was the call-out segments, I could call out on seven, but I would say Welding, Test & Measurement, Food Equipment, and Automotive. Jamie, on your question on CBI and, you know, although the opportunity profile on CBI can look a little different segment to segment, division to division, what I would say is that, you know, we have strong momentum right across the company on CBI, and we're really encouraged by the progress that we're making in every segment. jamie on your question on cbi and you know although the opportunity profile on cbi can look a little different segment to segment division to division what i would say is that you know we have strong momentum right across the company on cbi and we're really encouraged by the progress that we're making in every segment We continue to see this in increasing strength in our pipeline of new products. we continue to see this in increasing strength in our pipeline of new products It's one of the reasons why even in some of these slower growth markets, we're outperforming those markets. it's one of the reasons why even in some of these slower growth markets we're outperforming those markets We've several successful new product launches this year across the portfolio. we've several successful new product launches this year across the portfolio If it was the call-out segments, I could call out on seven, but I would say Welding, Test & Measurement, Food Equipment, and Automotive. if it was the call-out segments i could call out on seven but i would say welding test & measurement food equipment and automotive You know, good progress in 2025, obviously, in CBI yield, 40 basis points of improvement. Based on what we see in Q1, we were tracking really well here to deliver incremental improvement in 2026, on the path to 3%+ here, by 2030, if not before. Patent filings as well continue to be strong, obviously up very strongly the last couple of years, 18% in 2024, 9% in 2025. We see additional increases in 2026. As we said before, you know, patent filings continues to be a very strong leading indicator of CBI at ITW, given the customer-backed nature of our innovation, which means that more often than not, patent filings are there to protect important customer solutions. You know, good progress in 2025, obviously, in CBI yield, 40 basis points of improvement. you know good progress in 2025 obviously in cbi yield 40 basis points of improvement Based on what we see in Q1, we were tracking really well here to deliver incremental improvement in 2026, on the path to 3% + here, by 2030, if not before. based on what we see in q1 we were tracking really well here to deliver incremental improvement in 2026 on the path to 3% + here by 2030 if not before Patent filings as well continue to be strong, obviously up very strongly the last couple of years, 18% in 2024, 9% in 2025. patent filings as well continue to be strong obviously up very strongly the last couple of years 18% in 2024 9% in 2025 We see additional increases in 2026. we see additional increases in 2026 As we said before, you know, patent filings continues to be a very strong leading indicator of CBI at ITW, given the customer-backed nature of our innovation, which means that more often than not, patent filings are there to protect important customer solutions. as we said before you know patent filings continues to be a very strong leading indicator of cbi at itw given the customer-backed nature of our innovation which means that more often than not patent filings are there to protect important customer solutions Increased patent activity is often pretty well correlated with future revenue growth. Really feel very positive of what we're seeing in terms of the engagement, the enthusiasm, the followership around CBI, and we're now starting to see this come through in patent filings and yield. Increased patent activity is often pretty well correlated with future revenue growth. increased patent activity is often pretty well correlated with future revenue growth Really feel very positive of what we're seeing in terms of the engagement, the enthusiasm, the followership around CBI, and we're now starting to see this come through in patent filings and yield. really feel very positive of what we're seeing in terms of the engagement the enthusiasm the followership around cbi and we're now starting to see this come through in patent filings and yield

Speaker 5: Thank you. Thank you. thank you

Speaker 8: Your next question comes from the line of Tami Zakaria with JPMorgan. Your line is open. Your next question comes from the line of Tami Zakaria with JPMorgan. your next question comes from the line of tami zakaria with jpmorgan Your line is open. your line is open

Speaker 10: Hi, good morning. Thank you so much. Hi, good morning. hi good morning Thank you so much. thank you so much

Speaker 2: You're welcome. You're welcome. you're welcome

Speaker 10: I have one question, and it's rather long-term driven question. As you think about your Food Equipment business, how do you view the proliferation of GLP-1 drugs and its impact on demand from restaurants and the hospitality industry? I see you had really strong growth in the quarter from restaurants. You mentioned QSRs. Just longer term, is GLP-1 on your radar as you plan for this segment over the coming few years? I have one question, and it's rather long-term driven question. i have one question and it's rather long-term driven question As you think about your Food Equipment business, how do you view the proliferation of GLP-1 drugs and its impact on demand from restaurants and the hospitality industry? as you think about your food equipment business how do you view the proliferation of glp-1 drugs and its impact on demand from restaurants and the hospitality industry I see you had really strong growth in the quarter from restaurants. i see you had really strong growth in the quarter from restaurants You mentioned QSRs. you mentioned qsrs Just longer term, is GLP-1 on your radar as you plan for this segment over the coming few years? just longer term is glp-1 on your radar as you plan for this segment over the coming few years

Speaker 2: I would say, Tami, it's not something we're giving a lot of thought to. I would say GLP-1, early days. I would also say that if you look at Food Equipment, you know, restaurants still represents a smaller, particularly QSR represents a smaller portion of our business. The biggest portion is institutional. We have a sizable restaurant business, but, you know, smaller piece certainly is in QSR, which is probably more directly impacted. I'd say early to tell. It's not something that's on our radar at this point. Like I say, I think particularly as you mentioned QSR, it's not a huge part of our business, although it's growing nicely. I would say, Tami, it's not something we're giving a lot of thought to. i would say tami it's not something we're giving a lot of thought to I would say GLP-1, early days. i would say glp-1 early days I would also say that if you look at Food Equipment, you know, restaurants still represents a smaller, particularly QSR represents a smaller portion of our business. i would also say that if you look at food equipment you know restaurants still represents a smaller particularly qsr represents a smaller portion of our business The biggest portion is institutional. the biggest portion is institutional We have a sizable restaurant business, but, you know, smaller piece certainly is in QSR, which is probably more directly impacted. we have a sizable restaurant business but you know smaller piece certainly is in qsr which is probably more directly impacted I'd say early to tell. i'd say early to tell It's not something that's on our radar at this point. it's not something that's on our radar at this point Like I say, I think particularly as you mentioned QSR, it's not a huge part of our business, although it's growing nicely. like i say i think particularly as you mentioned qsr it's not a huge part of our business although it's growing nicely

Speaker 7: And I would just add, we've said before, Chris, Food Equipment is one of the most fertile segments from an innovation standpoint. There's so much room for customer back innovation. And we would expect that to continue to really accelerate from here and offset any pressures like the ones that you're talking about. And I would just add, we've said before, Chris, Food Equipment is one of the most fertile segments from an innovation standpoint. There's so much room for customer back innovation. And we would expect that to continue to really accelerate from here and offset any pressures like the ones that you're talking about. and i would just add, we've said before, chris, food equipment is one of the most fertile segments from an innovation standpoint. there's so much room for customer back innovation. and we would expect that to continue to really accelerate from here and offset any pressures like the ones that you're talking about

Speaker 10: Understood. Understood. understood

Speaker 8: Your next question comes from the line of Stephen Volkmann with Jefferies. Your line is open. Your next question comes from the line of Stephen Volkmann with Jefferies. your next question comes from the line of stephen volkmann with jefferies Your line is open. your line is open

Speaker 9: Hi. Good morning, everybody. I was gonna stick with Food as well because that QSR comment kinda caught my attention. Do you think that that market is actually turning or is there something that you're doing that's kinda ITW specific there? Yeah. I'll leave it there. Hi. hi Good morning, everybody. good morning everybody I was gonna stick with Food as well because that QSR comment kinda caught my attention. i was gonna stick with food as well because that qsr comment kinda caught my attention Do you think that that market is actually turning or is there something that you're doing that's kinda ITW specific there? do you think that that market is actually turning or is there something that you're doing that's kinda itw specific there Yeah. yeah I'll leave it there. i'll leave it there

Speaker 2: Yeah. I think it's hard to say the market's turning, Steve. I do think that we've got some interesting innovations going on in that space. You know, a large, as Michael mentioned, I mean, the Food Equipment space, very fertile from an innovation standpoint. We have new product launches in all product categories in 2026 here, really, you know, driven around critical customer pain points like, you know, energy, water, labor savings. All those trends are very relevant in QSR. I'm pretty sure that a large part of our QSR growth is coming from innovation. Yeah. yeah I think it's hard to say the market's turning, Steve. i think it's hard to say the market's turning steve I do think that we've got some interesting innovations going on in that space. i do think that we've got some interesting innovations going on in that space You know, a large, as Michael mentioned, I mean, the Food Equipment space, very fertile from an innovation standpoint. you know a large as michael mentioned i mean the food equipment space very fertile from an innovation standpoint We have new product launches in all product categories in 2026 here, really, you know, driven around critical customer pain points like, you know, energy, water, labor savings. we have new product launches in all product categories in 2026 here really you know driven around critical customer pain points like you know energy water labor savings All those trends are very relevant in QSR. all those trends are very relevant in qsr I'm pretty sure that a large part of our QSR growth is coming from innovation. i'm pretty sure that a large part of our qsr growth is coming from innovation

Speaker 7: I would just add, and we always talk about this, is the strength of the service business. While there may be, you know, QSR, in particular can be a little bit lumpy, I think, the service business is more of an annuity type business. You know, our ability to put up 3%, 4%, 5% organic growth on a consistent basis at attractive margins kinda buffers any kinda some of that lumpiness that you might see in the businesses that you're talking about. I would just add, and we always talk about this, is the strength of the service business. i would just add and we always talk about this is the strength of the service business While there may be, you know, QSR, in particular can be a little bit lumpy, I think, the service business is more of an annuity type business. while there may be you know qsr in particular can be a little bit lumpy i think the service business is more of an annuity type business You know, our ability to put up 3%, 4%, 5% organic growth on a consistent basis at attractive margins kinda buffers any kinda some of that lumpiness that you might see in the businesses that you're talking about. you know our ability to put up 3% 4% 5% organic growth on a consistent basis at attractive margins kinda buffers any kinda some of that lumpiness that you might see in the businesses that you're talking about

Speaker 9: Got it. Okay. Thank you for that. Michael, it sounded like there was a margin thing that happened in the quarter that was very specific. Should we assume Q2 is kind of back to normal? Got it. got it Okay. okay Thank you for that. thank you for that Michael, it sounded like there was a margin thing that happened in the quarter that was very specific. michael it sounded like there was a margin thing that happened in the quarter that was very specific Should we assume Q2 is kind of back to normal? should we assume q2 is kind of back to normal

Speaker 7: Yeah. I think there's really nothing unusual about Q1, I would say, other than the slow start maybe in Food Equipment. I think if you look at kind of how the quarter progressed, you know, January started out a little bit slower because of Food Equipment, and then we improved from a growth standpoint in February. Got even better in March. I think March organic was up 4%. In April, we're off to a really good start with organic growth. If you look at our full year guidance range, 1%-3%, we're probably trending towards the high end of that range here in April. That's really the top line. Yeah. yeah I think there's really nothing unusual about Q1, I would say, other than the slow start maybe in Food Equipment. i think there's really nothing unusual about q1 i would say other than the slow start maybe in food equipment I think if you look at kind of how the quarter progressed, you know, January started out a little bit slower because of Food Equipment, and then we improved from a growth standpoint in February. i think if you look at kind of how the quarter progressed you know january started out a little bit slower because of food equipment and then we improved from a growth standpoint in february Got even better in March. got even better in march I think March organic was up 4%. i think march organic was up 4% In April, we're off to a really good start with organic growth. in april we're off to a really good start with organic growth If you look at our full year guidance range, 1%-3%, we're probably trending towards the high end of that range here in April. if you look at our full year guidance range 1%-3% we're probably trending towards the high end of that range here in april That's really the top line. that's really the top line On, and on, and on margins, we expect a sequential improvement, like I said, from Q1 to Q2. We just did 25.4%. We would expect more than 100 basis points of improvement sequentially from Q1 to Q2. That will put it somewhere around, you know, 26.5%, 27-ish%. A little bit of improvement further from Q2 to Q3 on margins, and as well in Q4. From a growth standpoint, from Q2 to Q3, revenues based on run rates again are kind of about the same in Q3 and Q4. That is all that we need to deliver some meaningful organic growth towards the higher end of the range in the second half of this year. Hopefully that gives you a little bit of context. On, and on, and on margins, we expect a sequential improvement, like I said, from Q1 to Q2. on and on and on margins we expect a sequential improvement like i said from q1 to q2 We just did 25.4%. we just did 25.4% We would expect more than 100 basis points of improvement sequentially from Q1 to Q2. we would expect more than 100 basis points of improvement sequentially from q1 to q2 That will put it somewhere around, you know, 26.5%, 27-ish%. that will put it somewhere around you know 26.5% 27-ish% A little bit of improvement further from Q2 to Q3 on margins, and as well in Q4. a little bit of improvement further from q2 to q3 on margins and as well in q4 From a growth standpoint, from Q2 to Q3, revenues based on run rates again are kind of about the same in Q3 and Q4. from a growth standpoint from q2 to q3 revenues based on run rates again are kind of about the same in q3 and q4 That is all that we need to deliver some meaningful organic growth towards the higher end of the range in the second half of this year. that is all that we need to deliver some meaningful organic growth towards the higher end of the range in the second half of this year Hopefully that gives you a little bit of context. hopefully that gives you a little bit of context

Speaker 9: Very much so. Appreciate it. Thanks. Very much so. very much so Appreciate it. appreciate it Thanks. thanks

Speaker 7: Sure. Sure. sure

Speaker 8: Your next question comes from the line of Julian Mitchell with Barclays. Your line is open. Your next question comes from the line of Julian Mitchell with Barclays. your next question comes from the line of julian mitchell with barclays Your line is open. your line is open

Speaker 6: Hi. Good morning. Hi. hi Good morning. good morning

Speaker 7: Good morning. Good morning. good morning

Speaker 6: Michael, sorry, there were a couple of other calls going on, just to clarify, your comments on the top line, just now, were you referring to sort of total company there, in terms of the confidence of getting to the higher end of the range? You know, obviously we've had some questions on you are just over flat in Q1, you know, you've got sort of 2% pegged at the midpoint for the year, and you tend to just guide with run rates, as you say. Is there anything happening on price later in the year maybe that comes in because of cost inflation that gets the growth moving up? Michael, sorry, there were a couple of other calls going on, just to clarify, your comments on the top line, just now, were you referring to sort of total company there, in terms of the confidence of getting to the higher end of the range? michael sorry there were a couple of other calls going on just to clarify your comments on the top line just now were you referring to sort of total company there in terms of the confidence of getting to the higher end of the range You know, obviously we've had some questions on you are just over flat in Q1, you know, you've got sort of 2% pegged at the midpoint for the year, and you tend to just guide with run rates, as you say. you know obviously we've had some questions on you are just over flat in q1 you know you've got sort of 2% pegged at the midpoint for the year and you tend to just guide with run rates as you say Is there anything happening on price later in the year maybe that comes in because of cost inflation that gets the growth moving up? is there anything happening on price later in the year maybe that comes in because of cost inflation that gets the growth moving up

Speaker 7: I think, Julian, as we've said before, the first quarter was right in line with our plan. The organic growth rate was as we described it on the last earnings call, and how the year is projected to unfold, the way we've modeled it is based on our typical, you know, seasonality. In terms of maybe just to comment on price, since you asked, I mean, we had a plan assumption going into the year around price as well as price cost. Given some of the inflationary pressures that we're seeing, just like everybody else, our divisions have reacted from a price standpoint. I think, Julian, as we've said before, the first quarter was right in line with our plan. i think julian as we've said before the first quarter was right in line with our plan The organic growth rate was as we described it on the last earnings call, and how the year is projected to unfold, the way we've modeled it is based on our typical, you know, seasonality. the organic growth rate was as we described it on the last earnings call and how the year is projected to unfold the way we've modeled it is based on our typical you know seasonality In terms of maybe just to comment on price, since you asked, I mean, we had a plan assumption going into the year around price as well as price cost. in terms of maybe just to comment on price since you asked i mean we had a plan assumption going into the year around price as well as price cost Given some of the inflationary pressures that we're seeing, just like everybody else, our divisions have reacted from a price standpoint. given some of the inflationary pressures that we're seeing just like everybody else our divisions have reacted from a price standpoint We now expect a little bit more price, and that will start to come through primarily in the second quarter and then carry forward into Q3 and Q4. I think it's fair to say maybe there might be a little bit more of a price impact there. Broadly, we are very close to our original plan as we sit here today, including the organic growth projection of 1%-3%. Nothing has really, you know, changed relative to our guidance, other than, as we said, we've seen some really positive demand trends in two segments in particular. We now expect a little bit more price, and that will start to come through primarily in the second quarter and then carry forward into Q3 and Q4. we now expect a little bit more price and that will start to come through primarily in the second quarter and then carry forward into q3 and q4 I think it's fair to say maybe there might be a little bit more of a price impact there. i think it's fair to say maybe there might be a little bit more of a price impact there Broadly, we are very close to our original plan as we sit here today, including the organic growth projection of 1%-3%. broadly we are very close to our original plan as we sit here today including the organic growth projection of 1%-3% Nothing has really, you know, changed relative to our guidance, other than, as we said, we've seen some really positive demand trends in two segments in particular. nothing has really you know changed relative to our guidance other than as we said we've seen some really positive demand trends in two segments in particular

Speaker 6: That's helpful. Thank you. When we're looking at the operating margin guidance, you know, you're off to a good start versus that, 70 basis points or so, acceleration that's guided for margins at the midpoint for the year as a whole. If we're thinking about some of the margins that were weakest, I think Food Equipment you've dealt with already. Anything in Welding that we should think about over the balance of the year, the margins there perhaps picking up steam? That's helpful. that's helpful Thank you. thank you When we're looking at the operating margin guidance, you know, you're off to a good start versus that, 70 basis points or so, acceleration that's guided for margins at the midpoint for the year as a whole. when we're looking at the operating margin guidance you know you're off to a good start versus that 70 basis points or so acceleration that's guided for margins at the midpoint for the year as a whole If we're thinking about some of the margins that were weakest, I think Food Equipment you've dealt with already. if we're thinking about some of the margins that were weakest i think food equipment you've dealt with already Anything in Welding that we should think about over the balance of the year, the margins there perhaps picking up steam? anything in welding that we should think about over the balance of the year the margins there perhaps picking up steam

Speaker 7: Yeah Yeah yeah

Speaker 6: Sort of company-wide, is operating leverage fairly steady as you move through 2026? Sort of company-wide, is operating leverage fairly steady as you move through 2026? sort of company-wide is operating leverage fairly steady as you move through 2026

Speaker 7: I mean, what I can tell you, Julian, is that as we sit here today, we would expect every segment to improve margins in Q2 relative to Q1. Then we would expect sequential improvement to those margins again in every segment in Q3 and into Q4. Like we've said before, you mentioned Welding specifically, you know, those are, as you know, best in class operating margins by a fair margin. You would expect maybe to see less improvement in the segments that have margins at or above 30%, and you should expect to see a lot more improvement in places like Test & Measurement. Which there's a little bit of impact from some recent acquisition activity. I mean, what I can tell you, Julian, is that as we sit here today, we would expect every segment to improve margins in Q2 relative to Q1. i mean what i can tell you julian is that as we sit here today we would expect every segment to improve margins in q2 relative to q1 Then we would expect sequential improvement to those margins again in every segment in Q3 and into Q4. then we would expect sequential improvement to those margins again in every segment in q3 and into q4 Like we've said before, you mentioned Welding specifically, you know, those are, as you know, best in class operating margins by a fair margin. like we've said before you mentioned welding specifically you know those are as you know best in class operating margins by a fair margin You would expect maybe to see less improvement in the segments that have margins at or above 30%, and you should expect to see a lot more improvement in places like Test & Measurement. you would expect maybe to see less improvement in the segments that have margins at or above 30% and you should expect to see a lot more improvement in places like test & measurement Which there's a little bit of impact from some recent acquisition activity. which there's a little bit of impact from some recent acquisition activity As volume and price begins to pick up, as we go through the year, you're gonna see some really solid operating leverage in the Test & Measurement business as well. As volume and price begins to pick up, as we go through the year, you're gonna see some really solid operating leverage in the Test & Measurement business as well. as volume and price begins to pick up as we go through the year you're gonna see some really solid operating leverage in the test & measurement business as well

Speaker 2: Julian, I would just add that we have really good line of sight on at least 100 basis points of improvement net of price initiatives. Julian, I would just add that we have really good line of sight on at least 100 basis points of improvement net of price initiatives. julian i would just add that we have really good line of sight on at least 100 basis points of improvement net of price initiatives

Speaker 6: That's helpful. Thank you. That's helpful. that's helpful Thank you. thank you

Speaker 8: Your next question comes from the line of Andrew Obin with Bank of America. Your line is open. Your next question comes from the line of Andrew Obin with Bank of America. your next question comes from the line of andrew obin with bank of america Your line is open. your line is open

Speaker 3: Morning. This is David Ridley-Lane on for Andrew Obin. Morning. morning This is David Ridley-Lane on for Andrew Obin. this is david ridley-lane on for andrew obin

Speaker 7: Morning. Morning. Morning. morning Morning. morning

Speaker 3: Look, I think you've been very clear on expecting improvements in organic growth into the second quarter, calling out specifically for the Food Equipment segment that's positive. What about the Specialty Products segment? Look, I think you've been very clear on expecting improvements in organic growth into the second quarter, calling out specifically for the Food Equipment segment that's positive. look i think you've been very clear on expecting improvements in organic growth into the second quarter calling out specifically for the food equipment segment that's positive What about the Specialty Products segment? what about the specialty products segment

Speaker 7: Yeah. I think a little bit of an impact from the Middle East, kind of delayed sales in the aerospace business, which is sitting on, you know, significant order and backlog, that those sales have been delayed. That and the combination of PLS efforts that are somewhat, I'd say, front end loaded this year, reduced the overall organic growth rate by three points in specialty in the first quarter. We would expect that growth rate in Specialty to improve from here. I'd say the equipment businesses in Specialty are performing very well. Yeah. yeah I think a little bit of an impact from the Middle East, kind of delayed sales in the aerospace business, which is sitting on, you know, significant order and backlog, that those sales have been delayed. i think a little bit of an impact from the middle east kind of delayed sales in the aerospace business which is sitting on you know significant order and backlog that those sales have been delayed That and the combination of PLS efforts that are somewhat, I'd say, front end loaded this year, reduced the overall organic growth rate by three points in specialty in the first quarter. that and the combination of pls efforts that are somewhat i'd say front end loaded this year reduced the overall organic growth rate by three points in specialty in the first quarter We would expect that growth rate in Specialty to improve from here. we would expect that growth rate in specialty to improve from here I'd say the equipment businesses in Specialty are performing very well. i'd say the equipment businesses in specialty are performing very well In some of the more consumer-oriented businesses, there are some challenges, as we, as you are well aware, as Chris talked about. There are places like the medical business that is growing leaps and bounds at this point in time. It's really, you know, all those factors offsetting each other. As we said, we expect the specialty business to deliver positive organic growth this year, and meaningful margin improvement based on what we're seeing in the businesses that make up specialty as we sit here today. In some of the more consumer-oriented businesses, there are some challenges, as we, as you are well aware, as Chris talked about. in some of the more consumer-oriented businesses there are some challenges as we as you are well aware as chris talked about There are places like the medical business that is growing leaps and bounds at this point in time. there are places like the medical business that is growing leaps and bounds at this point in time It's really, you know, all those factors offsetting each other. it's really you know all those factors offsetting each other As we said, we expect the specialty business to deliver positive organic growth this year, and meaningful margin improvement based on what we're seeing in the businesses that make up specialty as we sit here today. as we said we expect the specialty business to deliver positive organic growth this year and meaningful margin improvement based on what we're seeing in the businesses that make up specialty as we sit here today

Speaker 3: Thank you. With the Supreme Court's ruling against the IEEPA tariffs, several manufacturing companies have filed for refunds. Where do you stand in that process for yourself? Thank you. thank you With the Supreme Court's ruling against the IEEPA tariffs, several manufacturing companies have filed for refunds. with the supreme court's ruling against the ieepa tariffs several manufacturing companies have filed for refunds Where do you stand in that process for yourself? where do you stand in that process for yourself

Speaker 2: Given we expect tariff recovery, I mean, given our producer resell philosophy, I mean, you know, the reality is the direct impact of tariffs was largely mitigated at ITW. you know, to the extent that there was an impact, we were able to recover this in price. In this regard, tariff recovery is not something that's on our radar, I would say, and we certainly don't have anything in our guidance for it. G iven we expect tariff recovery, I mean, given our producer resell philosophy, I mean, you know, the reality is the direct impact of tariffs was largely mitigated at ITW. you know, to the extent that there was an impact, we were able to recover this in price. g iven we expect tariff recovery i mean given our producer resell philosophy i mean you know the reality is the direct impact of tariffs was largely mitigated at itw you know to the extent that there was an impact we were able to recover this in price In this regard, tariff recovery is not something that's on our radar, I would say, and we certainly don't have anything in our guidance for it. in this regard tariff recovery is not something that's on our radar i would say and we certainly don't have anything in our guidance for it

Speaker 3: Thank you very much. Thank you very much. thank you very much

Speaker 2: Sure. Sure. sure

Speaker 8: That concludes today's session. Thank you for participating in today's conference call. All lines may disconnect at this time. That concludes today's session. that concludes today's session Thank you for participating in today's conference call. thank you for participating in today's conference call All lines may disconnect at this time. all lines may disconnect at this time