Illinois Tool Works (ITW)

Manufacturing company Illinois Tool Works (NYSE:ITW) missed Wall Street’s revenue expectations in Q3 CY2025 as sales rose 2.3% year on year to $4.06 billion. Its GAAP profit of $2.81 per share was 3.9% above analysts’ consensus estimates.

Company Overview

Founded by Byron Smith, an investor who held over 100 patents, Illinois Tool Works (NYSE:ITW) manufactures engineered components and specialized equipment for numerous industries.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include 3M (NYSE:MMM), Emerson Electric (NYSE:EMR), Stanley Black & Decker (NYSE:SWK), Parker-Hannifin (NYSE:PH), and Eaton Corporation (NYSE:ETN).

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Illinois Tool Works’s sales grew at a tepid 4.8% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Illinois Tool Works’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Illinois Tool Works’s organic revenue was flat. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Illinois Tool Works’s revenue grew by 2.3% year on year to $4.06 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Illinois Tool Works has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 42.5% gross margin over the last five years. Said differently, roughly $42.46 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Illinois Tool Works’s gross profit margin came in at 44.5% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Illinois Tool Works has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 25.2%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Illinois Tool Works’s operating margin rose by 1.5 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Illinois Tool Works generated an operating margin profit margin of 27.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Illinois Tool Works’s EPS grew at a decent 9.3% compounded annual growth rate over the last five years, higher than its 4.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Illinois Tool Works’s earnings to better understand the drivers of its performance. As we mentioned earlier, Illinois Tool Works’s operating margin was flat this quarter but expanded by 1.5 percentage points over the last five years. On top of that, its share count shrank by 8.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Illinois Tool Works, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q3, Illinois Tool Works reported EPS of $2.81, down from $3.91 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 3.9%. Over the next 12 months, Wall Street expects Illinois Tool Works’s full-year EPS of $10.30 to grow 7.7%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Illinois Tool Works has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 16.3% over the last five years.

Taking a step back, we can see that Illinois Tool Works’s margin expanded by 1.9 percentage points during that time. This is encouraging because it gives the company more optionality.

Illinois Tool Works’s free cash flow clocked in at $904 million in Q3, equivalent to a 22.3% margin. This result was good as its margin was 2.5 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Illinois Tool Works hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 32.1%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Illinois Tool Works’s ROIC averaged 2.1 percentage point increases over the last few years. This is a good sign, and we hope the company can keep improving.

Illinois Tool Works reported $924 million of cash and $8.94 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $4.55 billion of EBITDA over the last 12 months, we view Illinois Tool Works’s 1.8× net-debt-to-EBITDA ratio as safe. We also see its $241 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Illinois Tool Works beat analysts’ EPS expectations this quarter. We were also glad its full-year EPS guidance was in line with Wall Street’s estimates. On the other hand, its revenue slightly missed and its organic revenue fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 2.1% to $252.01 immediately after reporting.

Updated: December 4, 2025 at 10:42 PM EST

Are you wondering whether to buy Illinois Tool Works or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Illinois Tool Works isn’t a terrible business, but it doesn’t pass our bar. To begin with, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its flat organic revenue disappointed. On top of that, its projected EPS for the next year is lacking.

Illinois Tool Works’s P/E ratio based on the next 12 months is 22.7x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $260.72 on the company (compared to the current share price of $249.38).