Manufacturing company Illinois Tool Works (NYSE: ITW) fell short of the market’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.

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"The ITW team concluded the third quarter with solid operational and financial execution, delivering EPS of $2.81, which grew six percent year-over-year excluding the divestiture gain, alongside record operating margin of 27.4 percent, and a 15 percent increase in free cash flow. This outcome underscores the fundamental strength of the ITW Business Model, the inherent resilience of our diversified portfolio, and the high-quality execution demonstrated by our colleagues worldwide," said Christopher A. O’Herlihy, President and Chief Executive Officer.

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.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Illinois Tool Works’s 4.8% annualized revenue growth over the last five years was tepid. This was below our standard for the industrials sector and is a poor baseline 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.

Illinois Tool Works also reports 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. While this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

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.

Looking at 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.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

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 quality 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 more recent period because it can provide insight into an emerging theme or development for 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%.

Key Takeaways from Illinois Tool Works’s Q3 Results

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 was a weaker quarter. The stock traded down 2.1% to $252.01 immediately following the results.

Is Illinois Tool Works an attractive investment opportunity at the current price? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.