Thank you, Regina. Good morning, and welcome to our ITW's fourth-quarter 2025 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 fourth-quarter and full-year 2025 financial results, and provide guidance for full-year 2026.

Slide 2 is a reminder that this presentation contains forward-looking statements. Please refer to the company's 2024 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, and a reconciliation of those measures to the most directly comparable GAAP measures is contained in the press release. Please turn to slide 3, and it's now my pleasure to turn the call over to our president and CEO, Chris O'Herlihy.

Chris?

Thank you, Erin, and good morning, everyone. As you saw in our press release this morning, ITW delivered a solid finish to the year.

In the fourth quarter, we outperformed our underlying end markets with revenue growth of more than 4% and delivered a 7% increase in GAAP EPS to $2.72. Through disciplined operational execution, we expanded operating income and margins to record levels.

Starting with the top line, organic growth of 1.3% marked our best quarterly performance of the year. Overall, Q4 demand improved, as reflected in higher-than-normal sequential improvement of 4% from Q3.

In addition to market outperformance, the ITW team continued to execute at a high level, resulting in operating income of $1.1 billion, an increase of 5%. Segment margins were 27.7%, up 120 basis points, with 140 basis point contribution from enterprise initiatives.

Looking back on a challenging external environment in 2025, the ITW team delivered another year of robust financial performance. We consistently outperformed our markets, solidly improved profitability, and made meaningful progress on our next phase key strategic priorities.

Throughout the year, we remained laser focused on building above-market organic growth, fueled by customer-back innovation, or CBI, into a defining ITW strength. We are pleased to have achieved 2.4% CBI-fueled revenue growth in 2025, a 40 basis point improvement, as we track toward our 2030 goal of 3% plus.

Furthermore, I'm encouraged by a key leading indicator of CBI contribution, our patent filings, which increased by 9% last year, following an 18% increase in 2024. Turning to guidance, we enter 2026 with solid momentum.

Per our usual approach, our organic growth projection of 1% to 3% reflects current demand levels, adjusted for seasonality. We are well positioned to capitalize on any further improvement in the macro environment.

Our EPS guidance midpoint of $11.20 represents 7% growth, and we expect operating margin expansion of about 100 basis points, powered by enterprise initiatives. Our 2026 forecast ensures we remain firmly on track to deliver on our 2030 performance goals.

In closing, I want to sincerely thank our global ITW colleagues for their unwavering dedication to serving our customers and executing our strategy with excellence each and every day. With that, I'll turn the call over to Michael to provide more detail on the quarter and our guidance for 2026.

Michael?

Thank you, Chris, and good morning, everyone. In Q4, the ITW team delivered a solid operational and financial finish to the year.

Organic growth was 1.3%, foreign currency translation added 2.5%, and acquisitions contributed 0.3%, bringing total revenue growth to 4.1%. Notably, our 4% sequential revenue growth from Q3 to Q4 significantly outperformed our historical sequential average of 2%.

On a geographic basis, North America grew about 2%, Asia Pacific was up 3%, while Europe declined 2%. On the bottom line, we achieved a fourth-quarter record operating margin of 26.5%, with enterprise initiatives contributing 140 basis points.

As noted in our press release, segment operating margin was 27.7%, 120 basis point increase, with incremental margins of more than 50%. All seven segments expanded operating margins, driven by enterprise initiatives, which contributed between 80 and 210 basis points per segment.

Free cash flow conversion to net income was 109% for the quarter. We repurchased $375 million of our shares, and our tax rate was 22.8%.

Please turn to slide 4, and as Chris mentioned, CBI is our most impactful driver for organic growth. We're pleased with our 2025 progress, reaching a 2.4% CBI contribution, a 40 basis point year-over-year improvement.

We expect meaningful progress again in 2026 on this key strategic initiative as we track toward our longer-term goal. Now let's move to the fourth-quarter segment results, starting with Automotive OEM, where revenue increased 6% and organic revenue increased 2%.

On a regional basis, North America was up 2%, while Europe was down 1% and China grew 5%. For the full-year 2025, the segment outperformed relevant builds, and we expect our typical 200 to 300 basis points of outperformance in 2026.

Full-year margins are a prime example of ITW's do-what-we-say execution. In 2025, margins improved by 150 basis points to 21.1%, consistent with the goal established during our 2023 Investor Day.

Driven by our culture of continuous improvement, we expect to further expand these margins in 2026. Turning to slide 5, Food Equipment delivered revenue growth of 4%, with organic growth of 1%, as equipment was flat, offset by 3% growth in service.

By region, North America was flat, with institutional end markets up in the high single digits, offset by restaurants, down also in the high single digits. Retail was a bright spot, up nearly 5%, and the international business grew 2%, with Europe up 2%.

Test & Measurement and Electronics had a solid quarter. Revenue up 6% and organic revenue up 2%.

Test and measurement was up 3%, and electronics was flat against a tough comparison year over year. Notably, we began to see a positive pick-up in semiconductor and electronics activity, with our semi-related businesses up mid-single digits in the quarter.

Operating margins improved by 110 basis points to 28.1%. Moving on to slide 6, Welding revenue grew 3%, with organic growth of 2% in the fourth quarter.

Equipment was up 4%, and while consumables were flat, filler metals were up in the high single digits. Regionally, North America was up 4%, while international declined 5% against a tough comparison of 9% last year.

Notably, operating margin reached 33.3%, a 210 basis point improvement. Polymers & Fluids had a strong top-line quarter, with 5% organic growth supported by new product launches in Automotive Aftermarket, which grew 5%.

Polymers was up 4%, and fluids grew 6%. On a geographic basis, North America was up 5%, and international grew 4%.

Operating margin expanded 110 basis points to 29%. Turning to slide 7, in Construction Products, organic growth was down 4%.

Regionally, North America was down 4%, with residential renovation down 5%, while commercial construction was up 5%. Europe was down 5%, and Australia-New Zealand was flat.

Despite the top-line challenge, the team successfully expanded margins by 100 basis points to 29%. Specialty Products revenue increased 4%, and organic revenue was up 1%.

Equipment growth was particularly strong, up 12%, and consumables were down 2% in the quarter. North America was flat, and international grew 3%.

Moving to slide 8 and full-year 2025 results. Our global teams continued to execute at a high level, enabling us to consistently outperform our end markets and expand margins to deliver solid financial results in a mixed macro environment.

Throughout 2025, we maintained our focus on maximizing ITW's growth and performance over the long term as we invested close to $800 million in high-return internal projects to accelerate organic growth and sustain productivity in our highly profitable core businesses. At the same time, we increased our dividend for the 62nd consecutive year, and returned a total of $3.3 billion to shareholders.

Moving to slide 9 and our guidance for full-year 2026. ITW is well positioned to deliver meaningful progress on both the top and bottom lines in 2026.

Per our usual process, our total revenue projection of 2% to 4% and organic growth projection of 1% to 3% is based on current levels of demand, adjusted for typical seasonality. At ITW, growth is high quality, meaning it is delivered at attractive incremental margins in the mid-to-high 40s for 2026.

In terms of overall profitability, we expect operating margin to improve by approximately 100 basis points to a range of 26.5% to 27.5%. This includes 100 basis point contribution from our enterprise initiatives, which provides margin expansion that is largely independent of volume.

We're projecting a GAAP EPS range of $11 to $11.40, representing 7% growth at the $11.20 midpoint. Regarding the cadence for the year, we expect the first-half, second-half EPS split of approximately 47% and 53%, consistent with 2025.

Factoring in typical seasonality, Q1 EPS should contribute roughly 23% of the full-year total. Lastly, we expect free cash flow conversion to net income of greater than 100% and plan to buy back approximately $1.5 billion of our shares in 2026.

Turning to our final slide, slide 10, all seven segments are projecting high-quality organic growth based on current run rates adjusted for seasonality, and every segment is well positioned to outperform its respective end markets again in 2026. Consistent with ITW's continuous improvement, never-satisfied mindset, all segments are also projecting margin improvement supported by another year of solid contributions from our enterprise initiatives.

In summary, all seven segments are heading into 2026 well positioned to deliver solid organic growth with industry-leading profitability and incremental margins. With that, Erin, I'll turn it back to you.

Thank you, Michael. Regina, I think we're ready to open the queue for questions, please.

Good morning, everyone.

Morning. Good

morning, Andy.

Chris or Michael, test and measurement within the segment looks like it did improve meaningfully in Q4. You called out the commentary in semicon.

It's been improving for you again, which is good to hear. You've had a couple maybe I'd call head fakes in semicon.

Are you seeing more definitive turn now and are you seeing a bit more of an unlock of your CapEx businesses in general in terms of growth?

I'd say, Andy, in general, as you said, test and measurement had a pretty solid quarter after what was a pretty challenging year. You might remember, middle of the year, we had pretty much a CapEx freeze related to China shipments for two quarters, and so we certainly saw an improvement in bookings in general industrial here in Q4.

As Michael mentioned, we also saw an improvement in demand for semi and electronics. Just to context that, semi is about 15% of test and measurement, just to give you perspective.

I would say that the semi at this point, it seems sustainable based on what we see right now, but, as you said, we had an uptick in Q2, came back down in Q3, but we've seen a recovery in Q4. I think, this is a part of the market we've got very strong competitive advantages, particularly as it relates to semi manufacturing testing equipment.

Whatever happens, we're well positioned, and we're particularly well positioned to take share as the end markets continue to improve in semi.

I will maybe just add beyond that, Andy, the general industrial orders are also improving in test and measurement as well as you've seen the improvement in revenues and growth rates on the equipment side in welding. All of that suggests that we are certainly seeing, I would say a little bit more than green shoots at this point and meaningful improvement, not just in sales, but also orders and backlog is looking pretty good at this point.

We've got some pretty good momentum going into 2026 as reflected in the guidance that we gave for those two segments.

That's great to hear, guys. Then when we think about margin expansion across your businesses in '26, I know you expect it in all segments.

Normally, I would think we'd just model higher incrementals where you're modeling higher growth, but you, for instance, had really good margin performance in construction again in Q4. There are some metals inflation out there.

Any more advice on how to think about margin performance across the segments?

I would just say, I'll go back to our prepared remarks here, Andy. We expect based on bottoms-up planning with our segments, based on having a chance to review the enterprise initiative savings, the actual projects for 2026, we expect every segment to improve their operating margins in 2026.

The biggest driver of as I think you pointed out will be the enterprise initiatives again, about 100 basis points from initiatives. Then, also there is some positive operating leverage at incremental margins that at this point are quite a bit higher than what we put up historical, historically, as I said, in that mid-to-high 40s.

Maybe that's a way to think about the margin improvement for each one of the segments in 2026. Now I will say this, we do have three segments now that are above 30%, and so maybe you'll see a little bit less of improvement in those segments relative to the ones like Auto that have been putting up some meaningful operating margin improvement, Test & Measurement as well, that still have a ways to go to get to Test & Measurement to that high 20s, 30% level.

Improved CBI is the other driver of increased margins

as well. As as we've talked about, the CBI progress is really encouraging, obviously not just as a contributor to growth, but all of these new products that are coming in are coming in at higher margins, and so that's really the key to unlocking margin improvement on a go-forward basis, particularly in places like Automotive OEM.

Appreciate all the color, guys.

Thank you.

Hey, guys. Good morning.

Morning, Joe. Good morning.

Hey, can we just touch on the price/cost dynamic? I think in the slides you had mentioned that price/cost is expected to be positive in 2026.

Can you elaborate on that a little bit? Then also, seeing that resin prices have continued to come down, at this point, how what percentage of your COGS is resins?

Let me start with the first part. I think on price/cost, we've been talking about this for a while in terms of this having kind of normalized after the wave of tariff-related increases we saw last year.

At this point, we're back to kind of where we used to be around price/cost, which is slightly favorable for full-year 2026, but not a big driver of the margin improvement. Really the efforts, particularly related to tariffs, have really been centered around not just price, but also supply chain and making sure we do everything we can to mitigate some of these increases so we don't have to pass them on to our customers.

That's maybe one way to think about price/cost. I'm not sure I have the resin number right in front of me.

It's pretty small. I think here again, I'm not quite sure where you were going with the question, but to the extent that there are increases or decreases in resin costs, those will be reflected in the pricing actions that are taken again at the divisional level where this is more of a meaningful driver of their material costs.

No, appreciate that the comments, Michael. I guess I was thinking back the, I don't know, call it 2016 timeframe, when you guys saw some deflation in resin, and I remember it being like 10% to 15% of your COGS back then.

Obviously, that's a long time ago. There were areas Poly-Fluid, areas in Auto, injection molding, and gas caps, plastic fasteners where you guys did see a benefit.

I was just really trying to think back of that timeframe where you had some deflation in your cost structure, but then you have these longer-term contracts in the Auto business where you can get some pricing. I was trying to understand whether that was going to be potentially a meaningful mover to the 2026 bridge.

Joe, I'd say the longer-term dynamic, longer-term contract dynamic is still there, but the percentage is less than considerably less than I think what it was 10% to 15% back then, I would say it's much [unclear] now.

It's a lot less, yeah. We have a very small portion of our business in Specialty Products that's indexed to resin costs.

Automotive, they're typically are the adjustments made, on the way up or on the way down, as you're well aware. Not something that's on our radar here in a meaningful way just because it's not going to be material to the overall performance of the company this year as we sit here today, so.

Great. Thank you, I'll get back in queue.

Appreciate it.

Thank you, Joe.

Hi, good morning. Maybe just wanted

Good morning.

Good morning. Maybe just wanted first off if you could flesh out any sense of seasonality for this year, anything unusual or untoward, and maybe remind us what we should expect typically for the first quarter, please.

Sure, Julian. I'd say there's really nothing unusual going on this year.

We expect the year to unfold in line with typical seasonality. It looks a lot like last year in terms of the quarterly splits.

I kind of laid out the first-half, second-half EPS split, 47%, 53%, that's what we did last year. As Q1 always starts out down a few points of sequential revenue drop from Q4 to Q1.

Like last year, that's about $100 million in revenue from Q4 '25 to Q1 '26. Margins also drop a little bit in Q1, and we typically end up around 23% of the full-year EPS here in the first quarter.

Now I will say this that every quarter and then in Q2, we see a pickup again in margins from Q1 to Q2, revenues pick back up again. Every quarter this year, if you model this on a run-rate basis, you'll see pretty meaningful revenue growth on a year-over-year basis in line with the guidance that we're giving in that 2% to 4% revenue growth.

Every quarter is projected to have margin improvement on a year-over-year basis, including in Q1, maybe a little bit more modest in Q1, but then it picks up as we go through the year in Q2, 3, and 4. Earnings per share grows in line with kind of the guidance range we're giving you here, which 7% at the midpoint.

That's kind of how it typically plays out. Free cash flow tends to improve as we go through the year.

That's maybe as much as I can give you here.

That's extremely helpful. Thank you, Michael.

Maybe my follow-up, just to understand, you talked about CBI, I think a 2.4% contribution to sales in 2025,

Yeah.

and that was 40 bps better than the prior year. Maybe sort of flesh out a little bit the progress there in 2026, what we should expect, and any thoughts on the product line simplification side?

Thank you.

On CBI, as you mentioned, Julian, strong momentum here in '25, encouraged by the progress that we're making across the company, and particularly encouraged, I think, by the increased strength of our pipeline of new products. It's really one of the reasons we believe we're outperforming our end markets.

A lot of successful product launches this year across the company, I would say most particularly in welding, test and measurement, food equipment, automotive. Good progress, 40 basis points of improvement in 2025, with continued incremental improvement here in 2026, well on the path to get to 3% plus by 2030.

Particularly encouraged, I think, by patent filings. Patent filings were up 18% in 2024, up another 9% in 2025.

Why that's particularly important is because at ITW, this is a really a leading indicator of progress on CBI. We're often our patent filings are more often than not protecting customer solutions.

An increase in patent activity is often pretty well correlated with future revenue growth. Really encouraged by everything we're seeing, more progress in 2026.

It can be a bit lumpy. You can get ups and downs on this, but the trajectory is certainly on its way up, and we're very, very confident at this point that the 3% plus target is well within our reach.

I would not make the I think PLS is to me is a different kind of a conversation. I don't really see a correlation between them.

The only overlap between PLS and CBI is that they're both focused on differentiation. PLS is about ensuring that we product line prune around differentiation, and CBI, of course, is pursuing differentiation in a product development context.

PLS for us in '26 we see as more of a maintenance level, 30 to 50 basis points. That's lower than 2025.

It's very much a bottom-up number. It's really decided on at the divisional level.

As we've said before, it's fundamental part of 80/20 Front-to-Back and the ongoing strategic review portfolio pruning that goes on in our divisions. We have, obviously, a very highly developed methodology around this.

We get a lot of benefits from PLS implementation when we do it. We get benefit in terms of growth from a standpoint of strategic clarity, ensuring that we're executing on our most important customers and products, and then effectively deploying resources on the back of that.

Then, of course, from a margin improvement standpoint, the cost savings from PLS are a meaningful contributor to the enterprise initiatives that we generate every year, and a lot of these projects have a payback of less than a year. I think I would not really connect them that much.

They're both very active in the company. PLS is a little lower this year, but full all steam ahead on CBI.

PLS a little bit lower year over year, and CBI contribution to revenue a little bit higher on a year-over-year basis. That's what's supporting the top-line guidance that we're giving you today.

Hey, good morning, guys.

Good morning, Scott.

Congrats on turning the corner here on the top line. I have to ask, the buyback is great, but I have to ask because you didn't mention M&A at all in the prepared remarks, and is that kind of off the table for '26 or you didn't mention it just because it's more opportunistic?

It's the latter, Scott. It's certainly on the table for the right companies.

As we've often said, we're focused on high-quality acquisitions that really will extend our long-term growth potential while being able to leverage the business model to improve margins. We review opportunities all the time on an ongoing basis.

We're pretty selective given that we genuinely believe we have a pretty compelling organic growth opportunity, but we're also pretty active in terms of reviewing opportunities. To the extent that we find the right opportunities, while acknowledging, I think, the challenging valuation trends that we're seeing right now, then we'll be appropriately aggressive in pursuing them.

We obviously did the MTS deal three or four years ago, turned out to be a great acquisition, met all of our kind of criteria. Similarly, in the quarter just passed, we had one bolt-on acquisition in the semi manufacturing space, which has all the high-quality growth attributes that we look for.

We're certainly very open to doing more deals like this. I would say we're actively prospecting around these deals, but we got to find them.

When we find them, we will do them.

I would just add, I agree with everything Chris said. I think it's not necessarily an easy time to be a disciplined acquirer, and often the challenge is really around valuation.

We're not going to do deals that don't make sense to ITW, which means we're not going to do deals where we can't generate a reasonable, risk-adjusted rate of return for our shareholders. That's kind of been our long-term positioning here, and that part of it is not going to change on a go-forward basis.

We agree with you that the buyback is a great way to allocate surplus capital to our shareholders. Also contributes, frankly, 20 cents a share or 2% EPS growth on an annual basis, and so that will remain an active share repurchase program will remain an important part of our capital allocation strategy on a go-forward basis.

That's a good answer. Guys, I don't want to beat a dead horse.

The CBI stuff is pretty interesting. What does it take to get to 3%?

Is it spending more or getting more out of what you have? The reason I ask that question is that, up 18% and even up 9% patents are that's pretty big growth.

Do you have to spend more to get to that 3%? Kind of what's the gating factor of bridging that gap?

It's not spending more, Scott. I think we've been, meaningfully investing in a very focused way now for a number of years, to build up the muscle around this.

Really what's moving the needle and is very much a similar approach to what we took on 80/20 Front-to-Back, 10 years ago, and we saw the results that accrued from that. Really, it's about a much higher level of leadership time and focus.

It's certainly continuing to invest and build capabilities as we had been doing for the last 4 or 5 years. On that basis, we've seen innovation contribution more than double over the last 5 years.

The capability that build that we're doing is at the segment level, but also in our divisions. We have lots of great innovation practice around the company, and as we've mentioned on prior calls, we really codified this into a very effective and holistic innovation framework, and we launched that framework in the second half of 2024.

Again, this is the exact approach that we took in 80/20 Front-to-Back. All that's certainly taken root.

We see it in the patent filings, we see it in the yield. We're well on track here to do the 3% plus.

I think all the pieces are in place, and it's now a question of just building momentum and ensuring we get that consistently high quality of practice in every part of the company, and that will get us to more than three for sure.

I might just add that we've added the CBI metric as one of the key elements in our incentive plans on a go-forward basis. If you look at the long-term incentive plans here at ITW, and in addition to margins, returns, EPS growth, we've added or the board has added CBI yield just an alignment with the overall strategic importance of this metric and this initiative on a go-forward basis.

Helpful. Interesting.

Thank you, guys. Best of luck this year.

Pass it on.

Thank you.

Thank you, Scott.

Hi, good morning. Thank you so much.

Good morning,

Tami. The Auto segment growth in China was about 5%.

I think granted builds were also slower in the fourth quarter in China. Anything else to call out there and how are you thinking about growth in autos in China as you look into 2026?

We see strong growth in China in auto in 2026, largely on the basis of our satisfactory work that we've done on really penetrating the EV space. Electric vehicles for us are very much a source of innovation and growth, overseas more customers.

We've been generally leveraging that EV growth through new product innovation. We've made significant investments over the last number of years targeting and building up our presence in EV.

China still represents about 65% of worldwide EV builds, and we're growing very nicely there with a very strong position with Chinese OEMs, which is now over 70% of the market. Really well positioned.

We see the growth in China in auto as being very sustainable, really on the back of the work we've done on EV, and in particular around CBI related to EV.

I might just add,

Tami, that

China has been a great growth story for ITW over the years, driven primarily by the Auto OEM business, which, as you said, grew 5% in Q4, but 12% for the full year. The expectation remains the same in terms of outgrowing builds in China fueled by CBI and content growth with the Chinese OEMs, as Chris said.

We'd expect growth in China Auto OEM in that mid-to-high single digits. I'd just make a comment overall on China.

Up 9% for the full year. Again, strong growth in China in the auto business, but also test and measurement up high single digits, welding up mid-teens.

The expectation for this year, '26, is that China, which is now about $1.2 billion, 8% of our revenues, will grow in the mid, maybe even in the high single digits based on what we're seeing for 2026. I might just add lastly that margins in China, as are the same as everywhere else around the world, and as Chris said, we'll continue to invest in China and repatriate cash efficiently to the US as we've done over many years.

That is fantastic to hear. Thank you.

Staying on the same topic, thanks for all the color on China. How are you thinking about growth in the US or Americas versus Europe as it relates to the 1% to 3% organic growth outlook for the year?

I think one of the things that was certainly encouraging here in the fourth quarter was the organic growth rate in North America, up 2% plus. We expect about the same, maybe a little bit better than that based on run rates in 2026.

Europe certainly a little bit more challenging. We don't expect much improvement in Europe.

Then, Asia Pacific was up 6% last year, primarily China, and we expect, like you said, another kind of meaningful contribution from Asia Pacific and China in the mid-single-digit range. North America really I'd say pretty encouraging.

Europe stays about the same, and Asia Pacific up kind of in the mid-single digits, China up in the mid, maybe high single digits, and so that's how you get to that 1% to 3% organic growth. Like we said earlier, again, more contribution from CBI, less of a headwind to top line from PLS, and you get to that 1% to 3% organic, 2% to 4% revenue for the full year.

Great. Thank you.

Sure.

Hi, good morning. Two questions.

I guess just my first one, the sequential revenue growth in the quarter, the 4% relative to normally 2%, just color on that. Do you think that's more ITW specific, i.e.

CBI's getting more traction, or would you say it's probably more just industrial markets getting better with PMI readings starting to get better above 50 last month? Then my second question, Michael, just on the incremental margins for 2026, obviously implied very strong, you said mid-to-high 40s.

That's above your 35% to 40% medium-term target on okay organic growth. I'm just wondering if there's an underappreciated margin story or incremental margins can be structurally higher, maybe it's CBI, but just trying to piece that above-average incremental margins versus your target on 1.5% organic growth?

I don't know, it just seems better than what I thought.

Pretty good, right? Absolutely.

Thanks.

Let me talk about incrementals. I'm glad you asked, by the way.

I think historically, we've been in that 35% to 40% range. That's what our kind of our long-term TSR algorithm is based on, 35% to 40%.

If you look at kind of what we've been putting up over the last few quarters with limited growth, frankly, starting to improve, and when we look at kind of the plan for 2026, that's where we get to the mid-to-high 40s. We can't really think of a reason why this wouldn't be sustainable over the long term.

We've done a lot of work around the portfolio, over a decade of enterprise initiatives, the margin profile, variable margin, gross margin, all of those things. The quality of the portfolio has never been better than it is today.

Then you add on top of that accelerating contribution from new products that all are coming in at higher margins. Then maybe most importantly, as Chris said, and I mentioned in my remarks, we are doing all of this while we are investing in ITW to kind of maximize the long-term performance from a growth and profitability standpoint.

About $800 million this year in our organic growth initiatives, in our kind of productivity initiatives, the enterprise initiatives. It's not like we're holding back on investments.

All of this is happening, these incrementals in the mid-to-high 40s are happening while we're fully funding all the quality projects that we have available to us inside the company. I think that's Anything else on the

No, I agree with everything Michael said. I would just highlight, Jamie, this is one of the side benefits of PLS now is this, you do PLS for enough time, what happens is you get an improvement in the quality of the portfolio.

PLS is effectively a portfolio pruning exercise. What's really driven these incrementals and the reason that we fundamentally believe they're now sustainably in the mid-40s comes from improvement in the quality of our portfolio from many years of thoughtful PLS, coupled with a continuous improvement in the practice of the business model against that portfolio.

You got those two things working together, and that's ultimately why this incremental has now shifted from what was mid-30s to what we now believe to be in the mid-40s.

Right. Then, I think, Jamie, on your other question on the sequentials from Q3 to Q4.

It was pretty broad based, nothing really stood out, which suggests that this is really kind of maybe a little bit of tailwind from the markets after a long time, years of headwinds. It was more pronounced in the segments that have a higher contribution from CBI, that is true.

We didn't talk about Polymers & Fluids, but high contribution from new products in the Automotive Aftermarket, but also in the fluids business that's the part of that business that's really centered around biopharma. Then in the Performance Polymers side, it's growth in China again, taking advantage of the EV growth that Chris talked about earlier.

Test & Measurement also seeing a pick-up here sequential from Q3 to Q4. They typically do, maybe a little bit more pronounced than usual.

I think that's part of the semi pick-up that we talked about. We saw that start to come through not just in order activity, but also in actual sales here in the fourth quarter.

Feels pretty good, good momentum going into 2026, and off to a pretty good start so far.

Thank you.

Thanks. Good morning.

If I take out the 100 basis points of enterprise initiatives, it seems like the margins are maybe really only flattish. I'm curious why they wouldn't be higher with the positive organic growth and the high incrementals you're talking about, maybe the incrementals are a function of the enterprise initiatives.

Why isn't the margins higher with that positive organic growth?

That's a good question, Steven. I'd say, first let me just say, it's hard to quibble with margins I think that are in that 26% to 27% range to begin with.

If you look at 2026, there's definitely some positive operating leverage given our the midpoint of our revenue guidance here in that, 3% range, 2% organic. We're getting about a 100 basis points from the enterprise initiatives, price/cost is slightly favorable.

Then what you're seeing is an offset, which is primarily inflation in some of our employee-related costs, these are wages, health and welfare benefits. There's also some investment that Chris talked about to really accelerate the organic growth rate inside the company and maintain high levels of productivity inside the company.

That those are really We've talked about this category before, and so that's the offset to what we're giving you. I might just say, we're giving you a range on margins, right, 26.5% to 27.5%, about 100 basis points of improvement.

If we get if a if a this short-cycle demand recovery really materializes, and we get organic growth rates moving up in our range here at the incrementals we're talking about, you're absolutely right, we should expect to see higher margins in 2026.

Super helpful. Then maybe a clarification.

Did I hear you say that commercial side of construction North America was up in the quarter? I guess if so, how surprised were you to see that?

Were you already seeing that in your run rates at the start of the quarter or is that something that changed? Are you seeing that that carry forward?

You do have a pretty big inflection in construction in '26.

I'd say it's a fairly small portion of our business. If you look at North America, it's about 20% of our exposure, our sales are into the commercial side of things.

They can be a little bit lumpy. There was some pick-up in activity, as you might expect, related to things like data centers, for example, which sounds very exciting, but keep in mind what I just said, this is a pretty small part of the company.

Certainly encouraging to see a pick-up on the commercial side, while the residential side, almost perhaps our most interest-rate-sensitive business remains, really kind of stuck in some pretty challenging end markets, housing starts down in the mid-single digits. Perhaps, 2026 could be the year this really turns around on the residential side.

That's not included in our guidance. If it were to happen, we'd be really well positioned to take advantage of that.

The improvement drivers for '26 are more related to less PLS and more CBI.

Right.

Perfect. Thank you.

Hey, good morning, everyone.

Morning. Good

morning.

I wanted to follow up on something that I believe you said in response to Julian's question. If every quarter we have revenue growing 2% to 4%, I think the FX tailwind, just based on the DXY, FX tailwind is pretty material in Q1 and then it tails off quite a bit in the remaining quarters of the year.

Would it be fair to think that organic growth, the organic portion of growth accelerates as we move through the year? I'm just trying to think if that assumption is correct and what's underlie the assumption.

Thank you.

I think there's definitely, as you point out, a little bit more currency tailwind here in the first quarter. There is positive organic growth in Q1, but it's not as high as it is in Q2, 3, and 4.

Maybe that's a way to think about it.

Thank you. Then, I don't think anyone asked on this segment, but Polymers & Fluids had a nice surprise to the upside, at least relative to what I was modeling, and it seems that it was pretty broad based across aftermarket, auto aftermarket and the fluids and polymers side.

Anything to call out there that you're seeing from an end-market demand standpoint that maybe trended differently versus expectations? It seems that the guide for 1% to 3% next year would be quite conservative given the run rate of what we saw in Q4.

Just any color there would be great. Thank you.

Sabrina, we did actually talk about this a couple minutes ago, but just real quick. A big contribution from CBI, new products in the Automotive Aftermarket, specifically in the car care business.

If you're in the market for wiper blades, Rain-X wiper blades were up meaningfully here in the fourth quarter with the launch of a new wiper blade in that space. In China, specifically, Polymers continues to gain share on the automotive EV side of things, up double digits, more than 10% in the fourth quarter.

Then the reagents business that's part of fluids, which is really focused around biopharma, was up more than 20%. Again, what you're seeing is more CBI, a little less PLS, and we're expecting more of the same here as we go into 2026.

Got it. I guess just as a quick follow-up then.

Just want to understand why guiding for deceleration from Q4 next year?

I'm not sure that's really the case. I think we're guiding 1% to 3%.

If you look at the performance for the full year this year in Polymers & Fluids, it was a little bit different than the fourth quarter. Then obviously, we're not going to launch the same amount of new products every quarter.

Maybe the fourth quarter was a little bit higher from a CBI standpoint than kind of the typical run rate. Maybe that's a way to think about it.

Thank you.

Hi. I wonder if you'd help us.

We're all sort of dancing around the organic cadence. How is January playing out versus the 1% to 3% guide?

It just feels like there's a lot of from, filler metals up high single digit, semis up mid-single. It feels like you're off to a relatively strong start to the year based off those cyclical trends exiting.

Am I misreading the first-quarter organic is at the full-year guide or even above? Any color on January would be great.

The company inventory, it went down a little bit sequentially. moves it moves around a lot.

I appreciate that. It went down to where it wasn't even up year over year more than sales.

To me, that could be a little tell if everything things are picking up, you'd be building some inventory. Just trying to square all that together.

Thank you.

Thanks, David. I think just on the inventory, that's kind of the typical cadence.

Inventory levels of inventory do come down towards the year end. I can tell you there's nothing going on in terms of lowering inventory levels because we expect lower growth.

I think as a matter of fact, if you go back to kind of the middle of the year, we in some cases, test and measurement, as Chris talked about, with some of the tariffs, to mitigate the risk from a supply chain standpoint, we actually added inventory in a few segments to mitigate that risk. Nothing unusual really from an inventory standpoint in the fourth quarter.

I'd say January is off to we're we are, I can say this, we're right on track to where we thought we were going to be. I did say that our the revenue growth guide for this year, if you look at it on a quarterly basis, we will be up if things stay the way they are, and obviously it's a pretty dynamic environment, in that, three 3% to 4% range.

The organic growth rate is slightly lower in the first quarter relative to Q2, Q3, Q4, that's typical seasonality based on what we know today. It's not going to be 3%, 4% organic growth in the first quarter based on current run rates, but it will be positive organic growth.

We have a little bit more tailwind from currency at the beginning of the year just kind of how the comparisons work out, and so that's how you get to a revenue growth rate in Q1 that's maybe closer to the other quarters, even though organic is lower. Does that make sense to you?

No, that's helpful. Semi, I know you said 15% of the business.

I think it used to be a little bit bigger, but obviously it's been slower. That incremental margin, I feel like historically when that starts moving, the incrementals

to

be clear, the T&M margins were better than I was modeling for the quarter. Is semi a big part of that incremental margin improvement or am I overstating the impact when semi gets

No, that is correct. This is the positioning has always been we know this is a cyclical space, and when we are at the bottom of the cycle, we want to be profitable, very profitable.

When things are going well, orders are picking up, revenues are picking up, the incrementals come through at above-average levels and above-average levels of profitability. That is a reasonable assumption.

Now it's 15% of test and measurement, it's 3% of ITW, but it is a space, as when these cycles start to pick up, you can see some really, above-average meaningful growth rates for a period of time, and it's too early to tell whether that's what's going on here. If you look at fab utilization, you look at the order activity, you look at, plus 5% at attractive margins in Q4, it's looking pretty promising as we just start 2026.

We're 1 month in. I'll just caution things can change quickly in this environment, but we feel really good about where we're at.

We feel confident in our guidance and well positioned to deliver some solid results here both operationally and financially in 2026.

All right. Thank you for the time.

Appreciate it.

Sure. Thank you.