ITW Reports Third Quarter 2026 Results
• Revenue of $4.24 billion increased +4% with organic growth of +4%; +5% ex- Welding tornado impact
• Operating margin of 27.8% expanded 40 bps with favorable price/cost income and margin impact
• Operating cash flow of $953 million and free cash flow conversion of 100% of net income
• Full Year 2026 GAAP EPS guidance raised $0.05 at the midpoint to a narrowed range of $11.45 to $11.55 per share, representing +10% growth year-over-year at the midpoint
GLENVIEW, Ill., October 27, 2026 - Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2026 results and raised full year 2026 guidance.
“The ITW team delivered strong operational execution and financial performance in the third quarter, including organic growth of 4 percent (5 percent excluding the impact of a tornado affecting our Welding segment), 40 basis points of operating margin expansion to 27.8 percent, and a 7 percent increase in GAAP earnings per share to $3.00,” said Christopher A. O’Herlihy, President and Chief Executive Officer.
“Our top-line results reflect accelerating demand in our capex-related segments, Welding and Test & Measurement and Electronics, continued strength in Polymers & Fluids segment, and a meaningful increase in the contribution to revenue growth from our Customer-Back Innovation efforts. We entered the fourth quarter with strong operational momentum and are raising our EPS guidance for the year. As we continue to advance our enterprise strategy priorities, including our goal of 3 percent-plus Customer-Back Innovation yield, we are positioning ITW to deliver consistent, above-market organic growth while further expanding profitability and margins,” O’Herlihy concluded.
Third quarter revenue of $4.24 billion increased by 4.4 percent. Organic revenue growth was 3.8 percent, led by 6.0 percent growth in North America. Foreign currency translation increased revenue by 0.3 percent, and an acquisition added 0.3 percent.
GAAP EPS grew 6.8 percent to $3.00, while operating income increased 5.9 percent to $1.18 billion, a quarterly record for the company. Operating margin expanded by 40 basis points to 27.8 percent as enterprise initiatives contributed 130 basis points. In the quarter, price increases and other actions more than offset rising raw material costs, resulting in a favorable impact on both operating income and margin. Operating cash flow was $953 million, and free cash flow was $851 million, representing a 100 percent conversion of net income. During the quarter, the company repurchased $187 million of its own shares and raised its dividend 7 percent, bringing the annualized payout to $6.88 per share. This increase marks the 63 rd consecutive year of dividend increases. The effective tax rate for the quarter was 24.4 percent.
Tornado damage to two Welding facilities in late July reduced third-quarter revenue by an estimated $40 million. Excluding this impact, the company estimates that the Welding organic revenue growth rate would have been approximately 15 percent, resulting in total company organic growth of approximately 5 percent. The associated loss of operating income was largely offset by business interruption insurance. The impact going forward is expected to be immaterial.
ITW is raising its full year 2026 GAAP EPS guidance by $0.05 at the midpoint to a narrowed range of $11.45 to $11.55 per share, representing 10 percent growth at the midpoint. Based on current demand levels and prevailing foreign exchange rates, the company is raising revenue growth guidance to 4.5 to 5.5 percent and reaffirming its organic growth guidance of 3 to 4 percent.
Operating margin is projected to be in the range of 26.5 to 27.5 percent, with enterprise initiatives contributing more than 100 basis points. Free cash flow is projected to be approximately 100 percent of net income, and the company expects to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate is 23 to 24 percent.
This earnings release contains certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule. The estimated guidance of free cash flow to net income conversion rate is based on assumptions that are difficult to predict, and estimated guidance for the most directly comparable GAAP measure and a reconciliation of this forward-looking estimate to its most directly comparable GAAP estimate have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of reliable forward-looking cash flow information. For the same reasons, the company is unable to address the potential significance of the unavailable information, which could be material to future results.
This earnings release contains forward-looking statements within the meaning of U.S. federal securities laws, including the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding supply chain challenges, expected impact of inflation including raw material inflation and rising interest rates, the potential impact of tariffs, the Company’s projected pricing actions, the impact of enterprise initiatives, future financial and operating performance, free cash flow and free cash flow to net income conversion rate, organic and total revenue, contribution from Customer-Back Innovation to revenue growth, operating and incremental margin, price/cost impact, statements regarding diluted earnings per share, after-tax return on average invested capital, effective tax rates, exchange rates, expected timing and amount of share repurchases, end market economic and regulatory conditions, and the Company’s 2026 guidance. These statements are subject to certain risks, uncertainties, assumptions, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that could cause actual results to differ materially from the Company’s expectations include those that are detailed in ITW’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, and subsequent reports filed with the U.S. Securities and Exchange Commission. Except as required by law, the Company undertakes no obligation to update or revise any forward- looking statement to reflect new information, future events, changed circumstances, or otherwise.
Founded in 1912, Illinois Tool Works Inc. (NYSE: ITW) is a Fortune 300 global multi-industry manufacturing leader with revenue of $16 billion in 2025. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW’s approximately 43,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. To learn more, please visit www.itw.com.
September 30, In millions 2026 December 31, 2025 ────────────────────────────────────────────────────────────────────────────── Assets Current Assets: Cash and $ 809 $ 851 equivalents Trade receivables 3,516 3,227 Inventories 1,823 1,659 Prepaid expenses and other current 450 463 assets Total current 6,598 6,200 assets Net plant and 2,254 2,230 equipment Goodwill 5,073 5,098 Intangible assets 543 591 Deferred income 492 519 taxes Other assets 1,537 1,510 $ 16,497 $ 16,148 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 2,219 $ 2,286 Accounts payable 623 522 Accrued expenses 1,635 1,636 Cash dividends 490 465 payable Income taxes 133 217 payable Total current 5,100 5,126 liabilities Noncurrent Liabilities: Long-term debt 7,153 6,683 Deferred income 168 154 taxes Other liabilities 934 959 Total noncurrent 8,255 7,796 liabilities Stockholders' Equity: Common stock 6 6 Additional 1,866 1,771 paid-in-capital Retained earnings 31,177 30,150 Common stock held -28,190 -26,875 in treasury Accumulated other comprehensive -1,718 -1,827 income (loss) Noncontrolling 1 1 interest Total stockholders' 3,142 3,226 equity $ 16,497 $ 16,148
(1) Effective tax rate used for interest expense and other (income) expense for the three months ended September 30, 2026 and 2025 was 24.4% and 24.3%, respectively. Effective tax rate used for interest expense and other (income) expense for the nine months ended September 30, 2026 and 2025 was 24.3% in both periods.
(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within each of the periods presented.
(3) Returns for the three months ended September 30, 2026 and 2025 were converted to an annual rate by multiplying the calculated return by 4. Returns for the nine months ended September 30, 2026 and 2025 were converted to an annual rate by dividing the calculated return by 3 and multiplying it by 4.
A reconciliation of the tax rate for the nine month period ended September 30, 2026, excluding the first quarter 2026 discrete tax benefit of $34 million primarily related to the resolution of a U.S. tax audit, is as follows:
A reconciliation of the tax rate for the three and nine month periods ended September 30, 2025, excluding the third quarter 2025 net discrete tax benefit of $27 million, which included a favorable discrete tax benefit of $43 million related to the estimated U.S. federal tax liability for 2024, partially offset by a $16 million discrete tax expense related primarily to the resolution of a foreign tax audit, and excluding the first quarter 2025 discrete tax benefit of $21 million related to the reversal of a valuation allowance on net operating loss carryforwards, is as follows:
Twelve Months Ended Dollars in millions December 31, 2025 ─────────────────────────────────────────────────────────────────────────── Numerator: Net income $ 3,066 Net discrete tax benefit related to the -27 third quarter 2025 Discrete tax benefit related to the -21 first quarter 2025 Interest expense, net of tax(1) 222 Other (income) expense, net of tax(1) -32 Operating income after taxes $ 3,208 Denominator: Invested capital: Cash and equivalents $ 851 Trade receivables 3,227 Inventories 1,659 Net plant and equipment 2,230 Goodwill and intangible assets 5,689 Accounts payable and accrued expenses -2,158 Debt -8,969 Other, net 697 Total net assets (stockholders' equity) 3,226 Cash and equivalents -851 Debt 8,969 Total invested capital $ 11,344 Average invested capital(2) $ 10,959 Net income to average invested capital 28.0 % After-tax return on average invested 29.3 % capital
(1) Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2025 was 23.9%.
(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within the period presented.
A reconciliation of the 2025 effective tax rate, excluding the third quarter 2025 net discrete tax benefit of $27 million, which included a favorable discrete tax benefit of $43 million related to the estimated U.S. federal tax liability for 2024, partially offset by a $16 million discrete tax expense related primarily to the resolution of a foreign tax audit, and excluding the first quarter 2025 discrete tax benefit of $21 million related to the reversal of a valuation allowance on net operating loss carryforwards, is as follows:
Full text with the tables
Exhibit 99.1
ITW Reports Third Quarter 2026 Results
• Revenue of $4.24 billion increased +4% with organic growth of +4%; +5% ex-
Welding tornado impact
• Record operating income of $1.18 billion increased +6%
• Operating margin of 27.8% expanded 40 bps with favorable price/cost income and
margin impact
• GAAP EPS of $3.00 grew +7%
• Operating cash flow of $953 million and free cash flow conversion of 100% of
net income
• Full Year 2026 GAAP EPS guidance raised $0.05 at the midpoint to a narrowed
range of $11.45 to $11.55 per share, representing +10% growth year-over-year at
the midpoint
GLENVIEW, Ill., October 27, 2026 - Illinois Tool Works Inc. (NYSE: ITW) today
reported its third quarter 2026 results and raised full year 2026 guidance.
“The ITW team delivered strong operational execution and financial performance
in the third quarter, including organic growth of 4 percent (5 percent excluding
the impact of a tornado affecting our Welding segment), 40 basis points of
operating margin expansion to 27.8 percent, and a 7 percent increase in GAAP
earnings per share to $3.00,” said Christopher A. O’Herlihy, President and Chief
Executive Officer.
“Our top-line results reflect accelerating demand in our capex-related segments,
Welding and Test & Measurement and Electronics, continued strength in Polymers &
Fluids segment, and a meaningful increase in the contribution to revenue growth
from our Customer-Back Innovation efforts. We entered the fourth quarter with
strong operational momentum and are raising our EPS guidance for the year. As we
continue to advance our enterprise strategy priorities, including our goal of 3
percent-plus Customer-Back Innovation yield, we are positioning ITW to deliver
consistent, above-market organic growth while further expanding profitability
and margins,” O’Herlihy concluded.
Third Quarter 2026 Results
Third quarter revenue of $4.24 billion increased by 4.4 percent. Organic revenue
growth was 3.8 percent, led by 6.0 percent growth in North America. Foreign
currency translation increased revenue by 0.3 percent, and an acquisition added
0.3 percent.
GAAP EPS grew 6.8 percent to $3.00, while operating income increased 5.9 percent
to $1.18 billion, a quarterly record for the company. Operating margin expanded
by 40 basis points to 27.8 percent as enterprise initiatives contributed 130
basis points. In the quarter, price increases and other actions more than offset
rising raw material costs, resulting in a favorable impact on both operating
income and margin. Operating cash flow was $953 million, and free cash flow was
$851 million, representing a 100 percent conversion of net income. During the
quarter, the company repurchased $187 million of its own shares and raised its
dividend 7 percent, bringing the annualized payout to $6.88 per share. This
increase marks the 63 rd consecutive year of dividend increases. The effective
tax rate for the quarter was 24.4 percent.
Tornado damage to two Welding facilities in late July reduced third-quarter
revenue by an estimated $40 million. Excluding this impact, the company
estimates that the Welding organic revenue growth rate would have been
approximately 15 percent, resulting in total company organic growth of
approximately 5 percent. The associated loss of operating income was largely
offset by business interruption insurance. The impact going forward is expected
to be immaterial.
2026 Guidance
ITW is raising its full year 2026 GAAP EPS guidance by $0.05 at the midpoint to
a narrowed range of $11.45 to $11.55 per share, representing 10 percent growth
at the midpoint. Based on current demand levels and prevailing foreign exchange
rates, the company is raising revenue growth guidance to 4.5 to 5.5 percent and
reaffirming its organic growth guidance of 3 to 4 percent.
Operating margin is projected to be in the range of 26.5 to 27.5 percent, with
enterprise initiatives contributing more than 100 basis points. Free cash flow
is projected to be approximately 100 percent of net income, and the company
expects to repurchase approximately $1.5 billion of its own shares. The
projected effective tax rate is 23 to 24 percent.
Non-GAAP Measures
This earnings release contains certain non-GAAP financial measures. A
reconciliation of these measures to the most directly comparable GAAP measures
is included in the attached supplemental reconciliation schedule. The estimated
guidance of free cash flow to net income conversion rate is based on assumptions
that are difficult to predict, and estimated guidance for the most directly
comparable GAAP measure and a reconciliation of this forward-looking estimate to
its most directly comparable GAAP estimate have been omitted due to the
unreasonable efforts required in connection with such a reconciliation and the
lack of reliable forward-looking cash flow information. For the same reasons,
the company is unable to address the potential significance of the unavailable
information, which could be material to future results.
Forward-looking Statements
This earnings release contains forward-looking statements within the meaning of
U.S. federal securities laws, including the Private Securities Litigation Reform
Act of 1995. Such statements may include, without limitation, statements
regarding supply chain challenges, expected impact of inflation including raw
material inflation and rising interest rates, the potential impact of tariffs,
the Company’s projected pricing actions, the impact of enterprise initiatives,
future financial and operating performance, free cash flow and free cash flow to
net income conversion rate, organic and total revenue, contribution from
Customer-Back Innovation to revenue growth, operating and incremental margin,
price/cost impact, statements regarding diluted earnings per share, after-tax
return on average invested capital, effective tax rates, exchange rates,
expected timing and amount of share repurchases, end market economic and
regulatory conditions, and the Company’s 2026 guidance. These statements are
subject to certain risks, uncertainties, assumptions, and other factors, which
could cause actual results to differ materially from those anticipated.
Important risks that could cause actual results to differ materially from the
Company’s expectations include those that are detailed in ITW’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2025, and subsequent reports
filed with the U.S. Securities and Exchange Commission. Except as required by
law, the Company undertakes no obligation to update or revise any forward-
looking statement to reflect new information, future events, changed
circumstances, or otherwise.
About ITW:
Founded in 1912, Illinois Tool Works Inc. (NYSE: ITW) is a Fortune 300 global
multi-industry manufacturing leader with revenue of $16 billion in 2025. The
company’s seven industry-leading segments leverage the unique ITW Business Model
to drive solid growth with best-in-class margins and returns in markets where
highly innovative, customer-focused solutions are required. ITW’s approximately
43,000 dedicated colleagues around the world thrive in the company’s
decentralized and entrepreneurial culture. To learn more, please visit
www.itw.com.
Investor Relations & Media Contact:
Erin Linnihan
Tel: 224.661.7431
investorrelations@itw.com | mediarelations@itw.com
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
In
milli…
except Three Nine
per Months Months
share Ended Septem… Ended Septe…
amoun… 2026 30, 2025 2026 30, 2025
──────────────────────────────────────────────────────────────────────────────
Opera… $ 4,236 $ 4,059 $ 12,553 $ 11,951
Reven…
Cost
of 2,326 2,253 6,985 6,685
reven…
Selli…
admin…
and
resea… 717 676 2,174 2,075
and
devel…
expen…
Amort…
and
impai… 16 18 50 60
of
intan…
assets
Opera… 1,177 1,112 3,344 3,131
Income
Inter… -83 -75 -235 -217
expen…
Other
income 37 12 69 28
(expe…
Income
Before 1,131 1,049 3,178 2,942
Taxes
Income 276 228 740 666
Taxes
Net $ 855 $ 821 $ 2,438 $ 2,276
Income
Net
Income
Per
Share:
Basic $ 3.00 $ 2.82 $ 8.51 $ 7.79
Dilut… $ 3.00 $ 2.81 $ 8.49 $ 7.77
Cash
Divid…
Per
Share:
Paid $ 1.61 $ 1.50 $ 4.83 $ 4.50
Decla… $ 1.72 $ 1.61 $ 4.94 $ 4.61
Shares
of
Common
Stock
Outst…
During
the
Perio…
Avera… 284.6 290.8 286.4 292.2
Avera…
assum… 285.3 291.7 287.1 293.0
dilut…
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
September 30,
In millions 2026 December 31, 2025
──────────────────────────────────────────────────────────────────────────────
Assets
Current Assets:
Cash and $ 809 $ 851
equivalents
Trade receivables 3,516 3,227
Inventories 1,823 1,659
Prepaid expenses
and other current 450 463
assets
Total current 6,598 6,200
assets
Net plant and 2,254 2,230
equipment
Goodwill 5,073 5,098
Intangible assets 543 591
Deferred income 492 519
taxes
Other assets 1,537 1,510
$ 16,497 $ 16,148
Liabilities and
Stockholders'
Equity
Current
Liabilities:
Short-term debt $ 2,219 $ 2,286
Accounts payable 623 522
Accrued expenses 1,635 1,636
Cash dividends 490 465
payable
Income taxes 133 217
payable
Total current 5,100 5,126
liabilities
Noncurrent
Liabilities:
Long-term debt 7,153 6,683
Deferred income 168 154
taxes
Other liabilities 934 959
Total noncurrent 8,255 7,796
liabilities
Stockholders'
Equity:
Common stock 6 6
Additional 1,866 1,771
paid-in-capital
Retained earnings 31,177 30,150
Common stock held -28,190 -26,875
in treasury
Accumulated other
comprehensive -1,718 -1,827
income
(loss)
Noncontrolling 1 1
interest
Total
stockholders' 3,142 3,226
equity
$ 16,497 $ 16,148
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three
Months
Ended
September
30, 2026
──────────────────────────────────────────────────────────────────────────────
Dollars in Total Operating Operating
millions Revenue Income Margin
Automotive $ 814 $ 163 20.1 %
OEM
Food 698 208 29.8 %
Equipment
Test &
Measureme… 819 235 28.7 %
and
Electroni…
Welding 513 186 36.3 %
Polymers & 477 149 31.3 %
Fluids
Construct… 472 141 29.9 %
Products
Specialty 447 140 31.4 %
Products
Intersegm… -4 — — %
Total 4,236 1,222 28.9 %
Segments
Unallocat… — -45 — %
Total $ 4,236 $ 1,177 27.8 %
Company
Nine
Months
Ended
September
30, 2026
──────────────────────────────────────────────────────────────────────────────
Dollars Total Operating Operating
in Revenue Income Margin
millions
Automoti… $ 2,491 $ 521 20.9 %
OEM
Food 2,027 553 27.3 %
Equipment
Test &
Measurem… 2,303 592 25.7 %
and
Electron…
Welding 1,569 527 33.6 %
Polymers 1,405 415 29.6 %
& Fluids
Construc… 1,424 427 30.0 %
Products
Specialty 1,346 423 31.4 %
Products
Interseg… -12 — — %
Total 12,553 3,458 27.5 %
Segments
Unalloca… — -114 — %
Total $ 12,553 $ 3,344 26.6 %
Company
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
…
… … & … … … …
… … … … & … … …
… …
…
… % … % … % … % … % … % -… % 3… %
— % — % … % — % — % — % — % 0… %
… % … % … % … % … % … % 0… % 0… %
… % … % … % … % … % — % -… % 4… %
Q3
2026
vs.
Q3
2025
Fav…
Cha… Test
in Auto… Food & Poly… Cons… Spec… Total
Ope… OEM Equi… Meas… Weld… & Prod… Prod… ITW
Mar… and Flui…
Elec…
Ope… (40) 10 370 130 140 (10) (20) 80
Lev… bps bps bps bps bps bps bps bps
Cha…
in
Var… (150) 40 (50) 220 100 (200) (90) (60)
Mar… bps bps bps bps bps bps bps bps
& OH
Cos…
Tot… (190) 50 320 350 240 (210) (110) 20
Org… bps bps bps bps bps bps bps bps
Acq… — — (60) — — — — (10)
Div… bps bps
Res… 20 10 70 20 40 40 20 30
bps bps bps bps bps bps bps bps
Tot…
Ope… (170) 60 330 370 280 (170) (90) 40
Mar… bps bps bps bps bps bps bps bps
Cha…
Tot…
Ope… 20.1% 29.8% 28.7% 36.3% 31.3% 29.9% 31.4% 27.8%
Mar…
% *
*
Inc…
unf…
ope…
mar…
imp… 20 110 10 70 10 10 40
of bps — bps bps bps bps bps bps
amo… **
exp…
from
acq…
int…
ass…
**
Amo…
exp…
from
acq…
int…
ass…
had
an
unf…
imp…
of
($0…
on
GAAP
ear…
per
sha…
for
the
thi…
qua…
of
202…
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
…
… … & … … … …
… … … … & … … …
… …
…
… % … % … % … % … % — % -… % 2… %
— % — % … % — % — % — % — % 0… %
… % … % … % … % … % … % 1… % 1… %
… % … % … % … % … % … % 0… % 5… %
YTD
2026
vs.
YTD
2025
Fav…
Cha… Test
in Auto… Food & Poly… Cons… Spec… Total
Ope… OEM Equi… Meas… Weld… & Prod… Prod… ITW
Mar… and Flui…
Elec…
Ope… (20) (10) 260 140 110 — (30) 60
Lev… bps bps bps bps bps bps bps
Cha…
in
Var… (10) (50) 10 (40) 80 (70) (60) (30)
Mar… bps bps bps bps bps bps bps bps
& OH
Cos…
Tot… (30) (60) 270 100 190 (70) (90) 30
Org… bps bps bps bps bps bps bps bps
Acq… — — (50) — — — — (10)
Div… bps bps
Res… 40 10 30 (20) 10 10 30 20
bps bps bps bps bps bps bps bps
Tot…
Ope… 10 (50) 250 80 200 (60) (60) 40
Mar… bps bps bps bps bps bps bps bps
Cha…
Tot…
Ope… 20.9% 27.3% 25.7% 33.6% 29.6% 30.0% 31.4% 26.6%
Mar…
% *
*
Inc…
unf…
ope…
mar…
imp… 20 120 80 10 20 50
of bps — bps — bps bps bps bps
amo… **
exp…
from
acq…
int…
ass…
**
Amo…
exp…
from
acq…
int…
ass…
had
an
unf…
imp…
of
($0…
on
GAAP
ear…
per
sha…
for
the
fir…
nine
mon…
of
202…
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Nine
Mont… Mont…
Dol… Ended Ended
in Sept… Sept…
mil… 30, 30,
Num… 2026 2025 2026 2025
──────────────────────────────────────────────────────────────────────────────
Net $ 855 $ 821 $ 2,4… $ 2,276
Inc…
Dis…
tax
ben…
rel…
to — — -34 —
the
fir…
qua…
2026
Net
dis…
tax
ben…
rel… — -27 — -27
to
the
thi…
qua…
2025
Dis…
tax
ben…
rel…
to — — — -21
the
fir…
qua…
2025
Int…
exp…
net 63 57 178 165
of
tax…
Oth…
(in…
exp… -28 -10 -52 -22
net
of
tax…
Ope…
inc… $ 890 $ 841 $ 2,5… $ 2,371
aft…
tax…
Den…
Inv…
cap…
Cash
and $ 809 $ 924 $ 809 $ 924
equ…
Tra… 3,516 3,2… 3,5… 3,255
rec…
Inv… 1,823 1,7… 1,8… 1,725
Net
pla… 2,254 2,2… 2,2… 2,203
and
equ…
Goo…
and 5,616 5,5… 5,6… 5,568
int…
ass…
Acc…
pay…
and -2,2… -2,… -2,… -2,1…
acc…
exp…
Debt -9,3… -8,… -9,… -8,9…
Oth… 754 651 754 651
net
Tot…
net
ass… 3,142 3,2… 3,1… 3,209
(st…
equ…
Cash
and -809 -924 -809 -924
equ…
Debt 9,372 8,9… 9,3… 8,942
Tot…
inv… $ 11,7… $ 11,… $ 11,… $ 11,2…
cap…
Ave…
inv… $ 11,7… $ 11,… $ 11,… $ 10,8…
cap…
Net
inc…
to 29.1 % 29.1 % 28.1 % 27.9 %
ave…
inv…
cap…
Aft…
ret…
on 30.3 % 29.8 % 29.1 % 29.1 %
ave…
inv…
cap…
(1) Effective tax rate used for interest expense and other (income) expense for
the three months ended September 30, 2026 and 2025 was 24.4% and 24.3%,
respectively. Effective tax rate used for interest expense and other (income)
expense for the nine months ended September 30, 2026 and 2025 was 24.3% in both
periods.
(2) Average invested capital is calculated using the total invested capital
balances at the start of the period and at the end of each quarter within each
of the periods presented.
(3) Returns for the three months ended September 30, 2026 and 2025 were
converted to an annual rate by multiplying the calculated return by 4. Returns
for the nine months ended September 30, 2026 and 2025 were converted to an
annual rate by dividing the calculated return by 3 and multiplying it by 4.
A reconciliation of the tax rate for the nine month period ended September 30,
2026, excluding the first quarter 2026 discrete tax benefit of $34 million
primarily related to the resolution of a U.S. tax audit, is as follows:
Nine Months Ended
September 30, 2026
──────────────────────────────────────────────────────────────────────────────
Dollars in millions Income Taxes Tax Rate
As reported $ 740 23.3 %
Discrete tax benefit related
to the 34 1.0 %
first quarter 2026
As adjusted $ 774 24.3 %
A reconciliation of the tax rate for the three and nine month periods ended
September 30, 2025, excluding the third quarter 2025 net discrete tax benefit of
$27 million, which included a favorable discrete tax benefit of $43 million
related to the estimated U.S. federal tax liability for 2024, partially offset
by a $16 million discrete tax expense related primarily to the resolution of a
foreign tax audit, and excluding the first quarter 2025 discrete tax benefit of
$21 million related to the reversal of a valuation allowance on net operating
loss carryforwards, is as follows:
Three Sept… Nine Septe…
Months 30, Mont… 30,
Ended 2025 Ended 2025
──────────────────────────────────────────────────────────────────────────────
Doll… Income Tax Inco… Tax
in Taxes Rate Taxes Rate
mill…
As $ 228 21.8 % $ 666 22.7 %
repo…
Net
disc…
tax
bene…
rela… 27 2.5 % 27 0.9 %
to
the
third
quar…
2025
Disc…
tax
bene…
rela…
to — — % 21 0.7 %
the
first
quar…
2025
As $ 255 24.3 % $ 714 24.3 %
adju…
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Twelve Months Ended
Dollars in millions December 31, 2025
───────────────────────────────────────────────────────────────────────────
Numerator:
Net income $ 3,066
Net discrete tax benefit related to the -27
third quarter 2025
Discrete tax benefit related to the -21
first quarter 2025
Interest expense, net of tax(1) 222
Other (income) expense, net of tax(1) -32
Operating income after taxes $ 3,208
Denominator:
Invested capital:
Cash and equivalents $ 851
Trade receivables 3,227
Inventories 1,659
Net plant and equipment 2,230
Goodwill and intangible assets 5,689
Accounts payable and accrued expenses -2,158
Debt -8,969
Other, net 697
Total net assets (stockholders' equity) 3,226
Cash and equivalents -851
Debt 8,969
Total invested capital $ 11,344
Average invested capital(2) $ 10,959
Net income to average invested capital 28.0 %
After-tax return on average invested 29.3 %
capital
(1) Effective tax rate used for interest expense and other (income) expense for
the year ended December 31, 2025 was 23.9%.
(2) Average invested capital is calculated using the total invested capital
balances at the start of the period and at the end of each quarter within the
period presented.
A reconciliation of the 2025 effective tax rate, excluding the third quarter
2025 net discrete tax benefit of $27 million, which included a favorable
discrete tax benefit of $43 million related to the estimated U.S. federal tax
liability for 2024, partially offset by a $16 million discrete tax expense
related primarily to the resolution of a foreign tax audit, and excluding the
first quarter 2025 discrete tax benefit of $21 million related to the reversal
of a valuation allowance on net operating loss carryforwards, is as follows:
Twelve Months Ended
December 31, 2025
──────────────────────────────────────────────────────────────────────────────
Dollars in millions Income Taxes Tax Rate
As reported $ 900 22.7 %
Net discrete tax benefit
related to the 27 0.7 %
third quarter 2025
Discrete tax benefit
related to the 21 0.5 %
first quarter 2025
As adjusted $ 948 23.9 %
FREE CASH FLOW (UNAUDITED)
Three Nine
Dol… Mont… Mon…
in Ended Sept… End… Sept…
mil… 2026 30, 2025 2026 30, 2025
──────────────────────────────────────────────────────────────────────────────
Net
cash
pro… $ 953 $ 1,021 $ 2,299 $ 2,1…
by
ope…
act…
Les…
Add…
to -102 -117 -289 -314
pla…
and
equ…
Free
cash $ 851 $ 904 $ 2,010 $ 1,8…
flow
Net $ 855 $ 821 $ 2,438 $ 2,2…
inc…
Net
cash
pro…
by
ope…
act… 111 % 124 % 94 % 95 %
to
net
inc…
con…
rate
Free
cash
flow
to 100 % 110 % 82 % 81 %
net
inc…
con…
rate