Illinois Tool Works (NYSE:ITW) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

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Summary

Illinois Tool Works reported a 5% revenue growth and a 12% increase in GAAP EPS to $2.66 for the first quarter, with an operating margin expansion of 60 basis points to 25.4%.

The company raised its full-year GAAP EPS guidance by $0.10 to a midpoint of $11.30, expecting 8% year-over-year growth and maintaining a 1-3% organic growth projection.

Enterprise initiatives contributed 120 basis points to the margin improvement, with notable organic growth in welding (6%) and test and measurement and electronics (5%).

All seven segments are expected to deliver positive organic growth and margin expansion in 2026, with the company poised to leverage demand trends and market share opportunities.

Management highlighted strong operational execution, with strategic focus on Customer Backed Innovation (CBI) aiming for a 3% CBI revenue contribution by 2030.

Full Transcript

OPERATOR

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 Illinois Tool Works' 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 the 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 Linehan, Vice President of Investor Relations. You may begin your conference.

Erin Linehan (Vice President of Investor Relations)

Thank you Cath, good morning and welcome to Illinois Tool Works' first quarter 2026 conference call. I'm joined by our president and CEO Chris O'Herlihy and senior Vice President and CFO Michael Larson. During today's call we will discuss Illinois Tool Works' first quarter 2026 financial results and provide an update on our outlook for full year 2026. Slide 2 is a reminder that this presentation contains forward looking statements. Please refer to the company's 2025 Form 10K 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 O'Herlihy

Chris thank you Erin and good morning everyone. As you saw in our press release this morning, Illinois Tool Works 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 $2.66. Through disciplined operational execution we expanded operating margin by 60 basis points. to 25.4%.. We continue to capitalize on positive demand trends in our capex related segments with organic growth in welding up 6% and test and measurement and electronics up 5%. While our consumer facing businesses contended with challenging end market dynamics, the Illinois Tool Works 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 at that 60 basis point overall margin improvement. We were equally encouraged by our continued progress on Illinois Tool Works's organic growth agenda, specifically on Customer Backed 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% plus 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, Illinois Tool Works'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 Larson (Senior Vice President and CFO)

Michael thank you Chris and good morning everyone. In Q1, the Illinois Tool Works 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 by positive demand trends and strong order activity in our capex and semi related segments. The combination of our product line simplification, Product Line Simplification (PLS) efforts and delayed sales to the Middle East reduced our organic growth rate by approximately 1 percentage point. For context, our annual sales to the Middle East represent approximately $100 million which is less than 1% of Illinois Tool Works'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 for the balance of the year. Please turn to Slide 4. 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 Illinois Tool Works. The 120 basis points contribution this quarter from our strategic sourcing and 8020 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 second quarter, including double digit growth in EVs where we are particularly well positioned. At the segment level, we continue to expect our typical 200 to 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 5, 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 and 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 and 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 division 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 of 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 plus 14% in the year ago quarter. Operating margin was best in class at 32.1%. Polymers and 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 plus 6% and fluids was also flat. Operating margin expanded 150 basis points to 28%. Turning to slide 7 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 Product Line Simplification (PLS) activities and delayed Middle East sales. Despite the top line pressure and with the margin tailwind from recent Product Line Simplification (PLS) activities, the segment expanded operating margin by 40 basis points to 31.3%. With that, let's turn to Slide 8. for an update on our guidance. As we've said before, Illinois Tool Works is well positioned to deliver meaningful progress on both the top and bottom lines in 2026. On the top line, we are maintaining our total revenue growth projection of 2 to 4% and organic growth projection of 1 to 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 to 27.5%. As enterprise initiatives contribute approximately 100 basis points. We continue to expect that price cost 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 to 24%. We are raising our GAAP EPS guidance by $0.10 to a new range of $11.10 to $11.50, representing 8% growth at the $11.30 midpoint. In terms of cadence, we are projecting a 4852 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. Illinois Tool Works is well positioned to deliver on our guidance, including solid organic growth with best in class margins. With that, Erin, I'll turn it back to you.

Erin Linehan (Vice President of Investor Relations)

Thank you, Michael. Cath, will you please open the line and inform callers on how to get back into the queue?

OPERATOR

Thank you. At this time I would like to remind everyone to ask questions. Press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of Andy Kaplowski with Citigroup. Your line is open.

Andy Kaplowski (Equity Analyst)

Close enough. How's everyone doing? Good morning. Good morning. Good morning. So 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? But maybe consumer specialty, I guess and food equipment was more institutional or a little low and they just kind of net out. How are you thinking about growth by segment versus your original expectations?

Chris O'Herlihy

Yeah. So Andy, as we've indicated, we expect all seven segments to show positive organic growth this year. I think you've characterized the first quarter pretty well. I think what we saw is CapEx related segments like test measurement and welding Test and measurement, obviously, particularly in semiconductors and electronics, as Michael indicated, grew more than 15%. And 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 Customer-Backed Innovation (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, but it also in Q1 bled into the commercial platforms as well. So certainly on those CapEx related markets, I think very strong trends, strong order activity and then 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 a couple of hundred basis points of improvement over the market, similarly in construction and even in areas like polymers and fluids where automotive aftermarket, we showed a very healthy market of growth versus retail point of sales and automotive aftermarket. So 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. But even in those consumer facing markets which are improving a little bit, we're outgrowing those markets.

Andy Kaplowski (Equity Analyst)

Helpful, Chris, and maybe similar question on margin for you or Michael. You reiterated the incrementals for the year in the mid-to-high 40s. Are you getting there at all differently? Because 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?

Michael Larson (Senior Vice President and CFO)

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 40s 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. So overall the margin expectations 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, 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. So we did see improving demand trends in fag, in food, equipment as well as in that particular end market as we went through February, March and April. But it's certainly something we will continue to keep a close, 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 and fluids, maybe automotive construction, continue to execute at a very high level. And you see that, that despite some of these top line challenges, they continue to expand margins, which is really encouraging.

OPERATOR

Very helpful. Your next question comes from the line of Jamie Cook with Truist Security. Your line is open.

Jamie Cook (Equity Analyst)

Hi. Good morning. I guess just my first question, can you just, you know, help us understand, I mean, last quarter it sounds like you were pretty positive on short cycle momentum, things improving your confidence level today with some of the uncertainty related to the war with Ukraine and macro and whether you saw any change in the cadence of sales throughout the quarter or into April. Then my second question, can you just give us an update on Customer-Backed Innovation (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.

Michael Larson (Senior Vice President and CFO)

Yeah, thank you, Jamie. So 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 and we actually on the top line did a little bit better than that. So 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. And in some of these businesses, maybe welding and test and 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. And I think certainly Maybe a little bit more of a challenge in maybe a place like Food Equipment, which we just talked about. But 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. And like I said, we're more confident in our organic growth guidance of 1 to 3 today than we were on the last call. So that's maybe how I would think about it. Just one last word on automotive because automotive did have a slower start in China. So you need to factor in that automotive builds in China were down 10% in Q1 and they're projected to be flat here in in Q2.. So 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. And if you just look at the cadence that we outlined, which I think was your other question, you have the EPS bid 48 to 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. And as we sit here today, we feel very, very confident in our ability to deliver both Q2. and the full year.

Chris O'Herlihy

And then Jamie, on your question on cbi and although the opportunity profile in Customer-Backed Innovation (CBI) can look a little different segment to segment, division to division, what I would say is that we have strong momentum right across the company on Customer-Backed Innovation (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 I was to call out segments, I could call it all seven. But I would say a welding test and measurement, food equipment and automotive, you know, good progress in 2025 obviously in CDI yield, 40 basis points improvement. And based on what we see in Q1, we were tracking really well here to deliver incremental improvement in 2026 on the path to 3% plus here by 2030 if not before. Patent filings as well, continue to be strong, obviously up very strongly the last couple years. 18% in 2024, 9% in 2025. And we see additional increases in 2026. And as we said before patent filings continues to be a very strong leading indicator of Customer-Backed Innovation (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. And so increased patent activity is often

Jamie Cook (Equity Analyst)

pretty well correlated with future revenue growth. So 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 true in patent filings and yield. Thank you.

OPERATOR

Your next question comes from the line of Tammy Zakaria with JPMorgan. Your line is open.

Tammy Zakaria (Equity Analyst)

Hi, good morning. Thank you so much. 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 GLP1 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. But just longer term, is GLP1 on your radar as you plan for this segment over the coming few years?

Chris O'Herlihy

I would say, Tammy, it's not something we're giving a lot of thought to. I would say GLP1 early days. And I would also say that if you look at food equipment, you know, restaurants that represents smaller, particularly QSR represents a smaller portion of our business. The biggest portion is institutional. We have a sizable restaurant business, but smaller piece certainly is in QSR which is probably more directly impacted. So I'd say early to tell, it's not something that's on our radar at this point. But like I say, I think particularly as you mentioned qsr, it's not a huge part of our business, although it's growing nicely.

Michael Larson (Senior Vice President and CFO)

And I would just add, as 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 only accelerate from here and offset any pressures like the ones that you are talking about.

Tammy Zakaria (Equity Analyst)

Understood, thank you.

OPERATOR

Your next question comes from the line of Stephen Vogtman with Jeffries. Your line is open.

Stephen Vogtman (Equity Analyst)

Hi, good morning everybody. I was going to stick with food as well because that QSR comment kind of caught my attention. Do you think that that market is actually turning and or is there something that you're doing that's kind of itw specific there? Yeah, I'll leave it there.

Chris O'Herlihy

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 driven around critical customer pain points like, you know, energy, water, labor savings and all those trends are very relevant in qsr. So I'm pretty sure that a large part of our QSR growth is coming from innovation.

Michael Larson (Senior Vice President and CFO)

And I would just add, we always talk about this as the strength of the service business. So 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. And, you know, our ability to put up 3, 4, 5% organic growth on a consistent basis at attractive margins kind of buffers any kind of some of that lumpiness that you might see in the businesses that you're talking about. Got it. Okay, thank you for that. And then, Michael, it sounded like there was a margin thing that happened in the quarter that was very specific. Should we assume 2Q is kind of back to normal? Yeah, I think there's really Nothing unusual about Q1, I'd say, other than the slow start, maybe in food equipment. I think if you look at kind of the 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%. And in April, we're off to a really good start with organic growth. If you look at our full year guidance range 1 to 3, we're probably trending towards the high end of that range here in April. So that's really the top line 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. So that will put it somewhere around, you know, 26 and a half, 27ish. And then 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. But 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. So hopefully that gives you a little bit of context. Very much so. Appreciate it. Thanks. Sure.

OPERATOR

Your next question comes from the line of Julian Mitchell with Barclays. Your line is open.

Julian Mitchell (Equity Analyst)

Hi, good morning. And Michael saw there Are a couple of other calls going on. But just to clarify your comment 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? Just, you know, obviously we've had some questions on. You are just over flat in Q1 and 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 Larson (Senior Vice President and CFO)

Well, I think, Julian, there's, as we've said before, the first quarter was right in line with our plan. So 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 a 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. So I think it's fair to say maybe there might be a little bit more of a, of a price impact there. But broadly, we are very close to our original plan as we sit here today, including the organic growth projection of 1 to 3. Nothing has really, you know, changed relative to our, our guidance other than as we said, we've seen some really positive demand trends in two segments in particular.

Julian Mitchell (Equity Analyst)

That's helpful, thank you. And when we're looking at the operating margin guidance, you know, you're off to a good start versus that 70bps 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 and sort of company wide. Is operating leverage fairly steady as you move through 2026?

Michael Larson (Senior Vice President and CFO)

Yeah, 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 and then we would expect sequential improvement to those margins again in Every segment in Q3 and into Q4. Now like we've said before, and you mentioned welding specifically. You know, those are, as you know, best in class operating margins by a fair margin. So 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 and measurement, which there's a little bit of impact from some recent acquisition activity. But as volume and price begins to pick up as we go through the year, you're going to see some really solid operating leverage in the test and measurement business as well. Julian, I would just add to that. We have really good line of sight

OPERATOR

on at least 100 basis points of improvement metaphor initiatives. That's helpful. Thank you. Your next question comes from the line of Andrew Obin with Bank of America. Their line is open.

David Ridley Lane

Morning, this is David Ridley Lane on for Andrew Oban. Good 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, so 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. So that was about a combined that and the combination of PLS efforts that are somewhat, I'd say front end loaded this year. Reduce the overall organic growth rate by 3 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. And then in some of the more consumer oriented businesses there are some challenges, as you are well aware, as Chris talked about. And then there are places like the medical business that is growing leaps and bounds at this point in time. So it's really, you know, all those factors offsetting each other. And 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. And then with the Supreme Court's ruling against the IEEPA tariffs, several manufacturing companies have filed for refunds.

Michael Larson (Senior Vice President and CFO)

Where do you stand in that process for yourself? So given with respect to tariff recovery, I mean, given our producer we sell philosophy, the reality is the direct impact of tariffs was largely mitigated at itw. And you know, to the extent that there was an impact, we were able to recover this in price. So 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.

OPERATOR

And that concludes today's session. Thank you for participating in today's conference call.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.