ITW 2026财年第三季度业绩电话会：每股收益增长7%，上调业绩指引

核心要点

• ITW公布2026年第三季度总营收增长4.4%，其中有机增长3.8%。若扣除焊接业务受龙卷风影响的因素，有机增长率约为4.8%。
• 营业利润率同比扩大40个基点至27.8%，营业利润增长6%创季度新高。企业举措对利润率贡献了130个基点。
• 尽管受所得税率提高带来的约0.10美元逆风影响，GAAP每股收益仍增长7%至3.00美元。
• 测试与测量及电子业务以16%的增速领跑增长，其次是聚合物与流体业务（增长8%）和焊接业务（增长7%，若排除龙卷风影响则增长15%）。
• ITW将全年GAAP每股收益指引上调0.05美元至11.45-11.55美元，中位数为11.50美元，相当于同比增长10%。
• 管理层目前预计客户支持型创新（CBI）将为全年营收增长贡献超过3%，并表示焊接以及测试与测量及电子业务的订单势头依然强劲。

关键财务数据

业务与经营表现

测试与测量及电子业务实现16%的有机增长。受印刷电路板组装与半导体客户需求的推动，电子业务营收大增31%。测试与测量业务增长8%，主要由半导体需求驱动，同时通用工业订单也开始改善。该部门营业利润率提升330个基点至28.7%。

尽管受龙卷风导致两处设施受损，焊接业务仍实现了7%的有机增长。若排除该事件影响，增长率本可达到15%。此次干扰使营收减少了约4000万美元，拖累公司整体增长1个百分点。设备营收增长5%，而耗材实现两位数增长。管理层表示，订单增速继续高于营收增速，预计该部门在第四季度将恢复强劲增长。

在市场份额扩大和新品推出的支撑下，聚合物与流体业务增长8%。汽车售后市场增长6%，聚合物增长12%，流体增长9%。部门利润率扩大280个基点至31.3%，创该业务历史新高，不过管理层预计第四季度的经营杠杆效应将有所减弱。

汽车整车厂（OEM）有机营收下降2%，而上年同期为增长5%。北美下降1%，欧洲下降7%，中国下降1%。ITW表示，其表现跑赢了北美和中国的汽车产量增速，但不利的客户结构和产品线简化拖累了欧洲业务。利润率下降170个基点，主要是由于树脂价格上涨和定价生效时点的影响。

食品设备业务增长1%。服务营收增长5%，抵消了设备营收2%的下滑。北美下降3%，而国际市场营收增长5%。营业利润率提升60个基点至29.8%。受北美中单字数订单增长的支撑，管理层预计第四季度有机增长将达到低单字数，且利润率将有所扩大。

建筑产品业务下降1%，而管理层此前预估其终端市场将出现中单字数下滑。在数据中心项目的支撑下，北美商业建筑增长19%，而住宅建筑活动下降2%。由于短期价格成本压力，部门利润率下降170个基点至29.9%。

特种产品有机营收下降1%，其中包括产品线简化带来的130个基点的拖累。营业利润率下降90个基点至31.4%。

按地区划分，北美增长6%，亚太地区增长3%，欧洲持平，中国在去年同期对比基数为增长10%的情况下下降2%。

管理层指引

该展望意味着第四季度的有机增长率将超过5%。尽管发货工作日减少两天，管理层仍预计第四季度营收将环比增长1%-2%，营业利润率处于27%的中高段区间。

企业举措预计将为全年利润率贡献超过100个基点。ITW预计2026年的价格-成本影响按金额计算呈有利态势，对利润率的影响大致呈中性。

展望2027年，管理层预计CBI势头将进一步增强，企业举措仍将是关键的利润率拉动力，边际利润率将超过40%。这些属于规划假设，而非正式的2027年指引。

风险与关注点

• 原材料通胀仍居高不下，管理层指出树脂、化学品、钢铁和电子零部件的价格上涨了约4%-5%。
• 汽车整车厂（OEM）和建筑产品面临短期定价滞后问题。ITW表示正在采取调价措施，但预计随时间推移才会逐步恢复。
• 欧洲市场保持持平，管理层预计短期内不会有实质性改善。中国在经历了几年的较快增长后，本季度下降2%。
• 建筑产品和汽车整车厂（OEM）仍是ITW对利率最为敏感的业务。
• 聚合物与流体业务第四季度对比基数走高（上年同期有机增长5%），对比难度有所加大。
• ITW仍属于短周期业务。尽管焊接、测试与测量及电子以及食品设备的在手订单略高于正常水平，但管理层强调可预见性是以月而非年计。

分析师问答亮点

管理层将第三季度的价格-成本状况描述为小幅有利，但由于原材料投入成本波动，拒绝量化其带来的具体基点收益。对于2027年，公司目前假设价格-成本环境将趋于正常，可能提供10-20个基点的利润率拉动效应。

在CBI方面，管理层表示其对营收的贡献率已从五年前的约1%升至两年前的2%，目前已超过3%。随着公司持续充实创新管线，ITW预计将实现持续改善。

管理层表示，电子业务31%的增长得益于半导体和电子客户强劲的订单活动，这些客户正在增加晶圆制造产能和印刷电路板生产，以满足AI相关需求。公司还预计此前在半导体制造及测试设备领域的投资将有助于扩大市场份额。

在营业中断险弥补了第三季度与龙卷风相关的营业利润损失后，焊接业务的利润率预计将回归至32%-34%的典型区间。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Operator

Good morning. My name is Kona Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to ITW's third quarter earnings conference call. [Operator Instructions] Erin Linnihan, Vice President of Investor Relations, you begin your conference.

Erin Linnihan

[Audio Gap] President and CFO, Michael Larsen. During today's call, we will discuss ITW's third quarter 2026 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 2025 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?

Christopher O'Herlihy

Thank you, Erin, and good morning, everyone. As you saw in our press release this morning, the ITW team delivered another quarter of strong operational and financial performance. Our third quarter highlights include organic growth of 4% and or 5% excluding the impact of the tornado event at 1 of our welding locations.

Our top line was fueled by another meaningful increase in customer-backed innovation, and we are raising our full year CBA projection to 3% plus. Operating margin expanded 40 basis points to 27.8% and operating income increased 6%, marking a new quarterly record for ITW. GAAP EPS exceeded our estimates and increased 7% to $3.

Demand momentum this quarter continued to accelerate in our 2 CapEx-related segments at the organic growth of 16% in Test & Measurement and Electronics and 7% in welding or 15% excluding the tornado event. In addition, Polymers & Fluids grew 8% due to robust contributions from both market share gains and new products.

Beyond capitalizing on favorable market conditions, we continue to make meaningful progress on our long-term organic growth agenda across all segments. On that note, I'm very encouraged by our customer-back innovation progress which so far this year has contributed more than 3% to revenue growth compared to 2.4% in 2025.

As I mentioned, we are now projecting that CBI will exceed 3% for the full year which is the single biggest catalyst for achieving our enterprise goal of sustained high-quality organic growth of 4% or higher.

Our performance year-to-date offers another proof point that disciplined execution on our next phase enterprise strategy priorities is yielding strong results, positioning us very well for 2027 and putting us firmly on track to achieve our 2030 performance goals.

Before I transition to the bottom line, let me spend just a minute on the unfortunate tornado event that we mentioned on our call in July which damaged 2 of our welding facilities and reduced our revenues by about $40 million or 1 percentage point in the third quarter.

I am pleased to say that our colleagues were all safe and the team did an outstanding job quickly and safely restoring operations and taking care of customers. Our swift recovery starts a great demonstration of our ability to read and react a key proof point of the value of ITW's decentralized entrepreneurial culture.

With welding order growth running well ahead of revenue, we expect welding to return to strong growth again in the fourth quarter and carried good momentum into next year. On the bottom line, the ITW team continued to execute at a high level with Enterprise Initiatives contributing 130 basis points to our operating margin.

And in a very dynamic inflationary environment, our teams continue to respond decisively and effectively. Overall, price/cost was favorable in the third quarter. But as you can see, in a few segments such as automotive OEM and construction products, we have some catching up to do.

Turning to capital allocation. In the quarter, we raised our dividend 7% marking our 63rd consecutive year of dividend increases. In the first 3 quarters of the year, we have returned $2.7 billion to shareholders through share repurchases and dividends.

In terms of our outlook, we are raising our full year GAAP EPS guidance by $0.05 to a new midpoint of $11.50, reflecting 10% year-over-year growth. This marks our third guidance increase of the year. Looking ahead to 2027 and with [indiscernible] have developed our annual plans, yes, demand momentum continues to build across several of our end markets, notably in Welding and Test & Measurement and Electronics.

In addition, we are exiting this year with CBI already at 3% plus. We would expect another meaningful contribution from our enterprise initiatives and incremental margins in the 40%-plus range. Our long-term performance framework, 4% plus organic growth and 30% operating margins by 2030 is very much intact and remains well within our reach.

In conclusion, I want to thank our dedicated HW colleagues around the world. And this quarter, in particular, the welding folks in Appleton, Wisconsin for their dedication to serving our customers and executing our strategy with excellence.

With that, I'll hand the call over to Michael to walk you through the segment details and updated full year outlook. Michael?

Michael Larsen

Thank you, Chris, and good morning, everyone. Starting with the top line. Total revenue grew 4.4%, driven by 3.8% organic growth, a 0.3% contribution from foreign currency translation and 0.3% from an acquisition. Excluding the tornado event in Welding, our organic growth rate would have been approximately 4.8%.

Importantly, order growth continued to accelerate in both welding and Test & Measurement and Electronics and demand remained strong in polymers and fluids. Moving to the bottom line. Operating margin expanded by 40 basis points year-over-year to 27.8% with another solid 130 basis points contribution from enterprise initiatives.

Sequentially, margins improved 110 basis points from Q2. In the quarter, price increases and other actions offset higher raw material costs in dollar and margin terms. Those favorable drivers were partially offset by inflation in other areas such as employee-related costs.

Free cash flow was $851 million or 100% of net income. And on a year-to-date basis, free cash flow grew 9% to more than $2 billion or 82% of net income. Finally, GAAP EPS was $3, an increase of 7% despite a headwind of about $0.10 from a higher tax rate of 24.4% compared to 21.8% last year.

Overall, a strong quarter operationally and financially and with significant positive momentum going forward. Turning to Slide 4. From a regional perspective, organic growth was up 6% in our largest region, North America. Asia Pacific was up 3%, with China down 2%, primarily due to a tough comparison of plus 10% and Europe was flat.

Moving to the segment highlights, starting with Automotive OEM. Organic revenue was down 2% against a tough comparison last year of plus 5%. In Q3, North America was down 1%, Europe down 7% and China was down 1%. In the quarter, we meaningfully outperformed build rates in both North America and China, while Europe was impacted by unfavorable customer mix and product line simplification.

For the full year, we expect to outperform builds and remain well positioned to continue to execute on our long-term growth opportunities such as EV growth in China. Operating margin was down 170 basis points, primarily due to resin inflation, and the resulting price cost timing lag, which was partially offset by favorable enterprise initiatives.

As usual, we expect to recover the price cost impact over time helped by new product launches, and we remain on track to achieve our longer-term margin targets for the segment.

Turning to Slide 5. Food Equipment organic revenue grew 1% overall as service strength of plus 5%, helped offset a 2% decline in equipment, which marked a notable sequential improvement from the mid-single-digit equipment declines in the first half.

Regionally, North America was down 3% due to soft but sequentially improving institutional demand in areas such as K-12, which are impacted by a decline in funding levels, partially offset by high single-digit growth in areas such as retail.

On a positive note, international again delivered strong growth, up 5% in the quarter. Operating margin improved 60 basis points to 29.8%. Looking ahead, with North America orders up mid-single digits this quarter, we are now projecting year-over-year organic growth in the low single digits and operating margin expansion in Q4.

Test & Measurement and Electronics had another outstanding quarter with 16% organic growth, led by a 31% surge in electronics, which represents approximately 40% of the segment. Test & Measurement was up 8%, driven primarily by semiconductor demand, with general industrial order activity also beginning to pick up.

The 2 main drivers of the strong growth that we're seeing in this segment are first our electronic assembly businesses, which serve the printed circuit board industry and second, our semiconductor-related businesses, which serve the chip manufacturing industry.

Staying invested in our strategic growth initiatives in those businesses through the cycle has positioned us to take full advantage of the significant growth opportunities that remain ahead as orders continue to outpace revenue growth by a wide margin.

Operating margin expanded by 330 basis points to 28.7%, primarily as a result of strong operating leverage. Moving on to Slide 6. Welding was obviously impacted by the tornado event in the quarter, but still managed to deliver a remarkably resilient top and bottom line results including 7% organic growth, which would have been 15%, excluding the tornado event.

Equipment revenue grew 5% as orders continue to surge across most end markets and consumables grew double digit driven by both market tailwinds and strong new product adoption. North America, which represents 85% of the Welding segment was up 8% with broad-based growth across both industrial and commercial markets as demand momentum continued to strengthen in end markets such as infrastructure, energy, aerospace, defense and semiconductors.

On the bottom line, the loss of operating income associated with the tornado event was offset by business interruption insurance, which favorably impacted margins. Looking ahead, we expect welding margins to return to the typical best-in-class levels.

In Polymers & Fluids, organic growth reached 8% and driven by strength across most end markets with strong traction on CBI and continued market share gains. Organic growth was 6% in automotive aftermarket while organic growth of 12% in polymers and 9% of fluids was supported by robust momentum in general industrial and biopharma markets.

Operating margin expanded 280 basis points to 31.3%. Turning to Slide 7. In our most interest rate sensitive segment, Construction Products organic growth was down 1% compared to end markets, which we estimate were down in the mid-single digits. North America was flat, Europe was down 2% and Australia and New Zealand was up 1%.

While residential innovation in North America was down 2% commercial construction, which represents about 15% of the region, was up 19% due to strong demand in areas such as data center construction. Operating margin was down 170 basis points to 29.9% due primarily to near-term price cost headwinds.

Specialty Products organic growth was down 1%, which includes the impact of 130 basis points of product line simplification, primarily in the appliance components business. North America grew 3% on solid demand for consumer packaging, offset by an 8% decline in international markets, which had a tough comparison of 7%.

Operating margin was down 90 basis points to 31.4%. With that, let's turn to Slide 8 for an update on our full year guidance. Overall, we are carrying significant positive momentum forward and are well positioned to continue to deliver strong operational and financial performance in the fourth quarter and beyond.

Starting with the top line and per our usual process, our guidance is based on current levels of demand, adjusted for typical seasonality and prevailing foreign exchange rates. As a result, our organic growth projection remains 3% to 4% for the full year despite the Q3 tornado event, which implies organic growth of 5% plus in Q4.

Sequentially, revenues grew 1% to 2% from Q3 despite 2 fewer shipping days in Q4. We're raising total revenue growth guidance by 50 basis points to 4.5% to 5.5% to account for current foreign exchange rates. On the bottom line, our operating margin guidance remains unchanged at 26.5% to 27.5% and we expect Q4 margins in the mid- to high 27s, similar to Q3, which would mark a significant improvement year-over-year.

Enterprise initiatives remain the primary margin driver and are expected to contribute more than 100 basis points. For the full year, we're estimating that price cost will be favorable on a margin -- on an income basis and about neutral to margins in what remains a very dynamic environment.

Factoring in our strong third quarter results, we are raising our GAAP EPS gains by $0.05 to a narrowed range of $11.45 to $11.55 with a new midpoint of $11.50, representing 10% year-over-year growth. The projected effective tax rate remains unchanged at 23% to 24%, free cash flow conversion is projected to be approximately 100% of net income, with full year share repurchases of approximately $1.5 billion.

Considering some of the unique challenges we had to deal with this quarter. We're pleased with our performance and especially the strong momentum across the company. Combined with our best-in-class margins and our disciplined operational execution, we remain well positioned to deliver differentiated financial performance in 2026 and beyond.

With that, I'll turn the call back over to Erin.

Erin Linnihan

Thank you, Michael. Conor, will you please open the queue for questions.

Operator

[Operator Instructions] Your first question comes from the line of Jamie Cook with Truth Securities.

分析师问答

Jamie Cook

I guess 2 questions. First, just on the price cost in the quarter. I think originally, you had said it would have been a headwind. You expected a headwind of 30 bps, and it sounds like it was better than that? Just if you could quantify that?

And then I guess my second question, it sounds like there's opportunities within automotive and construction for margins to improve. Just it sounds like there's like a pricing lag there. Can you talk to what pricing actions that you're taking and when we should see that start to hit the bottom line?

Michael Larsen

Yes. Let's start with price/cost. And if we look back to Q3 our pricing actions largely came through as planned. And like everyone else, we continue to see a lot of inflation in raw material costs, such as resin, chemicals, steel, electronic components kind of in that 4% to 5% range.

Price cost was modestly favorable in the third quarter. And given the dynamic environment, we don't really want to provide a whole lot more detail than that. What we can say is that for the full year, we also expect the margin impact to be about neutral for the full year.

Just given the very kind of dynamic conditions here, we're going to refrain from providing more detail on Q3 and Q4 and quantifying specifically the basis points. Now looking ahead to 2027, what we've talked about in the past is still the case that we expect conditions to normalize here in 2027, which typically is a 10 to 20 basis points tailwind to margins from price cost.

So that's kind of the base assumption for 2027. So a little bit of near-term headwind, and we expect to get through that over the next -- by year-end and next year then would be a more kind of normal environment? And then maybe on the automotive OEM margins, Chris, if you wanted to comment?

Christopher O'Herlihy

Yes. So I would say in both auto and construction, we are busily recovering price right now. But I think in both cases, we think about margins in -- across all 7 agents particularly with auto for a second, the primary drivers of auto margins are enterprise initiatives and higher-margin innovation.

And we are making great progress on those, both in auto and construction. We see those standing into next year.

Jamie Cook

Okay. Sorry. And one follow-up. Obviously, Chris, congratulations. It seems like we're getting some good traction on SBI. It's trending ahead of your expectations besides auto, what are the big -- where are you seeing the biggest benefits?

And should we assume that momentum improves -- continues to improve into 2027?

Christopher O'Herlihy

Yes, you should assume it continues to improve. What I would say is that just to refresh in terms of how we think about this, what's captured in our CBI numbers, incremental revenue growth over a 3-year period net of cannibalization. So on that basis, you need to keep refilling the pipeline with new projects.

So it can be a little lumpy from quarter-to-quarter, but what's evident is that the work that we've done over the past 2, 3 years, have really resulted in this step change from what was 1% 5 years ago to 2% 2 years ago to a 3% contribution level right now.

And we would expect, given the improvements in innovation practice across the company, as you surmised, this number to incrementally improve from here on a year-over-year basis going forward. And as we've said, the most actionable and sustainable way that we drive organic growth over the long term is CBI. So we're pretty encouraged what this means for organic growth.

Operator

The next question is from Andy Kaplowitz of Citigroup.

Andrew Kaplowitz

Michael, I know you generally have short cycle businesses, but you obviously went '26 with relatively strong organic revenue growth. And I would imagine you have some backlog in your CapEx focused businesses now.

So how does that position you when you about 27%. Chris, I think you sounded pretty confident regarding being you're beating that 4% or better algorithm that you have. But maybe you can elaborate on any puts and takes.

I know you talked about CBI to JV, but anything else? And maybe you can elaborate on if you do have backlog in these CapEx businesses?

Michael Larsen

So we do have a little bit more backlog than usual, but we're talking about months years of backlog. So just as a reminder, we're still very much a short-cycle business.

Part of that is because of our 80/20 operating system, which allows us to take orders today, ship them tomorrow and then replenish the inventory the next day. So there's no incentive for customers to place orders significantly ahead of when they need them.

So as we kind of -- that said, obviously, with what we've seen on side of the business, particularly in Welding and Test & Measurement electronics. We are carrying a little bit more backlog than usual. We actually saw to complete the picture, it's a little bit of a backlog increase also in the Food Equipment business here going into the fourth quarter.

And so all of that bodes really well for this 5% plus organic growth number that's implied in our guidance for 2026. And maybe more importantly, as we go into 2027, not so much the backlog, but just the underlying momentum that we're seeing in these businesses, the feedback we're getting from customers, the new products that are coming through at significantly higher margins.

Now, as Chris said, at 3% plus CDI contribution. And 3% plus in the segments, we just talked about Welding and Test & Measurement is you could surmise that it's significantly higher than 3 in those segments. So those really have a lot of momentum going into 2027.

Christopher O'Herlihy

Yes. I would just add to that, Andy, that as Michael indicated, strong order intake, higher than revenue growth for both Test & Measurement and Welding in the quarter. What's also encouraging is that welding and test and measurement that the growth is pretty broad-based.

So think about welding very strong growth, not just on the industrial side in areas like energy, aerospace, construction fabrication and so on, but also on the commercial side on small fab.

Similarly with Test & Measurement, obviously, semi has been strong for a little while now. But we're now starting to see a real make pick up on industrial side of the business as well in areas like Instron. So even though we don't forecast cycles, they would certainly say that the current order activity and the feedback to Michael's point, that we're getting from our customers gives us some good confidence going into 2027.

Andrew Kaplowitz

And then I think 8% organic growth in Polymers & Fluids is the strongest growth you've had in last few years in that segment. So I know you mentioned market share gains, strength in general industrial and biopharma, but maybe you could give us a little more color on the sustainability of that growth for that segment .

Christopher O'Herlihy

Sure. So polymers & fluids has been building for a little while now. And certainly some gains, but also, I think, some real nice progress on CBA above-average contribution CBA in that segment, but broad-based across all 3 platforms of automotive aftermarket, polymers and fluids I would say, polymers, in particular, be well positioned in very high-growth markets, pretty sophisticated adhesive bonding applications.

I think electronics, electric vehicles and then similarly on the fluids business, so we're having some real success on the biopharma space. So I think what this all says, Andy, is that it really highlights the fact that this segment is really well positioned to be a 4% plus grower for the enterprise on a sustained basis going forward.

Michael Larsen

And I would just add, Andy, as you think about this from a modeling standpoint, the comparison does get quite a bit tougher here in the fourth quarter. So Q4 last year. As Chris said, this has been going on for a while, was up -- the segment was up 5% organic. And so the Q4 growth rate might not be starting with an 8, is kind of what I'm trying to tell you here.

Operator

The next question is from the line of Julian Mitchell with JPMorgan.

Unknown Analyst

This is [indiscernible] On for Julian. Maybe first on building. You guys noted of associated loss of operating income was largely offset by business interruption insurance. So what is the underlying margins in welding in Q3? And what should we expect in .

Michael Larsen

Yes. I think what I said in the prepared remarks was that we were expect to return to kind of our typical best-in-class margins in that 32%, 33%, 34% range.

Unknown Analyst

Okay. Got it. And maybe sticking 1 more on margins. Maybe on the Polymers & Fluids margins, very strong. Anything one time here now into the 30s? Can they stay here or maybe push up? Any color here?

Michael Larsen

Yes. I think like I just said to Andy, I think we're probably expecting a little less operating leverage here in the fourth quarter. And so maybe a little bit lower than what we put up here in the third quarter, which I believe was a record for the segment, by the way. but still very healthy. Yes, still very healthy, yes. So sure.

Operator

The next question is from the line of Steven Fisher with UBS.

Steven Fisher

You mentioned, Michael, that Construction Products is the market with the biggest interest rate sensitivity, which makes sense given the housing relevance there.

But I'm wondering -- are there any areas within your own business or products that are more affected by financing costs, thinking like large commercial dishwashers, et cetera. that might be financed. Are you seeing any impact from higher interest rates or hearing any anecdotes on that from your various businesses?

Michael Larsen

Not specific to Food Equipment, which I think is your question. I mean I think -- if you just look at the portfolio, it's pretty easy to see that the growth is really driven by the more industrial businesses the CapEx-related businesses as well as Polymers & Fluids, there's a fair bit of underlying industrial demand in that business. And then there's a little bit more challenge in the more consumer-oriented kind of interest rate sensitive parts of the company, which would be construction, maybe to some extent, also the automotive business.

But really, I think construction and automotive are the ones we would consider the most interest rate sensitive. I think it's really encouraging when you look at the automotive business here in the third quarter that in North America, we significantly outperformed builds, which is -- and the same is true in China by about 5 basis points, 5 percentage points in both cases. And so there is room for opportunities for growth here with select customers and as a result of really driving CBI and new products in this segment. And then the challenge was really mostly on the European side, but that was kind of a unique situation related to PLS and customer mix. But that's really how we would think about it. .

Steven Fisher

Okay. That's helpful. And then just maybe from a geographic perspective, look to gauge your sense of momentum or relative optimism or pessimism I mean, noticing that Europe is flat, see North America growing nicely.

Just kind of curious if you have any feeling of whether Europe can hold flat -- and if it doesn't, are you assuming that North America will accelerate? Just curious for sort of any momentum and expectation commentary around geographies.

Michael Larsen

Yes. I think, Steve, what's very clear is North America is the fastest-growing region, like I said, up 6% here in the third quarter. We do expect that momentum to continue and maybe even build a little bit here in Q4, and then we'll do the plans for next year, we'll have a better feel for that.

But a lot of positive momentum in North America, particularly Test & Measurement and Electronics, welding, palmers and fluids, kind of the usual suspects are driving a lot of the growth there. and we expect that to continue in the fourth quarter.

Europe, it's tough to be super optimistic about Europe, about flat here in Q3. It could be a little bit better. in the fourth quarter tied to automotive, test and measurement and electronics, but not expecting a lot of improvement in that geography. And then China, after years of double-digit growth and I think last year, up 9%. I think the growth there, as you would expect, has maybe slowed down a little bit.

And so we're still in kind of the flat kind of China maybe down low single digits in Q3 and Q4, but a lot of potential going forward in that geography. So maybe that's how we would handicap it by region. What rate what we have in Europe is food equipment problem.

Yes. I mean, I think that's a really good point. Food Equipment up mid-single digits like I said, in Europe, both on the equipment as well as on the service side. And so that's a real strength for the company.

Operator

The next question is from Nicole DeBlase of Deutsche Bank.

Nicole DeBlase

Sorry, guys, I was on mute. Can you hear me now?

Operator

Yes, we got you.

Nicole DeBlase

Okay.So I just wanted to hit on margins a little bit more. you guys said kind of expect flat margins sequentially in the fourth quarter, but we know that, that welding insurance gain kind of goes away. You talked about polymers and fluids probably seeing a bit of a sequential decline -- what is that getting you back to flat?

Are you expecting Q-on-Q margin expansion across the rest of the businesses? And were there any tariff refunds in the margin this quarter?

Michael Larsen

So I think really, if you look at the Q4 margins, I think what you're hinting at is the fact that margins typically go down from Q3 to Q4. The reason that we don't think that's the case is based on current run rates, we actually expect revenues to go up sequentially from Q3 to Q4.

We said between 1% and 2% growth sequentially, which gets us to that 5% plus organic revenue growth in the fourth quarter. And so beyond that, that operating leverage that comes with that, everything else is pretty much the same in terms of the biggest structural driver of margin improvement remains the enterprise initiatives which just contributed 130 basis points to expect another 100 there.

Volume leverage was favorable in Q3. Like I said, we expect that to be more favorable in Q4. We're being a little cautious around price cost, just given how quickly those can move around.

But overall, we're pretty confident that we'll be able to improve margins here in the fourth quarter on a year-over-year basis and then sequentially about the same which bucks kind of the typical seasonality.

Nicole DeBlase

Okay. Okay. That's really helpful. And then just as a follow-up, the 31% organic growth in electronics price stunning. What is your thoughts on the sustainability of that magnitude of growth in the fourth quarter and perhaps into '27 as well?

Christopher O'Herlihy

Yes. So Nicole, we believe it's very, very sustainable based on the strong order activity that we're seeing from our semi electronics customers. I mean, these customers are working very hard to increased fab capacity, produce for the circuit boards and meet the growing needs of AI.

So very sustainable, very encouraging. We have -- this is an area where we've invested considerably over the last number of years. So we're now very well positioned to the company really capitalize on that. It's also a great opportunity for us to innovate for us.

So given the strong competitive advantages that we have as it relates to semi manufacturing, testing equipment, particularly, we're really well positioned here to take share as the end markets continue to improve.

Operator

As there are no more questions at this time, we'd like to thank you for participating in today's conference call. All lines may now disconnect.

Thank you for joining ITW's Third Quarter 2026 Earnings Webcast. The line will disconnect automatically.