Good day, everyone, and thank you for joining us for today's ITW third quarter 2025 earnings webcast. As a reminder, all phone participants have been placed in a listen-only mode to cut down on background noise, and later you will have the opportunity to ask questions during our question and answer session. Also, please be aware that today's session is being recorded. It is now my pleasure to turn the floor over to our host, Erin Linnihan, Vice President of Investor Relations. Welcome. Thank you, Jim. Good morning and welcome to ITW's Third Quarter 2025 conference call. Today, I'm joined by our President and CEO, Chris O'Herlihy, and Senior Vice President and CFO, Michael Larsen. During today's call, we will discuss ITW's third quarter financial results and provide an update on our outlook for full year 2025. Slide 2 is a reminder that this presentation contains forward-looking statements. We refer you to the company's 2024 Form 10-K and subsequent reports filed with the SEC for more detail about important risks that could cause actual results to differ materially from our expectations. This presentation uses certain non-GAAP measures, and a reconciliation of those measures to the most directly comparable GAAP measures is contained in the press release. Please turn to slide 3, and it's now my pleasure to turn the call over to our President and CEO, Chris O'Herlihy. Chris? Thank you, Erin, and good morning, everyone. As detailed in our press release this morning, the ITW team continues to perform at a high level, successfully outpacing underlying end-market demand and delivering solid operational and financial execution within a stable yet still challenging demand environment. For the third quarter, revenue increased 3%, excluding a 1% reduction related to our ongoing strategic product line simplification efforts. Organic growth was 1%, a solid performance relative to end markets that we estimate declined low single digits and a 1 percentage point improvement from our second quarter growth rate. Favorable foreign currency translation contributed 2% to revenue. Focusing on the bottom line, we achieved GAAP EPS of $2.81, grew operating income by 6% to a record $1.1 billion, and significantly improved our operating margin by 90 basis points to 27.4%. We maintained excellent execution in controlling the controllables as enterprise initiatives contributed 140 basis points, and effective pricing and supply chain actions more than covered tariff costs and positively impacted both EPS and margins in the quarter. Consistent with our long-term commitment to increasing annual cash returns to shareholders, on August 1, we announced our 62nd consecutive dividend increase, raising our dividend by 7%. Additionally, year to date, we have repurchased more than $1.1 billion of our outstanding shares. Furthermore, I'm encouraged by the significant progress on our next phase strategic growth priorities. We remain laser-focused on making above-market organic growth powered by customer-backed innovation a defining ITW strength. The strategy is working, and we remain firmly on track to deliver on our 2030 performance goals, which include customer-backed innovation yield of 3%+. As we've stated before, ITW is built to outperform in challenging environments. As we look ahead to the balance of the year, we are narrowing our EPS guidance range, confident in our ability to continue leveraging the fundamental strength of the ITW business model, the inherent resilience of our diversified portfolio, and the high-quality execution demonstrated every day by our colleagues worldwide. I will now turn the call over to Michael to discuss our third quarter performance and full year 2025 outlook in more detail. Michael. Thank you, Chris, and good morning, everyone. Leveraging the strengths of the ITW business model and high-quality business portfolio, the ITW team delivered solid operational execution and financial performance in Q3. Starting with the top line, total revenue increased by more than 2%, driven in part by 1% organic growth, an improvement of a percentage point from Q2. Geographically, while North America organic revenue was flat and Europe was down 1%, Asia Pacific was a standout performer with a 7% increase, which included 10% growth in China. Consistent with ITW's do-what-we-say execution, we continue to demonstrate strong performance on all controllable factors. Our enterprise initiatives were particularly effective this quarter, contributing 140 basis points to a record operating margin of 27.4%, which expanded by 90 basis points year- over- year. Furthermore, our pricing and supply chain actions more than covered tariff costs and positively impacted both EPS and margin in Q3. Free cash flow grew 15% to more than $900 million, with a conversion rate of 110%. GAAP EPS was $2.81, with an effective tax rate in the quarter of 21.8%. As detailed in the press release, the rate was driven by a benefit related to the filing of the 2024 U.S. tax return, partially offset by the settlement of a foreign tax audit. In summary, in what continues to be a pretty challenging demand environment, ITW delivered a strong combination of above-market growth with a revenue increase of 2% and solid operational execution, resulting in consistent improvement across all key performance metrics, as evidenced by incremental margins of 65%, operating margins of more than 27%, and GAAP EPS of $2.81, an increase of 6%, excluding a prior year divestiture gain. Turning to slide 4 for a closer look at our sequential performance year to date on some key financial metrics. As you can see, ITW's organic growth rate, operating income, operating margins, and GAAP EPS have all continued to improve in what has remained a mixed demand environment. Turning to our segment results and beginning with automotive OEM, which led the way on both organic growth and margin improvement this quarter. Revenue was up 7%, and organic growth was up 5%, with growth in all three key regions. Strategic PLS reduced revenue by over 1%. Regionally, North America grew 3%, Europe was up 2%, and China was up 10%. The team in China continues to gain market share in the rapidly expanding electric vehicle market as customer-backed innovation efforts drive higher content per vehicle. In our full year guidance, we have incorporated the most recent automotive build forecasts, which are projecting a modest slowdown in the fourth quarter. For the full year, we continue to project that the automotive OEM segment will outperform relevant industry builds by 200- 300 basis points as we consistently grow our content per vehicle. On the bottom line, strong performance again this quarter with operating margin improving 240 basis points to 21.8%, and we're well positioned to achieve our goal from Investor Day of low to mid-20s operating margin by 2026. Turning to food equipment, on slide 5, revenue increased 3% with 1% organic growth. While equipment sales were down 1%, our service business grew by 3%. Regionally, North America grew by 2%, driven by 1% growth in equipment and 4% growth in service. Demand remains solid on the institutional side. International, however, was down 1%. Operating margins improved 80 basis points to 29.2%. For test & measurement and electronics, revenue was flat this quarter as organic revenue saw a 1% decline. The demand for capital equipment in our test & measurement businesses remained choppy as revenues declined 1%. In addition, electronics declined 2% as demand slowed in semiconductor-related markets. On a positive note, operating margin improved 260 basis points sequentially from Q2 to 25.4%. Excluding 50 basis points of restructuring impact in Q3, margins were 25.9%, and both operating margins and revenues are projected to improve meaningfully in the fourth quarter. Moving to slide 6, welding was a bright spot, delivering 3% organic growth with a contribution of more than 3% from customer-backed innovation. Equipment sales increased 6% while consumables were down 2%. Industrial sales increased 3% in the quarter as North America was up 3% and international sales grew 4% with China up 13%. Operating margin of 32.6% was up 30 basis points as the welding segment continued to demonstrate strong margin and profitability performance. In polymers & fluids, revenues declined 2%. Organic revenue declined 3%, which included a percentage point headwind from PLS. Polymers declined 5% against a difficult comparison in the year-ago quarter of + 10%, while fluids was flat in the quarter. The more consumer-oriented automotive aftermarket business was down 3%. Although the top line declined, the segment expanded margin by 60 basis points to 28.5%, supported by a strong contribution from enterprise initiatives. Moving on to construction products, on slide 7, revenues were down only 1% as organic revenues declined 2% in the quarter, significantly better than last quarter's 7% organic decline. Revenue was also impacted by a 1% reduction from PLS. Regionally, revenue in North America declined 1%, Europe was down 3%, and Australia and New Zealand decreased 4%. Despite market headwinds, the segment improved operating margin by 140 basis points to 31.6%. For specialty products, revenue increased 3% with organic revenue up 2%. Revenue included a percentage point headwind from PLS. By region, revenue in North America declined 1% against a difficult comparison in the year-ago quarter of + 8%, while international was up 7%, driven by consistent strength in our packaging and aerospace equipment businesses. Operating margin improved 120 basis points to 32.3%, supported by a strong contribution from enterprise initiatives. With that, let's move to slide 8 for an update on our full year 2025 guidance. Starting with the top line, we remain well positioned to outperform our end markets in Q4, and we continue to project organic growth of 0%- 2% for the full year. Per our usual process, our guidance factors in current demand levels, the incremental pricing actions related to tariffs, the most recent auto build projections, and typical seasonality. Total revenue is projected to be up 1%- 3%, reflecting current foreign exchange rates. On the bottom line, we're highly confident that the ITW team will continue to execute at a high level operationally on all the profitability drivers within our control. This includes our enterprise initiatives, which we now expect will contribute 125 basis points to full year operating margins, independent of volume. Additionally, we expect that tariff-related pricing and supply chain actions will more than offset tariff costs and favorably impact both EPS and margins. Our operating margin guidance of 26%- 27% remains unchanged. After raising GAAP EPS guidance by $0.10 last quarter, we are narrowing the range of our guidance to a new range of $10.40- $10.50. Our EPS guidance range includes the benefit of a lower projected tax rate of approximately 23% for the full year and factors in that the top line is trending towards the lower end of our revenue guidance ranges. With those two elements effectively offsetting each other, we remain firmly on track to deliver on our EPS guidance, including the $10.45 midpoint, which, as a reminder, is $0.10 higher than our initial guidance midpoint in February. To wrap up, we remain highly confident that the inherent strength and resilience of the ITW business model, combined with our high-quality diversified portfolio and, most importantly, our dedicated colleagues around the world, all put us in a strong position to effectively manage our way through a challenging macro environment. However the demand picture evolves from here, we remain focused on delivering differentiated financial performance and steadfastly pursuing our long-term enterprise strategy, which is squarely centered around making above-market organic growth a defining strength for ITW. With that, Erin, I'll turn it back to you. Thank you, Michael. Jim, will you please open the call for Q&A? I'd be happy to. Thank you. Ladies and gentlemen, if you would like to ask a question at this time over your phones, simply press star and one on your telephone keypad. Pressing star and one will place you into a queue, and I will open your lines one at a time. Once again, ladies and gentlemen, that is star and one if you would like to ask a question. We'll hear first from the line of Jeff Sprague at Vertical Research Partners. Please go ahead. Your line is open. Morning everyone. Morning. Morning, Jeff. Morning. Maybe just two from me, hit two different businesses if I could. First, just on construction. Clearly you've been working the playbook. One of the things that just jumps off the page to me is this is the 11th quarter in a row of organic revenue declines and the margins are still going up in the business. Maybe just anything in particular beyond the kind of the normal 80/20 blocking and tackling that's behind that, mixed changes or other things, and just your confidence to be able to move those margins up further if and when the revenues do ever inflect positively. Sure. Yeah. So, Jeff, I think the margins in construction are squarely related to two things. Number one, I think the quality of the construction portfolio. As we often say, you know, we tend to operate in businesses which, you know, they've been a bit of a cyclicality in their growth. The long term are fundamentally very healthy, and our strategy is always to try and operate in the most attractive parts of those markets. That's what you're seeing in construction. We're in the most attractive parts of the market. We are executing very well from a business model perspective against those particular parts of the market. That's ultimately what drives the margins. It's ultimately also what will drive the high-quality organic growth going forward. Very confident that not only will we grow in construction when markets recover, but grow at very high quality. Great. Maybe you could elaborate a little bit on it sounds like you've got a fair amount of visibility on test & measurement improving in the fourth quarter. Maybe you could speak to that. Anything in particular that you're seeing orders and markets? I'll leave it there. Let you answer. Yeah. I think test & measurement has a normal cyclical improvement in Q4, which we expect to achieve again this year. Q3 was a little bit mixed, obviously. We saw continued slowdown on the CapEx side. Really, we would believe on the basis of the tariff uncertainty in Q2 ultimately having a spillover effect in terms of CapEx demand into Q3. We expect that to improve a little bit. The other thing we saw in Q3, which should improve, is we saw a little bit of a deceleration in semi, which only represents about 15% of the segment. Where we saw some real green shoots in Q2, we saw somewhat of a deceleration, still growth, but a deceleration in Q3, and we expect that to get a little better. Okay, great. Thank you. Thanks, Jeff. Our next question will come from Andy Kaplowicz at Citi. Good morning, everyone. Morning, Andy. Chris and Michael, you obviously didn't change your organic revenue growth guide for the year. I think last quarter you talked about embedded in it was 2%-% organic growth for the second half, which means you still need a big uptick in Q4. I don't think comps get a lot easier for you in Q4 versus Q3. Is it just more pricing that's laddering in Q4? I think you just said your run rating as usual. Any other businesses get better in Q4 versus Q3? I think what we are, to give you a little bit of color on Q4, and you have to factor in what we said in the prepared remarks that we are trending towards the lower end of the organic growth guidance for the full year. We typically see a sequential improvement from Q3 to Q4 in that plus a couple of points of growth, primarily driven by the test & measurement business, as Chris O'Herlihy just mentioned, and offset by the typical seasonal decline that we're seeing in our construction business. Q3 to Q4 revenue is up maybe a point or so. On the margin side, what we also typically see from Q3 to Q4 is a modest decline sequentially of about 50 basis points or so, still in that 27% range and with a nice improvement on a year-over-year basis. The key driver of Q4 is then a more normal tax rate. That's about a $0.10 headwind relative to Q3. Q4 looks a lot like Q3 with a normal tax rate, and that's how you get to the implied midpoint of our guidance here. Maybe just a comment or two on Q3. I think it was a little bit of an unusual quarter in the sense that we came into Q3 after a strong June. We had a strong July, perhaps related to some of the tariff announcements and related pricing actions. We saw a little bit of a slowdown in August, actually pretty pronounced in August, and then a more normal September. It was really a mixed bag in the quarter with a stronger automotive performance, certainly, but also some of the green shoots we talked about last quarter in the order rates in places like test & measurement and semi didn't really materialize for us. I think at the end of the day, though, we're able to offset some of this choppiness, this macro softness with strong margin performance. As we typically do, we found a way to deliver a pretty solid quarter from a margin, earnings, and free cash flow standpoint. Michael, helpful color. Speaking of that, I mean, you're well up already in your range in auto in terms of margin, you know, almost 22% in the quarter. Auto markets, as you know, overall don't feel, you know, that great yet. Can you actually, I know you did 5% organic growth, but can you actually push to the higher end of your, you know, low to mid-20% over the next couple of years? How should we think about that given you're kind of already there? Yeah, I think we're pretty confident in the margin, you know, the target we laid out, kind of low to mid-20% by next year. I think there's still a lot of opportunity here from an enterprise initiative standpoint primarily. You also see a pretty healthy dose of product line simplification again this quarter, which, you know, that's all short-term headwind to the top line, but really positions the remainder of the portfolio for growth and higher margin performance as we exit some of the slower growth and less profitable, typically, product lines. The market builds will be what they are next, you know, in Q4. They'll be a little bit lower probably than what we saw in Q3. We won't have the same amount of operating leverage, but we'll still outperform as we have historically in the builds. Next year, you should expect kind of our typical two to three points above builds. Whatever that build number is, obviously, as we sit here today, we don't know that. Andy, just to add to that, the other big driver of margin improvement in auto is customer-backed innovation. We're getting a real, nice, healthy contribution from that this year. We expect that to continue and indeed accelerate over the next couple of years. At ITW, innovation always comes with higher margin. Appreciate the color, guys. Sure. Next, we'll hear from Jamie Cook at Truist Securities. Please go ahead. The guidance relative to earlier in the year, I think earlier in the year you assumed, you know, FX headwind of $0.30 on that went positive or neutral last quarter. What's embedded in the guidance? You also have the benefits now from the lower tax rate. I guess, Michael, I'm just trying to understand the puts and takes because it sounds like we have at least $0.40 of tailwind. You're lowering your organic growth to the lower, sorry, your sales to the lower end, but it still seems like, I don't know, the guidance should be better, I guess, than what it is just based on those tailwinds. If you can help me understand that for us, I guess. Yeah, I think the short answer is that just given the choppy demand environment, we're maybe taking a more measured, a more cautious approach to our guidance here as we go into Q4. We're off to a solid start in October, but things can change quickly as we saw, for example, the auto builds, the swing in auto builds, semi not really panning out. I think we're just being a little bit more measured in our guidance here with one quarter to go. As always, we have a path to do a little bit better than what we're laying out for you. You cut off initially, but I think you're talking about FX. What's embedded here is the current rates as of today. Obviously, they can change a little bit. They're a little bit of a tailwind now relative to a headwind earlier in the year, but we're talking pennies. I think in Q3, FX was favorable, $0.04. Then other things like restructuring were unfavorable by a couple of pennies. There's some puts and takes there. We've also embedded, as we said in the prepared remarks, the lower full-year tax rate of 23%. We expect a more typical 24%- 25% tax rate here for the fourth quarter. Hopefully, that's helpful. Okay, thank you. I'll get back in queue. Sure. Once again, ladies and gentlemen, that is star and one if you would like to ask a question. We'll hear from Tami Zakaria at JPMorgan. Hi. Good morning to Team ITW. Hope you're doing well. Good morning. A medium to long-term question for you. Given all the policy changes to incentivize bringing auto production back into the U.S., do you perceive this to be an opportunity down the line given your market share with the Big Three, or would onshoring not be a net gain because you already supply parts to manufacturing overseas? How should we think about that onshoring opportunity models? Yeah. Tammy, I would say that, you know, largely, as we've said before, we're a producer, we sell company. We've already, you know, we're positioned to supply our auto customers anywhere in the world, wherever they are, based on our current manufacturing setup. That will continue. Business coming back to the U.S. would just mean more production for our U.S. factories, but, you know, they're already here. We don't see, I mean, there wouldn't be a huge net benefit that we can see based on the fact that we're a producer, we sell company. Understood. One question on PLS. I think it's about a 1% impact. Should we expect this to continue at that 1% range for the next few years, or is this year more of a heavy lifting, so it might fade as we go into next year and beyond? Yeah. We haven't the planning process completed yet, Tami. What I would say is that, you know, for us, PLS is a bottom-up activity. It's driven by our businesses. It's very much an essential part of the ongoing kind of strategic review that we do and a critical part of 80/20 in our divisions. Obviously, you know, deep into the company, we have this very tried and trusted methodology. It requires a lot of discipline, but it's a lot of benefits that our divisions get from this. The point is that it's bottom-up. We don't have the numbers for 2026 yet. Whatever it is, you know, it's something that makes sense in the context of it makes sense from a long-term growth perspective in terms of it provides strategic clarity around, you know, where we want to focus, effective resource deployment on the back of that. Also, from a margin improvement standpoint, obviously, there's some cost savings, which are a meaningful component of enterprise initiatives. A lot of these projects have a payback of less than a year. We very much see PLS, whether it's 50 bps or 100 bps, as an ongoing value-creating activity in our divisions. Like I say, we've got a lot of positive experience and expertise on this. It's going to be a bottom-up number, basically. Thank you. We'll hear next from the line of Joe Ritchie at Goldman Sachs. Your line is open. Thanks. Good morning, guys. Morning, Joe. I know that you'll typically like guide to trends. I guess as we're kind of thinking about 2026 and that potential initial framework with the moving pieces that you know today, any color that you can kind of give us on how you're thinking about it, at least like this early on and what 2026 could look like? Yeah. I mean, I think as you say, Joe, you know, we don't really give guidance until we've gone through our bottom-up planning process here and talked to the segments about their plans for 2026. That doesn't happen until in November here. To give you a little bit of a way to think about this, maybe, you know, I think you should expect that per our usual process, our top-line guidance will be based on run rates exiting Q4. We'd expect some continued progress on our strategic initiatives, including the contribution from customer-backed innovation. We'd expect some market share gains and the combination of those things leading to, you know, above-market organic growth again in 2026. The big question is really what will the market give us. On the things within our control, you know, we'd expect to see continued margin improvement and a healthy contribution from enterprise initiatives. You should expect to see some strong incremental margins that are probably above our historical average. I think those are kind of the big items. There'd be some puts and takes around, you know, price and FX and lower share count that may skew favorably. I'd expect a similar tax rate to this year. As usual, like I said, we'll update you in February, which will include our usual kind of segment detail to help everybody kind of think through what the year might look like. Okay, great. That's helpful, Michael. I guess just on capital deployment, I know you guys are doing the $1.5 billion buyback. It seems like you've got probably some room on your balance sheet if you wanted to lever up a little further and still stay investment grade. How are you guys thinking about the right leverage for you going forward and put that into context of potential M&A opportunities and what you guys are looking at across your different businesses? Yeah. I mean, I think we're sitting here at about 2x EBITDA leverage, which is right in line with what our long-term target has been. The buyback specifically is really the allocation of the surplus capital that we generate, which is a big number for ITW, about $1.5 billion. That's what is being allocated to the share buyback program and leads to a reduction in the overall share count of about 2%. All of that only happens after we have invested in these highly profitable core businesses for both organic growth and productivity. We're fortunate that only consumes 20%- 25% of our operating cash flow. The second priority here is an attractive dividend that grows in line with earnings over time. Chris talked about this being our 62nd year of consecutive dividend increases of 7%. When all is said and done, we still have a lot of capacity on the balance sheet for any type of M&A opportunities. As you may know, we have the highest credit rating in the industrial space. We have arguably the strongest balance sheet, so there's a lot of room here if the right opportunities were to present themselves. Okay. Great, guys. Thank you. Next question today comes from Stephen Volkmann. Please go ahead, sir. Your line's open. Great. Thank you. Good morning, guys. Morning. Good morning. I'm curious whatever commentary you might wish to provide around what you're seeing on sort of price cost. Obviously, it didn't impact you in the quarter, but are you seeing suppliers raising prices and you're kind of able to offset that however you choose, or do you think maybe they're holding back and that's still to come? In that vein, you know, just how do you ascertain that you will cover whatever costs? Will it be dollar for dollar or also on margin? Thanks? Yeah. I think, Stephen, the biggest driver of cost increases this year has been the tariff-related cost increases. I think we've responded with both pricing actions that we've talked about and also supply chain actions. As you know, we are largely a produce where we sell company. I think 93% or so of the company is produced where we sell. We had a little bit of exposure that we talked about earlier in the year. We've worked hard to mitigate that and put ourselves in a really good position. We've been able to, through those actions, offset the impact from tariffs this year. In Q3, as we said in our prepared remarks, price cost was positive both from a dollar-for-dollar earnings standpoint and also from a margin standpoint. I feel like at this point, we're kind of back to a more normal environment at this point from a price cost standpoint. We are not completely caught up yet, but we've got a quarter to go. For next year, who knows what the tariff environment might mean for next year. I think we feel very confident given our track record here in terms of being able to manage whatever those cost increases, whether they are typical inflationary increases or tariff increases, might be as we head into next year. Super. Okay. Thanks. Just pivoting, China was obviously really good for you guys this quarter. I'm wondering if you might be able to drill in there a little bit and give us a sense of what's driving that and maybe some of the customer-backed innovation initiatives or something. Yeah. Do you want to go ahead, Chris? Yeah. Yeah. Basically, Steve, what's driving China right now is auto in China. In particular, I think our penetration on EV in China, particularly with Chinese OEMs, we continue to make great progress on CBI and market penetration in China, particularly with Chinese OEMs. We continue to grow content per vehicle. As you know, China represents mid-60s in terms of percentage of worldwide EV builds, and we're growing nicely there, particularly with a strong position with Chinese OEMs. In addition, you mentioned CBI. I would say that China, even though it represents about 8% of our revenues, we certainly get this disproportionate amount of our patent activity from China in terms of the level of innovation activity that's going on. Yeah, innovation in China, particularly in automotive, is what's driving our progress here. We're basically penetrating at a level well above the market. Yeah. Maybe to put some qualification around it, if I just look at kind of year-to-date in China, as Chris O'Herlihy said, the big driver is our automotive business, up 15%. That's our largest business in China. Also, Test & Measurement electronics up in the mid-teens. Polymers & Fluids up 10%. Welding up 20%+. I think fueled by customer-backed innovation certainly in most cases here, I think the team's doing a really nice job. Overall, up 12% in China on a year-to-date basis. I'm pretty confident that the things, again, that are within our own control will continue to have a positive contribution to the top and bottom line in Q4 and headed into next year. Great. Thank you, guys. Next, we'll hear from the line of Julian Mitchell at Barclays. Hi, good morning. Morning. Good morning. Maybe just wanted to start with the operating margins. I think you'd mentioned, Michael, that next year, you should be above the historical incremental. I guess you have that sort of placeholder of 35%- 40% dating back to the Investor Day. It is presumably in reference to that. Just wanted to understand, as you look at next year on the margin side of things, is there a big kind of payback from the restructuring efforts that happened this year coming in? Price cost maybe for this year as a whole is margin neutral, and then that flips positive next year? Maybe just any sort of fleshing out of the thoughts on some of those margin moving parts, please. Yeah. I think, Julian, the biggest driver of margin performance for, I'm going to say, the last decade or so has been the enterprise initiatives. We've consistently put up 100 basis points of margin improvement from our strategic sourcing efforts and from our 80/20 front-to-back efforts. We would expect that to continue to be the case next year. Whether that's exactly 100 basis points or not, we won't know until we've rolled out the plans. That will far outweigh any contributions from price costs, for example. The other big element, which is a function of really what end market demand will do, is if you look just at our performance year-to-date or in the third quarter, our incremental margins are significantly above kind of our historical 35%- 40%, including 65% in the third quarter. You look at the margin performance this quarter in the automotive OEM business, where 5% organic growth translates into income growth of 20%+. It's just an illustration of we don't need a lot of growth to put up some really differentiated performance from a margin and profitability standpoint. I can't tell you, as we sit here today, what the incrementals might be for next year on the organic growth. I would tell you, I believe that it'll probably be above the historical range that we just referenced. That's helpful. Just maybe one for Chris, more looking at, you know, slide eight and that CBI contribution of sort of over two points to sales and the sort of partial offset from PLS headwinds that you discussed earlier on this call somewhat. I realize this isn't how you look at it, and it's sort of really bottom-up driven. If we're thinking about that spread of, say, CBI versus PLS enterprise-wide, is the assumption that that should be more and more of a net positive as those CBI efforts that you talked about at the Investor Day a couple of years ago increasingly get traction? Just trying to understand how to think about the delta between those two, understanding that they are independent bottom-up processes. Yeah. I'm not sure there's a huge amount of correlation between the two, Julian. I mean, CBI is really referencing, you know, our efforts around, you know, improving the quality of execution on innovation, whereas PLS, we typically, and our businesses typically use for kind of product line pruning. I think the only correlation between the two is that they're both connected to differentiation. PLS results as a result of where we feel maybe we're not on the same level of differentiation and we're product line pruning accordingly, whereas CBI, we're leaning in to basically create and develop more differentiated products. For sure, you're going to see an improvement in CBI over time. We've already seen that. The number has actually doubled since 2018, directionally in the 1% range. It was 2% last year, trending 2.3%- 2.5% this year, well on track to get to 3%+ by 2030. PLS is a circumstantial and ongoing review of our businesses by our businesses of their product lines, and they react accordingly. As I said earlier, you know, we see this as there's a lot of value creation that comes from PLS, but in a different way. I'm not sure there's a huge amount of correlation between the two. I kind of take a look to it kind of differently. Thank you. The sort of net spread of them should be increasingly positive, I suppose. It should be. No, absolutely. Driven by improvements in CBI. Correct. That is correct. I mean, PLS, as Chris said, is an outcome of a process, our 80/20 front-to-back process. We've talked about, in the long run, maintenance PLS being in that 50 basis points range. We have a little bit more this year. We've talked about specialty and strategically repositioning that segment for faster organic growth. As Chris said, CBI will continue to improve from here. That spread, to your point, will widen. My fault for putting them right next to each other on slide eight. They're completely independent of each other. I just want to make sure that's clear that there's no linkage between the two. Mathematically, the spread will grow between the two, and net net will be a more positive contributor to above-market organic growth as we go forward. That's great color. Thank you. Thank you. Our next question today will come from Joe O'Dea at Wells Fargo. Please go ahead. Hi. Good morning. Thanks for taking my question. Morning. Good morning. Can you talk about sort of tariff impact a little bit? There were periods of time earlier this year where the math would have suggested something up to 2% kind of price requirement to offset. It seems like we're in an environment now where the pricing required is probably less than 1%. Anyway, any thoughts around that? Stepping back, it would seem like that's not necessarily a big hit to demand. The tariff kind of overhang would be more uncertainty related than magnitude of pricing required at this point. Your thoughts on that? Yeah. I think price cost from a, in terms of kind of combined with supply chain actions, our ability to offset tariffs, I think, is not really the main event at this point. I think we've demonstrated that we know how to do that, and we've further mitigated the risk of any tariffs related specifically to China. I think that part of the equation we feel really good about. I think the impact on demand is probably something we talked about also on the last call, that it may have led to a little bit of a demand orders being frozen back in the April kind of Q2 timeframe. There's probably a little bit of overhang still from that. I think we saw what's been a pretty choppy demand environment. As I said earlier, we had some positive order activity in June, July. It slowed April, May, kind of pretty choppy also. I think the impact maybe from a demand standpoint, at least initially, was maybe more significant. Who knows kind of where we go from here into next year. I think it's largely behind us at this point, certainly from a cost standpoint and maybe from a demand standpoint, that this is no longer, tariffs are no longer the main event here. What do you think the main event is in terms of seeing kind of an unlock of better demand, right? You're outgrowing markets, but that market growth rate is not kind of all that inspiring at this point. In sort of this protracted kind of challenged demand environment, if tariffs are kind of easing as a headwind, what do you think is the key to the unlock? Yeah. I think, you know, Joe, how we think of what we take a long-term view here. We believe fundamentally we're in really good markets for the long term. We're obviously going through a period right now where there's quite a bit of contraction and uncertainty and so on and so forth in areas like construction. Our fundamental thesis is that we're in markets which we believe for the long term are attractive. We want to make sure we're in the best parts of those markets, and we believe that we are. We believe we can see quite clearly in areas like automotive and construction and historically in welding and fluid equipment that we're outgrowing the markets. At the point at which the cycle turns, we'd be really well positioned. To Michael's earlier point, not just for growth, but for even higher quality of growth on the basis that our incrementals have strengthened from historical levels on the basis of portfolio pruning around sustainable differentiation coupled with very high-quality execution on the business model. We feel pretty good about the long term. Are we just going through a period where we see some short-term demand issues? We feel we've got a really good portfolio for long-term growth. Maybe just tying that into test & measurement and what you're seeing there. It seemed like an environment, you're investing in customer-backed innovation. Like we hear a number of companies talking about innovation. It would seem like they need your equipment. Are you seeing this kind of build-up in terms of what would have kept them on the sidelines? If they want to invest in innovation, it would seem like they're going to need your help. Absolutely. That's correct. I mean, Test & Measurement is a really fertile space for us in terms of long-term growth. There are lots of new materials being developed. There is increasing stringency in innovation standards and quality standards, all of which are requiring more and more exacting testing equipment. That's where we place. Short-term issues here around the CapEx environment and so on mean a little bit of compression in Q3 relating to some CapEx freezing in Q2. For the long term, this is a really, really healthy environment for us. It will be a healthy environment for us on the basis of the quality of innovation in test & measurement and also the end markets they're lining up against, like biomedical and so on, all of which have very strong fundamentals going forward. I appreciate it. Thank you. Next, we'll hear a question from the line of Nigel Coe at Wolfe Research. Oh, thanks. Good morning, everyone. Good morning. We covered a lot of ground here. Hi, guys. Just want to go back to the comments around, you know, strong starts to the quarter, and then it sort of petered out. Do you think there's any, you know, unusual behavior with shareholders around price increases or tariffs? Obviously, we had the big tariff event middle of the quarter. Anything you'd call out there? Number one. Number two, you know, restructuring actions in the first half of the year. Did we see the full benefits in 3Q, or was there still some benefits to come through in 4Q? Yeah. Let me start with kind of the cadence as we went through the quarter. I'm not sure we have a great answer for you, Nigel. I mean, like we said, June and July were really some of our better months with meaningful organic growth on a year-over-year basis. There was a slowdown in August and a recovery in September. If you look at net- net for Q3, we were actually pretty close to kind of typical run rates. The point I think we're trying to make is just a pretty choppy environment, and things can change pretty quickly. We're not really making any long-term forecast in terms of kind of what that may mean on a go-forward basis. Some of it may be related to the tariff announcements and the associated pricing, but really hard to tell. Restructuring for us, it's a little bit of a misnomer. These are expenses that are funding our 80/20 front-to-back projects. There's no big restructuring initiative going on inside of Illinois Tool Works. Our spend this year will be similar to last year in that $40 million range. We try to kind of level-load things and do a similar amount every quarter. It's really a function of the timing of tens of projects across the company and when the divisions want to execute on those projects. Those restructuring savings are projects with paybacks of less than a year. It happens pretty quickly, and it's part of what's funding the enterprise initiative savings that we're getting next year. These are not big traditional restructuring projects. These are all tied to 80/20 front-to-back as per usual. Yeah. Okay. Thanks, Michael. That's helpful. A quick one on welding. We've seen, I think now two quarters of nice inflection in growth on equipment, but consumables remain sort of stuffed down in that low single-digit decline territory. Is that primarily a price differential between equipment and consumables or anything else you'd call out? Yeah. Nigel, I think it's mainly because the consumer is more of a discretionary purchase. You mean commercial or consumables? Consumables, I think, right? Is that right? Nigel, what were you referring to? Equipment's up nicely. Yeah. I think it's a little bit of a head-scratcher, to be honest with you. You know, equipment up 6% and consumables, you know, down 2%. Within that, there are some of the welding, some of the filler metals are actually showing positive growth. The other thing, what we're seeing is a pickup on the industrial side. These are typically, you know, large, heavy equipment manufacturers. The commercial side or the consumer side is a little bit slower, where it's a little bit more exposed to the kind of consumer discretionary spending. It's a little bit of a mixed picture. I think the real positive in welding is this growth is fueled by customer-backed innovation. It's not that the markets are picking up. It's really new products primarily on the equipment side, as well as both in North America and international, with some really nice growth in our European and in our China business. That's probably the best answer I can give you. Okay, thanks. I appreciate that. Yeah. Our next question will come from Avi Jaroslawicz at UBS. Please go ahead. Hi, thank you. Good morning. Morning. I appreciate that you're saying that you're trending towards the lower end on the sales guidance. Can you just talk about some of the thinking for leaving that range unchanged and just kind of wider than you typically would for this time of year? I assume you're still thinking there could be some upside to get you to the midpoint or better for the year. Would that come from any particular segments? It sounds like more from demand than pricing. Is that the right way to think about it? Yeah. I mean, I think typically we update guidance kind of halfway through the year. At this point, with a quarter to go, we're well within, you know, the ranges. We didn't see the need to kind of update the whole thing. The decision was to narrow the range and to explain why we're not flowing through the benefit of the lower tax rate, which is really due to the fact that we're trending towards the lower end on the revenues. That's our way of being as transparent as we can be around the guidance. I think the, you know, your question kind of Q3 versus Q4, I think we've kind of covered that. Again, the segment that typically shows the biggest pickup from Q3 to Q4 is our Test & Measurement business. That's partially offset by the construction being down, kind of typical seasonality. When all is said and done, revenues from Q3 to Q4 should be up by a point or so. Certainly, you know, we've also factored in, I should say, the lower auto builds forecast, which is done by, you know, third-party kind of industry experts. There's been some noise around some supplier issues for some of our customers. All of that is included in our automotive projection here for the fourth quarter based on everything that we know as we sit here today. Hopefully that answers your question. Okay. Appreciate it. Thank you. Our next question will come from Mircea Dobre at Baird. Hey, thank you for squeezing me in. Good morning. Hey, Mirc. Good morning. I also kind of want to go back to the PLS discussion. I guess my question is this: when you sort of look at your comments towards delivering above normal incremental margins, how reliant are you on PLS in order to be able to do that? How important is PLS in that algorithm? I guess given how high your margins are, and I'm kind of looking almost across the board in your businesses, you are pretty much outperforming anyone else out there that I'm looking at. Is there a point in time here where it's rational to sort of say, "Hey, look, you know, maybe we can throttle back on PLS because we can actually deliver more earnings growth and more return for shareholders by just trying to accelerate organic growth rather than pruning the portfolio"? Yeah. Mirc, I think there is a relationship between PLS and incrementals and so on, but it's not the only factor. PLS is an element of 80/20. It's not the, you know, it's not holistic 80/20. I think the implementation of the business model, again, the quality of the portfolio is ultimately what drives the, you know, the incrementals, ultimately drives the margins. In terms of your comment on, I guess, the comment on organic growth versus margin, from our standpoint, I mean, you know, organic growth and operating margin and margin expansion kind of go hand in hand. You know, we talk about quality of growth. I think we demonstrated that, as a, for instance, coming out of the pandemic, we saw very healthy growth and margin expansion. Over that period, we were investing in a very focused way in our businesses, in innovation, strategic marketing, and that very much continues today. Really, it's about the quality of the organic growth, 33% incrementals historically. We're now, you know, well above that, you know, comfortably kind of into the 40s. That's, again, at a time when we are very much investing in our businesses in a very focused way around innovation and strategic marketing and so on. For us, you know, the math is pretty simple. With margins at 26% and with growth in incremental margins at 35% plus or even 40%+ right now, it's the operating leverage that is really driving the margins forward from here. As we look at 2030 and our 30% goal, that's a goal that's not going to be achieved through structural cost reduction. That's going to be achieved through continuous improvement in organic growth at high quality and high incremental margins. We see the two as being correlated, I would say. Understood. In terms of maybe the framework for 2026, asking the question that somebody else asked earlier, if customer-backed innovation is contributing 2.3%- 2.5%, maybe you can rethink product line simplification to some extent and maybe the end markets get better. From my perspective, being able to get your organic growth back to that 4%- 5%+ range is really the thing that at this point seems to be needle moving in terms of both maybe investor sentiment as well as overall earnings growth. I'm curious if I understand it's early for 2026. Curious, though, if you think that it's plausible that we could be looking at that kind of growth as we think about next year. Thank you. I think, Mirc, we're probably, as we said earlier, running a little bit higher on PLS than kind of the normal maintenance run rate. We're doing that specifically in a business like specialty products where we've talked about we're strategically repositioning that segment for growth. I will tell you that in other segments and industries that I know you follow, like food equipment and welding, that number is significantly lower, maybe even zero in some cases. It's not an across the board. It's also not a number that we want to or even could manage from corporate. This is such an integral part of our 80/20 front-to-back process. It's a bottom-up number. If we were to say, and it's tempting, I know what, I understand how you're thinking about it. It's tempting to say, "Okay, no more PLS." That also would say, "No more 80/20 front-to-back." That is certainly not in anybody's long-term interest. I can promise you that, so. All right, that makes sense. Thank you. Thank you. Ladies and gentlemen, that was the final question in our queue for today. We'd like to thank you all for your participation in today's session, and you may now disconnect your lines. Please have a good day.