Illinois Tool Works (ITW) Q2 2026 earnings call transcript

Good morning. My name is Trevor and I will be your conference operator today. At this time I would like to welcome everyone to the ITW second-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a 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 followed by the number one key. 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.

Aaron Linnehan, vice president of investor relations, you may begin your conference.

Thank you, Trevor. Good morning and welcome to ITW's second-quarter 2026 conference call. I'm joined by our president and CEO, Chris O'Harelehey, and senior vice president and CFO, Michael Larson. During today's call, we will discuss ITW's second-quarter 2026 financial results and provide an update on our outlooks for full year 2026. Slide two 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-gap measures and a reconciliation of those measures to the most directly comparable gap measures is contained in the press release.

Please turn to slide three, and it's now my pleasure to turn the call over to our president and CEO, Chris O'Harelehey. Chris? Thank you, Aaron, and good morning, everyone. As you saw in our press release this morning, the ITW team delivered strong operational and financial performance in the second quarter. Highlights include 4.5% organic growth, operating margin expansion to 26.7%, and a 10% increase in gap EPS to $2.84. Notably, operating income reached $1.15 billion, a 7.4% increase marking the most profitable quarter in ITW's history. Our top line momentum this quarter was propelled by significant acceleration in our capital data businesses, that by organic growth of 14% in welding, 10% in test and measurement electronics, alongside 7% in polymers and fluids.

In addition to capitalizing unfavorable market conditions, we continue to make progress on our long-term organic growth agenda, most notably through customer back innovation or CVI, which contributed 3% to revenue growth in the first half, compared to 2.4% for full year 2025. Delivering a 3% plus CVI contribution is the single biggest catalyst for achieving sustained high-quality enterprise organic growth of 4% or higher.

Our first half performance offers another proof point that this isn't execution on our enterprise strategy priorities is yielding strong results, and that we're firmly on track to achieve our 2030 performance goals. Operationally, the ITW team continued to execute at a high level, with enterprise initiatives contributing 120 basis points to our operating margin.

We also expanded free cash flow by 41%, and returned over $1.2 billion to shareholders through dividends and share repurchases. Looking ahead, we are raising both top and bottom line full-year guidance, with all seven segments expected to deliver both positive organic growth and expand operating margins. Full-year organic growth guidance is raised by 1.5 percentage points to a new midpoint of 3.5%. GAP EPS is raised by 15 cents to a new midpoint of $11.45, reflecting 9% year over year growth. This marks our second guidance increase of the year.

As we've said before, ITW'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 cost-refacing metrics position us to fully capitalize on these positive demand trends that we are no seeing.

With that, I would hand the call over to Michael to walk you through the segment details and update it full-year outlook. Michael.

Thank you, Chris, and good morning, everyone. In Q2, total revenue grew 6.1%, driven by 4.5% organic growth, a 1.4% contribution from foreign currency translation, and 0.2% from an acquisition. As Chris said, organic growth performance was particularly strong in our CAPEX and semiconductor-related segments, as well as polymers and fluids.

Our customer-backed innovation efforts continue to gain momentum, and CBI was a key top-line catalyst, contributing 3% to growth in the first half. From a regional perspective, organic growth was up 6% in both North America and Asia-Pacific, 3% in China, and flat in Europe.

Moving to the bottom line, operating margin expanded by 40 basis points to 26.7%, with a solid 120 basis points contribution from enterprise initiatives. In the quarter, price increases more than offset higher raw material costs in dollar terms, though timing lags between inflation and price adjustments temporarily diluted margins by 40 basis points. As demonstrated in prior cycles, we fully expect to recover this margin impact over time as evidenced by the implied incremental margin guidance for the full year of 40%. Free cash flow increased 41%, delivering a 77% conversion rate in line with typical seasonal trends. In Q2, we opportunistically pulled forward our planned Q3 share repurchases, buying back $750 million or about 1% of ITW's outstanding shares at an average price of $255 per share.

Turning to slide four, our sequential trajectory from Q1 to Q2 underscores accelerating strength across every key performance metric. Sequential revenue growth was plus 7% versus our historical average of plus 2%, operating margin expanded 130 basis points, and operating income grew 12%, making Q2 the most profitable quarter in company history.

Moving to the segment highlights, starting with automotive OEM, organic revenue was roughly flat, with North America up 1%, China up 1%, and Europe down 5%. We maintain our full year expectation of outpacing global bills by 200 to 300 basis points that bills projected to be down 2%. Operating margin improved by 30 basis points to 21.6%, with enterprise initiative gains partially offset by price cost timing legs.

Turning to slide five, food equipment, organic revenue was flat overall, as service strength of plus 5% helped offset a 2% decline in equipment. A notable sequential improvement from the 6% equipment decline in Q1. Regionally, North America was down 4%, despite some institutional demand improvement in areas such as healthcare, while international delivered strong growth of 6% in the quarter.

Looking ahead, we expect that organic revenue growth will turn positive, and that margins will improve in the second half.

Testing measurement and electronics had an outstanding quarter with 10% organic growth, led by a 21% surge in electronics, which represents about 40% of the segment.

The two main drivers of this strong growth that we're seeing are one, our electronic assembly businesses, which serve the printed circuit board industry, and two, our semiconductor related businesses, which serve the chip manufacturing industry. Our businesses in these two sectors are able to fully capitalize on the growth opportunities ahead of them, and gain market share based on their expanded capacity, the highly differentiated product portfolios, and best in class customer facing metrics. Operating margin expanded by 240 basis points to 25.2%, and we expect further improvement in the second half of the year.

Lastly, it is worth noting that order growth continues to outpace revenue growth in this segment, which is also the case in our welding segment. Speaking of welding and moving on to slide 6, welding delivered record top line results driven by 14% organic growth, as equipment surged 19% driven by market tailwinds and strong new product adoption. North America, which represents about 85% of the welding segment, led the charge of 19% with broad based growth across both industrial and commercial markets, as demand continued to strengthen in areas such as infrastructure, energy, aerospace, and defense. Operating margin remained best in class at 32.4%. As you may have heard, a storm impacted two of our welding facilities and apples of the Wisconsin yesterday, with one manufacturing facility and one warehouse building sustaining damage.

First, we're grateful that all our ITW colleagues are safe and accounted for. As for the business, our teams are in the process of executing contingency plans with a focus on minimizing disruption for our customers. In terms of our guidance, we do not expect any material impact on ITW. In part of the fluids, organic growth reached 7% driven by strength across the board, including 7% growth in automotive aftermarket as a result of traction on new product and continued market share gains. Followers who 7% of fluids rose 8% supported by strong momentum in general industrial and biopharma markets. Operating margin expanded 160 basis points to a record 29.3%.

Turn to slide 7 in construction products, organic growth was positive 2%, marking the highest organic growth rate in four years. All regions grew with North America up 2%, Europe up 1%, and Australia New Zealand up 2%. Residential renovation in North America grew 1% in commercial construction, which represents about 15% of the region was up 13%. Specialty products, revenue was up 3% with organic revenue up 2%. North America grew 2% and international grew 1%, with strong growth in medical, aerospace and consumer packaging offset by product line simplification in appliance components.

With that, let's turn to our slide 8 for an update on our guidance. Looking ahead, ITW is well positioned to deliver strong performance on both the top and bottom line in 2026. Starting with the top line, our organic growth projection is now 3% to 4% up from 1% to 3%. The updated midpoint of 3.5% represents an increase of 1.5% points versus prior guidance. And per our usual process, our guidance is based on current levels of demand adjusted for typical seasonality and prevailing foreign exchange rates. On the bottom line, operating margin guidance is unchanged at 26.5% to 27.5% as enterprise initiatives are expected to contribute more than 100 basis points.

We're raising our gap EPS guidance by 15 cents to a range of $11.35 to $11.55 with the new midpoint of $11.45 representing 9% year-to-year growth. Today's guidance increase falls a 10 cents increase to free cash flow conversion is projected to exceed 100% of that income with full-year share repurchases of approximately $1.5 billion.

Lastly, with respect to potential tariff refunds, we do not expect any material recovery and haven't included anything in our updated guidance.

We enter the second half of 2026 with strong operational momentum highlighted by organic growth of 4.5% in the second quarter. As evidenced by today's raised guidance, which implies sustained organic growth of 4.5% in the second half, our best-in-class margins and returns, and our disciplined operational execution, ITW is well positioned to deliver a strong financial performance in 2026 and beyond.

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

Thank you, Michael. Trevor, please open the line for questions.

Hello, everyone. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. At this time, I'd like to remind everyone that to ask a question, press star and then the number one on your telephone keypad. To withdraw your question, press star number one again. We ask that you pick up your handset when asking your question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.

We will pause for just a moment to compile the Q&A roster.

Good morning.

Yeah, so Andy, you're absolutely correct. I mean, we did typically don't forecast the economy or forecast is largely based on run rates and also what we're hearing from our customers. We don't carry a whole lot of backlog, but it has to be said that the order of activity that we've seen in welding and test measurement electronics has been a good bit ahead of the revenue rates we've been demonstrating. So get a bit more backlog there than normal. I would say we're very confident going to the back half of the year based on what we see in terms of the order rates based on what we hear from our customers. I would also underscore back innovation, which again strengthens our confidence that the growth is very sustainable during the back half.

Chris, to that point, maybe we can do a double click on CVI. It's been a few years since your investor day, but you mentioned 3% CVI in the first half. I think that's ahead of where you want to be even at this point.

Yeah, 100%. I mean, look, I would say I need that we are really, really encouraged by the strong momentum that we're seeing in CVI, break down into our divisions, the followership, the engagement, and the progress that we're making. And we continue to see the strength in terms of our pipeline of new products that we're working on. This is one of the reasons that we're demonstrating these results. At 3% know, it's probably earlier than we thought, but no surprise given the way that our teams have embraced this. The way we approach this is very similar to how we approached 80, 20 front to back 10, 12 years ago, in terms of really investing and building capability over the last number of years in CVI.

We have lots of great innovation practice throughout the company. As we've mentioned, we've codified this into a very effective and holistic innovation framework. And we launched this in the back half of 2024. Since then, we have relentlessly implemented it at a very high quality of practice. Very similar to how we approached 80, 20 front to back. And so in my mind, this innovation progress that we're seeing is not a huge surprise. B is very sustainable. And most of all, I mean, really encouraging in terms of what we see, the projects we're working on extensively throughout the company in every segment. And we will see CVI contribution increase in every segment this year and on into the future.

Our next question comes from the line of Tammy Zakaria from JP Morgan. Tammy, your line is open.

So 7% sequential growth compared to our historical 2%. It was really across the board. Every segment came in above their historical kind of typical sequential growth rate with the largest improvement in welding and test and measurement as well as in polymers and fluids. As we went through Q2, April was off to a really good start sustained that in May and June was even better than that. And we're off to a good start here to Q3 right in track with where we want to be and consistent with the updated guidance that we're providing today, which implies that we can sustain the growth here in the back half of the year at four and a half percent organic.

So I think that was kind of the big new news the acceleration in demand that we also talked about in the last earnings call. It really continued throughout the second quarter and into the third quarter.

Well, Tammy, I mean, I think in the spirit of continuous improvement, which is so embedded in our DNA here at ITW, we would expect and the segments themselves would expect that margins will continue to improve here as they move towards their full potential. And certainly, as long as the incrementals are margins are significantly above 30 and we're guiding to 40% for the full year, those margins will continue to improve as the businesses grow.

At the same time, obviously, we've talked about margin improvement in automotive OEM, approaching kind of the target we laid out in 2023 at investor day and kind of the low to mid 20s. Still a lot of runway in test and measurement. You saw nice improvement this quarter, 200 basis points, plus improvement in test and measurement. That will continue. There's no reason why food equipment shouldn't be at 30% plus over time. Palmas and pluis putting up a new record this quarter at 29% plus.

And oh, by the way, construction with very little help on operating leverage is putting up 30% plus. So I think really across the board, every segment will continue to improve. And as Chris said, in the second half here of the year, in the near term, we expect every segment to improve their organic growth rate at every segment to improve margins. And there's no reason to believe that that's going to stop anytime soon. And as Chris also said, we are well on our way to our 30% plus enterprise targets by 2030. With the big driver, obviously still the enterprise initiatives, the organic growth and the operating leverage that comes with it. And then the other big factor here is all these new products that are coming in that Chris talked about with the CBI contributions 2% are coming in at higher margins.

And so you put all of these things together. And at least from our vantage point, you see a very clear path to that 30% plus that we've committed to.

Our next question comes from Scott Davis from Meleus Research. Scott, go ahead. Your line is open.

I mean, cannibalization is taken out. So it's all new. These are new actual revenues. Obviously, we audit these and so on and so forth. And so these are subject to a very high level scrutiny within the company. In terms of how we incentivize, this is one of our four long term metrics that we incentivize inside the company. We just introduced this as a metric actually last year when we launched framework. So basically, everybody from the divisions on up are compensated on progress in this.

But it doesn't measure cannibalization. It nets that out and measures true new products year over year incremental revenues. And it measures them for three years at which point these roll off and you've got to have a new product coming along out of the way the CBI number four is off.

You know, as we said before, I think we would characterize our approach and M&A as active with discipline, I would say. You know, we're sticking to our discipline portfolio management strategy here. Obviously, we believe and we're now starting to realize this really compelling opportunity on organic growth. And so to the extent that we can find high quality acquisitions that can extend our long-term growth potential, then we're certainly very interested. And obviously, the second aspect of that is that we've got to go to leverage the business model to improve margin. So we review opportunities on an ongoing basis. We're pretty selective given all the organic growth potential that we have in our core businesses. As I said, active with discipline.

And when we find those opportunities and when we do those opportunities, you will hopefully appreciate that we will have subjected them to this level of screening and ensure that they will be long-term, good long-term businesses for HEW. Obviously, MTS is the last significant one that we did. An example of an opportunity to tick all the boxes. And three years in, three, four years in, no, this has turned out to be a great acquisition for us. We had one bolt-on acquisition in the semi-manufacture space late last year that had all the high quality growth attributes that we look for.

And so we've already opened to doing more deals like that. But we're prepared to waste them, particularly given the compelling organic growth opportunity that we have.

We appreciate that. Thank you. Thank you.

Our next question comes from Joe Ritchie from Goldman Sachs. Joe, your line is open.

We're very proactive at ensuring that we add capacity in advance of growth. And effectively, that's what we've been doing for the last number of years by semi- and electronic specifically. Obviously, there's been a bit of a down cycle the last couple of years. But given our belief in the business or differentiation in that space, we continue to invest meaningfully over the last couple of years. I know that's really helping us. The semi-industry particularly starts and has been ramping for the last six months. We are really well positioned to capitalize on that growth. But that's an approach we take in all of our businesses. It's a natural outcome of how we do 80-20 in terms of ensuring that we balance capacity and that we invest proactively so that we don't get caught in a situation where we can't basically satisfy the growth because we don't have enough capacity.

So, I'd say Joe, we definitely expect for our margin improvement in the welding segment. And I'll go back to, you know, we have a little bit of near-term headwind from a raw material cost inflation standpoint and the lag between the price to offset those costs. And so, once we get through that, our incrementals will return to kind of our typical 40% plus. And as we grow, margins will improve from there. So, that's really the big, the big driver here. When I look at the margin walk for that, for the welding segment, the operating leverage is really good. The enterprise initiatives are really good. A little bit of pressure on price costs. And then, obviously, when you're growing at 14% organic, you are going to be paying out slightly higher commissions to your, your, your partners that help you achieve those growth rates.

So, that's really what we're talking about here. But like we said, in the second half of the year, margins, we would expect them to improve as well as well into the future, into next year. And beyond.

Our next question comes from the line of Jamie Cook with truest. Jamie, your line is open.

So I think on the incremental margins, would have been 40% in Q2, if it wasn't for the headwind on the price cost timing lag that we just talked about, you know, margins instead of being up 40 basis points, your year would have been up 80 basis points. And we do expect this lag will probably be with us a little bit into Q3, certainly some progress on price cost. And then in Q4, you know, there will be further improvement on price cost. And the guidance and what I'm talking about is based on all the known, you know, price and material cost increases as we sit here today, obviously, as we just saw in Q2, it can be a pretty volatile environment.

And particularly what we saw in Q2 to be a little more specific was some of the crude oil derivatives like our resin purchases in automotive and in specialty coming through and the price associated price increases lagging a little bit. Now the good news is those resin, you know, include all prices are trending downwards in Q3 and the price increases are coming through. And that's exactly, you know, to your question on specialty, what you're seeing in specialty. And so, you know, I think reasonable growth and operating leverage, good progress on the enterprise initiatives. And then headwind, actually the segment with the highest headwind on price cost in the second quarter was specialty. And so, you know, it just takes a little bit longer to get those price increases through in specialty and in automotive, to some extent.

But they are coming. And the other thing that's happening is, like we said earlier, all these new products with the progress from CBI are coming through at higher margins. And so, you'll continue to see specialty margins improve in the second half and into next year.

Well, yeah, I think, Jamie, if it wasn't for price costs, we would definitely be talking about the high end of the range. And so, just given what we're working through right now, we're, you know, we're providing the range 26 and a half to 27 and a half, you know, incremental margins for the full year, about 40%. If it was a price cost, that would be in the mid, maybe even in the high 40s. So, it's just a temporary price cost lag that we're working through. And we worked through it before, if you go back to the first round of tariffs, the second round of tariffs. And as you know, companies with highly differentiated products, you know, will not only be able to offset the cost, the cost, the dollar piece, which is what we're doing right now, but will ultimately recover the margins down the road and maybe do a little bit better than that.

Our next question comes from the line of Steve Volkmann from Jeffries. Steve, your line is open.

And so, so I won't really have an accurate view until we get closer to the end of the year and early next year. But I think the long-term algorithm here, if you go back and look at our TSR model, has been incremental in that 35% range. We've said previously that's now in the 40 to 45% range in a normal environment. And so, I would characterize the current price cost environment as a little unusual and kind of a temporary headwind. But I think as we go into next year, I think when we roll things up, if we don't see, you know, 40% plus, I think we would be a little surprised.

Yeah, Steve, I would say fundamentally what drives our incremental in the long-term is the quality of our portfolio and the quality of execution of our business model. And the quality of our portfolio has continued to get better through the ongoing portfolio pruning. We've done our business model continues to get better in terms of the quality of the 80-20 execution.

And you couple that with the increased progress on CBI, then all those things would offer for very strong and incremental in 2027.

And then maybe just sort of philosophical, it feels like we're sort of inflicting on organic growth, which is great to see. Do you sort of do a little less on enterprise initiatives as you grow faster, you focus more on growth, or are those two things kind of not necessarily related?

No, I think we're definitely focused on not having any regression, you know, operationally, and sustaining the momentum on the enterprise initiatives. As we rolled up our long-range plans this summer, we see a continued contribution from enterprise initiatives into, you know, the next three to four years. And so we're, you know, we would expect that to continue, and it's not mutually exclusive with organic growth. And so all those things kind of work together.

Our next question comes from the line of Stephen Fisher with UBS. Stephen, your line is open.

But you're just ready to help there. Yeah. So in terms of the polymers, obviously a very strong quarter of 7%. Nice margin improvement as well of 160 basis points. But you know, the encouraging for us was that the strength was very broad based. We saw strength across all three platforms, automotive aftermarket, polymers and fluids, with a very healthy contribution to the CBI. CBI was almost 5% in that segment in the quarter. So that was really what drove.

And I think what this highlights because of the sustainability of the CBI efforts that we are making, this just all highlights for us the fact that this segment is really well positioned to be a 4% grower for the enterprise on a sustained basis.

You know, Europe, a fair bit of PLS in our European business, you know, you're about 5%. And then we don't talk about it much because it's still fairly small, but there's a lot of strength in our in our India business, which hopefully we'll be able to talk about that the way we talk about our Chinese business at some point in the future. So, you know, overall, certainly from a production unit standpoint, we are not expecting a lot of growth. You know, this year we sat down 2%, we're not expecting a lot of growth either next year, but we are fully expecting that we'll continue to outgrow the underlying production numbers by, you know, 200 to 300 basis points, which is what we've done historically.

And of which is how we're running the business and incentivizing the team is all about how do we grow our content with our with existing and potentially new customers. So, that's kind of where how we would position the automotive business. I will say this, we expect, you know, continued margin improvement. We've seen some nice progress over the last few years with more to come. And I think, again, a little bit of near-term headwind on price costs, which we'll work through. But all these new products, all these new content that we're talking about is coming in at meaningfully higher margins because they're solving real problems for our customers. So, that's what's really encouraging in the other motor segment.

The next question comes from the line of Meg Dobre from Baird. Meg, your line is open. Hello, Meg. Are you there?

It seems that Meg has disconnected from the call. In the meantime, we'll move on to Andrew Oben from Bank of America, and we can circle back to Meg if he rejoins. Andrew, your line is open.

The kind of Q2 impact was primarily from crude oil derivatives. So, we're talking resin and chemicals. I'll also add to the end logistics transportation freight costs. Electronic components continue to be fairly inflationary. And so, the biggest lever we have is obviously, you know, the price lever that we talked a fair bit about, but it's also, you know, driving productivity across our businesses and our strategic sourcing efforts, which are part of that enterprise initiative number that we report on a quarterly basis. So, those are kind of the big levers that we're working. I'd say inflation is, for ITW, very manageable. Everything we know about is included in our guidance. You know, we have this unique ability given how we're organized in this highly decentralized environment.

Our divisions are so good at reading and reacting to what they're seeing from an inflationary standpoint. So, you know, we're highly confident that we'll be able to manage our way through this with some of the levers that are just described as kind of the more obvious ones. And then maybe a question on welding was quite a bit better than what we modeled.

Were you guys surprised internally by just how good North America was? And if you could just sort of, you know, dissect, is it reassuring? Is it just the industries that you're doing well in recapitalizing, you know, what is it that driving America? Is it the cycle getting better? Just maybe dig into a little bit of that while it's driving the strength of welding. And if you were surprised by how good it was in the quarter. Thank you.

Yeah. So, we weren't surprised. We saw this happen. It really started building in Q1, even late Q4 last year, I would say. So, it wasn't a huge surprise to us. And as Michael indicated, you know, growth of 14% order in tick was higher than that. I would say the growth was pretty broad-based, not just in our industrial markets, like energy, infrastructure, aerospace, construction fabrication related to some data center construction.

But also was particularly encouraging was also we saw growth in our commercial platform. So, areas like small fabrication. So, really it was a factor of the markets we are in are seeing some nice demand trends. And again, I would continue to underscore the importance of innovation here. We've seen real nice progress on innovation and welding over the last number of years. And we saw a lot of that momentum come through here in Q2 and throughout the first half of the year. So, it's a combination of market and some great new products that we've launched in the last one month. And we could use the launch to the back of this year.

Thank you.

Our next question comes from the line of David Rasso from Evercore.

Just again, that sort of exit rate idea and then maybe the full year-over-year thought process for 27. Yeah, sure, David. Yeah, as we said, 40 basis points here in Q2, some improvement in Q3, call it maybe 30 basis points, and further improvement in Q4, approaching maybe the 20 basis points. And so for the full year, maybe that's what it all averages out to. So, about 20 basis points of headwind. Kind of our historical normal price cost contribution from a margin standpoint is kind of plus 10 to 20 basis points. And so, again, that's based on historical. We'll see when we roll up the numbers as part of annual plan, but maybe that's a good way to think about it.

And so what you'll see is still a little bit of headwind here on margins and incrementals in Q3, closer to kind of a more normal margin than incremental performance in Q4, and certainly margin improvements sequentially from Q3 into Q4. And hopefully, as we go into next year, exiting Q4, we'll be back to kind of a normal price cost dynamic. Certainly nothing material that will prevent us from improving margins even further in 2027 as we head towards our 30-plus target by 2030.

The reality is that there are thousands of pricing decisions made at ITW every day in our divisions, and none of them are waiting for direction from the team here in Blendview. But what we have done historically, maybe that's the best way to answer your question, is we have seen a historical margin improvement from price cost in that 10 to 20 basis points improvement, and that's probably what we'd expect as we roll up the plans for next year. If we see something very different, we'll certainly let you know when we provide guidance and explain, provide a little bit of context in terms of why it would be different. But I think that's a pretty good base case assumption, as you think about modeling 2027.

The big drivers from a margin improvement standpoint will continue to be the enterprise initiatives, the new products coming in at higher margins. And so, like I said earlier, we would be surprised if we don't have incremental margins in that 45% range as we go into 2027. And again, what Chris said, a lot of that is because we've worked so hard on pruning the portfolio and making sure we're only in areas with high level to sustainable differentiation, where these pricing and buying decisions are not made, you know, purely based on price, they're made, you know, based on the value that our products and solutions and services can provide.

That's what I was fishing for the idea this year. Maybe we're controlling costs a little bit more, just given price cost. Next year, can I get a positive price cost or will you proactively, you know, increase your initiatives or your restructuring costs? That might mute it. But it sounds like we can approach 27, you know, sort of an appear traditional 10 to 20 bits of the baseline. Yeah, I think David, that's a really good base case. And like I said, if it's very different in January, when we give guidance, we'll let you know why that's the case.

This concludes the question and answer session. Thank you for participating in today's conference call. All lines may disconnect at this time.