Illinois Tool Works (ITW -2.85%) managed to top expectations for the quarter, but tariffs and macroeconomic concerns are weighing on the company.

Investors are taking a glass-half-empty approach, sending shares of the diversified manufacturer down 4% as of 10:30 a.m. ET on Wednesday.

Holding ground in a difficult environment

Illinois Tool Works (ITW) earned $2.44 per share in the quarter on $3.8 billion in sales, topping the $2.35 per share consensus Wall Street estimate but falling about $40 million short on revenue. Sales were down 3.4% year over year, due to a combination of foreign currency fluctuations and tepid demand in some end markets.

The company, which manufacturers components and tools for a wide range of industries including automaking, construction, and welding, reported an operating margin of 24.8% in the quarter, compared to 26.8% for full-year 2024.

CEO Christopher A. O'Herlihy referred to the "uncertain external environment" ITW is navigating, but said the company is maintaining its full-year guidance. It expects a combination of price increases and other actions will be able to offset any tariff cost impacts.

Is Illinois Tool Works a buy?

There's no way to avoid a tariff hit, but companies like ITW that have products that are essential to their customers at least have the ability to pass on some of their added costs to end users. The company does a lot of its manufacturing in the markets where it sells, helping to partly insulate it from tariffs, but still relies on imports for raw materials and other components.

This is a strong company caught in a tough environment. With the stock only down 7% year to date, investors need to understand that there could be more downside from here. But for patient long-term investors, especially those who would appreciate a nearly 3% dividend yield while they wait, Illinois Tool Works deserves a place on a watch list.