ITT INC. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Order Intake: Q2 delivered $1 billion of orders, up 16% total and 13% organic, with all businesses showing strong order intake.
• Revenue: Record quarterly revenue of more than $970 million, up 7% total and 4% organic, with all segments contributing.
• Profitability: Operating income grew more than twice the organic sales growth rate, operating margin expanded over 100 basis points excluding M&A. Adjusted EPS grew 10% or 16% excluding the Wolverine divestiture.
• Capital Deployment: Repurchased $500 million of ITT shares year-to-date, free cash flow $214 million year-to-date, with a 14% free cash flow margin in Q2.
• Acquisitions: Progressing several acquisition targets, with M&A driving the next leg of value creation.
• Innovation: Geopolymers in brake pads, new high-pressure fuel pump from Svanehøj, and VIDAR motor deployment.
• Execution: Book-to-bill of 1.1x, ending backlog nearly $2 billion, up 34% vs prior year and 9% sequentially.

Segment Performance

• Industrial Process: Q2 orders grew 22%, organic growth. Revenue had 5% organic growth.
• Connect & Control (CCT): Orders grew 9%, organic growth 4%. Revenue saw 4% organic growth.
• Motion Technologies (MT): Friction OE grew 7% organically. Secured 49 new electrified platform awards.
• Svanehøj: Orders year-to-date for 6 months equivalent to 2024 full year revenue. Revenue had 43% growth.
• kSARIA: Orders grew >25%, secured content on defense platforms.
• Bornemann: Won large awards on energy projects in Australia and UAE.

Guidance

• Revenue: Total growth expected 5%-7%, organic revenue within 3%-5%.
• Margin: Adjusted operating margin midpoint ~18.4%, up 60 basis points vs prior year; excluding M&A, margin expansion >100 basis points.
• EPS: Midpoint of guidance raised to $6.45, up $0.15 from prior.
• Free Cash Flow: Expected ~$0.5 billion for full year.
• Q3 Outlook: Double-digit revenue growth or low single-digit organic, led by Industrial Process and CCT.

Risks

• Tariffs: Gross tariff costs before mitigation estimated $25 million in 2025, half prior estimate, offset by pricing and productivity actions.
• Market Volatility: Potential impact on orders and revenue from market fluctuations.
• M&A Integration: Challenges in integrating acquisitions smoothly.

Question and Answer

• **Q: Thoughts on capital side, orders, any hesitancy?

A: Orders strong, funnel elevated, few orders shifted right, no major concerns.**

• **Q: Auto landscape, outperformance?

A: Market production up 2.6%, outperformance across regions and powertrains continues.**

• **Q: CCT orders, share gains vs market growth?

A: 9% order growth, defense and aerospace driving, kSARIA up 36%, legacy up 25%.**

• **Q: FX impact on MT margins?

A: Dollar depreciation hurt transactionally, impacting MT margins.**

• **Q: Svanehøj growth, end market?

A: Orders up >80% H1, full year 20% growth, revenue 30% growth, strong cash and working capital.**

• **Q: Q3 organic growth, Q4 visibility?

A: Q3 low single-digit organic, Q4 similar growth rate, backlog secures 2026 revenue.**

• **Q: Acquisitions of size, funnel?

A: Majority acquisitions ~$200-400 million revenue, Svanehøj and kSARIA size, funnel focused on this range.**

• **Q: IP projects, margins, mix?

A: Backlog mix 58% projects, 42% short cycle, project margins improve upon execution.**

• **Q: CCT shorter cycle visibility, growth durability?

A: Connectors orders strong, Q2 second highest, expect double-digit full year growth.**

• **Q: Tariffs, pricing actions, IP deal environment?

A: Tariffs $25 million, mitigated by price and productivity, IP deal environment fragmented, focusing on funnel.**

• **Q: Pumps applications, customer urgency?

A: Oil and gas, general industrial, greenfield projects, decarbonization orders, strong execution.**