ITT INC. Q3 FY2025 earnings call

• Thanked ITT employees for their hard work, especially the team in Brazil that recovered quickly from a storm. - Delivered nearly $1 billion of total orders for the third consecutive quarter, up 3%. - Revenue grew 13% total and 6% organic, operating income grew nearly twice the organic sales growth rate, and operating margin expanded over 100 basis points excluding M&A. - Adjusted EPS grew 21%, free cash flow grew 46% to $368 million year-to-date, and expects full-year free cash flow at $0.5 billion. - VIDAR industrial motor is installed with 3 large energy companies in North America and now shipping Goulds Pumps with VIDAR motors. - IP had 11% organic growth, CCT had 25% total growth, and MT Friction OE had 4% organic growth. - Svanehøj had over $250 million of orders YTD, 59% growth, book-to-bill 1.6; kSARIA had 58% orders YTD, book-to-bill 1.2.

Industrial Process (IP) saw organic growth of 11%, with projects growing over 50%, including Svanehøj's 34% growth. Connect & Control (CCT) achieved 25% total growth, with 6% organic growth, bolstered by the kSARIA acquisition and defense momentum. Motion Technologies (MT)'s KONI grew 12% driven by rail share gains, and Friction OE had 4% organic growth, outperforming global auto production. Svanehøj's EBITDA exceeded 20% this quarter. Total revenue was $999 million, up 13% total and 6% organic.

• Raised the full-year adjusted EPS outlook, with the low end of the revised range above the previous high end. - Expects high single-digit revenue growth in Q4, mid-single-digit organic growth, led by strong performances in Connect & Control and Industrial Process. Operating margin expected to be up approximately 130 basis points, led by IP margin expansion. CCT's pricing and productivity to offset remaining kSARIA amortization, and MT to hit 20% margin in Q4. - Full-year free cash flow expected at $0.5 billion, with a 13% margin. - 2026 expected to benefit from a strong backlog, contributions from acquisitions, and continued growth in key segments.

• Market uncertainties and fluctuations that could impact financial results. - Potential adverse effects of foreign currency exchange rate movements. - Risks related to acquisitions, including integration challenges and amortization impacts from acquired companies.

Q: How does ITT view global auto production and its impact on the business?

A: Luca Savi said global auto production was up in Q3, with full-year 2% year-over-year growth expected, and 2026 expected to be flattish to low single digit up. ITT's Friction OE outperformed global auto production.

Q: Can you unpack the $0.20 guidance raise?

A: Emmanuel Caprais said the $0.20 guidance raise is due to better profitability, better contributions from acquisitions, and a lower tax rate impact.

Q: Thoughts on markets for 2026?

A: Luca Savi said air and defense would be tailwinds, automotive outperformance would drive Motion Technologies growth, and ITT has a strong IP backlog.

Q: Color on short-cycle orders in IP?

A: Emmanuel Caprais said there was strong activity in parts and valves, with legacy short cycle growth of 7% and 4% coming from volume.

Q: Market demand in Saudi and Middle East for IP?

A: Luca Savi said there are strong growth opportunities, with the funnel up 21% sequentially and good project management driving success.

Q: M&A funnel and acquisitions for 2026?

A: Luca Savi said the funnel is rich of opportunities, focusing on pumps, valves, and connectors for aero and defense.

Q: Orders outlook for 4Q?

A: Luca Savi said ITT is tracking towards a $1 billion range for orders in Q4, and the full-year book-to-bill is expected to be above 1.

Q: Aftermarket and high performance in auto?

A: Luca Savi said the aftermarket is relegated to Europe, and high performance is progressing well with awards and use of green energy.

Q: Win rate in MT Friction OEM?

A: Luca Savi said there is a very good win rate, with 142 electrified platform wins year-to-date.

Q: Chip shortages in Europe?

A: Luca Savi said Europe had slight production growth in Q3, but full-year decline is forecasted, and customers are challenged.

Q: Deferrals in IP project space?

A: Luca Savi said there is no material deferral, with the funnel of active projects up sequentially.

Q: CCT margins and 2026 outlook?

A: Emmanuel Caprais said CCT will benefit from aerospace recovery, price expectations, sourcing and manufacturing efficiencies, and the end of kSARIA amortization.

Q: Margins and pricing environment?

A: Emmanuel Caprais said Q3 incrementals were around 40%, and 2026 margins are expected to be around 30%-35%, with CCT having more pricing power, IP having more strategic pricing, and automotive having a different dynamic.

Q: FX impact on Motion Technology margins?

A: Emmanuel Caprais said FX transactions were still negative in absolute value but had a year-over-year benefit of approximately 100 basis points.

Q: Growth in CCT aside from A&D?

A: Emmanuel Caprais said A&D is strong, and Q4 is expected to see continued growth with aero and defense around 20% growth