ITT (ITT) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a 12% organic revenue growth, with a 36% growth in EPS and over $120 million improvement in free cash flow since Q1 [17][30] - Segment margin expanded by 280 basis points, with incremental margin nearly at 40% for the quarter [17][34] - Free cash flow margin was almost 15% this quarter, with a year-to-date increase of $145 million in free cash flow [36][30] Business Line Data and Key Metrics Changes - Industrial Process (IP) saw a 23% revenue increase and 15% organic orders growth, driven by projects and aftermarket [53] - Motion Technologies (MT) grew revenue by 10% organically, with Friction OE outperformance contributing significantly [55] - Connect and Control Technologies (CCT) delivered record orders, growing 7% organically, with aerospace components growing 25% [56] Market Data and Key Metrics Changes - Orders in North America for CCT are growing sequentially, while destocking continues in Europe [62][103] - The backlog in IP is almost $700 million, up $50 million in Q2 versus Q1, indicating strong demand [121] - The company expects low to mid-single-digit organic growth in Q3, led by Industrial Process [38] Company Strategy and Development Direction - The company is focused on innovation and product development, particularly in electrified vehicles and high-performance markets [41][60] - A significant investment of EUR 50 million is being made to enhance capabilities in the high-performance vehicle segment [60] - The company is actively pursuing M&A opportunities, particularly in pumps and valves, while maintaining a strong focus on strategic fit and asset quality [130] Management's Comments on Operating Environment and Future Outlook - Management noted that the positive demand seen in Q2 is expected to continue, with a large and profitable backlog providing visibility into the second half of 2023 [37] - The company raised its full-year EPS guidance midpoint to $5.05, reflecting confidence in its ability to deliver growth [59] - Management acknowledged ongoing challenges in the supply chain but emphasized strong execution and customer trust as key factors for future success [68] Other Important Information - The company divested a small product line in CCT, which contributed to a net gain of $5 million [35] - The effective tax rate remained at approximately 21% [67] Q&A Session Summary Question: What are the expectations for short-cycle pressures in IP? - Management indicated that orders will stay at elevated levels, with parts growing 14% in the quarter [72] Question: What is the status of destocking in CCT? - Management confirmed that destocking is ongoing in Europe but not in North America, with confidence in returning to previous performance levels [78] Question: Can you break down the organic growth in MT? - Friction saw strong growth, particularly in OE, outperforming the market by 500 basis points, especially in China [80] Question: What is the production outlook for Friction OEM? - The first half of the year showed better-than-expected production, with a forecast of mid-single-digit growth for the full year [87] Question: What is the timing for the new facility in Termoli? - The facility is expected to be operational by October 2024, with strong visibility on demand for new products [105]