ITT (US:ITT)2022-08-07 19:28Financial Data and Key Metrics Changes - ITT reported a 10% organic revenue growth in Q2 2022, driven by strong demand across various sectors despite macroeconomic challenges [9][35] - Adjusted earnings per share (EPS) guidance was tightened to a range of $4.35 to $4.65, reflecting a growth of 7% to 15% year-over-year [60] - The company deployed over $500 million in the first half of 2022, including $170 million towards acquisitions and investments [17][16] Business Line Data and Key Metrics Changes - Industrial Process (IP) saw a 26% organic order growth, with the highest orders since 2014, driven by strong demand in short-cycle products and project orders [10][36] - Motion Technologies (MT) reported a 6% organic growth in friction, with ongoing price negotiations expected to improve margins in the second half [37][52] - Connect and Control (CCT) experienced over 40% organic revenue growth, with a margin expansion of 380 basis points to over 17% [56] Market Data and Key Metrics Changes - The automotive market is projected to grow by 4% to 4.5% in 2022, with North America expected to see double-digit growth while Europe remains flat [71][72] - Supply chain challenges have slightly improved, with the revenue impact from supply chain disruptions decreasing from approximately 600 basis points in Q1 to between 200 and 300 basis points in Q2 [81] Company Strategy and Development Direction - ITT aims to maintain its market-leading positions in attractive sectors such as chemical and industrial pumps, aerospace, and electric vehicles [25][24] - The company is focused on capital deployment, with plans to invest upwards of $2 billion based on expected cash flow generation [27][28] - ITT is committed to sustainability, investing in renewable energy projects to reduce energy consumption and emissions [120] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in ITT's future growth potential, citing strong demand and a robust backlog as key drivers [7][65] - The company anticipates easing commodity pressures in Q4, which should positively impact margins [46][60] - Management highlighted the resilience of the WUXI team during COVID-19 lockdowns, showcasing the company's commitment to quality and customer service [23][19] Other Important Information - ITT's acquisition of Habonim is already contributing to earnings, with a purchase multiple of less than 13 times adjusted EBITDA [49] - The company repurchased over $60 million of its shares in Q2, bringing the year-to-date total to $250 million [16] Q&A Session Summary Question: Outlook on the automotive market recovery - ITT expects to outperform the market, projecting a production of 80 million vehicles in 2022, with growth driven by North America [71][72] Question: Visibility on IP backlog and competitive pressures - Management noted strong order visibility in oil and gas, chemicals, and general industrial sectors, with pricing discipline being crucial for margin delivery [74][75] Question: Price-cost gap expectations for Q3 and Q4 - The price-cost gap is expected to stabilize in Q3 and Q4, with improved pricing negotiations in MT and strong pricing impacts in IP [78][79] Question: Supply chain challenges and improvements - Supply chain issues are improving, with a reduction in revenue impact from 600 basis points in Q1 to 200-300 basis points in Q2 [81] Question: Order cadence and July performance - Order strength was consistent throughout Q2, with July showing similar performance to Q2 [89] Question: Inventory structure and working capital management - ITT is targeting to reduce working capital by over $100 million in the second half, focusing on improving supply chain efficiency [117][118] Question: European business readiness for potential disruptions - ITT is investing in renewable energy projects to reduce reliance on external energy sources amid potential disruptions [120]