ITT (ITT) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue increased by 34% to $692 million, with segment operating income rising by 206% to $114 million, resulting in a segment operating margin of 16.5% [6] - Reported earnings per share decreased by 15% to $0.45, primarily due to a $28 million after-tax loss on the divestiture of InTelCo Management LLC [6] Business Line Data and Key Metrics Changes - Motion Technologies (MT) achieved organic revenue growth of 64%, driven by strength in the auto sector, with segment margin expanding by 660 basis points to 18.8% [25][26] - Industrial Process (IP) revenue grew by 8% organically, with orders up 18% organically and 7% sequentially, while segment margin expanded by 100 basis points to 14.7% [27][28] - Connecting Control Technologies (CCT) saw nearly 19% organic revenue growth, with a book-to-bill ratio of 1.18 for the quarter [20][30] Market Data and Key Metrics Changes - Friction outperformed global auto production growth, with organic revenue in the auto business growing nearly 80% [11] - Orders across ITT grew by 47% organically, with MT orders increasing by 76% and CCT orders up 47% [14][15] Company Strategy and Development Direction - The company divested its subsidiary holding legacy asbestos liabilities, allowing it to focus on core business growth and strategic initiatives [7][32] - ITT aims to grow organically and through acquisitions, leveraging its improved balance sheet and cash flow profile [43][96] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating supply chain disruptions and commodity pressures while maintaining growth and profitability [44][39] - The outlook for 2021 was raised, anticipating organic revenue growth of 8% to 10% and adjusted earnings per share in the range of $3.90 to $4.05 [17][36] Other Important Information - The company reported a 25% reduction in greenhouse gas emissions and a 25% reduction in workplace incidents, maintaining an A rating for its ESG profile [10] - Free cash flow for the quarter was impacted by the sale of legacy asbestos liabilities, with adjusted free cash flow at $131 million [23] Q&A Session Summary Question: Sequential margins in segments - Management confirmed that MT is under pressure from raw material costs, with pricing actions expected to ramp up in the second half of the year [46][47] Question: Pricing strategies - Positive pricing impacts were noted in IP and CCT, with expectations for MT to negotiate pricing in the second half [48][49] Question: Confidence in sustaining order trends - Management indicated that strong demand is driving order growth, with no inventory buildup observed [84][85] Question: Adjustments to supply chain processes - Management is actively working to secure supply and find new sources to mitigate disruptions [62][64] Question: Asbestos divestiture impact on M&A - The divestiture allows for more flexibility in capital deployment for both organic growth and M&A opportunities [96] Question: EV backlog and market share - Management projected a substantial increase in market share in EVs by 2023, with current volumes still low [99] Question: On-time delivery performance - Management reported 99% on-time delivery in the OE business, with efforts to address supply chain issues [107][110]