- Revenue up 4% (7% organic) driven primarily by Connect & Control Technologies (CCT)
- Orders up 11% (14% organic) driven by strong demand in Industrial Process (IP) and CCT
- Deployed over $235 million of capital, including $186 million of share repurchases
- Announced $140 million acquisition of Habonim, a specialty valves manufacturer, in Q2
- Maintaining full year 2022 revenue, segment margin and adjusted EPS guidance
White Plains, N.Y., May 3, 2022 – ITT Inc. (NYSE: ITT) today reported financial results for the first quarter ended April 2, 2022. The company reported a year-over-year revenue increase of 4.0%, up 6.8% on an organic basis. This was primarily driven by strong demand for connectors and aerospace components in CCT and short-cycle products in IP, strength in Motion Technologies (MT) Friction aftermarket, and pricing actions that contributed approximately 3% to organic revenue growth – most notably in MT.
Segment operating margin of 14.6% for the first quarter declined 240 basis points versus prior year driven by significant cost inflation, which negatively impacted margins by 760 basis points year over year, a charge related to the suspension of operations in Russia, and strategic investments for growth. This was partially offset by pricing actions and productivity savings across the businesses, and higher sales volume primarily in CCT.
Earnings per share of $0.88 for the first quarter declined 11.0% versus prior year due to lower segment operating income, which included a charge related to the suspension of operations in Russia, partially offset by the benefit of share repurchases and a lower effective tax rate. Excluding the impact of the Russia charge and other items, adjusted earnings per share of $0.97 declined 8.5% versus prior year driven by significantly higher material and overhead costs which more than offset the operational improvements and pricing actions.
Operating cash flow for the first quarter declined $73.5 million to $(2.7) million primarily due to lower segment operating income, increased working capital investments to support sales growth and to mitigate continued supply chain disruptions, and timing of accounts receivable collections.
Table 1. First Quarter Performance
Q1 2022 | Q1 2021 | Change | |||||||
Revenue | $726.2 | $698.4 | 4.0% | ||||||
Organic | 6.8% | ||||||||
Segment Operating Income | $105.8 | $118.8 | (10.9)% | ||||||
Segment Operating Margin | 14.6% | 17.0% | (240) bps | ||||||
Adjusted Segment Operating Income | $116.4 | $122.1 | (4.7)% | ||||||
Adjusted Segment Operating Margin | 16.0% | 17.5% | (150) bps | ||||||
Earnings Per Share | $0.88 | $0.99 | (11.1)% | ||||||
Adjusted Earnings Per Share | $0.97 | $1.06 | (8.5)% | ||||||
Operating Cash Flow (YTD) | $(2.7) | $70.8 | (103.8)% | ||||||
Free Cash Flow (YTD) | $(32.7) | $53.6 | (161.0)% |
Note: all results unaudited
Management Commentary
"Once again, this quarter all of our ITTers around the world drove a solid performance, focusing relentlessly on the right priorities, further demonstrating ITT's resiliency. We fought a significant labor shortage at the beginning of 2022 stemming from the sudden and sharp rise in the COVID-19 omicron variant in January. We faced inflation that was higher than planned in raw materials and overhead costs as well as labor shortages in North America. And, we are now managing the impacts of the war in Ukraine which in the quarter impacted our Friction, rail, and Industrial Process businesses. Still, despite all these challenges, the team delivered on its commitments in Q1," said Luca Savi, Chief Executive Officer and President of ITT.
"We continued to outperform in the main end markets where we participate and are investing for the future. In the first quarter we drove 14% organic orders growth on the strength of Industrial Process and Connect & Control Technologies. We generated 7% organic revenue growth driven by all businesses despite continued labor, material, and supply constraints, with CCT growing 23% organically. We deployed over $235 million of capital, including to repurchase $186 million of ITT shares, reducing our share count by 2%. Finally, on April 4th we announced the acquisition of Habonim, an Israeli-based manufacturer of specialty ball valves and actuation technologies, which further demonstrates our commitment to strategically deploy our capital," Savi continued.
Savi concluded, "There are clear headwinds in the near term. We are taking actions to address these challenges and continue to invest in the future of ITT, both organically and through M&A, to ensure we grow profitability and outperform over the long term."
Table 2. First Quarter Segment Results
Revenue | Operating Income | ||||||
Q1 2022 | Reported Increase/ (Decrease) |
Organic Growth/ (Decline) |
Q1 2022 | Reported Increase/ (Decrease) |
Adjusted Increase/ (Decrease) |
||
Motion Technologies | $370.1 | 0.3% | 4.0% | $59.7 | (21.4)% | (14.7)% | |
Industrial Process | $202.2 | — % | 1.9% | $20.4 | (34.2)% | (19.1)% | |
Connect & Control Technologies | $154.6 | 21.4% | 23.2% | $25.7 | 117.8% | 81.7% | |
Total segment results | $726.2 | 4.0% | 6.8% | $105.8 | (10.9)% | (4.7)% |
Note: all results unaudited; excludes intercompany eliminations; comparisons to Q1 2021
Motion Technologies revenue increased primarily due to demand in Friction's aftermarket business. Operating income decreased to $59.7 million primarily due to significantly higher material inflation, partially offset by pricing actions and productivity savings.
Industrial Process revenue was flat year over year due to growth in the short cycle businesses within the general industrial and chemical markets, offset by a decline in pump project activity. IP's results continue to be impacted by labor shortages, supplier delays, and extended lead times, principally in the projects business. Operating income decreased to $20.4 million primarily due to higher material inflation, partially offset by productivity savings, favorable sales mix, and pricing actions.
Connect & Control Technologies revenue increased due to strong connector sales, principally in the industrial market, and higher component sales in commercial aerospace and defense. Operating income increased to $25.7 million primarily driven by productivity savings, higher sales volume, and limited pricing actions, partially offset by higher material costs and unfavorable sales mix.
2022 Guidance
We continue to expect revenue growth of 7% to 9%, or up 9% to 11% on an organic basis; segment operating margin of 17.5% to 18.4%; and adjusted segment operating margin of 17.6% to 18.5%, up 40 to 130 bps. We now expect earnings per share of $4.07 to $4.50, with no change to adjusted earnings per share of $4.30 to $4.70 per share, up 6% to 16%. Free cash flow is now expected to be in a range of $250 million to $300 million, representing free cash flow margin of approximately 8% to 10% for the full year.The company's 2022 guidance assumes continued disruptions in the global supply chain stemming from labor shortages, supplier delays, and raw material inflation, which we anticipate will persist through at least the first half of 2022. The guidance also assumes a significant reduction in sales in Russia stemming from the conflict in Ukraine, which we currently estimate will impact revenue by approximately $60 to $85 million for the full year. The guidance does not include the potential impact, if any, of a prolonged shutdown in China due to the reemergence of COVID-19.