- 14% orders growth (13% organic) driven by pump project wins and aftermarket demand, aerospace growth, and Friction OE and rail share gains
- 14% revenue growth (12% organic) driven by higher volume and pricing across all businesses
- 18.3% segment operating margin (18.7% adjusted), 270 basis points expansion (280 basis points adjusted); segment operating income increased 33%
- Raising 2023 full year margin and EPS guidance
STAMFORD, Conn., August 3, 2023 – ITT Inc. (NYSE: ITT) today reported financial results for the second quarter ended July 1, 2023. The company reported a year-over-year revenue increase of 14%, primarily driven by 23% growth in Industrial Process (IP) and 11% growth in Motion Technologies (MT), and pricing actions across all segments. The acquisition of Micro-Mode contributed 1% to total revenue growth and foreign currency translation drove a 1% favorable impact.
Second quarter segment operating income of $153 million increased 33% versus prior year (34% adjusted). The increase was due to higher sales volume, productivity, pricing actions and a gain on sale of a product line in CCT. This was partially offset by unfavorable foreign currency impacts and higher raw material and labor costs.
EPS for the second quarter of $1.31 increased 44% versus prior year primarily due to segment operating income growth and benefits from share repurchases, partially offset by higher interest expense. Adjusted EPS of $1.33 increased 36% compared to prior year. The difference between reported and adjusted EPS is primarily related to distributions of non-U.S. taxable income.
Operating cash flow for the second quarter of $140 million increased $83 million versus prior year primarily driven by higher operating income and improved working capital management. Free cash flow for the quarter of $122 million increased $83 million. On a year-to-date basis, ITT generated free cash flow of $152 million, up $145 million versus 2022.
Table 1. Second Quarter Performance
Q2 2023 | Q2 2022 | Change | |
Revenue | $833.9 | $733.3 | 13.7% |
Organic Growth | 12.5% | ||
Segment Operating Income | $152.5 | $114.3 | 33.4% |
Segment Operating Margin | 18.3% | 15.6% | 270 bps |
Adjusted Segment Operating Income | $156.2 | $116.5 | 34.1% |
Adjusted Segment Operating Margin | 18.7% | 15.9% | 280 bps |
Earnings Per Share | $1.31 | $0.91 | 44.0% |
Adjusted Earnings Per Share | $1.33 | $0.98 | 35.7% |
Operating Cash Flow | $139.7 | $56.9 | 145.5 |
Free Cash Flow | $122.1 | $39.4 | 209.9 |
Management Commentary
"ITT delivered a strong second quarter with growth and margin expansion across our businesses. Our teams drove double-digit growth in orders and revenue, with a book-to-bill once again above one. We expanded segment margins nearly 300 basis points, bolstered by the performance in Industrial Process and Motion Technologies. Our cash generation accelerated, which provides us the flexibility to execute M&A, pay down debt and repurchase shares whilst funding growth investments," said ITT's Chief Executive Officer and President Luca Savi.
"With a stronger than anticipated top line, improved margin outlook, an ending backlog of over $1.2 billion and orders up ten percent year-to-date, we are raising the midpoint of our adjusted EPS guidance by twenty-five cents to over $5. We are driving to a new level of performance for ITT. We are executing on our financial targets, investing in the business and deploying capital to sustain ITT's differentiation, long-term value creation and outperformance," concluded Savi.
Table 2. Second Quarter Segment Results
Revenue | Operating Income | |||||
Q2 2023 | Reported Increase (Decrease) |
Organic Growth (Decline) |
Q2 2023 | Reported Increase (Decrease) |
Adjusted Increase (Decrease) |
|
Motion Technologies | $368.8 | 11.3% | 9.7% | $57.7 | 22.8% | 22.2% |
Industrial Process | $293.6 | 22.5% | 22.6% | $66.4 | 69.8% | 66.9% |
Connect & Control Technologies | $172.2 | 5.5% | 3.1% | $28.4 | 0.7% | 7.5% |
Total segment results | $833.9 | 13.7% | 12.5% | $152.5 | 33.4% | 34.1% |
Motion Technologies revenue increased $38 million primarily due to higher sales volume in Friction OE, favorable foreign currency translation impacts, and pricing actions. Operating income increased $11 million primarily due to higher sales volume and productivity and pricing actions, partially offset by unfavorable foreign currency impacts and higher raw material and labor costs.
Industrial Process revenue increased $54 million primarily due to growth in projects, baseline pumps, parts and service. Operating income increased $27 million primarily due to higher volume and pricing and productivity actions, partially offset by higher raw material costs and unfavorable sales mix.
Connect & Control Technologies revenue increased $9 million primarily driven by growth in aerospace and defense and the acquisition of Micro-Mode. This was offset by lower connector demand in Europe. Operating income was flat at $28 million as pricing and productivity actions and the net M&A impact were offset by higher raw material, labor and overhead costs and higher strategic growth investment.
2023 Guidance
The company is updating its 2023 guidance. We now expect segment operating margin of 17.4% to 18.2% and adjusted segment operating margin of 17.7% to 18.5%, up 50 bps to 130 bps. We now expect EPS of $4.85 to $5.05, and adjusted EPS of $4.95 to $5.15, up 11% to 16% for the full year. There is no change to the revenue guidance of 7% to 9% and 6% to 8% on an organic basis, or free cash flow guidance of $350 million to $400 million, representing free cash flow margin of 11% to 12%.
It is not possible, without unreasonable efforts, to estimate the impacts of foreign currency fluctuations, acquisitions and certain other special items that may occur in 2023 as these items are inherently uncertain and difficult to predict. As a result, we are unable to quantify certain amounts that would be included in a reconciliation of organic revenue growth and adjusted segment operating margin to the most directly comparable GAAP financial measures without unreasonable efforts and accordingly we have not provided reconciliations for these forward-looking non-GAAP financial measures.
Investor Conference Call Details
ITT's management will host a conference call for investors on Thursday, August 3 at 8:30 a.m. Eastern Time. The briefing can be accessed live via a webcast, which is available on the company's website: https://investors.itt.com. A replay of the webcast will be available for 90 days following the presentation. A replay will also be available telephonically from two hours after the webcast until Thursday, August 17, 2023 at midnight Eastern Time. Reconciliations of non-GAAP financial performance metrics to their most comparable U.S. GAAP financial performance metrics are defined and presented below and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with U.S. GAAP.