- 9% revenue growth (5% organic) driven by pump projects and aftermarket, aerospace and defense components, and Friction OE outperformance
- 19.1% segment operating margin (19.4% adjusted), 150 basis points expansion (120 basis points adjusted); segment operating income increased 19% (17% adjusted)
- Year-to-date operating cash flow of $368 million, free cash flow of $299 million
- Raising 2023 full year guidance across all metrics
STAMFORD, Conn., November 2, 2023 - ITT Inc. (NYSE: ITT) today reported financial results for the third quarter ended September 30, 2023. The company reported a year-over-year revenue increase of 9%, primarily driven by 13% growth in both Industrial Process and Connect & Control Technologies. Foreign currency translation drove a 3% favorable impact and the acquisition of Micro-Mode contributed 1% to total revenue growth.
Third quarter segment operating income of $157 million increased 19% versus prior year (17% adjusted) due to productivity, pricing actions and higher sales volume. This was partially offset by higher compensation costs, overhead inflation and strategic growth investments.
EPS for the third quarter of $1.34 increased 9% versus prior year primarily due to segment operating income growth and benefits from share repurchases. Adjusted EPS of $1.37 increased 14% compared to prior year. Adjustments to EPS are primarily related to restructuring costs to optimize the company’s cost base and write-downs due to the suspension of business in Russia.
Operating cash flow for the third quarter of $170 million increased $109 million versus prior year primarily driven by higher operating income and improved working capital management. Free cash flow for the quarter of $148 million increased $113 million versus prior year. On a year-to-date basis, ITT generated operating cash flow of $368 million, up $252 million versus 2022, and free cash flow of $299 million, up $258 million versus 2022.
Table 1. Third Quarter Performance
Q3 2023 | Q3 2022 | Change | |
Revenue | $822.1 | $753.6 | 9.1% |
Organic Growth | 5.4% | ||
Segment Operating Income | $157.3 | $132.4 | 18.8% |
Segment Operating Margin | 19.1% | 17.6% | 150 bps |
Adjusted Segment Operating Income | $159.7 | $136.8 | 16.7% |
Adjusted Segment Operating Margin | 19.4% | 18.2% | 120 bps |
Earnings Per Share | $1.34 | $1.23 | 8.9% |
Adjusted Earnings Per Share | $1.37 | $1.20 | 14.2% |
Operating Cash Flow | $169.8 | $61.0 | 178.4% |
Free Cash Flow | $147.6 | $34.8 | 324.1% |
Management Commentary
"In Q3, we continued to generate strong growth and execute on all fronts. Our teams drove share gains in automotive and rail, large project growth and aftermarket demand in pumps and valves, and growth in aerospace and defense. Once again, we delivered strong year-over-year and sequential segment margin expansion, and are accelerating towards our 20% long-term target. We also generated more than $350 million of cash flow this year, acquired Svanehøj to grow our flow portfolio, and will continue to put our cash to work with further M&A opportunities and the new $1 billion share repurchase program we announced in October. As a result of this performance, today we are raising our 2023 outlook for the third straight quarter. We continue to execute at a new level of earnings, profitability and cash, whilst reinvesting in our businesses and growing through acquisitions to deliver long-term value," said ITT’s Chief Executive Officer and President Luca Savi.
Table 2. Third Quarter Segment Results
Revenue | Operating Income | |||||
Q3 2023 | Reported Increase (Decrease) |
Organic Growth (Decline) |
Q3 2023 | Reported Increase (Decrease) |
Adjusted Increase (Decrease) |
|
Motion Technologies | $359.5 | 5.1% | 0.6% | $59.4 | 10.0% | 12.8% |
Industrial Process | $279.8 | 12.6% | 10.9% | $64.7 | 34.5% | 24.4% |
Connect & Control Technologies | $184.0 | 12.7% | 7.7% | $33.2 | 9.6% | 10.6% |
Total segment results | $822.1 | 9.1% | 5.4% | $157.3 | 18.8% | 16.7% |
Motion Technologies revenue increased $17 million primarily due to higher sales volume in Friction OE and favorable foreign currency translation impacts. Operating income increased $5 million primarily due to productivity actions and higher sales volume, partially offset by higher labor and overhead costs, unfavorable sales mix and prior year foreign currency hedge benefits.
Industrial Process revenue increased $31 million primarily due to growth in aftermarket parts and service and project shipments. Operating income increased $17 million primarily due to pricing actions, higher volume and productivity savings, partially offset by higher labor costs.
Connect & Control Technologies revenue increased $21 million primarily driven by pricing actions, volume growth in aerospace and defense components, and the acquisition of Micro-Mode. Operating income increased $3 million primarily due to pricing and productivity actions, partially offset by higher labor and overhead costs.
2023 Guidance
We now expect revenue growth of approximately 9%, up 7% to 8% on an organic basis; segment operating margin of 17.9% to 18.5% and adjusted segment operating margin of 18.3% to 18.9%, up 110 bps to 170 bps; EPS of $5.05 to $5.11 and adjusted EPS of $5.15 to $5.21, up 16% to 17% for the full year; and free cash flow of over $400 million, representing approximately 12% free cash flow margin for the full year 2023.*
*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, November 2 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 from two hours after the webcast until Thursday, November 16, 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.