ITT - Earnings call transcript Q3 2018

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Operator

Welcome to ITT's 2018 Third Quarter Conference Call. Today is Friday, November 2, 2018. And starting the call from ITT today is Jessica Kourakos, Head of Investor Relations. She is joined by Denise Ramos, Chief Executive Officer; and Tom Scalera, Chief Financial Officer. Also joining us on the call is Luca Savi, President and Chief Operating Officer, who'll be taking over the role of Chief Executive Officer beginning January 1, 2019. recorded PM be Eastern. being beginning for is XX:XX at call and available will replay Today's be questions At placed mode will in time, a for this all listen-only and participants the the presentation. following have been open your floor the my Jessica turn over to It is to floor now pleasure Kourakos.

begin. may You

Jessica Kourakos

discussion morning's note our and segment morning Thank measures non-GAAP measures, this this highlight can you, that website and on release be adjusted unless margins to like indicated. press Maria. on otherwise at operating and financial Please itt.com/ir. reconciliations our I'd found focus or primarily that presentation, of adjusted will EPS income, GAAP adjusted non-GAAP adjusted including

we guaranteed those projected. During may result XXXX. Act publicly of statements new make from of forward-looking otherwise. in and differ future forward-looking forward-looking materially no or Litigation a undertake the update this whether as can statements actual any Reform course statement, events No call, results be will to obligation the of We defined Private information, Securities as

Forward-looking call filings. and particularly should risks together the our with affect that uncertainties disclosed this made in our those on be SEC evaluated statements business,

turn number Denise provide X, QX So, to will now, highlights. where on the let's slide

Denise L. Ramos

and leadership. morning, under good a Thank ahead you, year will I last be bright my call has to Jessica. And future company Luca's as not more with everyone, we've thrilled this results posted what be earnings this could CEO. ITT's with the

segments another for key solid So, today X%, strategic across grew growth strong grew revenue $X.XX share. significant all Process operational delivered. and margins segment in organic EPS was X% execution and XX% Connect organic Strong Organic operating orders gains end led we third markets to X% grew basis Technologies. by segment quarter thank or discuss double-digit the & share to XX%, you and and improved for broad-based And ITT. results quarter all The organic joining us per as XX%, grew and financial record to orders growth record grew Control progress better. XXX drove XX%, points revenue XX.X%, grew income Industrial ITT's operational

this year leadership Luca's under focus on driving our was addition, In productivity relentless.

And segment a operations and basis record points all productivity was free in flow free This three gains improved was ITT commercial XX.X%. of improvement an improved performance sales Adjusted by to all-time result, cash driven In a cash As working as strength points. strong to Further the XXX various businesses. of quarter, XXX our capital improved conversion significant of margins cash measures. a excellence reached flow across demonstrating adjusted percent our basis year-to-date record levels. XXX%. XX% the near of our

As ITT's QX and of been performance, innovation, I has pillars in reflect capital year effective all our progress strategic XXXX is tremendous and clear of three a it of growth execution, deployment. on that

and as have established operations improve ITT the the accomplished and initiatives front propel our once made years, innovation, So across that that China In opportunities operational segments margins and points In already add new To to strong new these the as leverage three income key all let basis ahead. operating points, lot axle we XX% progress. we've dimensions. years growth to system. will Technologies In over more multiple And strategic a foundation we we advance last focus were in that area significant expansion will management platform few our Friction operational of further were margin innovation support the of ahead, the our XXX line platforms. all margins basis start record only of me the with in with points. margin align of grew business growth quarter, again wins QX, track growth, And and for MT in see globally. the its across strategy volume while IP continued seven awards significant basis gaining grow delivered our grew share expansion. execution top and quarter, we won end, XXX XX MT CCT margins XX% this Motion grew highlights. significant

are XX% target. orders grow share In of this awards our focus markets. addition, strategic intensified full-year in Also we and driving end enabled business of and innovation gain variety to currently investment in a at organic CCT's has XX%

enhance by North to IP, we driven i-ALERT example, QX, And vehicle innovative America capabilities. station Europe. monitoring For to sensors grew electric orders in in and connectors lastly, our performance for charging launched strong at various XX%, demand upgrade another

orders of result have i-ALERT we XX,XXX nearly to innovation, a by our i-ALERT As year-to-date recent XX% increased our sensors.

revolutionary Lastly, our and production testing capabilities ITT the accelerate started our customers. Pad market. XXXX Smart And on-board increase rotorcraft, deployment, we technology capital to investment helped turning fully with have in long-term activities in investments this in to strategic multiple serve have to to

incremental as repurchases total discretionary the the to funded up $XX $XX a million experts recent a across record former on our be this share the million all-time gain of special buying XXXX also that closed in site operations was the significant announcing capitalize nicely to this In we hard provided. generating gain sale opportunity QX, QX. conditions location. market recognized a Connector to by This These $XX by in have that million. million, item. by will unique addition, coincides After operating repurchases a ITT, years are bring we'll of gain Connector today repurchases with delivered Executing margins on of work sale of on the we $XX new functional

asbestos Lastly, reflecting cash settlements. unchanged million significant advances asbestos to XX% $XXX In in re-measurement from And our again. strategic insurance perspective, raise once XXXX are liability flow areas in our focus leading a the future has projections. cash declined previous These our decreased from year favorable to remain guidance three from liability projections the year, and the current benefits our net the pre-tax. once again, net XXXX, us

X%, our full-year are raising and X% guidance revenue adjusted We our growth for are range year. EPS this third organic time increasing we a guidance to to

tax And and the EPS in mind increase midpoint Our EPS keep The share that prior cost. reflects midpoint execution, partially only growth. EPS $X.XX currency our material operational year. and from driven growth headwinds, new largely X improved by cost $X.XX by guidance global compensation rate volumes of of incentive provide our XX% reductions points per is prior versus offset foreign

in XX% results So with growth Starting broad-based delivered In that, quarter, financial with let's across and more discuss strength. organic to chemical orders, strong increased delivered detail. order on growth on IP, At included decline multiple third And our performance quarter now order orders oil grew X% global we on total double-digit turn industrial in market short-cycle markets. in strength. XX% despite slide every X XX% CCT, produced to market. production. At third XX% gains the in project connectors general chemical categories. we industrial end general and we the at Friction in growth and growth major growth MT, a gas, global orders And automotive

ITT strength X%, of in into Europe. revenue on a grew X%. has aftermarket in growth beginning driven North order OEM since $XXX a and end The in America in growth, global was aerospace Friction momentum million or market, providing organic XX% the currency some increase strength transportation The our this defense and and reflected Friction As increased China X% as by grew nice backlog result and us basis, XXXX. XXXX a X% comprehensive the growth constant of

stop on provide of Friction the decline me Friction gains let in compared strong production OEM our some OEM auto So, and in X%. X% here additional global QX quarter. share grew context to

X%, North X%. the In And we X%. by geography. America, OEM market to was results So, Europe, flat declined here's of market in contrast our X%. only increased XX%, we the decline China, in market grew our grew a business In

our grew X%. aftermarket, actually Friction total However, Europe strong due to

proving business to market-leading So, strong to the well-positioned once advanced like markets our important through markets gain market serve. ability and technology America North Friction again that our we outgrow China and in is execution, broader automation share our is

share, accounts business our aftermarket presence, a In addition, have XX% like creates natural market Europe, hedge. already for where in our markets which of significant Europe, in Friction we

industrial revenue of revenue, markets, a connectors. X% XX% XX.X%, X% in reflecting compared increase gas of to up record of driven which income grew oil a per benefits operating prior represents volume share segment in quarter's the expectations chemical increase in total to QX million X%, gas, growing in approximately and Now, by $XXX operational was XX% and And driven and margin the mining and turning reached increase a grew across due connectors. XX% last XX% year. also execution all-time and to of and increase XX% X% $X.XX ITT's a industrial high, and exceeding matched EPS oil ITT.

rate, partially Our growth and EPS costs. incentive a performance higher segment strong by offset lower tax reflects

development gains. platform again once funded Smart primarily Lastly, note of the of important it strategic Friction incremental we continued long-term supporting investments, to and Pad that is rotorcraft share an $X.XX ITT wins,

created quite been days am. years. today's be we call come. company I It's seven results premier determined of that this I with drive customers, Many in collectively parent a this to this heightened our already will longer years, ahead. Given proud than excellence a lot our in very I huge powerhouse, my I to as We and Technologies' know significant together President, earnings take should these people improvement think as fantastic I'd performance like the deliver work time how global has contributor product last thank ITT innovation Luca we've many been success. and reflection spin. is operational cases, operational the leader and are significant if on over built. XX more I've that amazing great ITT value a And we've a to of and of as Tom, all drive to that with where the ITT that be only also culture I shareholders. had growth our been the The collectively But all delight record know to some an a the beginning Operating to are Officer. a Not that before businesses and have company to so just far with journey. exceptional include last you privilege you, our a days he navigating the this of but drive Motion focus Chief transportation at people know, people

driving helm, excellence, Luca the of execution future. our optimistic do. with ITT's ITT's So, to know higher operational strong all today's with about should and I in even feel innovation employees investors commercial and and I businesses very at levels, foundation

move it opportunities with Luca, in Luca today of primarily our the will on there that, us discuss turn to plenty X, other XXXX be Luca? assured, with will beyond. with let's his where Rest connect XXXX and who So vision to operational performance. is to I slide future over to for

Luca Savi

the be to on behalf ITT-iers me you, Denise, world the around congratulate create. helped let first for encouraging this Thank nearly those you XX,XXX amazing words. And for of the you that company

company Your village spin very leadership ITT a from foundation global and transformed growth a Italy, into humbled long-term from post Remainco solid for a with continued small value the creation. Coming I'm ITT opportunity Today's full credible gems, call absolutely of of major I the value. company. grow to that with advantages is amazing given a them, be are collection to to this like true competitive in as

will value our you this expand and an for continue we build and focus all ITT's on established, our Denise, forward, intense going So, on customers, with shareholders lean on that foundation to people our our stakeholders. on to

expansion XXX Project margins years. slide significant points And this basis operational focus over expanded execution can generate at producing to see that been comprehensive, IP our points execution or intensified team focus is So, The three more. by rigorous, results. margin margin on X, significant continued last intense here the as area all of granular segments you has the of XX momentum. two was an basis for on approach

very are not While ITT, levels. here, in is improved of also tremendous project CCT across XX% still higher the strong to another do thing equation. win strength going the another forward. even drives performance leverage expansion Friction all-time margin results. expansion. competitive The very its expansion execution Farrokh and team gain, execution delivered we leverage it All non-Friction results of and we to take is of we opportunities The growth Axtone. to story team's as to drove and in At both world-class is real dedication for basis to points Wuxi, transforming non-Friction growth to margin our margin that clear ramp right of operating that is China. in no top me delivered businesses. our simple and drives customers, will are comprehensive there that with we Connector and And opportunities quarter we only the that levels higher financial have Silao, to even order and project at tireless continue as outstanding his it is also rate. It There model delivered North advantages same the that we The third our XXX for additional example up quarter we solid at margins. Connector MT record implement generate made have but facility progress line starting at margin execution further American facility meaningful This our MT, share quarter surprise the meaningful was Mexico, businesses the and performance CCT, potential Wolverine across to the elevated

can there That operational to an conversion and on-time relationship we delivery, still perspective, delivered customers, and improve innovative quality summary, of solid profitability, to to cash that drive we improve with our accelerate to said, in center. and So, results do more out each solutions. value every is our from

turn Now, to I'd and updated like Tom to guidance. with the quarter over that, segment our discuss third to it results

Thomas Scalera

on revenue North of growth America Thank revenue strength European X%, you, and X% driven Luca. increased Technologies in slide with OEM Starting improvements total and China Friction to million the and X, in aftermarket. $XXX in organic by Motion

in to program. declined and high-speed sealings income productivity improvements and investments. won year Our by highlighted outperformed Wolverine starting partially of and million. was MT momentum. a were loss business in rail X% due increased offset KONI once X% declines, income The lastly, platform strategic costs by X% by operating XX% offset at serve, to gains. in driven market we that back Segment on share North every million leverage, volume was X% growth higher Friction recently That commodity a America the in $XX These OEM we growth partially sales by contractual China. again aftermarket $X XXXX. growth mix price gain the defense favorable prior And grew

MT result, to grew QX a As points compared basis year. prior XX margins the

XX% operating IP The gas valve gains strength the and These exchange. order including savings, XX% on the QX project X%, by and activity. grew and Moving Industrial with Short-cycle XX% XXXX, gas improved revenue, overall an and pump the XX% and revenue solid activity, was into short-cycle $XX restructuring growth downstream bio-pharm short and driven organic Process productivity solid driven global orders order XXXX. from than visibility pump and drove providing next chemical strong at projects and midstream and IP year, shipments in market. Baseline our QX basis impact and of strengths chemical, to segment million. remains petrochem in IP's up midstream both XXX chemical X% primarily increased the and the in declined to offset improved project growth was aftermarket both project volumes, And timing. oil solid project to growth Compared oil XX% healthy, oil higher favorable and baseline improvement in markets. funnel strength double-digit were significant driven general petrochemical gas pricing, to improved was IP's demand. representing prior X% included markets execution. in XX% mix, Organic by due margins points double-digit income slide projects XX% and XX.X%. and timing improvements short-cycle The backlog foreign on deliveries. in The by cycle. X. valves, XX% up in more intake up to in The industrial strong order increase

organic by the growth The XX% to improvement share component rotorcraft revenue Technologies due Next, let's aerospace gains. and in slide Connector $XXX XX% to strong increased driven Control on turn X. was to commercial quarter, million. Connect In &

North saw revenue fantastic in gas key the General driven In can XX% connectors as by addition, produced XX% North oil was quarter. grew driven quarter, component oil underscoring demand down the comparisons A double-digit benefits, orders prices organic were improved orders for And oil execution delivered lead America in on XXX shortened in of The in higher share which Asia. the industrial all-time an activity. you end with due times. the Segment and and segment XX% operating in improvement operational every improved rotorcraft. reflects by CCT's history. primarily demand X%, its difficult connectors gain XX% see XXX% high. connectors' margin as aerospace reached XX.X% that America. grew growth including here, growth year improved prior in timing XX%, income $XX at this we was operating large in had increased wellhead drove in representing global gas, due increased EV Connectors our Commercial of to market, and And in than significant points. and to growth broad-based increase connectors more Europe XX% recent a connectors. income orders and to in basis growth portion margin, growth best growth million,

to Next, slide let's turn X.

annual of asbestos result we've million insurance years access decline to on liability average forecast to From side, insurance in outstanding cash the in-place that the through settlement the asbestos policies XX% previously this but XXXX, the is recovery we've insurance Combining Also, to million. flow by over we XX%, a net to been cash $XX future improve outflows liability in while XX continue factors, our keep XX% annual driving agreements. of work diligently net $XXX all same mind, or to impact a after-tax projected. claims. perspective, since continue a next re-measurement we coverage and undiscounted. our to strategy and actions, asset able And declined in recent our pre-tax reduce our reflects inflationary of liability our As recovery XXXX liability

on slide turn that, to So let's update guidance XX. with our now XXXX

year, we quarter the on narrowing entering the are we are our of EPS final Now targets. revenue and the ranges that

We headwinds prior incremental to to expect exchange X%, our X% share to by revenue total compared to stronger forecast. offset be due up foreign gains,

QX important quarter, revenue intensified And created is revenue. revenue our last growth has foreign a total X%. that range $XX updated earnings at perspective, it based order are Our is organic in impact pressure euro-dollar to new of now since previous incremental increasing that the year-to-date we X% X% million have From growth, exchange $X.XX. exchange total revenue foreign on to exchange organic and X% the range Keep on of our rate strong and to to slides headwind only mind August. in indicated that will an we that our note our

margin we expect be margin the On XXX our range. of to at to basis expansion front, XXX high the end point

basis improvement the conversion. flow the in strong In working gives achieve XXX year capital confidence and addition, that can in free another point QX cash us cash XXX% of flow conversion we

are incentive grow as points our foreign execution. raising and So, of with of well to combined material costs execution, lower X will of the in midpoint assessment incremental global operational guidance in $X.XX of result current reflects an low volume, EPS price compensation as the by increase midpoint, coming from exchange, XX%, adjusted better we $X.XX improved strong benefits, $X.XX growth At only our and taxes. improvement the costs by $X.XX $X.XX, end more $X.XX and the mix a confidence the to The with as offset our EPS share. we per growth, midpoint the $X.XX volume with ability our than of previous by

let conclude quarter additional some framework, Now me have with XXXX and the fourth perspective. that XXXX you full-year

by will in For Fourth growth new under and connectors the timing and be we the IP be driven single recognition markets. expect to standards. on digits by quarter project aerospace continued determined defense revenue largely in of revenue large shipments quarter, low organic the growth fourth total at strength revenue CCT the

will variability the by an project gas, IP degree to chemical quarter and market a and upstream there perspective, be of So, in a prior and gas lower petrochemical, in we offset that solid compares deliveries. strong oil downstream activity higher From and oil end year. expect

mix OEM strong we double-digit Lastly, North some while in in issues. year be fourth quarter the expect will prior at impacted America MT, growth by China,

Friction for for digits. our forecasting the China margin ITT we And quarter, based share full year. XXXX, America to are on From and year OEM are China MT accelerate compared are expecting an CCT recent However, in triple digit gains. double expected North into the of mid-teens both fourth the and grow growth and the North growth trajectory to perspective, the both American XXXX, prior to

expected QX XX%. mix muted. at with in pressures to and IP margin the growth year are and Corporate accordingly expectations tax so difficult has generally are is However, full rate comparisons, quarter our the projected for and be costs line

do impacts not repurchases. full-year any QX expect we share from the million Lastly, announced $XX or meaningful newly in

wrap me up let on So, tariffs.

are chain a XXXX taken capabilities, already in mitigate At leverage actions tariff deploying of know projected price increases, and of actions, have XXXX proactively point, improved the actions. market local of we additional to including We our variety today. exposures manufacturing supply this we

we and net have any XX% result, XXXX developments. working million, the already reduce monitoring high-single digit further a As even over identified around additional reduce opportunities exposure mitigation new proactively to the opportunities to while on impact we to by are

let So, it to to session. now begin the with me that, Q&A over Maria turn

Operator

Thank now you. floor open the time, for questions. At this is

comes from Mike Our question of Baird. Halloran first

Mike P. Halloran

with and a working Good It's Denise. morning, been everyone, you. congratulations, pleasure

Denise L. Ramos

Thanks, Mike. Appreciate it.

Mike P. Halloran

some Tom. growth mid-teen to and this market negative you North America X% wins, a in The of the some quarter us market. about outperformance look of as revenue the how did as comments forward trends? give looking how I give expectations looking level at context just you underlying you of you're kind And some of relative next made, X% those with Could positive platform to market could underlying to you know also China in at start you growth those let's into going the you're So, because year? context accelerating

Thomas Scalera

Absolutely, Yeah. Mike.

years. the American over about the we've have and China expectations global markets uniquely story several North for is ITT producing next the what we different capitalizing gains for What is been on the share the is muted last pretty and think I year. business OEM that XXXX is,

in we're we've compounding North been think the as markets. particularly in inflection even America in these hitting wins and an I China, point,

all generally an even markets but depending muted rate XXXX the acceleration share those gains. if expectations, we so story anywhere But flat that in why have the around which plus across we're into on the conviction benefits So the on wins. mid-teens that's an our – from go say would stronger based to global going you growth looking X% market, is from I

Mike P. Halloran

then when the IP underlying And segment, you order think some just there trajectory timing. about thoughts on the

it made trends project some the certainly on You that large of could improved. based side clear timing the variability quarters have fourth order the business, have but

kind what underlying what's what track how so, saying, like, can as that momentum next into year? you that And is you you what about you base core thinking give of next into business confidence does see year, customer and are the the look

Denise L. Ramos

you at you IP and what's year. IP, backlogs, really backlog perspective their is look up is When XX% at from positive versus when prior look their an

been that's strong project oil them. them of downstream XXXX. been has it's variety more a as X their So, pretty gas for XX%. a the extremely looking markets. strength significant and there. for funnel end we there's is up good And about Their shift and since out We're in for project funnel into Chemical a January in head it's

need to projects that gives put anything XXXX. And going Tom, to the today So, have that? that heading at and what into together, positive backlog, we in you you look if look add we you some you momentum all the is want at into basically sufficient you we have what it backlog for when XXXX.

Thomas Scalera

No.

that's spot I on. think

from is seen going in activity XXXX. project what markets. given But to us we've additional petrochemical at into project any this solid and mentioned, confidence going QX the particularly Denise a point, chemical looks as give in backlog the So, additional perspective

Mike P. Halloran

you. Appreciate Thank it.

Thomas Scalera

Thanks, Mike.

Denise L. Ramos

Mike. Thanks,

Operator

the from of next Capital. Hammond comes KeyBanc Our question of Jeff line

Jeffrey D. Hammond

morning. Good Hey.

Denise L. Ramos

Good morning.

Jeffrey D. Hammond

a of perspective top-level Just from Luca. couple questions

see Just And where allocation your expansion for couple pristine as ITT businesses, been further me the you of I opportunity – give in on margin deep to assess a you've greatest with forward? where do address want also, thoughts then balance early Luca you know them, maybe you the just has. sheet Thanks. going the how three capital

Luca Savi

Okay.

So, Jeff, thanks.

our Let not with remarks, of them It's start that are opportunities. the I my side, reasons. for just growth. businesses and on me called and In for biggest area believe really gem, but also of all different the profitability I

So, business and of in for in we can take level know if us our overall Still, plans talking. has record we example, Jeff, CCT, to our do as better reached Connector profitability, performance. you've our you listened that

entitlement in We front, reached terms our with growth, business, This the are organically. opportunities nothing, think zero, aerospace business it we doing In on productivity about to able And we good rotorcraft and our a there. facilities. haven't where the business. has it created of were we're do what our leaning we is out

in there. Our are Orchard expanding of our we are gains it growth And it Park we we expanding, while because facilities, also out. is market Technologies, leaning are share rotorcraft. At Motion the as well,

But you our also where IP, gains of up ramp pumps valves, business Axtone project execution, reached make-and-buy regarding Wolverine, to our because market other continue sites, it as in but also in opportunities, the there. will to across And our and strategy in see the leaning for globe. Falls share we our of performance not traditional facilities, in and operations now North and China. see and You acquisition, expect in in our and improve our well Bornemann performance, our America it the improve purchasing growth as strategy margin entitlement Silao have our improve continue Seneca

you board. as really gems opportunity profitability can across the and So, see, true

if would one? answer like know, to don't Now, going that to Tom, I capital back allocations, you

Thomas Scalera

priorities build working the the strategic to create to really strategic calls value – we've the a and with capital Sure. collective with the this Luca foundation been priorities to and plan allocation Yeah. Denise. XXXX Jeff, as gems, as continue to and And on and team, perspective these are them. Luca working hand-in-hand on

of key to in particularly one going organic continue market share. the elements we're prioritize been That So, of and in growth, our margin has to investments.

will the to we going in same element key remain but on there that the to opportunities of that's going close the fragmented to today, proactive philosophy, how positions that. the is philosophy strong perspective, we to additional capital, when and stay have really maintain foundation core From that's in opportunities And see some to opportunities We that and the close building to So, core shareholders have. businesses real today. then to markets build doing for core like business. inorganic are we did have, think we inorganic that this we our return to to an we're and we our some priority approach point we it's top the building off approach in the be

see continuation and of you'll that's think the a I way forward here. the So, from philosophy current

Jeffrey D. Hammond

Great. Okay. – projects changes you've mean, that you of the the just in projects larger, talk mix smaller, and about seeing backlog? you I Thanks. in made way And of how XX% margins go you're the can that just growth, I know some the at IP. in in kind then

Thomas Scalera

Jeff, of mix good a end markets. I projects would say, we across have

good parts we gas. So, certain of had oil general order in chemical, industrial, and project intake, and

we've it's margin more comments, has profile margin but has the be pricing and execute to say, way say So, projects of always that has the what's our our is we broad these that's I and our as back really that competitive changing more to competitive than and around projects been, execution backlog and Luca's as to anything. it manage referring remained would improved really improvements based made improved, profile. I And in sense. the manage the would ability

Operator

Matt of of Davidson. comes D. Summerville A. the question line next from Our

Matt J. Summerville

everyone. Thanks and congrats,

sort sounds that seem to of are fourth there margins So, bit sure be I margins out does term? just IP, want steam so here basis, on relatively like a the with why me pluses were understand, little maybe with Can quarter, flat. and the are It relatively make to near guess, a to help at minuses it like of sequential I sequentially to sounds some business year-over-year. forward you're the the like least you in running going understand flat minuses and margins? the in pluses respect looking I you

Thomas Scalera

feel would concern. out just I at Matt, that steam we're say, us IP, address to of that running none of

all IP margin year. been the the we're think I indicated, has opportunities real for momentum had year Luca positive this continue that As the seeing we've one. And a to story

you is I think some algebra. anything see than more QX what in

of up to dilutive with the delivery margins So, IP. if projects good of projects, do to a going are large even end we quarter be

real keeps positioned project take sometimes margins those the next bigger to the that into different. If more can be story the takes projects those margin up last some think when in from we of move deliveries doing we is it's have compared deliveries early year, and step if of and factors place the and year. to delivery, So, to the a one they would customer, if ultimately up be for I that muted everything we're receipt,

with a at and tradeoff dealing just there's margin underlying strong execution, continue right really So, through will now that driving We're year. IP are QX. of next way on But timing some expansion, what's mix QX the trends into projects.

Matt J. Summerville

were when us That where maybe you. they and you. update are can more as couple now makes a of acquired think you businesses, years? bought the they up, where Wolverine go Thank next Remind and And margins where Thank where clarification they you are Axtone? the on in then you sense. in follow them, can recently MT

Thomas Scalera

margin Wolverine. course taken momentum gates When generally to done three in made in so I successful. accounting – and – really little that we've of some the would about out more Axtone, with the and gaining first nice of Matt, Friction throughout talking mid-single category. the I our been more And implement year. of We've business, we've automation same the – and so generally to What rail Wolverine approach we under margin the implement businesses to and momentum with. gaining have of is to system, digit the management good that kind implement those a taking businesses, deal management Wolverine recently are acquired, two, obviously Axtone, bit three for start two on at low- top, years that system We we the four. say. now, been purchase that's We're approach typically we've that the you time businesses. the that's implementing layer came solid

longer into them the to term businesses projections margin are the a get these mid-teens So, for perspective. up from

operationally. Wolverine on would track what with we have think right I is expected

up. to I just power is think Axtone starting

a up points were think year. combined in XXX in basis about on they to basis, QX I last compared margin

but to momentum, we way good making so good. we're say so have did long I far So, a but go,

Operator

Inch line the comes Our Gordon Haskett. of of next John question from

Ivana Delevska

Ivana is This Hi. John. for on

to backlog you about in years? over layer the do how and wanted Just to ask your Friction it expect

Thomas Scalera

so have. backlog Ivana, the we the really our It's not little businesses. order same a IP that backlog of for – It's visibility about the and the it's from other as long-cycle Friction is different than award our business. more some

growth comes that of a with we orders North real those have, recent a Friction the start we ramps wins and into drive and of a indicated, that production the OEM the little China new have lot as to think and information different we I build for with all we of conversations our visibility projections. mid-teens good customers, from that our And So, bit Europe, XXXX. production it's within America combine out And story. will that

we outperform what, different backlog to expect dynamic know there. it's You but the a market,

we our drives the we you to XXXX, have. but do visibility comment? on into visibility things what ramping add that's do Luca, that like So, how based anything to up But, want are

Luca Savi

Yeah.

end full gains at there. remind to just we the in year, the and has to to you're are in ourselves to reached supposed that the September, already XXXX, we QX, decided When we XXXX, conquer we number. awards after of that win already, that looking for set awards shared. we then, Denise end at what that are market XX% look And when the win, you go share of Just

get gains we production future. comfortable that this be So, the in we for quite year the start two we there to share these years are that from Be that market going now. that that awards always is in aware that are

Ivana Delevska

Motion. Thank you question any on or you. have organic just platform Will one And more do offsets growth? as the impact XXXX sealings loss Wolverine well

Thomas Scalera

going platform. That bit to platform little into offset, team that a will hard win fought The be back really of headwind XXXX. the particular well, a

to MT It's level. production XXXX. back get the in we'll So, not a major platform at

back. I but it has So, we went other happy when the offsets, won had team we're plenty the to that that think opportunity back, the of and team win that

Ivana Delevska

Thank you.

Operator

question Ritchie line comes of the Sachs. Joe of next from Our Goldman

Joseph Ritchie

everyone, Denise. I congratulations, echo morning, everybody's Good and Thanks.

Denise L. Ramos

Joe. Thanks,

Joseph Ritchie

growth about like what couple you're seeing in And tracking. mean, on I guess I terms XX%-plus of first my little Can you maybe we're the funnel? of of the question, Industrial the a is growth the just talk quarters, and just Process seeing that bit of project So, maybe on that specifically business. last that kind you're nobody side specifically, size seeing of growth

how is much of gains. Just this share wondering

commentary any would around that So, be helpful.

Denise L. Ramos

I'd at about XX%. talking start by just since the funnel project if funnel. the project And about look it's you X, up January

is said real good before, seeing around That strength downstream oil us, also a to are and side market, seems momentum, chemical as chemical be market. we've things. and of then in the the the We for gas

from upstream, softer there business bit standpoint, little to right seems So, pretty but be strong project a out that now. the

Joseph Ritchie

can helpful share Okay. that commentary it. question standpoint. But I pricing follow-on a what backlog All layer right. would if too. guess in that that your then gain you some seeing competitive from you're in And Got like, around getting be the around you're versus, maybe

Luca Savi

is out competitive. the think Joe, the Hi market I market is there, we at that Luca. very this Okay. still look When

strategy experiencing pricing we in So, the not market. really difference in major a the terms of are

you orders, in made in cost than Now, that projects you I then couple execution, because shipped in we you of rigorous, cetera, due us when simply the they of just the competitive, better projects On seen start better even us better, ready diligent stuff actions what or seeing more as opportunities highlighted, our on well your are before and rather we previous these would in top you of more Tom that, profitability for also than what power. that are as are the has that be restructuring project negotiation et past. time the coming these more start have as seeing years when the is though, means which have change have to leakage, executing say as project terms date, of taken

out what is the this in market. we So, there see

the So, we funnel. the think backlog and the are good position fighting shows in are with together but I in that still the orders us, competitors there with and a

Joseph Ritchie

great. you Okay, both. Thank

Operator

question comes from of Our next Brett Linzey line Vertical the Research. of

Brett Logan Linzey

to all. Hi, Congrats guys. everybody. Good morning,

Luca Savi

Hi, Brett.

Thomas Scalera

Brett. Hey,

Brett Logan Linzey

correctly? Friction in Just next million mean, Friction think Motion to $X I wanted Tech to aftermarket would on should revenue you the guess, good plus revenue talked on billion-plus the awards. have the you back and Friction coverage thinking I And that base would we plus. how I revenue several of any about for of $XXX compare and come that Thanks. at guess, XXXX? pretty as for multiplier content you've OE we two, am next about business. base layers to of least This couple look into think the about I years. top of one, about years as OEM then, you XXXX coverage that specifically that about think here,

Thomas Scalera

Brett. Yeah. Hey,

would that down with the road. the be and and math there So, backlog, the would the agree from assessment we coverage

projection five-year One inside production is challenges basis think years as have ramping platform and that annual on of the dynamics. started an you what we do

do and really for in it's XXXX, activity project some see we China year where America. good North we indicated As a ramp

as good. point, the been plays already an this the has target annual coverage dynamic Luca I through basis, we're this order for QX. it that's at So, target And our on year think but at of our how behind XX% mentioned, full-year

we the continuing and So, that awards add in this to to including total, awards seven slides we mentioned are new the the call. in

inside some only EV So, also continuing win beyond We're have platforms. front-axle win to we're fills are what content nice quarter. this of our in wins how continuing good not also We XXXX we we award about and and to in an from China. feeling it had for perspective,

So, deliver dimensions our the award multiple ourselves year. across we're continuing targets and set win to we on coming into for

Denise L. Ramos

doesn't billion future said, Smart the remind just that It It It $X the Pad that. any as of we doesn't awards. include Smart – out doesn't commercialization there, on Tom everyone and working let include include doesn't the that we're the Pad. aftermarket. that And me put include

important. MT really So, diversified all and perspective, those thing other platform And customer things very of that's I think we're from to the about upside. a is are mention the

platforms. about talk In also on variety of of China, let's but multinationals, locals. with a in China. the we're specifically, the – that many we're So different We're

diversification we as we of forward. to us helps and – markets go helps in as how that think also So, cyclicality about that you can buffer some that

Brett Logan Linzey

And you the these some change how be of you maybe paying outlook a entitlement seeing guys for see repositioning lot do out step as CCT that on margins, guess, improvements in next two, the there. Okay. That's or and segment, A great the year to you actions as over hold? operational look then seem take color. of I performance margin shifting off. the really just really to taken have focus and

Luca Savi

Okay.

is we the look two So, at areas. components. One business also that at looking when CCT, really you're and the think Connector main I

there nicely So, for as room today. I is though are shared before, in profitable both they them, I think even improvement of

So, when think components, you high-teen-plus high-teen-plus, for at should the the I as for as look high-teen, in and be high our well connectors and the the components. the connectors entitlement teens

Brett Logan Linzey

Thanks lot. a along. Okay. Great. pass I'll

Operator

of Cowen comes question next from of Giordano Our Company. the line Joseph and

Unknown Speaker

in Joe is question. all. Rob for morning, had morning. This this quick a Good (XX:XX:XX) just I

versus you If in spending restructuring you a guys little in how see XXXX? moving of give XXXX bit insight could us

Thomas Scalera

has down quite a we the XXXX bit so for where were in number from (XX:XX:XX), XXXX. come Rob

around of kind where would where we That's to of restructuring. early XXXX out some we some some Axtone have based think of cost pushed for on the there's some that still little detail a and do acquisition. competitiveness the get in from of lot Probably we now, It's to be over we work the area as We've have activity ahead XXXX, now couple actions. out last see solid is restructuring start an Right done. right undertaken years. operating elevated we've built our there incremental of a a good that. to I XXXX, foundation those plan improved

our of some plan November. operating reviews But in acquisitions now larger restructuring. still the for do So, opportunities are out that right as newer we detailing we're

now, point. you would major give insights more there, but at this we else So, right too nothing

Unknown Speaker

Okay. That's Thank you. great.

Operator

final Our the Jones question of of comes line Stifel. Nathan from

Nathan Hardie Jones

Good everyone. morning,

Denise L. Ramos

Nathan.

Thomas Scalera

Hey, Nathan.

Nathan Hardie Jones

and my to both me Luca. congratulations Denise add Let

Denise L. Ramos

Thank you.

Luca Savi

Thank you.

Nathan Hardie Jones

potential a to here. thinking I little bit to I back little First IP margin mean look bit time I'm historically, But longer talk a got the in question, was – base last pricing XX% XXXX. pretty like more In margins environment different over more kind an I'd about about XXXX, if changed the I but think has range, that of the then. XX-odd-percent I cost the couple significantly years. think would low-teens, into got would XXXX, of back that extremely I

to So, two, over just thoughts where could you I margins any years. give could don't get know, potentially next, the us four on three,

Luca Savi

IP. on way what running Hi, as Nathan. is. our for we with our And that the is today, have reviews, XX-plus – seen XX%. on years in factories, next This this five have we And the our what in sharing that our are our always changing to entitlement are getting in better see entitlement view communicating is we're entitlement – we Luca. team and in And our three the the we was said in (XX:XX:XX) we at our what are our as that review, projects started we and is is we

Nathan Hardie Jones

revenue the cars generating that don't kind actually time you getting then, to when of specifically five-year and know, see that I say, next, progressing over and might how on do Smart some to the that sounded it. you're from out and some of actually your How phases real Pad, in it progress? And start product it period Pad hitting three- of closer testing here, Smart on revenue comments generating would Denise, commercializing

Denise L. Ramos

Yeah.

with takes production some customers. good this some of The Nathan, like it our about a on-board with with know, You things. and thing it we're couple to these some this, is testing test obviously, new automobile time now technology doing

process the first that usually platform, but you figure got platform. go to – before can and get out you that takes then the number then step. you production start that's We've so, on can with platform And a years of a through

of out Pad. the three going to So, really to really we're the you're start looking going seeing before commercialization Smart at years five

Smart of The point on Pad. keep progress making the and ahead everyone we with is we curve the that important keep

initial we'll phase, So, it to through three- we've and in later we'll the out to this see got get it then go worked five-year timeframe.

Nathan Hardie Jones

each few in then pretty making of progress have clearly us opportunities out for investments, years and on one last and year growth pretty could guys you of any consistently good some Do wins some that incremental Okay. they the one, ramping XXXX, been magnitude those the up last you And and them. above in growth incremental are XXXX that? good kind investments see give you over level

Thomas Scalera

plan, still gains strong initiatives. generated and Great these do XXXX, investments agree really the share on question, of at we've up facility that is XXXX. phase the for generally it at the again Motion getting One and I making volume some for say growth have on variation momentum expect would yeah, stay the a years ramped couple levels area we're Silao, but key obviously to operating some in we'll working been Mexico We would that for that last XXXX. Nathan. we're the of that into see is Technologies I little over really

that but less an we that to if But, to here plan. with from ones So, last been we've would of those. XXXX, consistent would for say of the done the level there's invest we'll and couple over we as rich, particular finalize years, continue opportunities probably be operating going certainly more work we're be to the impact investing now, investment. see sitting that in But very I say opportunity today like I

Nathan Hardie Jones

much. very Thanks helpful. That's Okay.

Thomas Scalera

Nathan. Thanks,

Denise L. Ramos

Nathan. Thanks,

Operator

the some to you. over turn now Denise back Thank would for to floor Ramos remarks. I closing like

Denise L. Ramos

of employees will but And the relationship rock spectacular. incredible is – growth company. have over and miss actually, through years, last while years. call calls the so future ITT run for me supported this these I excited ITT. I'm investors end both appreciate today's will conference I you. and frankly, by the miss marathon all the we I really the will is at ITT, The my and the have to across build analysts all, all, potential investor I to supported have about a So, and that the thanking foundation solid not you of certainly many ITT the calls, thank you want I helping me built absolutely of miss XX after

thank you. for So, a and sincere time, last once again,

Operator

This at Please and and have wonderful a day. disconnect this teleconference. today's ladies you, concludes your Thank gentlemen. time lines

ITT (ITT) 2 Nov 182018 Q3 Earnings call transcript