ITT - Earnings call transcript Q2 2019

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Operator

Welcome to ITT's 2019 Second Quarter Conference Call. Today is Friday, August 02, 2019. Today's call is being recorded and will be available for replay beginning at 12:00 PM Eastern [Operator Instructions].

It is now my pleasure to turn the floor over to Emmanuel Caprais, Vice President of Finance, FP&A and Investor Relations, you may begin.

Emmanuel Caprais

Thank you, Laurie and good morning. quarter call. second ITT's to XXXX earnings Welcome This Savi, and President and with Tom are Luca me today and Chief Officer. is Financial Emmanuel Scalera, Chief Executive Officer and this I'd highlight GAAP itt.com/investors. measure, on to morning's reconciliations found comparable of be website presentation, the like most non-GAAP that press our to can measures financial release at

subject results together indicated. refer may filings. to statements or adjusted SEC non-GAAP uncertainties we please begin those disclosure to forward-looking Actual uncertainties. note Before and contain other unless materially. risks that be vary including All such our and Today's with and otherwise exclusively should statements risks that will that our evaluated business, in are discussion Harbor affect will our the Safe call disclosed the measures

now over to Let the call Luca. me turn

Luca Savi

and Thank the Emmanuel, ITT's today proud second to you, hello Thank once our our and strategic ITT for again income of joining us I'm priorities. discuss you revenues expectation and quarter operating very all that validated results. exceeded record everyone. delivered

quarter our quarter contributed organic the the of growth and All portfolio. of of consecutive margin reflecting the consecutive quarter This revenue eighth segments year-over-year strength year-over-year segment eighth diversified marks growth.

revenue testament depth global auto by by delivered this reached level our X%. high years. outperformed operating revenue margin OEM made three Axtone by of grew XX%. Friction KONI XX% progress The and double-digit. performance over X,XXX and of we've points quarter, to is the ITT grew breadth a KONI the the the and orders past basis

connector we record $X by margin basis million to investment margin, XX% XX.X% point X. MT up and and corporate in growth. including XXX project revenue basis Industrial reduced of margins grew CCT XXX expansion. already drive XXX funded costs is by to XX% points, a accretive were it's We future Year Mexico points. and margin basis Friction IP expanding margin of Process adjusted

a the guidance to per our share we grew year this EPS QX $X.XX this and midpoint of time outperformance, result record a are for $X.XX raising second EPS XX% XXXX As of year share. to the per full

look in time grew highlights on organic million points grew for segment to XX operating income QX margin So Slide quarterly the let's and $XXX grew revenue the points share. XX.X%. X. our earnings XXX basis per grew revenue We and X% to income basis a history. exceeded operating We per to first take a record we XX% We in financial share at $X.XX margins XX.X%

foreign earnings basis segment When grew points, you grew XX% XXX XX%. income excluding exchange, look margins growth grew at operating earnings and our per share

and ITT with As you on a our a know by organization now top executing continuous priority improvement building focus at mindset. we high-performance

the market continue sustainability we deliver we customer operational more this To centricity excellence, and of environment, later are result important in our more conditions. and capital resilient as are Our uncertain deployment. on face the focused to priorities; effective three

in the Beginning IP's factor excellence. with points expansion more value delivered In expansion. basis the points on margin is centers expanded and Mexico XX outstanding unfavorable the Shenzhen by by driven at of CCT performance basis the impact project our China mix strong growth. a driven when even margin all three XXX quarter, side. XX% Nogales, by XX basis operational points, especially you connector margin

this are connector line to transferred overall facility. product As margins from benefiting

Finally nothing MT's been resilience remarkable. has short of

at points high margin X% KONI of in friction OEM proud of market teens basis improvement and margin delivered team. his XX I'm David conditions. grew delivered team also single-digit They margin high difficult Axtone. the at As very and and

actions continue the As and way. along to identify you we're our can opportunities effectively of see check deploying will self-help additional work we

lines the we to CCT X and lines we cost product transferring At examples. transfer some you of product are plan. now connector provide me have additional Let completed our X best

facility California Valencia, our of at initiatives development. lean in and it manufacturing to our make research Excellence and Center Aerospace driving both are We

Mexico In drive lead our back down shelf but of start also it our will time. improve later cost It and plated only new other will This production in is this installed. plating our not year. line will addition connector components

If this My you of handle will really it of That's a @LucaSaviforITT. see X. is impressive want number tweeting piece later to equipment, I picture on. be Twitter the

proactively direct our condition. a We At our lean in the to overhead product in we executed chain to And we to drive We ready VAVE coiled and pump and of partial to design larger initiatives cost IP, stronger supply Poland out in restructuring launched MT, transfer we critical machining serve our on market action competitiveness our footprint our focus improve global cost continued At production and are product strengthen cost a structure plant industrial customers. our of to IP our Germany and better our improving competitiveness even journey assessing more pumps lines. bottlenecks for volatile market. outflow. to spring several baseline and

capital in the our revenues once Mexico with and at grew The North and align European margins over and our I expanded by to American engaged our at head current market conditions. China facility actively and driving continued team better we've expenditure to And cost XX%. improvements With labor again are in organization. across ITT reflect energizing leadership plant

not the during value firsthand team reviews together with our improvement center factory HQ. our on location, their at flow observed monthly at sharp our We operational

material example, main to Falls equipment at quarter For we manufacturing Orchard we MT overall flow Park, how Italy. this flow we track examined And we at our the At and Seneca for debated in CCT improvement analyzed efficiency machine. layout efficiency. IP Borgia, improve changeover sharp

improvement is subject this simply hands-on about frankly, success. granularity businesses critical through that of with engagement our of is And to the unlocking do. journey for and our thing very I'm future and a engagement level right passionate Our is betterment

Let's next very value revenue our quarter. move to I'm delivered customer-centricity. organic this our growth that three centers happy priority in

our validation We as share have gain of above-market orders. are further strategies backlog in grown we the organic continues executing a on growth IP that fruit. is revenue are row. X bearing to deliver quarters This

project large growth delivery was we Our driven and margins revenue global by project improved by triple-digit.

gas large market our global we more with share difficult deliver At East gained share IP to customer in QX, a market in than with signed basis market relationship. strengthening and increased continue oil In a X,XXX Middle In sales conditions. by MT, further and points. OEM we in agreement five-year outperforming locking friction QX,

and We delivered at the KONI America of awarded to continue grow our in in North quarter And railway sales terms gain platform strong of in the platform. to in Axtone orders ramp-up continue growth share.

is that components both industrial back growth by at and X% in grew Finally, the X% connectors to the on of second activities X% growth. and aerospace important revenue we note and It CCT, revenue defense organic strong and delivered quarter respectively. moderate

prior to compared at Our foreign exchange CCT book-to-bill a backlog X.XX%. stands year. up year-to-date our is And excluding healthy XX% the

expected and approach acquisitions moving CCT's provide RPG These I'm revenue. of Finally, acquisitions we X. happy In the our augment on disciplined annual on million made $XXX long-term onto $XX last results and inorganic are deployed to geographic XXXX, and the approximately Slide of a IP progress acquisition capital we've to million technological cultivation priority of to effective Matrix capital are investments. reach. with Both the deployment front. in the and

acquisitions returns. position. project engine want and the XX generated build in competitive Matrix They allow from welcome we to CCT years year we defense are program, process attractive of proprietary our expected upon our to to be harsh to first the I accretive center. and production drive aerospace colleague the environment Matrix in growth as team experience. These component ITT strengthen

we from progress also we addition With and due three months, support in to I future. benefit to In momentum our protocol aerospace CCT's sharing trend. acquisition And the portfolio, you new aggressive with discipline generated have transaction. with to solid forward growth customer the past look this intimacy

turn Let in detail. review will me who and it over now revenue, earnings adjusted the Tom, more Tom? to guidance

Tom Scalera

Thank you, Luca.

income in on turn upstream pump by to X% That gas Let's growth orders in X. year on than and demand. XX% Slide prior delays decreased in Industrial and declined a project a more the offset driven activity. large orders revenue and on short-cycle project. X% Organic XX% QX oil now short-cycle decline project adjusted

the America in global pressures were market, growth transportation and in as rail automotive despite Europe. However, North orders solid XX% demand friction in and the flat OEM

China by backlog excluding pressure compared exchange at the foreign remained plus our year. strong order The pricing quarter, A&D X% offset in and was It timing. to auto the prior

X% again broad-based On once end organic reflected grew grew revenue gas and transportation industrial across all grew major the markets. grew X% XX%, revenue front, growth Oil and and X%.

North double-digit diversification. growth demonstrated geographic end-market revenue aerospace, and growth and auto, X% strength and rail. ITT oil America and X% The grew of the gas our also in

auto by on industrial rail X% auto production Europe was that grew strength anticipated slower than industrial than as more strength general And in general and China. partially rates was offset offset flat, and Asia project aftermarket.

to income improved income X income chain million excluding execution segment our and CCT. of of improved and $X actions, The costs offset advances foreign million strategic performance. supply consistently tariffs, operational productivity, operating due and volume, partially expansion delivery unfavorable were higher commodity of These driven at by project and exchange, was by Segment level higher XX%. as strong cost unfavorable X% investments gains to MT comp the containment operating mix

XX% we share per the of delivered earnings by per In and share. grew EPS quarter, $X.XX

exchange, grew XX%. foreign unfavorable EPS Excluding

the lower income, details income, In and operating we to incremental tax and drove performance XX% interest executed we in down strategies produced segment of our Slide by returns adjusted addition X margin the costs rate. the also a provides quarter. corporate strong that segment investment

XX.X% improved XXX points margin basis of margins powered operational point QX basis XX by to expansion.

quarter. expansion growth basis productivity, drivers our total This operational execution rate average year-over-year from with restructuring eighth an and were of quarter chain quarter segments. per significant QX delivered basis that margin The consecutive XXX across of benefits supply XXX marks points points expansion

at the IP, at connector project in improvement sources CCT. at were; primary and The operations MT execution Mexico of KONI

strong CCT slightly mix. in and by quarter actions acquisition. margin of points product in basis was foreign In a exchange modest and had at and driven MT, decrease QX, the share Price rail. the volume minus successful of XX addition, points points from was pricing by improvement incremental of IP reflecting and partially growth basis basis the benefited tariffs gain margin offset XX growth XXX diluted minus operational positive In

We XX line investments at of Pad a strategic facility development Nogales, in CCT Mexico. and plating basis Smart installation a including points critical quarter, funded application also the in world-class ITT

successfully that we margin as excellence is war half incremental XXXX. And in accelerate execute second actions Our more enhanced chest XXXX self-help famous approach on driving now benefit the to a to to of be strong continue provide uncertain we our will producing of will consistently proactive expansion, opportunities. operational in

our revenue face the adjusted This growth second X%. the auto of the Now friction gains and income market, that quarter, results, segment In increased of in on starting Technologies, conditions OEM organic share geographic with X. challenging stiff Slide headwind offset X% softness. Despite MT turn Motion to the driven revenue end-market let's clearly demonstrates partially and in and growth the was by intensity grew X% aftermarket our diversity. by MT

friction X% was offset basis in was market. than by Europe every XX% America growth Friction North auto a points in growth and global and market better OEM than than X% anticipated slower market. outgrew than more powered the growth that China The X,XXX in more overall

global share revenue In and rail. Axtone lock. XX% orders impacts in a growth and in share gains revenue addition, demand weak This from KONI and aftermarket at customer Wolverine grew offset by XX% decline and our grew was XX%

growth to MT's income X% was entirely. segment actions than and with excluding of $X Segment actions, million due cost by $XX more to efficiencies restructuring offset foreign operating X% commodity containment decreased million. increased exchange and foreign income higher that driven proactive exchange. operating costs constant The operating combined supply income chain currency unfavorable

growth execution points to at the XX MT quarter basis basis Mexico. KONI exceptional at in point and XX.X% an expanded margin MT XXX

efforts with from of a and won more the applications shock included rail KONI absorber introduced for new electric friction platforms regions. across the and vehicle And team share unique perspective, advanced capture that bus connector. sensor-enabled the leading a strategic CCT electric OEMs Lastly high-speed new X

in project delivered and value and in market. chain East a and X. Next gas with a strength short-cycle XX% the XX% geographic revenue Middle up aftermarket petrochem in The revenue increase activity. growth oil a in increase Asia. across is and delivered activity America, combined X% XX% industrial grew or on and short-cycle in perspective, IP of in oil on driven projects, From more gas Slide chemical by project increase The XX% income and was organic adjusted process growth revenue was X% parts. North the

projects related pumps was weakness. declined project in primarily decrease XX% and X% organic valves screening decline on IP year increased our XX% decrease Baseline a upstream activity. that cycle to orders due project decreased The and general in short in to reflected valve. in a a industrial prior projects X% large selectiveness and

addition, was by mining. general project offset In in order growth industry of XX% chemical

IP's segment the and to the exchange XX.X%. increased IP's million to backlog $X acquisition. operating foreign to excluding was from RPG XXX income XX% improved prior and margins flat including million year $XX basis second quarter points

of impact. RPG impact IP straight actually acquisition, XXX basis the the offset tariff that points for [indiscernible] price quarter. second the Excluding grew margins and

strength and and maintenance IP improved due investments strategic collectivity biopharm streamlined requirements and through delivery the the and prior pump and and In specialty inorganic pump valves RPG. year to project installation in in technology The advancing QX, [indiscernible] investments quarter solutions highlights multiphase organic execution. included our valve and advanced through the customer

results adjusted revenue and CCT Slide income are X. on detailed Solid

in grew From increase and X% markets connectors end balanced by QX declined connectors. XX% difficult X% growth component an and organic OEM in despite growth and XX% compares connectors in aerospace component. strength offset CCT and more the gas America. Defense perspective, in a Europe grew market organic defense component demand Industrial partially by aerospace North that program year Asia was orders offset declined that modest commercial delivered intensity. and in in in X% CCT's growth and more connector an to weakness and prior and offset X% industrial. and revenue oil of than X% than of in aftermarket X%

The benefits investment. supply bill CCT year-to-date a flat offset X% including excluding was and The segment to and backlog increased book exchange million exchange. growth increase and volume XX foreign X.XX productivity on in partially delivered driving foreign from to in cost, income quarter team and a mix it's basis, operating XX% by the chain, material

basis margins basis connectors we execution XX process continuing our connectors points continued activity. best XXX record we are operating facilities to points in-store lines and in margins Segment to execution expanded as and in XX.X%. a our momentum move the product invest expanded trading to as The

Now mind, Slide this at our XXXX on XX. let's a take guidance look in adjusted

$X.XX. raising guidance We are our And we to the increasing $X.XX our EPS was our $X.XX to which guidance previous of midpoint. mid-point by low end are

now to X% cost grow at at our guidance revenue performance and EPS X% As QX remain the midpoint midpoint. The by XX% second X%. organic increase productivity a result, actions. and strong we unchanged and in plus XXXX expect total half powered incremental was A plus

perspective. half, in single-digit we total like to Next, mid-single-digit we growth with And from In growth. are second I'd an provide contributing. segments projecting some revenue half revenue the second organic perspective, low are all expecting

CCT during America. IP, from at rail, MT is strong benefit backlog half. in ramp it's Our Europe, Friction and Platform expecting up also to second and North China the and MT And

be half, seasonality to In impact we dilutive typical operating the the reflecting half Matrix slightly second first RPG acquisition. lower of margins expect the and and the than segment

slightly and be due QX Margins And to at impacts expected due than be lower EPS higher MT, QX third than to lower a at the expected in growth the in deliveries timing of rate slightly project for lower IP. Lastly, of tax IP quarter, we and due is revenue to unfavorable to are organic effective anticipate at CCT. the mix acquisitions the aftermarket corporate. to QX

that, let final it turn now for to With me back some Luca comments.

Luca Savi

Thanks, Tom.

And around reflect to set the conclusion, indeed all proud second has business I self-help that in globe. work quarter execute of will QX. of on results, they the ITT we in am of new drive opportunities. our as the continue check records So ITT's We

are I of want continue know end in is there are in our we it that to we capital. acquisitions return that accelerate let with the on just challenging as are the and market to Q&A, cognizant the before thinking on we are great. confident facilitate our Vadodara, of our They severe to that they them team we dealing will we there. outperform go India our impact some make And the it will that weather people but While environment, make shape

India we're thinking So you. ITT of

Laurie Now start Q&A. the let's

Operator

from of Baird. Our Mike first of comes line question Instructions] the Halloran [Operator

Mike Halloran

Good morning, everyone.

Luca Savi

Good morning, Mike.

Mike Halloran

could the do the we you a end the market. just mentioned expecting back outperformance to that the work in And project could bit noise excluding maybe you impressive excuse are growing markets little of a very on a out you outperformance few markets. or there, boarding seeing regions friction to basis? right Maybe start unless on as me, but now in a going go-forward the regional on half a few side think some outperformance the versus in the at the end those boarding, you know outperformance dynamics what talk So basis. on market a I what platform drive And at levels you're underlying is about is you're there's lot also on to talk about through the regions

Luca Savi

that I say our than view it would [indiscernible]. you worse was market, today hear Overall is can Operator, us?

Operator

delay. My technical the apologies for

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

Luca Savi

second a confirm you I on if please that you answer. Laurie. just Could heard the guys please? wonder Hold

Operator

end, hear we lost on not did I my audio. it

Luca Savi

Okay.

So and apologize for let the inconvenience. the readdress me first I question technical

at a probably We negative full market, China. when our market, today is the for see market still quarter the reason This China will to be negative the people And customers data, main therefore So market, is will in looking for we than talking the look had China. And worse mid-single-digit. to looking ago. be that our post and double-digit our at year at the on probably global that our the view we raw. XXXX is one

outperformance across the quarter you quarters, likely at will high-end that thought our China. range If the our America discrepancy the North at deteriorated, outperformance this improved board. XX,XXX is has we in of when and is of In view the with the This Europe, posted the why see compared is the where market it's we outperformance This we view you. that shared is an has look main and we basis previously what ago. and to point in of one actually next

market. this So on thank our view And patience. you the for in your

Operator

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

Matt Summerville

want you verify just can me. to that I hear Hi. guys

Tom Scalera

Matt. you, hear can We

Luca Savi

you, Matt. We hear can

thank you. Okay,

So China it's sort in predominantly driven. of the of launches, a you How European are platform seeing will [indiscernible] follow-up. much impact

Tom Scalera

If little broke right China up over think give end with bit So what's question around in I question into a driving in were Matt, our up insight we're seeing you a here, now. the dynamics China. follow the where the on what headed but us, was little a not we'll but market

number there the the particularly around certainly, to So has the to China. which from the the been a China X inside X, a drivers in other of in addition marketplace are been uncertainty bit dynamics in play about now that right standard global market, emission talked China quite change at has and

That have dropping or production causing and out. at levels the are to they rates obviously sites not recoveries, at keep is staying anticipated which played the the that

we've dates pushing that end is of So for they of end XXXX. at said the few us, there pushed of have the moved production for some started tail and those sort is that of performance gone but that to we've still now the forward, QX about new some China right, part has won, have of into a platforms production up

China. have to our is and been gain other What conquer some been looking at in wins performance that's we've part there. what China been opportunities of call go we doing after, There share opportunities to some some in

expecting clearance executing year. this any and performing we're We're difficult. really a market more in not So that's

America right, now, Some of time significantly Europe and outperformance driving for XXXX likely is those to ready when the are be startups and production going into really North deliver to we'll for is the but us. those push

year-to-date time we is last a be say XXXX. good is what would is would posted What then in in I everywhere. definitely been Better And that that Tom North China week, can year-over-year is, the growth I July a has outperformance share in first you we Matt, said and can I and this Europe with America, if say China. good closed July,

Matt Summerville

And then just as a follow-up.

piece the there seeing mentioned about just was there. you're doing sounds losses to of what union sort down the state of that for Thank of share have some You the business may response Can like been in It Wolverine you. talk the and additional XX%. you're challenges you there?

Tom Scalera

Sure.

XX% low million sales QX So you out, whether single-digit generated year-to-date. Matt, as a down pointed ROI cash were with and $XX in

about that cannot we the and happy there these related are other that tariffs elements outperformances to things and the there us. We not control, and are like are are market

will changed. XXXX full So the to are of the contracts market year. in back have these some lost these start And in we losses the we environment share related are -- there that and production losses we XXXX but impact then conquered reasons feeling again for are we because so we the and that December

lost the big with of China business impact will in So together because North therefore, the business we that the customer and them. supply the ours lost of aftermarket America in has tariff

tariff there doing we and impacted the quota situation the long-term obviously the by they're tariffs that of Now, general. we front, improve inventory advantage to Wolverine have to actions are quarterly have results, action as of And are then What in the footprint we Europe. our on strategy we reassessment in are are, Wolverine. in we mitigating and Wolverine -- take system building in such

On a competitive advantage fit think the we we have contract a have opportunities where after concrete side, going that different where or are some opportunity. we sales we in shaking

Matt Summerville

Thank you, guys.

Operator

the question from comes of of KeyBanc. Hammond next line Your Jeff

Jeff Hammond

morning good Hi, guys.

Luca Savi

Hi, Jeff.

Jeff Hammond

want to just Twitter. I following let look, you you on know First, I'm

are morning. up Your this going rapidly follows

Luca Savi

thanks Great, for that.

Tom Scalera

Good, thank you. you, Thank Jeff.

Jeff Hammond

tough these activity you're project we see we what from sort through the comp maybe in big some some a talk to order the IP. confidence I and project cycle about of tough start pipeline. to just short last So and of visibility you as to that had drop Can slowing about start a comps, replenishing kind think you know talked move your of and I the seeing just seems you quarter of? on be

Luca Savi

cycle. in orders let about the talk pumps So ways. short me and About two the the project

the because And So is of XXXX. now. the right this the is order the in look QX really are project, when posted roughly million of that delivering And Aliba we at is story that which process in orders. $XX the actually we it we of QX project,

like-for-like, Now, when Aliba the we you a a actually on the are flat look at on year-to-date the basis. project without

you the at little the by for this right. a things shift future for And project, our visibility GDPWW, in the is networks. bit we distribution also look If the see into confirmed

Year-to-date as little -- meeting I is they it a for our for Seneca in had meeting week our same actually for shifting up We on July, we a pumps that being short week projects our but team in cycle in and closed it at see we the flat the prudent and distributors for you look X% investment be for cycle we the practically so quarter. good. had a for leadership for plus it will and and were We told in had improved this with was Seneca to the also was the are more to cycle for the experiencing and not in end QX. this pumps, When are right. MT, cycle again pumps thing. in customer the pumps short And July. last We May, good, IP -- June April, improved flat short

level same of June. The

our on for XXXX. If short And the a for very backlog XXXX. with a of full can good that terms you on this us also we the the can orders visibility visibility year-over-year I I and and the cycle and solid project medium-term have short-term good So the we've loop for in the the backlog close for tell project good visibility is gives for got for flat the XXXX. visibility XXXX,

Jeff Hammond

comment do look can XXXX And certain just environment the you as this expansion? a war Okay, to and of what you great. just about in terms movers XXXX opportunities. environment of into then less are I margins into up chest you what guess about we're you in big margin that maybe into a needle to -- Can this maybe some Thanks. on more flex you think entering talk continue the of talked and uncertain

Luca Savi

Sure. Okay.

you a negative I the now usually all at different -- look four the at have the quarters. Because little mean, Technologies we scenarios bit different in the and value at Motion you it's last in So look at of Automotive, you when when different terms -- centers. the for been our look

So accretive market is improvement, the points is in and already half. supply And the see factory now And when the of XX at the also because [indiscernible] terms gains, at chain, terms in in an efficiency of second margins. continue but of when and share in basis much story profitability will Technology on look is has Mexico Motion are to really shop restrain these driving MT floor, in the we by then improvements you we look is the the you terms Technologies. Friction, and outperformance very improvement of MT improved this of Motion

and my we Now, CCT, the when shared on. you look will as following you're Twitter, that activities picture the the at you later that in with I terms since of have done, insourcing of see some you of

the the see savings start at plating outside. will in do that line Nogales, the facility we think of -- the Mexico. I You state-of-the-art start activity will of and actually because in QX, in QX That this insourcing generating in will our end

would project mention On lean continuously to we our what IP to work I margin the but like front, IP. why also factory is improvements the in

we If and on was but cycle, the lot was XX% A the XXX grew you projects on basis the expansion the think this in points. short some about of of it, this grew QX, despite IP growth, substantially. margin growth -- XX%,

more project the profitable, it that the are not is is backlog important. you also is when when shows backlog this of So we executing but is only it, this and

Jeff Hammond

lot. a thanks Okay,

Luca Savi

Thanks, Jeff.

Operator

Bryan line from of Blair Oppenheimer. comes the Your next of question

Bryan Blair

morning, everyone. Good

Solid quarter.

Luca Savi

Good Bryan. morning,

Bryan Blair

profitability Mexico a of more expectations high on color internal I was average and at Operating segment little ahead in second you the could hoping if far how point. you specifically, offer this to accretive are the teens margins.

that was that teens even high obviously XXXX, would profitability of run time. rate be of year the fourth there into break well coming view Our XXXX, solid a gotten quarter ahead for you've

Luca Savi

Sure.

true, Mexico on stories is So -- profitability. there are there two the obviously that's

launched able Mexico we get these faster, is because we this course, out to expected. as that platform team of good But and of to we also what goes volume volume that want our and I are in launching some than are the benefits One higher related to the probably we commend is because platforms are of volumes. growth

executing plant flawlessly year that's look smooth was when XX% prices very for higher it's able Mexico, at is execution; so equipment that of And execute And first the than instance for has been deficiency which we're the and I very the and the a good. pretty in of to good.

in what but is it's say. expecting So and we that would almost than I would what say is flawless execution, were faster I

Bryan Blair

Got color. circling to it. expected from appreciate And of then market I back level outperformance Friction. the the

You range of expected you there? there factors prior and timing or in XQ said the dynamics XQ any platform out. Are other any given put that high-end differences

Luca Savi

say would the that that worst there in things happening little bit are in things are market make XXXX, I a and the there -- that, happened more volatile. XXXX

had that when July the the if you and So and QX China moving in look And XXXX year. it, at of think at you generated impacted And XXXX. had that some you out QX started XXXX, in were you that first, the this about in quarters the that beginning X WLTP Europe by two now, disturbance.

China. next QX problem keep dragging on the something the really of XXXX facing market will when in of And That's terms in or started so. the in impact the also that probably quarter is

China impact but will X some has of WLTP the So anymore the still say I -- have. these would no

order So been volatility some I volatility would in the there market, but have to I stability China, have in seen say say the probably in less our more it's and if particularly book. July, month we where is still

basis. said a are monitoring our that Having also book on I daily add order that, would we

So of ensuring forward, weeks that matching supply. for game, weeks, the next we stay for we that eight we and are eight the are we demand ahead the

Tom Scalera

if Brian, of elevated at And level outperformance going at stay look is these levels. kind to you the of it,

against momentum level improving, are year say year think going And half some building may the something China compare still very exceptional moderate very, the it Europe. probably it's activity very prior production, I North we in we you to very, to from to down in would it's in strong Europe, outperformance that very, in some accelerate is outperformance going North first ramps Europe but when not America and because in in regionally, maintain we're that and an North America America of is -- strong. look on starting to out improving. of based that have likely came I

Bryan Blair

Makes it. Got have. obviously, strongly from of sense. on CCT you the guys opportunities sales And that then benefiting warchest

You with are now. in right high the margins teens

forward plus say So entitlement the is is the to looking previously it your plus high margin stated teens that of range? fair in

Tom Scalera

great It's a great, great, observation Bryan.

line CCT of inside locations moves have activity our getting connectors business to CCT of been footprint. very quarter but at strong which best our for were successful FX Greater component only increasing we in very connector had sure, was Obviously the investments, Funded a our lot is operationally CCT. from there well. as is well good facilities. a coming some leverage very, For The there Product of for it as production we're pressures Nogales, XX-XX, not good. moving the very momentum strong.

this where insourcing. moves think also So in we're is that the a quarter product can and these CCT line the on still phase transition but go, demonstrates I

CCT the to continue I'm all highest margin to momentum that the the put doing the for this plus defining the likely up of year going sooner challenge of on stress think on is underlying we'll year-over-year margin in I sure some CCT, team make is This what rather strength later. entitlement So but to we're basis. at is than and we posted continue the

Luca Savi

one. on be this I can And if

That that acquisition, is that with be another when we that through dilutive usually shared will R&D Aerospace different take debt. might the strategic are We ended to manufacturing. work Valencia, deliver in in And we you Center you play. California represent look Some usually acquisitions, our opportunity Park This of to operational, also chart. our the [indiscernible] at the potential. improvement in Defense but of flow. transforming our have Brian, And Excellence the of tend and improvement strong then and on and it's acquisition facility the usually layout of things to margin our long-term for they for fit CCT material front Orchard we we the they because our terms also

Bryan Blair

Thanks again, guys. right. All

Operator

of Jones from question the next Stifel. line Nathan of Your comes

Nathan Jones

don't input did be as quarters. a costs you've few -- higher the to that margins. with to allow be the MT been you over down it Certainly have start inflation and customer and lower on out that like the call dealing on passed this quarter. significant costs pretty cost side with a understand costs contracts you headwind seems last steel come passed I'd I guys through the question all to customer the to through

what P&L? you're seeing into some guys to for prices raw of think a into you the take currently? Can inventory that's about the flow would I than likely the terms tailwind you that that should So point long here turn that you're through How a in headwind. material in talk rather purchasing at

Tom Scalera

Nathan. Yes,

I what one. at first the that at to some second and would in point's of contracts we buying because forward. expect We we're our a thought compared we or of entering the that half Motion compared year spot new input think to locked favorability the in the half costs the price the good way now rates Technologies and

-- get should we would of had saw lift in we I data an of that brewing our because drilling -- kind that point anticipated guide we new wouldn't say incremental I so So it's some QX. there, some say to list

gone about the continuing year Wolverine. is Part the well offset in that face of is the talked we that out, play tariffs we that to has at primarily as as QX incremental

inventory dynamics fast given pretty will, our results from quickly with front that from plays the raw environment you how the certainly the MT business. couple we input a generally dealing of are into So through on material and but perspective better in turn those the if inventory -- a we're

Nathan Jones

second be headwind to tailwind cost a price expect for or you half in a Would MT? the

Tom Scalera

some rail I side did success the say good We on would Nathan, price muted. have perspective. a from

I environment. flattish Motion we're in think is seeing what Technologies pretty

in we of half think good year. a did the the first job I

anywhere when, continue of a to but we've points look it don't historically, point what are from points. we than we think XX but the better basis in compared major second minimum which of is some XX to much The average basis what I at that think depending basis on shift XXX we that's half we're to getting. to momentum I be maintain there obviously going MT price where seen hit and to impacts

are having actions rail. particularly impact, the an in So

Nathan Jones

is That helpful. Okay.

Luca Savi

the in about margins thing MT. one And

and aftermarket, is compared growing in You in see to when also bit think will little is this aftermarket the aftermarket, the phasing Nathan. so and a you has Because of QX. QX been less mainly last year-to-date. about have QX we we of a timing, question substantially look in of reverse independent at what QX it this year our But seen a

Nathan Jones

generated of couple margins years. Do you gaining next Maybe improvements years. have over Certainly you the double-digit, couple are Okay, maybe margin,. rail. what's the you on that Axtone go has last see KONI's of said improvement those think significant bit significant seen two at KONI about that's helpful. been of could you've think could where a double-digits. little Maybe businesses? single-digits. in they share, I the the both Axtone describe a KONI question in now And going lot in high over then high a you on pretty

Luca Savi

I that what absolutely did and And because the and Nathan KONI that the Sure. you've David you couple in good years team the think it this job does you're last right, in the that And around turn done say, of in quarter. when is outdoors. Axtone

in in at Czech around the Republic, -- the efficiencies labor all well terms and also terms lean, performing in very in productivity. they China, look plans you Wayland, when of the Wuxi; Port and The world Netherlands, is are in KONI, of So in

been terms Our in outstanding. of quality has performance

than We years have last of and OTD the reduced XX% our PPM is in more good. our by couple very

they by entrepreneur performing tend be chain OTD perspective, professional a company world. coach very appreciate our therefore, like when the across the gets Europe, from this more our made industry, train. supply Now, you we is companies, by for up rewarded rail revenue why across a all really high-speed the performance. of And locomotive and and rail went North different and this tremendously winning they quality to type companies at the KONI and keep well America is trains, on look the made costs, of China, this metro, why and In --

Nathan Jones

Okay, just the one more corporate on expense.

a maintain this come made You of how money, talked the up for Jessica I lot quarter. go kind in us that Can it about some much quarter. will in called forward? level that guidance should you but give being year the being then third maybe maybe out on know where down you as quite didn't approach, and that corporate we

Tom Scalera

have strong We as result pretty corporate pretty had sustainable. improvements Yes, QX a well, the Nathan. year-to-date so in in been

repeat incremental prior we're inefficiency ways we're this and some with didn't some that driving actions at eliminating functional the in are that but underlying on Some items our driving corporate, it transition year cost really efficiency. businesses, driving focusing

uncertainty has that happened structural on are there good the unpredictable. have in there's a So been some that a some improvement, little always bit things of corporate

balance think, our plus interest into but of as guide beyond QX, or kind good the investment because we other but we're a interest say legal would control that returns same going at I that million that quarter well, to and did but and year, $X ballpark we're on thinking based the we're of environmental, Obviously, $X in there taxes the be starting I and here for in have variables $X for are our QX minus forward or forecast. QX million always or minus So point. a are of hard the and plus outcome other as as million we're about level good to the generally or dynamics factoring is

Nathan Jones

Fair enough.

Okay, thanks for help. the

Operator

the Giordano comes question next of Cowen. from of Joe line Your

Joe Giordano

on other of -- we industrial industrial players CCT. the we connector when weaker. calls was So commentary on from listen piece much to If the

guys you transportation have there, CCT. you industrial you may on number bit, have you some have a put small in be for a So medical. positive less up Can know some I little

the what talk and of kind incrementally? can are you about you submarket there kind seeing So of

Tom Scalera

industrial out industrial our revenue if and that So Europe. connectors, connectors Asia take just And a straight single-digits electric and of vehicle, perspective, specialty from connectors medical in the excluding you our with the low industrial were quarter. up primarily Joe, came

of some seeing perspective channel. from that as and front the that on order the perspective orders revenue certainly an industrial we But destocking North slightly a distribution in So positive we globally, America, were well. were the need

Again, driven Asia. Europe and by

dynamics the are those play. at So

the at continued to a some the markets. think an is compete watching, destocking in ended on area -- execute distribution likely There of the dynamics performing been need I so has But where that up to level we're quarter. broader cycle but how connectors. and we helped the that's for continue outperform us we the our and team high execution clearly, has that particularly

Joe Giordano

are dependent current you given the guys XXXX year internally switch to to just to if start revenue looking that should conceptualize delivery about, XXXX. then about how we not to starting thinking first rates the of Like half how a here if IP thinking you're I think the start is of the give strong and how grow, that to we're about tail-off seeing XXXX for that on little order we're here, light, guidance we over And I Okay. But in continue and kind early outlook? we to ability know that?

Tom Scalera

daily control business for Well, So up the nearly are conditions markets XXXX? the us probably volatile. Joe, in set at what Right. I only put can other across this thinking macro getting they're that think are events. are we're drive to the way economies continuing point, in not There uncertainty we is IP about and that it the

it's So war opportunities. this us, about of chest for

it lot the a more, you'll about hear goes on. us So year as talk particularly

the looking momentum overhead I the for do and that we but prepared and structures to board. at at that footprint, at IP, cost have eliminate think solid The environment our at is be operate looking very across Looking tough -- way need we we waste.

opportunities environment in about us how already would say what's identified. pretty we but I in the operating many unique today, that's is all consistent think have we're I that

or start Luca to as extrapolate XXXX the continue and we're too that we time to to New as There's project business year but backlog of goes the the relatively go plenty replenish there into early on. adding stable. indicated short-cycle ones revenues much our to orders, as

as Falls We I us implement a of that the way our all go particularly team and direction forward. a with our kind this the year leadership want we've chest and what modeling done. can lot for them up war to analysis build on accelerate continuing across with through know execute, teams, and get were the this had gone of with scenario and we and to we organization. needs we Seneca did recession think detailed in and we We a what ones opportunities, us So that's last of considerations leaders to

Joe Giordano

where talking production there's to the were guys very a from -- like I people just a hearing visibility ramp. numbers how are variance you people. are Luca, lot area internally production? when like -- some near feel have using I of ramp-up something for still projection I there XXXX. where feel about to European much more you you like Europe for and deliveries I'm of MT. But some term bearish in of for the on are that's is platform an that's platforms going lot different out among forward debate know given that's specific like guys modeling the

Luca Savi

Sure.

was therefore for we in a quarters. so Europe shared quarter versus American North at outperformance market Having outperformance, so to platforms the in we all, we the That more there's that, it expecting true look of the first probably view our I this European are as market next a up today, are looking said or is when keep the question what few want and on Now work market. that always ramping Joe, to want and we share, when -- and probably are ago. we before, more at substantial China

awards that more awards but But the bear growth year that are will which that for are also now now our we that that, say last winning probably before mind award in we means feed top will feed these won On feed I we than XXXX. XXXX that would the that winning are future. the of we

continue couple to not expect the is of I story, just outperformance for the quarters. and next So

Joe Giordano

Thanks, guys.

Operator

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

Brett Linzey

come to want I all. friction. morning good back to China Hey,

accelerate for tension? potentially and stance suppliers actual Chinese the some China a an growing behavior? with of QX making there Any you're developing dynamic you preference seen inroads OEs. those here? given the the signs some have I mentioned that in and understand China change call trade is local You on But lot What of of

Luca Savi

Yes. major OEM an changes I that production, the wouldn't from at I few say brand exceptions. to both the foreign we much if down year-to-date I from we with would pretty say XX China, -- all on they be have at When a there, top Brett. perspective, look look tend

growing Japanese Daimler, Everybody else production in one are Honda. as that the big of BMW a You're talking couple well year-to-date, is about as and decline. the Toyota and

between Great declining Chinese Cherry the the declines the in would and across No Chinese. of production have at with look foreign the year-to-date but shift major the -- you are all which say exception board. I increasing, others the when Now Wall the got a and are

-- point I On that what really our you winning the we of can market vehicle electric do probably is worldwide. because on electric we are view platforms China from side, you to ensure tell is the biggest that know in China an vehicle

the the and So platform during the but you European actually shared Chinese that with OEM. of the as important to -- wins -- Chinese that American was the win with North it we some the with the remarks OEM well are as wins prepared

Brett Linzey

up follow would my be guess I specific EV. great. to Okay,

some are just noted award dollar perspective, isolate You the of revenue remarks that you there some you maybe get opportunities funnel can from you and today, mass how starting is if the guess a large in size prepared EV I critical it? and to wins and

Tom Scalera

say, right now certainly of I size And in award had this a other making easy, in and that it's rate have would an do quarter capabilities. its a and high lot China we say win progress is but and accelerating win rate our we're rate I have of don't of we in Center categories. the ahead very very, win would core a building We our Innovation

other we higher at than typically So is a of thus see in in major rate so we But year-to-date a things want going don't good wins far we are that much EV and us. a X a to for other to far so direction lot competition. -- unfortunately, be yet numbers in continue the than sign have right

Brett Linzey

leave there. I Thanks, Okay, it. it appreciate great. I'll

Tom Scalera

Brett. Thanks, Sure.

Operator

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

Unidentified Conference Call Participants

is This [ph] Giovanna for John.

when potentially IP to wanted we year project how at on the about Just effects the rest and ask margins should think IP about reverses? mix this for of margins side how

Tom Scalera

certainly an compared so has to has impact the Giovanna, to the in discussed past. the mix we've those seen profile XXX projects XXX, we margin but project points what basis of as improved

anywhere that in while and the it has it's it basis algebra the when XX% be quarter, So see been a still why projects of that's dilutive dilutive, I to mix do seeing as points say there a it's could up different but in as past quarter quite it our around big business would as continued typically In pressure you the margins. not IP as you're in of the being has XXX from mix. XX% could much within project

the a that's digits we're of as put XX% are could and product good starting be margins high-single reflection management It that that see into as low getting execution. to but project in the we've

So how we pretty MT the for at driven those me, are the IP, that indicators -- of levels largely for of the but are we're the -- excuse balance profile mix good and now balance some The going. dynamics. the be of will see year by margin

Unidentified Conference Call Participants

Thank you.

Tom Scalera

impacted And by quarter perspective. per range points then and to that what dilution, from this we the impact, -- the an is acquisition points based also XX CCT. have second on XX, would will say, last there applies XX half would CCT margins be organic basis IP in I basis point, done

in So acquisition margins. I and the half of impact just CCT want to remind for back year everyone to the IP factor the in the

Unidentified Conference Call Participants

Very helpful, thanks.

Operator

Merrill Andrew question America comes the Obin of Bank next Your of from line of Lynch.

David Ridley Lane

drove is talk second saw incremental the about productivity your on $X.XX Could gains guidance? which half this Andrew. segments And for that you that you Ridley-Lane in the David increase

Tom Scalera

across board. that ones we're places. in gaining what's the going I at not the It are the moves the CCT. about war say that's things a is of I this few that are line actions David, I pretty to product think productivity would few unique major lot There actions -- are across chest. momentum gain on mean working a And ITT. a concentrated

expansion. to are I at IP KONI Those opportunities execution rail continuing and continuing MT, the to momentum project and margin gain think is drive at Mexico MT.

momentum but actions and the I the minute some at benefit. from and you'll I say IP started, And think mentioned accelerating I those dilution already see productivity, But think would a that incremental underlying as additional just the CCT effectively some the have is we additional get some ago, we've acquisitions. some will, driving if bringing to are XXXX we up the a we the bringing half from then give plan, productivity for been us XXXX. to in year set ideas XXXX really actions end you second

David Ridley Lane

Understood. And quick just then follow-up. a

cycle July I short comprehensively you. wide So short-cycle of your Thank products trend your the growth ITT on just some but turned up heard how more second quarter into July, in basis? did

Tom Scalera

expect broader North that much American would been into and on larger the and plays and side Sure, has -- different connectors connector which would this that's component the slightly so in quarter think of we There pretty played the we there say David, is would Different been space. reflected destocking industrial the that said different. out that dynamic a distribution the yes, the through. of the We've is drivers, we expect side, one between played We valves business parts has serve. I I that July, weakness. the it's and markets think pumps has in which throughout

Luca on. went short bit the better far. been mentioned and have so the July pumps a in side solid and perspective the as And been has parts the little I quarter think progressively from on the pumps stable more cycle pumps indicators getting

different Automotive China, year-over-year the So where a Luca typically in have basis. as on on particularly in see. those that we the solid indicators mentioned the of due dynamics for our relative been July first we're are expectations, side some the time being up to shorter July category but cycle automotive

the of dynamics in the some are seeing we're those short-cycle. So

David Ridley Lane

Thank the Appreciate color. you.

Tom Scalera

Thanks, David.

Operator

turn will I for closing now remarks. any to or the management Thank call additional you.

Emmanuel Caprais

we you, thank Laurie. No, --

additional Have have a everybody remarks. good no day. for We connecting. And thanks

Operator

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

ITT (ITT) 2 Aug 192019 Q2 Earnings call transcript