ITT - Earnings call transcript Q3 2021

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Operator

Welcome to ITT's 2021 Third Quarter Conference Call. Today is Thursday, November 4, 2021. Today's call is being recorded and will be available for replay beginning at 12 p.m. Eastern time. At this time, all participants have been placed in a listen-only mode. be your will presentation. following floor the open questions for the And Instructions] pleasure Macaluso, to Relations. my is Vice turn Investor [Operator now over to It the floor President, Mark

begin. may You

Mark Macaluso

to good It's Quarter and Earnings Call. Conference to Catherine, Thanks, XXXX my pleasure ITT's welcome morning. Third you

annual third may and are or Today's expectations. the here to, are future call ITT's were not a contain recent uncertainties, under Form results expressly of market for forward-looking statements comments strategic XXXX items. items, effects our materially items These on to may asbestos-related tax announced results Officer a on All the which the result update will subject yesterday XX-K GAAP the guarantee restructuring, the in the our statements, of and release events quarter morning the items, period but not full to, including, me along Emmanuel certain comparable measures on certain ending management's will of to otherwise current our is which present report ITT adjusted Caprais, such we these are charges, in exclude it whether ITT's turn Chief other statements XXXX on relating performance, nonrecurring of Luca Slide cover are and is Joining website. remarks to acquisition-related impairment, press and are any and not over with performance and based who non-GAAP pleasure to Actual call quarter my quarter results third Today's presentation, on new and figures any Savi, adjustments results based financial X, are available Luca, number to the forward-looking other most due information, certain filings. vary measures. Chief the the begin evening. company three-month nonoperating for asset to detailed conditions limited obligation and COVID-XX and that, mix, on expected this X. October of this in described the that Executive future be among morning events both President; With where These disclaims and risks or Financial reconciliation factors including now otherwise. Officer. prior priorities, of and financial noted, ITT. Except and business will to SEC year compared year

Luca Savi

the in a am partner quarter. again, and continued part you, who for trusted of communities tough very in we also XX,XXX and core thank delivered I allowed our the our to for stakeholders, I good with reliable customers your our operate. and make our of for the and daily a you, to execute has environment. pleased ITT demonstrate the our the our again ITT basis Thank and morning. support ITT. want investment who at ITT, thanking most the Mark, by on results I employees nearly Once businesses resilience teams start once third values ITT to want customers macroeconomic the in which in

$X.XX, a sheet, prior As balance earnings ITT the delivered continued revenue deployment effective the margin share of per of expansion year. and result the the of adjusted XX% growth, growing over

Barge, our excited automation KONI the Oud-Beijerland, Tizayuca, Dammam, low-cost growth. productivity world operational visit plant around and third being poised process ensure the that was not I add also industrial and engineering opportunities our prowess Netherlands and where vehicle at the Saudi display The in share In paramount the improving what we taking Friction and this platforms. to team ITT. During future good conventional significant as Mexico, shop is center on saw production on for us, gains expertise about lines of exactly The our Silao, opportunities done stay I was continued with new even in continuing is There plant close Arabia. we Italy. cultivating I Friction full fortunate it a have opportunities. high-performing our and in to are And I reconnected quarter, encouraged to excellence. is of the and in firsthand advantage manufacturing to EVs in Mexico setup I at focused lot lastly, a we our floors support goods the team ahead what plant our to business to growth execution I'm the the on be quarter, pumps in are at saw while we to by work energized wins and we innovation did.

rising the Let's in We three the the all and across inflation. incremental costs broad-based year-over-year combination drove talk about points highlights of basis a basis key some segments raw material ITT's strategic point over third from we quarter, of growth resumes. actions, sales quarter. commercial XXX strict productivity actions We minimize drove $X.XX XXX continue of or our floor to roughly impact and growth controls We shop as fixed apply to thought sourcing to and through headwind. overcome a implemented

strong organic XX exceptional operating XX% chain orders delivered points considering generated an segment controls. of in margin and aftermarket, we supply expansion, see. dynamics We result, ITTers basis rail, industrial demand connectors with growth Friction Our the adjusted of

grow nicely continued and short-cycle IP to projects. in also We

year. for our work, of our capital year-to-date and X% of exceeding the above share per compared prior to drove accomplishments adjusted million ITTers levels. additional bring to to an Finally, our repurchases we earnings put full dedication repurchase growth million, XXXX $XX XX% and shares year above of $XXX These ITT repurchasing over pre-pandemic the our commitment

Friction growth. also chain businesses. the aftermarket outperform, OE at strong disruption, auto volumes, the continued Looking Despite to production while the driving supply restricted

transition both vehicle ultimately to We they electric power continue and as to on will and electric OE hybrid outperformance conventional to win full which new vehicles on accelerate. platforms, future

new the growth rate is Technologies, content drove strategic This significantly electric This platforms. pre-pandemic of on focus Control market. generated on the adjusted platforms world's content be quarter, demand current XX%. we XX% in win closer our on sales China, EV given automotive America our levels. we in share largest with springboard industrial new segment putting market. organic for coupled strong growth we Electrification progress platforms above & with XX% six the the especially vehicle over margin to Connect our XX and global long-term next EV year, OE MT's will quarter, In CCT's operations, North distribution, awarded been have won business in for This, on

driven signs parts, valves organic X% demand growth is supply across service. remarkable, experiencing. This we industrial the process, by generated order difficulties short-cycle We encouraging and which in revenue And positive chain we project see are continue sign and hear Lastly, in improvement XXXX is rate. shortly, our gains see as will for sequential business, to and an market you beyond. weekly the long-cycle in share given

XX% growth. One of the most telling was metrics organic for quarter orders ITT the this

projects Our quarter XXXX QX pumps, organic with order order like early was XX% commercial many our markets third also surpassed versus again consecutive of we across of part Industrial double-digit short-cycle still end key in growth aerospace. in and with baseline Process, growth. generated in even service. orders XXXX, levels growth In sequential the their recovery,

aerospace strong an Connect As Control, & in quarter. the encouraging XX% a up $XX growth distribution. including North in orders was orders result, million organically, grew XX% and America IP's backlog in In performance over the

shortage in Motion on XXXX. customers. to friction in in for Even comfortably XX% our due generated now And these above Finally, organically expect demand the than over and X% billion year, we OE with MT in deliver MT $X.X we to in impact Friction XXXX the revenue, challenges, Technologies, and a over chip the more strong offset XXXX. grew aftermarket above versus which KONI/Axtone, OEM slight decline

share execute. head chain midpoint and pricing. improvement the ability we not at fourth against adjusted to performance we for quarter, With our As reflect date the at raising narrowing after year. XX% our EPS the relentlessly increase half adjusted first full ITT are executing This versus to of $X.XX material the EPS. expect range year. XXXX anticipating $X.XX end, the these earnings the to the and surpass or challenges, teams at XX% midpoint XXXX is are now per growth supply a a the improvement $X.XX puts adjusted We with into to of outlook year through global comfortably high we This in which in to our the strong equates on $X.XX to any to raw prior pace

key report, demonstrating ITT for priority the talk XXXX our Let's September, on second released supplement and sustainability governance In Slide ITT. practices. X to social our environmental, sustainability, Company's about turn to progress another to the

of operations business We and ITTers. are integrate in day-to-day continuing our strategy to over XX,XXX ESG the

XX% in emissions, reduction from drove sand the to fewer a incidents. waste greenhouse we landfills, to report XX% in XX% workplace highlights a note: with safety and Some reduction gas

European ITT's throughout expanding We investments are our from electricity locations certificates in to of guarantee share increase sources. renewable of origin

We pads. on are in in more have copper-free brake business, success product investing building especially the our pump in technologies, achieved sustainable MT's we

operating and key team's more XXXX, for do. mandate the to plan our for conduct element we to of reviews continues As a ESG us be there leadership much is

XXXX. highlight our Thus to year-to-date capital free progress Xx capital in have nearly flow priorities. across deployment in capital an X deployment amount Slide all our far, to turn cash we now Let's our deployed

the revenue capacity We've through in Friction the existing for quarter. X% to vehicles. CapEx support accelerated electric with as to Our our in the share gains relates transition to achieved approximately of it plant year and new customers is the invested third

and initiative analysis, have of in models, our We also than in XXX continue XX% pump Industrial different Process more of representing Control. & total XXXX, to inception portfolio. execute engineering product our reinvigorate the product From to we this value commercialized value offerings Connect

ahead release. more than commercial of additional completed redesign XX we addition, In pumps their for

We offerings have than addressed. more to of only product be still with scratch the XX% the surface begun to

our year-to-date growth increased of redesigned pump our shorter performance, is in effort, VA/VE The better times. recently of resulted magnetic announcements BBX the As success an our pumps, lead XX%. for and drive example this reliability following order

increased annual capital This after the other year X%. Regarding XX% before. dividend of yield an our we rate our by approximately dividend XX% priorities, deployment represents

our this a full quarter X% reduction in repurchases for average weighted share share year. the will Our count drive

development I'm vehicle. growing and Bartek pipeline Bartek to one happy and ITT's including of assets. ITT. venture venture a investment portfolio. welcome for strategy all merger this reduced product to made in corporate launched existing we On And Makowiecki leading drive ITT's divested in we accelerate To front, enhance our newly continue Connectors-related technologies Pincus. and QX will our And us asbestos This our of activity activity, the we lastly, Warburg discussed quarter, repurchase investing $XXX our our has allows drive million last legacy M&A to flexibility. will additional liability capital profile as risk company and portfolio we're We future initial authorization. a capabilities. activities, in have existing leads to we acquisition to

We forward have and our activities companies up pipeline are cultivation into ITT and in near M&A stepped looking great bringing to future. the

the on to turn our call outlook. results on Emmanuel provide now Emmanuel, to color me X Slide further and to Let over third XXXX over quarter you.

Emmanuel Caprais

everyone. you, Thank and Luca, morning, good

strength again by large our declines above outperformance significantly As our X,XXX aftermarket. business, delivered historical you solid in global this over in points heard, a driven auto the was Friction production despite quarter, performance, market Motion Technologies Friction's In basis levels. OE average

For we points deducted growth estimate basis sales chain from approximately that the of all disruptions this ITT, XXX quarter. supply our

to next in a sales the quarters. expect the majority recover we pushed-out of However, few

in while we IP saw despite due saw drive strong margin by XXX enterprise. in material points, basis CCT aerospace XX% On adjusted the demand basis industrial headwind connectors. of a highlighted MT and across sales we in mainly growth aerospace in XXX On growth XX to year-over-year the productivity a higher drove basis Luca short-cycle of overcame IP actions grew a and $X.XX continued as basis his inflation expansion. adjusted introduction, by and in demand what strategic similar We And organic operational improvement for margin XXX pricing EPS, is orders. We challenges by to QX, through volumes, XXX points points, combination declined inflation. raw point increasing segment sales points margin, segment exhibited the also basis to commercial double-digit

to taken plan, restructuring, we're and prior carefully realize ITT's recovery. continue ensure cost XXXX with cost We actions benefits including to our pace these of managing from the costs XXXX unwinding in action temporary the align of

excluding achieved an XX-month trailing this more income. free higher payment to flow in operating of cash investments a declined by the than XX% free adjusted Turning to On due We flow segment basis, quarter, year-to-date asbestos margin in cash by driven working -- cash. capital. adjusted strategic QX,

X. Let's turn to Slide

largely was As quarter this driven. I mentioned performance earlier, operationally our

related cost headwind items raw prior benefit from Partially Our year offsetting by impacted $X.XX temporary was a $X.XX foreign headwind material to growth actions. was inflation significantly $X.XX year-over-year roughly these settlements a from environmental and and currency.

over a the be effective benefit. This slightly We our related $X.XX realized strategies tax full abroad. approximately to also lower year, tax portfolio year to versus rate drove We prior due a which XX.XX%. planning now our tax effective effective was rate to expect patent

Let's on of We and price Friction increases able This price in Slide working further our XX% action, our impacted quarter last Motion Friction by concessions. given inflation to the the declined team the material had growth -- operating to of recovery Technologies we aftermarket also business OE to to seeing were revenue X diligently inflation as today. driven at affecting The we impact QX as supply the signaled is manage given strength last organic pass turn significant this look raw headwinds quarter. to the drive year margin was primarily the price slightly with equitable OEMs. chain customers and the customers are contractual segments.

However, are there experiencing. to to done is we inflation much compensate for more the be

team methodically XXXX. and QX Motion Technologies pricing actions will in continue execute Our incremental to

experienced significant from large customer variations production in We also patterns. orders resulting inefficiencies

our recognized highest on-time market. last performance most amidst KONI, And on supplier continue our quality Friction be disruptions. the quality Friction our as -- challenging chain remain performance conditions, supply in XX% improve with to widely to business deeply In with and continues well focused we as Friction serving as in OE and the quarter, reliable executed quality very the customers However, economic across over plants. all

strategic rail plant closure which our footprint quarter, Finally, and we evaluate Europe in drive business. further continue one actions to competitiveness also announced additional this will within cost

IP require up For service. Industrial effort organically. and Process, driven quarter to Serving This and coordination by was tremendous customers by this overcome our X% focus, parts, disruptions. was supply team the primarily across valves short-cycle revenue chain demand

Our all-hands-on-deck approach made this happen.

plant price, see approaching grow strong the making in was share project This With levels, approximately growth pre-pandemic quarter, QX. $XX we to expect the significant is As this the quarter. another less project in improvement capture to we're This The growth was one to basis with point an given mix, XXX footprint this have during proportion leverage and XX%. higher margin inflation incremental partially million offset is similar volume able we IP basis above XX%, funnel XX% the restructuring continuing volume, XX.X% short-cycle on and MT, margin labor segment as higher momentum margin In with and we material delays. continued to year. a drive revenue. expanded the progress by order points incremental a evidenced Brazil productivity with profile generated given Similar by signaled as inflationary margin last CCT favorable optimization Technologies, and a and of to expansion by deliver over and shipping this margin constructive perspective. was IP XXX from & prior as sales year-over-year higher to Control see driven headwinds. sales despite in in margin We of continued quarter charges executed productivity, of QX. recovery result both margin Connect plant XX%, the savings, sales, continuing well organic closure including but of in and freight

future performance, thus While we work the the CCT. and the to done confidence gives solidify has to are at there it by us team be work further prospects is much far encouraged this very in done

third at X in Let's in -- to growth the at the the quarter. Slide orders now look turn to orders

demand, note. our QX. highlights solid in leading growth As to can good job few see, A done a capturing and to order QX teams the have you

conventional platforms Luca creating that First, about. growth the and vehicle win bid to that note to new It in we're a ability win awards talked long-term EV is MT. of majority that key to continuing on OE, is hybrid the we new to platform electric competitions on our important

we the projects. But number in pump even cycle is encouraging in recovery Second, of growth we Process, the continuing the of which steady is operational long Both result strength OE and order by recognized short and increasing, is increase increasingly is customer excellence, anticipated the seen cycle This and our size centricity have customers. a the the sequential relentless focus funnel XXXX. and in our is materializing. orders in on throughout Industrial order more

particularly especially momentum commercial CCT replicate our The we're Third, working customers. XX% connector organically to in up on orders North were strong our connector partners strength portfolio, performance, across the encouraging, is of -- with distribution all America. in our the and

quarter. in to notable commercial over CCT organically This growth continue further improvements gradual to next turn backlog guidance. EPS last which million CCT $XX quarters improvement our sales the We adjusted the to book-to-bill bolster see time a XX% With this of versus the CCT recovery basis by X.XX. several is mind, of Through for raised is sales original two and with aerospace, organic outlook years. let's since in had we a in full our year all $X.XX also or this outlook. our XXX a Slide in XX year-end by will up midpoint points since discuss

We're today, levels. comfortably are additional pre-pandemic an midpoint stronger-than-anticipated the adjusted EPS to $X.XX range performance, improvement to we in exceed Given lower in the the XXXX, raising near our EPS in Nevertheless, headwinds reflect our again not and results by market anticipating of tax the rate. term. any adjusted strong we expect

quarter, QX strong decline look while impact by in a the after demand, will the year, last MT in comparison digits tough a we Facing growth. range, mid-single IP IP constrained OEM revenue year revenue the will QX. from percent to mid-teen continued revenue drive the and will thanks low As be of expect and the strongest grow CCT. fourth ahead single-digit CCT we to to revenue

range to EPS XX low to expect expect auto we outperform to strong With we its flat EPS of all CCT QX points. let to performance. In in this largely that, total, expect revenue businesses QX segment it will will grow QX. this year growing and approximately margin a year, From margin will segment we full and IP adjusted the last XX adjusted basis up single-digit XXXX. strong grow the approximately on sequentially slightly growth QX drive building Year-over-year above back organic Because standpoint, exceptionally drive an pass However, market. with expand to global triple in Luca. digits me year-over-year, to

Luca Savi

Emmanuel. Thanks,

Let wrap up. me it

a performed fought adversity, and ITT has First, market. we're extremely well in We climate. challenging in through winning the

Second, while while have set have of resilient a markets not effectively the external again that revenue demonstrated and factors growth investing growth. to We recovered margin, manage businesses of our we ability in long-term and fully have yet. in strong over all delivered over multiple

we growth will whilst of to Third, and our for opportunities continuing orders for the the is outperformance. continued throughout in increasing, invest are way growth long-term and funnel sustainability, XXXX pave

have Lastly, are pipeline and in to execute our repurchases. cultivation expanding we balance growing over a flow divestiture, our acquisitions are share our target cash position free we focus activity. X.Xx and deployed increasing And favorable sheet strength, dividends are M&A, we through on year-to-date our our adjusted asbestos we given our and

at a excited ITT. lot said I to there earlier, about As is be

pleasure you now. all line Q&A. As speaking been Catherine, take open please ever, for it the questions and this morning, has will we happily with your my

Operator

from Scott Davis Research. first Our comes Melius question Instructions] with [Operator

Scott Davis

Bartek I'll see do of such far on down with or in willing his year How as publicly start he's new. what product like have narrow it care What's to focus first the you're broad about lot mean, but whatever in so? portfolio. since you brand kind or what I the you of Bartek accomplish a to as maybe great you A you'd in to comments, the mandate? detail most -- about talk and

Luca Savi

Sure.

M&A, So been On Scott, we slower let me get we than this straight. have anticipated.

deployed We this are accelerating quarter. us, asbestos a have target. But we and last on very with cultivation and the addition strategic our Makowiecki, the behind deal our not of we Bartek now with sitting in been actions like on capital

adjacent XXXX. the to to QX pumps and is really is CCT active our are in that main also few front venture well. we boost in technology to innovation, some we the innovation, that rail And opportunities accelerate capital the initiated responsible to valves, front very on have we specific as in the and and things invest what do. So growth game we on Bartek initiative on of

Scott Davis

Okay. then than is a different for less reasons? perhaps kind And racing to awards, to intensity? Or just of That's switching color. or And just super as the competitors EV try helpful, same number six bit then some get these just give landscape, non-EV of actually. platforms. six a on us There's that that? the little is obvious same competitive sense it Is is everybody of things OEs the really to

Luca Savi

Okay.

the we on combustion and think the engine I similar that to facing, very the level is had of the one internal in Scott, are on EV, that we competition hybrid. traditional the

our in by the but China. outperformance to is managing to medium long acceleration is electric. elaborate two the I term. the than a customers And which hybrid and as may consider bit at our you almost XX% six are EV, on probably in these current not share we you the EV. then on of important in XXXX, players. to it market and more transition also different six EV in we in different are percentage market probably that, all This specific probably look much higher share, now that compounding hybrid and customer can think hybrid see see the it's awards, they're we like comes of if production a see need OEMs this awards, new little effect the because you is XXXX. the will in years, Scott, front in the just in are the and above XX% and you XX% the fully of on win above our go have that different because EV, EVs some I side, When terms there If

Operator

comes Obin from Andrew question America. of Bank next with The

Emily Shu

Shu Obin. Emily for on Andrew is This

price expect What company? for segments cost. as the pricing cost Just was you you'd price on can total next out for price of in to quarter how the dynamics quarter? And cost the talk about a the each question play well as

Emmanuel Caprais

this so We customers, impact. lot company, cost is in pricing progress were Technologies, especially we And recovery this accelerate and different XXX past, Motion for different we negative we of neutral. made from compensation QX also. In to were price/cost where price Emily, XXX points obtaining our expect net negative equation positive is between very year-over-year. the in good it's the impact The obviously from price a this to overall from from also QX, where price a for ITT a around was basis standpoint.

to able and then get are as to our from OE expect in slowly reduce We continue customers. we compensation XXXX this in to QX

Luca Savi

on businesses. different Emily, one, going by And building back that

improving it's business where IP Technologies, ITT CCT, look has the at story, encouraging look is the as If was very after automotive, pictures we in a are When businesses but saying, Emmanuel quarter. you in pricing and you power. different Emmanuel these as quarter described, see in Motion

Emmanuel Caprais

just increased one recently. thing also November, for year. passing increases was prices one they've we're And where one January, price last July one as in costs. And terms substantial, for this surcharges and been pricing this IP, instance, a and we in Same increases includes just bit detail in the just CCT freight Luca what pretty several to point, Emily, little of already add for saying a in passed power. three on year, In more final

Emily Shu

auto by it. on And sort were can MT will that I'm region be go versus chains you of which the most supply and then then region market And Okay. OEM stress? maybe performance regions sort of in global curious Great.

Luca Savi

outperformance, when and was continuing. is stronger. we share as year gains. Sure. In and market I of we is grew. at the the that outperformed thanks substantially, also in two basis much look outperformance a XXXX ahead And and we than China said, declined this will to market region, say this XX%, Europe by by we the of surpassed XXXX QX, market recover -- X,XXX would in by Emmanuel North more Friction levels, Region couple America, -- the points. And while and probably roughly or actually years. three respectively in XX% declined the MT

has see, can the you as outperformance every region. single So substantial been in

Operator

The with next from Halloran Baird. comes question Mike

Mike Halloran

want I line So of to that just on questioning. continue

been do question over is? makes the any over the of next quarters normalizing inventory obviously the outperformance I has Do over that outperformance is the going that levels out starts saw Is variance plays stand? see I'm one-and-half this of sense. the the Where substantial. have few the legacy it versus I talk that that's that year, you feel happen? going does implications moving the normal maybe think historical here, to year, type Maybe next like how consistent to what forward? So out so time period how guess given hope not what whatever Is last about outperformance one but shortage chip consistent does. some next market couple has there or you this been here? Maybe sort stark you you trying to lately? of outperformance? quarters, And just understand cadence

Emmanuel Caprais

Yes, sure.

in and in MT also. bullish and hybrids specifically performance commercial and EV also conventional OE. won We in several new on we're So platforms our Friction in very

years so So in very this confident can And -- we're far. that years are in to we next seen we maintain we date. come. talk the about see effect three EV after award And all awards, to keep volumes the be the awards, and going in as why was that should Luca we've what actual different reason is as really mind outperformance should we in in saying, be that few compounding a there from There's these we future. when two strong to usually, getting in no production

is demand, this there's We the think up are a the in obviously, actual also and for with system. the not pent-up keeping And we reason lot bullish demand. of because, pretty is demand in the production that on auto,

more what of than the and XX inventories, QX. were of you so or At QX falling in And see Europe, that there is North XX And going more stable. are pretty the are things inventory that America, was down. especially less end days in then days in

help really this really for setup we a going and So this MT. to us, productive expect is is good

Mike Halloran

the the global autos inventory Or levels a comment, for at clarify to customer your to level? Just the on is inventory was inventory basis? more that pertaining that

Emmanuel Caprais

Yes.

dealership are the OEMs. from at those So inventories

Mike Halloran

how levels? inventory And your you would characterize

Emmanuel Caprais

headwind -- more then a obviously to inventory had a we patterns order little levels in inventory. a the so are bit had terms we of bit accumulate we and changing little -- inventory, of Our of because

is that could capital. working So this impacting no demand. affect But our they're customers, future indication our building the is in channel inventory there with that

Mike Halloran

Okay. That's you think the And point amount then the How over actions talked footprint? like to of great. feels at you've Super you of size progress this tremendous helpful footprint of far here. global a journey the made lot right here. It into are do a the there. remarks you course prepared about that

left, at So is just much think if all? curious what you

Luca Savi

Mike. journey. is That a Sure, never-ending

So the in course, the footprint rail. made acquisition we is, of

talking of So a Brazil plan Poland. into is consolidating if Salto, was our two there Emmanuel you in in about And one is the that Brazil. plants that the about are in then think consolidation cost we low base one

looking more are but more constant for as automation, are looking for we it's we efficiency. -- as So a journey

look that So way ITT. this at we is it in the

Operator

next with The Vlad Bystricky from Citigroup. comes question

Vlad Bystricky

seeing up follow So Friction the on to one maybe you're wins and just the platform there.

ramp You tend see to these three mentioned, wins two platform of years you -- sort you on production to obviously, out. see

margins to have how you think to volatility and wins on cost over place in Are marketplace? us -- on about are mechanisms given you give pricing the time? that these color input you some protect ramp in the can these margin as your on new wins, volumes able So do

Luca Savi

Sure.

not challenge all at moment new we this benefit say, new process using years the I are that of -- have the in we currently will would quoting which inflation will level customers that will we one because inflation, when -- are prices, are currently course, And probably seen when was from now. it with a down of unprecedented. two or in I which Vlad, our think the this because come negotiating is we big in we of it's time, platforms, in So a the -- means, current this

the are get customers. the if to And a culture challenge And is years give think and the have XX automotive, all need So them and this they'll changing because the price. increases. used is the the to train probably really we you situation. people, proper goes that with terms our tool the in at to be The we an of that challenge. negotiate mindset and to beyond price usual Therefore, skills largest give our about in table different the you for organization conditions customer now the

Vlad Bystricky

restocking relatively -- shifting helpful. very maybe any from -- where sell-out? still today? you just benefiting That's you're guess, talk Industrial sell-in, Process, to you industrial And good Or orders. you nice to seeing about stands process shipping there? balanced inventory obviously, tailwinds I very can think then Are and distributor do

Emmanuel Caprais

Sure, Vlad.

saw higher in obviously, -- we're process, than what was very expect and this continue broad-based we're So XX%, we And We the is. in it was our very orders up pretty industrial it to QX. also with QX. in And sequentially growth we happy were right?

so And also indication this should no XXXX. there's in stop that far,

and project. any indication, both that report short short our not pumps, So we're cycle stock. apply a any indication pretty terms they're have we're doesn't close because We're question your seeing distributor happy Obviously, project. to with in not our the baseline building of and very for we partners. the But cycle it's seeing

we as with it's contrary, are hard the -- for up us we keep On the increased to mentioned, demand.

the -- tense. pretty supply chain are is they pretty So

Luca Savi

to I'm we can seeing. week that Yes. they're the the the we can throughput GDPWW. next respond because demand to the our faster, how distributors is really all Vlad, of how agenda the we on And increase can meet going in add And if discussion of California that,

inventory problem the on no level. So

Operator

from The UBS. Karas with next comes Damian question

Damian Karas

IP projects. I ask about to wanted you

You mentioned back a in market seeing was with you're some little area an some positive the of signs [Heide], to gaining project, and on that that awards. Obviously, bit long-cycle project profitability. respect challenging became these share

how I'm them think on looking should that impact So framework about the over which curious we Luca? your through deliver you And as you're what projects, profile on time? at margin they'll have the is these

Luca Savi

Damian. Thanks, Sure.

front, increase that on we order with the here XX% First in warming orders we see a year-over-year. are we're third last of up, is you all, quarter And told project and the we projects this increasing. where quarter

know And larger. opportunities I last but fruition. You of guys, of is obviously don't to see year. on this all The talking this of as winning -- also a engineering-only getting if result now about coming orders also funnel remember, you were we

the in terms is the on have So that obviously, a rightly efforts projects way also to profitability project like less going will project profitable framework we are this profitable VA/VE bit that are in and be a we are we consolidation this will the more that mix with project moving them, as a deliver reviews bigger that we managing will be before. favorable. the you little part of and all way in the be of mix have because also, done manner, to of we footprint have But Obviously, the a ultimately, the of be Damian, forward. winning said, is pressure today this, them, than

rigor the better will that past. all be profitability So the the cost running will than actions in them in and ensure the

Damian Karas

Okay. Great. believe on distribution I you've of Could earlier organic that? XX% you just comment some on to by replicate orders in you mean looking a and the and growth Connectors Emmanuel, you're what made elaborate successes partner the had. that And That's comment you how helpful.

Emmanuel Caprais

Sure.

have do as And success and we North and our we Europe want to success do of what we in mentioned, in today, to what still distribution. America that So lot Asia is Pacific. coming replicate in from terms of is a to

Connector that, lot is drive to some a to that and going work do, even and of have of we just GM a she good recently. business, proof and our pretty for had So there's we European recruited new

of customer want be that aspect lot North this a the of the customer the to with is and distribution there's to also this reenergize that needs centricity, then of OEMs. it outside So other replicate to And in the success, partners we working to our relationship done terms this. intimacy, execution work America. of on We're

the seen over chosen Connectors also years, are our we deteriorated, have improve talking the implementing are and be to to -- design with to that them to going for We us bit because and those the important relationship ensure that close those going had to it's little them be a And Luca of are for why our was applications. that's as modify Connector with VA/VE working future are are about, our business. also we actions products,

Luca Savi

the it worldwide in little asset on what out this California, and Damian, U.S. working the But Ryan sitting region, basis. the And still -- close what are run the is this in or customer. the customer organization. team are the done, a recruitment they they Connector closer The absolutely amazing and much California It's in before me was of in a have is for the intimate therefore, matter. on with of they've or team change. to she done China. and region let Germany, Ryan reorganize regional And Germany that or And are a Emmanuel what you an In base Europe that with while is bit in in business China by very interdependent, fundamental developed But a a not worldwide Europe organization in have just the to Ellen, staying said. which by U.S. not when you're build

Operator

from The Bryan Oppenheimer. with next question comes Blair

Bryan Blair

consolidation level should other think we about cost rail the timing of some and the that's going You facility how and savings underway, mentioned works footprint forward?

Emmanuel Caprais

Okay.

Luca Savi

Yes. Emmanuel, go ahead.

Emmanuel Caprais

Yes.

I months, is going to expect little so for IP -- well see so savings to as bit six start a to after consolidation, and probably for that the it's of terms this this just going announced And facility. this facility. that, between we're same the -- it's the in we So four of would take time. to

impact, towards full be quarter half of year I next second of of see that's XXXX. you're and ramp what So in second happen it's think the terms going in to to able going to

this of to So approach, structural us long-term and more help in XXXX but going is mainly. definitely, a it's

Bryan Blair

Okay. specifically Understood. a sheet color little leverage as however expectations near-term perspective more Emmanuel, seller of your and would do with asbestos and frame the on you you on dry think that? maybe off current And offer or powder, environment a and balance And M&A what calculations, valuation. cleaner

Luca Savi

in now believe, is effort. possible from but said, the the it infrastructure the right I business different in have active for and today areas in when space environment, both business, So rail for impact U.S., the analyzing impact in this a The the main about rail the here as from are we very passengers active in we is be business, comes companies. bear not see freight. we there where a target valves cultivation, that to us rail an CCT pump. And consolidation on focus interesting think in well the away spending the Then also pumps, coming positive are, are the will also the for our We interested as mind, is worldwide playing on the then and but area, as some the positive also us. and in will areas in on to game

they're really about investment the business. Defense products differentiating, in first area think Aerospace you in an has been with theirs together actually it, differentiating space the where in If venture enhancing our connector our in our and products,

Emmanuel Caprais

the -- to so competitive add this very in overpaying. I good still is companies market. think that we We terms that without of there portfolio obviously, necessarily And Yes. can think a many are

great mentioned, we this that don't up more the Luca in is as So stepped to and heard our has to is choose say we about very several cultivating, of active with you've that for this arrival it now Bartek. thing the capital. have quarters are where deploy even really And

a still bit significant dry dry would $XXX As our expense probably billion, year you maintaining the can powder at in terms investment-grade for over see, while repurchases. of $X with all M&A. We we've of million this rating. have I at in little -- say, not M&A powder. it's deployed And

So us. I think of ahead a -- of lot that's possibilities we have

Operator

with Jeff Hammond comes from The question next KeyBanc.

Jeff Hammond

kind more this about opportunistic in or the in was or change differently Just is to dislocation of being you on behind the how wondering around just I'm around the think a buyback, maybe if approach forward? just buybacks here going asbestos stock

Emmanuel Caprais

Yes.

repurchases. of think terms more you going of that I over done if not more And being corresponds on I we've crazy, or think aggressive. less in $XXX million to see buybacks, outstanding you're look X% But retired. today, at us aggressive our to shares more

that. along lines -- just are really and continue this priority think because those after us for I is is really to coming the going M&A are buybacks

Jeff Hammond

CCT, seeing guys in inflection I of downturn we're mean, and done mid-XXs the here, were have a a kind then now think through lot the you there of And incrementals the environment. I tough Okay. work

how in Aero, here particular, the next should think in over incrementals as recovers? we couple years Just CCT about of

Emmanuel Caprais

Yes.

accretive our almost So I the pre-pandemic $XX mentioned, right? have levels be quarter. at to And we you revenue Aero very less are incrementals. million think to I going with is by already intuition, right as

to And pre-pandemic highest going we margin fortunate than are of we're levels CCT the portfolio. because to -- we I expect? think Absolutely. that out has sooner in terms get incrementals of ITT's So CCT

think a is to very teens I about incrementals. little of definitely of strong fundamental I terms a we high be that's talked There that at lot of We bit is cost think to that CCT needed still going going investments so because are there's drive CCT. our a a margin. positive But that's this for for really there R&D -- also target. is in tone come plus to lot but VA/VE, And to happen and margin that want needs as I to

Operator

next Sachs. Ritchie The comes question from Joe with Goldman

Joe Ritchie

just a me. So few for ones quick

XX%, I'm year-over-year growth growth, I the it mean, what quarter? happened just in like most so strong my it aftermarket Friction a like year-over-year seems Why drove it of this curious was it's the calculation, on Just basis? MT.

Luca Savi

Sure.

me take that one. let So

is out therefore, was and coming coming out coming Europe were Joe, out of vaccination also think Europe. And what they were vaccination, and is they therefore, it, in year-over-year in you some also QX of play in look easy terms you that think obviously, year. the about COVID aftermarket So But QX, if lockdowns, XXXX their mainly the at sequentially, if the compares has happened people we in the there about the traveling. also that

the So sales tremendously. coming service. dealers, for this with the that, is also pushed less of top OE, on And of they pushed a what from the say really that aftermarket I lot will

[Arctic] is as of brand as on ADAC, that All Continental, established of with independent all with combined certification, our award OES well the by German the the the side. both growth. which on that helped we growth this, together aftermarket The won very a is

the So we for have very healthy end of at aftermarket. a the growth year, expect, double-digit

Joe Ritchie

hear. basis OE is super affect in XXX got on fair I the well? guess portfolio quarter, it pushed Friction business? helpful to the of most and parts points to the great came did that it say Or this as just Yes, that's that out that other of

Emmanuel Caprais

IPs, in -- of the delays they actually million. -- most and Joe, that's around due So were the were and to $XX

$XX sure and XXX around is then transform the million it's from points those castings the to from million and region once frames and that reorganize is reshuffle $XX we like And components. disrupted of labor receive basis And we coming our to operations. So that that auto coming really from IP. make had we them,

some out still a IP. CCT. bit had our came -- recover we Overall, to this for mentioned, really suppliers then we plating well backlog. of issues lot little of with with from And nothing Wolverine it a and issues of we as our expect So coming as is

to expect quarters. few this We the over recover next

Luca Savi

challenges. supply our that MT. to are our Joe, the shortage basis these are chain it, the issues completely So And customers excluded points frame OEM in chip XXX had

Joe Ritchie

Got it. one. That's last maybe super then my And helpful. one

Is of And kind think XQ? likely up a talked guys basically to kind guess, seems think the way the you I that points. level being consistent Process MT I down Industrial fourth it I about year-over-year then on guess up about of margins with but quarter, in On basis, CCT XX it? sequentially. basis like XX to segment as through

Emmanuel Caprais

Sure.

we're In a of IP QX incremental the getting right. with just sequential QX. see you're QX. And CCT, to progress. think pretty going compared And because improvement to I in probably then pricing MT, line in we're small

all sequentially. from the taking, allowing benefit us we also As margin to is improve we're CCT's efficiency this actions

Operator

from Summerville The D.A. Davidson. comes next with question Matt

Matt Summerville

quick ones on two MT. Just

in can parity at sort of so, of rise And be you business, parity? a from auto would don't to First, costs industry input when further, how functions sort if cost in that stay the expect price where given if they're achieve standpoint? you and contractual

Emmanuel Caprais

a Yes, it's of question I question think timing. of a It's timing. we can, but

we So QX. giving price difficult. take price to and do increases Because -- -- had time. more any right this a recovering to to made We're be getting going now, QX. stopped in is the that in we we it's honest, started in But very QX. We going long concession very,

a And a interactions of lot so our it requires lot with negotiation, customers. of

we're expect to keep for And half, the raw just but first several to in XXXX, did worse, us expecting and bookings year-over-year the in from positively of that of a in half it's So impact, XXXX that negative benefited get there. to end inflation a we mind do of materials, impacted going we that especially for where quarters we take get steel at terms our first lot the XXXX. not of

Luca Savi

really when it the power, IP. using the more. I math this more businesses we're portfolio look we where ITT This at are portfolio, good have to powers and and is where probably CCT we The a up it's and going pricing pricing have where end is

Matt Summerville

additional brings That up, question. guess, I Sure. an follow-up

different ahead Just on thereof whereas about you for maybe guys, buy other a steel, of your procurement, you how approach? used inputs for copper, strategy thinking like are your or things consequence last you year, lack

Emmanuel Caprais

we there volatility, as went XXXX on In long-term on XXXX, because I very taking in a half. so we much not first were stuff. So lot obviously, of was In -- we positive, just XXXX prebooked and that mentioned XXXX, -- commitments. were

-- and has think monitoring obviously, we prices we're been as very I are the improving, regularly. picture monitoring

volatility We take predict to really I strategies, it's to there's right that we're the some now, so But hard just to going are going to see. that prices starting think are be. long-term and again much what

Luca Savi

one, two we're can would on say I main on And that I things. Matt, if build working

with The do supply. need work our to is first really, Matt, suppliers we to secure that thing closely

Emmanuel need dose delivering opportunistic few said. companies, teams addition to delivery, advantage everything take maintain then, that you the at few of regions, your want are look you that on-time some from able ensure suppliers inventory, to very So you a specific do that. you have to you course, in And because different situations the also XX%-plus different in if very to supplies to is with friction

Operator

Cowen. Joe next Giordano comes question with from The

Joe Giordano

How translate those steel was along some ore to lines, that reductions, in given guys, calculus like on MT? through moves margin? does that your on declines. interesting Just change kind implications backlog? that same to we've quickly how -- like in of does If the And reductions are what price seen iron recently, you the discussions with quick into like quick customers flow what very your

Luca Savi

on we not counting down really Joe, going are a price [obviously]. Well,

on If energy the have this of ore, of to you green think up. industry about just will -- is and the transformation not single a energy year. And of then making the silly, industry it's probably steel. a price the that go -- And the iron energy today and you're lot it's every you using, issues green

counting we So down. necessarily are on not going

we terms conversations price today different having are OEMs. Now that the obviously, we the with conversation is have different with OEMs increases. of in Today,

at are even not as parity we said. So Emmanuel

our that see don't happens, coming challenge I So to -- I don't soon. if anytime even table that

Joe Giordano

Okay. it enough. the increase at was up? was like picking Can one activity you in things kind Fair about case too, competitors. -- in thought of talk then And IP, at curious. of I I'm are sequential the interesting the specifically, bookings the project just seeing sector, that that? what's Is driving your if was sequentially just not bookings all any sequentially And of in you curious, energy

Emmanuel Caprais

Sure.

by that Sequentially, you're cycle. this increase actually increased really So majority of from came X% and right. is The in orders IP, short good.

of increase higher-margin which baseline mid-single really increase, And pumps, was project the stuff it from Our our our was but digits. roughly us. lot are a for -- for

we to obviously, of so really strong it in market short-lived. From cycle, bit little increase, from well had in So has general lower, we're chemical. happy industrial recently if even mining. an saw and impact it's and see a we end really oil terms a very was mix, gas performance that positive short as because but good performance Mining standpoint, as a

Luca Savi

baseline, couple -- look of short envy drivers our through the lot competition. a comes -- our distribution if when a it's is we the factor that and differentiator you of think for And IP, really of the at of behind is a it, being cycle, distribution. our I a terms are in I

the that is we were customers, that. then delivery. to what of that price. situation. And So a Today, I But with very on-time demand, paying we we're plus close definitely side. QX not remind is working through. the with staying our and performance to obviously, a are XXXX, until want And that positive even know We performing we managing XX% exactly the intimate are is our

Operator

Our Jones with today Stifel. from final Nathan question comes

Nathan Jones

Typically, when downturns of got on we IP IP. project volume the pricing -- Question on here, chasing you've see because capacity the side it. suffers of and

Given all few IP the of you see higher the to, probably projects the next chain the performance over industrial demand, give you improving -- and currently have that constraints margin that and better capacity. that opportunity into I and guys chasing backlog the going now demand are margins be quarters? Does maybe mean, supply better on potentially

Luca Savi

think definitely I that you are right.

you I that But a think is something weeks what with discuss are in -- actually that's going you, the in Nathan. bit right, early This I it's of are IP exactly things. still next little will think are I top we few with on to happen. You the because that process. but agree

Nathan Jones

Does your of the Okay. deliveries highlight gain environment. probably current haven't And seen even in on-time years? customers of and present be more challenged for best you've Tech, operating had than that margins, and really historically could over some Motion the ITT even you share more competitors the opportunities then last differentiation few metrics, in the there potentially the

Luca Savi

thing A, you things think keep plant consistency. say. I performance three the differentiation happening, from world, was: every of it is everybody consistency ITT all I would the that The else the that around of time level level differentiating that really and have across the will of delivery, the single that on on quality,

the with Motion the that the any front. our higher we're there. right win We more material differentiation people our with instance. And world share and is and up able believe the probably our help differentiation in material and knowledge this right is EVs That come and is the more I today. change to mix is been have Technologies is even going with is One at haven't valuable that to why the winning for is that science our seen more thing EV, market R&D, in

Nathan Jones

heard give development Smart an Can Smart where last I on an into while Pad. on have gone I know the Pad. over update into in And us go operation? haven't a when then you one one. the is for investment years that lot potentially update it and a of dollars could

Luca Savi

Sure.

being capabilities. We working and testing. product. OEMs have putting It's And in the in But terms actively before with OEMs been the a on the we in, finalized are these a component, still of a XX% safety would we And are say, I the of there some one with of lot the that of tests platform. Tier comfortable X discussing to specific a today. Tier are feel needs and X OEMs with couple

Operator

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

ITT (ITT) 6 Nov 212021 Q3 Earnings call transcript