ITT REPORTS 2022 THIRD QUARTER EARNINGS PER SHARE (EPS) OF $1.23, ADJUSTED EPS OF $1.20
Thursday, 3 Nov 2022
- 9% revenue growth (15% organic) driven by volume and pricing recovery across all businesses; expect to be at upper end of revenue guidance
- 7% orders growth (13% organic) driven by strong pump projects, connectors and aerospace and defense components demand
- 17.6% segment operating margin (18.2% adjusted) and 23% EPS growth (21% adjusted); strong improvement on a year-over-year basis and sequentially
Stamford, Conn., Nov 3, 2022 – ITT Inc. (NYSE: ITT) today reported financial results for the third quarter ended October 1, 2022. The company reported a year-over-year revenue increase of 9%, up 15% on an organic basis, primarily driven by short-cycle and pump project growth in Industrial Process (IP), demand in connectors and components in Connect & Control Technologies (CCT), Friction OE growth in Motion Technologies (MT) and pricing recovery across all segments. The acquisition of Habonim also contributed 2% to revenue growth. This was partially offset by an 8% unfavorable impact from U.S. dollar appreciation against foreign currencies.
Segment operating income of $132 million increased 19% (18% adjusted) compared to prior year. Segment operating margin of 17.6% for the third quarter increased 150 basis points versus prior year. Pricing recovery, higher sales volumes and productivity more than offset higher raw material and overhead inflation costs.
Earnings per share for the third quarter of $1.23 increased 23% versus prior year primarily due to higher segment operating income despite foreign currency translation headwinds, partially offset by higher strategic investments and interest expense. Excluding the impact of restructuring and other items, adjusted earnings per share of $1.20 for the third quarter of 2022 increased 21% compared to prior year driven primarily by higher segment operating income and benefits from share repurchases.
Operating cash flow for the year-to-date period increased $243 million versus prior year to $115 million, compared to an outflow in the prior year of $128 million which included a $398 million payment to fund the asbestos divestiture in Q2 2021. Excluding the impact of the asbestos-related payment, operating cash flow declined $155 million driven by an increase in working capital to support sales growth and to mitigate continued supply chain disruptions.
Table 1. Third Quarter Performance
|Q3 2022||Q3 2021||Change|
|Segment Operating Income||$132.4||$111.2||19.1%|
|Segment Operating Margin||17.6%||16.1%||150 bps|
|Adjusted Segment Operating Income||$136.8||$115.7||18.2%|
|Adjusted Segment Operating Margin||18.2%||16.8%||140 bps|
|Earnings Per Share||$1.23||$1.00||23.0%|
|Adjusted Earnings Per Share||$1.20||$0.99||21.2%|
|Operating Cash Flow (YTD)||$115.2||$(127.9)||190.1%|
|Free Cash Flow (YTD)||$41.5||$(180.5)||123.0%|
Note: all results unaudited
"ITT's third quarter results demonstrate the unique resilience of our business even as we manage continued macro headwinds. We generated double-digit organic orders growth, evidence of our continued market share gains that contributed to a quarter-ending backlog of over $1 billion. We saw strong sequential improvement in adjusted segment operating margin and adjusted EPS despite continued supply chain challenges, persistent inflation and foreign currency headwinds. We are progressing in our pricing recovery while remaining vigilant on productivity. Finally, we deployed over $50 million during the third quarter to capex and dividends, bringing our total capital deployed in 2022 to over $560 million. I am sincerely grateful for the performance of our ITTers worldwide who worked hard day and night to deliver these outstanding results and who continue to tirelessly manage our businesses through a challenging environment," said Luca Savi, Chief Executive Officer and President of ITT.
Table 2. Third Quarter Segment Results
|Q3 2022||Reported Increase/
|Q3 2022||Reported Increase/
|Connect & Control Technologies||$163.2||10.9%||15.4%||$30.3||20.2%||20.7%|
|Total segment results||$753.6||9.3%||14.9%||$132.4||19.1%||18.2%|
Note: all results unaudited; excludes intercompany eliminations of $0.3; comparisons to Q3 2021
Motion Technologies revenue increased primarily driven by strong growth in Friction OE from pricing recovery and higher volumes, partially offset by significant unfavorable foreign currency translation of $40 million and lower rail volumes stemming from the war in Ukraine. Operating income increased to $54 million primarily due to favorable pricing, productivity actions and higher sales volume, partially offset by higher raw material and overhead costs and unfavorable foreign currency impacts.
Industrial Process revenue increased primarily driven by growth across the short-cycle business and pump projects, principally within the energy market, and from the addition of Habonim, acquired in April 2022. This was partially offset by unfavorable foreign currency translation of $8 million. Operating income increased to $48 million driven by favorable pricing, productivity actions and higher volume, including from Habonim, partially offset by higher raw material and overhead costs.
Connect & Control Technologies revenue increased driven by growth in both components and connectors, with particular strength in the aerospace and defense markets. This was partially offset by unfavorable foreign currency translation of $7 million. Operating income increased to $30 million driven by productivity actions, favorable pricing and higher volume, partially offset by higher raw material costs and unfavorable foreign currency impacts.
We now expect revenue growth of 8%, and 12% on an organic basis driven by the strong year-to-date performance. The revenue guidance assumes a continued reduction in sales in Russia stemming from the war in Ukraine, which we estimate will impact revenue by approximately $85 million for the full year. Our revised guidance for segment operating margin, EPS and free cash flow reflects the impact of continued disruptions in the global supply chain and continued cost inflation which we anticipate will persist throughout 2022. As a result, we now expect segment operating margin of approximately 17.0%, and adjusted segment operating margin of approximately 17.6%, up 40 bps for the full year; free cash flow of $135 million to $165 million, representing free cash flow margin of 5% to 6% for the full year; EPS of $4.20 to $4.30, and adjusted EPS of $4.35 to $4.45, up 7% to 10% for the full year.
Investor Conference Call Details
ITT's management will host a conference call for investors on Thursday, November 3 at 8:30 a.m., Eastern Time. The briefing can be accessed live via webcast which is available on the company's website: https://investors.itt.com. A replay of the webcast will be available for 90 days following the presentation. A replay will also be available telephonically from two hours after the webcast until Thursday, November 17, 2022, at midnight, Eastern Time. Reconciliations of non-GAAP financial performance metrics to their most comparable U.S. GAAP financial performance metrics are defined and presented below and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with U.S. GAAP.
Investor ContactMark Macaluso
Media ContactKellie Harris
Safe Harbor Statement
This release contains "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. In addition, the conference call (including the financial results presentation material) may include, and officers and representatives of ITT may from time to time make and discuss, projections, goals, assumptions, and statements that may constitute "forward-looking statements". These forward-looking statements are not historical facts, but rather represent only a belief regarding future events based on current expectations, estimates, assumptions and projections about our business, future financial results and the industry in which we operate, and other legal, regulatory, and economic developments. These forward-looking statements include, but are not limited to, future strategic plans and other statements that describe the company's business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future events and future operating or financial performance.
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Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation:
- impacts on our business stemming from the COVID-19 pandemic, including from government-mandated site closures, employee illness and absenteeism, and continued supply chain disruptions and raw material shortages, which has resulted in increased costs and reduced availability of key commodities and other necessary services;
- uncertain global economic and capital markets conditions, which have been influenced by the COVID-19 pandemic, the Russia-Ukraine war, rising inflation, changes in monetary policies, the threat of a possible global economic recession, trade disputes between the U.S. and its trading partners, political and social unrest, and the availability and fluctuations in prices of energy and commodities, including steel, oil, copper, and tin;
- volatility in raw material prices and our suppliers' ability to meet quality and delivery requirements;
- failure to manage the distribution of products and services effectively;
- fluctuations in foreign currency exchange rates and the impact of such fluctuations on customer demand for our products and on our hedging arrangements;
- fluctuations in interest rates and the impact of such fluctuations on consumer behavior and on our cost of debt;
- failure to compete successfully and innovate in our markets;
- failure to protect our intellectual property rights or violations of the intellectual property rights of others;
- the extent to which there are quality problems with respect to manufacturing processes or finished goods;
- the risk of cybersecurity breaches;
- loss of or decrease in sales from our most significant customers;
- risks due to our operations and sales outside the U.S. and in emerging markets;
- the impacts on our business from Russia's war with Ukraine, and the global response to it;
- fluctuations in demand or customers' levels of capital investment and maintenance expenditures, especially in the energy, chemical, and mining markets, or changes in our customers' anticipated production schedules, especially in the commercial aerospace market;
- the risk of material business interruptions, particularly at our manufacturing facilities;
- risk of liabilities from past divestitures and spin-offs;
- failure of portfolio management strategies, including cost-saving initiatives, to meet expectations;
- risks related to government contracting, including changes in levels of government spending and regulatory and contractual requirements applicable to sales to the U.S. government;
- fluctuations in our effective tax rate, including as a result of the passage of the Inflation Reduction Act of 2022 and other possible tax reform legislation in the U.S. and other jurisdictions;
- changes in environmental laws or regulations, discovery of previously unknown or more extensive contamination, or the failure of a potentially responsible party to perform;
- failure to comply with the U.S. Foreign Corrupt Practices Act (or other applicable anti-corruption legislation), export controls and trade sanctions, including tariffs;
- risk of product liability claims and litigation; and
- changes in laws relating to the use and transfer of personal and other information.
The forward-looking statements included in this release speak only as of the date hereof. We undertake no obligation (and expressly disclaim any obligation) to update any forward-looking statements, whether written or oral or as a result of new information, future events or otherwise.