ITT REPORTS STRONG SECOND-QUARTER RESULTS, RAISES 2021 GUIDANCE
- Revenue up 34% (organic revenue up 29%) driven primarily by strength in Friction
- Segment operating margin of 16.5%, up 930 bps; up 390 bps adjusted
- EPS of $0.45, down 15%; adjusted EPS of $0.94, up 65% vs. 2020 and above 2019 levels
- Completed divestiture of all legacy asbestos liabilities
- Raising full-year 2021 revenue and EPS guidance
White Plains, N.Y., August 5, 2021 – ITT Inc. (NYSE: ITT) reported financial results for the second quarter ended July 3, 2021. The company delivered a year-over-year revenue increase of 34% (29% organic) driven by growth in our Motion Technologies’ Friction business, as well as growth across all other segments.
Segment operating margin for the second quarter of 16.5% expanded 930 basis points driven by higher sales volume, net productivity, cost action benefits, and higher restructuring charges in 2020, and was partially offset by higher raw material costs, a reversal of temporary cost reductions that were taken in response to the COVID-19 pandemic, and strategic growth investments.
Earnings per share of $0.45 decreased 15% from prior year primarily driven by a $28 million after-tax loss on the divestiture of InTelCo Management LLC (“InTelCo”), formerly a wholly-owned subsidiary that holds legacy asbestos liabilities and related insurance assets, prior-year income tax benefits and increased corporate and environmental costs. The loss was partially offset by higher sales volume and productivity, including the benefits of 2020 cost actions. Excluding the loss on the InTelCo divestiture and other items, adjusted earnings per share of $0.94 was up 65% compared to prior year and exceeded adjusted EPS for the same quarter in 2019.
Operating cash flow of $(232) million declined by $435 million mainly driven by a $398 million payment related to the InTelCo divestiture and investments in working capital, both of which also impacted free cash flow.
Table 1. Second Quarter Performance
|Q2 2021||Q2 2020||Change|
|Segment Operating Income||$114.1||$37.3||205.9%|
|Segment Operating Margin||16.5%||7.2%||930 bps|
|Adjusted Segment Operating Income||$114.2||$64.6||76.8%|
|Adjusted Segment Operating Margin||16.5%||12.6%||390 bps|
|Earnings Per Share||$0.45||$0.53||(15.1)%|
|Adjusted Earnings Per Share||$0.94||$0.57||64.9%|
|Operating Cash Flow||$(231.6)||$203.1||(214.0)%|
|Free Cash Flow||$(266.7)||$168.8||(258.0)%|
Note: all results unaudited
On July 1, 2021, ITT divested InTelCo to Delticus HoldCo, L.P. (“Delticus”), a corporate liability consolidation vehicle and portfolio company of Warburg Pincus LLC, a leading global private equity firm. Delticus acquired 100% of the equity of InTelCo, which agreed to indemnify ITT for all legacy asbestos liabilities. At closing, ITT contributed $398 million in cash to InTelCo.
Divestiture of Subsidiary Holding Legacy Liabilities
As a result of the transaction, ITT eliminated all asbestos obligations, related insurance assets and associated deferred tax assets from the company’s consolidated balance sheet. The company recorded a one-time after-tax loss of $28 million in the second quarter of 2021 related to the divestiture, which is excluded from adjusted earnings per share.
“ITT performed exceptionally well in the second quarter whilst positioning the company for long-term growth,” said Luca Savi, Chief Executive Officer and President of ITT. “With the divestiture of all legacy asbestos liabilities and the transfer of our U.S. pension liability complete, we are focused more than ever on growing ITT both organically and through M&A. We drove 47% organic orders growth in the second quarter, with strength across connectors, our short-cycle industrial portfolio, and in rail and auto. Specifically, in auto, we continued to gain traction on key electric vehicle (EV) platforms with leading EV manufacturers, which included ten new awards this quarter, seven of which are in China. Together these actions provide runway for continued success over the long-term.
Savi concluded, “Given our strong first half performance, we now expect adjusted earnings per share to grow 22 to 27 percent versus prior year, positioning ITT to surpass 2019 adjusted EPS levels. Our outlook for organic sales growth is now 8% to 10% for the year and our cash generation continues to improve. These results are a testament to our ability to outperform the market by driving profitable growth, leveraging our lower fixed cost base and effectively navigating significant market headwinds. We are driving superior financial results whilst executing on our strategic objectives and preparing the company for the long term.”
Table 2. Second Quarter Segment Results
|Q2 2021||Reported Increase||Organic Increase||Q2 2021||Reported Increase||Adjusted Increase|
|Connect & Control Technologies||$134.5||9.4%||8.0%||$17.9||113.1%||31.4%|
|Total segment results||$691.6||34.4%||29.5%||$114.1||205.9%||76.8%|
Note: all results unaudited; excludes intercompany eliminations; comparisons to Q2 2020
Motion Technologies revenue increased primarily due to strength in the global automotive markets and continued share gains in our Friction business, aided by increased revenues in our Wolverine business due to growth in sealings and original equipment (OE) shims. Operating income improved from $10 million to $65 million primarily due to strong sales volume, net productivity, favorable foreign currency, and the impact of higher restructuring costs on prior-year results, partially offset by significant headwinds related to higher raw materials costs, as anticipated, and strategic growth investments.
Industrial Process revenue increased primarily due to growth in pump projects within the oil and gas, chemical and general industrial markets, aided by easier comparisons given declines in the second quarter of 2020. Operating income increased from $19 million to $32 million primarily due to higher sales volume, net productivity, price, and the impact of higher restructuring costs on prior-year results, partially offset by the unfavorable mix of sales due to higher pump project sales.
Connect and Control Technologies revenue increased primarily due to Connector sales in the industrial market partially offset by continued weakness in commercial aerospace due to elevated inventory levels at OEM customers. Operating income increased from $8 million to $18 million primarily driven by higher sales volume and net productivity, including restructuring benefits, and the impact of higher restructuring costs on prior-year results.
The company raised its full-year 2021 guidance to reflect the better second quarter results and stronger outlook than anticipated for the second half of 2021 despite higher than anticipated headwinds from raw material costs, particularly in our Motion Technologies segment. We now expect revenue growth of 11% to 13%, or an increase of 8% to 10% on an organic basis; earnings per share of $3.35 to $3.55, up 329% to 355%, and adjusted earnings per share of $3.90 to $4.05 per share, up 22% to 27%. Segment operating margin of 16.8% to 17.3%, up 390 to 440 bps, and adjusted segment operating margin of 16.9% to 17.4%, up 170 to 220 bps, are unchanged due primarily to the impact of higher raw material costs offsetting higher sales volumes anticipated in the second half of 2021.
ITT's management will host a conference call for investors on Friday, August 6 at 8:30 a.m., Eastern Time. The briefing can be monitored live via webcast at the following address on the company's website: www.itt.com/investors. 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 Friday, August 20, 2021, at midnight, Eastern time. Reconciliations of non-GAAP financial performance metrics to their most comparable U.S. GAAP financial performance metrics, including relevant definitions, can be found here and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with U.S. GAAP.
Investor Conference Call Details
Investor ContactMark Macaluso
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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Where in any forward-looking statement we express an expectation or belief as to future results or events, such expectation or belief is based on current plans and expectations of our management, expressed in good faith and believed to have a reasonable basis. However, there can be no assurance that the expectation or belief will occur or that anticipated results will be achieved or accomplished.
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 due to the COVID-19 pandemic and the rise of the COVID-19 Delta variant, as well as the timing, effectiveness and availability of vaccines or other medical remedies and people’s attitudes towards receiving them; including disruptions to our operations and demand for our products, increased costs, disruption of supply chain and other constraints in the availability of key commodities and other necessary services, government-mandated site closures, employee illness, skilled labor shortage, the impact of travel restrictions and stay-in-place restrictions on our business and workforce, customer and supplier bankruptcies, impacts to the global economy and financial markets, and liquidity challenges in accessing capital markets;
- uncertain global economic and capital markets conditions, including due to COVID-19, trade disputes between the U.S. and its trading partners, the new U.S. administration, political and social unrest, and the availability and fluctuations in prices of steel, oil, copper, and other commodities;
- volatility in raw material prices and our suppliers’ ability to meet quality and delivery requirements;
- fluctuations in demand or customers’ levels of capital investment and maintenance expenditures, especially in the oil and gas, chemical, and mining markets, or changes in our customers’ anticipated production schedules, especially in the commercial aerospace market;
- failure to manage the distribution of products and services effectively;
- the risk of material business interruptions, particularly at our manufacturing facilities;
- risks due to our operations and sales outside the U.S. and in emerging markets;
- the extent to which there are quality problems with respect to manufacturing processes or finished goods;
- loss of or decrease in sales from our most significant customers;
- fluctuations in foreign currency exchange rates;
- failure to compete successfully and innovate in our markets;
- 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;
- failure to protect our intellectual property rights or violations of the intellectual property rights of others;
- the risk of cybersecurity breaches;
- changes in laws relating to the use and transfer of personal and other information;
- failure of portfolio management strategies, including cost-saving initiatives, to meet expectations;
- 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
- risk of liabilities from past divestitures and spin-offs.