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Full Year 2023 Highlights:

  • 10% revenue growth (8% organic) driven by higher volume, pricing actions, favorable foreign currency impacts and acquisitions
  • 16.1% operating margin, up 40 basis points; 16.9% adjusted operating margin, up 100 basis points
  • Operating cash flow of $538 million, up $260 million; free cash flow of $430 million, up $257 million
  • Initiates 2024 EPS guidance up 13% at the midpoint (adjusted EPS up 9% at the midpoint)

STAMFORD, Conn.--(BUSINESS WIRE)--Feb. 8, 2024-- February 8, 2024-- ITT Inc. (NYSE: ITT) today reported financial results for the fourth quarter and full year ended December 31, 2023. For the fourth quarter, the company reported a year-over-year revenue increase of 7%, up 4% on an organic basis, primarily driven by higher Friction original equipment (OE) volumes in Motion Technologies (MT) and pricing actions in Connect & Control Technologies (CCT) and Industrial Process (IP). Fourth quarter results included a 2% favorable foreign currency impact, while the Micro-Mode acquisition contributed 1% to total revenue growth.

Fourth quarter operating income of $119 million decreased 21% compared to prior year, and operating margin of 14.3% decreased 520 basis points versus prior year primarily due to a one-time loss of $15 million on the sale of the Matrix Composites (Matrix) business in CCT, a prior year non-recurring gain of $16 million on the sale of IP facilities, higher restructuring and corporate charges and cost inflation. On an adjusted basis, operating income of $141 million increased 4% primarily due to higher volumes, pricing actions and productivity. The increase was partially offset by higher corporate expenses, including strategic growth investments, incentive compensation and M&A costs.

Earnings per share for the fourth quarter of $1.12 decreased 19% versus prior year primarily due to the impact of non-recurring items, lower operating income and higher tax rate, partially offset by lower interest expense. On an adjusted basis, earnings per share of $1.34 increased 4% compared to prior year due to higher operating income including favorable foreign currency impact.

Operating cash flow for the fourth quarter of $170 million increased 5% versus prior year driven by higher operating income and strong accounts receivable collections. Free cash flow for the fourth quarter of $131 million was flat versus prior year. For the full year 2023, ITT generated operating cash flow of $538 million, an increase of $260 million versus 2022, and free cash flow of $430 million, an increase of $257 million versus 2022. Both increases were due to higher net income and improved inventory velocity and receivables collections.

 

Change in Presentation of Operating Income and Operating Margin

ITT is transitioning to a new measure for operating income and operating margin in its press release and related earnings presentation. This is not due to any error, correction or misstatement by ITT. Beginning with the fourth quarter of 2023, the company will no longer disclose total segment operating income or margin, or total adjusted segment operating income or margin and instead will focus on operating income and margin and adjusted operating income and margin on a consolidated basis. This will reflect our previous segment operating income measures minus corporate expense (previously presented below the segment operating income line in ITT’s earnings materials). The difference between adjusted segment operating margin and adjusted operating margin for the fourth quarter and full year 2023 is 180 and 170 basis points, respectively.

Table 1. Fourth Quarter Performance

  Q4 2023   Q4 2022   Change  
Revenue $

829.1

    $

774.6

   

7.0

%

 
Organic Growth                

4.5

%

 
Operating Income(1) $

118.8

    $

150.9

   

(21.3)

%

 
Operating Margin(1)  

14.3

%

   

19.5

%

 

(520)

bps  
Adjusted Operating Income(1) $

140.9

    $

136.0

   

3.6

%

 
Adjusted Operating Margin(1)  

17.0

%

   

17.6

%

 

(60)

bps  
Earnings Per Share $

1.12

    $

1.39

   

(19.4)

%

 
Adjusted Earnings Per Share $

1.34

    $

1.29

   

3.9

%

 
Operating Cash Flow $

170.4

    $

162.5

   

4.9

%

 
Free Cash Flow $

131.3

    $

132.3

   

(0.8)

%

 
                       
Note: all results unaudited; dollars in millions except per share amounts

(1) Reflects transition from segment operating income and adjusted segment operating income (and accompanying margin) to operating income and adjusted operating income (and accompanying margin), as described above.

 

Management Commentary

“In 2023, ITT continued to drive growth and differentiation through performance and innovation. We drove high single-digit orders growth whilst also winning the largest single contract ever in our flow business. We outperformed the global automotive market by roughly six hundred basis points in Friction OE to reach more than 29% market share globally. And we invested over $100 million towards future growth, including for capacity expansion and new technologies. With our pricing actions and relentless productivity focus, we grew operating margins 100 basis points, with 330 basis points of improvement in Industrial Process. On capital deployment, we expanded our flow and connectors portfolio through two strategic acquisitions, divested two non-core product lines, and repurchased nearly $70 million of ITT shares. We positioned ITT for another strong performance in 2024,” said Luca Savi, ITT’s Chief Executive Officer and President.

 

Table 2. Fourth Quarter Segment Results

  Revenue   Operating Income   Operating Margin
  Q4 2023 Reported
Increase /
(Decrease)
Organic
Growth
  Q4 2023 Reported
Increase /
(Decrease)
Adjusted
Increase /
(Decrease)
  Q4 2023 Reported
Increase /
(Decrease)
Adjusted
Increase /
(Decrease)
Motion Technologies $

364.7

 

10.4

%

7.4

%

  $

60.3

 

26.2

%

28.5

%

   

16.5%

 

200

bps

240

bps
Industrial Process

289.7

 

3.2

%

2.1

%

 

57.2

 

(28.5)

%

(5.9)

%

 

19.7%

 

(880)

bps

(210)

bps
Connect & Control Technologies

175.6

 

6.7

%

2.5

%

 

16.5

 

(47.8)

%

5.7

%

 

9.4%

 

(980)

bps

(20)

bps
                                               
Note: all results unaudited; excludes intercompany eliminations of $0.9 million; comparisons to Q4 2022; dollars in millions.
 

Motion Technologies revenue increased 10%, driven by higher sales volume in Friction OE, including 30% growth in China, higher rail shipments and favorable foreign currency translation. Operating income of $60 million increased 26% due to productivity savings, higher sales volume, and lower material inflation, partially offset by higher labor and overhead costs, unfavorable product mix and higher strategic investments.

Industrial Process revenue increased 3%, primarily driven by growth in aftermarket parts and service, pricing actions and favorable foreign currency impacts. Operating income of $57 million decreased 29% driven by a non-recurring gain of $16 million in the prior year on facilities sales and higher restructuring and labor costs, partially offset by pricing actions and productivity savings.

Connect & Control Technologies revenue increased 7%, primarily driven by growth in aerospace and industrial components, pricing actions, the Micro-Mode acquisition and favorable foreign currency impacts. Operating income of $17 million decreased 48% driven by a one-time loss of $15 million on the sale of Matrix and higher raw material, labor and overhead costs. The decrease was partially offset by pricing actions and productivity savings. On an adjusted basis, operating income of $33 million increased 6% due to pricing actions.

Table 3. 2023 Full Year Results

  FY 2023   FY 2022   Change  
Revenue $

3,283.0

    $

2,987.7

   

9.9

%

 
Organic Growth                

8.1

%

 
Operating Income(1) $

528.2

    $

468.0

   

12.9

%

 
Operating Margin(1)  

16.1

%

   

15.7

%

 

40

bps  
Adjusted Operating Income(1) $

554.6

    $

473.8

   

17.1

%

 
Adjusted Operating Margin(1)  

16.9

%

   

15.9

%

 

100

bps  
Earnings Per Share $

4.97

    $

4.40

   

13.0

%

 
Adjusted Earnings Per Share $

5.21

    $

4.44

   

17.3

%

 
Operating Cash Flow $

538.0

    $

277.7

   

93.7

%

 
Free Cash Flow $

430.4

    $

173.8

   

147.6

%

 
                       
Note: all results unaudited; dollars in millions except per share amounts
(1) Reflects transition from segment operating income and adjusted segment operating income (and accompanying margin) to operating income and adjusted operating income (and accompanying margin), as described above.
 
 

Quarterly Dividend Increase

The company announced today an increase in its quarterly dividend of 10% to $0.319 per share on the company’s outstanding common stock. ITT’s Board of Directors approved the cash dividend for the first quarter of 2024, which will be payable on April 1, 2024 to shareholders of record as of the close of business on March 8, 2024. The 10% increase in the quarterly dividend announced today follows increases of 20% and 10% in 2022 and 2023, respectively. Including the 10% increase in 2024, the company’s dividend has grown at a 16% compounded annual growth rate since 2019.

2024 Guidance

We expect revenue growth of 9% to 12%, up 3% to 6% on an organic basis; operating margin of 16.7% to 17.3%, and adjusted operating margin of 16.9% to 17.5%, flat to up 60 bps; EPS of $5.37 to $5.82, and adjusted EPS of $5.45 to $5.90, representing growth of 9% at the midpoint; and free cash flow of $435 million to $475 million, representing free cash flow margin of 12% to 13% for full year 2024.

It is not possible, without unreasonable efforts, to estimate the impacts of foreign currency fluctuations, acquisitions and certain other special items that may occur in 2024 as these items are inherently uncertain and difficult to predict. As a result, we are unable to quantify certain amounts that would be included in a reconciliation of organic revenue growth and adjusted operating margin to the most directly comparable GAAP financial measures without unreasonable efforts and we have not provided reconciliations for these forward-looking non-GAAP financial measures.

Investor Conference Call Details

ITT’s management will host a conference call for investors on Thursday, February 8, 2024 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 two hours after the call until Thursday, February 22, 2024 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.

 

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, 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.

We use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “future,” “may,” “will,” “could,” “should,” “potential,” “continue,” “guidance” and other similar expressions to identify forward-looking statements. Forward-looking statements are uncertain and, by their nature, many are inherently unpredictable and outside of ITT’s control, and are subject to known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.

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, we cannot provide any 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:

  • uncertain global economic and capital markets conditions, which have been influenced by heightened geopolitical tensions, 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;
  • fluctuations in interest rates and the impact of such fluctuations on customer behavior and on our cost of debt;
  • fluctuations in foreign currency exchange rates and the impact of such fluctuations on our revenues, customer demand for our products and on our hedging arrangements;
  • volatility in raw material prices and our suppliers’ ability to meet quality and delivery requirements;
  • risk of liabilities from recent mergers, acquisitions, or venture investments, and past divestitures and spin-offs;
  • our inability to hire or retain key personnel;
  • failure to compete successfully and innovate in our markets;
  • failure to manage the distribution of products and services effectively;
  • 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 or failure of any information systems used by the Company, including any flaws in the implementation of any enterprise resource planning systems;
  • 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, including the imposition of tariffs and trade sanctions;
  • fluctuations in demand or customers’ levels of capital investment, maintenance expenditures, production, and market cyclicality;
  • the risk of material business interruptions, particularly at our manufacturing facilities;
  • 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 changing tax laws 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; and
  • risk of product liability claims and litigation.

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.

 
                           
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)                          
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)                          
                           
  Three Months Ended     Full Year  
  December 31,
2023
December 31,
2022
  December 31,
2023
December 31,
2022
Revenue $

829.1

  $

774.6

    $

3,283.0

  $

2,987.7

 
Cost of revenue  

543.1

   

526.3

     

2,175.7

   

2,065.4

 
Gross profit  

286.0

   

248.3

     

1,107.3

   

922.3

 
General and administrative expenses  

98.6

   

51.9

     

302.6

   

217.2

 
Sales and marketing expenses  

42.8

   

38.6

     

174.0

   

156.9

 
Research and development expenses  

25.5

   

22.8

     

102.6

   

96.5

 
Loss (gain) on sale of long-lived assets  

0.3

   

(15.9)

     

(0.1)

   

(16.3)

 
Operating income  

118.8

   

150.9

     

528.2

   

468.0

 
Interest expense (income), net  

1.5

   

3.1

     

10.4

   

6.4

 
Other non-operating (income) expense, net  

(0.2)

   

0.5

     

(1.7)

   

(0.2)

 
Income from continuing operations before income tax expense  

117.5

   

147.3

     

519.5

   

461.8

 
Income tax expense  

24.2

   

31.2

     

104.8

   

91.1

 
Income from continuing operations  

93.3

   

116.1

     

414.7

   

370.7

 
Loss from discontinued operations, net of tax benefit of $0.3, $0.1, $0.3 and $0.4, respectively  

(0.9)

   

-

     

(0.9)

   

(1.3)

 
Net income  

92.4

   

116.1

     

413.8

   

369.4

 
Less: Income attributable to noncontrolling interests  

0.9

   

0.9

     

3.3

   

2.4

 
Net income attributable to ITT Inc. $

91.5

  $

115.2

    $

410.5

  $

367.0

 
                           
Amounts attributable to ITT Inc.:                          
Income from continuing operations $

92.4

  $

115.2

    $

411.4

  $

368.3

 
Loss from discontinued operations, net of tax  

(0.9)

   

-

     

(0.9)

   

(1.3)

 
Net income attributable to ITT Inc. $

91.5

  $

115.2

    $

410.5

  $

367.0

 
                           
Earnings (loss) per share attributable to ITT Inc.:                          
Basic:                          
Continuing operations $

1.13

  $

1.39

    $

5.00

  $

4.42

 
Discontinued operations  

(0.02)

   

-

     

(0.01)

   

(0.02)

 
Net income $

1.11

  $

1.39

    $

4.99

  $

4.40

 
Diluted:                          
Continuing operations $

1.12

  $

1.39

    $

4.97

  $

4.40

 
Discontinued operations  

(0.01)

   

-

     

(0.01)

   

(0.02)

 
Net income $

1.11

  $

1.39

    $

4.96

  $

4.38

 
                           
Weighted average common shares – basic  

82.1

   

82.7

     

82.3

   

83.4

 
Weighted average common shares – diluted  

82.6

   

83.1

     

82.7

   

83.7

 
                           
 
 
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
       
As of the Period Ended

December 31,
2023

 

December 31,
2022

Assets      
Current assets:      
Cash and cash equivalents $

489.2

    $

561.2

 
Receivables, net  

675.2

     

628.8

 
Inventories  

575.4

     

533.9

 
Other current assets  

117.9

     

112.9

 
Total current assets  

1,857.7

     

1,836.8

 
Non-current assets:      
Plant, property and equipment, net  

561.0

     

526.8

 
Goodwill  

1,016.3

     

964.8

 
Other intangible assets, net  

116.6

     

112.8

 
Other non-current assets  

381.0

     

339.1

 
Total non-current assets  

2,074.9

     

1,943.5

 
Total assets $

3,932.6

    $

3,780.3

 
Liabilities and Shareholders’ Equity              
Current liabilities:              
Short-term borrowings $

187.7

    $

451.0

 
Accounts payable  

437.0

     

401.1

 
Accrued and other current liabilities  

413.1

     

333.4

 
Total current liabilities  

1,037.8

     

1,185.5

 
Non-current liabilities:              
Postretirement benefits  

138.7

     

137.2

 
Other non-current liabilities  

217.0

     

200.2

 
Total non-current liabilities  

355.7

     

337.4

 
Total liabilities  

1,393.5

     

1,522.9

 
Shareholders’ equity:              
Common stock:              
Authorized – 250.0 shares, $1 par value per share              
Issued and outstanding – 82.1 shares and 82.7 shares, respectively  

82.1

     

82.7

 
Retained earnings  

2,778.0

     

2,509.7

 
Accumulated other comprehensive loss:              
Postretirement benefit plans  

(1.6)

     

3.6

 
Cumulative translation adjustments  

(330.3)

     

(347.9)

 
Total accumulated other comprehensive loss  

(331.9)

     

(344.3)

 
Total ITT Inc. shareholders’ equity  

2,528.2

     

2,248.1

 
Noncontrolling interests  

10.9

     

9.3

 
Total shareholders’ equity  

2,539.1

     

2,257.4

 
Total liabilities and shareholders’ equity $

3,932.6

    $

3,780.3

 
               
 
               
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)              
(IN MILLIONS)              
     
For the Year Ended December 31,
2023
  December 31,
2022
Operating Activities          
Income from continuing operations attributable to ITT Inc. $

411.4

    $

368.3

 
Adjustments to income from continuing operations:              
Depreciation and amortization  

109.2

     

107.4

 
Equity-based compensation  

20.2

     

18.1

 
Deferred income tax (benefit) expense  

(27.6)

     

2.9

 
Gain on sale of long-lived assets  

(0.1)

     

(16.3)

 
Other non-cash charges, net  

37.1

     

29.3

 
Changes in assets and liabilities:              
Change in receivables  

(39.2)

     

(90.7)

 
Change in inventories  

(34.4)

     

(99.5)

 
Change in contract assets  

(0.3)

     

(7.4)

 
Change in contract liabilities  

23.1

     

23.3

 
Change in accounts payable  

26.3

     

39.4

 
Change in accrued expenses  

47.6

     

(36.9)

 
Change in income taxes  

5.4

     

(13.5)

 
Other, net  

(40.7)

     

(46.7)

 
Net Cash – Operating Activities  

538.0

     

277.7

 
Investing Activities              
Capital expenditures  

(107.6)

     

(103.9)

 
Proceeds from sale of business  

11.5

     

-

 
Proceeds from sale of long-lived assets  

0.9

     

20.9

 
Acquisitions, net of cash acquired  

(79.3)

     

(146.9)

 
Payments to acquire interest in unconsolidated subsidiaries  

(2.5)

     

(25.6)

 
Other, net  

(4.0)

     

0.4

 
Net Cash – Investing Activities  

(181.0)

     

(255.1)

 
Financing Activities              
(Repayments of)/Proceeds from commercial borrowings, net  

(266.0)

     

259.7

 
Long-term debt, repayments  

(2.2)

     

(2.1)

 
Share repurchases under repurchase plan  

(60.0)

     

(245.3)

 
Payments for taxes related to net share settlement of stock incentive plans  

(7.2)

     

(8.8)

 
Dividends paid  

(95.8)

     

(87.9)

 
Other, net  

(1.1)

     

1.1

 
Net Cash – Financing Activities  

(432.3)

     

(83.3)

 
Exchange rate effects on cash and cash equivalents  

3.6

     

(25.8)

 
Net cash – operating activities of discontinued operations  

(0.3)

     

0.1

 
Net change in cash and cash equivalents  

(72.0)

     

(86.4)

 
Cash and cash equivalents – beginning of year (includes restricted cash of $0.7 and $0.8, respectively)  

561.9

     

648.3

 
Cash and Cash Equivalents – end of year (includes restricted cash of $0.7 and $0.7, respectively) $

489.9

    $

561.9

 
Supplemental Disclosures of Cash Flow Information              
Interest paid $

15.7

    $

10.8

 
Income taxes paid, net of refunds received  

113.1

     

92.7

 
Unpaid capital expenditures $

25.3

    $

21.8

 
               
               
 

Key Performance Indicators and Non-GAAP Measures

Management reviews a variety of key performance indicators including revenue, segment operating income and margins, earnings per share, order growth, and backlog, some of which are calculated on a non-GAAP basis. In addition, we consider certain measures to be useful to management and investors when evaluating our operating performance for the periods presented. These measures provide a tool for evaluating our ongoing operations and management of assets from period to period. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including, but not limited to, acquisitions, dividends, and share repurchases. Some of these metrics, however, are not measures of financial performance under accounting principles generally accepted in the United States of America (GAAP) and should not be considered a substitute for measures determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators for purposes of our reconciliation tables.

Organic Revenues and Organic Orders are defined, respectively, as revenue and orders, excluding the impacts of foreign currency fluctuations and acquisitions. The period-over-period change resulting from foreign currency fluctuations is estimated using a fixed exchange rate for both the current and prior periods. We believe that reporting organic revenue and organic orders provides useful information to investors by helping identify underlying trends in our business and facilitating comparisons of our revenue performance with prior and future periods and to our peers.

Adjusted Operating Income is defined as operating income adjusted to exclude special items that include, but are not limited to, restructuring, divestiture-related costs, certain asset impairment charges, certain acquisition-related impacts, and unusual or infrequent operating items. Special items represent charges or credits that impact current results, which management views as unrelated to the Company's ongoing operations and performance. Adjusted Operating Margin is defined as adjusted operating income divided by revenue. We believe these financial measures are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.

Adjusted Income from Continuing Operations is defined as income from continuing operations attributable to ITT Inc. adjusted to exclude special items that include, but are not limited to, restructuring, divestiture-related costs, certain asset impairment charges, certain acquisition-related impacts, income tax settlements or adjustments, and unusual or infrequent items. Special items represent charges or credits, on an after-tax basis, that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. The after-tax basis of each special item is determined using the jurisdictional tax rate of where the expense or benefit occurred. Adjusted income from continuing operations per diluted share (adjusted EPS) is defined as adjusted income from continuing operations divided by diluted weighted average common shares outstanding. We believe that adjusted income from continuing operations and adjusted EPS are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.

Free Cash Flow is defined as net cash provided by operating activities less capital expenditures. Free Cash Flow Margin is defined as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin provides useful information to investors as it provides insight into a primary cash flow metric used by management to monitor and evaluate cash flows generated by our operations.

 
 
ITT Inc. Non-GAAP Reconciliation Statements
(In millions; all amounts unaudited)
                       
                       
                       
Reconciliation of Revenue to Organic Revenue
                       
  Fourth Quarter 2023   Full Year 2023
  MT IP CCT Elim Total   MT IP CCT Elim Total
Revenue

$

364.7

 

$

289.7

 

$

175.6

 

$

(0.9

)

$

829.1

 

 

$

1,457.8

 

$

1,129.6

 

$

699.4

 

$

(3.8

)

$

3,283.0

 

Less: Acquisitions

 

-

 

 

-

 

 

5.6

 

 

-

 

 

5.6

 

 

 

-

 

 

15.0

 

 

15.5

 

 

-

 

 

30.5

 

Less: FX

 

10.0

 

 

3.0

 

 

1.3

 

 

-

 

 

14.3

 

 

 

17.0

 

 

4.7

 

 

1.4

 

 

-

 

 

23.1

 

CY Organic Revenue

 

354.7

 

 

286.7

 

 

168.7

 

 

(0.9

)

 

809.2

 

 

 

1,440.8

 

 

1,109.9

 

 

682.5

 

 

(3.8

)

 

3,229.4

 

Less: PY Revenue

 

330.4

 

 

280.7

 

 

164.6

 

 

(1.1

)

 

774.6

 

 

 

1,374.0

 

 

971.0

 

 

645.6

 

 

(2.9

)

 

2,987.7

 

Organic Revenue Growth - $

$

24.3

 

$

6.0

 

$

4.1

 

 

$

34.6

 

 

$

66.8

 

$

138.9

 

$

36.9

 

 

$

241.7

 

Organic Revenue Growth - %

 

7.4

%

 

2.1

%

 

2.5

%

 

 

4.5

%

 

 

4.9

%

 

14.3

%

 

5.7

%

 

 

8.1

%

                       
Reported Revenue Growth - $

$

34.3

 

$

9.0

 

$

11.0

 

 

$

54.5

 

 

$

83.8

 

$

158.6

 

$

53.8

 

 

$

295.3

 

Reported Revenue Growth - %

 

10.4

%

 

3.2

%

 

6.7

%

 

 

7.0

%

 

 

6.1

%

 

16.3

%

 

8.3

%

 

 

9.9

%

                       
                       
                       
                       
Reconciliation of Orders to Organic Orders
                       
  Fourth Quarter 2023   Full Year 2023
  MT IP CCT Elim Total   MT IP CCT Elim Total
Orders

$

373.0

 

$

285.9

 

$

183.1

 

$

(0.9

)

$

841.1

 

 

$

1,487.5

 

$

1,227.0

 

$

738.3

 

$

(3.3

)

$

3,449.5

 

Less: Acquisitions

 

-

 

 

-

 

 

6.8

 

 

-

 

 

6.8

 

 

 

-

 

 

13.8

 

 

16.4

 

 

-

 

 

30.2

 

Less: FX

 

10.8

 

 

2.4

 

 

0.8

 

 

-

 

 

14.0

 

 

 

18.6

 

 

2.2

 

 

0.4

 

 

-

 

 

21.2

 

CY Organic Orders

 

362.2

 

 

283.5

 

 

175.5

 

 

(0.9

)

 

820.3

 

 

 

1,468.9

 

 

1,211.0

 

 

721.5

 

 

(3.3

)

 

3,398.1

 

Less: PY Orders

 

337.4

 

 

271.1

 

 

168.6

 

 

(0.9

)

 

776.2

 

 

 

1,376.6

 

 

1,101.9

 

 

701.3

 

 

(3.5

)

 

3,176.3

 

Organic Orders Growth - $

$

24.8

 

$

12.4

 

$

6.9

 

 

$

44.1

 

 

$

92.3

 

$

109.1

 

$

20.2

 

 

$

221.8

 

Organic Orders Growth - %

 

7.4

%

 

4.6

%

 

4.1

%

 

 

5.7

%

 

 

6.7

%

 

9.9

%

 

2.9

%

 

 

7.0

%

                       
Reported Orders Growth - $

$

35.6

 

$

14.8

 

$

14.5

 

 

$

64.9

 

 

$

110.9

 

$

125.1

 

$

37.0

 

 

$

273.2

 

Reported Orders Growth - %

 

10.6

%

 

5.5

%

 

8.6

%

 

 

8.4

%

 

 

8.1

%

 

11.4

%

 

5.3

%

 

 

8.6

%

                       
                       
Note: Immaterial differences due to rounding.
 
 
 
ITT Inc. Non-GAAP Reconciliation Statements
(In millions; all amounts unaudited)
                       
Reconciliations of Operating Income/Margin to Adjusted Operating Income/Margin
  Fourth Quarter 2023   Fourth Quarter 2022
  MT IP CCT Corporate ITT   MT IP CCT Corporate ITT
Reported Operating Income

$

60.3

 

$

57.2

 

$

16.5

 

$

(15.2

)

$

118.8

 

 

$

47.8

 

$

80.0

 

$

31.6

 

$

(8.5

)

$

150.9

 

Loss on sale of business

 

-

 

 

-

 

 

15.3

 

 

-

 

 

15.3

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Restructuring costs

 

2.5

 

 

3.7

 

 

0.9

 

 

-

 

 

7.1

 

 

 

0.5

 

 

(0.1

)

 

-

 

 

(0.1

)

 

0.3

 

Acquisition and divestiture related costs

 

-

 

 

-

 

 

0.8

 

 

-

 

 

0.8

 

 

 

-

 

 

0.2

 

 

-

 

 

-

 

 

0.2

 

(Gain) on sale of long-lived assets

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

-

 

 

(15.5

)

 

-

 

 

-

 

 

(15.5

)

Impacts related to Russia-Ukraine war

 

(0.6

)

 

(0.6

)

 

-

 

 

-

 

 

(1.2

)

 

 

(0.1

)

 

(0.2

)

 

-

 

 

-

 

 

(0.3

)

Other [a]

 

0.1

 

 

0.1

 

 

(0.1

)

 

-

 

 

0.1

 

 

 

0.3

 

 

(0.2

)

 

-

 

 

0.3

 

 

0.4

 

Adjusted Operating Income

$

62.3

 

$

60.4

 

$

33.4

 

$

(15.2

)

$

140.9

 

 

$

48.5

 

$

64.2

 

$

31.6

 

$

(8.3

)

$

136.0

 

Change in Operating Income

 

26.2

%

 

(28.5

%)

 

(47.8

%)

 

78.8

%

 

(21.3

%)

           
Change in Adjusted Operating Income

 

28.5

%

 

(5.9

%)

 

5.7

%

 

83.1

%

 

3.6

%

           
                       
Reported Operating Margin

 

16.5

%

 

19.7

%

 

9.4

%

 

 

14.3

%

 

 

14.5

%

 

28.5

%

 

19.2

%

 

 

19.5

%

Impact of special item adjustments 60 bps 110 bps 960 bps   270 bps   20 bps -560 bps 0 bps   -190 bps
Adjusted Operating Margin

 

17.1

%

 

20.8

%

 

19.0

%

 

 

17.0

%

 

 

14.7

%

 

22.9

%

 

19.2

%

 

 

17.6

%

Change in Operating Margin 200 bps -880 bps -980 bps   -520 bps            
Change in Adjusted Operating Margin 240 bps -210 bps -20 bps   -60 bps            
                       
                       
  Full Year 2023   Full Year 2022
  MT IP CCT Corporate ITT   MT IP CCT Corporate ITT
Reported Operating Income

$

230.8

 

$

243.6

 

$

107.5

 

$

(53.7

)

$

528.2

 

 

$

208.5

 

$

187.6

 

$

115.8

 

$

(43.9

)

$

468.0

 

Loss on sale of business

 

-

 

 

-

 

 

15.3

 

 

-

 

 

15.3

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Restructuring costs

 

4.0

 

 

4.6

 

 

1.3

 

 

-

 

 

9.9

 

 

 

2.7

 

 

1.3

 

 

-

 

 

(0.2

)

 

3.8

 

Impacts related to Russia-Ukraine war

 

1.3

 

 

1.2

 

 

-

 

 

-

 

 

2.5

 

 

 

3.1

 

 

4.8

 

 

-

 

 

-

 

 

7.9

 

Acquisition and divestiture related costs

 

-

 

 

-

 

 

2.4

 

 

-

 

 

2.4

 

 

 

-

 

 

3.2

 

 

-

 

 

0.5

 

 

3.7

 

(Gain) on sale of long-lived assets

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

-

 

 

(15.5

)

 

-

 

 

-

 

 

(15.5

)

Asset impairment charges

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

-

 

 

-

 

 

-

 

 

1.7

 

 

1.7

 

Other [a]

 

0.1

 

 

-

 

 

(0.1

)

 

(3.7

)

 

(3.7

)

 

 

1.3

 

 

1.2

 

 

-

 

 

1.7

 

 

4.2

 

Adjusted Operating Income

$

236.2

 

$

249.4

 

$

126.4

 

$

(57.4

)

$

554.6

 

 

$

215.6

 

$

182.6

 

$

115.8

 

$

(40.2

)

$

473.8

 

Change in Operating Income

 

10.7

%

 

29.9

%

 

(7.2

%)

 

22.3

%

 

12.9

%

           
Change in Adjusted Operating Income

 

9.6

%

 

36.6

%

 

9.2

%

 

42.8

%

 

17.1

%

           
                       
Reported Operating Margin

 

15.8

%

 

21.6

%

 

15.4

%

 

 

16.1

%

 

 

15.2

%

 

19.3

%

 

17.9

%

 

 

15.7

%

Impact of special item adjustments 40 bps 50 bps 270 bps   80 bps   50 bps -50 bps 0 bps   20 bps
Adjusted Operating Margin

 

16.2

%

 

22.1

%

 

18.1

%

 

 

16.9

%

 

 

15.7

%

 

18.8

%

 

17.9

%

 

 

15.9

%

Change in Operating Margin 60 bps 230 bps -250 bps   40 bps            
Change in Adjusted Operating Margin 50 bps 330 bps 20 bps   100 bps            
                       
Note: Immaterial differences due to rounding.
                       
[a] 2023 includes income from a recovery of costs associated with the 2020 lease termination of a legacy site. 2022 primarily includes severance charges and accelerated amortization of an intangible asset.
 
 
 
ITT Inc. Non-GAAP Reconciliation Statements
(In millions, except earns per share; all amounts unaudited)
                         
Reconciliation of Reported vs. Adjusted Income from Continuing Operating and Diluted EPS  
  Income from Continuing Operations Diluted Earnings per Share
  Q4 2023 Q4 2022 % Change FY 2023 FY 2022 % Change Q4 2023 Q4 2022 % Change FY 2023 FY 2022 % Change
Reported

$

92.4

 

$

115.2

 

(19.8

%)

$

411.4

 

$

368.3

 

11.7

%

$

1.12

 

$

1.39

 

(19.4

%)

$

4.97

 

$

4.40

 

13.0

%

Special Items Expense / (Income):                        
Loss on sale of business

 

15.3

 

 

-

 

 

 

15.3

 

 

-

 

 

 

0.19

 

 

-

 

 

 

0.19

 

 

-

 

 
Restructuring costs

 

7.1

 

 

0.3

 

 

 

9.9

 

 

3.8

 

 

 

0.09

 

 

-

 

 

 

0.12

 

 

0.05

 

 
Impacts related to Russia-Ukraine war

 

(1.2

)

 

(0.3

)

 

 

2.5

 

 

7.9

 

 

 

(0.01

)

 

-

 

 

 

0.03

 

 

0.09

 

 
Acquisition and divestiture related costs

 

0.8

 

 

0.2

 

 

 

2.4

 

 

3.7

 

 

 

0.01

 

 

-

 

 

 

0.03

 

 

0.04

 

 
(Gain) on sale of long-lived assets

 

-

 

 

(15.5

)

 

 

-

 

 

(15.5

)

 

 

-

 

 

(0.19

)

 

 

-

 

 

(0.19

)

 
Asset impairment charges

 

-

 

 

-

 

 

 

-

 

 

1.7

 

 

 

-

 

 

-

 

 

 

-

 

 

0.02

 

 
Other [a] [b]

 

0.1

 

 

0.4

 

 

 

(2.3

)

 

4.2

 

 

 

(0.01

)

 

0.01

 

 

 

(0.04

)

 

0.06

 

 
Tax impact of special items [c]

 

(5.4

)

 

4.5

 

 

 

(6.2

)

 

(0.3

)

 

 

(0.07

)

 

0.05

 

 

 

(0.07

)

 

-

 

 
Other tax special items [d] [e]

 

1.8

 

 

2.6

 

 

 

(2.0

)

 

(2.3

)

 

 

0.02

 

 

0.03

 

 

 

(0.02

)

 

(0.03

)

 
Adjusted

$

110.9

 

$

107.4

 

3.3

%

$

431.0

 

$

371.5

 

16.0

%

$

1.34

 

$

1.29

 

3.9

%

$

5.21

 

$

4.44

 

17.3

%

                         
Note: Amounts may not calculate due to rounding
Per share amounts are based on diluted weighted average common shares outstanding.
                         
[a] Q4 2022 primarily reflects severance costs.
[b] FY 2023 primarily includes income of $3.7 from a recovery of costs associated with the 2020 lease termination of a legacy site, partially offset by interest expense of $1.4 related to a tax audit settlement in Italy. FY 2022 primarily includes severance costs.
[c] The tax impact of each adjustment is determined using the jurisdictional tax rate of where the expense or benefit occurred.
[d] Q4 2023 tax-related special items include expense (benefits) from the tax impact on distributions of $5.9, return to accrual adjustments of $(1.8), a change in uncertain tax positions of $(1.5) and other tax special items of $(0.8). Q4 2022 tax-related special items include a tax on future distribution of foreign earnings of $5.5, the tax impact on distributions of $2.0, return to accrual adjustments of $(4.2), settlements of $(2.1), and other tax special items of $1.4.
[e] FY 2023 tax-related special items include expense (benefits) from valuation allowance reversals of $(16.0), settlements of $14.4 primarily related to a tax audit in Italy, the tax impact on distributions of $7.5, an amendment of our federal tax return of $(4.9), and other tax special items of $(3.0). FY 2022 tax-related special items include a change in deferred tax asset valuation allowance of $(1.2), a change in uncertain tax positions of $(0.7), a tax on future distribution of foreign earnings of $(0.3), and other tax special items of $(0.1).
 
 
     
ITT Inc. Non-GAAP Reconciliation Statements    
(In millions, except earns per share; all amounts unaudited)    
                 
                 
                 
Reconciliation of GAAP vs Adjusted EPS Guidance - Full Year 2024      
                 
        2024 Full-Year Guidance      
        Low High      
EPS from Continuing Operations - GAAP      

$

5.37

 

$

5.82

 

     
Estimated restructuring      

 

0.05

 

 

0.05

 

     
Other special items      

 

0.05

 

 

0.05

 

     
Tax on special Items      

 

(0.02

)

 

(0.02

)

     
EPS from Continuing Operations - Adjusted      

$

5.45

 

$

5.90

 

     
                 
Note: The Company has provided forward-looking non-GAAP financial measures for organic revenue growth and adjusted operating margin. It is not possible, without unreasonable efforts, to estimate the impacts of foreign currency fluctuations, acquisitions and certain other special items that may occur in 2024 as these items are inherently uncertain and difficult to predict. As a result, the Company is unable to quantify certain amounts that would be included in a reconciliation of organic revenue growth and adjusted operating margin to the most directly comparable GAAP financial measures without unreasonable efforts and accordingly has not provided reconciliations for these forward looking non-GAAP financial measures.
                 
                 
                 
                 
                 
Reconciliation of Cash from Operating Activities to Free Cash Flow
              FY 2024 Guidance
  Q4 2023 Q4 2022   FY 2023 FY 2022   Low High
Net Cash - Operating Activities

$

170.4

 

$

162.5

 

 

$

538.0

 

$

277.7

 

 

$

580.0

 

$

620.0

 

Less: Capital expenditures

 

39.1

 

 

30.2

 

 

 

107.6

 

 

103.9

 

 

 

145.0

 

 

145.0

 

Free Cash Flow

$

131.3

 

$

132.3

 

 

$

430.4

 

$

173.8

 

 

$

435.0

 

$

475.0

 

                 
Revenue

$

829.1

 

$

774.6

 

 

$

3,283.0

 

$

2,987.7

 

 

$

3,625.0

 

$

3,625.0

 

Free Cash Flow Margin

 

15.8

%

 

17.1

%

 

 

13.1

%

 

5.8

%

 

 

12

%

 

13

%

 

Investor Contact
Mark Macaluso
+1 914-641-2064
mark.macaluso@itt.com

Media Contact
Phil Terrigno
+1 914-641-2143
phil.terrigno@itt.com

 

Source: ITT Inc.

ITT Reports 2023 Third Quarter Earnings Per Share (EPS) of $1.34, Adjusted EPS of $1.37

  • 9% revenue growth (5% organic) driven by pump projects and aftermarket, aerospace and defense components, and Friction OE outperformance
  • 19.1% segment operating margin (19.4% adjusted), 150 basis points expansion (120 basis points adjusted); segment operating income increased 19% (17% adjusted)
  • Year-to-date operating cash flow of $368 million, free cash flow of $299 million
  • Raising 2023 full year guidance across all metrics

STAMFORD, Conn.--(BUSINESS WIRE)--Nov. 2, 2023-- November 2, 2023-- ITT Inc. (NYSE: ITT) today reported financial results for the third quarter ended September 30, 2023. The company reported a year-over-year revenue increase of 9%, primarily driven by 13% growth in both Industrial Process and Connect & Control Technologies. Foreign currency translation drove a 3% favorable impact and the acquisition of Micro-Mode contributed 1% to total revenue growth.

Third quarter segment operating income of $157 million increased 19% versus prior year (17% adjusted) due to productivity, pricing actions and higher sales volume. This was partially offset by higher compensation costs, overhead inflation and strategic growth investments.

EPS for the third quarter of $1.34 increased 9% versus prior year primarily due to segment operating income growth and benefits from share repurchases. Adjusted EPS of $1.37 increased 14% compared to prior year. Adjustments to EPS are primarily related to restructuring costs to optimize the company’s cost base and write-downs due to the suspension of business in Russia.

Operating cash flow for the third quarter of $170 million increased $109 million versus prior year primarily driven by higher operating income and improved working capital management. Free cash flow for the quarter of $148 million increased $113 million versus prior year. On a year-to-date basis, ITT generated operating cash flow of $368 million, up $252 million versus 2022, and free cash flow of $299 million, up $258 million versus 2022.

 

Table 1. Third Quarter Performance

 

 

Q3 2023

 

 

Q3 2022

 

 

Change

Revenue

 

$

822.1

 

 

$

753.6

 

 

9.1

%

Organic Growth

 

 

 

 

 

 

 

5.4

%

Segment Operating Income

 

$

157.3

 

 

$

132.4

   

18.8

%

Segment Operating Margin

 

 

19.1

%

 

 

17.6

%

 

150

bps

Adjusted Segment Operating Income

 

$

159.7

 

 

$

136.8

   

16.7

%

Adjusted Segment Operating Margin

 

 

19.4

%

 

 

18.2

%

 

120

bps

Earnings Per Share

 

$

1.34

 

 

$

1.23

 

 

8.9

%

Adjusted Earnings Per Share

 

$

1.37

 

 

$

1.20

 

 

14.2

%

Operating Cash Flow

 

$

169.8

 

 

$

61.0

 

 

178.4

%

Free Cash Flow

 

$

147.6

 

 

$

34.8

 

 

324.1

%

Note: all results unaudited; dollars in millions except for per share amounts

Management Commentary

“In Q3, we continued to generate strong growth and execute on all fronts. Our teams drove share gains in automotive and rail, large project growth and aftermarket demand in pumps and valves, and growth in aerospace and defense. Once again, we delivered strong year-over-year and sequential segment margin expansion, and are accelerating towards our 20% long-term target. We also generated more than $350 million of cash flow this year, acquired Svanehøj to grow our flow portfolio, and will continue to put our cash to work with further M&A opportunities and the new $1 billion share repurchase program we announced in October. As a result of this performance, today we are raising our 2023 outlook for the third straight quarter. We continue to execute at a new level of earnings, profitability and cash, whilst reinvesting in our businesses and growing through acquisitions to deliver long-term value,” said ITT’s Chief Executive Officer and President Luca Savi.

Table 2. Third Quarter Segment Results

 

 

Revenue

 

Operating Income

 

 

 

Q3 2023

Reported Increase

Organic Growth

 

Q3 2023

Reported Increase

Adjusted Increase

 

 

Motion Technologies

$

359.5

 

5.1 %

 

0.6 %

 

 

$

59.4

 

10.0 %

 

12.8 %

 

 

 

Industrial Process

 

279.8

 

12.6 %

 

10.9 %

 

 

 

64.7

 

34.5 %

 

24.4 %

 

 

 

Connect & Control Technologies

 

184.0

 

12.7 %

 

7.7 %

 

 

 

33.2

 

9.6 %

 

10.6 %

 

 

 

Total Segment Results

 

822.1

 

9.1 %

 

5.4 %

 

 

 

157.3

 

18.8 %

 

16.7 %

 

 

Note: all results unaudited; excludes intercompany eliminations of $1.2; comparisons to Q3 2022

Motion Technologies revenue increased $17 million primarily due to higher sales volume in Friction OE and favorable foreign currency translation impacts. Operating income increased $5 million primarily due to productivity actions and higher sales volume, partially offset by higher labor and overhead costs, unfavorable sales mix and prior year foreign currency hedge benefits.

 

Industrial Process revenue increased $31 million primarily due to growth in aftermarket parts and service and project shipments. Operating income increased $17 million primarily due to pricing actions, higher volume and productivity savings, partially offset by higher labor costs.

Connect & Control Technologies revenue increased $21 million primarily driven by pricing actions, volume growth in aerospace and defense components, and the acquisition of Micro-Mode. Operating income increased $3 million primarily due to pricing and productivity actions, partially offset by higher labor and overhead costs.

2023 Guidance

We now expect revenue growth of approximately 9%, up 7% to 8% on an organic basis; segment operating margin of 17.9% to 18.5% and adjusted segment operating margin of 18.3% to 18.9%, up 110 bps to 170 bps; EPS of $5.05 to $5.11 and adjusted EPS of $5.15 to $5.21, up 16% to 17% for the full year; and free cash flow of over $400 million, representing approximately 12% free cash flow margin for the full year 2023.*

*It is not possible, without unreasonable efforts, to estimate the impacts of foreign currency fluctuations, acquisitions and certain other special items that may occur in 2023 as these items are inherently uncertain and difficult to predict. As a result, we are unable to quantify certain amounts that would be included in a reconciliation of organic revenue growth and adjusted segment operating margin to the most directly comparable GAAP financial measures without unreasonable efforts and accordingly we have not provided reconciliations for these forward-looking non-GAAP financial measures.

 

Investor Conference Call Details

ITT’s management will host a conference call for investors on Thursday, November 2 at 8:30 a.m. Eastern Time. The briefing can be accessed live via a webcast, which is available on the company’s website: https://investors.itt.com . A replay of the webcast will be available from two hours after the webcast until Thursday, November 16, 2023 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.

 

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.

We use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “future,” “may,” “will,” “could,” “should,” “potential,” “continue,” “guidance” and other similar expressions to identify such forward-looking statements. Forward-looking statements are uncertain and, by their nature, many are inherently unpredictable and outside of ITT’s control, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.

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, we cannot provide any 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:

  • volatility in raw material prices and our suppliers’ ability to meet quality and delivery requirements;
  • uncertain global economic and capital markets conditions, which have been influenced by the COVID-19 pandemic, the Israel-Hamas conflict, the ongoing Russia- Ukraine war, inflation, changes in monetary policies, slowing growth and the threat of a possible global economic recession, trade disputes between the U.S. and its trading partners, political and social unrest, instability in the global banking system and the availability and fluctuations in prices of energy and commodities, including steel, oil, copper and tin;
  • impacts on our business stemming from continued supply chain disruptions and raw material shortages, which have resulted in increased costs and reduced availability of key commodities and other necessary services;
  • our inability to hire or retain key personnel;
  • fluctuations in foreign currency exchange rates and the impact of such fluctuations on our revenues, customer demand for our products and on our hedging arrangements;
  • failure to manage the distribution of products and services effectively;
  • fluctuations in interest rates and the impact of such fluctuations on customer 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 or failure of any information systems used by the Company, including any flaws in the implementation of any enterprise resource planning systems, as well as similar breaches or failures affecting our business partners or service providers;
  • 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, including the imposition of tariffs and trade sanctions;
  • fluctuations in demand or customers’ levels of capital investment, including as a result of the tentatively-settled United Automobile Workers (UAW) strike at the production facilities of some of our customers; and maintenance expenditures, especially in the energy, chemical and mining markets;
  • the impacts on our business from Russia’s war with Ukraine, and the global response to it;
  • 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;
  • increased scrutiny from investors, lenders and other market participants regarding our environmental, social and governance and sustainability responsibilities, which could expose us to additional costs and adversely impact our reputation, business, financial performance and growth;
  • failure to comply with the U.S. Foreign Corrupt Practices Act (or other applicable anti-corruption legislation), export controls and trade sanctions;
  • 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.

 
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)                
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)                          
                           
  Three Months Ended     Nine Months Ended  
  September 30,
2023
October 1,
2022
  September 30,
2023
October 1,
2022
Revenue $

822.1

  $

753.6

    $

2,453.9

  $

2,213.1

 
Cost of revenue  

542.7

   

520.2

     

1,632.6

   

1,539.1

 
Gross profit  

279.4

   

233.4

     

821.3

   

674.0

 
General and administrative expenses  

66.9

   

47.5

     

203.6

   

164.9

 
Sales and marketing expenses  

44.4

   

39.5

     

131.2

   

118.3

 
Research and development expenses  

25.0

   

24.4

     

77.1

   

73.7

 
Operating income  

143.1

   

122.0

     

409.4

   

317.1

 
Interest and non-operating expense, net  

1.4

   

2.3

     

7.4

   

2.6

 
Income from continuing operations before income tax expense  

141.7

   

119.7

     

402.0

   

314.5

 
Income tax expense  

29.9

   

16.4

     

80.6

   

59.9

 
Income from continuing operations  

111.8

   

103.3

     

321.4

   

254.6

 
Loss from discontinued operations, net of tax benefit of $0.0, $(0.1), $0.0 and $0.3, respectively  

-

   

(0.1)

     

-

   

(1.3)

 
Net income  

111.8

   

103.2

     

321.4

   

253.3

 
Less: Income attributable to noncontrolling interests  

1.0

   

0.8

     

2.4

   

1.5

 
Net income attributable to ITT Inc. $

110.8

  $

102.4

    $

319.0

  $

251.8

 
                           
Amounts attributable to ITT Inc.:                          
Income from continuing operations $

110.8

  $

102.5

    $

319.0

  $

253.1

 
Loss from discontinued operations, net of tax  

-

   

(0.1)

     

-

   

(1.3)

 
Net income attributable to ITT Inc. $

110.8

  $

102.4

    $

319.0

  $

251.8

 
                           
Earnings (loss) per share attributable to ITT Inc.:                          
Basic:                          
Continuing operations $

1.35

  $

1.24

    $

3.87

  $

3.03

 
Discontinued operations  

-

   

-

     

-

   

(0.02)

 
Net income $

1.35

  $

1.24

    $

3.87

  $

3.01

 
Diluted:                          
Continuing operations $

1.34

  $

1.23

    $

3.86

  $

3.02

 
Discontinued operations  

-

   

-

     

-

   

(0.02)

 
Net income $

1.34

  $

1.23

    $

3.86

  $

3.00

 
                           
Weighted average common shares – basic  

82.1

   

82.7

     

82.4

   

83.6

 
Weighted average common shares – diluted  

82.5

   

83.0

     

82.7

   

83.9

 
 
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)  
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)  
  September 30,
2023
    December 31,
2022
 
As of the Period Ended              
Assets              
Current assets:        
Cash and cash equivalents $

430.8

    $

561.2

 
Receivables, net  

674.0

     

628.8

 
Inventories  

574.3

     

533.9

 
Other current assets  

102.4

     

112.9

 
Total current assets  

1,781.5

     

1,836.8

 
Non-current assets:        
Plant, property and equipment, net  

523.2

     

526.8

 
Goodwill  

1,001.1

     

964.8

 
Other intangible assets, net  

123.0

     

112.8

 
Other non-current assets  

373.5

     

339.1

 
Total non-current assets  

2,020.8

     

1,943.5

 
Total assets $

3,802.3

    $

3,780.3

 
Liabilities and Shareholders’ Equity              
Current liabilities:              
Commercial paper and current maturities of long-term debt $

245.4

    $

451.0

 
Accounts payable  

408.1

     

401.1

 
Accrued and other current liabilities  

390.5

     

333.4

 
Total current liabilities  

1,044.0

     

1,185.5

 
Non-current liabilities:              
Postretirement benefits  

132.0

     

137.2

 
Other non-current liabilities  

207.1

     

200.2

 
Total non-current liabilities  

339.1

     

337.4

 
Total liabilities  

1,383.1

     

1,522.9

 
Shareholders’ equity:              
Common stock:              
Authorized – 250.0 shares, $1 par value per share              
Issued and outstanding – 82.1 shares and 82.7 shares, respectively  

82.1

     

82.7

 
Retained earnings  

2,705.8

     

2,509.7

 
Accumulated other comprehensive loss:              
Postretirement benefit plans  

3.8

     

3.6

 
Cumulative translation adjustments  

(382.6)

     

(347.9)

 
Total accumulated other comprehensive loss  

(378.8)

     

(344.3)

 
Total ITT Inc. shareholders’ equity  

2,409.1

     

2,248.1

 
Noncontrolling interests  

10.1

     

9.3

 
Total shareholders’ equity  

2,419.2

     

2,257.4

 
Total liabilities and shareholders’ equity $

3,802.3

    $

3,780.3

 
 
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)          
(IN MILLIONS)              
     
For the Nine Months Ended September 30,
2023
  October 1,
2022
Operating Activities          
Income from continuing operations attributable to ITT Inc. $

319.0

    $

253.1

 
Adjustments to income from continuing operations:              
Depreciation and amortization  

82.8

     

81.5

 
Equity-based compensation  

15.1

     

13.6

 
Gain on sale of business  

(7.2)

     

-

 
Other non-cash charges, net  

22.5

     

20.2

 
Changes in assets and liabilities:              
Change in receivables  

(54.7)

     

(120.8)

 
Change in inventories  

(40.9)

     

(111.3)

 
Change in contract assets  

0.5

     

(15.6)

 
Change in contract liabilities  

11.1

     

24.4

 
Change in accounts payable  

16.5

     

54.0

 
Change in accrued expenses  

29.4

     

(30.6)

 
Change in income taxes  

(2.1)

     

(12.1)

 
Other, net  

(24.4)

     

(41.2)

 
Net Cash – Operating Activities  

367.6

     

115.2

 
Investing Activities              
Capital expenditures  

(68.5)

     

(73.7)

 
Proceeds from sale of business  

10.5

     

-

 
Acquisitions, net of cash acquired  

(79.3)

     

(146.9)

 
Payments to acquire interest in unconsolidated subsidiaries  

(1.4)

     

(25.6)

 
Other, net  

(3.3)

     

1.4

 
Net Cash – Investing Activities  

(142.0)

     

(244.8)

 
Financing Activities              
Commercial paper, net borrowings  

(204.3)

     

363.1

 
Share repurchases under repurchase plan  

(60.0)

     

(245.6)

 
Payments for taxes related to net share settlement of stock incentive plans  

(6.7)

     

(8.5)

 
Dividends paid  

(71.9)

     

(66.1)

 
Other, net  

(2.3)

     

0.1

 
Net Cash – Financing Activities  

(345.2)

     

43.0

 
Exchange rate effects on cash and cash equivalents  

(10.4)

     

(46.3)

 
Net cash – operating activities of discontinued operations  

(0.2)

     

(0.1)

 
Net change in cash and cash equivalents  

(130.2)

     

(133.0)

 
Cash and cash equivalents – beginning of year (includes restricted cash of $0.7 and $0.8, respectively)  

561.9

     

648.3

 
Cash and Cash Equivalents – end of year (includes restricted cash of $0.9 and $0.8, respectively) $

431.7

    $

515.3

 
Supplemental Disclosures of Cash Flow Information              
Cash paid during the year for:              
Interest $

12.3

    $

5.7

 
Income taxes, net of refunds received $

72.0

    $

63.5

 
 

Key Performance Indicators and Non-GAAP Measures

Management reviews a variety of key performance indicators including revenue, segment operating income and margins, earnings per share, order growth, and backlog, some of which are calculated on a non-GAAP basis. In addition, we consider certain measures to be useful to management and investors when evaluating our operating performance for the periods presented. These measures provide a tool for evaluating our ongoing operations and management of assets from period to period. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including, but not limited to, acquisitions, dividends, and share repurchases. Some of these metrics, however, are not measures of financial performance under accounting principles generally accepted in the United States of America (GAAP) and should not be considered a substitute for measures determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators for purposes of our reconciliation tables.
Organic Revenues and Organic Orders are defined, respectively, as revenue and orders, excluding the impacts of foreign currency fluctuations and acquisitions. The period-over-period change resulting from foreign currency fluctuations is estimated using a fixed exchange rate for both the current and prior periods. We believe that reporting organic revenue and organic orders provides useful information to investors by helping identify underlying trends in our business and facilitating comparisons of our revenue performance with prior and future periods and to our peers.
Adjusted Operating Income and Adjusted Segment Operating Income are defined, respectively, as total operating income and segment operating income, adjusted to exclude special items that include, but are not limited to, restructuring, certain asset impairment charges, certain acquisition-related impacts, and unusual or infrequent operating items. Special items represent charges or credits that impact current results, which management views as unrelated to the Company's ongoing operations and performance. Adjusted Operating Margin and Adjusted Segment Operating Margin are defined as adjusted operating income or adjusted segment operating income, respectively, divided by revenue. We believe these financial measures are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.
Adjusted Income from Continuing Operations is defined as income from continuing operations attributable to ITT Inc. adjusted to exclude special items that include, but are not limited to, restructuring, certain asset impairment charges, certain acquisition-related impacts, income tax settlements or adjustments, and unusual or infrequent items. Special items represent charges or credits, on an after-tax basis, that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. The after-tax basis of each special item is determined using the jurisdictional tax rate of where the expense or benefit occurred. Adjusted income from continuing operations per diluted share (adjusted EPS) is defined as adjusted income from continuing operations divided by diluted weighted average common shares outstanding. We believe that adjusted income from continuing operations and adjusted EPS are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.
Free Cash Flow is defined as net cash provided by operating activities less capital expenditures. Free Cash Flow Margin is defined as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin provides useful information to investors as it provides insight into a primary cash flow metric used by management to monitor and evaluate cash flows generated by our operations.
 
ITT Inc. Non-GAAP Reconciliation
Reported vs. Organic Revenue / Orders
Third Quarter 2023 & 2022
(In Millions)
(all amounts unaudited)
                                     
  (As Reported - GAAP)   (As Adjusted - Organic)  
                                     
  (A)   (B)   (C)       (D)   (E)   (F) = A-D-E   (G) =C-D-E   (H) = G / B  
          $ Change   % Change           Revenue /   $ Change   % Change  
          2023 vs.
2022
  2023 vs.
2022
  Acquisitions   FX Impact   Orders  

Adj. 2023
vs. 2022

  Adj. 2023
vs. 2022
 
  Q3 2023   Q3 2022       Q3 2023   Q3 2023   Q3 2023      
                                     
Revenue                                    
ITT Inc.

$

822.1

 

$

753.6

 

$

68.5

 

9.1%

 

$

6.0

 

$

21.6

 

$

794.5

 

$

40.9

 

5.4%

 
                                     
Motion Technologies

 

359.5

 

 

342.2

 

 

17.3

 

5.1%

 

 

-

 

 

15.3

 

 

344.2

 

 

2.0

 

0.6%

 
Industrial Process

 

279.8

 

 

248.5

 

 

31.3

 

12.6%

 

 

-

 

 

4.1

 

 

275.7

 

 

27.2

 

10.9%

 
Connect & Control Technologies

 

184.0

 

 

163.2

 

 

20.8

 

12.7%

 

 

6.0

 

 

2.2

 

 

175.8

 

 

12.6

 

7.7%

 
                                     
                                     
                                     
Orders                                    
ITT Inc.

$

824.1

 

$

780.9

 

$

43.2

 

5.5%

 

$

4.9

 

$

22.3

 

$

796.9

 

$

16.0

 

2.0%

 
                                     
Motion Technologies

 

366.6

 

 

342.3

 

 

24.3

 

7.1%

 

 

-

 

 

15.6

 

 

351.0

 

 

8.7

 

2.5%

 
Industrial Process

 

270.8

 

 

271.9

 

 

(1.1)

 

(0.4%)

 

 

-

 

 

4.7

 

 

266.1

 

 

(5.8)

 

(2.1%)

 
Connect & Control Technologies

 

187.4

 

 

167.4

 

 

20.0

 

11.9%

 

 

4.9

 

 

2.0

 

 

180.5

 

 

13.1

 

7.8%

 
                                                   
Note: Excludes intercompany eliminations                                        
Immaterial differences due to rounding                                        
 
ITT Inc. Non-GAAP Reconciliation    
Reported vs Adjusted Segment Operating Income & Segment Operating Margin    
Third Quarter 2023 & 2022    
(In Millions)
(all amounts unaudited)
                                         
  Q3 2023   Q3 2023     Q3 2023   Q3 2022   Q3 2022     Q3 2022   % Change     % Change    
  As
Reported
  Special
Items
    As
Adjusted
  As
Reported
  Special
Items
    As
Adjusted
  As Reported
2023 vs. 2022
    As Adjusted
2023 vs. 2022
   
                                         
Revenue:                                        
Motion Technologies

$

359.5

       

$

359.5

 

$

342.2

       

$

342.2

 

5.1%

   

5.1%

   
Industrial Process

 

279.8

       

 

279.8

 

 

248.5

       

 

248.5

 

12.6%

   

12.6%

   
Connect & Control Technologies

 

184.0

       

 

184.0

 

 

163.2

       

 

163.2

 

12.7%

   

12.7%

   
Intersegment eliminations

 

(1.2)

       

 

(1.2)

 

 

(0.3)

       

 

(0.3)

             
Total Revenue

$

822.1

       

$

822.1

 

$

753.6

       

$

753.6

 

9.1%

   

9.1%

   
                                         
Operating Margin:                                        
Motion Technologies

 

16.5%

 

 

50

  BP

 

17.0%

 

 

15.8%

 

 

-

  BP

 

15.8%

 

70

  BP

120

  BP
Industrial Process

 

23.1%

 

 

20

  BP

 

23.3%

 

 

19.4%

 

 

170

  BP

 

21.1%

 

370

  BP

220

  BP
Connect & Control Technologies

 

18.0%

 

 

20

  BP

 

18.2%

 

 

18.6%

 

 

-

  BP

 

18.6%

 

(60)

  BP

(40)

  BP
Total Operating Segments

 

19.1%

 

 

30

  BP

 

19.4%

 

 

17.6%

 

 

60

  BP

 

18.2%

 

150

  BP

120

  BP
                                         
                                         
Operating Income:                                        
Motion Technologies

$

59.4

 

$

1.6

   

$

61.0

 

$

54.0

 

$

0.1

   

$

54.1

 

10.0%

   

12.8%

   
Industrial Process

 

64.7

 

 

0.5

   

 

65.2

 

 

48.1

 

 

4.3

   

 

52.4

 

34.5%

   

24.4%

   
Connect & Control Technologies

 

33.2

 

 

0.3

   

 

33.5

 

 

30.3

 

 

-

   

 

30.3

 

9.6%

   

10.6%

   
Total Segment Operating Income

$

157.3

 

$

2.4

   

$

159.7

 

$

132.4

 

$

4.4

   

$

136.8

 

18.8%

   

16.7%

   
                                         
Note: Immaterial differences due to rounding.                            
                                         
Special items include, but are not limited to, restructuring costs, acquisition-related expenses, and other unusual or infrequent items.
 
ITT Inc. Non-GAAP Reconciliation
Reported vs. Adjusted Income from Continuing Operations & Adjusted EPS
Third Quarter 2023 & 2022
(In Millions, except per share amounts)
(all amounts unaudited)
                                 
    Q3 2023       Q3 2023   Q3 2022       Q3 2022   $ Change   % Change
    As
Reported
  Non-GAAP
Adjustments
  As
Adjusted
  As
Reported
  Non-GAAP
Adjustments
  As
Adjusted
  As Adjusted
2023 vs. 2022
  As Adjusted
2023 vs. 2022
                                 
Segment operating income

$

157.3

 

$

2.4

#A

$

159.7

 

$

132.4

 

$

4.4

#A

$

136.8

       
Corporate and other (income) costs

 

(14.2)

 

 

-

 

 

(14.2)

 

 

(10.4)

 

 

0.6

#B

 

(9.8)

       
Operating income

 

143.1

 

 

2.4

 

 

145.5

 

 

122.0

 

 

5.0

 

 

127.0

 

 

18.5

 

14.6%

Operating margin

 

17.4%

     

 

17.7%

 

 

16.2%

     

 

16.9%

       
                                 
Interest income (expense), net

 

(2.3)

 

 

-

 

 

(2.3)

 

 

(2.4)

 

 

-

 

 

(2.4)

       
Other income (expense), net

 

0.9

 

 

-

 

 

0.9

 

 

0.1

 

 

-

 

 

0.1

       
Income from continuing operations before tax

 

141.7

 

 

2.4

 

 

144.1

 

 

119.7

 

 

5.0

 

 

124.7

       
                                 
Income tax expense

 

(29.9)

 

 

(0.2)

#C

 

(30.1)

 

 

(16.4)

 

 

(7.9)

#C

 

(24.3)

       
Income from continuing operations

 

111.8

 

 

2.2

 

 

114.0

 

 

103.3

 

 

(2.9)

 

 

100.4

       
                                 
Less: Income attributable to noncontrolling interests

 

1.0

 

 

-

 

 

1.0

 

 

0.8

 

 

-

 

 

0.8

       
Income from continuing operations - ITT Inc.

$

110.8

 

$

2.2

 

$

113.0

 

$

102.5

 

$

(2.9)

 

$

99.6

       
                                 
EPS from continuing operations

$

1.34

 

$

0.03

 

$

1.37

 

$

1.23

 

$

(0.03)

 

$

1.20

 

$

0.17

 

14.2%

                               
Note: Amounts may not calculate due to rounding.                        
Per share amounts are based on diluted weighted average common shares outstanding.                
                               
#A - 2023 includes restructuring costs ($1.9M) and impacts due to the suspension of business in Russia ($0.5M).    
#A - 2022 includes restructuring costs ($1.1M), acquisition-related expenses ($3.1M), and other costs ($0.2M).    
     
#B - 2022 includes acquisition-related expenses ($0.5M) and other costs ($0.1M).    
     
#C - 2023 includes the net tax benefit of special items #A ($0.5M) and a net tax expense for other tax-related special charges ($0.3M).    
#C - 2022 includes the net tax benefit of special items #A and #B ($1.1M), tax benefit on future distribution of foreign earnings ($7.8M), and other tax-related special items.
 
ITT Inc. Non-GAAP Reconciliation
Free Cash Flow and Free Cash Flow Margin
Three and Nine Months Ended 2023 & 2022
(In Millions)
(all amounts unaudited)
                             
        Q3 2023     Q3 2022    

 

9M 2023

   

 

9M 2022

 
                             
Net Cash - Operating Activities    

$

169.8

   

$

61.0

   

$

367.6

   

$

115.2

 
                             
Less: Capital expenditures    

 

22.2

   

 

26.2

   

 

68.5

   

 

73.7

 
                             
Free Cash Flow    

$

147.6

   

$

34.8

   

$

299.1

   

$

41.5

 
                             
Revenue    

$

822.1

   

$

753.6

   

$

2,453.9

   

$

2,213.1

 
                             
                             
Free Cash Flow Margin      

 

18.0%

   

 

4.6%

   

 

12.2%

   

 

1.9%

 
                                     
 
ITT Inc. Non-GAAP Reconciliation
GAAP vs. Adjusted EPS Guidance
Full Year 2023
(Per share amounts)
(all amounts unaudited)
           
     

2023 Full-Year Guidance

     

Low

 

High

           
EPS from Continuing Operations - GAAP  

$

5.05

 

$

5.11

           
Estimated restructuring, net of tax  

 

0.08

 

 

0.08

           
Other special items, net of tax  

 

0.03

 

 

0.03

           
Other tax special Items  

 

(0.01)

 

 

(0.01)

           
EPS from Continuing Operations - Adjusted  

$

5.15

 

$

5.21

Note:

  The Company has provided forward-looking non-GAAP financial measures for organic revenue growth and adjusted segment operating margin. It is not possible, without unreasonable efforts, to estimate the impacts of foreign currency fluctuations, acquisitions and certain other special items that may occur in 2023 as these items are inherently uncertain and difficult to predict. As a result, the Company is unable to quantify certain amounts that would be included in a reconciliation of organic revenue growth and adjusted segment operating margin to the most directly comparable GAAP financial measures without unreasonable efforts and accordingly has not provided reconciliations for these forward looking non-GAAP financial measures.  
   
 
ITT Inc. Non-GAAP Reconciliation
Free Cash Flow and Free Cash Flow Margin Guidance
Full Year 2023
(In Millions)
(all amounts unaudited)
     
    2023 Full-Year Guidance
     
     
Net Cash - Operating Activities   ~$510
     
Less: Capital expenditures   ~$110
     
Free Cash Flow   ~$400
     
Revenue #A   ~$3,250
     
Free Cash Flow margin   ~12%
     
#A Represents expected revenue growth of approximately ~9%

 

Investor Contact

Mark Macaluso
+1 914-641-2064
mark.macaluso@itt.com

Media Contact

Phil Terrigno
+1 914-641-2143
phil.terrigno@itt.com

Source: ITT Inc.

ITT Reports 2023 Second Quarter Earnings Per Share (EPS) of $1.31, Adjusted EPS of $1.33

  • 14% orders growth (13% organic) driven by pump project wins and aftermarket demand, aerospace growth, and Friction OE and rail share gains
  • 14% revenue growth (12% organic) driven by higher volume and pricing across all businesses
  • 18.3% segment operating margin (18.7% adjusted), 270 basis points expansion (280 basis points adjusted); segment operating income increased 33%
  • Raising 2023 full year margin and EPS guidance

August 3, 2023-- ITT Inc. (NYSE: ITT) today reported financial results for the second quarter ended July 1, 2023. The company reported a year-over-year revenue increase of 14%, primarily driven by 23% growth in Industrial Process (IP) and 11% growth in Motion Technologies (MT), and pricing actions across all segments. The acquisition of Micro-Mode contributed 1% to total revenue growth and foreign currency translation drove a 1% favorable impact.

Second quarter segment operating income of $153 million increased 33% versus prior year (34% adjusted). The increase was due to higher sales volume, productivity, pricing actions and a gain on sale of a product line in CCT. This was partially offset by unfavorable foreign currency impacts and higher raw material and labor costs.

EPS for the second quarter of $1.31 increased 44% versus prior year primarily due to segment operating income growth and benefits from share repurchases, partially offset by higher interest expense. Adjusted EPS of $1.33 increased 36% compared to prior year. The difference between reported and adjusted EPS is primarily related to distributions of non-U.S. taxable income.

Operating cash flow for the second quarter of $140 million increased $83 million versus prior year primarily driven by higher operating income and improved working capital management. Free cash flow for the quarter of $122 million increased $83 million. On a year-to-date basis, ITT generated free cash flow of $152 million, up $145 million versus 2022.

 

Table 1. Second Quarter Performance

 

 

Q2 2023

 

 

Q2 2022

 

Change

Revenue

 

$

833.9

 

 

 

$

733.3

 

 

13.7

%

Organic Growth

 

 

 

 

 

 

12.5

%

Segment Operating Income

 

$

152.5

 

 

 

$

114.3

 

 

33.4

%

Segment Operating Margin

 

 

18.3

%

 

 

 

15.6

%

 

270

bps

Adjusted Segment Operating Income

 

$

156.2

 

 

 

$

116.5

 

 

34.1

%

Adjusted Segment Operating Margin

 

 

18.7

%

 

 

 

15.9

%

 

280

bps

Earnings Per Share

 

$

1.31

 

 

 

$

0.91

 

 

44.0

%

Adjusted Earnings Per Share

 

$

1.33

 

 

 

$

0.98

 

 

35.7

%

Operating Cash Flow

 

$

139.7

 

 

 

$

56.9

 

 

145.5

%

Free Cash Flow

 

$

122.1

 

 

 

$

39.4

 

 

209.9

%

Note: all results unaudited; dollars in millions except for per share amounts

Management Commentary

“ITT delivered a strong second quarter with growth and margin expansion across our businesses. Our teams drove double-digit growth in orders and revenue, with a book-to-bill once again above one. We expanded segment margins nearly 300 basis points, bolstered by the performance in Industrial Process and Motion Technologies. Our cash generation accelerated, which provides us the flexibility to execute M&A, pay down debt and repurchase shares whilst funding growth investments,” said ITT’s Chief Executive Officer and President Luca Savi.

“With a stronger than anticipated top line, improved margin outlook, an ending backlog of over $1.2 billion and orders up ten percent year-to-date, we are raising the midpoint of our adjusted EPS guidance by twenty-five cents to over $5. We are driving to a new level of performance for ITT. We are executing on our financial targets, investing in the business and deploying capital to sustain ITT’s differentiation, long-term value creation and outperformance,” concluded Savi.

Table 2. Second Quarter Segment Results

 

 

Revenue

 

Operating Income

 

 

 

Q2 2023

Reported
Increase
(Decrease)

Organic
Growth

 

Q2 2023

Reported
Increase/
(Decrease)

Adjusted
Increase
(Decrease)

 

 

Motion Technologies

$

368.8

 

11.3 %

 

9.7 %

 

 

$

57.7

 

22.8 %

 

22.2 %

 

 

 

Industrial Process

 

293.6

 

22.5 %

 

22.6 %

 

 

 

66.4

 

69.8 %

 

66.9 %

 

 

 

Connect & Control Technologies

 

172.2

 

5.5 %

 

3.1 %

 

 

 

28.4

 

0.7 %

 

7.5 %

 

 

 

Total Segment Results

 

833.9

 

13.7 %

 

12.5 %

 

 

 

152.5

 

33.4 %

 

34.1 %

 

 

 

Note: all results unaudited; excludes intercompany eliminations of $0.7; comparisons to Q2 2022

                     

Motion Technologies revenue increased $38 million primarily due to higher sales volume in Friction OE, favorable foreign currency translation impacts, and pricing actions. Operating income increased $11 million primarily due to higher sales volume and productivity and pricing actions, partially offset by unfavorable foreign currency impacts and higher raw material and labor costs.

 

Industrial Process revenue increased $54 million primarily due to growth in projects, baseline pumps, parts and service. Operating income increased $27 million primarily due to higher volume and pricing and productivity actions, partially offset by higher raw material costs and unfavorable sales mix.

Connect & Control Technologies revenue increased $9 million primarily driven by growth in aerospace and defense and the acquisition of Micro-Mode. This was offset by lower connector demand in Europe. Operating income was flat at $28 million as pricing and productivity actions and the net M&A impact were offset by higher raw material, labor and overhead costs and higher strategic growth investment.

2023 Guidance

The company is updating its 2023 guidance. We now expect segment operating margin of 17.4% to 18.2% and adjusted segment operating margin of 17.7% to 18.5%, up 50 bps to 130 bps. We now expect EPS of $4.85 to $5.05, and adjusted EPS of $4.95 to $5.15, up 11% to 16% for the full year. There is no change to the revenue guidance of 7% to 9% and 6% to 8% on an organic basis, or free cash flow guidance of $350 million to $400 million, representing free cash flow margin of 11% to 12%.

It is not possible, without unreasonable efforts, to estimate the impacts of foreign currency fluctuations, acquisitions and certain other special items that may occur in 2023 as these items are inherently uncertain and difficult to predict. As a result, we are unable to quantify certain amounts that would be included in a reconciliation of organic revenue growth and adjusted segment operating margin to the most directly comparable GAAP financial measures without unreasonable efforts and accordingly we have not provided reconciliations for these forward-looking non-GAAP financial measures.

 

Investor Conference Call Details

ITT’s management will host a conference call for investors on Thursday, August 3 at 8:30 a.m. Eastern Time. The briefing can be accessed live via a 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, August 17, 2023 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.

 

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.

We use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “future,” “may,” “will,” “could,” “should,” “potential,” “continue,” “guidance” and other similar expressions to identify such forward-looking statements. Forward-looking statements are uncertain and, by their nature, many are inherently unpredictable and outside of ITT’s control, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.

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, we cannot provide any 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:

  • volatility in raw material prices and our suppliers’ ability to meet quality and delivery requirements;
  • uncertain global economic and capital markets conditions, which have been influenced by the COVID-19 pandemic, the Russia-Ukraine war, inflation, changes in monetary policies, slowing growth and the threat of a possible global economic recession, trade disputes between the U.S. and its trading partners, political and social unrest, instability in the global banking system and the availability and fluctuations in prices of energy and commodities, including steel, oil, copper and tin;
  • impacts on our business stemming from continued supply chain disruptions and raw material shortages, which have resulted in increased costs and reduced availability of key commodities and other necessary services;
  • our inability to hire or retain key personnel;
  • fluctuations in foreign currency exchange rates and the impact of such fluctuations on our revenues, customer demand for our products and on our hedging arrangements;
  • failure to manage the distribution of products and services effectively;
  • fluctuations in interest rates and the impact of such fluctuations on customer 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 or failure of any information systems used by the Company, including any flaws in the implementation of any enterprise resource planning systems, as well as similar breaches or failures affecting our business partners or service providers;
  • 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, including the imposition of tariffs and trade sanctions;
  • fluctuations in demand or customers’ levels of capital investment and maintenance expenditures, especially in the energy, chemical and mining markets;
  • the impacts on our business from Russia’s war with Ukraine, and the global response to it;
  • 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;
  • increased scrutiny from investors, lenders and other market participants regarding our environmental, social and governance and sustainability responsibilities, which could expose us to additional costs and adversely impact our reputation, business, financial performance and growth;
  • failure to comply with the U.S. Foreign Corrupt Practices Act (or other applicable anti-corruption legislation), export controls and trade sanctions;
  • 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.

 
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)                      
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)                          
                           
  Three Months Ended     Six Months Ended  
  July 1, 2023 July 2, 2022   July 1, 2023 July 2, 2022
Revenue $

833.9

  $

733.3

    $

1,631.8

  $

1,459.5

 
Cost of revenue  

553.9

   

511.1

     

1,089.9

   

1,018.9

 
Gross profit  

280.0

   

222.2

     

541.9

   

440.6

 
General and administrative expenses  

68.4

   

57.0

     

136.7

   

117.4

 
Sales and marketing expenses  

43.9

   

40.4

     

86.8

   

78.8

 
Research and development expenses  

25.7

   

24.3

     

52.1

   

49.3

 
Operating income  

142.0

   

100.5

     

266.3

   

195.1

 
Interest and non-operating expense, net  

2.5

   

0.5

     

6.0

   

0.3

 
Income from continuing operations before income tax expense  

139.5

   

100.0

     

260.3

   

194.8

 
Income tax expense  

30.6

   

24.0

     

50.7

   

43.5

 
Income from continuing operations  

108.9

   

76.0

     

209.6

   

151.3

 

Loss from discontinued operations, net of tax benefit of $0.0, $0.4, $0.0 and $0.4, respectively

  -    

(1.2)

      -    

(1.2)

 
Net income  

108.9

   

74.8

     

209.6

   

150.1

 
Less: Income attributable to noncontrolling interests  

0.7

   

0.2

     

1.4

   

0.7

 
Net income attributable to ITT Inc. $

108.2

  $

74.6

    $

208.2

  $

149.4

 
                           
Amounts attributable to ITT Inc.:                          
Income from continuing operations $

108.2

  $

75.8

    $

208.2

  $

150.6

 
Loss from discontinued operations, net of tax  

-

   

(1.2)

     

-

   

(1.2)

 
Net income attributable to ITT Inc. $

108.2

  $

74.6

    $

208.2

  $

149.4

 
                           
Earnings (loss) per share attributable to ITT Inc.:                          
Basic:                          
Continuing operations $

1.31

  $

0.91

    $

2.52

  $

1.79

 
Discontinued operations  

-

   

(0.01)

     

-

   

(0.01)

 
Net income $

1.31

  $

0.90

    $

2.52

  $

1.78

 
Diluted:                          
Continuing operations $

1.31

  $

0.91

    $

2.51

  $

1.79

 
Discontinued operations  

-

   

(0.02)

     

-

   

(0.02)

 
Net income $

1.31

  $

0.89

    $

2.51

  $

1.77

 
                           
Weighted average common shares – basic  

82.4

   

83.1

     

82.5

   

84.0

 
Weighted average common shares – diluted  

82.6

   

83.4

     

82.8

   

84.3

 
                           
 
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)      
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)      
       
As of the Period Ended July 1, 2023   December 31, 2022
Assets      
Current assets:      
Cash and cash equivalents