ITT REPORTS STRONG THIRD-QUARTER RESULTS, RAISES 2021 OUTLOOK

Wednesday, 3 Nov 2021

• Revenue up 17%, organic revenue up 16% driven by demand across all segments
• Segment operating margin of 16.1%, up 190 bps
• Adjusted segment operating margin of 16.8%, up 60 bps
• Earnings Per Share (EPS) of $1.00, up 282%; adjusted EPS of $0.99 up 21%; exceeding 2019
• Raising 2021 EPS guidance to reflect strong year to date performance

White Plains, N.Y., November 3, 2021 – ITT Inc. (NYSE: ITT) today reported financial results for the third quarter ended October 2, 2021. The company delivered a year-over-year revenue increase of 17% driven by growth in Motion Technologies' Friction aftermarket business, the connector business in Connect & Control Technologies, and short cycle demand in Industrial Process.

Segment operating margin for the third quarter of 16.1% expanded 190 basis points versus prior year driven by higher sales volume, productivity, and strategic commercial actions. This was partially offset by higher raw material costs, supply chain disruptions, strategic growth investments and a reversal of temporary cost reductions that were executed in 2020.

Earnings per share of $1.00 increased from a net loss per share of $0.55 in prior year. The prior year loss was primarily due to a non-cash expense of $1.20 per share related to the estimated legacy net asbestos liability. InTelCo, the former wholly-owned subsidiary holding this legacy liability and related insurance assets, was divested on July 1, 2021. Earnings for this quarter benefited from higher segment operating income, share repurchases, and a lower effective tax rate. Adjusted earnings per share of $0.99 was up 21% compared to prior year and exceeded adjusted EPS for the same quarter in 2019 by 2%.

Operating cash flow of $104 million declined $11 million due to investments in working capital to support continued sales growth and from continued supply chain disruptions, partially offset by higher segment operating income. On a year-to-date basis, operating cash flows declined by $446 million to $(128) million mainly driven by a $398 million payment related to the InTelCo divestiture and investments in working capital, which was partially offset by higher segment operating income.
 

Table 1. Third Quarter Performance

	3Q 2021				3Q 2020			Change
Revenue		$689.6				$591.2		16.6%
Organic Growth								15.6%
Segment Operating Income		$111.2				$83.9		32.5%
Segment Operating Margin		16.1%				14.2%		190 bps
Adjusted Segment Operating Income		$115.7				$95.5		21.2%
Adjusted Segment Operating Margin		16.8%				16.2%		60 bps
Earnings Per Share		$1.00				$(0.55)		281.8%
Adjusted Earnings Per Share		$0.99				$0.82		20.7%
Operating Cash Flow (YTD)		$(127.9)				$318.1		(140.2)%
Free Cash Flow (YTD)		$(180.5)				$270.5		(166.7)%

Note: all results unaudited

Management Commentary

"The resilience of our business and our people drove strong results at ITT once again this quarter. Despite unprecedented challenges related to inflation and global supply chain disruptions, we performed exceptionally well, delivering 16% organic sales growth and 21% earnings growth on an adjusted basis," said Luca Savi, Chief Executive Officer and President of ITT. "Driving our strong top-line performance was 21% growth in Friction and 29% growth in Connectors, where we have seen a steady recovery throughout 2021. We overcame a twenty-three-cent headwind related to raw material inflation and generated a 60-basis point adjusted margin improvement versus 2020, with adjusted incremental margins in Industrial Process and Connect & Control over 30%. Our hour-by-hour, all-hands-on-deck approach to working effectively with our customers and suppliers drove the execution this quarter.

The demand for ITT's products and services drove 27% organic orders growth in the third quarter, with broad-based strength across connectors, projects and short cycle in Industrial Process, and rail in Motion Technologies. Friction continued to outperform the global automotive market through share gain on conventional original equipment (OE) platforms and awards on electric vehicle (EV) platforms. The orders growth in all three businesses has further strengthened an already robust backlog heading into 2022."

Savi concluded, "As we look ahead, we continue to see challenges on the supply side, still, I am confident in our team's ability to manage these headwinds. Given our strong year-to-date performance, we are again raising our full year adjusted earnings per share outlook for the third consecutive quarter, to a new range of $4.01 to $4.06, up 25% to 27% versus the prior year. At these levels, ITT is positioned to exceed 2019 pre-pandemic levels. We remain focused on our commitments for 2021, whilst positioning the company for strong growth in 2022."

Table 2. Third Quarter Segment Results
 

	Revenue			Operating	Income
	3Q 2021	Reported Increase	Organic Increase	3Q 2021	Reported Increase	Adjusted Increase
Motion Technologies	$332.3	22.3%	20.3%	$53.6	6.3%	14.5%
Industrial Process	$210.7	8.6%	8.1%	$32.4	89.5%	20.1%
Connect & Control Technologies	$147.1	16.8%	17.0%	$25.2	53.7%	41.8%
Total segment results	$689.6	16.6%	15.6%	$111.2	32.5%	21.2%

Note: all results unaudited; excludes intercompany eliminations; comparisons to Q3 2020

Motion Technologies revenue increased primarily due to strength in Friction aftermarket, growth in sealings and OE shims in Wolverine, and strength in the automotive aftermarket business in Koni. Operating income improved from $50 million to $54 million primarily due to higher sales volume, strategic commercial actions, shop floor and sourcing productivity, and favorable foreign currency, partially offset by significant headwinds related to higher raw material costs, as anticipated, and strategic growth investments.

Industrial Process revenue increased primarily due to growth in short cycle parts, service, and valves. We saw strength overall in the energy and general industrial markets across the business. Operating income increased from $17 million to $32 million primarily due to higher sales volume, favorable mix of higher margin products and services, shop floor and sourcing productivity, and strategic commercial actions, partially offset by higher costs related to global supply chain disruptions, including higher freight costs, and inflation.

Connect and Control Technologies revenue increased primarily due to Connector sales in North America and Europe, principally in the industrial market, and through distribution, partially offset by continued weakness in commercial aerospace. Operating income increased from $16 million to $25 million, primarily driven by higher sales volume, productivity, including restructuring benefits, partially offset by higher raw material costs and labor inflation.

2021 Guidance

The company raised its full-year 2021 guidance to reflect the strong third quarter results despite higher than anticipated headwinds from raw material costs, particularly in the Motion Technologies segment. We now expect earnings per share of $3.47 to $3.54, up 345% to 354%, and adjusted earnings per share of $4.01 to $4.06 per share, up 25% to 27%. The guidance for revenue of up 11% to 13%, or an increase of 8% to 10% on an organic basis, is unchanged given the ongoing delays and disruptions in the global supply chain. We expect segment operating margin of 16.8% to 17.3%, up 390 to 440 bps, and adjusted segment operating margin of 16.9% to 17.4%, up 170 to 220 bps.
 

Investor Conference Call Details

ITT’s management will host a conference call for investors on Thursday, November 4 at 8:30 a.m., Eastern Time. The briefing can be monitored live via webcast at the following address on the company’s website: www.itt.com/investors. A replay of the webcast will be available for 90 days following the presentation. A replay will also be available telephonically from two hours after the webcast until Thursday, November 11, 2021, 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 here and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with U.S. GAAP.

Investor Contact

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

Media Contact        

Kellie Harris
+1 914-641-2103
kellie.harris@itt.com

Safe Harbor Statement

This release contains "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. In addition, the conference call (including the financial results presentation material) may include, and officers and representatives of ITT may from time to time make and discuss, projections, goals, assumptions, and statements that may constitute "forward-looking statements". These forward-looking statements are not historical facts, but rather represent only a belief regarding future events based on current expectations, estimates, assumptions and projections about our business, future financial results, and the industry in which we operate, and other legal, regulatory, and economic developments. These forward-looking statements include, but are not limited to, future strategic plans and other statements that describe the company’s business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future events and future operating or financial performance.

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Where in any forward-looking statement we express an expectation or belief as to future results or events, such expectation or belief is based on current plans and expectations of our management, expressed in good faith, and believed to have a reasonable basis. However, there can be no assurance that the expectation or belief will occur or that anticipated results will be achieved or accomplished.

Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation:

• impacts on our business due to the COVID-19 pandemic, including variant strains of the virus, as well as the timing, effectiveness and availability of, and people’s receptivity to, vaccines or other medical remedies; disruptions to our operations and demand for our products, increased costs, disruption of supply chain and other constraints in the availability of key commodities and other necessary services; government-mandated site closures, employee illness, skilled labor shortages, the impact of potential travel restrictions, stay-in-place restrictions, and vaccination requirements on our business and workforce; and customer and supplier bankruptcies, impacts to the global economy and financial markets, and liquidity challenges in accessing capital markets;
• uncertain global economic and capital markets conditions, including those due to COVID-19, trade disputes between the U.S. and its trading partners, the new U.S. administration, political and social unrest, and the availability and fluctuations in prices of steel, oil, copper, and other commodities;
• volatility in raw material prices and our suppliers’ ability to meet quality and delivery requirements;
• fluctuations in our effective tax rate, including as a result of possible tax reform legislation in the U.S.;
• fluctuations in demand or customers’ levels of capital investment and maintenance expenditures, especially in the oil and gas, chemical, and mining markets, or changes in our customers’ anticipated production schedules, especially in the commercial aerospace market;
• failure to manage the distribution of products and services effectively;
• the risk of material business interruptions, particularly at our manufacturing facilities;
• risks due to our operations and sales outside the U.S. and in emerging markets;
• the extent to which there are quality problems with respect to manufacturing processes or finished goods;
• loss of or decrease in sales from our most significant customers;
• fluctuations in foreign currency exchange rates;
• failure to compete successfully and innovate in our markets;
• risks related to government contracting, including changes in levels of government spending and regulatory and contractual requirements applicable to sales to the U.S. government, including the impact of COVID vaccine mandates on our ability to continue to participate in federal contracting;
• failure to protect our intellectual property rights or violations of the intellectual property rights of others;
• the risk of cybersecurity breaches;
• changes in laws relating to the use and transfer of personal and other information;
• failure of portfolio management strategies, including cost-saving initiatives, to meet expectations;
• changes in environmental laws or regulations, discovery of previously unknown or more extensive contamination, or the failure of a potentially responsible party to perform;
• failure to comply with the U.S. Foreign Corrupt Practices Act (or other applicable anti-corruption legislation), export controls and trade sanctions, including tariffs;
• risk of product liability claims and litigation; and
• risk of liabilities from past divestitures and spin-offs

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.