News & Releases
ITT REPORTS FIRST-QUARTER EARNINGS PER SHARE OF $0.88, ADJUSTED EPS OF $0.97
Tuesday, 3 May 2022
- Revenue up 4% (7% organic) driven primarily by Connect & Control Technologies (CCT)
- Orders up 11% (14% organic) driven by strong demand in Industrial Process (IP) and CCT
- Deployed over $235 million of capital, including $186 million of share repurchases
- Announced $140 million acquisition of Habonim, a specialty valves manufacturer, in Q2
- Maintaining full year 2022 revenue, segment margin and adjusted EPS guidance
White Plains, N.Y., May 3, 2022 – ITT Inc. (NYSE: ITT) today reported financial results for the first quarter ended April 2, 2022. The company reported a year-over-year revenue increase of 4.0%, up 6.8% on an organic basis. This was primarily driven by strong demand for connectors and aerospace components in CCT and short-cycle products in IP, strength in Motion Technologies (MT) Friction aftermarket, and pricing actions that contributed approximately 3% to organic revenue growth – most notably in MT.
Segment operating margin of 14.6% for the first quarter declined 240 basis points versus prior year driven by significant cost inflation, which negatively impacted margins by 760 basis points year over year, a charge related to the suspension of operations in Russia, and strategic investments for growth. This was partially offset by pricing actions and productivity savings across the businesses, and higher sales volume primarily in CCT.
Earnings per share of $0.88 for the first quarter declined 11.0% versus prior year due to lower segment operating income, which included a charge related to the suspension of operations in Russia, partially offset by the benefit of share repurchases and a lower effective tax rate. Excluding the impact of the Russia charge and other items, adjusted earnings per share of $0.97 declined 8.5% versus prior year driven by significantly higher material and overhead costs which more than offset the operational improvements and pricing actions.
Operating cash flow for the first quarter declined $73.5 million to $(2.7) million primarily due to lower segment operating income, increased working capital investments to support sales growth and to mitigate continued supply chain disruptions, and timing of accounts receivable collections.
Table 1. First Quarter Performance
| |
Q1 2022
|
Q1 2021
|
Change
|
| Revenue |
|
$726.2 |
|
|
$698.4 |
|
4.0% |
| Organic |
|
|
|
|
|
|
6.8% |
| Segment Operating Income |
|
$105.8 |
|
|
$118.8 |
|
(10.9)% |
| Segment Operating Margin |
|
14.6% |
|
|
17.0% |
|
(240) bps |
| Adjusted Segment Operating Income |
|
$116.4 |
|
|
$122.1 |
|
(4.7)% |
| Adjusted Segment Operating Margin |
|
16.0% |
|
|
17.5% |
|
(150) bps |
| Earnings Per Share |
|
$0.88 |
|
|
$0.99 |
|
(11.1)% |
| Adjusted Earnings Per Share |
|
$0.97 |
|
|
$1.06 |
|
(8.5)% |
| Operating Cash Flow (YTD) |
|
$(2.7) |
|
|
$70.8 |
|
(103.8)% |
| Free Cash Flow (YTD) |
|
$(32.7) |
|
|
$53.6 |
|
(161.0)% |
Note: all results unaudited
Management Commentary
"Once again, this quarter all of our ITTers around the world drove a solid performance, focusing relentlessly on the right priorities, further demonstrating ITT's resiliency. We fought a significant labor shortage at the beginning of 2022 stemming from the sudden and sharp rise in the COVID-19 omicron variant in January. We faced inflation that was higher than planned in raw materials and overhead costs as well as labor shortages in North America. And, we are now managing the impacts of the war in Ukraine which in the quarter impacted our Friction, rail, and Industrial Process businesses. Still, despite all these challenges, the team delivered on its commitments in Q1," said Luca Savi, Chief Executive Officer and President of ITT.
"We continued to outperform in the main end markets where we participate and are investing for the future. In the first quarter we drove 14% organic orders growth on the strength of Industrial Process and Connect & Control Technologies. We generated 7% organic revenue growth driven by all businesses despite continued labor, material, and supply constraints, with CCT growing 23% organically. We deployed over $235 million of capital, including to repurchase $186 million of ITT shares, reducing our share count by 2%. Finally, on April 4th we announced the acquisition of Habonim, an Israeli-based manufacturer of specialty ball valves and actuation technologies, which further demonstrates our commitment to strategically deploy our capital," Savi continued.
Savi concluded, "There are clear headwinds in the near term. We are taking actions to address these challenges and continue to invest in the future of ITT, both organically and through M&A, to ensure we grow profitability and outperform over the long term."
Table 2. First Quarter Segment Results
| |
Revenue
|
|
Operating Income
|
| |
Q1 2022
|
Reported Increase/
(Decrease)
|
Organic Growth/
(Decline)
|
|
Q1 2022
|
Reported Increase/
(Decrease)
|
Adjusted Increase/
(Decrease)
|
| Motion Technologies |
$370.1 |
0.3% |
4.0% |
|
$59.7 |
(21.4)% |
(14.7)% |
| Industrial Process |
$202.2 |
— % |
1.9% |
|
$20.4 |
(34.2)% |
(19.1)% |
| Connect & Control Technologies |
$154.6 |
21.4% |
23.2% |
|
$25.7 |
117.8% |
81.7% |
| Total segment results |
$726.2 |
4.0% |
6.8% |
|
$105.8 |
(10.9)% |
(4.7)% |
Note: all results unaudited; excludes intercompany eliminations; comparisons to Q1 2021
Motion Technologies revenue increased primarily due to demand in Friction's aftermarket business. Operating income decreased to $59.7 million primarily due to significantly higher material inflation, partially offset by pricing actions and productivity savings.
Industrial Process revenue was flat year over year due to growth in the short cycle businesses within the general industrial and chemical markets, offset by a decline in pump project activity. IP's results continue to be impacted by labor shortages, supplier delays, and extended lead times, principally in the projects business. Operating income decreased to $20.4 million primarily due to higher material inflation, partially offset by productivity savings, favorable sales mix, and pricing actions.
Connect & Control Technologies revenue increased due to strong connector sales, principally in the industrial market, and higher component sales in commercial aerospace and defense. Operating income increased to $25.7 million primarily driven by productivity savings, higher sales volume, and limited pricing actions, partially offset by higher material costs and unfavorable sales mix.
2022 Guidance
We continue to expect revenue growth of 7% to 9%, or up 9% to 11% on an organic basis; segment operating margin of 17.5% to 18.4%; and adjusted segment operating margin of 17.6% to 18.5%, up 40 to 130 bps. We now expect earnings per share of $4.07 to $4.50, with no change to adjusted earnings per share of $4.30 to $4.70 per share, up 6% to 16%. Free cash flow is now expected to be in a range of $250 million to $300 million, representing free cash flow margin of approximately 8% to 10% for the full year.
The company's 2022 guidance assumes continued disruptions in the global supply chain stemming from labor shortages, supplier delays, and raw material inflation, which we anticipate will persist through at least the first half of 2022. The guidance also assumes a significant reduction in sales in Russia stemming from the conflict in Ukraine, which we currently estimate will impact revenue by approximately $60 to $85 million for the full year. The guidance does not include the potential impact, if any, of a prolonged shutdown in China due to the reemergence of COVID-19.
Investor Conference Call Details
ITT's management will host a conference call for investors on Tuesday, May 3 at 8:30 a.m., Eastern Time. The briefing can be accessed live via webcast which is available on the company's website:
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 Tuesday, May 17, 2022, at midnight, Eastern Time. Reconciliations of non-GAAP financial performance metrics to their most comparable U.S. GAAP financial performance metrics are defined and presented below and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with U.S. GAAP.
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:
- 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, political and social unrest, and the availability and fluctuations in prices of steel, oil, copper, tin, and other commodities;
- volatility in raw material prices and our suppliers’ ability to meet quality and delivery requirements;
- failure to manage the distribution of products and services effectively;
- failure to compete successfully and innovate in our markets;
- failure to protect our intellectual property rights or violations of the intellectual property rights of others;
- the extent to which there are quality problems with respect to manufacturing processes or finished goods;
- the risk of cybersecurity breaches;
- loss of or decrease in sales from our most significant customers;
- risks due to our operations and sales outside the U.S. and in emerging markets;
- the impacts on our business from the military conflict between Russia and Ukraine, and the global response to it;
- fluctuations in foreign currency exchange rates and the impact of such fluctuations on our hedging arrangements;
- fluctuations in interest rates and the impact of such fluctuations on our cost of debt;
- 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;
- 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 possible tax reform legislation in the U.S. and other jurisdictions;
- changes in environmental laws or regulations, discovery of previously unknown or more extensive contamination, or the failure of a potentially responsible party to perform;
- failure to comply with the U.S. Foreign Corrupt Practices Act (or other applicable anti-corruption legislation), export controls and trade sanctions, including tariffs;
- risk of product liability claims and litigation; and
- changes in laws relating to the use and transfer of personal and other information.
The forward-looking statements included in this release speak only as of the date hereof. We undertake no obligation (and expressly disclaim any obligation) to update any forward-looking statements, whether written or oral or as a result of new information, future events or otherwise. More information on factors that could cause actual results or events to differ materially from those anticipated is included in the Risk Factors section of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other documents filed from time to time with the Securities and Exchange Commission.