News & Releases
ITT REPORTS 2022 SECOND QUARTER EARNINGS PER SHARE (EPS) OF $0.91, ADJUSTED EPS OF $0.98
Thursday, 4 Aug 2022
- Revenue growth of 6% (10% organic) driven by strong demand in Connect & Control Technologies (CCT) and Industrial Process (IP), and pricing actions across all businesses
- Orders up 10% (13% organic) on strong pump, connectors and aerospace components demand
- Deployed ~$275 million, including over $60 million for share repurchases, $172 million to M&A and ITT Ventures investments
- Raising organic sales guidance and tightening full year EPS guidance ranges
Stamford, Conn., Aug 4, 2022 – ITT Inc. (NYSE: ITT) today reported financial results for the second quarter ended July 2, 2022. The company reported a year-over-year revenue increase of 6.0%, up 9.6% on an organic basis, primarily driven by demand in connectors and components in CCT, short-cycle in IP, growth in Motion Technologies (MT) Friction, and pricing actions in all businesses. This was partially offset by a 5.8% unfavorable impact from U.S. dollar appreciation and reduced volumes stemming from the war in Ukraine. The acquisition of Habonim also contributed 2.2% to revenue growth.
Segment operating income was flat compared to prior year. Segment operating margin of 15.6% for the second quarter declined 90 basis points versus prior year primarily resulting from higher raw material and overhead costs, and restructuring, which was mitigated through pricing, productivity, and higher sales volumes in IP and CCT.
Earnings per share for the second quarter of $0.91 increased 102% versus prior year primarily due to a $37.2 million after-tax loss in 2021 stemming from the asbestos divestiture. Adjusted earnings per share of $0.98 for the second quarter of 2022 increased 4% compared to prior year driven primarily by higher sales and benefits from share repurchases.
Operating cash flow for the year-to-date period increased $285.8 million versus prior year to $54.2 million, compared to an outflow in the prior year of $231.6 million which included a $398.0 million payment to fund the asbestos divestiture. Excluding the impact of the asbestos payment, operating cash flow declined $112.2 million driven by an increase in working capital investments to support volume growth and to mitigate continued supply chain disruptions. Operating cash flow for the second quarter improved $59.6 million sequentially.
Table 1. Second Quarter Performance
| |
Q2 2022
|
Q2 2021
|
Change
|
| Revenue |
|
$733.3 |
|
|
$691.6 |
|
6.0% |
| Organic |
|
|
|
|
|
|
9.6% |
| Segment Operating Income |
|
$114.3 |
|
|
$114.1 |
|
0.2% |
| Segment Operating Margin |
|
15.6% |
|
|
16.5% |
|
(90) bps |
| Adjusted Segment Operating Income |
|
$116.5 |
|
|
$114.2 |
|
2.0% |
| Adjusted Segment Operating Margin |
|
15.9% |
|
|
16.5% |
|
(60) bps |
| Earnings Per Share |
|
$0.91 |
|
|
$0.45 |
|
102.2% |
| Adjusted Earnings Per Share |
|
$0.98 |
|
|
$0.94 |
|
4.3% |
| Operating Cash Flow (YTD) |
|
$54.2 |
|
|
$(231.6) |
|
123.4% |
| Free Cash Flow (YTD) |
|
$6.7 |
|
|
$(266.7) |
|
102.5% |
Note: all results unaudited
Management Commentary
"ITT delivered solid results in the second quarter. We grew organic revenue by 10%, including 25% growth in Connect & Control Technologies. The strong demand and share gains in Industrial Process and in CCT drove 26% and 17% organic orders growth, respectively, in the second quarter. We grew adjusted earnings per share sequentially and year over year thanks to strong sales growth and margin expansion at IP and CCT despite a 60 basis point decline in adjusted segment margin driven by supply chain challenges and inflation. And, we deployed nearly $275 million this quarter, bringing our total capital deployed for the first half of 2022 to over $500 million.
As we demonstrated at our investor day, we are well positioned to drive long-term growth and value creation. Motion Technologies continues to win new EV platform awards thanks to our differentiation in innovation and execution and we are making significant progress on pricing. CCT is seeing robust demand for connectors and components, leveraging our strength in aerospace and defense. Lastly, our IP team is driving strong growth in its short-cycle business while leveraging the differentiation of our portfolio to capture pricing benefits. I am also encouraged by the performance of our recent acquisition, Habonim, in its first quarter as part of ITT," continued Savi.
Savi concluded, "We keep on delivering and investing in growth and innovation. We ramped up investments in Friction to support new EV awards, and accelerated the product redesigns in IP and CCT to sustain our differentiation. We delivered strong sequential and year-over-year margin improvements in IP and CCT. As we committed, we are executing on capital deployment on all fronts, and stepped up M&A activities and ITT Ventures investments. Collectively, we are building on our solid foundations, and I am confident in our ability to deliver our long-term financial targets in any environment."
Table 2. Second Quarter Segment Results
| |
Revenue
|
|
Operating Income
|
| |
Q2 2022
|
Reported Increase/
(Decrease)
|
Organic Growth/
|
|
Q2 2022
|
Reported Increase/
(Decrease)
|
Adjusted Increase/
(Decrease)
|
| Motion Technologies |
$331.3 |
(3.6)% |
4.7% |
|
$47.0 |
(27.4)% |
(25.5)% |
| Industrial Process |
$239.6 |
12.0% |
8.1% |
|
$39.1 |
24.1% |
27.6% |
| Connect & Control Technologies |
$163.2 |
21.3% |
24.8% |
|
$28.2 |
57.5% |
56.1% |
| Total segment results |
$733.3 |
6.0% |
9.6% |
|
$114.3 |
0.2% |
2.0% |
Note: all results unaudited; excludes intercompany eliminations of $0.8; comparisons to Q2 2021
Motion Technologies revenue decreased primarily due to unfavorable foreign currency translation of $28.6 million. Organic revenue increased 5% due to growth in Friction, strength in Wolverine sealings, and pricing actions. Operating income decreased from $64.7 million to $47.0 million primarily due to higher raw material inflation, partially offset by pricing and productivity.
Industrial Process revenue increased primarily driven by growth in our short-cycle business within the general industrial and chemical markets, partially offset by a decline in pump projects. Operating income increased from $31.5 million to $39.1 million driven by productivity, pricing, and favorable product mix, partially offset by higher raw material costs.
Connect & Control Technologies revenue increased primarily driven by a strong performance in industrial connectors and strength in aerospace components. Operating income increased from $17.9 million to $28.2 million driven by productivity, higher sales volume and pricing, partially offset by higher raw material costs and unfavorable sales mix.
2022 Guidance
There is no change to the company's total revenue, margin, and free cash flow guidance. We continue to expect revenue growth of 7% to 9%, and now expect growth of 10% to 12% 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; and free cash flow of $250 million to $300 million, representing free cash flow margin of 8% to 10% for the full year. We now expect EPS of $4.12 to $4.45, and adjusted EPS of $4.35 to $4.65, up 7% to 15% for the full year.
The company's 2022 guidance assumes continued disruptions in the global supply chain stemming from labor shortages, supplier delays, and high raw material prices, which we anticipate will persist throughout 2022. The guidance also assumes a significant reduction in sales in Russia stemming from the war in Ukraine, which we currently estimate will impact revenue by approximately $80 million for the full year.
Investor Conference Call Details
ITT's management will host a conference call for investors on Thursday, August 4 at 8:30 a.m., Eastern Time. The briefing can be accessed live via webcast which is available on the company's website:
https://investors.itt.com/. A replay of the webcast will be available for 90 days following the presentation. A replay will also be available telephonically from two hours after the webcast until Thursday, August 18, 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.