ITT REPORTS 2022 FOURTH QUARTER EARNINGS PER SHARE (EPS) OF $1.39, ADJUSTED EPS OF $1.29

Thursday, 9 Feb 2023

• 13% revenue growth (17% organic) driven by pricing recovery and higher volume
• 8% orders growth (12% organic) driven by connectors, aerospace and defense components, and pump projects
• 16% EPS growth (22% adjusted) driven by price recovery, productivity and Habonim contribution
• Initiates 2023 EPS guidance up 4% at the midpoint (adjusted EPS up 7% at the midpoint)
• Announces 10% increase in quarterly dividend to $0.29 per share

STAMFORD, Conn., February 9, 2023 – ITT Inc. (NYSE: ITT) today reported financial results for the fourth quarter ended December 31, 2022. The company reported a year-over-year revenue increase of 13%, up 17% on an organic basis, primarily driven by Friction OE and rail growth in Motion Technologies (MT), pump project activity in Industrial Process (IP), demand in connectors and components in Connect & Control Technologies (CCT), and pricing recovery across all segments. The acquisition of Habonim contributed 2% to total revenue growth. This was partially offset by a 6% unfavorable impact from U.S. dollar appreciation.

Fourth quarter segment operating income of $159 million increased 30% (16% adjusted) compared to prior year, and segment operating margin of 20.6% increased 270 basis points versus prior year. The increases were due primarily to pricing recovery, productivity, higher volumes and a gain on sale of facilities in IP,  which more than offset higher raw material and overhead costs. On an adjusted basis, segment operating margin expanded 40 basis points to 18.6%.

Earnings per share for the fourth quarter of $1.39 increased 16% versus prior year primarily due to higher adjusted segment operating income, earnings from acquisitions, benefits from share repurchases, and the gain on sale of facilities in IP, partially offset by foreign currency headwinds and higher interest expense. Excluding the impact of the gain on sale and other items, adjusted earnings per share of $1.29 for the fourth quarter increased 22% compared to prior year.

Operating cash flow for the fourth quarter of $163 million increased 36% and free cash flow for the fourth quarter of $132 million increased 58% versus prior year driven by strong accounts receivable collections. For the full year 2022, operating cash flow increased $286 million versus prior year to $278 million, compared to an outflow in 2021 of $8 million, which included a $398 million payment to fund the asbestos liability divestiture. Excluding the impact of the asbestos-related payment in 2021, operating cash flow for the full year declined $112 million driven by an increase in working capital to support sales growth and to mitigate continued supply chain disruptions.

Table 1. Fourth Quarter Performance

	Q4 2022				Q4 2021			Change
Revenue		$774.6				$685.4		13.0%
Organic Growth								17.5%
Segment Operating Income		$159.4				$122.6		30.0%
Segment Operating Margin		20.6%				17.9%		270 bps
Adjusted Segment Operating Income		$144.3				$124.7		15.7%
Adjusted Segment Operating Margin		18.6%				18.2%		40 bps
Earnings Per Share		$1.39				$1.20		15.8%
Adjusted Earnings Per Share		$1.29				$1.06		21.7%
Operating Cash Flow		$162.5				$119.5		36.0%
Free Cash Flow		$132.3				$83.7		58.1%

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

 

Management Commentary

"Our results this quarter and throughout 2022 have shown the resilience of our ITTers and our business model. During an unpredictable time, our team's focus on our customers never wavered, which drove strong orders growth across all businesses. Our commercial actions to drive share gains and price recovery, coupled with productivity, led to a record segment operating margin in the fourth quarter. We overcame more than $200 million of cost inflation, significant foreign currency headwinds and the loss of business in Russia in 2022, and delivered on our original revenue and adjusted earnings per share guidance. We deployed over $600 million of capital for the year, including for the acquisition of Habonim, a specialty valves manufacturer which expanded the Industrial Process portfolio and provided strong returns in its first year. As a result of all our achievements, we're entering 2023 with a solid foundation for growth and value creation and a record backlog. I remain confident in our ability to reach our long-term financial and sustainability targets," said Luca Savi, ITT's Chief Executive Officer and President.

 

Table 2. Fourth Quarter Segment Results

	Revenue				Operating Income
	Q4 2022	Reported Increase/ (Decrease)	Organic Growth/ (Decline)		Q4 2022	Reported Increase/ (Decrease)	Adjusted Increase/ (Decrease)
Motion Technologies	$330.4	2.1%	12.1%		$47.8	(25.2)%	(23.9)%
Industrial Process	$280.7	29.8%	26.7%		$80.0	150.8%	87.7%
Connect & Control Technologies	$164.6	12.9%	16.2%		$31.6	17.9%	17.9%
Total segment results	$774.6	13.0%	17.5%		$159.4	30.0%	15.7%

Note: all results unaudited; excludes intercompany eliminations of $1.1 million; comparisons to Q4 2021; dollars in millions except per share amounts

Motion Technologies revenue increased, primarily driven by growth in Friction OE from share gains and pricing recovery and strength in the rail business, partially offset by an unfavorable foreign currency translation of $32 million. Operating income decreased 25% to $48 million due to a prior year gain on sale of property, higher raw material costs, unfavorable foreign currency impacts and the loss of Russia business, partially offset by favorable pricing and productivity actions.

Industrial Process revenue increased, primarily driven by growth across end-markets in both pump projects and short-cycle baseline pumps, parts and service, and from the addition of Habonim, which was acquired in April 2022. This was partially offset by an unfavorable foreign currency translation of $9 million. Operating income increased to $80 million driven by a $16 million gain on sale of facilities, pricing recovery, higher volume, and productivity actions, partially offset by higher raw material and overhead costs, the mix of project and short-cycle revenue and unfavorable foreign currency impacts.

Connect & Control Technologies revenue increased, primarily driven by connectors share gains and growth in components, with particular strength in the aerospace and defense and industrial markets. This was partially offset by an unfavorable foreign currency translation of $5 million. Operating income increased to $32 million driven by pricing recovery, higher volume, and productivity actions, partially offset by higher raw material costs and unfavorable foreign currency impacts.

 

Table 3. 2022 Full Year Results

	FY 2022				FY 2021			Change
Revenue		$2,987.7				$2,765.0		8.1%
Organic Growth								12.2%
Segment Operating Income		$511.9				$466.7		9.7%
Segment Operating Margin		17.1%				16.9%		20 bps
Adjusted Segment Operating Income		$514.0				$476.7		7.8%
Adjusted Segment Operating Margin		17.2%				17.2%		— bps
Earnings Per Share		$4.40				$3.64		20.9%
Adjusted Earnings Per Share		$4.44				$4.05		9.6%
Operating Cash Flow		$277.7				$(8.4)		3,406.0%
Free Cash Flow		$173.8				$(96.8)		279.5%

Note: dollars in millions except for per share amounts

Quarterly Dividend Increase

The company announced today an increase in its quarterly dividend of 10% to $0.29 per share on the company's outstanding common stock. ITT's Board of Directors approved the cash dividend for the first quarter of 2023, which will be payable on April 3, 2023, to shareholders of record as of the close of business on March 9, 2023. The 10% increase in the quarterly dividend announced today follows increases of 30% and 20% in 2021 and 2022, respectively.

2023 Guidance

We expect revenue growth of 7% to 9%, up 6% to 8% on an organic basis; segment operating margin of 17.0% to 17.8%, and adjusted segment operating margin of 17.3% to 18.1%, up 10 to 90 bps; EPS of $4.38 to $4.78, and adjusted EPS of $4.55 to $4.95, representing growth of 7% at the midpoint; and free cash flow of $350 million to $400 million, representing free cash flow margin of 11% to 12% 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 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 9 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, February 23, 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.

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.

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:

• 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, uncertainty regarding the U.S. federal government's debt limit, 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;
• impacts on our business stemming from the COVID-19 pandemic, including from government-mandated site closures, employee illness and absenteeism, and continued supply chain disruptions and raw material shortages, which has 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;
• 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;
• 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.