Q1 2024 ITT Inc Earnings Call
Operator: The line will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 11 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 11 again. We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the floor over to Mark Macaluso, Vice President, U.S. Relations and Global Communications. Please, you may begin.
<unk> for your questions. Following the presentation. If you would like to ask a question at that time. Please press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing star. One again, we ask that you. Please pickup your handset to allow optimal sound quality. It is now my pleasure to turn the floor over to Mark.
Mark: Macaluso, Vice President Investor Relations and Global Communications. Please you may begin.
Mark Macaluso: Thank you, Victor, and good morning. Joining me this morning in Stanford are Luca Savi, ITT's Chief Executive Officer and President, and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT's financial results for the three-month period ending March 30, 2024, which we announced this morning. Before we begin, please refer to slide two of today's presentation, where we note that today's comments will include forward-looking statements that are based on our current... However, actual results may differ materially due to several risks and uncertainties, including those described in our 2023 annual report on Form 10-K and other recent SEC
Mark Macaluso: Thank you Victor and good morning, joining me. This morning in Stamford are Luca Savi, Itt's, Chief Executive Officer, and President and a mediocre Brady Chief Financial Officer, today's call will cover our financial results for the three months period, ending March 32024, which we announced this morning.
Speaker Change: Before we begin please refer to slide two of today's presentation, where we note that today's comments include forward looking statements that are based on our current expectations.
Speaker Change: Actual results may differ materially due to several risks and uncertainties, including those described in our 2023 annual report on Form 10-K, and other recent SEC filings.
Mark Macaluso: Except as otherwise noted, the first quarter results we present this morning will be compared to the first quarter of 2023 and include certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is detailed in our press release and in the appendix of our presentation, both of which are available on our website. With that, it's now my pleasure to turn the call over to Luca, who will begin on slide three.
Speaker Change: Where otherwise noted the first quarter results. We present this morning will be compared to the first quarter of 2023 and include certain non-GAAP financial measures.
Speaker Change: Reconciliation of such measures to the most comparable GAAP figures are detailed in our press release and in the appendix of our presentation both of which are available on our website with that it's now my pleasure to turn the call over to Luka will begin on slide three.
Luca Savi: Thank you, Mark, and good morning. ITT had a very good and active start today. We grew revenue, margin, and EPS above expectation, closed the Svanehoy acquisitions, invested in them to sustain our differentiation, and continue to gain share with new profitable awards. We also reached an important milestone on our multi-year safety journey. Because of our unrelenting focus on safety, we delivered a 40% year-over-year reduction in recordable incidents, leading to an injury frequency rate of 0.5, approaching best-in-class performance.
Luka: Thank you Mark and good morning.
Luka: ITT has a very good and active stocks today, yeah, we grew revenue margin and EPS above expectations.
Luka: This is Danny Hollie acquisition.
Luka: That's good to sustain that what you said exploration and continue to gain share with new profitable awards.
Luka: We also reached an important milestone on our a multiyear safety journey.
Luka: Because of our unrelenting focus on safety, we didn't even at 40% year over year reduction in recordable incidents.
Luka: Leading to a knee injury frequency rate of 0.5.
Luka: Roche and best in class performance.
Luca Savi: Our plans are safer and more efficient every day. So for the results you delivered, and for your focus on safety, I want to thank all IT... A heartfelt thank you. Now, on to the results. In Q1, we built on 2023 momentum in orders, revenue, margin, and EPS, and all of our businesses contributed to this performance. Here are the highlights.
Luka: Brian.
Luka: Lisa and more efficient every day.
Speaker Change: So for the results you deliver and for your focus on safety I want to thank all ITT Ers a heartfelt. Thank you.
Luca Savi: 7% organic odor growth or 13% in total. Nearly $1 billion in orders leading to a book-to-bill of $1.07, 9% organic revenue growth or 14% total, surpassing $900 million of sales in a quarter for the very first time. 120 basis points of adjusted operating margin expansion to 17%, with all businesses making significant progress on our long-term target. And although we no longer report total segment margin, on that basis, we would be just 100 basis points shy of our 2026 long-term target, as a result of all of this. We drove over 20% adjusted EPS growth to another new level of earnings for IT. Now to the on all those.
Speaker Change: Now onto the results.
Luca Savi: CCT led the way with 23% growth fueled by record aerospace orders and recovering demand for connectivity. The connectors' performance was encouraging after the business managed through a year of distributor de-stuffing, and TIGRU 11% with strong growth in rail. Friction also won 47 new hybrid and electric vehicle awards with Tesla, Xiaomi, Geely, and Mercedes, among others.
Speaker Change: In Q1, we built on 2023 momentum in order its revenue margin and EPS.
Speaker Change: And all of our businesses contributed to this performance.
Speaker Change: Here are the highlights.
Speaker Change: 7% organic orders growth or 13% in total.
Speaker Change: Nearly $1 billion in order, leading to a book to Bill of 1.07.
Speaker Change: 9% organic revenue growth or 14% Tau, surpassing $900 million of sales in the quarter for the very first time.
Speaker Change: 120 basis points of adjusted operating margin expansion to 17% with all businesses, making significant progress on our long term targets.
Speaker Change: And although we no longer report total segment margin on that basis, we would be just 100 basis points shy about 2026 long term target.
Speaker Change: As a result of all of this we drove over 20% adjusted EPS growth to another new lab it up the earnings for ITT.
Speaker Change: Now the details on orders.
Speaker Change: CCT led the way with 23% growth fueled by record aerospace orders and recovery in demand and connectors.
Speaker Change: <unk> performance was encouraging after the business manage through a year of distributor Destocking.
Speaker Change: T grew 11% with strong growth in rail.
Speaker Change: Friction also won 47, new hybrid and electric vehicle awards with Tesla Xiaomi Gili I must say this among others.
Luca Savi: And IP's short cycle business grew 9% sequentially, whilst winning nearly $70 million of project awards, leading to a book-to-bill of $1.0 on revenue. All three segments delivered strong revenue growth driven by 8 percentage points of volume. This was led by an industrial process which drove 64% growth in profitable pump projects.
Speaker Change: And Ip's short cycled business grew 9% sequentially why is the winning nearly $70 million of project awards, leading to a book to Bill of 1.06.
Speaker Change: On revenue.
Speaker Change: All three segments delivered strong revenue growth driven by eight percentage points up volume.
Speaker Change: This was led by industrial process, which drove 64% growth in profit about pump projects.
Luca Savi: MT delivered 8% growth led by strong friction OER performance and double-digit growth in rail, whilst we continue to see a recovery in the friction aftermath. Finally, CCT grew 7% with 13% growth in aerospace and the. We've seen a multi-quarter ramp in defense that we expect will continue throughout 2024 and beyond. We're driving profitable growth, resulting in a 23% increase in operating income, nearly two and a half times our organic revenue growth. Looking at Margin by Second.
Speaker Change: Empty delivered 8% growth led by strong friction or outperformance and double digit growth in rail what we continue to see a recovery in the friction aftermarket.
Speaker Change: Finally, CCT grew 7% with 13% growth in aerospace and defense.
Speaker Change: We've seen a multi quarter ramp in the sense that we expect will continue throughout 2024 and beyond.
Speaker Change: We are driving profitable growth, resulting in a 23% increase in operating income nearly two and a half times, our organic revenue growth rate.
Speaker Change: Looking at margin by segment.
Luca Savi: MT surpassed 18% margin in Q1 after improving sequentially every quarter in 2020, highlighted by Connie, which drove margin above the empty segment average. Well done, Jeroen and Connie China also delivered more than 18% margin, driven in part by price. Our new CCT President, Michael Goody, is already hard at work leveraging his operational experience from Park & Hennepin and ITW to drive CCT towards its 22% margin target. Finally, on a like-for-like basis, IP's margin was up 140 basis points even as the mix of revenues shifted to projects, and including acquisitions, IP was still above 20. Because of this performance, we are raising the low end of our EPS guidance by $0.20, or $0.10 at the midpoint, to a new range of $5.65 to $5.90.
Speaker Change: Empty surpassed 18% margin in Q1 after improving sequentially every quarter in 2023 highlighted by Coty, which drove margin above the empty segment average well done you rune and Coty China.
Speaker Change: <unk> also delivered more than 18% margin driven in part by pricing.
Speaker Change: Cecity President Michael Judy is already hard at work leveraging his operational experience from Parker Hannifin at ITW to drive CCT towards is 22% margin target.
Speaker Change: Finally on a like for like basis, Ip's margin was up 140 basis points, even as the mix of revenues ship two projects.
Speaker Change: And including acquisitions IP was still above 20%.
Speaker Change: Because of this performance we are raising the low end of our EPS guidance by <unk>.
Speaker Change: Or 10 cents at the midpoint to a new range of $5 65 to $5 90.
Luca Savi: We now expect EPS growth of 11% at the midpoint, above our long-term target, and given the strong top-line performance and momentum in orders, we are raising our organic growth guidance to 6% at the midpoint, with a 20 basis points increase in our margin outlook as well. Our teams deliver this performance while investing in the business. These investments will continue to drive strong returns for our shareholders, and I was fortunate to experience some of this firsthand last quarter in India and Saudi Arabia.
Speaker Change: We now expect EPS growth of 11% at the midpoint above our long term target and given the strong topline performance and momentum in orders, we are raising our organic growth guidance to 6% at the midpoint with a 20 basis point increase in our margin outlook as well.
Speaker Change: Our teams delivered this performance while investing in the businesses. These investments will continue to drive strong returns for our shareholders and that was fortunate to see some of this growth last quarter in India, and Saudi I saw the investments at IP is making to expand testing capacity and capability.
Luca Savi: I saw the investments that IP is making to expand testing capacity and capability. Khaled and the Saudi team will be able to test larger pump packages, sustaining our ability to gain share in the Middle East. Similarly, in India, Lala and his team are installing nearly four times their current power capacity to shorten lead times to customers and improve testing availability.
Speaker Change: Great.
Speaker Change: Got it and the Saudi team will be able to test larger pump packages sustaining our ability to gain share in the middle East.
Speaker Change: Similarly in India, <unk> Marine starting nearly four times their current power capacity to shorten lead times to customers and improved testing availability.
Luca Savi: As we expand our in-region for region strategy, IP expects to continue to gain share in this growing market. We are also investing in our capabilities to execute decarbonization projects. For example, at our Bornemann site in Germany, we are upgrading our testing facility to replicate field conditions on large farm packages.
Speaker Change: As we expand our in region for region strategy IP expects to continue to gain share in this growing market.
Speaker Change: We're also investing in our capabilities to execute decarbonization projects at our Boardman site in Germany, we are upgrading our testing facility to replicate field conditions on large packages.
Luca Savi: ITT will be one of the few companies in the world with this capacity. We're also making progress penetrating the high-performance breakout segment. We expect the new production lines in Termoli, Italy, to be up and running later this year as part of our €50 million investment in plant expansion and upgraded R&D. Notably, the friction team has already won low emission brake platform awards on high performance vehicles even before the facility construction. In addition, the team secured approval for over $20 million of government incentives in Europe, which will significantly reduce our cash outlay for the facility expansion. And again in friction in China, working closely with local OEMs, we drove 38% growth in friction OEMs, a substantial outperformer in the largest automotive market in the world. Well done, Friction.
Speaker Change: ITT will be one of few companies in the world with this capability.
Speaker Change: We're also making progress penetrating the high performance break that segment.
Speaker Change: We expect the new production lines in Talamona, Italy to be up and running later this year as part of our $50 million your investment for plant expansion and upgrade your R&D capabilities.
Speaker Change: Notably the friction team has already won lower emission Brae platform awards on high performance vehicles, even before the facility construction is complete.
Speaker Change: In addition, the team secured approval for over $20 million of government incentives in Europe, which will significantly reduce our cash outlay for the facility expansion.
Speaker Change: And again in friction in China, working closely with local Oems, we dropped 38% growth in friction OEM.
Speaker Change: <unk> outperformance in the largest automotive market in the world.
Speaker Change: Well Dr friction team.
Luca Savi: And finally, on innovation, the Embedded Motor Drive, or EMD, is delivering continued positive results in customer field trials. On average, EMD delivers energy savings of over 50% compared to a standard motor and significant CO2 emissions reduction. We expect to start product commercialization in 2025, and we'll share more with you on EMD in the coming quarter. All of these investments will sustain ITT's differentiation over the long term through profitable growth. A significant portion of that growth will come from the nearly $1 billion of orders we booked this quarter. Let me tell you more about that on slide four.
Speaker Change: And finally on innovation the embedded module drive or AMD is delivering continued positive results in customer field trials.
Speaker Change: On average AMD delivers energy savings of over 50% compared with standard motor and significant C O two emissions reduction.
Speaker Change: We expect to start product commercialization in 2025, and we share more with you on MD in the coming quarters.
Speaker Change: All of these investments we sustained itt's differentiation over the long term through profitable growth.
Speaker Change: A significant portion of that growth will come from the nearly $1 billion of orders we booked this quarter.
Speaker Change: Let me tell you more about these on slide four.
Luca Savi: Building on our 2023 momentum, we grew orders 13% in total and 16% sequentially, with strong performances in all. We are focused on growing and growing profit. This means we look at each opportunity with a strategic lens and an opportunity level of selectivity. Here are a few examples.
Speaker Change: Building on our 2023 momentum we grew August 13% in total and 16% sequentially with strong performances in all businesses.
Speaker Change: We are focused on growing and growing profitably.
Speaker Change: This means we look at each opportunity with your strategic clients and an opportunity level of selectivity.
Luca Savi: By leveraging our proprietary Envision Valve technology, IP Engineer Valve won an award of more than $20 million to support the production of a groundbreaking weight loss drug. This strategic award reinforces our partnership with this leading global pharmaceutical company. We're also winning on green orders, not just in IP with larger decarbonization projects, but also in friction with awards for hybrid electric vehicles and in CCT with battery-connected. With this and other awards, green applications now represent approximately 16% of ITT's revenue annually. Moving forward, this will be bolstered by Svanehoj, with its exposure to low carbon and green fuel applications, as part of the clean energy transition.
Speaker Change: A few examples.
Speaker Change: By leveraging our proprietary <unk> technology IP engineered valves won an award of more than $20 million to.
Speaker Change: To support the production of a groundbreaking weight loss drug.
Speaker Change: These strategic award reinforces our partnership with this leading global pharmaceutical companies.
Speaker Change: We're also winning on Green orders not just in IP with larger carbonization projects, but also in friction with awards with hybrid electric vehicles and in CCT with battery connectors with these and other awards Green applications now represent approximately 16% of Itt's revenue annually.
Speaker Change: Moving forward this will be bolstered by Giovanni high with his exposure to low carbon green fewer applications as part of the clean energy transition.
Luca Savi: This quarter, Soren and his team drew orders by more than 30% year-over-year, and we expect this will help deliver double-digit revenue growth for the next several years. Moving to CCT, we are seeing good order momentum in connectors distribution, especially in North America. Whilst this is encouraging, we don't expect full recovery in connectors until the second half of the year.
Speaker Change: This quarter saw an N team grew orders by more than 30% year over year.
Speaker Change: And we expect this will have delivered double digit revenue growth for the next several years.
Speaker Change: Moving to CCT, we are seeing good orders momentum and connect with distribution, especially in North America.
Speaker Change: While this is encouraging we don't expect to recovery and connect with until the second half of the year.
Luca Savi: Additionally, aerospace and defense components recorded their highest orders quarter ever, and finally, in rail, orders were up 37%. As you can see, ITT's growth is accelerating with organic orders growth of 7% and, with a strong performance from Svanehoy, we grew orders 13% in total. Our Q1 performance demonstrated once again that ITT is well positioned to grow profits. Now, let me turn the call over to Emmanuel on slide
Speaker Change: Additionally, aerospace and defense components recorded its highest August quarter ever and finally in wave orders were up 37%.
Speaker Change: As you can see Itt's growth is accelerating with organic orders growth of 7% and with a strong performance from this very high we grew 13% in total.
Speaker Change: Our Q1 performance demonstrating once again, the IGT is well positioned to grow profitably.
Speaker Change: Now, let me turn the call over to Emmanuel on slide five.
Emmanuel Caprais: Thank you, Luca, and good morning. Beginning with revenue, we generated 9% organic sales growth with all segments contributing. Volume drove most of the growth this quarter. IP projects were up 64%. CCT Aerospace and Defense Components, we're up 21.
Emmanuel: Luca and good morning, beginning with revenue, we generated 9% organic sales growth with all segments contributing volume drove most of the growth this quarter IP projects were up 64%.
Emmanuel: <unk> aerospace and defense components were up 21%.
Emmanuel Caprais: Friction OE was up 12% with an outperformance well above the historical 800 base points average; Zenoi added 5 points to the total revenue growth. And I also want to reemphasize that its orders were up over 30% compared to the prior year. On profitability, margin expansion was primarily driven by, which grew more than 300 basis points to surpass 18% faster than we anticipated. Excluding M&A, IP's margin was up 140 basis points. This was driven in part by over 200 basis points of margin expansion on projects as we continue to improve expectations.
Emmanuel: Friction OE was up 12% with an outperformance well above the historical 800 basis point average.
Emmanuel: <unk> added 5% five points to the total revenue growth and also want to reemphasize.
Emmanuel: That is orders were up over 30% compared to the virus.
Emmanuel: On profitability margin expansion was primarily driven by <unk>, which grew more than 300 basis points to surpass 18% faster than we anticipated.
Emmanuel: Excluding M&A Ip's margin was up 140 basis points. This was driven in part by over 200 basis points of margin expansion on projects as we continue to improve execution.
Emmanuel Caprais: Collectively, our businesses drove 60 basis points of productivity, which more than offset 40 basis points of strategic investments related to new friction product formulation and product redesigns in IP. On earnings, adjusted EPS growth of 21% was driven by volume, price, and productivity. In addition, we absorb higher interest expense and a slightly higher effective tax.
Emmanuel: Collectively our businesses drove 60 basis points of productivity, which more than offset 40 basis points of strategic investments related to new friction product formulations and product redesigns in IP and CCT.
Emmanuel: Earnings adjusted EPS growth of 21% was driven by volume price and productivity.
Emmanuel: In addition, we absorbed.
Emmanuel: Higher interest expense and a slightly higher effective tax rate.
Emmanuel Caprais: Finally, on cash, after generating $430 million for all of 2023, this quarter we grew our free cash flow by 2% versus the prior year, driven by increased profits. We continue to see significant opportunities. Stronger Cash Generation at InventoryNAR.com. All in, a strong start to 2024 that gives us confidence in delivering the midpoint of our new EPSL. Let's move to slide 6, to review the EPS bridge for...
Emmanuel: Finally on cash after generating $430 million for all of 2023. This quarter, we grew our free cash flow by 2% versus prior year driven by increased profit.
Emmanuel: We continue to see significant opportunities with stronger cash generation as inventory NAR recruitment.
Emmanuel: All in our strong start to 2024 that gives us confidence in delivering the mid point of our new EPS outlook.
Emmanuel: Let's move to slide six to review the EPS bridge for Q1.
Emmanuel Caprais: Adjusted EPS grew 21% for the quarter to a record $1.42. Strong volume growth and higher prices drove $0.23 of operating leverage, while net productivity contributed another $0.05, and the investments Luca described earlier had an impact of 3 cents this quarter. Included in the net M&A bar is roughly $7 million of intangible amortization coming from both Vennahoy and Microsoft. Of the $7 million, approximately $4 million is related to amortization of backlogs that will be recognized over the next 12 to 18 months. Once we finalize the purchase price allocation for Savannahoy, we will provide more call-ins. Wrapping up the bridge, interest on the term loan, and commercial paper drove a 3 cent headwind this quarter.
Emmanuel: Adjusted EPS grew 21% for the quarter to a record $1 42.
Emmanuel: Strong volume growth and higher price drove 23 of.
Emmanuel: Operating leverage while net productivity contributed another five.
Emmanuel: And investments Luca described earlier had an impact of <unk> this quarter.
Emmanuel: Included in the net M&A bar is roughly $7 million of intangible amortization coming from both <unk> and micro mode.
Emmanuel: Of the $7 million approximately $4 million is related to our monetization of backlog that will be recognized over the next 12 to 18 months and then tail off.
Emmanuel: Once we finalize the purchase price allocation for savanna, Hoyt, who will provide more color.
Emmanuel: Wrapping up the bridge interest on the term loan and commercial paper drove a <unk> <unk> headwind this quarter as.
Emmanuel Caprais: Next time cash generation picks up, we anticipate paying down our outstanding debts further. Let's turn to slide seven to discuss our 2024 guidance. Today, we are raising our guidance for organic revenue, operating margin, and EPS given our strong first quarter performance. To begin, we are increasing the midpoint of our Organic Revenue Guide to approximately 6% due to frictional performance, improvement in connector orders, and the backlog we accumulated at the end of which is up 11% organically year over year. On operating margin, we expect 17.4% at the minimum.
Emmanuel: As cash generation picks up we anticipate paying down our outstanding debt further.
Emmanuel: Let's turn to slide seven to discuss our 2020 for guidance.
Hoyt: To date, we are raising our guidance for organic revenue operating margin and EPS, given our strong first quarter performance.
Hoyt: To begin we are increasing the midpoint of our organic revenue guidance to approximately 6% due to friction outperformance improvement and connector orders and the backlog we accumulated at the end of Q1.
Hoyt: Which is up 11% organically year over year.
Hoyt: On operating margin, we expect 17, 4% at the midpoint, both MTN CCT eclipsed 18% this quarter and IP is driving higher margin in the core business mitigating M&A dilution.
Emmanuel Caprais: Both MT and TCT eclipsed 18% this quarter, and IP is driving higher margins in the core business, mitigating M&A. The higher revenue growth and operating margin is expected to drive adjusted EPS growth of 11% at the midpoint, a 10 cent improvement from the previous year. Before I move on, I also wanted to provide some color on what to expect in the second quarter. Organic revenue should grow in the mid-single digits, led by CCT and MT, while IP will navigate a tough prior year comparison on revenue and orders.
Hoyt: The higher revenue growth and operating margin is expected to drive adjusted EPS growth of 11% at the midpoint 10 improvement.
Hoyt: Improvement from the previous guidance.
Hoyt: Before I move on I also wanted to provide some color on what.
Hoyt: What can we expect in the second quarter.
Hoyt: Organic revenue should grow in the mid single digits led by CCT NMC, while IP will navigate a tough prior year compare on revenue and orders growth.
Emmanuel Caprais: We expect total margin expansion of 50 to 80 basis points, which will drive EPS growth in the high single-digit range compared to the prior year. Now, let's turn to slide eight to discuss capital allocation. Let me start by saying that we will always invest organically, given the proven returns and organic growth we can generate.
Hoyt: We expect total margin expansion of 50 to 80 basis points, which will drive EPS growth in the high single digit range compared to the prior year.
Hoyt: Let's turn to slide eight to discuss capital allocation.
Hoyt: Let me start by saying that we will always invest organically given the proven returns and organic growth, we can generate and.
Emmanuel Caprais: And now we're intensifying our focus on M&A. We expect this will be a significant value creation driver for IT. And so we thought it would be beneficial to shed more light on our capital deployment framework. In M&A, our primary targets are close to core acquisitions in flow and control. We focus on companies with leading market positions that manufacture highly engineered components and have strong management. These targets may also present margin expansion potential, but the deep rationale always starts with the strategy.
Hoyt: And now we're intensifying our focus on M&A. We expect this will be a significant value creation driver for ITT and so we thought it would be beneficial to shed more light on our capital deployment framework.
Hoyt: In M&A are primary targets are close to core acquisitions inflow and connectors, we focus on companies with leading market positions. The manufacturer of highly engineered components and have strong management teams.
Hoyt: These targets May also present margin expansion potential, but the deal rationale always starts with a strategic fit.
Emmanuel Caprais: We have significant dry powder, and we intend to effectively deploy capital in order to strengthen further our existence. Along with acquisitions, we also regularly review our portfolio to ensure the businesses that we own align to our longer-term strategy. After M&A, we focus on returning capital to shareholders through dividends and share repayments. If we don't find the right target for M&A, we intend to ramp up the pace of share buybacks, allowing shareholders to benefit from ITT's strong financial position and our $1 billion share repurchase. With that, let me turn the call back to Luca.
Hoyt: We have significant dry powder, and we intend to effectively deploy capital in order to strengthen further our existing businesses.
Hoyt: Along with acquisition. We also regularly review our portfolio to ensure the businesses that we own aligned to our longer term strategy.
Hoyt: After M&A, we focus on returning capital to shareholders through dividends and share repurchases. If we don't find the right targets for M&A, we intend to ramp up the pace of share buybacks, allowing shareholders to benefit from ICT strong financial position and a $1 billion share repurchase program.
Hoyt: With that let me turn the call back to Luca Thank.
Luca Savi: Emmanuel. Before I wrap up, I want to reemphasize a few points Emmanuel made on M&A. Historically, we created value through growing organically and expanding our market. And whilst this will continue, we now also expect to drive further value inorganically as we continue to build our M&A muscle. In the past few years, we added experienced dealmakers to our leadership team and strengthened our M&A teams in the. As a result, we have stronger capabilities, and our success in this area is growing, as evidenced by the three acquisitions in the last two years.
Luca: Thank you Emmanuel before I wrap up I want to reemphasize, a few points and Manuel made on M&A.
Luca Savi: Historically, we created value through growing organically and expanding our margins and why these will continue now we also expect to drive further value inorganically as we continue to be the M&A muscle.
Luca Savi: In the past few years, we added experienced dealmakers to our leadership team and strengthen our M&A teams in the business.
Luca Savi: As a result with stronger capabilities and our success in this area is growing as evidenced by the three acquisitions in the last two years.
Luca Savi: Among these was Habony, which expanded our Valve business by more than 50%, generated more than 100% cash conversion in 2023, and exceeded our expectations in all areas, adding 8 cents of EPS to your wallet. And while it is too early for Svanehoy, the initial signs are encouraging.
Luca Savi: Among these was happening which expanded our valves business by more than 50% generated more than 100% cash conversion in 2023 and exceeded our expectations in all metrics, adding eight cents of EPS in year one.
Luca Savi: And while it is too early for its Danny Hollie. The initial signs are encouraging we continue investing in our capabilities and expect to accelerate the pace of M&A in a disciplined manner.
Luca Savi: We continue investing in our capabilities and expect to accelerate the pace of M&A in a disciplined manner. And, as Emmanuel said, it all starts with a strategic plan. Now, let me wrap up with a few points before Q&A. Q1 was another milestone quarter for ITT, and as a result, we raised our sales, margin, and EPS guidance. Our businesses are outperforming their end markets, be it energy, transportation, or air and defense, generating nearly $1 billion of orders and a book-to-bill ratio above one, leading to a record $1.5 billion. We still have many opportunities to create value organically. And with our strong financial position, we are working to compound this growth with enhanced M&A performance.
Luca Savi: And as Emmanuel said, it all starts with a strategic fit.
Speaker Change: Now, let me wrap up with a few points before Q&A.
Luca Savi: Q1 was another milestone quarter for ITT and as a result, we raised our sales margin and EPS guidance.
Luca Savi: Our businesses are outperforming their end markets energy transportation or Aero and defense.
Luca Savi: <unk> nearly $1 billion of orders in a book to bill above one leading to a record $1 $5 billion backlog.
Luca Savi: With many opportunities still to create value organically and with our strong financial position. We are working to compound these growth with enhanced M&A performance.
Luca Savi: As always, it has been a pleasure speaking with you today. Thank you for joining us. Victor, please open the line for Q&A. Thank you.
Speaker Change: As always it has been a pleasure speaking with you today. Thank you for joining Victor Please open the line for Q&A.
Operator: Thank you. The floor is now open for questions at this time. If you have a question or comment, please press star 1-1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 1-1.
Speaker Change: Thank you the floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing star one.
Operator: Again, we do ask that while you pose your question, you pick up your handset to provide optimal sound quality. Please limit your questions to one question and one follow-up. One moment for our first question. The first question will come from the line of Joe Giordano from TD Callen. Your line is open.
Speaker Change: Again, we do ask that you pose your question you pick up your handset to provide optimal sound quality. Please limit your questions to one question and one follow up one moment for our first question.
Speaker Change: Our first question comes from the line of Joe Giordano from TD Cowen Your line is open.
Joseph Craig Giordano: Hey, good morning, guys Hi.
Joseph Craig Giordano: Hey, so on MT, and the margins there were really good. I'm guessing like higher than maybe you thought in the one cue.
Joseph Craig Giordano: Hi, Joe.
Joseph Craig Giordano: Hey, so on MGE and the margins they are a really good I'm guessing like higher than maybe you thought in the <unk>.
Joseph Craig Giordano: I see in the slides that you're talking about the full year kind of being roughly similar to what you did in 1Q. Can you kind of just frame that with, you know, you got new platforms or anything, and you have, you know, where are you with price? Like, how much of that full-year guide, it feels kind of conservative in light of what you put up in the 1Q. So maybe just walk us through the puts, and Sure. Thank you, Joe.
Joseph Craig Giordano: I see in the slide you're talking about full year kind of being roughly similar than you did in <unk> can you kind of just frame that with you've got new product new platforms ramping and you have where are you with price how much of that full year guide it feels kind of conservative in light of what you've put up in the <unk>. So maybe just walk us through the puts and takes there.
Emmanuel Caprais: Sure. Thank you, Joe. So, first of all, we are very happy with the performance that MT put in in Q1, more than 80%. Now, I think that we are working on consolidating this for the full year, Joe. Now, when it comes to the dynamic of the price-cost, as you can see, the price-cost for the full year will be roughly neutral when it comes to motion technologies and will be roughly neutral for ITT as well.
Speaker Change: Sure. Thank you John So first of all we're very happy with the performance. The MTA order in Q1 more than 80% now I think that we are working on consolidating dataset for that for the full year, Joe now when it comes to the dynamic of the of the price cost as you can see the price cost.
Speaker Change: In turn for their for the full year, we'd be roughly neutral when it comes to motion technologies and will be roughly neutral for ITT as well of course, there are a lot of that program that we won and therefore, there is a lot of ESOP and a lot of process validation that are happening in the line and why.
Emmanuel Caprais: Of course, there are a lot of programs that we want, and therefore, there is a lot of SOPs and a lot of process validation that is happening in the line. And while this will help in the future, sometimes it's also impacting the efficiency of the line.
Speaker Change: These will help in the future sometimes is also impacting the efficiency in the line.
Joseph Craig Giordano: Can you maybe on CCT specifically, on connectors specifically, just what's going on here with you guys on the order side, it just seems very different than what we're seeing at others. I mean, you know, it goes in my in market by in market, but generally, one of the only markets we see doing well right now are aerospace and connectors and like it with, you know, with data centers. So where are you seeing this kind of strength? And what kind of company specific is this to it?
Speaker Change: Perfect.
Speaker Change: Can you maybe on CCT on connectors specifically.
Speaker Change: What's going on here with you guys on the order side. It just seems very different than what we're seeing at others.
Speaker Change: Our end market by end market, but generally.
Speaker Change: Only markets, we see doing well right now, our aerospace and connectors and like it with.
Speaker Change: With data center, so where are you seeing this kind of strength and how kind of company specific as to.
Emmanuel Caprais: Sure. Thanks, Joe.
Speaker Change: IDT.
Joseph Craig Giordano: When it comes to the orders for CCT, they were at a record high, and specifically on the connectors, at roughly 122 million total, they were a record high as well. The growth there was aero for sure was up, defense was up, but also industrial orders were up. The only orders where we saw some declines were actually in the EV connector. Now, if you want to look at another dimension of the connectors between the OEMs and distribution, we had good growth both on the OEM side and on the distribution side. This was probably the highest order on record for connectors that we had. Having said that, it's just one quote.
Speaker Change: Sure. Thanks, Joe when it comes to the.
Speaker Change: To the orders of CCT they were at a record guidance specifically on the connectors at roughly 122 million store. They were a record high as well the growth there where arrow for sure was up defense was up but also industrial orders were.
Speaker Change: The only orders, where we saw some declines that we're actually in the EV connectors now if you want to look at also in another they mentioned of the connectors between the Oems and distribution, we had good growth both on the OEM side and on the distribution side. These was probably.
Speaker Change: The highest order on record for connectors that we had having said that is just one quarter.
Joseph Craig Giordano: Great. Great to see you. Thanks, guys.
Speaker Change: Great. Thanks.
Speaker Change: Thanks, guys.
Operator: One moment for our next question. Our next question will come from Jeff Hammond from Key Bank Capital. Your line is open.
Speaker Change: Thanks, Joe.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Jeff Hammond from Keybanc Capital. Your line is open.
Jeffrey David Hammond: Hey, good morning, guys.
Jeffrey David Hammond: Um, so yeah, I want to stay with the orders. So, you know, clearly impressive orders and empty. I'm just wondering a little more color in terms of what's inflecting there. And, you know, how much is just, you know, the aftermarket kind of, you know, through the D stock and growth, and then just on CCT, any, you know, lumpiness in any of those orders, you know, particularly on the aero side, I know that can change quarter to quarter.
Jeffrey David Hammond: Morning, Jeff.
Jeffrey David Hammond: So yes, I wanted to say what the orders so clearly a press of orders and empty I'm just wondering a little more color in terms of what's inflect in there and how.
Jeffrey David Hammond: How much is just the aftermarket kind of.
Jeffrey David Hammond: Through the destock and growth and then just on CCT any lung.
Jeffrey David Hammond: No lumpiness in any of that orders, particularly on the aerostar I know that can change quarter to quarter.
Luca Savi: I would say when you look at the orders picture, Jeff, Q1 orders are definitely one of the highlights of the quarter. For total ITT, a record, almost $1 billion. And when you look at each value center, it's a good picture in each and every one, and in the business there.
Speaker Change: I would say when you look at the orders that picked sure Jeff.
Speaker Change: Q1 orders are definitely one of the highlights of the quarter.
Speaker Change: For total ITT, a record almost $1 billion and when you look at each value Center is a good picture in each and every one and in the business in that emulsion technologies don't forget about rail.
Luca Savi: In motion technologies, don't forget about rail. Rail is a good market right now, and then the business is outperforming tremendously, both in Europe and in China, the Friction Awards. I mean, those 47 awards are also in EV and hybrid. We are already, in terms of the awards, at more than 40% of the total full-year target. And we don't tend to give easy targets, Jeff.
Speaker Change: Was that is a good market right now and then the business is outperforming tremendously both in Europe and in China. The friction awards I mean, those 47 awards that Osha <unk> in a hybrid we are already in terms of the awards at more than 40% of the total full year target and we do.
Luca Savi: On CCT, the highest, you know, orders on record when it comes to distribution connectors, the highest on the components, obviously, push from the defense. When you're talking about Aero, and for sure there are reports out there in terms of some of the production coming down, we are keeping an eye on the production rate of some of our customers. So far, talking to our customers, things have not changed, but we're keeping an eye on it. And lastly, on IP, the short cycle performed very well as well, with 1% growth year over year and 9% growth sequentially. So overall, a very good picture of all this.
Speaker Change: Don't tend to give easy target Jeff.
Jeffrey David Hammond: On CCT the highest.
Jeffrey David Hammond: Orders are on record when it comes to distribution connectors the highest on the components, obviously push from the defense.
Jeffrey David Hammond: When youre talking about ore and for sure. There are news out there in terms of some of the production coming down we are keeping an eye on the production rate of some of our customers. So far in talking to our customers things have not changed that back that we're keeping an eye and lost on IP. The short cycle performed very well.
Jeffrey David Hammond: As well with the 1% growth year over year, and 9% growth sequentially. So overall, a very good picture on orders.
Jeffrey David Hammond: Okay, great. And then I appreciate the slide on capital allocation. Just wondering, you know, as we look a year or two out, what you think the kind of optimal balance sheet leverages and, you know, do you think you have a pipeline that can support getting there over a couple of years.
Speaker Change: Okay, Great and then I appreciate the slide on.
Jeffrey David Hammond: Capital allocation.
Jeffrey David Hammond: Just wondering.
Speaker Change: As we look a year or two out.
Speaker Change: What do you think the optimal balance sheet leverage is in <unk>.
Speaker Change: Do you think you have.
Speaker Change: A pipeline that can support getting there over a couple year period.
Emmanuel Caprais: Yeah, Jeff. Definitely. We're very happy with the health of our balance sheet. We have almost no debt. We have We have worked really hard to make it the way it is. When you think about the prospects from an M&A center. Clearly, you know, as I discussed, we created a lot of value organically, both from a top line and a margin. Thanks to those organic investments, in fact, if you look at our margin extension, it was 350 basis points. Since 2019.
Speaker Change: Yes, Jeff So definitely we are very happy with the health of our balance sheet.
Jeffrey David Hammond: We have almost no debt.
Speaker Change: We have.
Jeffrey David Hammond: We have worked really hard to to make it the way it is today.
Jeffrey David Hammond: When you think about the.
Jeffrey David Hammond: The prospects from an M&A standpoint.
Jeffrey David Hammond: Clearly as I discussed we created a lot of value organically, both from a top line and a margin standpoint.
Jeffrey David Hammond: Thanks to those organic investments in fact, if you look at our margin expansion.
Jeffrey David Hammond: 350 basis points.
Jeffrey David Hammond: Since 2019.
Jeffrey David Hammond: And obviously, we'll continue with that.
Emmanuel Caprais: And obviously, we will continue with that. But as I said, you know, we're accelerating on M&A. Luca mentioned that we've been building the muscle on M&A. We have built a talented and experienced team. We have a clear and effective strategy, and as a result, we've been able to really build a rich and actionable pipeline of targets. We have today a pipeline of serious targets of more than 10. The average revenue size of each company is around $200-250 million.
Jeffrey David Hammond: But as I said, we're accelerating on M&A.
Jeffrey David Hammond: Look I've mentioned that we've been building the muscle and M&A.
Jeffrey David Hammond: We have built a talented and experienced team we have a clear and effective strategy.
Jeffrey David Hammond: And so as a result, we've been able to really build the rich and actionable pipeline of targets.
Jeffrey David Hammond: We have today a pipeline of.
Jeffrey David Hammond: Serious serious targets of more than 10.
Jeffrey David Hammond: The average <unk>.
Jeffrey David Hammond: Revenue size of each company's around 200 $250 million.
Emmanuel Caprais: And I think our goal internally, obviously, doing it in a disciplined manner, as Luca mentioned, is to try to deploy 500, roughly 500 to 700 million dollars on average each year to get to, really get to, grow ITT in Ontario. Our targets are still flow and connectors, that hasn't changed, and so yeah, so we're patiently building our execution on it.
Speaker Change: And I think our goal internally, obviously doing it in a disciplined manner as Luca mentioned is to try to deploy 500, roughly $500 million to $700 million.
Speaker Change: On average each year.
Speaker Change: To get to to really to get to to grow ITT inorganically.
Speaker Change: Our targets are still flowing connectors that hasnt changed.
Emmanuel Caprais: And and so yes. So we are we're patiently building.
Luca: Our execution on M&A.
Jeffrey David Hammond: Okay, perfect. Thanks, guys. Thanks, Jeff.
Speaker Change: Okay perfect. Thanks, guys.
Operator: Thank you. One moment for our next question. Our next question will come from Mike Halloran from Baird. Your line is open.
Speaker Change: Thanks, Jeff.
Speaker Change: One moment for our next question.
Operator: Yes.
Operator: Our next question comes from the line of Mike Halloran from Baird. Your line is open.
Michael Patrick Halloran: Hey, good morning, everyone.
Michael Patrick Halloran: So a couple here, you know, following up on the order side, MT specifically, maybe just talk about the auto piece and how you're thinking about production on a full year basis and just inventory levels in the channel.
Michael Patrick Halloran: So a couple here.
Michael Patrick Halloran: Following up on the order side.
Michael Patrick Halloran: Specifically, maybe just talk about the auto piece and how youre thinking about production on a full year basis, and just inventory levels in the channel.
Luca Savi: Thanks, Mike. So when you look at the quarter, the quarter worldwide was declining roughly 0.8%, and it was a little bit different than what was expected in terms of Europe being much weaker. Europe was down 2.5%, whereas China was surprisingly up more than 4%. I'm talking about car production here, and North America was up a low single digit. So when we look at the full year, Mike, we're expecting Europe to be down a low single digit.
Michael Patrick Halloran: Sure. Thanks, Mike.
Speaker Change: So when you look at the at the quarter.
Luca Savi: The quarter worldwide.
Luca Savi: Declining roughly 0.8808%.
Luca Savi: And it was a little bit different than what's expected in terms of Europe was much weaker Europe was down $2 five whereas that China was surprisingly up more than 4%.
Luca Savi: And I am talking about cut production here of course.
Luca Savi: Medical was up low single digits. So when we look at the full year Micah, we're expecting Europe to be down low single digit we expect China actually the projection on Chinese better than at the beginning of the year, we expect it to be up low single digits, whereas North America up low single digit as well overall the production for 2020.
Luca Savi: We expect China, actually, the projection on China is better than at the beginning of the year; we expect it to be up a low single digit, whereas North America is up a low single digit as well. Overall, the production for 2024, we expect roughly around 90 million. On all of this, as you know, we outperformed, and the outperformance was amazing in Q1. Guaranteed, it's a quarter.
Luca Savi: We expect roughly around 90 million vehicles on all of this.
Luca Savi: As you know, we outperformed and day.
Luca Savi: Outperformance was amazing in Q1, Garanti this quarter and I want to point to data 0.1 is China that despite the market growing four four I mean, our business growth, 38%, an outstanding performance that and Europe.
Luca Savi: And I want to mention two data points. One is China, which despite the market growing 4.4, our business grows 38%, an outstanding performance there. And Europe, even though the market declines, the business not only outperformed but was able to grow year over year. So an exceptional performance from the friction.
Luca Savi: Even if the market, even though the market declined.
Luca Savi: The business not only outperformed that was able to grew year over year. So an exceptional performance from deficiency.
Luca Savi: Appreciate that. And then on the IP side of things, maybe you could talk about underlying dynamics there. Specifically, two areas. One, what you're seeing on the short cycle, chemical side of the business, general industrial side of the business, any trend changes either way there, as well as how Savanoi is doing as far as the organic business goes and the kind of momentum you're seeing there.
Speaker Change: Appreciate that and then on the IP side of things, maybe just talk about underlying dynamics there.
Luca Savi: Specifically two areas one what you're seeing on the short cycle.
Luca Savi: Chemical side of the business Journal industrial side of the business and any trend changes either way there as well as.
Luca Savi: <unk> is doing as far as the organic business goes in kind of the momentum you're seeing there.
Luca Savi: Let me talk about the short cycle, maybe the market; I'll leave that for Emmanuel. When you look at the short cycle orders, as I said, they were up 1% year-over-year, and that was mainly thanks to VAVs and service. When you look at sequentially, they were up 9%, and that 9% is mainly only volume, and all the components of the short cycle in the quarter were up sequentially, baseline, parts, service, and VAVs, and all of that is really volume.
Speaker Change: Sure, Let me talk about the digital cycle may be.
Luca Savi: The market's early before Emmanuel when you look at the short cycle orders as they said they were up 1% year over year and that was mainly thanks to Bob and service. When you look at sequentially. They were up 9% at that 9% is mainly only volume and all the components of the short cycle in the quarter were up.
Luca Savi: Quenching baseline parts service and Bob's and all of that is really volume. If you look at that short cycle orders.
Luca Savi: If you look at those short cycle orders, it's probably the second highest ever when we look at the millions of dollars that we record per week. Now, when it comes to the market, I would say that, I don't know if you want to say that. So I would say that, you know, we see some weakness probably on the chemical side, but the general industrial was strong. Now, on a geographical basis, I would say the strength is mainly in North America.
Luca Savi: Is that probably the second highest ever when we look at the millions of dollars that we recorded per week now.
Luca Savi: Now when it comes to market I would say that that I don't know if youre interface.
Luca Savi: I would say that we see some.
Luca Savi: Weakness probably on the chemical side, but the general industrial was that was strong now and on the geographical basis I would say the strength is mainly on the in the in North America.
Emmanuel Caprais: And I would just add, even when we look at our funnel, a lot of activity coming from the Middle East, a really strong oil and gas chemical mining prospect for orders. So, a very, very healthy market for the moment for IP. And you see it in the book to bill, which was one zero. I think, Mike, you also had a question about Zvenohoy.
Speaker Change: And I would just add even.
Emmanuel Caprais: When we look at our funnel.
Emmanuel Caprais: A lot of activity coming from the Middle East.
Emmanuel Caprais: Really strong oil and gas chemical mining.
Emmanuel Caprais: Prospects for orders, so so very very healthy market for the moment for IP in and you'll see it in the book to Bill book to Bill was one <unk> I think Mike you had also a question on <unk>.
Emmanuel Caprais: And so just to give you a little bit of an update on this, we closed Q1 in line with expectations, both on sales and income. And as Luca mentioned, on top of that, we had really strong orders. They registered 30% growth on orders. And so when you think about the strategic fit that continues to ring true, they're a market leader, they're a very, very active player in the energy transition, and we continue to see that they continue to build long-term backlog. So we're booking orders well into 2025. The integration is also progressing really well, so all this is reinforcing our strategic rationale. And then, finally, I would say they have already started generating cash, which is always nice.
Emmanuel Caprais: And so just to give you a little bit of update on this so we closed Q1 in line with expectations, both on sales and income and as Luca mentioned on top of that we had really strong orders they registered 30% growth on orders.
Emmanuel Caprais: And so when you think about the strategic fit that continues to continue.
Emmanuel Caprais: Continue to ring to ring true.
Emmanuel Caprais: They are market leader there in a very very active player in energy transition.
Emmanuel Caprais: And we continue to see that they built.
Emmanuel Caprais: Continue to build long term backlog.
Emmanuel Caprais: So we're booking orders well into 2025 now.
Emmanuel Caprais: The integration also is progressing really well.
Emmanuel Caprais: So all this is reinforcing our strategic rationale.
Emmanuel Caprais: And then finally I would say they already started generating cash, which which is always good.
Michael Patrick Halloran: Great. I really appreciate everyone. Thank you. Thanks, Mike.
Speaker Change: Great really appreciate everyone. Thank you.
Operator: Thank you. One moment for our next question, and our next question will come from Scott Davis from Mellius Research. Your line is open.
Speaker Change: Thanks, Brian.
Speaker Change: Thank you one moment for our next question.
Operator: And our next question will come from the line of Scott Davis from Melius Research. Your line is open.
Scott Reed Davis: Morning, Scott. Hey, good morning, guys. Hi Scott. Congratulations. Congratulations on the start to the year, and it's been fun to watch you guys kick some tail the last few years.
Scott Reed Davis: Good morning, Scott Hey, good morning, guys.
Scott Reed Davis: Hi, Scott Congrats.
Scott Reed Davis: Congrats on the start to the year.
Speaker Change: It's been.
Scott Reed Davis: It's been fun to watch you guys kick some tail of the last few years so.
Scott Reed Davis: Anyways, you've been very generous with the M&A commentary, but I'm just kind of curious, you know, we've been talking about, Flow, in particular, consolidating for, Unknown Speaker 2 decades now, and there hasn't been a lot of consolidation. What do you think has been the main barrier to perhaps, maybe, some of the transactions not occurring already? Is it more just a function of timing?
Scott Reed Davis: Anyway.
Scott Reed Davis: You've been very generous on the M&A commentary, but I'm just kind of curious we've been talking about.
Scott Reed Davis: Flow in particular consolidating for two.
Scott Reed Davis: Two decades, now and there hasnt been a lot of consolidation.
Scott Reed Davis: What are you what has been the main barrier to to perhaps maybe.
Scott Reed Davis: Some of the transactions not occurring already is it is it.
Scott Reed Davis: Is it more just a function of.
Scott Reed Davis: Timing is it price is it.
Scott Reed Davis: Is it that a lot of these things are niche niche assets and there just hasnt been much of an appetite I'm just kind of curious more big picture than anything else.
Luca Savi: Is it price? Is it that a lot of these things are niche assets, and there just hasn't been much of an appetite? I'm just kind of curious, more the big picture than anything else, Luca, your years of working on this, why we haven't seen more consolidation already.
Luca Savi: Your years of working in this why why we haven't seen more consolidation already.
Luca Savi: Yeah, sure. I think that, you know, it's, it's a good question. I'm not so sure I have the question or the answer, Scott. It's indeed a very fragmented market. There are plenty of opportunities. I think probably sometimes that people tend to play in the courtyard that they know, and therefore they've, you know, they haven't, they haven't made the proper acquisition. But there are also a lot of things to do in cleaning your house, in putting your house in order first.
Luca Savi: Yes sure.
Speaker Change: I think thats it.
Luca Savi: It's.
Luca Savi: It's a good question I'm not so sure I do have the question.
Luca Savi: The balance of Scott it's in this very fragmented market.
Luca Savi: There are plenty of opportunities there.
Luca Savi: I think probably sometimes is that people tend to play in in the courtyard that they know and therefore they there.
Luca Savi: They haven't they haven't made the proper acquisition, but there is also a lot of things to do in cleaning Your house Inputting Your house in order first.
Luca Savi: So I think that when I look at many companies in the flow, probably the performance is not up to, or up to what it was supposed to be before starting M&A. If you're asking me, for example, Scott, five years ago, it would have been very difficult to be, you know, bullish on acquisitions in IP. It's a different story now.
Luca Savi: I think that when they look at many companies inflow, probably the performance is not debt up to up to where it's supposed to be before starting M&A. If youre asking me for example, Scott five years ago.
Luca Savi: It would have been very difficult to be.
Luca Savi: Bullish on acquisition in IP is a different story now.
Scott Reed Davis: Okay, that's helpful. And guys, just to clean up an item, are rail margins higher than an auto? Or are they pretty similar?
Speaker Change: Okay. That's helpful and guys just to clean up item, our rail margins higher than.
Speaker Change: In auto or are they pretty similar.
Emmanuel Caprais: So when you look at when you look at Kony, real margins are clearly on par or higher than our friction. And then when you look at Axtone, Axtone is in the low teens, and the reason for this is that we're still driving pricing to offset the cost inflation, and the cost inflation has been really taking longer than expected because we had such a long backlog. So we have a good line of sight to bring Axtone to the mid to high teams this year. But I would say railware margins, especially in Konya, are trending really well.
Scott Reed Davis: So when you look at.
Emmanuel Caprais: When you look at Kony business rail margin are clearly on par will higher than than our friction business.
Emmanuel Caprais: And then when you look at <unk> axon is in the.
Emmanuel Caprais: Low teens and the reason for this is because we are still.
Emmanuel Caprais: We're still driving.
Emmanuel Caprais: <unk> to offset the.
Emmanuel Caprais: Cost inflation and the cost inflation has been really.
Emmanuel Caprais: Taking longer than expected because we added such a long backlog.
Emmanuel Caprais: So we have good line of sight to bring Oxytone too.
Emmanuel Caprais: To the mid to high teens this year.
Emmanuel Caprais: But I would say Ralph with rail.
Emmanuel Caprais: Where margins, especially in Kodiak trending really well.
Scott Reed Davis: Best of luck this year, guys. Thank you. Thank you, Scott. Thank you.
Speaker Change: Okay Best of luck this year guys. Thank you.
Operator: Thank you. One moment for our next question, and our next question will come from Joe Ritchie from Goldman Sachs. Your line is open.
Scott Reed Davis: Thank you Scott Thank you.
Speaker Change: Thank you one moment for our next question.
Operator: And our next question will come from the line of Joe Ritchie from Goldman Sachs. Your line is open good.
Joseph Alfred Ritchie: Thanks. Hey, good morning, guys. Great to see you here.
Joseph Alfred Ritchie: Morning, Joe.
Joseph Alfred Ritchie: Hey, good morning, guys great either.
Joseph Alfred Ritchie: Just.
Joseph Alfred Ritchie: Maybe focusing that the the first question on IP.
Joseph Alfred Ritchie: Let's just start focusing the first question on IP. So the project's business was up 64%, but you still saw, you know, margins north of 20. That's pretty incredible, just given historically what the mix has been on that business or what the margins have been on that business. Can you just kind of mark to market the margins that you're seeing on the project business? And then if there's an update that you can give us on the foundry closure that occurred last year and whether you're starting to reap those benefits as well? Sure.
Joseph Alfred Ritchie: Project business.
Joseph Alfred Ritchie: Up 64%, but you still saw margin north of 20, that's pretty incredible just given historically, what the mix has been on that business or what the margins have been on that business can you just kind of mark to market the margins that youre seeing on the project business and then if there is an update that you can give us on the foundry.
Joseph Alfred Ritchie: That occurred last year, and whether you are starting to reap those benefits as well.
Joseph Alfred Ritchie: Well, Joe. I think that despite the big headwinds of mix, the margin improved more than 140 basis points on an organic basis, on a like-for-like basis. And the reason is really the result of the selectivity that we had in order acquisition and the good project execution and the rigor that we have. And we expect this to continue. Joe. I think that we are not done here.
Joseph Alfred Ritchie: Sure.
Joseph Alfred Ritchie: <unk>, Joe I think that the.
Joseph Alfred Ritchie: <unk> the big headwinds of mix the margin improved more than 140 basis points on an organic basis on a like for like and the reason is really the result of the selectivity that we had in order acquisition and the good project execution and the rigor that we have just and we expect this to continue.
Emmanuel Caprais: So just to give you an example, the backlog that we have today in our project business is a very healthy margin and on a year-over-year basis is up 300 basis points. So this will continue the improvement of margin in IP on an organic basis. That is for the project, and that rigor continues, both in acquisition as well as in execution. Now, when you think about the foundry, the foundry is closed, so we've been able to close it successfully.
Joe: So I think that we're not done here. So just to give you. An example, the backlog that today, we have in our project business is very healthy margin and on a year over year basis is up 300 basis points. So these we've continue the improvement of margin in IP on an organic basis.
Emmanuel Caprais: The ease of Florida for the projects.
Emmanuel Caprais: And as we got continue Bolton acquisition as well as in execution now when you think about the foundry the foundry we were.
Emmanuel Caprais: <unk> closed so we have been able to close this successfully.
Emmanuel Caprais: Now, we have been able to reduce our headcount in Seneca Falls because of the closing of the foundry, improve our safety performance, and also improve the quality of the castings that today we are getting either from local regions or also from North America and Mexico. So, it has gone well and
Emmanuel Caprais: We know we have been able to reduce.
Emmanuel Caprais: Our our head count in Seneca falls because of because of the foundry improve our safety performance and also improve the quality of the castings that today, we are getting either from local regional also from North America in Mexico. So it has gone well and completed.
Joseph Alfred Ritchie: And then I guess maybe just continuing on the margin front, I know there was a question earlier on motion tech and, you know, obviously the strong incremental margins this quarter, just just help us help us kind of understand maybe the trajectory of the margins from here, you know, do we do we move higher off of the 18.2% number? And what does that look like for the rest of the year? Yeah, thanks, Joe. So
Speaker Change: That's super Super helpful and Great to hear and then I guess, maybe just continuing on the margin front I know there was question earlier on motion Tech and obviously the strong incremental margins.
Speaker Change: This quarter, just help us help us kind of understand maybe the trajectory of the margins from here.
Speaker Change: Do we do we move higher off of the 18, 2% number and.
Speaker Change: What does that look like for the rest of the year.
Emmanuel Caprais: Yeah, thanks, Joe. So you're right, incrementals were super strong in motion technologies, over 60% in the first quarter. We expect a similar number for the rest of the year as well, so we're very excited about the performance. There was a lot of work that was done from a pricing standpoint, from managing the commodity cost as well as trying to book in advance sale prices, for instance, and taking advantage of the reduction that we've been seeing towards the end of last year and at the beginning of this year.
Speaker Change: Yeah. Thanks, Joe So you're right Incrementals were super strong in motion technologies over 60% in the first quarter, we expect a similar number.
Emmanuel Caprais: For the rest of the year as well.
Emmanuel Caprais: So we're very we're very excited with the performance. There was a lot of work that was done from a pricing standpoint from a.
Emmanuel Caprais: Managing the commodity cost as well and trying to book in advance.
Emmanuel Caprais: If you think about from a margin standpoint, I think we can confidently say that we expect motion techs to improve sequentially its margin quarter after quarter, but I would say it will remain still within that 18% range for the four years. So, as Luca said, we're going to work on sustaining that higher level of margin. This is a business that not very long ago was much lower than this, and what we want to do is to make sure that we're able to deliver on a, on a consistent basis, a higher level of profit.
Emmanuel Caprais: Sale prices for instance.
Emmanuel Caprais: And taking advantage of the reduction that we've been seeing towards the end of last year and then at the beginning of this year.
Emmanuel Caprais: You think about it from a margin standpoint, I think we can confidently say that we expect.
Emmanuel Caprais: Motion tech to improve sequentially its margin quarter after quarter, but I would say remains still within that 18 eight.
Emmanuel Caprais: 18%.
Emmanuel Caprais: Range rates for the for the full year. So as you could say, we said we're going to work on sustaining that higher level of margin.
Emmanuel Caprais: Is a business that.
Emmanuel Caprais: Not very long ago was lower than much lower than this and why we wanted to do is to make sure that we're able to deliver on a.
Emmanuel Caprais: On a consistent basis, a higher level of profitability.
Speaker Change: Great guys. Thank you.
Operator: Thank you. One moment for our next question, and the next question will come from Damian Karas from UBS. Your line is open.
Speaker Change: Thanks, Joe.
Speaker Change: Thank you one moment our next question.
Damian Karas: And our next question will come from the line of Damian Cross from UBS. Your line is open.
Damian Karas: Hey, good morning, guys. Hi Damian. Apologies, I'm joining the call a little bit late here, so sorry if... rehashing anything you've already discussed, but thought maybe you could just give us a little bit of a walk across the globe for your auto business. Any updates on how you feel about the, you know, the OE side in each region, as well as the European aftermarket?
Damian Karas: Hey, good morning, guys.
Damian Karas: Hi, Dave.
Speaker Change: Apologies I'm, joining the call little bit late here so sorry.
Damian Karas: Rehashing anything you've already discussed, but maybe you could just give us a little bit of volume.
Damian Karas: Walk across the globe for your auto business.
Damian Karas: Sure.
Damian Karas: Any updates on how you are feeling about the.
Damian Karas: The OE side.
Damian Karas: Each region as well as European aftermarket.
Emmanuel Caprais: Maybe I'll start with the European Asset Market, Emmanuel. So when you look at the market, Damian, the market was down in Q1, talking about production, roughly 0.8%. We expect the market to be flat for the full year, overall, at 90 million vehicles produced.
Damian Karas: Maybe I'll start with the European aftermarket Emmanuel So when you look at the at the market that Damian.
Emmanuel Caprais: The market was down in Q1, I'm talking about production roughly 0.8%, we expect the market to be flat for the full year overall at 90 million vehicles produced with a little bit of different picture from the beginning of what we expect at the beginning in terms of Europe was worse was down two 5% in Q1, and we're expecting Europe to be down.
Luca Savi: It was a little bit of a different picture from the beginning; what we expected at the beginning, in terms of Europe, was worse, was down 2.5% in Q1, and we're expecting Europe to be down a low single digit for the full year. China, which was expected to be flat, was actually up 4.4%, which tells you something about the resilience of the market, and we expect it to be up for the full year at a low single digit. So this is the great news.
Luca Savi: Low single digit that in there for the full year, China, which was expected to be flat. It was actually up $4 four which tells you something about the resilience of the market and we expect to be up for the full year low single digit.
Luca Savi: And then North America was up a low single digit, and it will be up a low single digit also for the full year. In each and every one of these regions, we outperform quite well. In Europe, despite the decline of the market, we actually grew. And in China, we grew 38%, so an incredible outperformance. We won an incredible number of awards already in Q1. And when it comes to the aftermarket, Emmanuel? So in the aftermarket, we
Luca Savi: This is a great news and then North America was up low single digit and it will be up low single digits also for the full year in each and every one of these regions we outperformed.
Luca Savi: Quite well.
Luca Savi: Europe, despite the decline of the market, we actually grew and the China. We grew 38%. So an incredible outperformance that we've won an incredible number of awards already in Q1 and when it comes to the aftermarket Emmanuel So Andrea as to market. We continue to see a little bit the same pattern we saw in Q4.
Emmanuel Caprais: The aftermarket, we continue to see a little bit of the same pattern we saw in Q4, where we are showing increased revenue for the aftermarket. So revenue growth in Q1 versus prior year was modest, plus 3% for friction business. But we continue to monitor really, really closely. We think that we're done with de-stocking, and we continue to monitor end customer demand.
Speaker Change: We are.
Emmanuel Caprais: Showing increased.
Emmanuel Caprais: Revenue for aftermarket so revenue growth in Q1 versus prior year.
Emmanuel Caprais: Modest plus 3% for our friction business, but but we continue to monitor really really closely we think that we're done with destocking and we continue to monitor.
Emmanuel Caprais: And customer demand.
Damian Karas: That's very helpful. Thank you.
Speaker Change: That's very helpful. Thank you.
Damian Karas: And then the Fennel Boy orders up 30% really stood out. Would you say that Tentahoy is outperforming your expectations since you acquired the company? And maybe, if you could just, you know, any color that you can share on that part of the business would be appreciated. Sure.
Speaker Change: And then the <unk> orders up 30% really stood out would you say, there's kind of always outperforming your expectations. Since you acquired the company.
Damian Karas: And maybe if you can just any color that you can share on that part of the business would be appreciated.
Emmanuel Caprais: So keep in mind, Damian, that we said that for the next five years, this company should be able to deliver low double digits in terms of revenue. So obviously, that implies significant growth from an order standpoint, especially because this is a long-term business. So there's a lot of long-term backlog.
Damian Karas: So keep in mind.
Emmanuel Caprais: Damian that we said that for the next five years. This company should be able to deliver low double digit in terms of revenue growth.
Emmanuel Caprais: So you see that.
Emmanuel Caprais: That implies significant growth from an order standpoint, especially because this is a long term business. So there is a lot of long term backlog.
Emmanuel Caprais: That being said, we weren't expecting as much as 30% year-over-year order growth for Q1. It's only one quarter, so we take it for what it is, but we're very happy. I think it really demonstrates the leadership that they have. I think then, from a financial standpoint, you know, Luca mentioned that it was really a good business, really delivered revenue and income in line with our expectations. Cash, as I mentioned, was very positive.
Speaker Change: That being said we werent.
Emmanuel Caprais: <unk> as much as 30% year over year order growth for Q1.
Emmanuel Caprais: So it's only one quarter. So we take it for what it is but we're very happy I think it really demonstrates the leadership that they have.
Emmanuel Caprais: They have I think then from a from a financial standpoint, you know Luca mentioned.
Emmanuel Caprais: That was really a good business really delivered.
Emmanuel Caprais: Revenue and income.
Emmanuel Caprais: In line with our expectations cash as I mentioned was very positive. If you think about it. This is a roughly 20% currently youre, 20% EBITDA business.
Emmanuel Caprais: If you think about it, this is currently a roughly 20% currently 20% EBITDA business. They delivered that in Q1 and we expect that they will deliver that for the next four years as well. So, yeah, a lot of really good positive things, but it's just...
Emmanuel Caprais: They delivered that in Q1, and we expect that they will deliver that for the full year as well.
Emmanuel Caprais: So yes, a lot of really good positive things, but it's just the beginning.
Damian Karas: Thanks, guys. Keep up the good work.
Speaker Change: Thanks, guys keep up the good work.
Operator: Thank you. One moment for our next question. Our next question comes from Vlad Bystricky from Citigroup. Your line is open.
Speaker Change: Thank you thanks Amy.
Damian Karas: Thank you. Thanks, Damian. Thank you.
Speaker Change: Thank you one moment for our next question.
Vladimir Benjamin Bystricky: Our next question comes from the line of glad this tricky from Citigroup. Your line is open.
Vladimir Benjamin Bystricky: Hey, good morning, guys. Thanks for taking my call.
Vladimir Benjamin Bystricky: Good morning.
Vladimir Benjamin Bystricky: Hey, good morning, guys. Thanks for taking my call.
Vladimir Benjamin Bystricky: So I wanted to ask you guys about, um, the rail strength that you're seeing. Um, obviously, 37% rail orders growth in one queue is quite strong. So can you talk about, um, you know, the duration or expected timing of delivery of these orders, and then also how you're thinking about, um, you know, potential lumpiness in rail orders going forward and whether you think you can sustain double-digit growth in orders for rail through the year?
Vladimir Benjamin Bystricky: So I wanted to ask you guys about.
Vladimir Benjamin Bystricky: The rail strength that Youre seeing.
Vladimir Benjamin Bystricky: 37% rail orders growth in one <unk> quite strong so can you talk about.
Vladimir Benjamin Bystricky: The duration or expected timing of delivery of these orders and then also how you're thinking about.
Vladimir Benjamin Bystricky: Potential lumpiness in rail orders going forward and whether you think you can sustain double digit growth in orders in rail through the year.
Vladimir Benjamin Bystricky: So let's put some context around this. So as you know, there are massive government programs on rail in all three main regions where we are. In Europe, we have around 60 billion euros of direct investment in improving rail, both in infrastructure and in cars. In the US, I think this number is around 50 billion.
Vladimir Benjamin Bystricky: So, let's let's let's.
Vladimir Benjamin Bystricky: With some context around this so as you know there is massive Gulf.
Vladimir Benjamin Bystricky: Government programs on rail in all three main regions, where we are in Europe. We're around 60 billion of direct investment in improving rail both in infrastructure and in cars.
Vladimir Benjamin Bystricky: In the U S. I think this number is around $50 billion.
Emmanuel Caprais: And in China, because ridership is back to pre-pandemic levels, we know that the government is continuously investing as well. So we have a very favorable backdrop for our rail business. And we're seeing the early signs or benefits of those government programs being expanded. On top of that, we're gaining a lot of market share.
Vladimir Benjamin Bystricky: And in China, because ridership is back to pre pandemic level, we know that.
Emmanuel Caprais: The government is continuously investing as well so we have a very favorable backdrop for our rail business.
Emmanuel Caprais: And we seem to.
Emmanuel Caprais: Early signs of the benefits of those government programs being executed.
Emmanuel Caprais: On top of that we're gaining a lot of market share. So if you think about China for instance.
Emmanuel Caprais: We are clearly the leader in high-speed trains, and there's a lot of investment that is happening right now for that market. So that's the context, you know, a strong market, strong demand, and then output. I think if you think about the way our real business works, we usually book orders that will deliver between six to 12 months later. So right now, we're continuously booking backlog that we will deliver at the end of 2024 and then also at the beginning of 2020. And if I can add to that, when?
Emmanuel Caprais: Are clearly the leader in high speed train and Theres a lot of investments that is happening right now.
Emmanuel Caprais: For that market so.
Emmanuel Caprais: <unk>.
Emmanuel Caprais: So that's the context strong markets strong demand and then the outperformance.
Emmanuel Caprais: If you think about the way our rail business works is that we usually book orders that we will deliver between <unk>.
Emmanuel Caprais: Six to 12 months later, so right now we're we continue to see booking backlog that we will deliver.
Emmanuel Caprais: At the end of 2024, and then also at the beginning of 2025, and if I can add to that when you think about that visit we like this market because 60% of this market in rail aftermarket Vlad and on top of that you have an incredible amount of visibility some of the awards that we're winning.
Luca Savi: And if I can add to that, when you think about the visit, we like this market because 60% of this market in rail is aftermarket blood. And on top of that, you have an incredible amount of visibility. Some of the awards that we're winning are going to last for the next 30 to 40 years. So it's a very good business to be in.
Luca Savi: Although on a loss for the next 30 to 40 years. So is that is a very good business to be in.
Vladimir Benjamin Bystricky: That's, that's a really helpful color. Clearly, an exciting time for your rail business is just separately on the capital allocation topic. That was a helpful slide, and you had mentioned on there that you regularly review the portfolio as well. So can you talk about, you know, whether we should be thinking about the potential for any meaningful divestitures over time or just how you're thinking about the go forward portfolio from here? Sure.
Luca Savi: Yes.
Vladimir Benjamin Bystricky: That's really.
Vladimir Benjamin Bystricky: Full color.
Vladimir Benjamin Bystricky: And clearly an exciting time for your real business is.
Vladimir Benjamin Bystricky: Just separately on the capital allocation.
Vladimir Benjamin Bystricky: Topic that was.
Vladimir Benjamin Bystricky: A helpful Slide and you had mentioned on there.
Speaker Change: That you.
Vladimir Benjamin Bystricky: We regularly review the portfolio as well so can you talk about.
Vladimir Benjamin Bystricky: Whether we should be thinking about.
Vladimir Benjamin Bystricky: Potential for any meaningful divestitures over time or just how youre thinking about the go forward portfolio from here.
Luca Savi: This is something that we do on a regular basis, you know, Vlad, in terms of this is also what we started doing last year, right, when we were able to sell the Innovate business and the Matrix business in the first half of last year, and Matrix by the end of the year. So this is something that we have been doing more and more since Bart came on board. We made our strategy crisp and very focused.
Speaker Change: Sure. This is something that we do on a regular basis.
Luca Savi: Flat in terms of this is also what we started doing last year right. When we were able to sell the innovative business and dedicated business in the first half of last year and matrix that by the end of the year. So this is something that we had been doing more and more seems about that came on.
Luca Savi: Board, we've made our strategy crisp and very focused that we looked at the long term and therefore, we are reassessing. We are assessing that so I'd say as we are adding more and more these.
Vladimir Benjamin Bystricky: We looked at the long term, and therefore, we are reassessing. We are assessing that. So I say, as we are adding more and more businesses through M&A in terms of, you know, leaders in their market, close to core, critical components, technology, and proprietary technology, it might well be that some other pieces of the business are not the rightful owner anymore, and that, probably, there will be underperforming parts of the business.
Vladimir Benjamin Bystricky: Indices through M&A in terms of leaders in their market close to core critical component technology and proprietary.
Vladimir Benjamin Bystricky: Proprietary technology in May will be there some other pieces of the business that we have announced that they the rightful owner anymore and that probably there will be underperforming parts of the business I would say.
Luca Savi: Okay, that makes sense. I appreciate it. Look, I'll get back to you. Thanks, Matt.
Speaker Change: Okay that makes sense I appreciate it I'll get back in the queue.
Speaker Change: Thanks, Matt.
Vladimir Benjamin Bystricky: Thank you one moment for our next question. And our last question will come from Andrew Olvin from Bank of America. Your line is open.
Speaker Change: Thank you.
Andrew Olvin: Our next question.
Andrew Olvin: And our last question comes from Andrew <unk> from Bank of America. Your line is open.
Operator: Hey, good morning. You have Sabrina Abrams on for Andrew.
Andrew Olvin: Hey, good morning.
Sabrina Lee Abrams: Morning Sabrina. Morning Sabrina.
Andrew Olvin: <unk> on for Andrew.
Andrew Olvin: Good morning, <unk> morning, Sabrina.
Sabrina Lee Abrams: When we think about the margin cadence through the year, how should we think about the balance between productivity and reinvestment? And I think you have more capacity coming online; you have the terminal plan. Should we think that reinvestment ramps sequentially through the year?
Sabrina Lee Abrams: When do you think about the margin cadence through the year, how should we think about the balance between productivity and reinvestment.
Sabrina Lee Abrams: And I think you have more capacity coming online you have the terminally plan should we think that reinvestment ramp sequentially through the year.
Emmanuel Caprais: Yeah, so thank you for the question. For us, productivity is one of the drivers that allows us to really drive reinvestment in the business. And that has been the story of a lot of our businesses. You know, Kony was an underperforming asset.
Sabrina Lee Abrams: So thank you for the question.
Emmanuel Caprais: For US productivity is one of the drivers that allows us to really drive reinvesting in the business and that has been the story of a lot of our businesses.
Emmanuel Caprais: Kony was.
Speaker Change: They're performing assets, we drove operational improvement and so we reinvested in modern modernizing the factories invested in R&D same thing for IP.
Emmanuel Caprais: We drove operational improvement, and so we reinvested in modernizing the factories and investing in R&D. Same thing for IP.
Emmanuel Caprais: If you think about this.
Emmanuel Caprais: <unk>.
Emmanuel Caprais: The vap activity initiatives that we drove those where possible because we started increasing profit tremendous so when you think about this year.
Emmanuel Caprais: If you think about the VAV, the VAV activity initiatives that we drove, those were possible because we started increasing profit tremendously. So when you think about this year, we expect to continue to drive productivity significantly through our businesses. In Q1, productivity gave us 60 basis points of margin expansion, and we expect to continue to be able to do that. In terms of investment, the contribution, or let's say the impact on the margin of investment this quarter was around 40 basis points, and we expect that to be along those lines for the rest of the year. So we are driving productivity, we're driving pricing to offset material impact and reinvest some of that to make sure that we're going to be able to drive long-term profit.
Emmanuel Caprais: We expect to continue to to continue to drive productivity significantly through our businesses in Q1, we productivity gave US 60 basis points of margin expansion.
Emmanuel Caprais: And we expect to continue to be able to do that.
Emmanuel Caprais: In terms of investments.
Emmanuel Caprais: The contribution of let's say the impact on the margin of investment this quarter was around 44.
Emmanuel Caprais: 40 basis points, and we expect also to be along those lines for the rest of the year. So.
Emmanuel Caprais: We are driving productivity, we're driving pricing to offset.
Emmanuel Caprais: The material impact.
Emmanuel Caprais: And.
Emmanuel Caprais: We invest some of that to make sure that we are going to be able to drive long term profits.
Emmanuel Caprais: Profitable growth.
Sabrina Lee Abrams: Thank you. And then on China and friction, OE, the share gains are really impressive. And the outgrowth is really impressive. What is ITT doing that's driving such strong performance in this particular region? And what sort of visibility do you have in this market, you know, relative to Europe and the US? Thanks, Sabrina, for asking this question.
Speaker Change: Thank you.
Sabrina Lee Abrams: Then question on China friction OEM share gains are really impressive.
Sabrina Lee Abrams: The outgrowth is really impressive what is IGT doing that's driving such strong performance in this particular region and what sort of visibility do you have in this market relative to Europe and the U S.
Luca Savi: Thanks Sabrina for asking this question. You know, we've got a special eye on China. Our Chinese business is performing incredibly well. And when you look at our China business, roughly $350 million, 90% is motion technologies, which are made up of rail and auto. So don't forget about rail because rail is big in China, it's a big market, it's growing, and we are outperforming that market. When it comes to auto, listen, the team has been performing exceptionally well; flawless execution.
Sabrina: Thanks for asking this question, we got the special eye on China, Our China business is performing incredibly well and when you look at our China business of roughly $350 million.
Luca Savi: Is 90% as motion technologies, which is made of rail and auto So don't forget about rail because rail is big in China is a big market is growing and we are outperforming that market when it comes to OTA.
Luca Savi: Listen the team has been performing exceptionally well.
Luca Savi: You have in Q1 an on-time delivery in China of 100%, and quality less than 1 ppm. If you look at Q1, they had 50 starts of production. So, 50 new programs started production in Q1.
Luca Savi: <unk> execution, you have in Q1 and on time delivery in China of 100% quality less than one ppm. If you're looking Q1. They had 50 starts of production. So 15, New program started production in Q1 now not all of those will be successful, but think about that one more than one <unk>.
Luca Savi: Now, not all of those will be successful, but think about that, one more than 100 process validations, which are future SOPs. So, when you look at all of these, think about the disruption that you have in the lines. And despite all of that, the OE, the overall efficiency of the lines, is more than 90% and OTD of 100. If you're a customer and you have a company that's performing like this for you, you tend to be loyal. And this is what we see.
Luca Savi: Andre process validation sites, which are future ESOP. So when you look at all of these I think about the disruption that you have in the line and despite all of that the OE. The overall efficiency of the lines that is more than 90% and OTT of 100.
Luca Savi: If you're a customer and you have a competence performing like this for you you tend to be larger and this is what we see.
Speaker Change: Thank you.
Speaker Change: Thank you Sabrina.
Operator: Thank you. And this does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.
Speaker Change: Thank you and this does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.
Operator: You too.
Operator: Okay.
Operator: [music].
Operator: Okay.
Operator: Good.
Operator: Yes.
Operator: [music].