Q4 2024 ITT Inc Earnings Call
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Thank you Gigi and good morning, joining me and Stanford today are Luca Savi, Itt's, Chief Executive Officer, and President and Emmanuel Cabre Chief Financial Officer, today's call will cover Hep's financial results for the three and 12 month period ended December 31, 2024, which we announced this morning.
Please refer to slide two of the presentation available on our web site, where we note that today's comments will good forward looking statements that are based on our current expectations 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, except where otherwise noted the fourth quarter and full year results.
We present this morning will be compared to the fourth quarter and full year 2023 and include certain non-GAAP financial measures. The reconciliation of such measures to most comparable GAAP figures are detailed in our press release and the appendix of our presentation, both of which are available on our website.
Luca Savi: With that it's now my pleasure to turn the call over to Luca who will begin on slide three.
Thank you Mark and good morning.
First and foremost I would like to sincerely. Thank our I T tiers for their commitment day in and day out to deliver for our customers no matter the challenge.
'twenty 'twenty four was it people tell you for ITT, we grew outperforming most of our end markets.
We executed delivering significant margin expansion and we are transforming our portfolio with the divestiture of walgreen and acquisitions.
Hank Azaria.
Let me get into 2024 financial highlights.
We grew orders, 10% or 5% organic resulting in an ending backlog of $1 6 billion up 34% year over year.
We grew revenue, 11% or 7% organic with a strong performance in all businesses, including also Arkansas.
Luca Savi: The only acquisitions.
We expanded margin by 80 basis points to almost 18%.
Generated nearly $440 million of free cash flow and deliver 12% EPS growth.
After over 17% growth in 2023.
We did all of this while absorbing the loss of earnings from the divestiture of war Green and higher interest expense stemming from the acquisition of <unk>.
As you can see a truly remarkable year.
The fourth quarter was equally strong.
12% revenue growth or 6% organic driven by pump projects and short cycle and connectors.
Operating margin reached 17, 5% with empty, surpassing 19% and IP eclipsing 21%.
EPS of $1.50 grew 12%.
And we finished with a strong cash performance to capped off 2024.
On 2024, let me share some highlights.
On revenue.
All our businesses delivered outstanding growth.
Connect and control technologies grew 9% organic driven by continued growth in defense industrial connectors and also aerospace.
IP grew 8% organic powered by growth in all show cycle categories and high teens growth in pump projects.
Motion technologies grew 5% organic with free trip outperforming global automotive production.
730 basis points, why Scania rail grew 20%.
On profitability strong volumes, coupled with favorable price cost actions drove 16% operating income growth, which is all the more impressive considering we overcame the loss of approximately $15 million of income from the more green divestiture.
Margin finish at almost 19% and eight P nearly reached 21%.
Luca Savi: With this performance we surpassed our long term margin targets two years ahead of plan.
As you can see our above market organic growth and margin expansion is creating shareholder value.
And it is here to stay and now we're compounding this with impactful M&A.
In 2024, we deployed $865 million to the acquisition of cryogenic pump manufacturers.
And besides interconnect specialties casady here and our strategy is starting to bear fruit.
Orders grew 26% for the full year and to Sarnia is already contributing meaningfully.
Just three months.
These acquisitions were possible, thanks to nearly $440 million of free cash flow.
And importantly, our M&A pipeline remains active.
On top of these we returned more than $200 million to shareholders.
I am humbled by our team's efforts to drive these results.
As friction outperforming every region and in each powertrain.
As an example in the internal combustion engine segment, we grew 1% in a market that was down 10.
Our connector team in Nogales has operated for more than five years with a perfect safety record and achieved record growth and record profitability in 2024.
And in Saudi hotter than team continued to drive near perfect on time performance with unmatched service to our customers.
To sum it all up we grew.
We executed and we transform shifting our portfolio.
With this performance in mind, let's turn to slide four to discuss the differentiation that we'll continue to feed itt's results.
Our differentiation is Saudi Arabia has driven recurring wins in the region for.
For example, IP secured more than $30 million of orders on the <unk> project part of a $12 billion of investment to be the natural gas processing facility in Dubai.
And in 2025, we secured additional awards on these very project.
This win builds on earlier awards in the region such as the <unk> project. We previously talked about because of all of these growth we continue investing in the region and expanding our manufacturing capabilities.
November I was very fortunate to be there walk the ground and listened to highlight and be energized by the local team sharing their vision for the new site expansion.
Luca Savi: Friction.
Luca Savi: Performance continues.
Global market share surpassed 30% in 2020 for the very first time.
Friction is again poised to outperform thanks to another near record number of platform Awards secured in 2020 for an internal combustion engine hybrid and electric vehicles alike.
Connie rail to considerable market share with over 35% orders growth and high teens revenue growth and incredible outperformance for the second straight year.
We expect this growth to continue with our recent validation on a new high speed train platform capable of traveling 450 kilometers per hour.
On defense.
The rapid prototyping capabilities of our connectors business provides faster lead times to develop customized product for our defense customers.
Luca Savi: These drove awards on the Columbia class submarine the joint strike fighter radar, So video system and qualification on the net water program.
Moving to differentiation through innovation, let's discuss the embedded motor drive truly a game changer.
Today $300 billion are spent annually are moving industrial fluids globally.
And 80% of the pumps and motors operate inefficiently wasting energy.
Speaker Change: The AMD solve this problem and is the only industrial smart motor up discounting today.
With this technology, our customer will be able to swap their existing motor with Itt's ENB and immediately see a cost reduction as the rotating equipment will consume less energy and produce last year too.
The AMD significantly expands ip's growth profile and addressable market.
Dan and I can't wait to show it to you at our capital markets day in May after we launched it commercially in Q2.
Now, let me turn the call over to Amanda to review, our Q4 results close the book on 2024 and discuss our outlook for 2025, Thank you Luca and good morning.
Ended 2024 with a strong performance across the board in orders revenue margin EPS and cash.
Our teams delivered 6% organic revenue growth from higher volumes and price realization.
IP grew 22% in pump projects and 7% in short cycle, while at xylem.
<unk> 16 points to Ip's total growth.
Just to note for the year IP projects grew 19% organically.
31% in 2023.
Speaker Change: CCT grew 9%, thanks to strong defense and industrial connector deliveries.
Which were above 40% this quarter.
<unk> contributed over two nine points to total growth fully offsetting the Boeing work stoppage in blood.
In empty Kony grew 12% on share gains and backlog conversion in rail while friction OEM outperformed global automotive production by 410 basis points.
On profitability operating income grew 16% more than double the organic sales growth rate, primarily driven by higher price productivity and volume. Despite the loss of earnings from the Wolverine divestiture.
Empty margin exceeded 19% with 220 basis points of margin expansion and a 120 basis points improvement sequentially to close out 2024.
Notably despite roughly $40 million less in revenue due to the Wolverine divestiture empty was able to increase operating income.
Once again and over deliver.
Speaker Change: Moving to IP. The team drove 60 basis points of expansion to overcome 280 basis points of dilution from the <unk> acquisition.
Legacy IP expanded margin 340 basis points, driven by higher volume leverage more favorable price cost and continued sourcing and supply chain productivity.
Finally in CCT, excluding temporary M&A dilution CCT margin would be up 60 basis points, driven by higher pricing actions and volume there.
The price renegotiations in aerospace continue with more to come in 2025.
With the volume growth and price realization this quarter, we drove double digit earnings growth to $1 50 of EPS overcoming roughly seven cents of earnings loss from the Wolverine divestiture and <unk> <unk> from higher interest expense related to M&A.
Lastly on free cash flow outperformance accelerated sequentially. Thanks to the efforts of our team to reduce inventory and drive stronger collections as well as contributions from our acquisitions.
This resulted in a 42% increase year over year and over 20% free cash flow for the quarter.
Let's turn to the full year EPS bridge on slide six.
Here you can see the main drivers of our performance, which are similar to Q4.
Speaker Change: Operational performance from volume growth price cost and productivity compounded by accretion from our acquisitions allowed us to overcome headwinds from temporary amortization, the Wolverine divestiture and higher interest expense.
Keep in mind that most of these impacts were not considered in our initial guidance for 2024.
We also continued to fund strategic investments for future growth, including our Geopolitik brake pad formulation are high performance brake pad business and the embedded motor drives.
We delivered a strong performance with 12% EPS growth that previews the value creation potential of Itt's portfolio.
With this in our rearview mirror, let's now turn to page eight to discuss 2025.
We entered 2025 with a robust backlog that is up 34% in total fueled by our acquisitions and growth in legacy pumps and connectors.
Speaker Change: The large bump awards from 2023, and 2024 should start shipping in a meaningful fashion in 2025, while friction rail and connectors should continue to outperform.
We expect this will drive revenue to over 7% to over $3 7 billion.
With organic revenue growth of 3% to 5%.
And the strongest growth expected in IP and CCT.
We expect that our ability to continually reduce costs, while growing revenue will drive further margin expansion of 90 basis points to 18, 6% at the midpoint.
Speaker Change: Contributions from our acquisitions are expected to increase considerably in 2025 to roughly 20.
This will be driven by <unk> growth on new fuel vessels due to a 26% order increase in 2024.
On <unk> the team continues to execute our plan with several large new orders expected in the first half of 2025 that will support our growth outlook.
This result in EPS growth of 8% at the midpoint, even while absorbing an incremental <unk> <unk> headwind from foreign currency, given the stronger U S dollar.
Furthermore, if you exclude the roughly 17, a temporary intangible amortization, which will end by end of the year EPS growth will be over 10%.
Finally on cash we expect to generate free cash flow of roughly $475 million at the midpoint amounting to a 12% to 13% free cash flow margin for the year.
Let's turn to slide nine to discuss our outlook in each business.
Beginning with connect and control technologies increased global spend on defense modernization platforms, coupled with a gradual Boeing ramp beginning in Q2 should drive strong demand in CCT, we expect <unk> to add roughly 15 points of growth to the total.
Industrial process is expected to convert its record backlog of more than $900 million.
Powered by large project awards, which should generate mid single digit organic growth.
In motion technologies, we expect friction to outperform global automotive production driven by share gains in all regions while growth in the aftermarket is expected to be in the low single digit range.
Speaker Change: Longer term frictions high performance business will be another catalyst for profitable growth.
On rail, we expect mid to high single digit growth on strength of share gains in Europe, and China continued public investment mass transit in North America.
Let's turn to slide 10 to review our EPS bridge for 2025.
Once again most of our earnings increase is expected to come from organic growth and margin expansion in our core business.
This will drive 8% EPS growth for the year at the midpoint.
Importantly, we're absorbing 30 from the loss of earnings from the Wolverine divestiture, a higher effective tax rate and unfavorable FX.
I'd like to briefly discuss the phasing of our 2025 outlook EPS is expected to be flat to slightly up in Q1, we anticipate a revenue decline in the low single digit range driven mostly by empty due to the reduction in global vehicle production, while IP and CCT should be roughly flat.
<unk> margin could expand 90 basis points to just shy of 18%.
Excluding the loss of earnings from the Wolverine divestiture and higher interest EPS would be up approximately 6% in Q1 more in line with our full year outlook.
And we expect growth to ramp throughout the rest of 2025.
Before we wrap up I wanted to share our thinking on tariffs. Our 2025 guidance does not include any anticipated impacts from tariffs. We are working diligently with our teams and supply chain organization to evaluate different scenarios and are developing granular action tests.
We're looking to mitigate any impact to commercial and operational actions.
Let me turn the call back to Luca to wrap up.
Thanks, Emmanuel before moving to Q&A, Let me summarize the key points from an outstanding year, we accomplished a lot in 2024.
Speaker Change: We grew we executed we transformed.
Orders and revenue both by double digits, we executed expanding our margin and surpassing our long term targets two years ahead of plan.
Speaker Change: We transformed with two strategic acquisitions and divestiture shifting our portfolio to higher growth and higher margin businesses.
Moving forward the Formula remains the same for ITT.
Value creation through organic growth and margin expansion is here to stay and now we're compounding to add even greater value through M&A.
Finally, it is my pleasure to invite you to our next capital markets day, taking place on May 15th in New York City, a lot has happened since our last event in 2022 and importantly, there is much more to come.
Speaker Change: You will see our differentiation through execution innovation and now M&A brought to life in.
In addition, you will meet some of the Ats will differentiate us from the competition and who drive our results day in and day out.
Look forward to speaking with you throughout the year and see many of you in may or before.
Thank you for your support of ITT. It has been my pleasure Gigi. Please open the line for Q&A.
The floor is now open for questions. At this time, if you have a question or comment. Please press star one 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 one again, we do.
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Please limit your questions to one question and one follow up.
Thank you. Our first question comes from the line of Joe Ritchie from Goldman Sachs.
Hey, guys good morning.
Hi, Joe Good morning, Joe.
Hey, guys. Congratulations on another strong year, I guess, maybe where I'll start is just the just the guidance for 2025 I know you guys historically have.
Speaker Change: Have tended to guide fairly conservatively, but maybe Emmanuel if you can just kind of step me through how are we thinking about the cadence for this year from an earnings standpoint and are there any are there any things that we need to be aware of particularly like in the first quarter.
Just that could potentially impact Q1, and maybe gets better as the year progresses.
Yes, so as I mentioned Joe.
The cadence is a little tilted towards.
The second half of the year, so we have an unusually.
A soft Q1, and so let's think about a little bit to what the puts and takes here.
So we expect you want to be from an EPS standpoint to be roughly flat to 2024.
We have to keep in mind that the <unk>.
Main impact here is the Wolverine divestiture, which results in less revenue and income and that's about <unk> <unk> of EPS.
We also expect organic revenue declines of mainly 1% to 2% driven by empty, which is expected to outperform.
Original equipment production, but overall, we'll still declined due to lower auto demand.
IP and CCT sales should be flat to slightly up.
Speaker Change: And its overall.
One would be in terms of sales would be the lowest quarter by quite a bit.
However, all businesses are expected to expand margins.
Extra TTC.
Be up 150 basis points, if it wasn't for the Qatari a margin dilution, which is around 400 basis points.
We will be impacted by higher interest expense and this is due to the <unk> acquisition that happened last September.
24.
And then <unk>, sorry, I do not contribute meaningfully to EPS. This is due to the temporary intangible amortization and that will disappear in Q2 for us than Hoyt and in Q4 <unk>.
So overall, we expect Q1 to start a little weak, but a nice recovery than in Q2, and Q3 and Q4 with continued margin expansion and also organic revenue growth.
Super helpful. In detail. Thank you Emmanuel and then maybe the longer term question and I am sure we will get a lot more at the Investor day in May.
Look you guys have done a great job on the margin expansion piece getting getting to your targets a couple of years in advance.
Common Terry around the price renegotiations on CCT is interesting I'd be curious if you could maybe talk a little bit more about what's going on there and.
Ultimately.
The opportunity potentially within that segment.
Sure Hi, Joe. This is this is luca so I think that price is definitely a good lever in CCT. It has been a good lever in 2024, and we seem we're going to see more of that also in 2025.
We've talked about our <unk>.
The <unk> contracts have been renegotiating right now and we are still in that process and the signs are positive I would say the price cost equation overall has been positive for the entire ITT in 2024, and it will be the same as well in 2000.
25.
Okay, great. Thank you guys.
Thank you John.
Speaker Change: One moment for our next question.
Our next question comes from the line of Mike Halloran from Baird.
Hey, good morning, everyone.
Hi, Michael.
Hey can you just talk about what you're seeing from an order pattern on the IP side of things both from the short cycle side as well as the project activity.
Obviously, starting backlog coming into the year, how does that backlog feeling I know you commented on robust short cycle. There what are you seeing kind of sequential dynamics.
Worth, noting in some of the end markets.
Thanks, Mike.
There is were good in Q4.
Lastly, the acquisition aside for a second if we look at on an organic perspective, the orders grew 12% in the quarter projects were up 25% and short cycle, Mike was up eight.
2% was price, 6% was volume and particularly good in Q4 was the service part.
And Bob's now if we look at Q4, our weekly run rate of orders was the second highest on record Q4 was actually the <unk>.
Speaker Change: Best ever.
Q4 has been really good on the show cycle on a full year basis.
Our organic orders were up 5% projects were 13% up year over year and these on a tough compare last year was a very good year and up 20%.
Show cycle like you asked was 2% for the full year, one price and one one volume if you add to that and that will be my last comment on Savannah Savannah.
<unk> had a book to Bill of one three for the full year and then orders grew 26%. So a very good performance from another perspective on Savannah, AOI as well.
Speaker Change: And I suppose how are you expecting that there will be this year from a trend perspective, it means that front log as opportunities still really strong.
And what are the customers are saying and so maybe just kind of rolls through the momentum and how you think that plays out.
So.
The ODI soy sauce, so I hope I got the question <unk>.
If I'm not answering your question Mike.
No.
For me the funnel and the opportunities it stays stays reach.
I have to say with a book to Bill.
Considerably higher performing orders our final came down a little bit at the end of January was probably down 8% or 10% year over year, but it's still a very high and good opportunities across different regions, particularly when it comes to the middle East refinery in Latin America is even higher than <unk>.
Last year and of course there are.
Our customers talking about further investment because also some changes that are happening with the new administration.
Great. Thanks.
Thank you Mike.
Thank you.
Speaker Change: One moment for our next question.
Our next question comes from the line of Jeff Hammond from Keybanc Capital Markets, Inc.
Hey, good morning, guys.
Hi, Jonathan.
I just wanted to understand.
Temporary intangible amortization because last quarter, you called out 21 since going away and maybe that is but you had a footnote with with 17 tangible so just trying to understand the delta because.
Speaker Change: So I look at.
Speaker Change: 586, this year plus that.
'twenty one.
Kind of your starting point.
And that would imply just kind of limited earnings growth in the guide.
No. So so.
So in 2024, we had 17 of intangible amortization temporary.
And we expect that number to be roughly the same.
2025 around $16 16.
So we don't really get any benefit from from.
Intangible amortization disappearing, we will start getting.
Benefit for <unk> in Q2, but that is compensated by the.
Speaker Change: <unk> Cassarino intangibles that will run the.
The amortization will run until end of Q4.
Okay.
Maybe give us a sense of core <unk>.
These acquisition piece moving pieces is it makes it messy, but core incremental margins in the fourth quarter four for IP CCT. It looks like underlying margins were really good but again masked.
The deal and then just on 25 I think the midpoint is 90 basis points of margin expansion.
I don't know if order magnitude where you see.
The segment's lining up again I know, there's noise segment by segment.
Given given the deals.
Speaker Change: Yes, so on the Incrementals in IP, we had really good performance.
64% in Q4, and then 44, 45% for the full year, that's excluding the impact of acquisitions.
And for CCT for the full year, we were around 20%.
And then if we look at 2025.
We expect.
Very good.
Incremental content to continue in IP.
At around 60.
Between 50, and 60% and also.
Speaker Change: CCT are pretty good pretty good incrementals as well.
In motion technologies of UC.
The Incrementals don't really work because we are increasing VOI.
And reducing the revenue.
And Thats why motion technologies is expected to be at 20% in 2025.
Thank you Jeff Thanks, Jeff.
Thank you one moment for our next question.
Our next question comes from the line of Scott Davis from Melius Research.
Hey, good morning, guys.
Scott.
Congrats on a great year.
Slide 18, you guys just referenced the M&A muscle and I think you said it a couple of times the prepared remarks, but what does that really mean functionally is that is that diligence and integration is it is it more that you beefed up the diligence side.
Kind of walk us through the changes you've made at least in what that what that really what that means to you guys.
Okay I've got it.
I think that.
When you see it in the results of 2024, right and you see in the in the capital deployment that has happened in the last a couple in a lot in the last five years were roughly $1 2 billion.
Through M&A now when you look at right now what it means that there is a lot of cultivation. So there is a lot of cultivation going on in the between the businesses and also the enterprise in with our target. So if you think about the board is evaluating <unk> and <unk>. They are the last three.
Those were cultivated and in a couple of doors that we were able to get to an exclusive deal.
Now im not saying that this is going to happen always but today, we're busy cultivating and developing the relationship as well as some.
Speaker Change: <unk> in some of the deals.
Speaker Change: Obviously, you here only the one that we are executing but in the last few months also we walked away from some opportunities where we add the due diligence.
Okay.
Thank you one moment for our next question.
Our next question comes from the line of Damian Karas from UBS.
Hi, Damian.
Hey, good morning, everyone.
So I wanted to ask you about your guidance for motion technologies kind of up low single digits for the segment could.
Could you maybe spell out a little bit more what you're.
Banking in terms of global auto production, how much youre expecting friction to outperform.
As well as <unk>.
Oney in the rail business.
Speaker Change: Sure.
So when you look at 2020.
Speaker Change: Obviously auto production at a tough year in 2024.
North America, and Europe were down.
China showed the resilience they went up.
When it comes to end the picture deteriorated in the second half compared to the first half of Q4, probably be in the west So when it comes through 2025.
On the positive side is we see that the inventories are down worldwide as well as in Europe and in China, but we projected the production to come down to roughly 89 million vehicles produced so he's a little bit of a decline worldwide and we have China flat, our assumption and Europe and north.
American down with Europe, probably been worse when it comes to that we continue to think that we will.
<unk> outperformed the market and we're thinking roughly 400 basis points of outperformance in the market.
And this is for quarter.
When it comes to Ram we have a good a good backlog and we had two years of outperformance in rail with Connie and access. So we think that we will continue to outperform that as well and if I could slip one one points on profitability. So as I mentioned, we expect motion technologies to be at 2020.
<unk> percent in 2025.
Speaker Change: And a lot of it is going to be driven by productivity.
Motion technologies is an engine for productivity and we expect.
Around 150 to 200 basis points of margin impact coming from productivity.
We will also be well.
I have a positive impact on price.
Because we continue to to be able to offset.
The.
The cost inflation that we received in 'twenty two 'twenty three.
By not giving it back entirely.
In 2024 and in 2025. So we are we're very attentive to this because it's important for us as we said many times to overall over several years to recover the entire cost inflation that we suffered from starting in 'twenty two.
That's very helpful.
And sticking on the motion technologies business.
Could you, possibly give us an update on how friction is doing in the high performance market any trends that youre seeing there.
As well as.
Are there any possible.
Strategic changes this year I know in the past you've talked about exploring maybe opening up into some of the aftermarket and in Asia, China specifically.
Speaker Change: Or maybe moving a little bit into that.
Light vehicle.
Trucking side of the friction market and we appreciate any any perspective on that.
Hi, Damian so.
Let me, let me start effect they address the second question first so as of today no. We keep on exploring and we keep on talking strategically, but there are no.
The strong action are put in place that we've changed the strategic direction of.
Moshe technology infliction when it comes to the high performance of the project is progressing well as a matter of fact, it two weeks ago Daniela and her team Sanmina video all the automation in actions in the plant and the photo of the first break that for our customers being produced.
So we are ramping up production, we will be able to launch the programs. The platform. They were supposed to launch in Q1 and in Q2 perfectly on time.
Then we also took our board of directors there in October to monitor to witness the investment today outright and to monitor the progress and the level of automation that will have on the plants.
Very good progress now what you will see in 2025, we are ramping up these programs, we're winning what we had in the plan. So.
The business case stands and it probably is also a little bit better.
You would not necessarily see a loss in 2025 because of course, we are launching you will start seeing more sizable impact in 2627, but remember is you will see probably more on the profitability side than on the growth side because of the business that high performance fees.
I appreciate the update good luck with everything.
Thank you Damian.
One moment for our next question.
Our next question comes from the line of Nathan Jones from Stifel.
Good morning, everyone.
Hi, Lisa.
I guess I'll start on the tire side at this stage you guys have.
Some fairly material operations in Mexico.
So obviously there are the tariff yet, but there may be.
So a couple of questions around <unk>, Firstly, I would imagine the motion technologies business the brake pad business in Mexico, primarily sells to Oems in Mexico. So any tariffs on those brake pads would actually be on the OEM rather than on new is that the correct way to think about that.
The brake pad business.
Okay. So Nathan you are on the on the right track of DAC and in terms of you really need to look at case by case. So if you take specifically our Silao plant in Mexico, you really need to be surgical is super granular. Let me give you an example.
If you take one platform, where we are on the front end area the front axle and brake pad that gets delivered to a tier one in Mexico. So that's it.
It's going to be impacted by that by the tariffs now if you look at the area of Axa <unk> brake pad comes to the asset to a tier one plant in the U S. But then after it has been assemble.
But the majority of it goes back to Mexico to the OEM Assembly plant, where they assemble the vehicle and a small portion stays in the U S. So you really need to go to be surgical go contract by contract platform by platform Frontier, we have axon and even within the rear axle. As an example, you have some split.
You really need to do this work and what I can tell you that our business our supply chain leader are already working on this front and we have our action plans to be ready to be executed and and so but that's the case for motion technologies.
Well, let me ask it this way you guys are.
Obviously, you had some issues with the auto Oems passing through inflation.
During colored beta and are still recovering that now that you have commented that some of those contracts have been changed so that inflation passes through.
On a bit more of a real time basis to the Oems.
Would that be the case, if you saw its highest or would you need to pursue pricing and then I guess staying in spite of my follow up question and I'll ask you to talk about that.
The potential impact of tariffs on the CCP business as well.
Sure. So when it comes to the Oems and tier ones that you really need to look at a case by case it Nathan and.
So we are working both and we have actions here both on the operational side as well as the commercial side and we've already started talking to our customers on that front.
And then and then Nathan if we talk about CCT.
So you know that we have a.
A large footprint in nogales with our maquiladora plants there.
Speaker Change: And this is in Nogales is one of our best performing plant you heard it earlier.
Earlier that.
This is a plant that at five years without any safety incidents.
And achieved a record profitability and growth in Q4 so.
We'll need to address.
Eventual tariff impacts both commercially through price and also operationally by driving more productivity.
So I think thats in CCT.
One thing that is important to note is that similar to IP.
There is.
There is a lot of the business that goes through distribution and so for those customers. We have already started sending letters too.
To inform them of the situation.
So that would be pretty straightforward. The other piece is we are defense contracts also and we will need to.
With our with our customers so I would say.
Speaker Change: Also here are very complex.
Subjects.
And we are obviously driving a lot of the actions right now in order to be ready when tariffs.
Perfect and if I may add Nathan in your notes are you were you were asking also about the differences with the competitors right.
As a matter of fact, when you look at the CCT in the connector business.
And you move across the board that you will see the footprint the connector footprint of ITT for sure as you said many of our competitors too so is an industry wide.
<unk>.
Speaker Change: At issue that need to be tackled.
Great. That's awesome, thanks, very much for the color.
Speaker Change: Thanks.
Thank you one moment for our next question.
Our next question comes from the line of Joe Giordano from TD Cowen.
Good morning, Joe Hi, Joe Good morning, Hey, how are you.
Just going back to the IP side.
When you think about your guidance mid single digit it feels it feels fairly conservative just given the level of orders that you've won.
And just curious how when you build that out as it <unk>.
Kind of layering in potential.
While engaging on project timelines due to like GOP.
Geopolitical type stuff just curious how you came up with that and it just feels like maybe there is upside to that number where the orders are.
Yes, so when you think about the sales guidance for IP.
We are in the mid single digits, so you're talking.
5% to 6% which is.
Really strong.
In addition to the 8% we grew in 2024.
So I just wanted to say directly to set the record here because I think those are pretty strong numbers and definitely the market is not growing by those those percentages.
I think one thing to keep in mind is that Youre right orders have been up and our project orders have been up but keep in mind that a project. It takes around 12 to 18 months before <unk> and those are for like the small to medium sized projects. If you talk about some of those <unk> projects that we got.
It's more like 24 months. So we will start seeing some of those project convert in 2025, but it will be towards the latter part of the year and as a result.
We won't get as much growth.
As as the the level of orders.
It could imply and if I if I may build on what <unk> said that Joe is that what you may remember a couple of years ago.
Our backlog was made 60% of short cycle and 40% of projects. If you look at today, our backlog is at 57% project and 43% year cycles. So it's been shifting. So this is one point, which makes the improvement in terms of the profitability of IP even more.
Our outstanding because the projects are generally not as profitable as the short cycle.
Okay. That's all fair I still probably going to take the over on your growth there, but I appreciate I appreciate the comments.
Luca.
Just given what's going on politically now does it seems like you've done so well with some of these international deals.
Does it change your.
Does it change your strategy on acquiring businesses that are based outside of the U S. Just given what's going on with tariffs and.
And all of those all of the rhetoric there.
Well if you look at if you look at the last three acquisitions that we have made.
They've been.
Very successful and they will be successful in the foreseeable future also with the geopolitical situation that we have now think about <unk> because I know is a global business absolutely, but it plays an incredible role in the energy transition. So we're talking about water.
The New administration is doing with LNG that plays in our fee is what is happening with LPG. That's plays in our theaters Vannoy great success. If you look at <unk> the salaries. The connectors, we focus particularly on the Aero defense. This automatically ease in mainly in North America. So this is good there.
The thing that we say, we met at being impacted geopolitically with that happening because it's our valves business, great global business and our factory in Israel. So now the team has been incredibly resilient. The result has been good even with extra cost that.
We put in the business just to protect our people now so.
Our focus on floor on connectors and when it comes to connectors, mainly Aero and defense.
Zinc is not there really isn't a really changing and.
On top of I would say.
Bear in mind that our strategy is always to be in the region for the region and therefore trying to reduce.
Some of the.
Speaker Change: Challenges that we could we could have.
Do you think about most of the divestiture on the other side I would say that now we are in a better position than we were in 2018 regarding tariff because that we divested walgreen, which was it means that that was most impacted by it.
Thanks, and thanks for the color guys.
Speaker Change: Thanks, Jeremy.
Thank you one moment for our next question.
Our next question comes from the line of Brad <unk> from Wolfe Research.
Brad: Hey, good morning, guys. Thanks for taking my question Brian.
Brad: So maybe sticking with IP just curious within the mid single digit organic growth outlook. There for 2025, how does that breakdown between projects and short cycle and then from a margin perspective, it looks like you're implying about a 100 basis points of margin expansion X span Hawaii. So just curious if you could kind of breakdown.
Drivers of that 100 basis points kind of on the legacy IP business there.
So let me let me address the improvement in terms of margin in AP, if we look at.
We expect our legacy business that we need to continue to improve the margin absolutely right and even more outstanding are you seeing that project will be will play a bigger role now some of Easter week by week.
With price, we will have a price cost equation that he is going to be positive. Some of it that will be on the supply chain I think that there is a lot of award that we can do on the purchasing side too.
To gain profitability on that front and then there is also a lot on the productivity side in the in our operations.
I was in Seneca falls together.
Ham D and we bought it and we know that we add the productivity in the way that we can bring home in the way that deck, we ran our our machine.
I would say that on a legacy point of view and then we also have a improvement with acquisition, yes. So.
A few things to keep in mind, so you're right Brad.
Yeah.
Margin is expected to in IP is expected to increase by a little bit more than a 100 basis points that is including this vannoy dilution, but given the fact that has been Invoiced started mid January the dilution is pretty low right.
So we expect strong as Luca was saying strong volume strong price and very positive price costs now if you think about it.
<unk>.
As it as it compares to.
Brad: 2024, we're going to continue to see margin expansion and Super strong growth rates, we are expecting <unk> to grow in the double digits from a revenue from a revenue standpoint.
Brad: EBITDA.
EBITDA to also expand and we're going to be closer to the 20% Mark a little bit below the 20% Mark So we are.
We're doing well the team is performing well and we are were.
We're making sure that we at ITT, we can add value to their business model.
Okay.
Okay. That's helpful. I appreciate that and then maybe as we think about CCT margins. It sounds like margins for 2025, <unk> should be around 25%.
So just trying to think about as the historic amortization winds down at year end 25, do you still think that 22% margin target in 2026 could be in play for CCT.
Yes, that's correct Brad.
You nailed it 2025 without cassara will be above 20% for.
For the full year.
Hey, sorry, I will be around 300 basis points of dilution impact.
And so.
That sets us well.
Given the fact that we'll be between 2020 one.
Are we closer to 'twenty, one that sets us well for us achieve achieving yet so that's 2020.
Brad: 22% margin target in 2025, excluding Cassandra.
Great. Thanks, guys.
Thanks, Brett.
One moment for our next question.
Our last question comes from the line of lab bus strictly from Citigroup.
Good morning, Vlad Hi, Vlad.
Good morning, guys. Thanks for taking my call squeezing me in here.
Yes.
So.
Just.
Brad: Following up on digging in on some of the questions around.
Backlog and visibility I guess, just going into the year.
$1 six a backlog.
Can you give any color on how youre thinking about how much of that.
It's actually within the year versus the portion that might be.
Longer dated tied to some of those longer projects.
So I'm glad to say.
Now I think that.
The order performance has been fantastic you see it in the book to Bill of <unk> are you see it in the legacy business of IP, you seed with plenty of rail.
Orders that went up by 37% now when you look at all these businesses they tend to be more long term think about it in rail you win an award win a platform and you might win the platform for the next year.
At 20 years.
Brad: We talked about the project backlog in AP.
Two years ago, 60% was short cycle at 40 project now is the reverse almost 60% is projected at 40% short cycle and those projects in AP tend to have in execution of a two to three years in the prepared remarks, where we talked about there yes.
Brad: <unk> or the <unk> project those projects that add a project that will last two years and some also of the Green project that we won for born among carbon capture those are projects that have lost at that two to three years and we're going to close in 2025.
Now.
Another data point that we say when we look at AP, probably today, our sales coverage is above 40% for 2025.
Thank you okay. Thank you.
Okay.
Thanks, Okay that was helpful color I guess, just one last follow up for me just on the on the CCT Mitch.
Mid single digit organic growth I know you mentioned.
In the slides Boeing expected ramp beginning in <unk>.
I guess can you talk about how material that Boeing ramp as to your outlook and how youre thinking about or how we should think about any any potential risks to that grosses.
If their operational challenges there.
Linger more than more than what's baked into your outlook.
Yes. So if you look at our aerospace expected revenue, we're still expecting this to be down.
Low single digits in 2025 compared to 24, so I think that with what we know that has been communicated by the customer we think thats our forecast is appropriate.
Brad: You know as we mentioned in the past new Boeing represents roughly $10 million in terms of revenue per quarter.
So it is meaningful but I think that given what's happening in defense for instance, and what's happening in medical.
Our connectors business, we expect that we're still going to be able to deliver.
Roughly 45% in terms of growth for CCP in 2025.
Great. Thanks Emmanuel.
And if I just want to make sure you and everyone else saw the mention of the capital markets day on May 15th So youll be able to see a lot of the stuff, we talk about sort of come to life and I Hope you and everyone else can join US then.
Looking forward to it.
Thanks, a lot. Thank you.
Thank you.
This does conclude today's conference. Please disconnect your lines at this time and have a wonderful day.
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