Q1 2025 ITT Inc Earnings Call
Okay.
Speaker Change: Welcome to Itt's 2025 first quarter conference call. Today is Thursday may 1st 2025, today's call is being recorded and will be available for replay beginning at 12 P M. Eastern.
Speaker Change: At this time, all participants have been placed in a listen only mode and the floor will be opened 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 at any time. Your question has been answered you may remove yourself from the queue by pressing star one again, we ask that you. Please pick up your handset to allow.
Speaker Change: Optimal sound quality. It is now my pleasure to turn the call over to Mark Macaluso, Vice President Investor Relations and Global Communications you may begin.
Mark Macaluso: Thank you Tania and good morning, joining me and separate today are Luca Savi, Itt's, Chief Executive Officer, and President and.
Mark Macaluso: Chief Financial Officer, today's call will cover Hep's financial results for the three months period ended March 29, 2025, which we announced this morning. Following our earnings pre release on April 10, please refer to slide two of the present and available on our website, where we note that today's comments will include forward looking statements that are based on our current expectations actual results may do.
Mark Macaluso: Materially due to several risks and uncertainties, including those described in our 2024 annual report on Form 10-K, and other recent S&P bodies, except where otherwise noted the first quarter results. We present. This morning will be compared to the first quarter of 2024 and include certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures are detailed in our press release.
Speaker Change: 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.
Speaker Change: To look at who will begin on slide number three.
Speaker Change: Thank you Mark and good morning.
Speaker Change: <unk> first quarter results were resilient and in line with the preliminary earnings we announced on April 10.
Speaker Change: The environment has been fluid to say, the least and steel ITT is all around the word deliberate.
Speaker Change: Once again, the resilience of our people and other businesses came through.
Mike: Sure Mike.
Mike: My heartfelt thank you to all our employees.
One of the highlights of the quarter was our orders of more than $1 billion. The most of any quarter ever in IGT.
Mike: These was bolstered by the cassava and finding a high acquisition.
Mike: Talking about orders in Q1, we grew 7% or 2% organic.
Mike: Our book to Bill was 1.15, resulting in an ending backlog of $1 $8 billion.
Mike: 21% year over year and 10% sequentially.
Mike: Moreover, we expanded margin 30 basis points to 17, 4% on flat sales.
Mike: We generated adjusted EPS of $1.45 up 7% without the loss of earnings from the Walgreen divestiture.
Mike: We generated record Q1 free cash flow of $77 million up more than 150% and we have a cautious $100 million of shares in Q1.
Mike: On orders.
Mike: Industrial process grew 14% at 11% organic driven by new large pump project awards, including Scania, only what orders were up nearly 70%.
Mike: We continue to invest in fast growing locations like our IP, Saudi and India size to drive further market share gains.
Mike: In Q1, it was pleased to spend time with larder in Germany in vitro data, India to review, our investments and market expansion plans in this important growth region for ITT.
Mike: Connect and control grew nearly 40% driven by casady as large block from award with defense primes, including F 35.
Mike: Both IP and CCT and the book to be above a 1.2.
Mike: Okay.
Mike: On profitability, we continue to expand margin despite headwinds from foreign currency and M&A amortization.
Mike: The team at Kearney, let emptied to just shy of 20% margin offsetting 150 basis points of unfavorable FX.
Mike: CCT grew 170 basis points to nearly 20%, excluding M&A dilution driven by price actions and productivity.
Mike: Lastly, IP grew 60 basis points to over 23%, excluding M&A dilution.
Mike: Now on capital deployment, we started 2025 moving at ITT speed.
Mike: Immediately after quarter end, we decided to release preliminary earnings. We then went into the market and started repurchasing ITT shift to react.
Mike: Our confidence in the long term outlook of ITT.
Mike: We repurchased $300 million of ITT shares in April in addition to the 100 million. We did in Q1, lowering our share count by 4% for the year and steel our capacity to execute to execute M&A, we mays.
Lastly on the outlook after a resilient Q1 with good visibility to a strong second quarter with adjusted EPS growth expected to be roughly 8% at the midpoint.
Mike: With this we are.
Mike: Maintaining our full year adjusted guidance for 2025, even with the uncertainty around the macro environment in the second half.
Mike: Our strong cash generation is also expected to continue driving us towards nearly half a billion dollars for the year, a new milestone for ITT.
Mike: Now.
Mike: Moving on from the results.
Mike: Earlier in Q1, we announced the launch of by that.
Mike: This is a perfect example of Itt's innovation, driven by our engineering DNA.
Mike: With innovation, we stay ahead of competition.
Mike: We do it in friction where our engineers in Europe, North America, and China turn engineering challenges into market share gains.
Mike: We're doing it is very hard with our new cryogenic fuel pumps.
Speaker Change: At Mountaineer and I were fortunate enough to be together, we saw it and the entire <unk> team last quarter in Denmark as their new high pressure pumps were tested with liquid nitrogen at minus 310 degrees Fahrenheit to replicate cryogenic operating conditions.
Speaker Change: We're doing it in our connectors defense business, where our new product development team is designing new connectors for harsh environments with our customers and quickly prototyping that.
Speaker Change: This is driving your awards, including share gains on the worlds most advanced defense platforms.
Speaker Change: And we're doing it through ITT ventures without game changing industrial motor by that which.
Speaker Change: Which we believe is going to sell one of the biggest problems facing the global flow industry.
Speaker Change: Wasted energy.
Speaker Change: Let's turn to slide four to discuss Vida in more detail.
Speaker Change: Vida is truly a game changer, let.
Speaker Change: Let me explain exactly how it will change the flow industry.
Speaker Change: Nearly 10% of the world's electricity is used to power the motors that drive industrial pumps and funds.
Speaker Change: Translate into annual energy Bill up over $300 billion.
Speaker Change: Yet most of these systems rely on outdated motor technology that runs at six speed requiring mechanical controls to regulate the flow.
Speaker Change: In these instances the only solution available is a variable speed drive.
Speaker Change: Blocked variable speed drives need space.
Speaker Change: Not only space they require a clean room and they are expensive.
Speaker Change: Therefore, they are using less than 20% of the cases.
Speaker Change: And this is where buyback comes in.
Speaker Change: Not only does it by the end of.
Speaker Change: That variable speed technology into the motor to deliver energy savings and drastically reduce costs and emissions, but there is also a drop in replacement, meaning customers can simply swap out their existing model.
Speaker Change: It does not require a clean room, it does not need more space.
Speaker Change: At dusk quickly pay for itself.
Speaker Change: There are multiple customer pilots either underway or completed with thousands of hours of run time under our belt.
Speaker Change: Dan are vital GM can tell you that at one such pilot site, we replace existing motor with Baidu and we opened a controlled up to 100% to transformation was immediate.
Speaker Change: The motor speed dropped by 24% energy use decreased by over 50% and dose level two limited.
Speaker Change: <unk> works by the deliberate exact same floor at half the operating costs.
Speaker Change: This single model saved our customers plant 224000 kilowatt hours annually enough electricity to power 30, almost for the entire year.
Speaker Change: Additionally, a tap.
Speaker Change: Customer eliminate 160 metric tons of seer to emissions.
Speaker Change: Equivalent of removing 34 gas powered cars from the road.
Speaker Change: And the financial impact was impressive the plants saved roughly $20000 per year from just one product.
Speaker Change: A typical industrial plant, we will have 100.
Speaker Change: This revolutionary Motor technology enables ITT to enter a new $6 billion addressable market.
Speaker Change: You will see and hear much more about buyback at our capital markets day on May 15, including our targets for revenue growth.
Speaker Change: As you can see by the is a game changer for our customers.
Speaker Change: ITT and for the World.
Speaker Change: Now, let me turn the call over to Emmanuel to discuss our Q1 results in more detail. Thank.
Emmanuel: Thank you Luc and good morning.
Emmanuel: ITT delivered another solid quarter, let's begin with revenue.
Emmanuel: Growth was flat to prior year on a total and organic basis.
Emmanuel: Driven by our acquisitions and pricing actions, which fully offset lower volumes, including from the Wolverine divestiture in the prior year.
Emmanuel: There were however, a number of highlights.
Emmanuel: CCT defense connectors grew over 20% and general industrial connectors grew 4%.
Emmanuel: <unk> contributed 26 points of total growth.
Emmanuel: This was more than offset.
Emmanuel: By lower.
Emmanuel: Aerospace volumes, primarily due to Boeing as we anticipated.
Emmanuel: CCT also had the stronger price realization of all the businesses in Q1.
Emmanuel: In motion technologies, the highlight was double digit growth from Coty share gains.
Emmanuel: And friction OE, we saw strength in China as well as continued growth in frictions independent aftermarket.
Emmanuel: Which offset a market slowdown in North America and Europe.
Emmanuel: Finally in industrial process strong marine pump shipments in <unk> as well as growth in valves offsets lower pump shipments.
Emmanuel: On profitability operating income grew 2% on flat sales or 7%, excluding the Wolverine divestiture, primarily driven by shop floor productivity and price, which more than offset lower volumes in auto and aerospace as well as cost inflation and unfavorable FX.
Emmanuel: <unk> was once again above 20% margin, excluding <unk> margin would have been up 60 basis points.
Emmanuel: The team just reached just about reached its 20% long term targets. Despite a larger than expected FX headwind expanding margin 160 basis points versus prior year and over 300 basis points excluding FX.
Emmanuel: Finally in CCT, excluding M&A dilution margin was up 170 basis points to nearly 20% driven by price gains and productivity.
Emmanuel: We expect CCT to continue to drive higher price realization as renegotiations in aerospace are finalized.
Emmanuel: This performance combined with a 1% lower share count resulted in adjusted EPS of $1 45.
Emmanuel: We overcame <unk> of lost earnings from Wolverine and <unk> from unfavorable FX.
Emmanuel: Lastly, our free cash flow, our cash generation increased over two five times versus prior year and was a record for the first quarter.
Emmanuel: Our free cash flow margin also increased more than 500 basis points this quarter.
Emmanuel: This is thanks to the efforts of our team to drive stronger cash collections as well as more than $15 million of operating cash flow from our acquisitions.
Emmanuel: Let's turn to the Q1 operating margin and EPS bridges on slide six.
Emmanuel: The key takeaway here is the strong operational performance of our businesses that allowed us to grow margin on flat sales.
Emmanuel: Included in the figures 150 basis points of operational leverage 40 basis points of productivity, which outweighed the dilutive margin impact of acquisitions and foreign currency.
Emmanuel: As you can see on the right.
Emmanuel: Operational performance along with the contribution from our acquisitions helped us overcome earnings headwinds from the 2020 for divestiture of Walgreens.
Emmanuel: Favorable foreign currency higher interest expense and a higher tax rate.
Emmanuel: Excluding the divestiture Q1, EPS would be up 7% for the quarter.
Emmanuel: Now, let's move to slide seven to discuss our 2025 guidance.
Emmanuel: After a solid Q1 performance, we are confirming our full year adjusted outlook.
Emmanuel: We have good visibility to our performance in the second quarter, which gives us confidence despite the highly uncertain trade environment.
Emmanuel: On revenue our total growth is expected to be slightly higher due to FX, while organic revenue is expected to be within our original range of 3% to 5%.
Emmanuel: In CCT, we expect to drive growth in defense as well as in aerospace with the ramp in shipments to Boeing and benefits from pricing actions.
Emmanuel: In IP, we expect growth in project shipments to accelerate in the second quarter, while demand in aftermarket and valve remains robust.
Emmanuel: This is partially attributable to the 90 plus percent on time delivery.
Emmanuel: North America aftermarket business, which is allowing us to gain share.
Emmanuel: And an empty we expect outperformance in friction in the U S and Europe to accelerate throughout the year.
Emmanuel: With total ICT price should accounts, roughly one to two points of growth.
Emmanuel: On margin as.
Emmanuel: As we saw in Q1 productivity and price should continue to drive the bulk of our margin expansion overcoming impact of lower volume and higher cost inflation.
Emmanuel: We have already taken further actions to reduce structural costs, while prudently investing in areas of our business that will drive growth such as lidar.
Emmanuel: On revenue our revenue growth and margin expansion are expected to drive adjusted EPS at the midpoint to $6 30.
Emmanuel: This includes the 17.
Emmanuel: Unfavorable impact from temporary intangible amortization that ended in April 1st of NOI, and we will conclude by the end of the year for <unk>.
Emmanuel: Still the 2024 acquisitions are expected to add approximately 20.
Emmanuel: Of accretion this year.
Emmanuel: We'll also realized an approximate <unk> <unk> benefit from the $400 million.
Emmanuel: Of share repurchases executed through April net of interest expense.
Emmanuel: Finally on cash this solid start in Q1 puts us in position to deliver close to half a billion dollars of free cash flow this year.
Emmanuel: Okay.
Emmanuel: Let's talk briefly about our Q2 outlook.
Emmanuel: Revenue growth should be in the mid single digit range in total and low single digit range on an organic basis led mainly by project shipments in industrial process, including Vannoy growth in CCT should accelerate quarter to quarter as shipments to Boeing.
Speaker Change: Our margin Moshe.
Speaker Change: Motion technologies should surpassed 20% and industrial process is expected to be over 21%.
Speaker Change: CCT margins should improve sequentially by roughly 200 basis points.
So it will be down year over year due to Qatari out amortization.
Speaker Change: Legacy CCT would have effectively hit the long term margin targets in Q2.
Speaker Change: In total this should drive operating margin expansion of roughly 50 basis points year over year and more than a 100 basis points sequentially overcoming higher corporate costs related to divide our launch.
Speaker Change: Higher income and lower share count is expected to drive adjusted EPS growth of 6% to 10% year over year and 8% growth at the midpoint.
Speaker Change: Excluding the lost earnings from Wolverine.
Speaker Change: EPS growth would be 14%.
Speaker Change: Before we wrap up I wanted to address our assumptions on tariffs.
Speaker Change: Our supply chain and sourcing teams have been working to quantify the potential exposure to ICT and to develop granular action plans to mitigate the impact by working with our customers and suppliers.
Speaker Change: As it stands today, our estimates of the tariff cost for the balance of 2025 is approximately $50 million to $60 million prior to our mitigation strategies.
Speaker Change: Given the divestiture of Wolverine in empty the largest impact expected in CCT and Nike.
Speaker Change: Most of our products our U S. MCA certified and we have assumed these exemptions.
Speaker Change: And intact.
Speaker Change: We issued price increases to our customers for their products that are not exempt.
Speaker Change: And we also continue to strictly control our costs such as the restructuring actions, we took in the first quarter.
Speaker Change: The event of a slowdown in the second half.
Speaker Change: Taken altogether, we expect our actions will offset the impact from an operating income perspective.
Speaker Change: There may however, be some impact on margin as well as the timing element that could affect cash flow.
Speaker Change: One more thing to note our 2025 EPS guidance has not changed this is due to the uncertainty in the second half of the year given the volatility in the macro environment is a very fluid situation and we will stay close to this.
Speaker Change: And take further actions as needed.
Speaker Change: Let me turn the call back to Luca to wrap up.
Luca Savi: Thanks Emmanuel.
Speaker Change: To your point before moving to Q&A.
This was another resilient performance.
Speaker Change: We delivered on our Q1 commitments and have good visibility to a strong second quarter.
Speaker Change: We continue to expand our margin with more opportunities still to capture.
Speaker Change: We're maintaining our full year guidance, despite a great deal of uncertainty.
Speaker Change: Quickly deploy capital to repurchase shares in April and still there is a lot of value we can create at ITT, including through game changing innovations like Vida.
Speaker Change: On May 15, you would be able to see this value creation come to life at Itt's next capital markets day and hear from some of the ITT leaders delivering our results today and for the years to come.
Speaker Change: I look forward to seeing you there.
Speaker Change: Thank you for your ongoing support of ITT as always it has been my pleasure Tanya. Please open the line for Q&A.
Speaker Change: Certainly 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 again.
Speaker Change: 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 I'll follow up thank you.
Operator: First question will be coming from the line of Scott Davis Melius Research. Your line is open Scott.
Scott Davis: Thank you operator, good morning, guys.
Operator: Scott.
Operator: And I think that the headline to me at least these order numbers are pretty big can you give us a little bit of color on why you think orders picked up so much is or is there more.
Operator: Maybe some impact of people trying to get ahead of price increases is there any other.
Operator: Any other variables out there that you can kind of point to that could explain sequentially and year over year, why such a big increase.
Operator: Sure.
Speaker Change: Scott, we don't see that there is any.
Operator: Purchasing ahead of what might happen.
Operator: So the reason for that is that if you think about it.
Operator: The IP for example, IP project orders were up 47% doors that projects.
Operator: <unk> been working on this project for four months in some cases for years. So there is no acceleration in any shape or form on that one and then of course.
Operator: Great acquisition performance.
Operator: Both from Mac is ARIA as well as from the <unk>. If you think about the banner was up 70% year over year with a book to Bill up to zero. So I would say this is that for sure partly the market, but partly also market share gains in several sectors.
Operator: Okay helpful and then.
Operator: Just to clarify the big buyback that you did.
Operator: Presumably to help offset Wolverine, but.
Operator: Not fully of course, but helped but was that because of market weakness or because you see perhaps a lull in M&A.
Operator: Any color behind that please sure no I would say that.
Operator: Is not related to the M&A as a matter of fact that our pipeline is at its I'll say, we keep us on cultivating and we're still targeting that to do M&A. This year.
Operator: An idea award, we will be able to deploy $500 million to $700 million or it will be more this year on M&A. So it's not related to the lack of opportunities in M&A is there is justice to reaffirm really the confidence in ITT in our medium and long term outlook.
Operator: You have seen our.
Operator: Net debt ratio was probably one of the lowest in the multi industrial.
Operator: And one of your slide you show Us 0.3 so.
Scott Davis: <unk> participated to that to that decision Scott.
Scott Davis: Well best of luck guys.
Scott Davis: Passenger Scott Thank you.
Speaker Change: And our next question will be coming from Mike Halloran of Baird. Your line is open.
Mike Halloran: Hey, good morning, everyone.
Hi, Mike. So so first can you just bridge the previous guidance to the current guidance feels like <unk>.
Mike Halloran: Pricing.
Mike Halloran: <unk> revenue up a little bit probably some implicit pressure on the volumes not that you are seeing it today, but youre assuming back half may be a little something FX more favorable.
Mike Halloran: Anything else I should be thinking about from a put and take from previous guidance and the current guide.
Mike Halloran: Yes, Mike so.
So when you when you look at the guidance.
Speaker Change: Guidance to guidance.
Speaker Change: Obviously as you mentioned, we have a little bit of a positive impact from FX.
Speaker Change: And also from share count as we discussed.
Speaker Change: I think I think.
Speaker Change: When you look at a little.
Speaker Change: A little bit of headwinds.
Speaker Change: We have.
Speaker Change: Some.
Speaker Change: An increased tax rate.
Speaker Change: Got a little bit of more cost inflation.
Speaker Change: And also.
Speaker Change: We expect.
Speaker Change: The second half to be a little lower than originally so not baking at all a recession, but economic activity maybe to be a little bit slower.
Speaker Change: So all in all this is where we stand we expect acquisitions to deliver a little bit better than originally and so thats really good news.
Speaker Change: And then when you look at this.
Speaker Change: Different components of the guidance.
Speaker Change: So as we discussed.
Speaker Change: Mid single digit organic revenue growth, we expect IP to be leading the pack with fight around 5% and CCT closely behind <unk> to be roughly flat.
Speaker Change: One of the things that I think it's important to highlight that we continue to expect obviously margin expansion.
Speaker Change: We expect that IP for the year.
Speaker Change: Land at <unk>.
Speaker Change: Close to 22%.
Speaker Change: MTBE is expected to be solidly at 20% in line with our long term target and.
Speaker Change: And CCT just shy of 18%.
Speaker Change: Because of you see it is impacted by the <unk>.
Speaker Change: Diluted margin dilution.
Speaker Change: But without <unk> would be.
Speaker Change: <unk>, 21%, which is really close to the long term targets.
Speaker Change: So I think thats all in all EPS aligned with prior guidance.
Speaker Change: If everything goes well and the tariffs are resolved.
Speaker Change: This is this is good news.
Speaker Change: And there is no major change.
Speaker Change: That's super helpful. I appreciate that.
Speaker Change: Then just kind of thinking about the resilience in the model here.
Speaker Change: I think.
Speaker Change: Syed.
Speaker Change: Just thoughts on.
Speaker Change: How that should track if you do get a little bit of softness.
Speaker Change: Although the pipeline the backlog the slope of our growth factors.
Speaker Change: How do you think that you are how do you think the customer base response.
Speaker Change: Do you think theres enough immersed in what you're doing as well as the need in the market to have some sort of.
Speaker Change: Offset certain be pretty resilient in the sense of that.
Speaker Change: So when we look at when we look at the markets in IP.
Speaker Change: We see a little bit of.
Speaker Change: The slowdown in the funnel. So the funnel is down year over year, and we think you'd accounts for all those projects that have been awarded but have not replenished as fast as we have seen in the past, but I think it's fair to say that the funnel is.
Speaker Change: It remains at elevated level, even though it's declining.
Speaker Change: Some of that decline is coming from North America.
Speaker Change: And specifically in there we see decline also from oil and gas and chemical standpoint.
Speaker Change: But for us as we discussed.
Speaker Change: We have a.
Speaker Change: Really strong backlog.
Speaker Change: The backlog in IP is at $1 billion, which is a record it's up year over year or 15% sequentially up 8% as we discuss book to Bill above one two so I think that we are really confident in terms of our revenue number and our growth in 2025 for IP.
Speaker Change: If I may add one point, Mike if you look at the backlog that Matt was talking about in the last three years. He grew from <unk> billion to $1 billion, so 100% up in three years.
Speaker Change: 50% organically and then also when you look at our project execution. When we close the project now the closing margin of this project is higher than the margin of the project. When we book them. So I think that this gives us confidence to continue to performance in IP.
Speaker Change: Appreciate it thanks gentlemen.
Mike Halloran: Thank you Mike.
Speaker Change: And our next question comes from Brad <unk> of Citigroup. Your line is open.
Brad: Good morning, guys.
Brad: Great. Thanks for taking my thanks for taking my question.
Speaker Change: So maybe just following up on IP.
Speaker Change: You mentioned continued investments that youre, making in.
Speaker Change: Saudi and in.
Speaker Change: India.
Speaker Change: Are you seeing.
Speaker Change: In Saudi region in particular can you talk about.
Speaker Change: Weather.
Speaker Change: Or how youre thinking about any potential risks to Saudi spending plans as we've seen crew.
Speaker Change: Crude oil prices pulled back this year and whether you are hearing any change in tone from your customers there.
Speaker Change: Sure.
Speaker Change: No actually we do not.
Speaker Change: I see.
Speaker Change: Any change in tone.
Speaker Change: As a matter of fact, when you look at the orders. So if you look at the last three years.
Speaker Change: Our orders by market being oil and gas have been orders up every single year 'twenty two 'twenty three 'twenty four.
Speaker Change: Called the same general industrial the same Q1, 'twenty five energy oil and gas keeps on growing.
Speaker Change: No.
Speaker Change: No major noise on that front and I will say also that.
Speaker Change: On top of the market, we are benefiting of course from market share gains because of our because the way the highlight and the team are performing in Saudi more than 95% on time delivery perfect project execution. So the customers are very loyal to us.
Speaker Change: That's great to hear Luca I appreciate it and then.
Speaker Change: Maybe just.
Speaker Change: Shifting to empty.
Speaker Change: You mentioned I think an expectation for friction OE outperformance to ramp in North America and Europe.
Speaker Change: Over the course of the year can you just talk about is that based on.
Speaker Change: OEM production schedules and platform introductions and do you see any risk of further modifications to those schedules just given the current uncertainty in the environment.
Speaker Change: No to be honest with you Q1 was very challenging for the European and North American market.
Speaker Change: The European market was down almost 7% in terms of production or the Americas down five so the only resilient market that they show good growth was China with operation manufacturing.
Speaker Change: Manufacturing up 11%.
Speaker Change: These were the market number and in China, we outperformed by a few hundred basis points. The reason why we are confident on the 400 basis points for the full year and ramping up is the platform that we won that start of production that we see and also the order book that we see now for example for the next three months.
Speaker Change: So all of that gives us confidence of the outperformance of 400 to 500 basis points for the full year.
Speaker Change: Great I appreciate it guys.
Speaker Change: You bet. Thank you.
Speaker Change: And our next question will be coming from Jeff Hammond of Keybanc capital markets. Your line is open.
Jeff Hammond: Yes, hi, guys.
Speaker Change: Hi, Jeff.
Speaker Change: Just wanted to hit the good color on the tariff exposure could you just talk about how much of the 50 to 60, you cover with price, where specifically you are announcing price increases and then just any change.
Speaker Change: Changes, you're implementing around so we're sooner or otherwise to kind of further mitigate the headwinds.
Speaker Change: Sure.
Speaker Change: When you look at the total exposure, Jeff, which is roughly between 50 and $60 million for the next nine months.
Speaker Change: As we said that we are at we are acting on cost.
Speaker Change: And on the sourcing so when youre looking at the sourcing where you have material for example, where you have a two supplier that are qualified and it might be in the three geographical location, we're able to use that flexibility and the resilience that we build in the supply chain in the last few years.
Speaker Change: To reduce the impact of.
Speaker Change: If the tariff and then when it comes to the commercial actions.
Speaker Change: <unk> actions.
Speaker Change: Really on all the products that <unk> are not that you have.
Speaker Change: MCA compliant.
Speaker Change: And a lot of those commercial actions that are executed or in progress.
Speaker Change: And to be the majority through the distribution, so where we also have more pricing powers. So all of these enabled us to have no net impact to the EPS guidance for 2025.
Speaker Change: Okay. That's helpful. And then just back on M&A a lot of companies have said gosh, it's got more difficult.
Speaker Change: Yes, good morning question on tariffs.
Speaker Change: We don't know what's going to happen from a demand perspective, and that makes M&A difficult, but it sounds like.
Speaker Change: You guys still feel like you can get stuff to the finish line, let me just speak to action ability.
Speaker Change: And if you had seen.
Speaker Change: Paul I will shrink because of because all of this noise.
Speaker Change: Sure I think that now is the time to spend more in cultivating this opportunity on the M&A front now that uncertainty means that of course, you are going to be more granular and understand that it would be more the impact in the short term, but if you have a very good strategic acquisition with a lot.
Speaker Change: The value creation.
Speaker Change: Sure you need to be more granular, but largely the long term picture will not that will not change and this is the approach that we're having on the on the M&A on the M&A front, so Bob myself and the entire team are busy cultivating meeting and analyzing the opportunity granted.
Speaker Change: You might need to be a little bit more granular.
Speaker Change: In your model in the first.
Speaker Change: Three four years.
Speaker Change: Okay, great well see you guys in a couple of weeks.
Speaker Change: Thank you Jack.
Speaker Change: Thank you. Our next question will be coming from Pat Brad Hewitt of Wolfe Research Brad Your line is open.
Brad Hewitt: Hey, good morning, guys. Thanks for taking my question.
Brad Hewitt: So on the IP side very strong project orders in Q1 with a 47% growth just curious if you can walk us through your updated growth assumptions.
Speaker Change: Between projects and short cycle I believe your prior guidance was like mid teens growth in.
Speaker Change: Projects and kind of low to mid singles in short cycles.
Speaker Change: Yes, so sure so the guidance really hasnt changed much Keith.
Speaker Change: Keep in mind, Brad Thats, while were very happy with the project orders in the growth of 47%. This will not convert into revenue growth in 2025, those are long lead projects they take.
Speaker Change: Anywhere between 12 to 24 months.
Speaker Change: So our assumptions between projects and short cycle. They remain essentially essentially the same I think that as I mentioned.
Speaker Change: In IP really for us the focus is to make sure that we convert that backlog in a timely fashion, we're not really concerned.
Speaker Change: Our hitting our revenue target for 2025.
Speaker Change: And when you look at the <unk> show cycle, Brad If I may add if we look at that show the growth in project was that.
Speaker Change: It was very strong.
Speaker Change: And show cycle, not so much but to be honest, if we look at the short cycle orders sequentially, we were up 1%.
Speaker Change: And the book to Bill in the show cycle was one point or seven.
Speaker Change: And then even looking at the short cycle day on a weekly basis. The run rate in Q1 was higher than the average weekly rate of 2024.
Speaker Change: <unk> doesn't have the growth that we saw in the past, but it's still staying at a very high levels.
Okay.
Speaker Change: And then maybe.
Speaker Change: Switching over to the tariff side of things. So you mentioned that $50 million to $60 million gross headwind for the rest of the year most of that offset coming from price I guess just curious in your guidance. What are you embedding in terms of demand elasticity in response to those price increases.
Speaker Change: So as we mentioned Brad we do not we did not bake anything in terms of in the guidance in terms of demand.
Speaker Change: Demand destruction due to those tariffs.
Speaker Change: We expect to be able to.
Speaker Change: We expect to Gabe obviously to pass all the cost increase through price and cost reduction actions as well.
Speaker Change: I think one thing that.
Speaker Change: It's important to highlight is the fact that we pretty much are in the same condition as everybody else like for instance in IP.
Speaker Change: Most of the competitors by their castings.
Speaker Change: From China or India.
Speaker Change: India. So we don't believe that there'll be any competitive disadvantages.
Speaker Change: And so.
Speaker Change: And so we expect to be passing on and and we'll see if that.
Speaker Change: That results in a little bit a little bit of a hit to demand in the second half we continue to be very prudent and then monitor the activity.
Speaker Change: Great. Thank you.
Speaker Change: Thank you Brett.
Speaker Change: And our next question will be coming from Joe Ritchie of Goldman Sachs. Your line is open.
Good morning, guys. Thanks, Good morning, guys.
Speaker Change: Good morning, Joe.
Speaker Change: Hey, I'm, sorry, if I missed it.
Speaker Change: But have you guys said, how much of the $50 million to $60 million in tariff cost impact is coming from each segment.
Speaker Change: Just trying to China gate gauge just in terms of your ability to kind of past pricing I know that sometimes it takes a little bit longer to the friction business.
Speaker Change: Sure Joe the majority of the impact is actually at IP and CCT, because if you remember in Moshe technologies with the divestiture of Walgreen.
Speaker Change: The impact of the tariffs.
Speaker Change: Tariffs has been greatly reduced we are in the region for the region Europe for Europe, China for China, and Mexico, North America and.
Speaker Change: All our products at our U S MCA compliant.
Speaker Change: When it comes to empty the exposure and empty is only in the in the county shock absorbers that play a role in the aftermarket in the U S. So majority is <unk>.
Speaker Change: Which is in a way very favorable if you think about it from a business case, because this is where we also have the largest pricing power.
Speaker Change: Both in distribution and indirect.
Speaker Change: Yes.
Speaker Change: Good that's good to hear thank you and then just a follow on question <unk>.
Speaker Change: <unk>.
Speaker Change: It seems really interesting.
Mike Halloran: I'm just I'm just curious as you think about the opportunity and getting after this opportunity Luca.
Speaker Change: Is it the same like sales force.
Speaker Change: Are you able to kind of cross sell this with with your with your pumps business as well just like help us understand how you see this playing out.
Speaker Change: Sure.
Speaker Change: The way that we are running this business is a completely separate.
Speaker Change: Joe So we run it in ventures and Dr.
Speaker Change: <unk> was both the leader of business development and M&A as well as the leader of IP that is completely separated. So there is <unk> and his team who are based out of <unk>. We had that they have their own sales force and therefore is its own business.
Speaker Change: Now granted there might be some synergies so there might be some incentives that you put in place for your pump sales.
Speaker Change: They are successful in helping guide our launch but that is completely separated.
Speaker Change: Okay understood and I'm sure, we'll get more details at Investor day. Thank you exactly so we're waiting to see that their customer market at the capital markets Day Joe.
Speaker Change: And our next question will be coming from Andrew <unk> of Bank of America. Your line is open to Andrew.
Sabrina Abrams: Hey, you have Sabrina Abrams on for Andrew or open good morning, good morning.
Speaker Change: Sabrina.
Thank you guys I apologize this is going to be a little long.
Speaker Change: You've given some helpful color on the bridge from prior guidance.
Speaker Change: The updated guy, which is helpful and you're keeping that 3% to 5% organic with slower economic activity in the second half and I guess part of this question is the $50 million to $60 million of gross tariff impact is that over the course of the second half of the year or is that an annualized number and I guess could you just talk about what's embedded.
Speaker Change: And three to five organic for pricing versus volume and how that's changed.
Speaker Change: And then I guess for 50 60 million if that's an in year number I think like the annualized price increase needed to offset would be around 2%. So is that the right way of thinking about tariff pricing.
Speaker Change: Hi, Sabrina Okay. So the $50 million to $60 million is for the remaining nine months of the year right. So this is not an annualized impact just the remaining months.
Speaker Change: In terms of.
Speaker Change: So it's obviously included in the guidance.
Speaker Change: And no net impact because we are expecting to offset as I mentioned with commercial actions as well as cost reductions.
Speaker Change: So that's one.
Speaker Change: Terms of pricing yes.
Speaker Change: Yes, you're correct, it's around 2% price increase.
Speaker Change: We're planning.
Speaker Change: Organic growth of mid single digits.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: And then the short cycle.
Speaker Change: Be assured business and TCT tends to be.
Speaker Change: Guess Canary in the coal mine.
Speaker Change: Are you in terms of general macro industrial activity and I just wanted to ask how that business is trending.
Speaker Change: I understand you've had really good share gains in that business as well, but want to understand how is that business trending and then maybe any commentary on the tone you're hearing from your distributors.
Speaker Change: Are they showing any signs of weakness.
Speaker Change: Sure Sabrina so when you look at the revenue connectors revenue grew 4% organic and of course year defense and Aero were the main contributors. If you want to look at the leading indicators in terms of orders connectors orders were up 11%.
Speaker Change: Year over year.
Speaker Change: And they were up 27% sequentially now a lot of these is a big play he's of course on the from the same.
Speaker Change: But then if you look at the distribution you have a distribution orders that year over year are down but is up sequentially, 20% and it's at a very high elevated level. So.
Speaker Change: Overall T.
Speaker Change: A positive picture I would say.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And our next question will be coming from Damian Karas of UBS. Your line is open.
Speaker Change: Good morning, Damien and good morning, everyone.
Speaker Change: Sorry, if I missed this.
Speaker Change: I wanted to ask about.
Speaker Change: Some of the pricing trends that youre seeing in key.
Speaker Change: I'm just curious like is there going to be a transient period here in which.
Speaker Change: Youre going to.
Speaker Change: Maybe get hit with some of these.
Speaker Change: Tariff cost headwinds more immediately and then over time, you'll you'll offset that with price.
Speaker Change: Or could you just give us a sense like what kind of how pricing playing out in that market.
Speaker Change: Sure. So when you look at just to talk about the tariff for the sector for a second.
Speaker Change: In <unk>, mainly in IP and CCT, there is very minimum tariff impact in motion technologies and very little in friction because that we are in the region for the region and what you are talking about North America, our product our U S. MCA compliance. So that is on there on the on the tax front I think that when you look at <unk>.
Speaker Change: The price cost equation for for ITT overall, we are positive in Q1, it would be positive for the full year, both in dollars and margin and that picture is that is the same on the motion technology side. So the team is able to gain efficiency.
Speaker Change: <unk> through operations as well as sourcing and granted we are sharing some of these efficiencies with our customers, but the price cost equation in empty is positive today and as we said in the past we are focused on making sure that we recover any.
Speaker Change: <unk> and commodity from our customers.
Speaker Change: And I think thats.
Speaker Change: As the team really progressed in making sure that the quantify those impacts able to go back to customers and get a.
Speaker Change: Fair compensation.
Speaker Change: Okay, that's really helpful.
Speaker Change: Im not sure if you talked about it but.
Speaker Change: Could you just give us a little bit better sense on what's going on with span of Hawaii, and what's driving all the strength in that.
Speaker Change: <unk> book to Bill.
Speaker Change: And orders up 70%.
Speaker Change: Sure.
Speaker Change: When we cultivate these have any Hawaii when decided to acquire as many OE.
Speaker Change: We saw.
Speaker Change: The opportunity in market growing substantially in the foreseeable future.
Speaker Change: So there is definitely a trend there due to the market that are operating in in terms of the marine market and shifted to Green energy. So there is a market component to it.
Speaker Change: I would say also that the good quality product the great performance in solar and the team.
Speaker Change: Together with Glenn and everybody is delivering to the customers on time performance et cetera enable them to win market share and they are seen as leaders in three of the sectors that are operating in so.
Speaker Change: Market plus performance are delivering these exceptional results.
I remember that after the acquisition, we also committed to probably a double digit growth for savanna AOI for the next day.
Speaker Change: Few years and this is what our what we're seeing and the orders we continue to deliver that.
Speaker Change: Yes, it seems like that deals certainly bearing fruit.
Speaker Change: Alright, guys. Thanks best of luck.
Speaker Change: Thank you Damian.
Speaker Change: And our next question will be coming from Joseph Giordano of Cowen. Your line is open Joseph.
Michael: Hey, guys. This is Michael on for Joe.
Speaker Change: Hey, Michael Hey, Micah.
Speaker Change: So you mentioned earlier about connector strength and I know.
Speaker Change: Some people have been kind of contemplating a pre buy if there's any kind of color there that would be certainly helpful and market dynamics are quite as well.
Speaker Change: I would appreciate it.
Speaker Change: Yes, Michael So we are not aware of any pre buy when we look at our distributor distributor inventory.
Speaker Change: It is it is not excessive.
Speaker Change: Excessive.
Speaker Change: <unk> sell information is also healthy.
Speaker Change: So there is nothing that really points to a pre buy what's really difficult to understand is that you may have.
Speaker Change: They have inventory buildup at our customers' customers.
Speaker Change: Before the end customer rate, so that may be that possibility. So we do everything we can to understand.
Speaker Change: To understand the situation from a distribution standpoint, one thing that I wanted to highlight.
Speaker Change: Unrelated to tariffs, but we do see evidence of excess inventory in aerospace and so we are working with our tier ones and also our effort for the air Framers.
Speaker Change: Two to make sure that they address the situation and that we continue to be good partners to them.
Speaker Change: Great. That's helpful and that's actually another question I had two.
Speaker Change: I know you mentioned you saw.
Speaker Change: Aero down low or excuse me mid teens in the quarter my understanding if I remember correctly, there was supposed to be like an OE ramp at <unk>.
Speaker Change: Does this destocking dynamic for A&D.
Speaker Change: Teams that that ramp timing.
Speaker Change: I mean, I know you got some mostly lever to wide body, but any color there would be great. Thank you. Yes. So we expect in the second half sequentially aerospace orders to pick up there's still going to be slightly down versus the prior year.
Speaker Change: And then if you look at the.
If you look at the full year, we expect our orders to be slightly up so a recovery in the second half. So we're going to see improvement in the second quarter continued to improve in the third and into fourth and then they're going to start converting into revenue.
Speaker Change: Probably in this in the second half.
Speaker Change: Great. Thanks, guys.
Speaker Change: And our next question will be coming from Nathan Jones of Stifel. Your.
Speaker Change: Your line is open Nathan.
Speaker Change: Yes. Good morning, this is Adam Farley on for Nathan.
Speaker Change: Good morning, good morning, Adam.
Speaker Change: Good morning, one more on tariffs so your largest exposure to tariffs.
Speaker Change: CCT what are the primary components.
Theyre being exposed there and do you have confidence in dual sourcing there.
Speaker Change: Providing new sources of supply.
Speaker Change: So when we look at CCT is the main exposure there is the trade between Mexico and the U S that is mainly because there are many many things that are going from the U S to Mexico, Mexico U S. So you are talking mainly about connectors and.
Speaker Change: In net most of the cases.
Speaker Change: Our U S MCA.
Speaker Change: Products and when he is not that we are able to act on a pricing side and DTC in CCT distribution is also where we have more pricing power. So is not so much every sourcing strategy when it comes to CCT and connectors as match.
Speaker Change: Commercial action.
Speaker Change: Okay. That's helpful.
Speaker Change: And then just maybe high level I mean are you actually seeing any signs of customers deferring.
Speaker Change: Their capital investment decisions or is it more just caution on the back half and I'll leave it there. Thank you.
Speaker Change: Sure I would say no we do not see.
Speaker Change: Those kinds of things that sure you may have that one project or two that shifted to the right, but not to call. It a trend and you see it in the orders of the project, which were up 47% and the funnel of opportunity in IP is actually staying at elevated level.
Is practically flat.
Speaker Change: Sequentially and there are some regions like Europe, Middle East and Asia Pacific, where actually the final lease up so.
Speaker Change: So far we really haven't seen a major shift to the right. Just a couple of example, and that's it.
Speaker Change: Thank you for taking my questions.
Speaker Change: Thanks, Adam.
Speaker Change: This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.
Speaker Change: Okay.
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