Q3 2025 ITT Inc Earnings Call
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Speaker #2: It is now my pleasure to turn the floor over to Mark Macaluso vice President , Investor Relations and Global Communications . You may begin .
Speaker #3: Thank you , and good morning . Joining me in Stamford today are Luca Savi , its chief executive officer and president . And Emmanuel Caprais chief Financial officer .
Speaker #3: Today's call will cover its financial results for the three month period ended September 27th , 2025 . Please refer to slide two of the presentation 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 differ materially due to several risks and uncertainties , including those described in our 2024 Annual Report on Form 10-K and other recent SEC filings .
Speaker #3: Except where otherwise noted , the third quarter results we present this morning will be compared to the third quarter of 2024 and include certain non-GAAP financial measures .
Speaker #3: The reconciliation of such measures to the most comparable GAAP figures are detailed in our press release and in the appendix of our presentation , both of which are available on our website .
Speaker #3: With that , it's now my pleasure to turn the call over to Luca , who will begin on slide three .
Speaker #4: Thank you . Mark , and good morning . I'd like to begin today with the sincere thank you to our . It tears our teams around the world that strong results for yet another quarter .
Speaker #4: For all your hard work , my heartfelt thanks , especially to our team in Brazil . After the plant was hit by a very destructive storm during the quarter , production was back up and running in less than 48 hours .
Speaker #4: To Rodrigo , the entire Salto team and Nico , thank you for your dedication and commitment to our customers and to it . Now to our results .
Speaker #4: Its third quarter was another step towards our 2030 targets , with organic growth emerging expansion compounded with M&A . Let me share some highlights in Q3 , we delivered nearly $1 billion of total orders for the third consecutive quarter , up 3% .
Speaker #4: Both once again by the strong order intake from Archosauria and positions . We grew revenue 13% total and 6% organic with all segments contributing to $999 million .
Speaker #4: Rest assured , we were on the phone after quarter end with the plan that left the million bucks on the shop floor . Operating income grew nearly twice the organic sales growth rate and operating margin expanded over 100 basis points .
Speaker #4: Excluding M&A . Adjusted EPs grew 21% and we grew free cash flow 46% to $368 million year to date . And now expect to be at the high end of our previous range at half $1 billion for the full year .
Speaker #4: Furthermore , free cash flow margin in the quarter was over 15% , surpassing the high end of our 2030 target communicated in May .
Speaker #4: We also continue to fund innovations like Vida, our game-changing industrial motor. Vida is installed with three large energy companies in North America.
Speaker #4: And now we have begun shipping goods pumps with wider motors . As Stan , our global head of engineering , remarked , the best just got better .
Speaker #4: Now let's get into the details on revenue . We saw broad based organic growth in industrial process and connect and control as we continue to convert the robust backlog , IP grew 11% organically , mainly due to projects which grew over 50% , including another strong top line performance from a growing 34% in August .
Speaker #4: I was with his team reviewing the testing of our new deep Well cargo and high pressure fuel pumps , and as firsthand , the shop floor full of beautiful , shiny new pumps ready to ship .
Speaker #4: CTT delivered 25% total growth , both by the acquisition or 6% organically , as defense momentum continues and aerospace demand ramps and in empty friction grew 4% organically , outperforming global auto production once again led by an sending performance in China , where we keep on winning with BYD , Great Wall , Geely and others on profitability , we expanded margin 110 basis points , excluding M&A , IP grew margins 70 basis points to nearly 22% and also improved its profitability with EBITDA exceeding 20% .
Speaker #4: This quarter . MMT grew margin 210 basis points , driven by over 300 basis points of productivity savings , offsetting 120 basis points of inflation .
Speaker #4: NKT grew margin 270 basis points excluding Kesari dilution. The team continues to make progress on key customer price negotiations, which we expect to finalize now in Q4 on cash.
Speaker #4: A robust performance which allows us to pay down debt and lower our interest expense, while funding investments for Vida and other game-changing innovations, including the Geo Pad.
Speaker #4: The GOP is currently being tested on a dedicated platform with a large European OEM. More to come on this in the coming quarters.
Speaker #4: Given our strong performance to date , ramping contributions from acquisitions and the lower effective tax rate , we are raising our full year adjusted EPs outlook .
Speaker #4: Notably , the lower end of our revised EPs guidance range is now above the previous high end . This represents 13% growth versus prior year or 16% if we exclude the lost earnings from our 2024 Wolverine divestiture .
Speaker #4: This is a testament to our team's ability to deliver for our customers and our shareholders , day in and day out , no matter the environment .
Speaker #4: Emmanuel will talk more about our revised guidance shortly . Now let's turn to slide four to talk about its orders and revenue growth .
Speaker #4: As you recall from our Capital Markets Day in May , we demonstrated with numerous examples across all value centers how it's differentiation is driving our share gains .
Speaker #4: Let's spend a few moments to discuss this further , beginning with orders . Year to date . Over the last three years , orders have grown 19% to over $3 billion , with strength across all segments and in attractive , growing end markets , including defense and aero rail and the energy transition in motion technologies .
Speaker #4: The friction team , once again continued to outperform in the market , and in Q3 alone , we won ten high performance platforms and more than 40 electrified awards with leading OEMs in China , Europe and North America .
Speaker #4: Our market share in China has grown from 31% last year to above 34% today . At the same time , Connie its leadership position on global high speed rail and defense platforms in connecting control .
Speaker #4: Orders were up 27% and 6%. Organic growth was strong in aerospace and defense, and we continue to perform ahead of expectations with strong orders.
Speaker #4: Growth in 2025 and a book to bill comfortably above one . Kesari grew orders 58% year to date with a book to bill of 1.2 .
Speaker #4: Thanks to awards on coveted defense platforms . These included content on a vertical launch system with a brand new customer . We were at quarters in Hudson , New Hampshire , together with the ITC board earlier this month .
Speaker #4: We shared with our board how built-in process quality drives Kesari as a differentiation. Thanks, Mike and team, for your accomplishments. I'm incredibly positive about the growth we will drive together in the years to come.
Speaker #4: On Zanahary saw and team won orders of over $250 million year to date , this represents 59% growth versus the prior year , and the book to Bill of 1.6 for the year .
Speaker #4: Even with over 30% revenue growth , we expects to end 2025 with a book to bill of nearly 1.3 . This quarter . We secured a first of its kind award to enter the US land based terminal market , which will involve the largest LPG pumping company in history , capable also of handling ammonia .
Speaker #4: Notably , the goosebumps team , which has strong connections on terminals in the US . Introduced to this customer . Well done Johnny and team for capturing this opportunity with a major US SPC .
Speaker #4: Another strong year with it all in our year to date book to bill of 1.08 , resulting in ending backlog of nearly $2 billion , up 13% compared to prior year end .
Speaker #4: For the full year , we continue to expect a book to bill above one , which puts us in a strong position to grow again in 2026 .
Speaker #4: Speaking of growth , a main driver of our revenue growth has been our flawless execution on pump projects . One example of this is our Goulds Pumps team in Saudi .
Speaker #4: These teams performance secured another win rate of more than 95% in the last two years . In mid November , I will be in Dammam with Bartek Hamdi and the local team to recognize this outstanding accomplishment and to join the ribbon cutting of phase two of our $24 million expansion to enhance our manufacturing and testing capabilities to meet our future growth .
Speaker #4: The last thing I would like to highlight on growth is that two thirds of its revenue growth since 2023 came from volume , and just one third came from price .
Speaker #4: Clearly , we are gaining share . Now , let me turn the call over to Emmanuel to discuss our Q3 results in more detail .
Speaker #5: Thank you , Luca , and good morning . As you can see , it delivered another strong performance in the third quarter . We saw a step up in growth with organic revenue , EPs and free cash flow well ahead of our initial expectations .
Speaker #5: This talk briefly about some of the many highlights on revenue . All segments contributed to the performance . Growing 13% in total and 6% organically .
Speaker #5: Industrial processed once again led the way with 11% organic growth on the strength of projects , business , which grew over 50% , and from an orders perspective for the second consecutive quarter , we saw growth in every short cycle product category , most notably in parts and valves .
Speaker #5: TCT grew 6% organically , with strength in both aerospace , which grew 18% , and defense , which grew 4% in total . CCG grew 25% in motion technologies , Coni grew 12% , driven by share gains in rail friction .
Speaker #5: OE outperformed global auto production by 360 basis points , growing 4% led by China and Europe on profitability . We grew operating margin 20 basis points to 18.5% on higher volumes .
Speaker #5: Pricing actions , including related to tariffs and continued operational improvements . This more than offset the impact of inflation and temporary acquisition amortization from Caesarea , which will end in Q4 .
Speaker #5: segment level . CTT margin expanded 270 basis points versus prior year . Excluding the dilution from Kazari IP margin expanded 70 basis points to nearly 22% , and NMT jarun and Coni team again delivered outstanding profitability , which is driving MMT above 20% margin At the the second consecutive quarter .
Speaker #5: The profitable growth drove adjusted EPS to $1.00, up 21% year over year, from $0.78. In addition to our strong operational performance, we also realized benefits from a lower share count.
Speaker #5: Thanks to $500 million of share repurchases year to date and less unfavorable foreign currency impact , which more than offset higher interest expense .
Speaker #5: Finally, on cash, an incredible performance by our teams to drive strong cash collections and negotiate customer advances, while demonstrating early progress in managing inventory.
Speaker #5: These actions pushed free cash flow margin in the quarter to over 15% , while still funding further strategic CapEx towards innovation and productivity to ensure our performance continues .
Speaker #5: We're driving improvements in working capital , especially in MMT and leveraging the learnings from Vanhoy , whose working capital as a percentage of sales is now just 5% .
Speaker #5: All in . As you can see , a high quality performance across the board . Let's quickly turn to slide six . The key takeaway here , similar to what I conveyed in Q2 , is that the strong operational performance across our businesses , contributions from our acquisitions and a lower share count enabled us to grow EPs over 21% .
Speaker #5: We also realized a lower effective tax rate than planned . The earnings accretion from our acquisitions is increasing and will continue to do so as we lap the remaining temporary amortization impacts from Caesarea .
Speaker #5: We're also making strong operational improvements with 500 basis points improvement in EBITDA margin this quarter . Just to step back for a moment , even if you remove the $0.07 impact from the favorable effects tax and other items , we still grew EPs over 16% .
Speaker #5: Now let's move to slide seven to discuss our revised 2025 guidance . After a strong third quarter performance , during which we grew revenue expanded , margin and generated a ton of cash , we are raising our total revenue and EPs outlook for 2025 and bumping our free cash flow outlook for the upper to the upper end of our previous range .
Speaker #5: On revenue . Our total growth is now expected to be slightly higher at 6 to 7% , while organic revenue remains within our prior range of 3 to 5% .
Speaker #5: We expect continued growth in the project business in IP , given the strong backlog , firm demand in aerospace and defense and outperformance in friction , OE and Rel , our margin outlook remains strong .
Speaker #5: We expect to drive continued productivity in legacy businesses and significant margin expansion in our acquisitions, as well as considerable pricing, particularly in CTT.
Speaker #5: Excluding M&A , we expect margin expansion to be more than 100 basis points for the year on EPs , we're raising the midpoint of our guidance by $0.20 to $6.65 .
Speaker #5: Another step change in our EPs outlook for the year , with a $0.27 increase at the low end and 13% improvement at the high end .
Speaker #5: This is due to improved productivity , profitable growth from our acquisitions , and a slightly lower effective tax rate . Now , expected to be 21.5% for the year .
Speaker #5: Finally , on cash , we now expect to reach the high end of our guidance , delivering $500 million in free cash flow and a 13% margin this year .
Speaker #5: This reflects several years of structural improvement and disciplined execution from weekly receivable calls to a more granular approach to customer payment practices , ensuring it is top of mind with them .
Speaker #5: Given the differentiated value we provide . These actions are driving consistently improving results , and we see further opportunities to strengthen cash performance , such as optimizing our advanced payments for large projects .
Speaker #5: With just one quarter left in 2025 , let's spend a minute discussing our implied outlook for Q4 . We expect high single digit growth in revenue or mid-single digit growth on an organic basis .
Speaker #5: LED by strong performances in connect and control and industrial processes . Friction should once again outperform global auto production , while strengthening rail should continue .
Speaker #5: We expect operating margin to be up approximately 130 basis points , led by strong margin expansion at IP in KT . Pricing and productivity should make should should more than offset the remaining temporary amortization from Casoria in MT .
Speaker #5: Should once again hit the 20% mark in Q4 . In terms of other forecast items , we expect total corporate costs to be slightly up compared to Q3 , due primarily to higher growth Vida .
Speaker #5: This should collectively drive EPs growth just below 20% for the quarter . Let me now turn the call back to Luca to wrap up .
Speaker #4: Thanks , Emmanuel . A few points before Q&A , Q3 was all about growth for ITT and another step on the journey towards our 2030 targets .
Speaker #4: The organic value creation through growth and margin expansion continued . And as you saw , we are compounding this growth with M&A as our acquisitions perform well ahead of expectations .
Speaker #4: Cash continues to ramp towards an expected half billion dollars of free cash flow this year , with free cash flow margin this quarter of more than 15% .
Speaker #4: And we made another step change , improvement in our full year EPs outlook , raising the midpoint by another $0.20 . As you can see , its growth is strong and it is here to stay .
Speaker #4: Before opening the line for Q&A , there is one more heartfelt thank you . I would love to give Mark Macaluso , our head of Investor Relations and Global Communications , will be leaving ITT later this week to pursue another opportunity .
Speaker #4: Denmark , thank you . You had a real and great impact on it and in ITT you elevated how we talked about our businesses .
Speaker #4: You challenged us and our thinking . You made us more efficient . You made us much , much better . You work hard , play hard , and we had fun .
Speaker #4: Thank you. I learned a heck of a lot from you, and I would also have liked to keep on learning. One thing you didn't deliver, though, was to find an earnings call operator with a stronger accent in mind to make me sound more Anglo-Saxon.
Speaker #4: I know you probably wanted me to say fewer words , but we wanted you to know how grateful we all are from all of us at ITT .
Speaker #4: Thank you, and best of luck. Gigi, please open the line for Q&A.
Speaker #2: Thank you . 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 .
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Speaker #2: Please limit your questions to one question and one follow up . Thank you . Our first question comes from Mike Halloran from Baird .
Speaker #6: Hey , good morning everyone .
Speaker #7: Hi , Mike . Good morning .
Speaker #6: Hi . Congrats , Mark . Sorry . You're sorry you're leaving . We'll miss you .
Speaker #7: I appreciate it . .
Speaker #6: So, two questions here. First question: maybe just spend some time given the state of the union as you see it for global auto production.
Speaker #6: Luca . And how you think that tracks in the next year ? Obviously the outperformance metrics will continue . But always good to understand your view on the baseline for the market .
Speaker #4: Sure . So when you look at when you look at auto production , Q3 actually was was a good quarter . The production worldwide was was up .
Speaker #4: And this is very much a China story where which was a up 9.7% . But both Europe and North America were up as well for the full year .
Speaker #4: Mike, though the auto production will be overall up 2% year over year at 91 million vehicles produced, once again, it is a China story.
Speaker #4: China up whilst Europe and North America are forecasted to be down low . Single digit . Now when it comes to 2026 , it's still a little bit early to tell , but I would expect it to be flattish to low single digit up .
Speaker #4: And as you rightly said , you know , we outperform in the market in Q3 360 basis points . Expect to do so for the full year .
Speaker #4: And also in 2026 .
Speaker #6: That makes sense . Thank you . And then maybe just a little thought process on the funnel . And what you're seeing on the IP side specifically , you know , certainly sounds like the momentum hasn't really changed timing a little variable comps are harder .
Speaker #6: But what are your customers saying and how confident are you that these this funnel can convert to orders in a in a pretty orderly fashion here ?
Speaker #7: Sure .
Speaker #4: So when when we look at at the funnel , you you can see that the funnel year over year is down . But 2024 was an incredible year in terms of the opportunities .
Speaker #4: But there are a couple of important data and signs that confirm some positives that we shared in in the Q2 earnings . The former is that the funnel is up sequentially .
Speaker #4: Mike . And by quite a bit by 22% . And I'm talking about active quotes , projects that are active and the latter data is that without energy , the funnel is also up year over year by a healthy 9% .
Speaker #4: So very good positive signs . And the funnels are up as well . In North America , in APAC as well as in Latin America in other data .
Speaker #4: And then I will I will stop is when you look at the green project , we had very good orders intake on green projects , but also the funnel of opportunity is up considerably , as well as the budget .
Speaker #4: Quotes . So good , positive signs on that front . Mike . .
Speaker #6: Really appreciate it . Luca . Thank you .
Speaker #4: Thank you Mike .
Speaker #2: Thank you . One moment for our next question . Our next question comes from the line of Jeff Hammond from KeyBanc Capital Markets , Inc. .
Speaker #8: Hey , good morning , everyone , and best of luck to Mark . I'll plan to stay in touch .
Speaker #7: Thanks , Jeff .
Speaker #4: Thanks , Jeff . Morning .
Speaker #8: Just on the 20 cent guidance range , I'm just wondering if you can unpack . I think you mentioned better profitability , better acquisitions and tax .
Speaker #8: I don't know if you can quantify those . You know , three pieces . It just seems like at a high level , you know , the margins and top line aren't changing that much .
Speaker #7: Yep .
Speaker #5: Thank you Jeff . So yeah we raised our guidance full year guidance EPs by $0.20 . That's up 13% versus the prior year .
Speaker #5: And plus 3% versus the prior guide in Q4 . Like in Q3 , we we expect our businesses to exceed or or come in line with the previous guidance .
Speaker #5: And we also expect lower corporate corporate costs due to spending control measures . So if you think about it , Q3 , we were up a little bit more than $0.10 compared to our previous guidance in Q4 .
Speaker #5: We benefited from higher revenue and improved margin from all the businesses . A little less than $0.10 . And then we have a tax rate impact also .
Speaker #5: That is positive . That is around $0.01 .
Speaker #8: Okay . Very helpful . And then I know it's a little early to look into 26 . And you mentioned kind of , you know , views on auto production .
Speaker #8: But maybe just talk about any markets you think , you know , you're more excited about . You know , and you know , maybe improving inflecting and others that maybe seem , you know , a little less certain .
Speaker #7: Sure .
Speaker #9: So first of all , Jeff .
Speaker #4: We are entering 2026 with with a strong backlog . And this is thanks to the IP project wins and also to the defense Awards .
Speaker #4: Empty . Continued to outperformance . So I would say from a market point of view , Aaron , the defense will be a tailwind in automotive .
Speaker #4: The outperformance will drive the growth in motion technologies . And when you look at the IP is a very strong backlog . And as we just shared with Mike , you know .
Speaker #4: The final opportunity is also increasing . We are still very excited about the acquisition in terms of we expect Vanhoy and Kesaria to deliver on the growth in 2026 , which is going to be fed by the huge orders growth that they had this year .
Speaker #10: Okay . Thanks so much , guys .
Speaker #7: Thanks , Jeff .
Speaker #2: Thank you. One moment for our next question. Our next question comes from the line of Vlad Bystritsky from Citi.
Speaker #11: Good morning guys . Thanks for taking my call . And congratulations , Mark . Sorry to see you moving on , but wish you good luck .
Speaker #11: Thanks a lot . So just just a couple of quick ones for me . Just in IP . The commentary around short cycle orders being up 5% .
Speaker #11: Seems quite you know , encouraging I guess in the current environment . Can you just talk about maybe any color on on regions or end markets that are driving that and how you're thinking about the sustainability of short cycle momentum in IP ?
Speaker #5: Yeah . So thanks , Val . Yeah , we were pretty excited to to see good short cycle activity . We had strong activity in parts as well as in valve .
Speaker #5: And if you look at parts , you know , while July wasn't great , August and September really , really showed delivered the growth for us .
Speaker #5: And then from a from a baseline pump standpoint , we had also good good numbers , a growth valves was was very strong .
Speaker #5: And here what we're seeing is that the foray we've made in the the medical valves , especially on those weight loss drugs , which is which is delivering for us .
Speaker #4: And Vlad , if I may , I may add , is that the short cycle is 5% the legacy short cycle growth was actually 7% in the quarter .
Speaker #4: And when you look at that 7% , 4% was volume . So this is also another good , another good sign .
Speaker #11: That's that's really helpful color . Thanks guys . And then just sticking in IP you highlighted again the strong win rates that you're seeing in Saudi pumps .
Speaker #11: Can you just talk about underlying market demand trends . There . And the opportunities you're seeing in Saudi and Middle East . More broadly .
Speaker #11: Whether you're seeing any change in demand patterns in that region for IP?
Speaker #9: Yeah .
Speaker #4: Sure . Well , we are very we are very excited about our growth opportunities there . As , as you can see , you know , in all the quotes that we put there .
Speaker #4: The team , you know , won 95% of those quotes . The funnel , the funnel is , is increasing . And when we look at the funnel sequentially in the Middle East is up 21% .
Speaker #4: And these are active projects . So it the opportunities are there is a growth area . We see investment going as well in terms of downstream in the long term .
Speaker #4: There are further investments in other areas, and this is the reason why we are enlarging our facilities there and investing in manufacturing and engineering.
Speaker #4: I will be there also in November . As I said , celebrating the opening of the of the expansion and also meeting with the with some customers .
Speaker #4: But definitely a growth area for us .
Speaker #5: And as Luca was saying , the region is is very dynamic . And I think in addition to this , you know , customers are recognizing the performance in project management , where we really are able to deliver the pump that they want on time with the quality that they require .
Speaker #5: And this is really making the difference for our business .
Speaker #11: Very helpful guys . I'll get back in queue . Thanks .
Speaker #7: Thank you .
Speaker #2: Thank you . One moment for our next question . Our next question comes from the line of Joe Ritchie from Goldman Sachs .
Speaker #7: Morning Joe .
Speaker #12: Hey guys . Good morning . And Matt , congratulations . I'm sure I'm sure we'll keep in touch . But wish you the best .
Speaker #12: Yeah . So so maybe maybe just kind of starting off . Look , Savannah and Khazaria so far have just been tremendous right .
Speaker #12: And I know you talked a lot at Investor Day about this . You know that your your ability to potentially compound via M&A going forward .
Speaker #12: So I just want to get a sense , Luca , just on the funnel , like how attractive is your M&A funnel today .
Speaker #12: Types of acquisitions that you're looking at . Any any potential color there would be great .
Speaker #7: Sure .
Speaker #4: Thank you .
Speaker #7: Joe .
Speaker #4: So when when you look at the funnel , the funnel is reachable opportunities . And I can tell you I'm spending quite a bit of time together with the with Bartek and the business leaders to look at opportunities , meeting management teams and visiting .
Speaker #4: Also some company sites . So those opportunities in the funnel are progressing and and so this is good . I want to restate they are in flow .
Speaker #4: So it's mainly pumps and valves and some of the connectors as well . Mainly focus on aero and defense . So that is happening and is good .
Speaker #4: One thing is also we as you said the two acquisitions we made have been successful . That overdelivering on all fronts . We need to ensure that our processes stay rigorous , both in terms of from a strategic point of view .
Speaker #4: It has to be on strategy and also financially that we are going to create value for our shareholders . So but all of that , I'm .
Speaker #4: Positive on the progress we're making there .
Speaker #12: Yeah . Look , I know sometimes these are these are really difficult to figure out exactly when timing is going to work out .
Speaker #12: You know , willing sellers etc. as you kind of think about 2026 and your ability to get a few deals done , how are you kind of handicapping whether you'll be able to get some things done ?
Speaker #9: Well , I would say ,
Speaker #4: Look , if you look at the last couple of years , for example , Joe , in the last couple of years , since the beginning of 2024 , we deployed $1.9 billion of capital , $200 million went on CapEx , $900 million went on M&A , and $800 million went in dividends and share repurchases .
Speaker #4: So I will say we we really are working hard to deliver the growth from an M&A point of view as well . But if things do not happen , you know , we are going to deploy our capital and and repurchase shares .
Speaker #4: So that is that is our backup option . But the capital will be deployed .
Speaker #12: Okay . Great . Then if I could just squeeze one more in just on on orders . Sounded like the activity is very good , particularly on the industrial process side .
Speaker #12: I know you mentioned the book to Bill . Kind of greater than one for the year , but as I kind of look at the fourth quarter , you've been kind of you've been in that billion dollar range for orders the last few quarters .
Speaker #12: Is that kind of like is are you tracking towards a number in that ballpark for , for for Q .
Speaker #7: Yeah .
Speaker #9: I would say yes , Joe .
Speaker #4: And and one thing that I want to stress on the orders is there has been a lot of phasing , if you think about this year .
Speaker #4: Right . So if you think about Q3 , for sure , the book to bill in Q3 is not great . But there was a very tough comparison in IP projects versus the prior year .
Speaker #4: When we book a huge project in the Middle East and also on Vanhoy , many customers anticipated orders in the first half , and hour .
Speaker #4: Philosophy is to take the orders as soon as we can get them . So the on the orders front is a good story for it .
Speaker #4: The book to bill for the full year will be comfortably above one , and the backlog that we will have at the end of the year is going to be higher than the backlog that we had when we started in 2025 .
Speaker #4: And as a Manuel said . Also , the picture is good on the short cycle as well , which is which is good .
Speaker #12: Perfect . Thank you guys .
Speaker #9: Thank you .
Speaker #7: Joe ,
Speaker #2: Thank you . One moment for our next question . Our next question comes from the line of Matt Summerville from D.A. Davidson .
Speaker #13: Thanks . Hi , Matt . Mark , morning . Morning . Just on the other side of the business . Can you talk about what you're seeing in aftermarket and if that business , as you look out over the next several years , is that still really stay relegated from a geographic perspective to Europe ?
Speaker #13: And then how should we be thinking about the ramp in high performance and Vidar , you know , over the next year or two and then a follow up , thank you .
Speaker #7: Sure .
Speaker #4: When you look at the the aftermarket , the aftermarket , we we are staying in Europe . There is no move to other regions .
Speaker #4: This is only the market where we play . And we decided to play . And also in that market we position ourselves only at the top end .
Speaker #4: The aftermarket probably is the only area where we we saw , you know , some some decline . And that is mainly is a market related that is not a share , a share conversation to be had .
Speaker #4: There . Now , when we look at the high performance , the high performance is progressing well . The plant in Germany is producing a supply to our customers .
Speaker #4: We continue to win awards . So if if you look , we won several awards in Q3 we company like Daimler as well as Audi and the plant is also using green energy that I performance plant can is can run 100% with actually the green energy .
Speaker #4: So very positive growth on the high performance side when it comes when it comes to wider well wider as well , I would say is progressing well .
Speaker #4: We have it in store with three major energy companies in the USA . Now what you find here , Matt , is a revolutionary product in an industrial environment .
Speaker #4: So we really need to test it . The customer really to see it working for some time . You will face the typical S-curve .
Speaker #4: Having said that , we are still committed to $150 million of sales by 2030 and a 10% market share on a $6 billion market in the long term .
Speaker #4: We keep on investing a lot , Matt , in this one , and ensure to to ensure that we have the product for the European Union as well as the larger sizes in the US .
Speaker #13: Thank you for that color . And then just just as a follow up , I mean , the number of platform wins , I don't know the number off the top of my head year to date , but it feels like you've been winning 30 , 40 , 50 kind of on a per quarter basis here over the last couple quarters .
Speaker #13: What is your actual win rate in MT friction OEM on the platforms you're competing on ?
Speaker #4: It's a very good win rate . So and I would say if you look at also the electrified platforms is year to date are 142 , which is the same number of platforms that we won for the for the last , the last , last year in 2024 .
Speaker #4: So these platform wins is , you know , is one of the pillars of our friction strategy to ensure that we keep on gaining share .
Speaker #4: So we are we are confident we will keep on improving our market share in the in the next few years as well . Because of these wins .
Speaker #13: Great . Thank you .
Speaker #9: Thank you .
Speaker #2: Thank you . Our next question comes from the line of Joseph Giordano from TD Cowen .
Speaker #14: Hey good morning guys .
Speaker #7: Hi , Joe .
Speaker #14: Hey . So I guess if you guys start beating on corporate expense , we'll know you were paying Mark too much , right ?
Speaker #14: Is that the way we should think about it?
Speaker #7: It ?
Speaker #9: You got it . You got .
Speaker #14: It . So there's been a lot of talk now about , like , these chip shortages in Europe for auto and like , potential shutdowns of production as that plays out .
Speaker #14: Just curious what you're seeing there and what you're hearing in terms of near-term visibility .
Speaker #7: Sure .
Speaker #4: Well .
Speaker #9: .
Speaker #4: When when we look at Q3 , Europe posted a a very slight growth in terms of production of 1% , but , you know , both Europe and North America are forecasting for the full year a decline in production of roughly 2% .
Speaker #4: So these two markets , from a production point of view , are still are still challenged . So this is what we we are seeing .
Speaker #4: You know , our customers are a challenge from an investment point of view with the new platform from a competitive point of view , because , you know , the competitive environment is getting tougher with the Chinese OEMs .
Speaker #4: So but at the same time , the way that they need to win is with the new models , new products coming to the market .
Speaker #4: And this is an opportunity for us to keep on increasing our market share.
Speaker #5: So regarding the the chip shortage , you know , we we read the the headlines with Nexperia like , like everyone else for the moment , our customers are not voicing any concern directly to us .
Speaker #5: We had a pretty strong month of October in terms of deliveries for Europe . So , you know , we don't know exactly what that means .
Speaker #5: But but Europe was a little bit stronger than what we were expecting in October .
Speaker #14: Okay . And as you start thinking about 2026 , like you look at some of these businesses that orders up so large , I mean , obviously that's going to de-risk the revenue profile into next year .
Speaker #14: But are those sustainable order levels ? How do you prepare for like it ? Is there likely to have some big decline in orders that you need to like , calibrate ?
Speaker #14: What's the real kind of underlying multi-year trend line , like how do you how do you kind of how do you operate when you have those kind of dramatic moves one way or the other ?
Speaker #7: Yeah .
Speaker #5: So this year for sure , I would say if you had told us that we would , would grow more than 50% in terms of orders , year to date , we would have said , no way .
Speaker #5: So what we saw during the year , though , is that a really strong first half with really , really strong growth and customers actually pulled in orders in order to secure capacity within Vannoy .
Speaker #5: And so that's why the second half is a little is a little weaker . I don't expect that next year will be as strong as what we're seeing .
Speaker #5: This year , because on average , remember we said that we expect growth of low double digits for the next five years . And so I think 2025 was especially strong .
Speaker #5: We think it's going to normalize over the year , but still delivering over the long term . Low , low double digits growth .
Speaker #14: Thanks , guys .
Speaker #7: Thanks . Thanks , Joe .
Speaker #2: Thank you . Our next question comes from the line of Damian Karas from UBS .
Speaker #15: Hey good morning everyone . Mark I miss you .
Speaker #3: Thanks, bud. You too.
Speaker #15: So obviously you guys are doing quite well in IP , you know , really strong , organic growth there . We have been hearing from some peers out there that there's been some maybe some deferrals going on on the project space kind of in the in the process markets .
Speaker #15: Just curious if you happened to be kind of seeing or seeing any of that in your business .
Speaker #9: So .
Speaker #4: One thing that we share , the short answer is no , not really . Not not material . And as a matter of fact , the sign that we had in this quarter , which was positive was on the funnel , the funnel has gone up sequentially by quite a bit .
Speaker #4: And when I'm talking about the funnel , I'm not inserting in the final budgetary quote , I'm talking just about funnel of active projects .
Speaker #4: So projects that are funded so no , not not not really . We had in our orders some some phasing because you know , with programs always happen that way .
Speaker #4: But but no .
Speaker #15: Okay . That's good to hear . And Emmanuel , I was hoping you could maybe give us a little bit of a framework for KT margins .
Speaker #15: Thinking about 2026 . You know , there's that deal amortization thinking about how that will factor in . And then maybe just some of the mix items that you think about , you know , the areas like OE and aftermarket and aerospace and defense , energy and the like .
Speaker #5: Sure . So let me start by saying that , you know , it's a little bit early for 2026 . But let me let me give some broad strokes in terms of KT .
Speaker #5: So obviously CTT will continue to benefit from the the aerospace recovery . And here what's interesting is that so far we've seen more narrowbody recovery .
Speaker #5: And then we expect wide where KT and our seat business is stronger in the ship set from a ship set standpoint. So, aero volumes are up.
Speaker #5: I think with that we'll this will be compounded by price . We have high expectations from a price standpoint with for we on this point specifically , we continue to negotiate with Boeing and we're making some really good progress .
Speaker #5: We value Boeing as a customer . And I think it shows in their proposal that they value us as well . And and so this from a top line standpoint , should be really a tailwind .
Speaker #5: And then from a from a profit standpoint , I think in TCT there's a lot of there are a lot of opportunities from a sourcing and a manufacturing standpoint .
Speaker #5: We are seeing sites like our Orchard Park site , for instance , which is doing really well , and also investing in automation projects in order to support the growth in bill rates .
Speaker #5: And we have other sites in KT where we still need to make our progress . We still need to go after efficiencies . So we're working a lot on machining efficiencies .
Speaker #5: And so that should drive a margin expansion . In addition to volume and price . And obviously finally , finally the the the the end of the temporary amortization that you discussed should bring a little bit more than $0.10 coming from Kesaria next year .
Speaker #15: That's really helpful . Thanks , everyone . Good luck .
Speaker #7: Thank you . Thank you .
Speaker #2: Thank you . One moment for our next question . Our next question comes from the line of Sabrina Adams from Bank of America .
Speaker #16: Hey , good morning everyone . Hi . Congratulations , Mark .
Speaker #3: Thank you very much , Sabrina .
Speaker #16: I'm going to follow up on Damian's question there on margins with the Incrementals . Have , you know , had a lot of temporary amortization .
Speaker #16: The past two years . And have been running maybe closer to 25% . And , you know , I think I'm seeing the implied incrementals somewhere closer to 33% in Q4 when your anniversary Khazaria , I guess maybe just some thoughts on how to think about Incrementals into next year versus what versus what we've seen in the past couple of years .
Speaker #16: As you anniversary , the amortization , because I think historically , you know , been able to do closer to even 40% just any direction there .
Speaker #5: Yes . Sabrina . So when you when you remove the impact of acquisitions are incremental in Q3 were around 40% . Right . And all the businesses were really strong with motion tech .
Speaker #5: The strongest in Q4 . We expect similar incrementals excluding the impact of acquisitions for 2026 . We I think , you know , around 30 to 35% is probably a good number to to keep in mind .
Speaker #16: Thank you . And I just wanted to ask a little bit about the pricing environment . Clearly tariffs have not been an issue for your execution , but just in general , what are you seeing from your customers in terms of pricing acceptance ?
Speaker #16: How is the pricing environment evolving ? I think we've heard from some channel checks that , you know , there's been a lot of inflation push this year .
Speaker #16: Maybe next year it'll be more difficult . But I know you guys have some idiosyncratic pricing on the aero side . Just maybe thoughts there on how that's evolving .
Speaker #9: Sure . Christina .
Speaker #4: So when it when it comes to pricing the dynamic is different in the different businesses . I would say the most the area where we have more pricing power remain CCTV .
Speaker #4: And this is where you will have you will see more more , more impact . Now when it comes to IP , Sabrina , the , the the pricing will be more strategic .
Speaker #4: And so we will really have to be more analytical and understanding where we can really price the value for that specific pump in that specific region , for that specific customers .
Speaker #4: And then, when it comes to automotive, that is a completely different dynamic.
Speaker #16: Thank you .
Speaker #4: Thanks , Sabrina .
Speaker #2: Thank you . One moment for our next question . Our last question comes from the line of Nathan Jones from Stifel . .
Speaker #7: Morning , Nathan .
Speaker #17: Good morning everyone . This is Andres on for Nathan . Thanks for taking my question . Wanted to quickly ask margins were very strong .
Speaker #17: 20.2% for motion technology . Can you provide the margin impact from FX transaction ?
Speaker #7: Sure .
Speaker #5: So when you look at motion tech , we are very excited that for the second quarter in a row , they are above 20% .
Speaker #5: And so the FX transaction , I want to say was still negative in absolute value . But year over year was a benefit of around 100 basis points .
Speaker #17: Thank you. I appreciate that. And then I guess we talked a lot about it. Can you just provide a little bit more color on prospects for improving growth aside from AMD within TCT?
Speaker #5: Yeah . So and for us . Has been a pretty strong as I mentioned . AMD historically has been a little weaker than everybody else because we are more tilted towards white body than narrow body .
Speaker #5: But in the in the quarter , orders for aerospace were up in the high teens and defense was also up in the mid-teens in the sorry in the in mid single digits .
Speaker #5: Kesariya was was really strong as well . So the quarter in Q3 was pretty good . I think when you look at Q4 , we expect growth to continue to accelerate with with both aero and defense to be around the 20% mark in terms of growth .
Speaker #5: And obviously , this implies that we have to ramp up our production to make sure that we support our customers in delivering the products that they that they need .
Speaker #17: Awesome . Thank you guys . Appreciate it .
Speaker #7: Thank you. Thank you.