ITT Inc. (ITT) Earnings Call Transcript & Summary

Welcome to ITT's 2026 Second Quarter Conference Call. Today is Thursday, August 6, 2026. Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Time. [Operator Instructions] It is now my pleasure to turn the floor over to Carleen Salvage, Vice President, Investor Relations and FP&A. You may begin.

Thank you, Liz, and good morning. Joining me in Stanford today are Luca Savi, ITT's Chief Executive Officer and President; and Mike Savinelli, Interim Chief Financial Officer. Today's call will cover ITT's financial results for the period -- 3-month period ended July 4, 2026, which we announced this morning. Please refer to Slide 2 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 2025 annual report on Form 10-K and other recent SEC filings except where otherwise noted, the second quarter results we present this morning will be compared to the second quarter of 2025 and include certain non-GAAP financial measures. 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. Today's earnings call includes year-over-year commentary on the performance of SPX FLOW that reflects financial information before the acquisition date of March 2, 2026. With that, it is now my pleasure to turn the call over to Luca, who will begin on Slide 3.

Thank you, Carleen, and good morning. Before I begin, I would like to welcome our new aerospace contacts colleagues to the ITT family. I look forward to working with you to grow ITT more and faster. We would also like to recognize our ITT all around the world for an outstanding performance in Q2 once again and a particular thank you to our employees in Flow Technologies for their hard work that has enabled us to make significant progress on the integration of SPX FLOW whilst continuing to deliver strong operational and financial performance. In the second quarter, we accelerated the Q1 momentum. Our ITT delivered strong performance across the portfolio through flawless execution and the realization of benefits from our acquisitions, building a solid foundation for the remainder of 2026 and beyond. Now to the momentum. We grew orders 53%, 13% organically. We grew revenue 51%, 13% organically, reflecting a book-to-bill of 1.1 for the quarter. We expanded operating margin 40 basis points. We delivered adjusted EPS of $2.08, up 18% year-over-year, and we generated $176 million of free cash flow year-to-date, a truly record quarter. Let's dive now into the details. On orders, CCT was the highlight of our Q2 performance, growing 59% organically. CCT's growth was fueled by large defense orders in our kSARIA business, which posted significant multiyear bookings across mission-critical platforms such as advanced night vision applications and fighter jet programs. kSARIA grew orders 168%, and it didn't end there. We continue to see strength in early Q3 with record order bookings in July. The connector business also posted record orders, increasing 38%, fueled by growth in North America, Europe and Asia. Motion Technologies continue to win with platforms and conquer new awards in friction, feeding future market share gains. KONI orders were also strong with 9% growth, thanks mainly to China [indiscernible] and defense. And lastly, in Flow Technologies, we delivered 91% orders growth. Organic orders declined 3% year-over-year due to the impact of the third orders in the Middle East and the strong prior year performance that included very large oil and gas orders. SPX FLOW grew as 9% in Q2 versus their prior year numbers, 23% growth in mixers across North America and China, 10% growth in Waukesha Cherry-Burrell and 8% growth in Nutrition & Health, supported by strong systems orders in Europe. On revenue, this quarter's performance was fueled by organic growth across all our segments. CCT grew 17% organically, driven by strength across the portfolio. Commercial Aerospace grew 14% from increased volume, coupled with pricing benefits. Defense grew 16%, driven a strong performance in kSARIA, which grew 28% versus the prior year. We also grew industrial connectors 24%, led mainly by Europe and Asia. Motion Technologies revenue increased 6%, 2% organic, led by friction aftermarket and outperformance of global vehicle production by more than 300 basis points led by Europe and China, in addition to spread in China rail. And finally, Flow Technologies revenue was up 21% organically or 123% in total. The team continues to deliver higher pump project sales up 45% driven by shipments in marine energy transition and oil and gas markets, and we also continue to grow our valve business, up 19% as we keep on winning in biopharma, well done Kasturi and the Lancaster team. SPX FLOW revenue grew 5% in Q2 and 9% year-to-date, in line with our full year guidance of high single-digit growth. On operating margin, CCT's margin expanded 100 basis points over the prior year and 240 basis points sequentially to 21.7%, primarily from higher volume and pricing. Motion Technologies margin of 21.1% grew 90 basis points as a result of net productivity. Flow Technology, excluding SPX Flow, expanded margins 70 basis points fueled by market share gains and pricing. Total flow margin of 21.4% was diluted by the full quarter contribution of SPX loan. Nevertheless, cost synergies from the integration together with other productivity actions in the second half of the year are expected to expand margin throughout the remainder of 2026. As a result of our outstanding operational execution, we delivered adjusted EPS of $2.08, up 18% versus the prior year. Turning now to capital allocation. As previously shared, we are prioritizing debt repayment, and in Q2, we paid down $124 million, bringing our leverage ratio to 2.5x, 6 months ahead of our original commitment. In July, we also deployed capital to acquire aerospace contacts. Those small, this acquisition is highly strategic to enhance our supply chain resilience, secure supply of critical high-precision contacts and in doing so, support continued growth with our connectors, defense and aerospace customers. As you see, our legacy businesses are firing on all cylinders and now are also taking advantage of some market tailwinds. And as we shared during our Capital Markets Day, we are compounding and creating more value with our recent acquisitions. Let's turn to Slide 4 to discuss these contributions. During the last few years, we worked hard to cultivate and execute their right acquisitions. We focus on high-quality companies with strong management teams and solid fundamentals. These acquisitions do more than add scale. The strengthen ITT's portfolio by increasing our exposure to higher growth, higher-margin businesses where we can drive additional value through differentiation in execution and innovation. This is exactly the playbook with Svanehøj. We enter a marine energy transition market, a market that has a lot of growth potential today with LNG and in the future with ammonia. Svanehøj products and team are leaders in their market, and the results speak for themselves. Since acquisition through the end of 2026, Svanehøj is expected to grow revenue 32% on average each year with a book-to-bill of 1.2. Our projected backlog at the end of 2026 will be up 40% since the acquisition. As a result, the acquisition multiple of 13 is projected to be just 6 at the end of 2026. Thank you, Soren, Morton and Johnny for this excellent performance. And the marine energy transition and market expected to remain strong. Svanehøj is well positioned for future profitable growth. kSARIA, another bolt-on acquisition is also a success story. The defense market, which represents roughly 80% of kSARIA provides a powerful market tailwind. kSARIA's leadership and flawless execution enable us to larger portions of the prime programs we participate in. By the end of 2026, we are projecting to grow backlog 180% since the acquisition and ordered 60% on average each year. This positions us incredibly well for the future. kSARIA's acquisition multiple of 13 is expected to be level by the end of 2026. And we still have plenty of opportunities to expand margins with pricing actions and productivity initiatives. Thanks my [indiscernible] team for the quarter results. On SPX, we are in the early innings, but we are encouraged by how we started the progress we have made and the future potential. On the start, we are ahead of our plan, and the team is working hard to accelerate. With the path to our high single-digit growth commitment with orders in the first half of the year, growing 7% and revenue growing 9% year-to-date, resulted in a book-to-bill of 1.05. We are progressing well and cost synergies that are ahead of plan, as we're working hard to build a strong foundation for future revenue synergies. On future potential, we have plenty of growth prospects in each business, be it Nutrition & Health, Waukesha Cherry-Burrell, mixes or pumps and the funnel of opportunities keeps on growing. I'm encouraged by what I experienced at [indiscernible], a small factory and business in Italy that is part of Nutrition. I was fortunate to spend time with the local management, learn from their deep knowledge of the commercial and engineering teams and observed the 5 of the well-run plant. This [indiscernible] ready to win and conquer more. Another site with [indiscernible] Xidu factory in China. We spent time with Bruce Wang and the local team, exploring how we can grow faster and more profitably in APAC and China by adopting more entrepreneurial mindset and [indiscernible] improvement approach and continue to invest in innovation. As you can see, our acquisition playbook is indeed working. In summary, our legacy businesses will keep delivering value through above-market growth and continuous margin expansion, whilst the acquisitions will compound value by doing exactly the same. With that, let me now turn the call over to Mike Savinelli, who's joining us for his first earnings call to discuss Q2 results in detail on Slide 5.

Thank you, Luca, and good morning. As Luca highlighted, we delivered a very strong quarter. In Q2, we achieved outstanding growth across the business in revenue, adjusted margin, EPS and cash. Our teams delivered a record $1.5 billion in revenue growing 51% or 13% organically. CCT grew 17% organically, fueled by industrial connectors and aerospace and defense strength. CCT ended the quarter with a robust book-to-bill of 1.4. Motion Technologies grew 2% organically, a significant achievement in the down market driven by friction aftermarket and OE outperformance together with KONI Growth. And finally, Flow Technologies grew 21% organically, driven by strong project shipments and from strength in short cycle, which was up 10% year-over-year. Our strong top line performance contributed to operating income growth of 55% and margin expansion of 40 basis points supported further by the full quarter of SPX FLOW as well as strong execution across our legacy businesses. CCT delivered 23% operating income growth to a margin of 21.7%, a 100 basis point expansion driven by increased volume, realization, realization of pricing actions and productivity partially offset by material inflation. Flow Technologies delivered a margin of 21.4%, a decline of 160 basis points, driven by the full quarter impact of SPX FLOW. We expect to expand margins sequentially throughout the year from cost synergy realization and other productivity initiatives. And MT's operating margin grew 90 basis points to 21.1% and as the team drove net productivity of 110 basis points over the prior year. As a result of our top line performance and margin expansion, EPS reached $2.08 for the quarter increasing 18% versus the prior year. Lastly, year-to-date free cash flow of $176 million was impacted by $71 million of onetime acquisition-related expenses which we highlighted in Q1. Excluding these impacts, free cash flow was up 15% year-over-year and looking purely at Q2, our free cash flow margin was 11% for the quarter. Let's now turn to the Q2 EPS bridge on Slide 6. The 18% EPS growth was primarily driven by strong operational performance delivered by all legacy businesses compounded by our acquisitions. Our legacy businesses contributed $0.36 of growth, of which [indiscernible] and kSARIA contributed $0.12 of that from market share gains, pricing and productivity actions. The full quarter of SPX Flow contributed $0.68 of growth with the impact of the incremental interest, share count and tax rate, mostly offsetting this contribution. We are maintaining SPX Low's EPS accretion expectation of $0.10 to $0.14 for the year. I want to also stress that the net impacts of the tariff refunds were immaterial to the quarter at just $0.5 million. Now let's move on to Slide 7 to discuss our updated 2026 outlook. We are raising our full year organic revenue guidance range to 5% to 8% growth, driven by increased bookings in our CCT business, strength in both Flow Technologies, projects and short cycle and continued Friction OE outperformance coupled with operational performance above our original expectations. On adjusted operating margin, we expect to deliver over 100 basis points of margin expansion to approximately 20.5% in the midpoint, fueled by top line growth, favorable price-to-cost ratio and productivity gains. As a result of the momentum we generated in the first half of the year, we are raising our adjusted EPS outlook for 2026 to $8.22 at the midpoint. This represents a $0.37 increase and 14% growth at the midpoint, fueled by volume growth, pricing actions and productivity initiatives. The low end of our new range now exceeds the high end of our previous guidance range. This revised guidance does not consider any additional net benefits from tariff refunds above the $0.5 million from Q2. Finally, on cash and capital structure, we are raising the midpoint of our free cash flow guidance to $565 million, resulting in a free cash flow margin between 10% and 11%. We made good progress lowering our leverage ratio. We are ahead of target and are driving towards approximately 2.3x by year-end. Now let me turn the call back over to Luca to wrap up on Slide 8.

Thanks, Mike. Before we move to Q&A, let me reinforce a few points. What you see in Q2, as you saw in Q1, ITT's strategy in action. Our entrepreneurial spirit is accelerating growth in our legacy businesses. Our relentless execution is accelerating margin expansion. Acquisitions are compounding organic value creation more and more. And in Q2, the momentum towards our long-term target is accelerating. As always, I appreciate your time and continued interest in ITT. Liz, please open the line for Q&A.

[Operator Instructions] Our first question comes from Scott Davis with Melius Research.

Congrats on these numbers. There's really not much to pick on here at all. So I'm going to talk -- I'd like to talk a little bit of SPX FLOW because that's newest asset that we need to learn here. Where -- can you give us a sense, Luca, kind of where SPX Flow is in their kind of lean and operational excellence journey, kind of how you would compare them to kind of your legacy ITT businesses and such where the upside is there?

Sure. So I would say when we look at the plans, if it's [indiscernible], it's a client in Poland, if it is even the factory that I visited in Italy [indiscernible], those are well-run plans, I would say, and good is, Scott, and some good talent. I think though that the area for improvement that we have in SPX FLOW and the lean is really to ensuring that the lean is entrenching the DNA in the cell. So today, I would say it's probably more linked to what we were corporate initiatives, the 3 that you see stack aboard. But not necessarily in improving the productivity in the cell or sometimes the material flow in the factory. So there is work to be done, but there is a good level of talent and the plants tend to be in general with a good 5S.

Okay. Good answer. Just a quick follow-up. Where are we in price versus cost in your different -- in your 3 different segments?

Yes. When you look at the price cost, it's pretty much the same dynamic. You have a price cost positive when it comes to Flow Technologies and CCT because obviously, we've got more price power in there. Different dynamic in Motion Technologies, where we are recovering some of the cost inflation but not full. So there are pressures there. But at ITT level, we expect to be price/cost positive probably neutral from a margin perspective for the full year.

Our next question comes from Jeff Hammond with KeyBanc Capital Markets.

Great start here with SPX FLOW. Just wondering if you could maybe speak to just the underlying demand momentum in SPX FLOW, I guess that's what's driving the order growth and kind of any early wins you're seeing around maybe backing off 80-20 or synergies? And then maybe just expand on the funnel comment and SPX FLOW, which I think you said was expanding.

Yes. When you look at the funnel of -- so the orders is a great performance. If you think about up 9% in Q2, year-to-date, our orders are up 7% and also our book-to-bill is above 1. Our book-to-bill in Q2 for SPX FLOW is 1.13. So good performance on there. What we see is really a good recovery on the chemicals. So if you think about the mix is dynamic, and we had a very good performance on the orders on the mixers. Good performance on Waukesha as well, 10% orders growth. And in Nutrition & Health, I can tell you that, just to give you a little bit more color, I participated to some very important bid reviews for large projects in Europe. So good orders, book-to-bill above 1 building backlog and the funnel of opportunities in SPX FLOW is growing. And this, I would say, is geographically across the board, both in North America as well as in Europe.

Okay. That's good to hear. And then just on the -- I mean, the CCT orders were pretty eye-popping, and I think you mentioned record July. Can you just kind of spike out underlying demand versus kind of good lumpiness?

Sure, sure, Jeff. I mean CCT was simply outstanding in terms of the orders. Everything was up. So it's not just CCT up 58%. Controls were up 2 connectors were up 38%. kSARIA is true. You're right, Jeff, in terms of lumpiness, probably you remember that Q1, we postponed some of the orders from Q1 to Q2. But if you look at kSARIA today, orders up 46%. So there is really a market tailwind, which I was referring to in the prepared remarks, but there is a lot of market share gains. So we are participating in some programs, and we know that we have reformed that program and more. So this is good. Some of this has got long-term visibility also to '28 and beyond. But I can tell you that the backlog that we have visible for Q3, Q4 and Q1 of next year, compared to what we saw last year at the same time, is considerably higher. So great growth for the midterm as well as long term.

Our next question comes from Mike Halloran with Baird.

A couple of questions here. First, can you help with the back half of the year cadencing as you think about earnings, revenue and any of those metrics. But then maybe also put in context how your orders are tracking in terms of time line, how much visibility it's giving you essentially, it feels with the strength in the orders you're getting a little bit of longer dated, longer cycle type orders coming through. Just curious how we should think about that order to revenue conversion.

Sure. So if it's okay, Mike, to address the full year '26 EPS guidance sequentially, and I talk about the order.

So I just want to mention that we had significant step-up in performance in Q2. And for the balance of the year, for the second half, we expect to remain at that elevated level of performance. And then looking at each value center for Motion Tech, we expect some seasonality in the second half, expecting stable margins for CCT, we're expecting consistent revenue and margin similar to Q2 and FT's margin expansion, we expect to expand from synergies.

And talking about the orders, Mike, I think that different picture. If you think about CCT, as I said, incredible performance of the orders, there are some long-term programs so that gives us fantastic visibility in the future. But as I said, in the short term, our backlog is incredibly up for also the next few quarters. So very good visibility there. When you look at Flow Technologies, the orders up, of course, 91% in total. But if I look at the book to billout. Vano book-to-bill is 1.3. Just to give you an example. So if you have a business like this, which is growing 39% in Q2, on top of that, you got a book-to-bill of 1.3 and you're building backlog this is visibility in the short, medium term. The SPX FLOW, the revenue is up 5%, and the book-to-bill is 1.13. So we are building backlog for the medium term. And then when you go to Motion Technologies, we are winning more and more awards that will feed market share gains. And then KONI orders were also up 9%, thanks to Rail and Defense. So great visibility for the long term but also in the shorter medium.

That makes sense. Appreciate that. And then maybe just state of the union on the legacy flow assets, what you're seeing on a regional basis, maybe specific emphasis on directional dynamics in the Middle East and what you're seeing in terms of project outlays?

Of course. So let me address the Middle East first, and then we talk about the other regions. When you look at about the Middle East, I know that this sounds strange, but our business in the Middle East has been growing for the first 6 months incredibly well. And this is because of all the orders that we won in the last couple of years that we are delivering. We had a huge backlog and we are delivering this backlog. So huge growth from a revenue perspective in Q2. The orders in the Middle East have been delayed. And this probably will impact the regional growth in that -- in Saudi Arabia and in the Middle East when it comes to the next few quarters. . Now what we have seen is that some of the orders are being now given to the EPC. So we started seeing some moves in terms of the orders, which is good. The other thing that I want to allot in the Middle East is harboring performance. Despite the fact that they are in the middle of it, Habonim has an incredible performance with orders up 18% in the quarter, revenue up 19% year-to-date, both orders and revenue up double digits and a book-to-bill above 1. So great over there. Now if you look at the funnel, the funnel is increasing year-over-year. As a matter of fact, [indiscernible] up 34% year-over-year and 6% sequentially. When you look at the region, your question, North America, Latin America and interest in Middle East are up. Forget about the Middle East funnel up because mainly that is because the orders get delayed, but North America and Latin America funnel up highlights the strength of those regions because revenue is growing, book-to-bill above 1, so your orders are growing even more. And on top of that, your funnel is growing. So you're replenishing at a faster rate. So whereas Europe and Asia Pacific funnels are down a little bit.

Congrats on the quarter.

Our next question comes from Daniel DiCicco with BMO Capital Markets.

So it looks like you're winning share literally everywhere. So I guess we've talked about some of the drivers, but maybe where do you see the most opportunity still in the portfolio when we kind of look out to the medium term?

Okay. So you're absolutely spot on that. We are winning share across the board. Is it in corn, rail, I was in China and the team was presenting the market share that we have with China [indiscernible]. We're winning market share in China with the Chinese OEMs. And therefore, we expect to increase market share there. we increased market share. You see on the growth with a 21% revenue growth in Flow Technologies organic. You know that we're winning market share there as well, mainly because of our project management and also in connectors. I would say we still have opportunities across the board, but probably more on the -- in the FT side and the Flow Technologies as well as CCT. So this is where we can even grow faster and more.

Great. And then just a quick follow-up. I know you've talked about it a little bit in the past, but just some of the commercial opportunities you see within SPX FLOW and then maybe specifically some pricing opportunities on the Nutrition & Health side would be great.

So I think that when we look at SPX FLOW, let me give an example. A few weeks ago, I was in Xidu, China where we have a very good plan in terms of SPX FLOW. But I think our approach in China could be -- probably be adopted a little bit more to the market. What I mean by that, invest more on the engineering side, on the local application engineering in some local R&D that we are actually adapting and making decisions more closer to the market, closer to the customer. This is what has generated a lot of success for our friction business in China for our KONI business in China and for our connector business in China in the last few years. So decentralized empowering, developing more the periphery and the markets like China will definitely be a great opportunity. Similar opportunities out [indiscernible], our plant in small plants in Italy. I mean, that team is eager to win and conquer more. We need to ensure that we have to manage a more decentralized and make decisions closer to the customer and closer to the market. We are also working on revenue synergies, particularly in Latin America, for mixers, I would say. And the pause that we had in the Middle East presents an opportunity for us to get ready with mixers or the [indiscernible] pumps with localization in Saudi.

Congratulations on the great quarter.