Revenue up 17%, organic revenue up 16% driven by demand across all segments
Segment operating margin of 16.1%, up 190 bps
Adjusted segment operating margin of 16.8%, up 60 bps
Earnings Per Share (EPS) of $1.00, up 282%; adjusted EPS of $0.99 up 21%; exceeding 2019
Raising 2021 EPS guidance to reflect strong year to date performance
WHITE PLAINS, N.Y., November 03, 2021--(BUSINESS WIRE)--November 3, 2021–– ITT Inc. (NYSE: ITT) today reported financial results for the third quarter ended October 2, 2021. The company delivered a year-over-year revenue increase of 17% driven by growth in Motion Technologies’ Friction aftermarket business, the connector business in Connect & Control Technologies, and short cycle demand in Industrial Process.
Segment operating margin for the third quarter of 16.1% expanded 190 basis points versus prior year driven by higher sales volume, productivity, and strategic commercial actions. This was partially offset by higher raw material costs, supply chain disruptions, strategic growth investments and a reversal of temporary cost reductions that were executed in 2020.
Earnings per share of $1.00 increased from a net loss per share of $0.55 in prior year. The prior year loss was primarily due to a non-cash expense of $1.20 per share related to the estimated legacy net asbestos liability. InTelCo, the former wholly-owned subsidiary holding this legacy liability and related insurance assets, was divested on July 1, 2021. Earnings for this quarter benefited from higher segment operating income, share repurchases, and a lower effective tax rate. Adjusted earnings per share of $0.99 was up 21% compared to prior year and exceeded adjusted EPS for the same quarter in 2019 by 2%.
Operating cash flow of $104 million declined $11 million due to investments in working capital to support continued sales growth and from continued supply chain disruptions, partially offset by higher segment operating income. On a year-to-date basis, operating cash flows declined by $446 million to $(128) million mainly driven by a $398 million payment related to the InTelCo divestiture and investments in working capital, which was partially offset by higher segment operating income.
Table 1. Third Quarter Performance
Segment Operating Income
Segment Operating Margin
Adjusted Segment Operating Income
Adjusted Segment Operating Margin
Earnings Per Share
Adjusted Earnings Per Share
Operating Cash Flow (YTD)
Free Cash Flow (YTD)
Note: all results unaudited
"The resilience of our business and our people drove strong results at ITT once again this quarter. Despite unprecedented challenges related to inflation and global supply chain disruptions, we performed exceptionally well, delivering 16% organic sales growth and 21% earnings growth on an adjusted basis," said Luca Savi, Chief Executive Officer and President of ITT. "Driving our strong top-line performance was 21% growth in Friction and 29% growth in Connectors, where we have seen a steady recovery throughout 2021. We overcame a twenty-three-cent headwind related to raw material inflation and generated a 60-basis point adjusted margin improvement versus 2020, with adjusted incremental margins in Industrial Process and Connect & Control over 30%. Our hour-by-hour, all-hands-on-deck approach to working effectively with our customers and suppliers drove the execution this quarter.
The demand for ITT’s products and services drove 27% organic orders growth in the third quarter, with broad-based strength across connectors, projects and short cycle in Industrial Process, and rail in Motion Technologies. Friction continued to outperform the global automotive market through share gain on conventional original equipment (OE) platforms and awards on electric vehicle (EV) platforms. The orders growth in all three businesses has further strengthened an already robust backlog heading into 2022."
Savi concluded, "As we look ahead, we continue to see challenges on the supply side, still, I am confident in our team’s ability to manage these headwinds. Given our strong year-to-date performance, we are again raising our full year adjusted earnings per share outlook for the third consecutive quarter, to a new range of $4.01 to $4.06, up 25% to 27% versus the prior year. At these levels, ITT is positioned to exceed 2019 pre-pandemic levels. We remain focused on our commitments for 2021, whilst positioning the company for strong growth in 2022."
Table 2. Third Quarter Segment Results
Connect & Control Technologies
Total segment results
Note: all results unaudited; excludes intercompany eliminations; comparisons to Q3 2020
Motion Technologies revenue increased primarily due to strength in Friction aftermarket, growth in sealings and OE shims in Wolverine, and strength in the automotive aftermarket business in Koni. Operating income improved from $50 million to $54 million primarily due to higher sales volume, strategic commercial actions, shop floor and sourcing productivity, and favorable foreign currency, partially offset by significant headwinds related to higher raw material costs, as anticipated, and strategic growth investments.
Industrial Process revenue increased primarily due to growth in short cycle parts, service, and valves. We saw strength overall in the energy and general industrial markets across the business. Operating income increased from $17 million to $32 million primarily due to higher sales volume, favorable mix of higher margin products and services, shop floor and sourcing productivity, and strategic commercial actions, partially offset by higher costs related to global supply chain disruptions, including higher freight costs, and inflation.
Connect and Control Technologies revenue increased primarily due to Connector sales in North America and Europe, principally in the industrial market, and through distribution, partially offset by continued weakness in commercial aerospace. Operating income increased from $16 million to $25 million, primarily driven by higher sales volume, productivity, including restructuring benefits, partially offset by higher raw material costs and labor inflation.
The company raised its full-year 2021 guidance to reflect the strong third quarter results despite higher than anticipated headwinds from raw material costs, particularly in the Motion Technologies segment. We now expect earnings per share of $3.47 to $3.54, up 345% to 354%, and adjusted earnings per share of $4.01 to $4.06 per share, up 25% to 27%. The guidance for revenue of up 11% to 13%, or an increase of 8% to 10% on an organic basis, is unchanged given the ongoing delays and disruptions in the global supply chain. We expect segment operating margin of 16.8% to 17.3%, up 390 to 440 bps, and adjusted segment operating margin of 16.9% to 17.4%, up 170 to 220 bps.
Investor Conference Call Details
ITT’s management will host a conference call for investors on Thursday, November 4 at 8:30 a.m., Eastern Time. The briefing can be monitored live via webcast at the following address on the company’s website: www.itt.com/investors. A replay of the webcast will be available for 90 days following the presentation. A replay will also be available telephonically from two hours after the webcast until Thursday, November 11, 2021, at midnight, Eastern time. Reconciliations of non-GAAP financial performance metrics to their most comparable U.S. GAAP financial performance metrics are defined and presented below and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with U.S. GAAP.
Safe Harbor Statement
This release contains "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. In addition, the conference call (including the financial results presentation material) may include, and officers and representatives of ITT may from time to time make and discuss, projections, goals, assumptions, and statements that may constitute "forward-looking statements". These forward-looking statements are not historical facts, but rather represent only a belief regarding future events based on current expectations, estimates, assumptions and projections about our business, future financial results, and the industry in which we operate, and other legal, regulatory, and economic developments. These forward-looking statements include, but are not limited to, future strategic plans and other statements that describe the company’s business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future events and future operating or financial performance.
We use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "future," "may," "will," "could," "should," "potential," "continue," "guidance" and other similar expressions to identify such forward-looking statements. Forward-looking statements are uncertain, and, by their nature, many are inherently unpredictable and outside of ITT’s control, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.
Where in any forward-looking statement we express an expectation or belief as to future results or events, such expectation or belief is based on current plans and expectations of our management, expressed in good faith, and believed to have a reasonable basis. However, there can be no assurance that the expectation or belief will occur or that anticipated results will be achieved or accomplished.
Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation:
impacts on our business due to the COVID-19 pandemic, including variant strains of the virus, as well as the timing, effectiveness and availability of, and people’s receptivity to, vaccines or other medical remedies; disruptions to our operations and demand for our products, increased costs, disruption of supply chain and other constraints in the availability of key commodities and other necessary services; government-mandated site closures, employee illness, skilled labor shortages, the impact of potential travel restrictions, stay-in-place restrictions, and vaccination requirements on our business and workforce; and customer and supplier bankruptcies, impacts to the global economy and financial markets, and liquidity challenges in accessing capital markets;
uncertain global economic and capital markets conditions, including those due to COVID-19, trade disputes between the U.S. and its trading partners, the new U.S. administration, political and social unrest, and the availability and fluctuations in prices of steel, oil, copper, and other commodities;
volatility in raw material prices and our suppliers’ ability to meet quality and delivery requirements;
fluctuations in our effective tax rate, including as a result of possible tax reform legislation in the U.S.;
fluctuations in demand or customers’ levels of capital investment and maintenance expenditures, especially in the oil and gas, chemical, and mining markets, or changes in our customers’ anticipated production schedules, especially in the commercial aerospace market;
failure to manage the distribution of products and services effectively;
the risk of material business interruptions, particularly at our manufacturing facilities;
risks due to our operations and sales outside the U.S. and in emerging markets;
the extent to which there are quality problems with respect to manufacturing processes or finished goods;
loss of or decrease in sales from our most significant customers;
fluctuations in foreign currency exchange rates;
failure to compete successfully and innovate in our markets;
risks related to government contracting, including changes in levels of government spending and regulatory and contractual requirements applicable to sales to the U.S. government, including the impact of COVID vaccine mandates on our ability to continue to participate in federal contracting;
failure to protect our intellectual property rights or violations of the intellectual property rights of others;
the risk of cybersecurity breaches;
changes in laws relating to the use and transfer of personal and other information;
failure of portfolio management strategies, including cost-saving initiatives, to meet expectations;
changes in environmental laws or regulations, discovery of previously unknown or more extensive contamination, or the failure of a potentially responsible party to perform;
failure to comply with the U.S. Foreign Corrupt Practices Act (or other applicable anti-corruption legislation), export controls and trade sanctions, including tariffs;
risk of product liability claims and litigation; and
risk of liabilities from past divestitures and spin-offs
The forward-looking statements included in this release speak only as of the date hereof. We undertake no obligation (and expressly disclaim any obligation) to update any forward-looking statements, whether written or oral or as a result of new information, future events or otherwise.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
Nine Months Ended
Costs of revenue
General and administrative expenses
Sales and marketing expenses
Research and development expenses
Asbestos-related costs (benefit), net
Asset impairment charges
Operating income (loss)
Interest and non-operating expenses (income), net
Income (loss) from continuing operations before income tax expense
Income tax expense (benefit)
Income (loss) from continuing operations
Income from discontinued operations, net of tax benefit (expense) of $0.5, $0.5, $0.5, and $(0.2), respectively
Net income (loss)
Less: Income attributable to noncontrolling interests
Net income (loss) attributable to ITT Inc.
Amounts attributable to ITT Inc.:
Income (loss) from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income (loss) attributable to ITT Inc.
Earnings (loss) per share attributable to ITT Inc.:
Net income (loss)
Net income (loss)
Weighted average common shares – basic
Weighted average common shares – diluted
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Cash and cash equivalents
Other current assets
Total current assets
Plant, property and equipment, net
Other intangible assets, net
Deferred income taxes
Other non-current assets
Total non-current assets
Liabilities and Shareholders’ Equity
Commercial paper and current maturities of long-term debt
Total current liabilities
Other non-current liabilities
Total non-current liabilities
Authorized – 250.0 shares, $1 par value per share
Issued and outstanding – 85.6 shares and 86.5 shares, respectively
Total accumulated other comprehensive loss
Total ITT Inc. shareholders’ equity
Total shareholders’ equity
Total liabilities and shareholders’ equity
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
Income from continuing operations attributable to ITT Inc.
Adjustments to income from continuing operations:
Depreciation and amortization
Asbestos-related (benefit) costs, net
Asset impairment charges
Other non-cash charges, net
Asbestos-related payments, net
Divestiture of asbestos-related assets and liabilities
Changes in assets and liabilities:
Change in receivables
Change in inventories
Change in accounts payable
Change in accrued expenses
Change in income taxes
Net Cash – Operating Activities
Net Cash – Investing Activities
Commercial paper, net borrowings
Short-term revolving loans, borrowings
Short-term revolving loans, repayments
Long-term debt, issued
Long-term debt, repayments
Repurchase of common stock
Net Cash – Financing Activities
Exchange rate effects on cash and cash equivalents
Net cash – operating activities of discontinued operations
Net change in cash and cash equivalents
Cash and cash equivalents – beginning of year (includes restricted cash of $0.8 and $0.8, respectively)
Cash and Cash Equivalents – End of Period (includes restricted cash of $1.0 and $0.8, respectively)
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Income taxes, net of refunds received
Key Performance Indicators and Non-GAAP Measures
Management reviews a variety of key performance indicators including revenue, segment operating income and margins, earnings per share, order growth, and backlog, some of which are calculated on a non-GAAP basis. In addition, we consider certain measures to be useful to management and investors when evaluating our operating performance for the periods presented. These measures provide a tool for evaluating our ongoing operations and management of assets from period to period. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including, but not limited to, acquisitions, dividends, and share repurchases. Some of these metrics, however, are not measures of financial performance under accounting principles generally accepted in the United States of America (GAAP) and should not be considered a substitute for measures determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators for purposes of our reconciliation tables.
Organic Revenues and Organic Orders are defined, respectively, as revenue and orders, excluding the impacts of foreign currency fluctuations and acquisitions. The period-over-period change resulting from foreign currency fluctuations is estimated using a fixed exchange rate for both the current and prior periods. Management believes that reporting organic revenue and organic orders provides useful information to investors by helping identify underlying trends in our business and facilitating comparisons of our revenue performance with prior and future periods and to our peers.
Adjusted Operating Income and Adjusted Segment Operating Income are defined, respectively, as total operating income and segment operating income, adjusted to exclude special items that include, but are not limited to, asbestos-related impacts, impairments, restructuring, realignment, certain acquisition-related impacts, and unusual or infrequent operating items. Special items represent charges or credits that impact current results, which management views as unrelated to the Company's ongoing operations and performance. Adjusted Operating Margin and Adjusted Segment Operating Margin are defined as adjusted operating income or adjusted segment operating income divided by revenue. Adjusted Segment Decremental or Incremental Operating Margin is defined as the change in adjusted segment operating income divided by the change in revenue. We believe these financial measures are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.
Adjusted Income from Continuing Operations and Adjusted EPS are defined, respectively, as income from continuing operations attributable to ITT Inc. and income from continuing operations attributable to ITT Inc. per diluted share, adjusted to exclude special items that include, but are not limited to, asbestos-related impacts, impairments, restructuring, realignment, pension settlement and curtailment impacts, certain acquisition-related impacts, income tax settlements or adjustments, and unusual or infrequent items. Special items represent charges or credits, on an after-tax basis, that impact current results which management views as unrelated to the Company's ongoing operations and performance. The after-tax basis of each special item is determined using the jurisdictional tax rate of where the expense or benefit occurred. We believe that adjusted income from continuing operations is useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.
Free Cash Flow is defined as net cash provided by operating activities less capital expenditures. We believe that free cash flow provides useful information to investors as it provides insight into the primary cash flow metric used by management to monitor and evaluate cash flows generated by our operations.
ITT Inc. Non-GAAP Reconciliation
Reported vs. Organic Revenue / Orders
Third Quarter 2021 & 2020
(all amounts unaudited)
(As Reported - GAAP)
(As Adjusted - Organic)
(F) = A-D-E
(H) = G / B