ITT (ITT) D.A. Davidson's 23rd Annual Diversified Industrials & Services Conference 2024 summary

Business Overview and Recent Performance

• Manufactures critical components for harsh environments across energy, auto, rail, connectors, aero, and defense, with $3.3B in 2023 revenue and significant market cap growth over five years.

• Revenue is diversified across Motion Technologies (44%), Industrial Process (34%), and Connect & Control Technologies (22%), with end markets including automotive/rail, chemical/industrial pumps, aerospace/defense, and energy.

• Three-year value creation includes 18% adjusted EPS CAGR, 10% free cash flow margin, $2.0B+ capital deployed, and 88% total shareholder return.

• Q2 2024 revenue reached $906M, up 9% year-over-year, with 6% organic growth and 12% adjusted EPS growth; Q3 orders expected to show significant growth in Pump Projects, connectors, and Svanehøj.

• EPS growth anticipated in Q3 despite divestitures and M&A costs, with a healthy M&A pipeline for 2025.

Portfolio Management and Margin Strategy

• Portfolio is being rebalanced toward higher growth and margin businesses, focusing on flow and connectors, while divesting less efficient operations like Wolverine.

• Margin improvement in Motion Technologies driven by volume growth, pricing recovery, and productivity enhancements, targeting 20%+ margins.

• Market share in friction has grown significantly in China (29%), North America (26-27%), and Europe (50%+), with future growth supported by recent platform awards.

• Differentiators include high on-time performance, low defect rates, strong R&D, concentrated manufacturing footprint, and standardized processes.

• Adjusted operating margin expanded by 100 basis points to 18.0% in Q2 2024.

Market Trends and Growth Drivers

• Outperformance in IP projects, especially in the Middle East, due to improved project management and customer collaboration.

• Decarbonization business is under $100 million but growing rapidly, with Svanehøj and Bornemann pumps supporting LNG, carbon capture, and flaring reduction.

• Positive outlook for project orders in 2024, with robust short-cycle demand and expected mid-high single digit growth for the full year.

• CCT business is recovering in aerospace, with wide-body exposure expected to improve as the market recovers; minimal near-term impact from Boeing strike.

• Geographic revenue split: 42% North America, 32% Europe, 17% Asia Pacific, and 9% Rest of World.