ITT Inc. ($ITT)

My name is Andrew Obin. I'm BofA's multi-industrial analyst, and welcome to the afternoon session. With us, I have ITT. We -- ITT CEO and President, Luca Savi; and Carleen Salvage, new VP, IR and SD&A. We love ITT. You guys are now US one list. So it probably tells you what I think about the company. Always a pleasure to have you in London, always a delight. I think Carleen is going to have a couple of statements. And then you guys have a couple of slides, and then we're going to go into Q&A. Thanks so much.

Thank you, Andrew. Carleen, over to you.

Yes. Our presentation and comments may contain forward-looking statements, which are based on our best view of the world and our businesses as we see them today. These assumptions and expectations can change, and we ask that you view them in that light. We encourage you to review the latest risks and uncertainties in our Form 10-K and other SEC filings available on our website. Thank you.

Thanks, Carleen. So I'm going to spend a few minutes on ITT today, and then we go straight into Q&A. So what you see today is ITT after the closing of the acquisition of SPX FLOW, which happened on Monday, the 2nd of March, is a company of roughly $5 billion in terms of revenue, split in 3 main businesses. One is Motion Technologies, where we're making brake pads and shock absorbers, so exposed to the auto industry and exposed to rail, a little bit in defense as well. Then you have CCT, Connect & Control Technologies, where we make connectors and components. This business is mainly exposed to general industrial and a lot to aero and defense. And then what was called Industrial Process, today, we call it Flow Technologies, which is the previous pumps and valves business, the Goulds Pumps, et cetera, which today has merged together with SPX FLOW. As you have seen, exposure to the aftermarket, a lot of exposure to the Americas is the largest geography where we are exposed to. And when you look at the last 3 years, 2025, we had 5% organic revenue growth. The 2 years before was 9% every year. We generated good profit, good margin expansion, a lot of value creation. So let me talk about a little bit of the Flow Technologies, which is this new business that is the merger of industrial process and SPX FLOW. So when you look, you see that the main exposure is on pumps. This is really our core. So what we did with the SPX FLOW acquisition, we added Waukesha, hygienic pumps, #1 leader in North America in hygiene. We add Bran+Luebbe, Johnson Pumps, leaders in the market that they play in terms of Metering Pumps and Centrifugal Pumps. And then we added also some adjacencies like mixer. Mixer is a good business based out of Rochester in the U.S. brands like Lightnin in Philadelphia, they are #1, #3 in the mixer market. And then Nutrition & Health system. So here, you're talking about a system that we are building and delivering for customers like Danone and Nestlé and Unilever. So exposed to different markets. Now what we like about SPX also that reduces our exposure to energy when you look at the Flow Technology business, but also as a new market of Nutrition & Health to the market that we are addressing, making really the Flow Technology business more resilient. 50% or more in North America and spread also in Europe and Asia Pacific. Now these are all the brands. What you will see, ITT and also Flow Technologies is a house of brands. And many of these brands are actually #1, #2, and #3 in the segments, in the markets that they are playing into. So now a little bit of comments about Q1 before we are moving to Q&A. So what we saw in Q4 has continued. So you saw strong orders when you look at Q4. Well, we saw strong orders also in Q1, January, February. And also when it comes to March, we continue to see that. We continue to outperform when you look at the automotive market in terms of the OE. So we are outperforming across all the different regions. So you will see that also in Q1. And when you look at all in, now with the closing of the deal on March 2, as you know, part of the deal, the $4.7 billion that we -- $4.775 billion that we paid Lone Star for SPX FLOW, they wanted to stay as a shareholder. So $700 million that were paid in shares as at March 2. So you had in March that dilution as well. And then, of course, the debt and the interest that you pay in that. So when you look at all of those in, you see from the EPS growth is a low double-digit growth year-over-year. So with that, Andrew, over to you.

And Carleen, just to get it right. So the guidance you provided on Q4 for Q1 because I think there's a little bit of confusion, this low double digit with what you guided to. The only difference is that we've now closed the deal. So apples-to-apples, nothing, no, nothing...

Nothing has changed.

Apples-to-apples, nothing has changed. It's that we closed the deal and therefore, you issue the equity and you have the debt. That's the only thing...

And we knew -- and basically, you've communicated this -- so -- because I think in the market, the reaction study to the headline is somewhat negative, but the reality everybody should have known that.

No change at all. It is exactly the same thing.

And there is no change to SPX outlook either.

No, no, not at all.

So maybe just starting with your broader framework, long-term guidance, your ITT's organic growth expectation of mid-single digits in '26 compares to the guidance of over 5% revenue growth CAGR by 2030. So how should we be thinking about organic growth in '26? And what this means for sustainable growth rate as recovery actually takes hold?

So our long-term targets when it comes to organic growth is 5% to 7% organic growth. We delivered a little bit better than that in the last 3 years, I would say. But -- and when you added the addition of SPX FLOW, we said that SPX FLOW will be able to grow mid- to high-single digits. So I think that all the assumptions when we look at the organic growth have been confirmed. And of course, if the market gets better, that can only be a tailwind for us. But all those aspirational organic growth have been confirmed -- are confirmed so far.

But so far, we're on track with that.

Absolutely.

And you talked a little bit about demand trends and you're saying that orders continue to be strong in February and March. But for the short-cycle business, right? -- have you seen any patterns that reflect that PMI is improving, right? Because you guys were constructive in Q4, you were constructive earlier than others.

Sure. When you look at our short-cycle business and for the last couple of years, we've been able to grow our short-cycle business no matter what the market was doing. So -- and that was market share gains. And we're talking about growth, not in terms of just price. I'm talking about volume growth, real growth. So -- but that's more the ITT story than...

We ran the organic growth. And I think project was better, train was better. I think that's the list. Not a lot of people have done better on organic growth since you started.

So that's the thing. So -- but what we have seen, I would say, towards the end of 2025 and also in January and February, it seems like the situation from an economic perspective is a little bit better. And therefore, that picture might continue. There are more dots.

And how should we think about the near-term impact from the events in the Middle East? And I guess, specifically, a, you do have a Middle East business, but you also have a defense business. How should we think about the net impact of what's happening?

Sure. So for unfortunate reasons, the defense business, of course, will benefit from everything that is going on today. And that is true, particularly on the CCT business, where we make connectors and also components for the KC-46 and others. So that obviously has got a tailwind. Now when it comes to our business, we do have a very good factory in Dammam in Saudi Arabia, which is performing incredibly well. It's one of our best factory, great relationship with Saudi Aramco and the customer in the region. Now obviously, when you look at that, you can imagine Saudi Aramco has frozen every conversation that we had from an investment and new orders perspective. Now Q1 has been not impacted at all. So there is going to be no issue in Q1. If the situation continues, of course, there might be impact from a supply chain point of view in terms of stuff getting into the factory in Q2. But just to give you an idea of the size, when we look at our Middle East business, it's less than 5% of total ITT revenue, something between 4% and 5%. So not really material in that respect.

And the idea is there are enough growth vectors elsewhere to offset it.

Well, to be honest with you, what you see, what is interesting is that you could see in, for example, in Q4 of last year and also the beginning of this year, because the price of oil was particularly low, there was not a lot of service orders from our oil and gas business in North America. Now obviously, if the price of oil stays at the level that it is today or stay high, that situation could change. So what is impacting negatively in the Middle East that can actually translate in some positive trend if it is service work or if it is LNG opportunities moving faster in U.S. or other regions.

And maybe we can go to sort of talk about growth because I think organic growth actually is -- well, stock has performed okay. But I would argue that your organic growth is one of the most underappreciated aspects, I think, of the story, and it has been consistent, driven by sort of market share gain. And on one hand, I saw the auto facility in Italy, that's a very idiosyncratic story. At the same time, you're able to replicate it across your portfolio. So it's clearly not idiosyncratic. So can you just share some of your long-term playbook across businesses?

Sure. So, I think that the approach that we have is really to -- I mean if you look at our organic growth performance, it's quite good. And the way that we incentivize, the way that we look at, the way that we manage is that no matter what the market is and no matter what the market does, I mean, you need to grow. You expect it to grow and you expect it to grow win, of course, market share. And this is real growth, volume growth. It's not just growth in terms of price. We like price. We go after price. But if our people are delivering to us growth because of just price, they don't get an easy time, right? They need to deliver real growth, growth that actually is feeding our plants that we're making more products, et cetera. So this is really how we are incentivizing. Now in terms of what we have really been good at in terms of when you look at ITT is to create platform for growth. So if you look at our KONI business, our shock absorbers, that was a business that was a $100 million platform that was losing money 12 years ago. It was -- ITT was questioning -- my boss was questioning really the fit in the ITT portfolio. Now we turned it around. We made the acquisition of Axtone in rail in Poland, and now we have a rail platform of roughly $300 million, whose margin is actually accretive to Motion Technologies. We did the same thing for the valve business in IP. We rejuvenate our connector business and became in aero defense, another platform for growth. And we have done it with Svanehøj in cryogenic pumps in the energy transition in marine. So this is what we are really good. It's really entrepreneurial way to run the business, very granular, hands-on at every single level of the organization. And really, I know that the 80-20 is very fashionable today, but it's really not following when it comes to growth, any 80-20 approach. It's really you go after everything that could be a good growth now or in the future in the business.

And do you see continued opportunity for share gain by segment?

Yes, I do. So we do. So for example, if you look at Motion Technologies, market share gains in rail, those have happened in 2025, and we see it in the orders, we see opportunity in the pipeline when it comes to rail, both in Europe as well as in North America as well as in China, where we are exposed to high-speed train, subway, locomotive, coach and everything. When you look at also automotive, listen, we have a very healthy market share in Europe. So you might question, are you really able to grow even further? I would say, yes, because there are segments and you need to be very granular there, like for instance, high performance or light commercial vehicles, where we do not have a high market share. So there is opportunity there. In China, we closed last year at 33% market share. There is no reason why we cannot improve substantially that one as well. And in North America, we closed 2025 at 27% market share, opportunity to grow that one as well. When you look at the connectors side of the business, listen, we are a small player. So the way that we differentiate a lot is in customizing in custom design, co-develop the design together with our customers and be super-fast on the engineering cycle. So when you look at specific aero and defense application customization for connectors, there is a room to win market share there. We have done it in the past. We continue to see the opportunity there. And then when it comes to flow, I mean, the ability to execute different from our competition to differentiate both on the innovation and the execution, delivering our products, good quality products on time in a consistent way to the customer gives you loyalty. And so yes, we think we can.

Excellent. So as you've said, you closed SPX FLOW synergy target is 6% of sale. So maybe we can talk about -- so what's just generally in your synergy assumptions? How many years? And how much are we assuming for footprint rationalization?

When you look at the cost synergies, it is roughly $80 million run rate after year 3. And usually, the way that we will deliver probably is 1/3, 1/3, 1/3, 1 year, 2 year, 3. Now the big chunk of those cost synergies are on the G&A front. This is where the big chunk will come. Second chunk will be on the purchasing. And so the first one, we're already executing. We've already executed and we are executing a lot of them. Purchasing, procurement, this is where we're already working together the 2 procurement team to deliver those synergies. When it specifically come to footprint is a synergy that is the one which is the smallest and the one that comes later. And the reason for that is our approach may be conservative to ensure that if we act on a plan and on the footprint, we want to ensure that our customers do not get affected. So we need to plan properly and execute in a prudent way. But that will be the gift that we'll keep on giving in terms of several plans within the ITT portfolio -- within the ITT companies as well in SPX FLOW can be concentrated in a very good plan that SPX FLOW has in Poland and also a good plan that SPX FLOW has in Xidu in close to Shanghai.

But is that -- that sounds that's beyond the scope of the 3 years?

I think that most of the savings that you will see on the footprint will come after year 3.

And what about sales synergies? Because I think you're not including those...

That's correct.

What are the opportunities?

So when you look at -- listen, cost synergies, we are fully in control of the cost synergies -- so we are -- and I can tell you, we will deliver the cost synergy. I have no worry at all on the cost synergies. On the revenue synergies, it takes more time. You're less in control of the revenue synergies. And this is the reason why we discount them fully, and we do not put them in the model. Having said that, we're already working on those together, the 2 teams from the ITT and from SPX FLOW. So I give an example. On mining, we have a very good base in Chile and in Peru with our footprint over there as ITT. Now they do not have any base when it comes to Latin America. Some of those mixers will have the same customers. So there is an opportunity there. We have a good plant in Brazil, and we will have a larger plant in Argentina. We're investing in making the plant larger. So having that days, we could localize the assembly, reduce the lead time and be able to sell more in Latin America than what they do today. That is one. Saudi Arabia, when things normalize, will be another revenue synergy because we will be able to have in-kingdom assembly, which is one of the regulation to facilitate you selling in the Kingdom. And then call it luck or what, but when you look at Waukesha, hygienic pumps, the product in the product portfolio, what they're missing is Twin Screw pumps, which is exactly what Bornemann does. But in hygienic, we have the full range -- full portfolio, but we have nobody. Now we can simply take those pumps, brand them Waukesha. They are top range in terms of performance, and that is the revenue synergy that we will have here in North America with Waukesha.

And that's something near term.

And that's something that is much faster than everything else.

So you noted that you target 10% ROIC by year 3 to 5 in acquisitions. So just to wrap up on SPX FLOW, when should we be getting to this 10% plus ROIC? Is it close to 5 years versus 3 or...

It's close to 5.

And then maybe before we go into the segment, just cash flow generation. So 25% was very good, but I think historically, cash conversion has been lumpy. Was very strong last year? So, what does it take to see more consistent cash generation?

I think that the one -- a lot of the investment in the past was also in terms of increased production in terms of the Motion Technologies that tend to be more capital intensive. And therefore, there has been expansion when it comes to the site in China, the site in Mexico. And then also last year, January 2025, we opened the plant of high-performance brake pads in Italy. So now the footprint that we have is that one, there is no other large investment to make when it comes to CapEx. So I think that you will have more of a stable performance. I would say there is also a lot of improvements to be made when it comes to inventory, particularly in IP and in CCT. Motion Technologies actually is performing very well. What is the inventory turns of Motion Technology we saw yesterday in the performance review was 12.5%. Motion Technology has inventory turns of 12.5%, just to give you an idea, is a cash machine, right? So I think that working on the working capital for IP and CCT is key, inventory in particular, and receivable advance payment, particularly for IP as well.

So, maybe on going to Industrial Process. So what productivity investments have you made successfully given the strength of core margin for IP, right? Exiting the year with legacy margin of 25%. And also, what does the runway look like?

Sure. So, when you look at IP, it has been a long journey because let's face it, when we started this journey in '17, '18, our profitability was similar to the one of some of our competitors, right? If it is Sulzer or if it is Flowserve, et cetera. You look at today, it's a completely different story. So what has been really the levers that we play? Well, first of all, we have to turn around the way that we manage projects. So project management is a very good story. What you see today, the project backlog, the margin that we have in that project backlog is in the high 20s. This was a business that was not making money -- in '17 and '18. So that has been a lever. This -- and also when we close the project and we ship the project, the margin at closing is higher than the margin when we booked the project. So this tells you a bit about our order acquisition performance and also how we perform when we deliver the projects for our customers. That is one. Second is price. So ensuring that we have a good pricing strategy and that we do not have leakage. Therefore, a very rigorous way to monitor pricing in the orders as well that in the revenue and ensure that you can continuously track it and see the pricing coming through to the bottom line was Lever #2. And then also the lean in the factories and on the site. So I was in Seneca Falls last week, and actually, that was the first time that the best visit that they had in the plant ever -- when it comes to the assembly. So when you look at the assembly, the warehouse, the Material Flow works, it was an excellent performance and except leaning out. A lot of work that still has to be done on the machining side. The machining is still a bit of [indiscernible] but this is room for improvement for the future. When it comes to run rate, I think that our target for IP is really to get to 25% operating margin by 2030. And I think that there is nothing that would jeopardize that.

Maybe another question. Over time, can Svanehøj margins reach "core IPT levels?

I would say there is no reason why they shouldn't. I think that they improve a lot when you look at our performance in 2025, a few hundred basis points improvement in terms of EBITDA. So I think that there is no reason why in 2, 3 years, so I should not be at that level.

And you sort of alluded to IP project pricing. So are you seeing any sort of discounting from competitors?

It's when there is -- when you have a project situation, it's very competitive. And I will say there is always somebody that can come out with a ceded price. So nothing has changed that there is always a case, unfortunately.

So maybe we can shift to Motion Tech. I mean you talked about market share gains in Europe. But what is embedded in '26 for market share gains? And how does it compare to 600 bps of average outgrowth over the past several years?

Yes. It's anything between 300 and 500 basis points outperformance in terms of the market. And I can share that this is what we're already seeing already in January and February. So I think that this is confirmed. And I think that we expect that to be delivered also in the next couple of years.

And maybe we can talk about Motion Tech operating margins. Trend has improved, but hasn't historically stepped up structurally. You are guiding sustained improvement through 2030. What have you finally figured out?

I think that when you look at our automotive business, it's very, very profitable. I think that if you think about an EBIT of 20%, there are not many automotive companies are able to post this level of profitability. I think that the beauty is that you and I, Andrew, can walk the shop floor in Barge or in those in Wuxi, and we can point to areas where we are top notch in terms of productivity, et cetera. But at the same time, we can point to area where we can continuously improve, whether it is the waste, the scrap, or the efficiency of the machine or automate even more on the finishing line. So, this is the reason why we are seeing that a target of 23% operating margin by 2030 is quite achievable.

And you have material China exposure, and you've done very well with market share, specifically on the EV side. I guess one of the concerns we've heard from investors as China continues to outgrow, Chinese EV manufacturers take share globally, their margins are not that great. It's a very competitive market. How do you not get dragged down? There are a lot of headlines about competition in China on pricing. How do you not get dragged down together with that market?

Sure. Listen, our 2 most profitable plants in friction are our plant in North America and our plant in China. And those plants are Pure OE. There is no aftermarket. So this tells you a little bit about, a, how we are able to -- how our cost competitiveness because let's face it, we do not decide the price. The market will decide the price, right? So sometimes you are able to get some premium, but in automotive, you're lucky if you get 1% or 2%, 3% premium. That's pretty much it, right? So the market decides the price. And the fact that we are able to deliver those margins at the price that the market is paying our product for tells a little bit about how productive and how efficient we run our plants and our supply chain.

And can you just talk a little bit, I know that you've spent quite a bit of time educating folks as to what is driving Motion Tech's margins relative to other auto suppliers, maybe 30,000-foot view, what makes it possible for you guys to have over 20% EBIT margins even now when auto volumes are depressed and you're not getting any volume leverage? Just what is the business model?

Sure. So, there is one part, which is linked to where we play in the supply chain, which is the same for us and for our competitors, right? Which we like where we are. So for example, you design the new car, the new platform, you design the car, you design the axle, you design the braking system, the caliper -- you produce it. The last piece is the brake pad. So now when you are at the very end that you are testing, if you have a problem, you cannot redesign the car, the axle, the braking system, the rotor, the caliper. One thing that you can still play is the brake pad. So you are at the very end of the supply chain where you can still change things and you can -- and that is a nice position to be in, high pressure and all this kind of stuff, but high position to be in. And then the cost of the brake pad is a small cost when you look at the entire cost of systems, et cetera. So this is true for us as well as our competitors. Then -- and we like where we are in the supply chain. Then what is different between us and the competitors is that when you look at our footprint, it is a very concentrated manufacturing footprint. It's 5 plants to make a number of brake pads. Our competitors to make the same number of plants will have more than 10 plants. So 10 plants to make the same number of brake pads. So you can imagine how inefficient they are when I do have scale and the economies of scale in the plant. Second is the level of performance. We have performed in the last 7 years, every single month at 99.95% on-time delivery to customer request date, no matter COVID, the war, the UAW strike, the hyperinflation, no matter what. And on quality, we measure the quality impact per billion. Our competitors are 2 level worse than we are, level of magnitude worse. So all of those really make our business substantially different in terms of performance as well as innovation.

And maybe it's quite interesting, but you have new plant Termoli and it's the pilot side for next-gen manufacturing. It is lower volume, right? Because it's high-performance component. Can you just -- what have you learned internally and any KPIs that you can share about the performance and particularly the read across our automation because I'm sure that there are some pilot projects that can be applied elsewhere in Motion Tech and elsewhere in the company.

Sure. So one thing that this was an area of growth for us because usually, we played on the vehicles, but in terms of high volume, low mix. And this was -- our manufacturing was set up for that because it was highly automated, same machines and a conveyor that generates the one-piece flow. So the material is right to the line and then it gets into the line and nobody touches a product until it comes out of the finishing line where there are 3 women that are actually checking the quality of the product. Now this system was great, highly automated. But if you have a low volume, high mix, because of the conveyor, et cetera, you would lose a lot of efficiency in the line in the plant if you're using the same model. But we cannot change the machines that we are using, the presses, the grinding, the finishing Line, the oven or the painting line. What was good is that our engineering team in Italy actually designed a plant, a line where you have the same machine, which was a must because that is a standardization that is a must across all the different plants. But they eliminated completely the conveyor system that automated even more with more robots and AGV, particularly a robots on wheels so that we were able to maintain the same efficiency in the plant, but also with a low-volume, high-mix. So this is what made us willing to go also after this market. So far, we won in terms of awards, 9% market share of the high performance, which means you don't see that in revenue because when you win the award, it takes 2 years to get to the SOP to the start of production. But I would say is -- has been very effective in terms of winning. And we started that plant in January last year, and we're already profitable when it comes to January 2026. So the team is performing.

Any reader across, you said it's low-volume, high-mix. And I'm probably comparing like apples and oranges. But any read across for SPX because I know that flow business is, it's single-piece flow. I think it's the ultimate low-volume, high-mix product or even low-volume auto issues order of magnitude? High-mix then.

Yes. I think that there...

Is it comparable? Or is it just two different processes...

They are different processes. There are things that you can learn from, for example, Motion Technology is absolutely master in reducing the changeover time. And we have a methodology in doing that. And I think that, that is something that can be applied also when you come to changeovers in the other businesses. But I would say they are more opportunistic and ad hoc than a blind adoption of one methodology to the other business.

So, maybe we can shift to Connect & Control. So what about margin growth for Connect & Control in '26? A couple of things. A, dilution from kSARIA largely goes away. And b, I think you talked about the uplift from renegotiated contracts with [indiscernible].

Yes. Sure. When you look at CCT, we closed that business at an operating margin between 19% and 20% in 2025. Our long-term target by 2030 is 25% operating margin. So it's the business that's got the long -- the highest -- the biggest improvement to make. But at the same time, it's the one that's got the biggest leverages. First of all, of course, the market is great. So you will have benefits from a volume point of view. But as you said, there is a pricing impact. We finalized the negotiation with Boeing at the end of last year. We had long-term agreements with fixed price contracts that go back to 2014, 2015. So you can imagine this is quite impactful from a pricing point of view in 2026 and it will be also in 2027, '28 and '29. And then there are a lot of efficiency that can be gained in the way that we are running the shop floor. Today, I would say when it comes to lean, probably the plants in CCT are the least mature across the ITT portfolio. So those are the 3 main levers to -- that we are working on.

And maybe defense aftermarket, you've alluded to it, but how should we think about potential impact from the events in Iran?

I think that to be honest with this is a definitely a tailwind. When you look at the CCT, the connector side really do not have a lot of aftermarket. It's more on the CT side and the component side that there is a good aftermarket business. So I would say that the unfortunate circumstances that we are facing today are actually playing a tailwind for our defense business and the defense aftermarket for CT as well.

Inside that business, just generally, your short-cycle business has held up much better than peers. What's been driving the outperformance? And does that outperformance slow when the market recovers? What do you expect to continue to outgrow the market?

No, we expect to continue to outgrow the margin. I mean, at the end of the day, our people do not get credit for a growth, which is the market growth. Everybody would be able to do that. Market grows 5%, you're growing 5%, you're not really growing. I mean, it's the market that is really pushing you. So we expect our businesses and our business to continue to outperform the market on the connectors as well as on the component side.

And the margin target for CCT assumes the most margin expansion of the 3 businesses. I mean, clearly, I think kSARIA and Boeing are part of it. But maybe another way to ask about it, what are the gross margins in this business relative to the other businesses? Is it fair to assume that it's a gross margin story?

It's the highest.

So it's the SG&A.

Yes, -- it's the highest. But you need -- despite all of that, there is -- even it's the highest gross margin, I would say, just to give you an example, you are on the manufacturing line making components in CCT and you have the station, which is called the Tuning Station. Well, it's a Tuning Station because you didn't get it right the first time, right? You will not -- in Motion Technology, you will not get a Tuning Station. That's a waste, right? So I think that even that is an improvement that you will have in the gross margin, right? And so even though the gross margin are the highest in the ITT portfolio, this doesn't necessarily mean that cannot be better. They can.

I think we're right on time. So with that Carleen, Luca, thanks so much.

Thank you very much, Andrew. Thank you.