ITT Inc Q3 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Joseph Giordano - TD Cowen - Analyst : I'm just curious, maybe this is a little bit more on IP, but I guess it could be broad, like how reflective do you think your results are of the underlying conditions in the market that you're operating in? Because we're hearing some kind of mix about push outs of projects and even in industries like process where we think things are generally pretty good in some mix kind of color and clearly, that's not what's happening in your results here. So can you maybe compare what you're seeing in your order book versus like what underlying conditions on the ground might look like?

Question: Joseph Giordano - TD Cowen - Analyst : Fair enough. And then just curious on M&A, right? So you've done the Wolverine divestment, you've made 2 deals here. You've mentioned that the pipeline looks good. How interested are you in terms of like timing, right? Like you have a lot going on, you're executing well, but like how much is too much in a short period of time, like internally from a bandwidth standpoint. And if I can just tack on one, Emmanuel, just on the -- I'll nit pick a tiny bit on the free cash flow. Like can you maybe give us the nuances there, you're kind of raising the core in revenue and EPS, but the free cash flow guide kind of unchanged there. So if you could just address that.

Question: Scott Davis - Melius Research - Analyst : Congrats again on what's been a great year. Guys, when you see numbers like 136% growth in pump projects, we've had some other companies just comment that purchasing patterns have changed a little bit on the where orders are coming in a little earlier than maybe historically they have. And have you guys seen -- I mean, when you -- again, just kind of reference, is such a big number. Our folks are the EPCs kind of racing to get ahead of each other and making sure they get orders in, are there some concerns about shortages of product out there? Or am I -- is that not relevant for you guys?

Question: Scott Davis - Melius Research - Analyst : Okay. That's helpful. And then when you think about the ebbs and flows of what's going on at Boeing right now. I mean it's not just as a customer, you have to manage this disruption, but also I know you guys are in the middle of renegotiating or negotiating your contract moving forward. What -- how do you manage your production around this uncertainty? And does this push back that negotiation at all? Just a little update on Boeing would be helpful.

Question: Andrew Obin - Bank of America Merrill Lynch - Analyst : Just a question on pricing. It's been a large focus in recent years and seems that it's really improved. Can you talk about structurally what you've done -- what other workers to do going forward? And early thoughts on pricing into '25?

Question: Andrew Obin - Bank of America Merrill Lynch - Analyst : Got you. And just to follow up, you sort of notice, a short-cycle business. It seems yours continues to hold up well. Just what's the balance between share? And could you just give us some color as to what are you seeing on the distributors? Are they turning more positive on the short cycle? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 12:30PM, ITT.N - Q3 2024 ITT Inc Earnings Call

Question: Andrew Obin - Bank of America Merrill Lynch - Analyst : And just in terms of destock, are we done? What's the message? Sorry, if I missed it.

Question: Mike Halloran - Robert W. Baird & Co. - Analyst : Why don't we just start with the auto outlook? I mean, obviously, choppy trends depending on the region, how you're thinking about it for the remaining of the year, but more importantly, what's the best guess at this point for what industry demand looks like as we head into 2025?

Question: Mike Halloran - Robert W. Baird & Co. - Analyst : Makes sense. And then just on the guide, could you just help me understand the impact of kSARIA in the fourth quarter specifically on a net basis. Both the operational piece as well as, obviously, you've got some step-up amortization type things in the numbers. So just maybe net that out for me, so I understand how that's impacting the guide.

Question: Mike Halloran - Robert W. Baird & Co. - Analyst : No, no, please continue.

Question: Mike Halloran - Robert W. Baird & Co. - Analyst : So that was a far more interesting answer than the question I asked. I was just looking for kSARIA impact, but that was a lot of really great detail. So could you just net out the kSARIA piece? Because I know that was included this time around.

Question: Vladimir Bystricky - Citi Research - Analyst : Congrats on another nice quarter. I guess just stepping back, given the margin performance you're putting up across the portfolio, and you mentioned you're essentially performing at or above your longer-term targets on the legacy businesses. So can you just talk about how you're thinking about the path for margins going forward into '25 and we think out beyond '25 at this point?

Question: Vladimir Bystricky - Citi Research - Analyst : Okay. That's -- that's helpful color, Emmanuel appreciate it. And maybe just following up on that comment around the project margins and the margin in backlog. Can you just talk about the $50 million in awards for [Amaral]. Can you talk about sort of the visibility to timing on the delivery of those? And would you say that's that particular win is consistent with that commentary around higher margins and backlog?

Question: Damian Karas - UBS - Analyst : What has you guys follow up on friction, seeing continued share gains and strength there, particularly in China. But kind of under the hood, just curious how things are progressing with the high-performance pads, kind of a newer area of the business. And how REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 12:30PM, ITT.N - Q3 2024 ITT Inc Earnings Call are you thinking about the potential to expand your aftermarket presence in other regions like China? I know that's something you've been looking into at testing.

Question: Damian Karas - UBS - Analyst : Got it. That makes sense. And then in the connectors business, it sounded like order strength was pretty broad-based. Maybe you could just elaborate on what you're seeing across connectors and your sense for how much of that growth you're experiencing is underlying market versus ITT share gains?

Question: Joseph Ritchie - Goldman Sachs & Co. - Analyst : So we've long talked about the market share story for the friction business. You guys went into some detail on the pumps business earlier. It just seems like you're just seeing share gains really kind of across the portfolio. And I was hoping that maybe you could dive in a little bit further on the rail business and the Aerospace & Defense business. What you're doing there? And maybe if there's a way to describe what the opportunity is across those businesses, that would be helpful as well.

Question: Joseph Ritchie - Goldman Sachs & Co. - Analyst : Super helpful, Luca. I appreciate all the color. And then I guess just a more near-term question, Emmanuel, just talking about MT margins. You said you had a very big headwind this quarter from FX, still expecting 18-plus percent margins for the year. I guess maybe as we head into 2025, any initial comments on where margins could go if we kind of like cut the line today on FX and say that's potentially not as much of a headwind next year. How are we looking for MT margins next year?

Question: Nathan Jones - Stifel Nicolaus Weisel - Analyst : Firstly, a follow-up question on the profitability of large IP projects that Emmanuel, I think you mentioned. I think you called them highly profitable. And historically, the larger projects have been less profitable. Maybe just some more colors and more commentary on what's leading those larger projects to have much higher profitability than they may have historically?

Question: Nathan Jones - Stifel Nicolaus Weisel - Analyst : Makes sense. And then I guess my follow-up question is around strategic pricing. Luca, you talked earlier about earlier on the call about needing to elevate your game even further on strategic pricing. Can you talk about where you think the biggest areas to implement more value-based pricing to target those pricing increases come from? And what impact that could have to margins?

Question: Matt Summerville - D.A. Davidson & Co. - Analyst : Just a couple of quick ones. Obviously, friction aftermarket has had some pretty nice growth in particular, last quarter, up high single digits. How do you do kind of the growth trajectory of that business kind of going forward into '25? And what's your assessment on customer inventory levels there? And then I have another quick follow-up.

Question: Matt Summerville - D.A. Davidson & Co. - Analyst : And then just lastly, on the project side of the business, can you talk about -- you've referenced in the past, Luca, funnel metrics that you track in that business. Can you sort of maybe provide an update as to the go-forward funnel as you see it for IP projects and maybe add a little bit of end market and geographic color to that funnel?