ITT's Margins Surge on Defense and Acquisition Momentum

Date of Call: Feb 5, 2026

Financials Results

• Revenue: Q4: $1B+, up 13% total and 9% organic YOY. Full Year: up 8% total and 5% organic YOY.
• EPS: Q4: $1.85 per diluted share, up 23% YOY (26% excluding dilutive impact of equity offering for SPX FLOW). Full Year: up 14% YOY (15% excluding dilutive impact).
• Operating Margin: Full Year: 18.2%, expanded 40 basis points YOY. Q4: 18.4%, up 90 basis points YOY.

Guidance:

• Q1 2026 revenue growth expected at ~11% total and 5% organic.
• All segments expected to expand margin vs prior year, delivering >100 bps of EBIT margin growth.
• Q1 EPS expected at $1.70 midpoint, up 29% excluding December equity offering impact.
• Full year 2026 organic revenue expected to grow mid-single digits.
• Full year 2026 expected at least 50 bps of margin expansion.
• SPX FLOW acquisition expected to close in March and generate net single-digit EPS accretion in full year 2026.

Business Commentary:

Revenue and Order Growth Across Segments:

• ITT Inc. reported an 8% total revenue increase and 5% organic growth in 2025, with both orders and revenue exceeding $1 billion for the first time in the fourth quarter. Orders grew 15% or 9% organically.
• The growth was driven by contributions from both legacy businesses and acquisitions, particularly in the Connect & Control Technologies (CCT) segment, which saw 40% organic growth, and strong performance in aerospace and defense.

Profitability and Margin Expansion:

• The company expanded its operating margin by 40 basis points to 18.2% for the full year, with a 90 basis points increase in the fourth quarter to 18.4%.
• This was attributed to strong operational performance, strategic acquisitions like Svanehøj and kSARIA, and effective cost management and productivity improvements.

Free Cash Flow and Share Repurchase:

• ITT achieved a 27% increase in free cash flow, reaching over $550 million, with a free cash flow margin up 200 basis points to 14%.
• The increase was due to strong cash conversion and strategic use of capital, including a $500 million share repurchase early in 2025.

Defense and Aerospace Strength:

• Defense orders grew 27%, with significant contributions from kSARIA and the expansion of the KONI Hydroride business, while aerospace and defense within CCT grew 27% and 17%, respectively.
• Growth in these areas was fueled by increased demand for advanced electronics, product innovation, and strong project execution.

Strategic Acquisitions and Future Growth:

• The pending acquisition of SPX FLOW is expected to close in March, with an estimated net single-digit EPS accretion in 2026, enhancing ITT's flow business.
• The acquisition aligns with ITT's strategy to focus on higher growth and margin flow opportunities, leveraging SPX FLOW's strong market position and customer relationships.

Sentiment Analysis:

Overall Tone: Positive

• "The dominant theme of the year was growth, and we delivered growth across every metric." "We ended the year with another strong quarter." "We are accelerating our 2030 vision as we compound our organic performance with the announced SPX FLOW acquisition. We're well positioned for continued value creation."

Q&A:

• Question from Jeffrey Hammond (KeyBanc Capital Markets Inc.): Update on the funnel visibility for IP orders and how you see orders flowing through the year?
  Response: Funnel slightly down YOY but stable QoQ; Middle East and Asia Pacific grew nicely. 2026 orders expected low to mid-single-digit growth across all end markets.

• Question from Michael Halloran (Robert W. Baird & Co. Incorporated): How sustainable is the SPX FLOW order trajectory and core drivers for continued momentum?
  Response: Nutrition & Health in good CapEx cycle, strong customer intimacy; mixers had good opportunities. Overall, acquisition seen as growth opportunity.

• Question from Joseph Giordano (TD Cowen): How do you prepare high-growth companies like Svanehøj and kSARIA to prevent challenging comps, and how do you prep for SPX FLOW integration?
  Response: kSARIA orders sustainable due to defense spend; Svanehøj difficult to repeat 2025 growth but expanding with new products and inorganic additions. SPX integration: teams working closely, defining structure, synergies, and commercial collaboration ahead of close.

• Question from Nathan Jones (Stifel, Nicolaus & Company): Organizational structure post-SPX FLOW integration and potential margin improvement from Boeing contract negotiations?
  Response: SPX businesses to run separately if performing well; synergies mainly from G&A. Boeing contract: high double-digit price adjustment over 4-5 years, large profitability improvement for aerospace.

• Question from Amit Mehrotra (UBS Investment Bank): Evidence of cyclical market improvement in more cyclical parts of the business?
  Response: Some small signs of improvement in short-cycle IP orders, European automotive order book stable, aftermarket growing. Too early to tell but encouraging.

• Question from Vladimir Bystricky (Citigroup Inc.): Any change in competitive behavior in IP, and incremental opportunities in biopharma valves?
  Response: No competitive behavior change; performance improvements drive customer loyalty. Biopharma valves up 10% in orders, GLP-1 opportunity grew to >$50M, European penetration still low for growth.

• Question from Matt Summerville (D.A. Davidson & Co.): Expected price capture across segments for 2026 and outlook for Friction aftermarket?
  Response: Price capture strong in 2026: IP and CCT positive on price/cost, MT neutral. Friction aftermarket: independent aftermarket flat, OE spares flat with market share gains.

• Question from Sabrina Abrams (BofA Securities): Drivers behind accelerating organic growth trend and reason for deceleration to mid-single digits next quarter?
  Response: Growth driven by CCT aerospace/defense and IP pump projects (up 30% in 2025). No specific call-out on deceleration; guidance reflects conservatism.

Contradiction Point 1

2026 Global Auto Production Outlook

It involves changes in financial forecasts and market strategy, as the outlook for auto production directly impacts the company's growth expectations and investor confidence.

How sustainable is the SPX FLOW order trajectory, what are the core drivers, and how has the 2026 outlook for the auto end market in Motion Technologies evolved over the last 3-6 months? - Michael Halloran (Robert W. Baird & Co. Incorporated)

2025Q4: For 2026, global auto production is expected to be flat or slightly down, with Europe flat and North America/China flat to low single-digit down. - Luca Savi(CEO)

What's your outlook for global auto production, particularly in China, next year? - Michael Halloran (Robert W. Baird & Co.)

2025Q3: For 2026, production is expected to be flattish to low single-digit growth. - Luca Savi(CEO)

Contradiction Point 2

Motion Technologies Friction Aftermarket 2026 Outlook

It involves changes in the expected performance of a key business segment, affecting investor expectations and company strategy regarding growth drivers.

What is the expected price capture across segments and the guidance assumptions for Friction aftermarket in 2026? - Matt Summerville (D.A. Davidson & Co.)

2025Q4: The independent Friction aftermarket is expected to be roughly flat in 2026, as Europe's auto market is flat. - Emmanuel Caprais(CFO)

How is the automotive aftermarket business performing, and what's the progress on high-performance and VIDAR product ramps? - Matt Summerville (D.A. Davidson)

2025Q3: The aftermarket business remains focused in Europe and has seen some market-related decline, not share loss. - Luca Savi(CEO)

Contradiction Point 3

Industrial Process (IP) Order Funnel and Outlook

It involves changes in the trend and health of the order funnel, which is critical for understanding future revenue potential and business strategy.

Can you provide an update on the Industrial Process (IP) orders funnel and expected flow through the year, and clarify the 40% organic growth in Connect & Control Technologies (CCT) orders along with whether Q1 guidance includes amortization? - Jeffrey Hammond (KeyBanc Capital Markets Inc.)

2025Q4: The order funnel is slightly down year-over-year but stable in Q4 and healthy... A positive customer outlook in Saudi Arabia suggests stronger investment in 2026. - Luca Savi(CEO)

What factors are driving the update from previous guidance to the current guidance, considering pricing impacts, volume pressures in the back half, FX, and other considerations? - Mike Halloran (Baird)

2025Q1: The IP market funnel is down but remains elevated, with a strong backlog ($1 billion, up 15% YoY, 8% QoQ, book-to-bill >1.2). This provides confidence in 2025 revenue growth. - Emmanuel Caprais(CFO)