ITT Inc.'s Q3 2025 Earnings Call: Contradictions Emerge on Auto Production, IP Demand, and CCT Margins

Date of Call: October 29, 2025

Financials Results

• Revenue: $999M, up 13% total and 6% organic vs Q3 2024
• EPS: Adjusted EPS $1.78, up 21% YOY
• Operating Margin: 18.5%, up 20 basis points vs prior year

Guidance:

• 2025 total revenue growth now expected 6%–7%; organic revenue expected 3%–5%.
• Excluding M&A, full-year margin expansion expected to exceed 100 bps.
• Adjusted EPS midpoint raised to $6.65 (midpoint +$0.20); low end +$0.27, high end +$0.13.
• Effective tax rate expected ~21.5% for the year.
• Free cash flow expected to reach $500M (high end) with ~13% free cash flow margin.
• Implied Q4: high-single-digit revenue growth (mid-single-digit organic), operating margin ~+130 bps, EPS growth just below 20%.

Business Commentary:

* Revenue and Order Growth: - ITT reported nearly $1 billion in total orders for the third consecutive quarter, up 3%, with all segments contributing to a $999 million revenue. - The growth was bolstered by strong order intake from acquisitions like kSARIA and Svanehøj. - The company's backlog ended the quarter at nearly $2 billion, up 13% year-on-year.

• Profitability and Cash Performance:
• ITT's operating margin expanded by over 100 basis points, excluding M&A, and adjusted EPS grew 21%.
• The company's free cash flow increased 46% to $368 million year-to-date.

• Strong cash collections, strategic inventory management, and lower interest expenses contributed to this performance.

• Acquisition Integration and Performance:

• Acquired companies, kSARIA and Svanehøj, have performed ahead of expectations with order growth of 58% and 59% respectively.
• Svanehøj, in particular, expects a book-to-bill ratio of nearly 1.3 for the year despite over 30% revenue growth.

• The acquisitions have driven earnings accretion and operational improvements, contributing to ITT's overall performance.

• Segment Performance and Strategic Initiatives:

• Industrial Process and Connect & Control segments grew 11% and 25%, respectively, with strong demand in aerospace, defense, and auto sectors.
• The company's strategic initiatives, such as the VIDAR motor and Geo-Pad, are advancing with successful testing and installations.
• These initiatives support ITT's long-term growth strategy and innovation focus.

Sentiment Analysis:

Overall Tone: Positive

• Management raised full-year revenue and EPS guidance, reported adjusted EPS +21% YOY to $1.78, free cash flow YTD +46% to $368M and now expects $500M, operating margin expanded and excluding M&A margin +110 bps; CEO called Q3 'another step towards our 2030 targets' and acquisitions 'performing well ahead of expectations.'

Q&A:

• Question from Michael Halloran (Robert W. Baird & Co. Incorporated): How do you view global auto production near term and into 2026 and how does that baseline affect ITT?
  Response: CEO: Full-year auto production expected ~+2% to 91M driven by China; 2026 likely flat to low-single-digit up, and ITT expects to continue outperforming the market (~360 bps outperformance).

• Question from Michael Halloran (Robert W. Baird & Co. Incorporated): What is the state of the IP funnel and confidence in converting opportunities to orders?
  Response: CEO: Funnel up sequentially +22% for active quotes and up 9% YoY excluding energy; green-project funnel and budgets rising, giving confidence in conversion.

• Question from Jeffrey Hammond (KeyBanc Capital Markets Inc.): Can you unpack the components of the $0.20 EPS raise (profitability, acquisitions, tax)?
  Response: CFO: Q3 outperformance contributed just over $0.10 versus prior guide; Q4 benefits (higher revenue and margins) ~<$0.10; tax impact ~+$0.01, totaling the $0.20 raise.

• Question from Jeffrey Hammond (KeyBanc Capital Markets Inc.): Which markets are most promising entering 2026?
  Response: CEO: Strong backlog positions IP (projects) and CCT (aero & defense) as tailwinds; Motion Technologies benefits from automotive outperformance; Svanehøj and kSARIA expected to drive M&A-led growth in 2026.

• Question from Vladimir Bystricky (Citigroup Inc.): Short-cycle orders in IP were up ~5% — what regions/end markets are driving that and is it sustainable?
  Response: CFO/CEO: Short-cycle strength came from parts and valves (medical valve exposure noted); legacy short-cycle was 7% with 4% volume contribution; strengths seen across regions and August/September were particularly strong, indicating sustainability.

• Question from Vladimir Bystricky (Citigroup Inc.): Color on Saudi/Middle East pump demand and durability of the market there?
  Response: CEO/CFO: Middle East funnel up 21% sequentially, 95% historical win rate on quotes; strong project pipeline and customer investment support capacity expansions — region viewed as growth area.

• Question from Joseph Ritchie (Goldman Sachs Group, Inc.): How attractive is your current M&A funnel and target areas?
  Response: CEO: Funnel is rich and active, focused on pumps, valves and connectors (aero/defense); management is pursuing deals diligently but will allocate capital to buybacks if acquisitions don't close.

• Question from Joseph Ritchie (Goldman Sachs Group, Inc.): Are you tracking toward similar ~$1B order quarters in Q4?
  Response: CEO: Orders have seen phasing but full-year book-to-bill will be comfortably >1 and year-end backlog will be higher than start of 2025; Q4 order activity expected to remain strong (similar magnitude).

• Question from Matt Summerville (D.A. Davidson & Co.): Where is aftermarket demand concentrated and what's the cadence for VIDAR and high-performance ramps?
  Response: CEO: Aftermarket remains Europe-only at the premium end and is small/declining; high-performance is winning OEM content and scaling; VIDAR installed with three large U.S. energy customers, adoption on an S-curve with a long-term $150M sales target by 2030.

• Question from Damian Karas (UBS Investment Bank): Are you seeing deferred projects in IP?
  Response: CEO: Not materially; funded active project funnel increased materially quarter-to-quarter, so no meaningful deferrals observed.

• Question from Sabrina Abrams (BofA Securities): How should we think about incrementals and pricing as kSARIA amortization anniversaries?
  Response: CFO/CEO: Incrementals excluding acquisitions were ~40% in Q3 and expected similar in Q4; for 2026 a 30%–35% incremental margin is a reasonable expectation; pricing power strongest in CCT, selective in IP, and different dynamics in automotive.

• Question from Andres Loret de Mola (Stifel): What was the FX impact on Motion Tech margin and other CCT growth drivers beyond A&D?
  Response: CFO: FX was negative in absolute terms but a YoY benefit of ~100 bps for Motion Tech; CCT tailwinds include narrow-body aero recovery, pricing progress (including Boeing negotiations), sourcing/manufacturing efficiencies, and end of kSARIA temporary amortization (> $0.10 benefit next year).

Contradiction Point 1

Auto Production Growth Expectations

It involves differing expectations regarding the growth of global auto production, which is crucial for forecasting revenue and market performance.

What is the current state of global auto production and its expected trend over the next year? - Michael Halloran (Robert W. Baird & Co.)

2025Q3: Auto production in Q3 was strong, with global production up 2%. 2026 is expected to be flattish to low single-digit up. - Luca Savi(CEO)

What are you seeing regarding capital spending, large projects, and customer hesitancy? - Michael Halloran (Robert W. Baird & Co.)

2025Q2: Auto production was about 77 million units, down 1% year-over-year, with the Chinese market down 33% year-over-year. We expect the production will be around 78 million units in 2025, which would be down slightly year-over-year. - Luca Savi(CEO)

Contradiction Point 2

Order Growth and Project Funnel

It involves differing statements about the growth and health of the order funnel, which impacts revenue visibility and growth expectations.

Can you explain the IP funnel and opportunity-to-order conversion rate? - Michael Halloran (Robert W. Baird & Co.)

2025Q3: The funnel is up sequentially by 22%, with a strong increase in North America, APAC, and Latin America. - Luca Savi(CEO)

How do CCT order share gains compare to overall market growth? - Adam Michael Farley (Stifel, Nicolaus & Company, Incorporated)

2025Q2: The IP funnel remains strong with a book-to-bill ratio of 1.1x for the quarter and a backlog of $9.8 billion up 5% year-over-year. Our funnel is up year-over-year, up sequentially by 13%, supported by strong order growth in defense and aerospace. - Luca Savi(CEO)

Contradiction Point 3

IP Orders and Backlog Growth

It reflects differing perspectives on the growth and sustainability of orders and backlog in the Industrial Processes (IP) segment, which impacts revenue projections and investor confidence.

Can you discuss the growth of short-cycle orders in IP and their sustainability? - Vladimir Bystricky (Citigroup Inc.)

2025Q3: Short-cycle orders are up 5%. Parts and valves saw strong activity, while legacy segments experienced 4% volume growth. - Emmanuel Caprais(CFO)

Can you clarify your updated growth assumptions for IP between projects and short-term cycles? - Brad Hewitt (Wolfe Research)

2025Q1: Order growth and backlog are strong, but we're still working to convert long lead projects into revenue. Short cycle orders were up 1% sequentially, indicating consistent demand. - Emmanuel Caprais(CFO)

Contradiction Point 4

IP Orders and Demand

It involves differing statements about the demand and order trends in the Industrial Process (IP) segment, which could impact revenue projections and investor expectations.

Can you explain the IP funnel and opportunity-to-order conversion? - Michael Halloran (Robert W. Baird & Co.)

2025Q3: Orders were up 22%, with a strong increase in North America, APAC, and Latin America. The green project funnel is also up. - Luca Savi(CEO)

What are the order patterns on the IP side, particularly in short-cycle and project activities? How do you expect the momentum to evolve? - Michael Halloran (Baird)

2024Q4: Orders were good in Q4, with projects up 25% and short cycle up 8%. The weekly run rate was the second highest ever in Q4. - Luca Savi(CEO)

Contradiction Point 5

CCT Margin and Amortization

It involves differing statements about the expected margin impact of temporary intangible amortization, which could affect financial projections and investor understanding of the company's financial health.

How should we think about 2026 CCT margins given ongoing amortization and other factors? - Damian Karas (UBS Investment Bank)

2025Q3: CCT will benefit from aerospace recovery, price improvements, and operational efficiencies. Amortization will end, impacting margins positively. - Emmanuel Caprais(CFO)

What is your outlook for 2025 guidance and how will this year’s earnings progress? Are there Q1 risks that may improve later in the year? - Joseph Ritchie (Goldman Sachs)

2024Q4: For CCT around 50% to 60%. The temporary intangible amortization of $0.16 in 2025 will disappear, but the benefit is compensated by kSARIA's amortization ending in Q4. - Emmanuel Caprais(CFO)