February 8, 2024-- ITT Inc. (NYSE: ITT) today reported financial results for the fourth quarter and full year ended December 31, 2023. For the fourth quarter, the company reported a year-over-year rev...
Autore: Business Wire
Full Year 2023 Highlights:
STAMFORD, Conn.: February 8, 2024-- ITT Inc. (NYSE: ITT) today reported financial results for the fourth quarter and full year ended December 31, 2023. For the fourth quarter, the company reported a year-over-year revenue increase of 7%, up 4% on an organic basis, primarily driven by higher Friction original equipment (OE) volumes in Motion Technologies (MT) and pricing actions in Connect & Control Technologies (CCT) and Industrial Process (IP). Fourth quarter results included a 2% favorable foreign currency impact, while the Micro-Mode acquisition contributed 1% to total revenue growth.
Fourth quarter operating income of $119 million decreased 21% compared to prior year, and operating margin of 14.3% decreased 520 basis points versus prior year primarily due to a one-time loss of $15 million on the sale of the Matrix Composites (Matrix) business in CCT, a prior year non-recurring gain of $16 million on the sale of IP facilities, higher restructuring and corporate charges and cost inflation. On an adjusted basis, operating income of $141 million increased 4% primarily due to higher volumes, pricing actions and productivity. The increase was partially offset by higher corporate expenses, including strategic growth investments, incentive compensation and M&A costs.
Earnings per share for the fourth quarter of $1.12 decreased 19% versus prior year primarily due to the impact of non-recurring items, lower operating income and higher tax rate, partially offset by lower interest expense. On an adjusted basis, earnings per share of $1.34 increased 4% compared to prior year due to higher operating income including favorable foreign currency impact.
Operating cash flow for the fourth quarter of $170 million increased 5% versus prior year driven by higher operating income and strong accounts receivable collections. Free cash flow for the fourth quarter of $131 million was flat versus prior year. For the full year 2023, ITT generated operating cash flow of $538 million, an increase of $260 million versus 2022, and free cash flow of $430 million, an increase of $257 million versus 2022. Both increases were due to higher net income and improved inventory velocity and receivables collections.
Change in Presentation of Operating Income and Operating Margin
ITT is transitioning to a new measure for operating income and operating margin in its press release and related earnings presentation. This is not due to any error, correction or misstatement by ITT. Beginning with the fourth quarter of 2023, the company will no longer disclose total segment operating income or margin, or total adjusted segment operating income or margin and instead will focus on operating income and margin and adjusted operating income and margin on a consolidated basis. This will reflect our previous segment operating income measures minus corporate expense (previously presented below the segment operating income line in ITT’s earnings materials). The difference between adjusted segment operating margin and adjusted operating margin for the fourth quarter and full year 2023 is 180 and 170 basis points, respectively.
Table 1. Fourth Quarter Performance
Q4 2023 | Q4 2022 | Change | |||||||||
Revenue | $ | 829.1 | $ | 774.6 | 7.0 | % | |||||
Organic Growth | 4.5 | % | |||||||||
Operating Income(1) | $ | 118.8 | $ | 150.9 | (21.3) | % | |||||
Operating Margin(1) | 14.3 | % | 19.5 | % | (520) | bps | |||||
Adjusted Operating Income(1) | $ | 140.9 | $ | 136.0 | 3.6 | % | |||||
Adjusted Operating Margin(1) | 17.0 | % | 17.6 | % | (60) | bps | |||||
Earnings Per Share | $ | 1.12 | $ | 1.39 | (19.4) | % | |||||
Adjusted Earnings Per Share | $ | 1.34 | $ | 1.29 | 3.9 | % | |||||
Operating Cash Flow | $ | 170.4 | $ | 162.5 | 4.9 | % | |||||
Free Cash Flow | $ | 131.3 | $ | 132.3 | (0.8) | % | |||||
Note: all results unaudited; dollars in millions except per share amounts | |||||||||||
(1) Reflects transition from segment operating income and adjusted segment operating income (and accompanying margin) to operating income and adjusted operating income (and accompanying margin), as described above. | |||||||||||
Management Commentary
“In 2023, ITT continued to drive growth and differentiation through performance and innovation. We drove high single-digit orders growth whilst also winning the largest single contract ever in our flow business. We outperformed the global automotive market by roughly six hundred basis points in Friction OE to reach more than 29% market share globally. And we invested over $100 million towards future growth, including for capacity expansion and new technologies. With our pricing actions and relentless productivity focus, we grew operating margins 100 basis points, with 330 basis points of improvement in Industrial Process. On capital deployment, we expanded our flow and connectors portfolio through two strategic acquisitions, divested two non-core product lines, and repurchased nearly $70 million of ITT shares. We positioned ITT for another strong performance in 2024,” said Luca Savi, ITT’s Chief Executive Officer and President.
Table 2. Fourth Quarter Segment Results
Revenue | Operating Income | Operating Margin | |||||||||||||||||||||
Q4 2023 | Reported Increase / (Decrease) | Organic Growth | Q4 2023 | Reported Increase / (Decrease) | Adjusted Increase / (Decrease) | Q4 2023 | Reported Increase / (Decrease) | Adjusted Increase / (Decrease) | |||||||||||||||
Motion Technologies | $ | 364.7 | 10.4 | % | 7.4 | % | $ | 60.3 | 26.2 | % | 28.5 | % | 16.5% | 200 | bps | 240 | bps | ||||||
Industrial Process | 289.7 | 3.2 | % | 2.1 | % | 57.2 | (28.5) | % | (5.9) | % | 19.7% | (880) | bps | (210) | bps | ||||||||
Connect & Control Technologies | 175.6 | 6.7 | % | 2.5 | % | 16.5 | (47.8) | % | 5.7 | % | 9.4% | (980) | bps | (20) | bps | ||||||||
Note: all results unaudited; excludes intercompany eliminations of $0.9 million; comparisons to Q4 2022; dollars in millions. | |||||||||||||||||||||||
Motion Technologies revenue increased 10%, driven by higher sales volume in Friction OE, including 30% growth in China, higher rail shipments and favorable foreign currency translation. Operating income of $60 million increased 26% due to productivity savings, higher sales volume, and lower material inflation, partially offset by higher labor and overhead costs, unfavorable product mix and higher strategic investments.
Industrial Process revenue increased 3%, primarily driven by growth in aftermarket parts and service, pricing actions and favorable foreign currency impacts. Operating income of $57 million decreased 29% driven by a non-recurring gain of $16 million in the prior year on facilities sales and higher restructuring and labor costs, partially offset by pricing actions and productivity savings.
Connect & Control Technologies revenue increased 7%, primarily driven by growth in aerospace and industrial components, pricing actions, the Micro-Mode acquisition and favorable foreign currency impacts. Operating income of $17 million decreased 48% driven by a one-time loss of $15 million on the sale of Matrix and higher raw material, labor and overhead costs. The decrease was partially offset by pricing actions and productivity savings. On an adjusted basis, operating income of $33 million increased 6% due to pricing actions.
Table 3. 2023 Full Year Results
FY 2023 | FY 2022 | Change | |||||||||
Revenue | $ | 3,283.0 | $ | 2,987.7 | 9.9 | % | |||||
Organic Growth | 8.1 | % | |||||||||
Operating Income(1) | $ | 528.2 | $ | 468.0 | 12.9 | % | |||||
Operating Margin(1) | 16.1 | % | 15.7 | % | 40 | bps | |||||
Adjusted Operating Income(1) | $ | 554.6 | $ | 473.8 | 17.1 | % | |||||
Adjusted Operating Margin(1) | 16.9 | % | 15.9 | % | 100 | bps | |||||
Earnings Per Share | $ | 4.97 | $ | 4.40 | 13.0 | % | |||||
Adjusted Earnings Per Share | $ | 5.21 | $ | 4.44 | 17.3 | % | |||||
Operating Cash Flow | $ | 538.0 | $ | 277.7 | 93.7 | % | |||||
Free Cash Flow | $ | 430.4 | $ | 173.8 | 147.6 | % | |||||
Note: all results unaudited; dollars in millions except per share amounts | |||||||||||
(1) Reflects transition from segment operating income and adjusted segment operating income (and accompanying margin) to operating income and adjusted operating income (and accompanying margin), as described above. | |||||||||||
Quarterly Dividend Increase
The company announced today an increase in its quarterly dividend of 10% to $0.319 per share on the company’s outstanding common stock. ITT’s Board of Directors approved the cash dividend for the first quarter of 2024, which will be payable on April 1, 2024 to shareholders of record as of the close of business on March 8, 2024. The 10% increase in the quarterly dividend announced today follows increases of 20% and 10% in 2022 and 2023, respectively. Including the 10% increase in 2024, the company’s dividend has grown at a 16% compounded annual growth rate since 2019.
2024 Guidance
We expect revenue growth of 9% to 12%, up 3% to 6% on an organic basis; operating margin of 16.7% to 17.3%, and adjusted operating margin of 16.9% to 17.5%, flat to up 60 bps; EPS of $5.37 to $5.82, and adjusted EPS of $5.45 to $5.90, representing growth of 9% at the midpoint; and free cash flow of $435 million to $475 million, representing free cash flow margin of 12% to 13% for full year 2024.
It is not possible, without unreasonable efforts, to estimate the impacts of foreign currency fluctuations, acquisitions and certain other special items that may occur in 2024 as these items are inherently uncertain and difficult to predict. As a result, we are unable to quantify certain amounts that would be included in a reconciliation of organic revenue growth and adjusted operating margin to the most directly comparable GAAP financial measures without unreasonable efforts and we have not provided reconciliations for these forward-looking non-GAAP financial measures.
Investor Conference Call Details
ITT’s management will host a conference call for investors on Thursday, February 8, 2024 at 8:30 a.m. Eastern Time. The briefing can be accessed live via webcast which is available on the company’s website: https://investors.itt.com. A replay of the webcast will be available two hours after the call until Thursday, February 22, 2024 at midnight Eastern Time. Reconciliations of non-GAAP financial performance metrics to their most comparable U.S. GAAP financial performance metrics are defined and presented below and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with U.S. GAAP.
Safe Harbor Statement
This release contains “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. In addition, the conference call (including the financial results presentation material) may include, and officers and representatives of ITT may from time to time make and discuss, projections, goals, assumptions, and statements that may constitute “forward-looking statements”. These forward-looking statements are not historical facts, but rather represent only a belief regarding future events based on current expectations, estimates, assumptions and projections about our business, future financial results, the industry in which we operate, and other legal, regulatory, and economic developments. These forward-looking statements include, but are not limited to, future strategic plans and other statements that describe the company’s business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future events and future operating or financial performance.
We use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “future,” “may,” “will,” “could,” “should,” “potential,” “continue,” “guidance” and other similar expressions to identify forward-looking statements. Forward-looking statements are uncertain and, by their nature, many are inherently unpredictable and outside of ITT’s control, and are subject to known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.
Where in any forward-looking statement we express an expectation or belief as to future results or events, such expectation or belief is based on current plans and expectations of our management, expressed in good faith and believed to have a reasonable basis. However, we cannot provide any assurance that the expectation or belief will occur or that anticipated results will be achieved or accomplished.
Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation:
The forward-looking statements included in this release speak only as of the date hereof. We undertake no obligation (and expressly disclaim any obligation) to update any forward-looking statements, whether written or oral or as a result of new information, future events or otherwise.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | |||||||||||||
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) | |||||||||||||
Three Months Ended | Full Year | ||||||||||||
December 31, 2023 | December 31, 2022 | December 31, 2023 | December 31, 2022 | ||||||||||
Revenue | $ | 829.1 | $ | 774.6 | $ | 3,283.0 | $ | 2,987.7 | |||||
Cost of revenue | 543.1 | 526.3 | 2,175.7 | 2,065.4 | |||||||||
Gross profit | 286.0 | 248.3 | 1,107.3 | 922.3 |