ITT REPORTS STRONG FIRST-QUARTER RESULTS, RAISES 2021 GUIDANCE
- Revenue up 5%, organic revenue up 2% driven by strength in Friction and Connectors
- Segment operating margin of 17.0%, up 530 bps, adjusted segment operating margin of 17.5%, up 300 bps; incremental margin over 70%
- EPS of $0.99, up 4%; adjusted EPS of $1.06, up 33%
- Raising 2021 revenue, segment margin, EPS and free cash flow guidance
White Plains, NY ITT Inc. (NYSE: ITT) today reported first quarter 2021 financial results. The company reported first quarter year-over-year sales increase of 5%, up 2% on an organic basis driven primarily by strength in its Friction and Connectors businesses. Segment operating margin for the first quarter of 17.0% expanded 530 basis points and adjusted segment operating margin of 17.5% expanded 300 basis points. Operating cash flow of $71 million was up 32%, and free cash flow of $54 million was up 71%.
"ITT had an encouraging start to 2021," said Luca Savi, Chief Executive Officer and President of ITT Inc. "We continue to win in the marketplace, as evidenced by the strong organic sales growth in Friction and 20% orders growth in Connectors. Sales in Friction outpaced the global automotive market by over 1,500 basis points this quarter, with strength across all regions. Further, the actions in 2020 to address lower demand worldwide coupled with our continued resilience generated 300 basis points of adjusted margin expansion, delivering over 70% incremental margin for the quarter. Industrial Process delivered margin above 15% for the second consecutive quarter, with adjusted operating income growing 25% on a 12% organic revenue decline.
"ITT delivered adjusted earnings per share for the first quarter of $1.06, driving higher sales volumes, whilst continuing to generate productivity and leverage our lower fixed cost base. We executed part of our share repurchase plan in the first quarter, buying back $50 million of ITT shares. Free cash flow increased 71% compared to prior year, a trailing twelve-month free cash flow margin of close to 16%.
Savi concluded, "While we expect to face certain market and supply chain headwinds moving forward, I am confident in our team’s ability to outperform, which is reflected in our outlook for 2021. We have ample capital to deploy toward growth investments, M&A, dividends, and share repurchases to position ITT for future growth. We now expect adjusted earnings per share to grow 19 to 25 percent above prior year, a $0.30 increase to our previous midpoint.
Table 1. First Quarter Performance
|1Q 2021||1Q 2020||Change|
|Segment Operating Income||$118.8||$77.9||52.5%|
|Segment Operating Margin||17.0%||11.7%||530 bps|
|Adjusted Segment Operating Income||$122.1||$96.2||26.9%|
|Adjusted Segment Operating Margin||17.5%||14.5%||300 bps|
|Earnings Per Share||$0.99||$0.95||4.2%|
|Adjusted Earnings Per Share||$1.06||$0.80||32.5%|
|Operating Cash Flow||$70.8||$53.5||32.3%|
Note: all results unaudited
Organic revenue (defined as total revenue excluding impact of foreign currency, acquisitions and divestitures) increased 2% driven by strong top-line growth in the Motion Technologies segment, which significantly outperformed the global automotive market.
Adjusted segment operating income increased 27% to $122 million, at a margin of 17.5%. The increase in adjusted segment operating income resulted from higher sales volumes and higher net productivity, including the benefit of restructuring and cost actions executed in 2020, partially offset by strategic investments to drive future growth.
Free cash flow was up 71%, to $54 million, driven primarily by higher segment operating income and lower capital expenditures. We expect capital expenditures to increase sequentially for the remainder of 2021. At the end of the first quarter of 2021, we had approximately $1.5 billion in available liquidity.
Table 2. First Quarter Segment Results
|1Q 2021||Reported Inc / (Dec)||Organic Inc / (Dec)||1Q 2021||Reported Inc / (Dec)||Adjusted Inc / (Dec)|
|Connect & Control Technologies||$127.3||(8.2)%||(9.7)%||$11.8||(25.8)%||(18.9)%|
|Total segment results||$698.4||5.3%||1.5%||$118.8||52.5%||26.9%|
Note: all results unaudited; excludes intercompany eliminations; comparisons to Q1 2020
Motion Technologies organic revenue increased 17%, driven primarily by strength in the global automotive markets and continued share gains in our Friction business which grew 20%. Wolverine revenue increased 9% due to growth in sealings and OE shims. KONI and Axtone revenue increased 5% driven by increased rail volumes and growth in the car aftermarket. Adjusted operating income improved 43% to $76 million primarily due to strong sales volumes, net productivity, and foreign currency, partially offset by investments for growth. Adjusted operating margin improved 280 basis points to 20.6%.
Industrial Process organic revenue decreased 12% primarily due to weakness in the short-cycle business as demand for baseline pumps and service within the oil and gas market declined. This was partially offset by growth in valves led by strong biopharma and industrial activity. Adjusted operating income increased 25% to $32 million primarily due to net productivity, price, favorable non-recurring items relating to a customer settlement and the CARES Act credit, partially offset by lower sales volumes. These actions drove adjusted segment margin expansion of 450 basis points to 15.8%.
Connect and Control Technologies organic revenue decreased 10% primarily driven by continued weakness in commercial aerospace, as expected, and defense. This was partially offset by growth in Connector sales across all regions, with strength in the industrial market. Adjusted segment operating income decreased 19% to $14 million primarily driven by reduced sales volumes partially offset by net productivity, including restructuring benefits.
2021 GuidanceThe company raised its 2021 guidance to reflect the strong first quarter results and a more favorable outlook than initially anticipated for the remainder of 2021. We now expect revenue growth of 8% to 10%, or up 5% to 7% on an organic basis; segment operating margin of 16.8% to 17.3%, and adjusted segment operating margin of 16.9% to 17.4%, up 170 to 220 bps; earnings per share of $3.65 to $3.91, and adjusted earnings per share of $3.80 to $4.00 per share, up 19% to 25%; and free cash flow of $300 million to $320 million, with a free cash flow margin range of 11% to 12% for the full year.
Investor Conference Call DetailsITT's senior management will host a conference call for investors today at 9:00 a.m., Eastern time. The briefing can be monitored live via webcast at the following address on the company's website: www.itt.com/investors. A replay of the webcast will be available for 90 days following the presentation. A replay will also be available telephonically from two hours after the webcast until Friday, May 21, 2021, at midnight, Eastern time. Reconciliations of non-GAAP financial performance metrics to their most comparable U.S. GAAP financial performance metrics are defined and attached to the press release available at itt.com/investors and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with U.S. GAAP.
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