ITT First-Quarter 2019 Results

ITT Delivers Strong Q1 Results

Raises 2019 Earnings Guidance

WHITE PLAINS, N.Y.–(BUSINESS WIRE)–ITT Inc. (NYSE: ITT)

• Revenue of $696 million up +1%; Organic Revenue +5%
• Segment OI Margin of 15.9%; Adj Segment OI Margin of 16.2%
• EPS of $0.80; Adj EPS of $0.91 up +18%
• Adj EPS Guidance Midpoint Increased to $3.58

ITT Inc. today reported record adjusted segment operating income, record
margins and record adjusted EPS for the quarter ending March 31, 2019.

Revenue and Orders

Revenue grew 1 percent, including a 4-point impact due to unfavorable
foreign exchange. Organic revenue (defined as total revenue excluding
foreign exchange, acquisition and divestitures) increased 5 percent
driven by share gains and execution across key end markets. The strength
of our diversification fueled our 5 percent organic growth as oil and
gas grew 11 percent, industrial grew 10 percent, and transportation grew
2 percent.

Organic orders grew 1 percent, driven by a 15 percent increase in pump
projects on increased demand in the oil and gas and industrial markets,
significant defense and connector platform wins, and Friction growth in
North America, offset by weakness in Europe and China. Excluding a
significant prior-year Russian rail order valued at $14 million, ITT
organic orders grew 3 percent.

Segment Operating Income

Segment operating income growth of 9% was driven by volume leverage,
solid productivity and supply chain actions. These improvements were
partially offset by higher commodity costs and tariffs, unfavorable mix
and foreign currency impacts. All three segments delivered triple-digit
margin expansion in the quarter.

Earnings Per Share

GAAP EPS declined to $0.80, compared to $1.14 in the prior year. The
prior year benefited from an asbestos-related insurance settlement of
$0.36 and favorable tax items of $0.20, which included a valuation
allowance reversal.

Adjusted EPS grew 18% to $0.91, reflecting an increase in segment
operating income, reduction in corporate costs, lower interest expense
and a favorable tax rate, partially offset by an unfavorable foreign
currency impact of $0.03.

First-Quarter 2019 Business Segment Results

All quarterly results are compared to the respective prior-year period.

Motion Technologies

• Total revenue decreased 8 percent to $315 million, including a 7-point
  unfavorable impact from foreign exchange. Organic revenue declined 1
  percent, primarily due to auto OEM weakness that was partially offset
  by strength in rail and the auto independent aftermarket. Friction OEM
  organic revenue outpaced the global auto market by over 500 basis
  points on share gains in North America. KONI sales grew 17 percent
  primarily from rail market share gains in Europe and Asia, offset by a
  decline at Wolverine.
• Operating income of $61 million and adjusted segment operating income
  of $62 million decreased 2 percent primarily due to unfavorable
  foreign exchange and tariffs. The benefits from productivity and cost
  actions were more than offset by higher commodity costs and tariffs,
  and an unfavorable foreign currency impact of $5 million. Strategic
  investments in global growth and Smart Pad technology were funded by
  European government investment incentives. Segment operating margins
  were 19.3 percent and adjusted margins improved 110 basis points to
  19.5 percent.

Industrial Process

• Total revenue increased 14 percent to $216 million. Organic revenue
  increased 16 percent on a 47 percent increase in pump projects driven
  by strong chemical, mining, and oil and gas activity and a 9 percent
  increase in short-cycle activity led by baseline pumps, valves, and
  aftermarket demand in oil and gas, chemical, and industrial markets.
• Operating income increased 31 percent to $22 million, and adjusted
  operating income increased 35 percent to $23 million, reflecting
  higher volumes, favorable pricing and net productivity, which offset
  the impact of tariffs and unfavorable mix.

Connect and Control Technologies

• Total revenue increased 4 percent to $165 million, and organic revenue
  increased 6 percent. The increase reflects 14 percent growth in
  aerospace and defense from OEM and aftermarket connectors and
  components, partially offset by a 4 percent decline in industrial
  markets.
• Operating income increased 19 percent to $27 million and adjusted
  segment operating income increased 19 percent to $28 million, driven
  by higher volumes and net operating productivity.

Guidance

Based on the incremental benefits from the Rheinhütte Pumpen acquisition
of approximately $40 million, partially offset by unfavorable foreign
exchange of $24 million, ITT is raising its total revenue guidance to
the new range of up 3 to 5 percent. There is no change to the previous
organic revenue guidance of up 3 to 5 percent.

The company is raising the mid-point of its previously announced 2019
full-year adjusted EPS guidance by 4 cents to $3.58, which represents an
11 percent increase compared to the prior year. The updated adjusted EPS
guidance range of $3.50 to $3.66 reflects the strong first-quarter
results and incremental productivity and cost actions, partially offset
by additional unfavorable foreign currency, and European tariff costs
impacting Motion Technologies. The company is also raising its
previously announced 2019 full-year GAAP EPS guidance to $2.78 to $3.06.

Investor Call Today

ITT’s senior management will host a conference call for investors today
at 9 a.m. ET to review performance and answer questions. 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 17, 2019, at midnight.

For a reconciliation of GAAP to non-GAAP results, please refer to www.itt.com/investors
or click
here. All references to EPS are defined as diluted earnings per
share from continuing operations.

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. These forward-looking statements are not
historical facts, but rather are based on current expectations,
estimates, assumptions and projections about our business, future
financial results and 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
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 such forward-looking statements. Forward-looking
statements are uncertain and to some extent unpredictable, and involve
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, there can
be no assurance that the expectation or belief will occur or that
anticipated results will be achieved or accomplished. More information
on factors that could cause actual results or events to differ
materially from those anticipated is included in the Risk Factors
section of the company’s Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q and other documents filed from time to time with the
Securities and Exchange Commission.

The forward-looking statements included in this release speak only as of
the date hereof. We undertake no obligation to update any
forward-looking statements, whether as a result of new information,
future events or otherwise.

Key Performance Indicators & Non-GAAP Measures

Management reviews a variety of key performance indicators including
revenue, segment operating income and margins, earnings per share, order
growth, adjusted free cash flow, and backlog, some of which are
non-GAAP. In addition, we consider certain measures to be useful to
management and investors when evaluating our operating performance for
the periods presented. These measures provide a tool for evaluating our
ongoing operations and management of assets from period to period. This
information can assist investors in assessing our financial performance
and measures our ability to generate capital for deployment among
competing strategic alternatives and initiatives, including, but not
limited to, acquisitions, dividends and share repurchases. These
metrics, however, are not measures of financial performance under
accounting principles generally accepted in the United States of America
(GAAP) and should not be considered a substitute for measures determined
in accordance with GAAP. We consider the following non-GAAP measures,
which may not be comparable to similarly titled measures reported by
other companies, to be key performance indicators for purposes of our
reconciliation tables.

Organic Revenue and Organic Orders are defined as revenue
and orders, excluding the impacts of foreign currency fluctuations,
acquisitions and divestitures. Divestitures include sales of portions of
our business that did not meet the criteria for presentation as a
discontinued operation. The period-over-period change resulting from
foreign currency fluctuations is estimated using a fixed exchange rate
for both the current and prior periods. Management believes that
reporting organic revenue and organic orders provides useful information
to investors by helping identify underlying trends in our business and
facilitating easier comparisons of our revenue performance with prior
and future periods and to our peers.

Adjusted Operating Income, Adjusted Segment Operating Income,
Adjusted Operating Margin and Adjusted Segment Operating Margin
are defined as total operating income and segment operating income,
adjusted to exclude special items that include, but are not limited to,
asbestos-related costs, restructuring costs, realignment costs, certain
acquisition-related expenses, and other unusual or infrequent operating
items. Special items represent significant charges or credits that
impact the current results, which management views as unrelated to the
Company’s ongoing operations and performance. Adjusted operating margin
and adjusted segment operating margin is defined as adjusted operating
income or adjusted segment operating income divided by total revenue. We
believe that these measures are useful to investors and other users of
our financial statements in evaluating ongoing operating profitability,
as well as in evaluating operating performance in relation to our
competitors.

Adjusted Income from Continuing Operations, Adjusted EPS and
Adjusted EPS Guidance are defined as income from continuing
operations attributable to ITT Inc. and income from continuing
operations attributable to ITT Inc. per diluted share, adjusted to
exclude special items that include, but are not limited to,
asbestos-related costs, restructuring costs, realignment costs, certain
acquisition-related expenses, income tax settlements or adjustments, and
other unusual and infrequent non-operating items. Special items
represent significant charges or credits, on an after-tax basis, that
impact current results, which management views as unrelated to the
Company’s ongoing operations and performance. The after-tax basis of
each special item is determined using the jurisdictional tax rate of
where the expense or benefit occurred. We believe that these measures
are useful to investors and other users of our financial statements in
evaluating ongoing operating profitability, as well as in evaluating
operating performance in relation to our competitors.

Adjusted Free Cash Flow is defined as net cash provided by
operating activities less capital expenditures, adjusted for cash
payments for restructuring costs, realignment actions, net asbestos cash
flows and other significant items that impact current results which
management views as unrelated to the Company’s ongoing operations and
performance. Due to other financial obligations and commitments,
including asbestos, the entire free cash flow may not be available for
discretionary purposes. We believe that adjusted free cash flow provides
useful information to investors as it provides insight into the cash
flow metric used by management to monitor and evaluate cash flows
generated by our operations.

Working Capital is defined as the sum of net receivables, net
inventory and current contract assets less accounts payable and current
contract liabilities. We believe that working capital provides useful
information to investors as it also provides insight into the cash flow
metric used by management to monitor and evaluate cash flows generated
by our operations.

Contacts

Investors:
Jessica Kourakos
+1 914-641-2030
[email protected]

Media:
Kathleen Bark
+1 914-641-2103
[email protected]

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