ITT Inc. 2022 First-Quarter 10-Q Summary
Business Context and Reporting Period
ITT is a diversified manufacturer of engineered components and technology solutions serving transportation, industrial, and energy markets through Motion Technologies, Industrial Process, and Connect & Control Technologies. The unaudited quarter ended April 2, 2022, compared with the quarter ended April 3, 2021.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $726.2 million | $698.4 million | 4.0% increase |
| Gross profit / margin | $218.4 million / 30.1% | $229.0 million / 32.8% | Margin down 270 bps |
| Operating income / margin | $94.6 million / 13.0% | $109.9 million / 15.7% | Income down 13.9%; margin down 270 bps |
| Net income attributable to ITT | $74.8 million | $86.2 million | Down 13.2% |
| Diluted EPS | $0.88 | $0.99 | Down $0.11 |
| Effective tax rate | 20.6% | 22.2% | Down 160 bps |
| Operating cash flow | $(2.7) million | $70.8 million | Decrease of $73.5 million |
| Capital expenditures | $30.0 million | $17.2 million | Increase of $12.8 million |
Cash and cash equivalents were $710.4 million at April 2, 2022, compared with $647.5 million at December 31, 2021. Total debt and finance leases were $496.6 million, including $484.9 million of commercial paper, versus $207.5 million at year-end. ITT had no borrowings under its $700 million revolving credit facility, which matures in August 2026, and reported compliance with its financial covenants.
Net cash increased by $62.9 million during the quarter, primarily because $290.7 million of net commercial paper borrowings more than offset operating and investing cash uses, share repurchases, and dividends. ITT repurchased $177.8 million of shares under its repurchase program and paid $22.4 million of dividends. The quarterly dividend declared was $0.264 per share, 20% above 2021 quarterly dividends.
Segment Performance and Material Changes
| Segment | Revenue | Revenue Change | Operating Income | Operating Margin |
|---|---|---|---|---|
| Motion Technologies | $370.1 million | 0.3% | $59.7 million | 16.1% |
| Industrial Process | $202.2 million | Flat | $20.4 million | 10.1% |
| Connect & Control Technologies | $154.6 million | 21.4% | $25.7 million | 16.6% |
- Organic revenue increased 6.8% to $746.1 million after excluding $19.9 million of unfavorable foreign-exchange effects.
- Connect & Control Technologies was the strongest segment, benefiting from connector and component demand, particularly in industrial, aerospace, and defense markets.
- Motion Technologies revenue was supported by aftermarket friction sales but profitability declined due to raw-material inflation, supply-chain costs, and Russia-Ukraine-related reserves.
- Industrial Process revenue was flat; short-cycle business growth was offset by a 30% decline in pump projects. Orders increased 20.7% to $260.1 million, and backlog increased 13.0% from year-end to $502.2 million.
- Segment operating income declined 10.9% to $105.8 million. Higher raw-material, shipping, labor, and overhead costs were only partly offset by pricing actions, productivity savings, and higher volume.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that liquidity is expected to be sufficient to fund operations for at least the next 12 months and beyond. The filing does not provide formal full-year financial guidance.
- The company recorded $8.8 million of first-quarter charges related to the Russia-Ukraine conflict, primarily inventory and accounts-receivable reserves. This included $5.4 million of inventory reserves and approximately $3.0 million of bad-debt expense.
- Management expected 2022 sales to customers selling or supplying into Russia or Ukraine, together with related exposures, of approximately $60 million to $85 million, plus an estimated indirect impact of approximately $25 million from reduced availability of auto components made in Ukraine. Further impairments, severance, reserves, or demand reductions remain possible.
- COVID-19 effects continued through supply-chain disruption, shipping delays, labor shortages, absenteeism, and lockdown-related impacts. Semiconductor shortages continued to affect automotive customers.
- Raw-material inflation, freight costs, skilled-labor shortages, foreign-exchange volatility, interest rates, cybersecurity, customer concentration, geopolitical conditions, and demand in automotive, aerospace, energy, chemical, and mining markets remain material risks.
- Environmental liabilities were $52.1 million at quarter-end, with 26 active investigation or remediation sites. Management estimated a potential high-end liability of $89.4 million and stated that outcomes could materially exceed current estimates.
- On April 4, 2022, ITT acquired Habonim for $140 million. Habonim reported 2021 sales of $44 million and will be included in Industrial Process beginning in the second quarter.
- ITT stated that legacy asbestos-related liabilities transferred in the 2021 InTelCo transaction, and no asbestos-related assets or liabilities remained on the balance sheet at quarter-end.
Investor Verification Points
- Verify whether pricing actions and productivity savings can offset continued raw-material, freight, labor, and supply-chain inflation.
- Monitor the duration and financial effects of the Russia-Ukraine conflict, including potential additional reserves, impairments, lost sales, and collection issues.
- Assess commercial-paper refinancing and liquidity risk given the increase in short-term borrowings from $195.4 million to $484.9 million.
- Evaluate whether weak operating cash flow reflects temporary working-capital investment or a more persistent cash-conversion issue.
- Track Habonim integration, acquisition financing, and the contribution of the acquisition to Industrial Process results.
- Review environmental claims and remediation estimates, including the disclosed $89.4 million potential high-end liability.
- Reconcile GAAP results with management’s non-GAAP measures: adjusted EPS was $0.97 versus $1.06 in the prior-year quarter, and adjusted segment operating margin was 16.0% versus 17.5%.