Welcome to ITT's 2022 second quarter conference call. Today is Thursday, August 4, 2022. Today's call is being recorded and will be available for replay beginning at 12:00 P.M. Eastern Time. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. If you should require operator assistance, please press star zero. We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the floor over to Mark Macaluso, Vice President, Investor Relations. You may begin.
Thank you, Chris, and good morning. It's my pleasure to welcome you to ITT's second quarter 2022 earnings conference call. Joining me here this morning are Luca Savi, ITT's Chief Executive Officer and President, and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT's financial results for the three-month period ending July 2, which we announced this morning. Today's remarks may contain forward-looking statements that are subject to certain risks and uncertainties, including comments relating to company performance, strategic priorities, business mix, market conditions, and the effects of COVID-19 on ITT. These statements are not a guarantee of future performance or events and are based on management's current expectations. Actual results may vary materially due to, among other items, the factors described in our 2021 annual report on Form 10-K and other recent SEC filings.
ITT is not under any and expressly disclaims any obligation to update forward-looking statements, whether as a result of new information, future events or otherwise. Except where otherwise noted, the second quarter results we present this morning will be compared to the second quarter of 2021 and are based on non-GAAP financial measures. These adjusted results exclude certain non-operating and non-recurring items, including, but not limited to, a charge in the first quarter related to the suspension of operations in Russia, restructuring, acquisition-related charges and certain tax items. In 2021, asbestos related charges. All adjustments in the quarter are detailed, along with the reconciliation of such measures to the most comparable GAAP figures in our press release and presentation, both of which are available on our website. It is now my pleasure to turn the call over to Luca, who will begin on slide three.
Thank you, Mark, and good morning. I would like to begin, as I always do, by thanking our shareholders, our customers and our ITTers for their continued support and investment in ITT. I firmly believe that at ITT, our people made a difference. On this topic, I will show you what I mean in a few minutes when I talk about the resilience of our people in Wuxi, China. Let's now discuss the Q2 results. I'm very pleased with ITT's results this quarter, considering the challenging environment that we are operating in today. Our team demonstrated ITT's resilience and the strength of our businesses once again this quarter. I continue to be confident in ITT's future growth and outperformance potential, as evidenced by the long-term financial targets we announced at our 2022 Investor Day. Demand for our products and services remains strong.
We saw this in the short-cycle chemical and industrial verticals in IP, where orders grew 26% organically. In aerospace and defense in connect and control, where orders grew 17% organically. In our friction business, where we won 18 new electrified vehicle platforms. Collectively, this demand generation drove 13% organic orders growth. On the strength of this demand, we grew organic revenue by 10%, aided by both volume and pricing across our businesses. This was despite the disruptions in China coinciding with the reemergence of COVID. On profitability, IP expanded adjusted margin to 110 basis points versus prior year and 400 basis points sequentially, while CCT grew margin 380 basis points versus prior year and 50 basis points sequentially.
We are also seeing signs that commodity inflation pressures are slowing, which should begin to show up, especially in MT's results in the fourth quarter. In terms of the quarter results, Industrial Process was the highlight. IP showed exceptional profitability and orders demand. Emmanuel and I spent several days on site in Seneca Falls, driving the performance together with the team. Let's take a moment to discuss the team's achievements. IP's orders were the highest this quarter since 2014, and the growth in short cycle is coming from share gains, especially in North America. We are seeing growth in project orders, including for LNG, where we strategically won engineering-only orders upwards of 2 years ago that are now beginning to translate into large wins. We're also capturing price on baseline pumps and aftermarket that will benefit second half results.
Our lean initiatives in Seneca Falls is generating significant benefits, and we have more to go after here and at other IP sites. Earlier this year, we also announced the closure of the foundry in Seneca Falls. While a tough decision, this is key for the long-term cost competitiveness of IP. Lastly, as you will hear, Habonim is off to a strong start from a sales and margin perspective and is already contributing to ITT's earnings growth this quarter. As a result of all of this, IP delivered an adjusted margin this quarter that was the highest on record. Dave and IP team, well done and thank you. To quote Dave Staeblein, Senior VP of Industrial Process, "We love pumps." Back to ITT.
The strong volume growth, pricing, productivity, and an contribution drove a sequential and year-over-year increase in adjusted earnings per share in Q2, despite a long list of macro headwinds that we had to overcome. Regarding capital deploymet, our action in 2021 to divest our legacy asbestos liabilities, coupled with the solid results in the first half of 2022, enabled us to continue investing in the business. We deployed over 3% of sales to capital expenditures year-to-date to fund growth, as well as footprint rationalizations in MT and IP. Additionally, we deployed over $170 million towards acquisitions and ITT Ventures investments. In June, we closed our third ITT Ventures investment with minority stakes in CRP. CRP is an industry leader in developing and manufacturing reinforced composite materials for 3D printing and enables ITT to expand its position in material science.
In Q2, we repurchased over $60 million of ITT shares, bringing our year-to-date total to $250 million, or roughly 2.5 times our original full-year commitment. All in, we deployed over $500 million in the first half of 2022. Because of our solid first half performance, the large backlog we have accumulated, the pricing capture we are executing, and the performance momentum, especially at IP and CCT, we are raising our organic sales guidance to a new range of 10%-12%, and we are also tightening our adjusted EPS guidance to a new range of $4.35-$4.65 and maintaining the prior midpoint. Before moving to the next slide, I wanted to touch on the situation in China.
As you know, auto OE production volumes in China were impacted in Q2 by mandatory lockdowns across the country, which drove significant uncertainty and volatility in customer demand, as well as on the supply side. Despite these headwinds, our teams continued to perform, maintaining the quality and on-time delivery that differentiates us in the market. This performance was further demonstrated by the Wuxi China team at the beginning of Q3, and I want to take a moment now to tell you about this story. In July, as COVID variants were continuing to spread outside of the large cities, Wuxi was directly hit, and our team there pulled off an amazing feat. Companies in Wuxi were ordered to shut down entirely, and as the situation on the ground deteriorated, ITT Wuxi decided to seal off the entire manufacturing compound in order to be allowed to operate and to serve our customers.
All essential production and R&D staff volunteered to join the site's effort. Overnight, the team purchased sleeping bags, water, soap, and other essential items to enable a full 24/7 life in the plant. In total, the site housed approximately 420 employees for two weeks, during which time the team prepared nearly 18,000 meals. In addition, nearly 30 indirect staff volunteered to join the team effort. Silvan and Carol Chi and our leaders took several actions to preserve everyone's safety and well-being. Let me share some highlights. All 400-plus employees took PCR tests every day. We had exercise, games, and other social activities to maintain morale. The team cooked dinners and leaders replaced production workers on the shop floor some nights. Finally, our teams sent videos with words of encouragement to Wuxi that ultimately went viral in China on TikTok and WeChat.
Locally, our team made their stay and became celebrities, being part of what was deemed the amazing story in Wuxi. The operation was covered by newspapers and media, and both government officials and other companies in the region came to Wuxi to support us and learn how ITT pulled off such a feat. Through all of this, there were zero COVID cases at the Wuxi site, and the team maintained 100% on-time delivery and world-class quality. Our employees proudly embraced the challenge and delivered. To say that I and everyone at ITT are proud of the Wuxi team is an understatement. Our employees displayed core ITT values and made sacrifices we have never seen before. Wuxi team, I cannot thank you enough. It is a true honor to work with you all. Let's now turn to slide 5 to recap ITT's 2022 Investor Day.
ITT hosted its first Capital Markets Day for investors and analysts in June. The event consisted of presentations by the leadership team, interactive technology demonstrations with the engineers and innovators, and we issued long-term financial targets consistent with our continued growth and value creation. There are a few key takeaways from the event that I want to reiterate today. First, ITT has market-leading positions in attractive and growing end markets, including chemical and industrial pumps, commercial aerospace and defense, rail, and electric vehicles. Second, we highlighted how we sustain our differentiation through three pillars, execution, innovation, and culture. Execution starts with the customer who's at the center of everything we do. Innovation at ITT was on full display in our technology demonstrations, including our Smart Pad, the EMD or embedded motor drive in Industrial Process, as well as CCT's offering for the FARA program.
Culture, the glue that keeps everything together as demonstrated by our team in Wuxi. Third, we will have a ton of capital to deploy, upwards of $2 billion based on our expected cash flow generation and leverage capacity. Fourth, regarding ESG, we're making progress with our emissions reduction initiative, and we published our first EEO-1 report earlier this year. Finally, ITT issued long-term financial target, which we will work hard to deliver. With capital deployment a key element of our Investor Day, let's now discuss our continued progress in 2022. Following our legacy asbestos liabilities divestiture last year, we spoke about accelerating the pace of capital deployment. Fast-forward to today, and we have started to see this materialize. In Q2, we announced the acquisition of Habonim, and in June, announced our investment in CRP, an additive manufacturing pioneer.
Second, we invested in a breakthrough rotor coating technology company to minimize fine dust emissions in braking systems that will accelerate the development of new green solutions for the automotive industry. Third, we acquired a small energy absorption product line for high cycle applications in industrial automation, which closed in the second quarter. The product line is complementary to CCT's offering and serve the factory automation, workplace safety, and e-commerce verticals. We continue to invest in growth CapEx to support production line capacity for new electrified vehicles awards in friction that will convert our EV share gains into revenue. With the wins today, we are on pace to have nearly 37% share of all global OE electrified vehicle volumes by 2025. Finally, we repurchased $250 million of ITT shares to date, which will reduce our full year share count by 3%.
To summarize the quarter, we are winning in the marketplace and orders growth rates are outpacing that of our peers. We are offsetting cost inflation through pricing and shifting the pricing paradigm in auto. We're driving productivity in our plants to expand our margin. We are deploying capital to grow our portfolio both organically and inorganically as with Habonim, and we are continuing on the ESG journey en route to becoming a more sustainable ITT. Now, let me turn the call over to Emmanuel to discuss our results and outlook in detail.
Thank you, Luca, and good morning. We continue to see strong demand in all our businesses. We drove 10% organic sales growth after 7% in the first quarter, with CCT again leading the charge. As we anticipated, growth in connectors and aerospace and defense components is driving a great performance in CCT from both a revenue and a margin perspective. Demand across IP short cycle continues to be strong. In this quarter, we approached 20% organic growth. We are also gaining share in projects where our orders grew 48% organically this quarter. All this drove a 26% increase in orders at IP, and the funnel continues to increase with larger multimillion-dollar projects moving to the FID stage. In MT, friction was up 6% organically, driven by the continued momentum in aftermarket, similar to Q1.
Our OE business was up 3% organically despite the ongoing chip shortage. The MT team has been relentless in driving price realization in partnership with our customers, and the negotiations in friction with customers are almost complete at this time. We also saw over 200 basis points impact to reported revenue growth from Habonim. We estimate that the ongoing supply chain disruptions cost us approximately 200-300 basis points of top-line growth, with the most pronounced impact in IP. Adjusted operating income was roughly flat this quarter, with margin declining 70 basis points. We saw higher sales volumes in IP and CCT and pricing and productivity benefits in all businesses. Adjusted segment operating margin was 15.9% in line with our expectations from last quarter.
However, as you will see on slide 14, volume, pricing, and productivity were outweighed by 880 basis point headwind from cost inflation. The teams drove productivity of roughly 220 basis points through a combination of shop floor and sourcing actions. Further, our strategic FX hedging actions of the euro delivered a 120 basis points benefit. From an earnings perspective, adjusted EPS increased sequentially and on a year-over-year basis, despite impacts from significant cost inflation, supply chain disruptions, the China lockdowns, and an estimated $0.05 impact from the war in Ukraine. The share repurchases, higher tax rates and higher interest expense netted to a benefit of roughly $0.02. On cash, working capital requirements continue to weigh on our free cash flow generation.
We are purposefully investing in inventory to ensure we are able to secure delivery to our customers in this difficult time. Cash improved sequentially from Q1, but was still below our expectations through the first half. However, this performance should continue to improve in the second half. Additionally, today we have committed $8 million for energy efficiency and renewable projects. These green projects will protect us from energy scarcity and inflation and make ITT a more sustainable company. Finally, foreign currency translation negatively impacted our cash flow generation. Let's now look further at the earnings performance. I wanna make just a key few points on this slide. First, we continue to drive strong volume growth, pricing capture, and productivity across our businesses. In 2021, this was led by MT, and now IP and CCT are building on MT's performance.
We are driving productivity in the second half, which will help to overcome lingering inflation and foreign currency headwinds, the latter of which was not contemplated in our previous outlook. We drove $0.16 of productivity and $0.16 of volume growth, while pricing actions contributed $0.32. On pricing, we made a ton of progress in Q2. The negotiations with OE customers in friction are almost complete, and while the total amount realized is below what we initially anticipated, the agreement secured will deliver growth and value creation long term. In IP, we are already seeing the benefits of our pricing efforts in our Q2 orders, which will flow through earnings more impactfully in the second half. These improvements in total are still lagging the pace of material, labor, and overhead inflation.
Today, we're seeing slowing commodity pressures, and we expect this will begin to drive benefits for us in the fourth quarter, most prominently in MT. The lag in realization is due to a strategic decision earlier in the year to lock in supply of steel, tin, and copper to ensure we could deliver to our customers on time. As you know, in Q1, we suspended the majority of our operations in Russia, given the war in Ukraine. We are seeing direct impacts, mainly in MT and IP, as well as indirect impacts from auto OEM customers that sell or supply into Russia. This cost us approximately $0.05 of EPS in the second quarter. In 2022, we continue to expect this will impact revenue by approximately $80 million, which equates to an approximate 20-20 cents headwind to earnings.
Our acquisition of Habonim is already contributing to earnings, given a strong start. As that continues, the effective purchase multiple of less than 13x adjusted EBITDA should continue to decline, further demonstrating the strength and strategic rationale for the deal. Finally, as we have done throughout 2021 and 2022, we continue to ramp up our strategic investment to fund all of the groundbreaking technology that was on display at Investor Day. This will drive further value analysis, value engineering, product redesign for the next generation of pumps and game-changing brake pad formulations. This is the best use of our capital. Let's turn to slide 9 to review the segment results. Let me begin with Motion Technologies. Friction maintained its outstanding quality and on-time delivery performance, effectively managing the global supply chain disruptions, auto OE production volatility, and the lockdowns in China that Luca alluded to earlier.
We also saw strong demand in the aftermarket, given the continued low level of new vehicle sales. On profitability, MT's adjusted segment margin declined 430 basis points, mainly resulting from higher than expected material inflation. This was partially offset by productivity benefits and enhanced pricing actions. MT made significant progress in securing price commitments for most of its OE customers, which we will begin to realize at a greater pace in the second half. We believe this quarter was the trough for MT and results should improve from here. Industrial performance this quarter was exceptional. We saw growth across most short-cycle product categories, despite the supply chain disruptions and labor constraints that continue to hamper the industry. This was the sixth consecutive quarter of sequential order growth and IP's highest order quarter since 2014. We see strength in both short cycle and project orders.
Our book-to-bill was an impressive 1.25, and the organic backlog is up 50% since prior year. IP's margin improved on both a sequential and a year-over-year basis after a slow start in Q1. We are improving IP's execution and manufacturing throughput, and we're seeing the benefit of the pricing capture to offset inflation. The result was a 33% incremental margin in Q2. Furthermore, Habonim's profitability was accretive to IP's adjusted segment margin, even after including the impact of purchase price amortization. Lastly, on Connect and Control, we drove another strong quarter of orders and revenue growth stemming from the continued recovery in commercial aerospace as well as in distribution. On connectors, we saw growth across the industrial and the defense verticals, while components was primarily aerospace-driven. Distribution revenue was up over 40% organically this quarter.
CCT's margin expanded an impressive 380 basis points to over 17%, driven by higher sales volume and continued shop floor productivity. Notably, CCT delivered 35% incremental margin in the face of continued inflationary headwind. Let's now turn to slide 10 to discuss our updated financial guidance. Today, we are raising our organic sales growth outlook to 10%-12% given our strong first half performance, the strong demand and backlog growth in IP and CCT, and the pricing we're realizing. Our total revenue growth is impacted by foreign currency headwinds of approximately five percentage points. We're maintaining our adjusted segment margin and will likely be at the low end of the range. This is stemming from continued cost inflation headwinds that we're working to offset through pricing and productivity.
Nevertheless, we saw strong sequential and year-over-year margin improvements in IP and CCT, which we expect will continue in Q3 and Q4. For the full year, Industrial Process margin will expand above 16%, overcoming ongoing supply chain disruptions, and CCT's margin should end above 18%. We continue to expect that MT's margin will likely decline close to 200 basis points to end around 17% for the full year. To recap what I discussed, we are overcoming the lost earnings in Russia, Q2 lockdowns, foreign currency headwinds, and higher cost inflation. We're doing this through stronger sales, including pricing, better margin in CCT, a lower share count, and the addition of Habonim. We expect commodity pressures will slow in Q4, and we have firmed up the pricing benefits for the remainder of 2022, which gives us greater confidence in achieving our full year outlook.
This is reflected in our tighter range for adjusted EPS of $4.35-$4.65, or growth of 7%-15% versus prior year. Lastly, we continue to expect that free cash flow will be $250-$300 million, and free cash flow margin will be approximately 8%-10%. Longer term, we expect this will improve on the path to our free cash flow margin target of 11%-13%. Looking at the third quarter, organic sales growth in Q3 is expected to be in the low teens range, thanks to the growth in CCT, which should approach 20%, and to a lesser degree in MT, where revenue will ramp up sequentially as pricing benefits materialize and China volumes recover.
We expect IP organic sales to increase in Q3 around 10% with an additional step-up in Q4. ITT's adjusted segment margin in Q3 will improve sequentially to the high teens range with margin expansion led by IP and CCT. We expect MT margin to inflect from Q2 given the firming of our pricing benefits and easing commodity costs. This will drive adjusted EPS growth in Q3 of roughly 20% year-over-year. With that, let me pass it back to Luca to wrap up.
Thanks, Emmanuel. Before jumping into Q&A, I want to recap a few key points. We are encouraged by the strong demand across the portfolio and by our team's ability to deliver for our customers and outperform in all our businesses. Thanks to this performance, ITT built a robust backlog that will provide a runway for growth in 2022 and 2023. On pricing, our actions are ramping with particular strength in friction. We have reached agreements with the majority of our OE customers, which provide good visibility to profitable growth over the long term. We are making significant progress at IP and CCT that will begin to accelerate in the second half of 2022. Our unwavering focus on continuous improvement remains. We are working daily to improve our operations and replicate the success at MT in our two segments.
Finally, we are executing all elements of our capital deployment plan while continuing to invest in the business. As ever, it has been my pleasure speaking with you all this morning, and we will happily take your questions now. Please, please open the line for Q&A.
The floor is now open for questions. At this time, if you have a question or comment, please press star one on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Again, we do ask that while you pose your question, you pick up your handset to provide optimal sound quality. Please limit your questions to one question and one follow-up. Thank you. Our first question comes from Michael Halloran with Baird. Your line is open.
Hey, good morning, everyone.
Good morning, Mike.
Morning, Mike.
Luca, you always give great context in how you're looking at the auto market. You've always been a little bit more conservative than the trend line there. Maybe you could talk a little bit how you see the recovery cadence going, what it means for this year, what it means for next year. Obviously, ITT has differentiation versus what those end markets look like, but any color you could give there would be great.
Sure. Let me start saying that, you know, ITT outperformed the market in Q2, and we expect to outperform the market also this year, like we've done in the last 10 years. We're talking specifically about the market. The market in Q2 was really flat year-over-year after a Q1 that was down. If you look at the 2022 projection, it's probably we're looking at in a region of 80.5 million vehicles produced, a growth of 4%-4.5% for the year. Different picture in the different regions. For instance, flat to slightly positive in Europe, flattish in China, and double-digit growth for North America. What was interesting, Mike, was seeing actually China, that quite resilient market.
If you think particularly what happened in Q2, April and May, still the focus for the full year has not changed, thanks to the resilience of the market and the incentive also of the government there. Let me reiterate also the continuous outperformance. If you look at the market, it's projected to return to pre-COVID level in probably 2024, maybe 2025. ITT surpassed pre-COVID level in 2021. That outperformance will keep on happening.
All right. Thanks. Really appreciate the color there. Follow-up on the IP side of things. Obviously, really good backlog ramp. Maybe talk about two things. One, on the visibility you're seeing right now with, you know, front log conversations with clients in some of the key markets there. Secondarily, anything going on competitively that would be concerning. Obviously, you're getting some share there. I'm just curious how the pricing dynamics in the marketplace are playing and competitive pressures as new projects start coming forward.
Sure. When we're looking at the markets, we see, you know, strength across all the markets in terms of oil and gas, in terms of chemicals, in terms of general industrial. We see that in the orders. We see that in the funnel of opportunities. When you look geographically, Mike, we see very good strength in the orders as well as in the funnel, particularly in North America, Asia Pacific, Latin America, and Middle East. Probably, we do not see the strength in the funnel, in the orders in Europe. That is the area where probably we don't see that. When it comes to pricing, you know, Mike, pricing is key, and pricing discipline is a must, particularly when you're talking about flow and particularly when you're talking about projects.
If you do not have that price discipline, there is no way that you can deliver the margins that we are delivering today. We keep on executing on this front, and that will simply not change.
Great. Really appreciate it, Luca. Thank you.
Thanks, Mike.
The next question is from Jeff Hammond with KeyBanc. Your line is open.
Hey, good morning, everyone.
Morning, Jeff.
Maybe these questions are connected, but you know, your price-cost gap was $0.29 in 1Q, $0.27 in 2Q. Just trying to think how we should look at that price-cost gap in 3Q and 4Q. Then just similarly, you know, margin trajectory and MT into the second half. Do we kind of bounce back to 1Q levels in 3Q or just how to think about that snapback?
Hey, Jeff. Yeah, you're right. Our margins were heavily impacted by the price-cost gap. I think that when we're moving into Q3 and Q4, we're seeing a much better picture. We're seeing that MT, as we discussed, is finally closing on all the price negotiations with our auto customers. While we didn't get everything that we wanted, I think this was a good compromise, especially to maintain long-term healthy relationship and growing business with them. As the commodities impact is gonna lessen, MT should be in a better position from a price-cost standpoint. Then IP and CCT, it's all about driving price. We mentioned that we are seeing a nice price impact in Q2 orders for IP.
That will convert into strong sales in Q3 and Q4. CCT is a little less advanced, but there remains a lot of opportunities also from a pricing standpoint. I think that when you look at cost price for the second half, we're probably gonna be on par, flat, no negative impact, a very little positive impact, which is gonna be a big change compared to what we've seen in Q1 and Q2.
Okay, great. You know, great performance in IP. I recall, you know, in one Q, there was a lot of issues with supply chain. I think you still mentioned supply chain being a problem in IP, but it doesn't seem to have, you know, shown through in the results or in, you know, into the second half guide. Just how should we think about some of the supply chain challenges and, you know, are you just kinda overcoming them elsewhere or are you seeing some improvement? Thanks.
Thanks, Jeff. On supply chain, the short answer is it is improving slightly. Let me share some data and give you some color. If you look at the Q1, in Q1, the revenue impact from supply chain was roughly 600 basis points. In Q2, it is between 200 and 300 basis points. Obviously that is the data shows the improvement. Most of that was actually in IP. Now, to give some color, the lead times have probably slightly reduced, and also the commodities, as you know, have reduced a little. There are still bottlenecks remaining. When we talk about plastic, paint resins, electronic components, or electric motors, those are still bottlenecks. Going back to the lead times, supplier lead times, while they have reduced slightly, they are still quite above pre-pandemic level.
What we are looking is really what we are in control and focusing on the internal bottlenecks, which are more on the production line and improve the velocity in the plant.
Okay. Thanks so much, guys.
Thanks, Jeff.
The next question is from Nathan Jones with Stifel. Your line is open.
Hey, good morning, this is Adam Farley on for Nathan.
Good morning. How are you?
Hey, good morning. There's been some talk of an automated production ramp in Europe in the second half. You know, what is your view of the likelihood of this and what are customers saying?
Adam, you cut out in the first part of your question. Would you mind repeating, please?
Yeah. There's been some talk of an automotive production ramp in Europe in the second half. What is your view of the likelihood of this, and what are customers saying?
Okay. We are seeing the supply chain challenges easing, and the customers are talking about, you know, a better situation regarding the chip shortage. When we look really at the European production forecast for the full year, it really has not dramatically changed. You know, we're talking about, you know, slightly positive, so low single-digit growth. This is still the forecast for Europe. We see good order book on our front, but we know there is outperformance there. It's still, you know, low single-digit growth for Europe for the full year.
Okay. Thank you for that. Just turning to the orders overall, really strong and robust, especially in IP and CCT. What was the cadence of orders through the quarter? Also if you could provide any color on July in each business. Thanks.
Sure. The cadence of orders in the month was pretty even. There was strength in the quarter. There was strength for every month during the quarter. July was not that different from what we've seen in Q2 in IP. We had a really strong month in June, and a lot of it was due to projects which accumulated at a fast pace in June. But overall, the growth in orders was pretty even and the numbers is pretty good across the board in Q2. In terms of CCT, it's the same thing. I would say that July orders are not that different also from what we've seen in Q2.
For the moment, it looks like the strength continued in Q2 and it doesn't look like there is much different for the moment in July. There's a lot of ground to cover before the end of the year, we remain very attentive to that order number and what it says about the market. One thing that we'll expect, Adam, when it comes to the future order, particularly in IP, is that we expect projects gaining more and more momentum, where we expect probably the short cycle leveling off. This is also if you look at the backlog today for IP, 55% of our backlog is short cycle, 45 is projects that will eventually have to swap to be 60 projects, 40 short cycle like it should usually be.
Thanks for taking my questions.
The next question is from Vlad Bystricky with Citigroup. Your line is open.
Good morning, Vlad.
Morning team. Morning, guys. Thanks for taking my question here. So maybe just following up on that IP, on those IP comments. I mean, when we see, you know, short cycle orders 21% in the quarter, can you talk about, you know, how should we think about how much of that is, you know, actual end market demand, you know, going out to the field versus, you know, any channel stocking for inventory that you might be seeing?
Sure. I think that for the moment our distributors, which is where a lot of our short cycle business is going, are not reporting any type of increase in inventory. What we don't monitor is the inventory at their customers. For the moment, we don't really see any type of inventory buildup anywhere. As Luca mentioned, those are really strong order growth numbers. We expect that over time, you know, this level of short cycle orders cannot sustain. We'll see a leveling off, as Luca said.
I think one thing that is important is pricing that I want to highlight here, because I think that while we are very encouraged by the pricing benefits we have seen in the short cycle in IP, I think we are only at the beginning of the journey, and I think that short cycle is gonna benefit a lot from, you know, renewed pricing approach, that I think is gonna really focus on the differentiation that we bring with our products compared to our flow peers.
Okay. That's really helpful color, Emmanuel. Appreciate it. Maybe just shifting to capital allocation. You know, you've obviously been leaning into share repurchases more here, given where the share price has been. I guess just thoughts on continuing to lean into share repurchases, you know, given where the share price is. Similarly, just can you talk about, you know, your appetite for larger scale M&A given, you know, the health of the balance sheet.
You know, maybe versus obviously some macro concerns out there.
Vlad, when it comes to capital deployment, the priority are the same. This has not changed. The money goes first in organic investment. These would be where we have the best returns. These are the less risky investments, and we have seen it, you know, being in IP or being in motion technologies or in CCT. This is where money goes first, and 80% of that CapEx is really going into growth and productivity. Second is M&A. You have seen it applied in this first half of the year with the acquisition of Habonim that is already accretive, is a great story already. $140 million deployed there in ventures like, you know, Cutworks or Wekador or CRP, in all adjacencies to the business.
This is where money goes second. Then of course, dividend and share repurchases. You know, this is a good use of our capital. Today, we have the opportunities to all three of them, and this is what we'll continue to do. When it comes to acquisitions, we have a very good funnel of opportunities, and the opportunities there are in the bulk is anything between, you know, $50 million to $300 million of revenue. Of course, there might be few that are a little bit larger than that. You know, the bulk of the M&A opportunities are in that range.
Okay, thanks for that, Luca. I'll get back in queue.
Thanks, Vlad.
The next question is from Damian Karas with UBS. Your line is open.
Morning, Damian.
Hi. Good morning. Congrats on the hard work and accomplishments in Wuxi.
Thank you. Thank you, Damian.
Just a follow-up question on price as it relates to orders. When we look at those robust order rates in IP and CCT, you know, could you just help us unpack how much is from inflationary effects versus underlying unit demand? I mean, are we, you know, kind of talking high single digit, low double digit on price, the rest on order? Maybe just help us unpack that a bit.
Sure. In IP, the majority of the growth is through volume. We are seeing pricing building into our backlog, but for the moment this is still the majority of the growth is driven by volume. I'm talking specifically on the short cycle here, so mainly baseline pumps and spare parts. In terms of CCT, I would say the large majority is also volume because CCT is less advanced from a pricing standpoint. The only exception may be that I would say is industrial connectors, where we're seeing flattish type of volume and what gets us a little bit over is pricing.
Okay, that's helpful. You know, I guess just thinking about expectations going into the quarter, you know, I think a lot of investors were concerned you'd be lucky to even hit the $4.30 low end of your EPS guide, considering all the exogenous issues out there in some of your markets. Just thinking about the updated guidance, where would you say the biggest risk is of not hitting that guidance this year?
I would say the biggest risk probably is an external risk, some type of disruption to demand like we've seen in Q2 with the China lockdowns. The rest, you know, we have really strong backlog in IP and CCT. We have proven that we're able to ramp up volumes. As you've seen in Q2, IP was roughly $25 million above Q1 organically and then CCT was $10 million above Q1 also. We know how to flow through these additional products through our facilities. From a cost control, we've been very attentive to cost and tightening all our expenses.
I would say, to me, the impact or the downside potential is mainly due to external factors.
Damian, the team did an amazing job in the quarter. If you think about all the headwinds that we had to face, and Emmanuel Caprais reiterated during the prepared remarks. Many pieces of the puzzle are actually coming together, being the backlog, being the pricing, being the execution on, you know, on the shop floor, being Wuxi. This is the reason why we really tightened the range. You know, things are coming together.
Thanks, guys. Appreciate your thoughts.
Thanks, Damian.
The next question is from Joseph Giordano with Cowen. Your line is open.
Morning, Joe.
Hey, guys. Yeah, I had a similar question on that. Maybe just asked a little different. Like, so last quarter, when you were talking towards like the low, lower part of the guidance, and then at Investor Day, you know, I guess qualitatively, just based on the bullet points that you guys had, it did sound like incrementally the guidance was getting a little bit worse. Now I think raising the low end is a major statement here. So I'm just curious if anything actually changed in your mind between kind of Investor Day commentary and today.
I think you'll appreciate that the environment is very volatile. For us, this is impacting our visibility on what we're seeing out there. I think that we've been appropriately cautious in our description of what we were seeing out there. At the same time in parallel, we were driving execution within our segments. I think that we saw some really strong performance, some performance improving in May versus April, and then in June versus April and May.
I think that when you think about all the progress we've done in terms of pricing, especially at MT, which was really the biggest prize that we were going after, we now feel more confident that this pricing is almost more or less done. We gotta focus on making sure that we take advantage of commodities going down, and the same execution that you've seen in Q2, in terms of on-time delivery and quality for all our businesses.
Joe, if you think about volatility, just to give you an example, I mean, you're on the Fourth of July celebrating, you know, Independence Day over here in the U.S., and you're on call with Wuxi, where companies are shutting down and, you know, the team is putting the amazing feed that we were describing before. So just this gives you an idea of the volatility that you have to deal with. But as I said, the pieces are coming together nicely so far.
No, I appreciate that. Again, on orders, I know we've talked a lot about this. Some of the year-on-year comparisons just become challenging just 'cause the numbers are weird and, you know, price and inflation. If you were to think about, and let's strip out MT 'cause that's its own kind of animal, but if we think about IP and CCT orders, if we think about it on like a dollar basis per day or something like that, how do you see that going from like a 2Q level? Are orders per day still going up? Like I don't care about the year-on-year so much. I'm just thinking about the sequential progression in dollar terms from here. How do you see that?
When you look, it's a little bit different pictures, I would say, depending on the different markets. If you look at the Q2 in the short cycle indicator, you talk about baseline parts, service, valves, and we actually are really looking at some of those numbers every day or every week, Joe, exactly like you're saying. Q2 was a very strong quarter. That was sequentially a very good sign, but I would say, Joe, also that what we expect in AP, those orders in the short cycle to level off, and we expect the projects to come out stronger in the second half of the year. That is for the short cycle in AP.
We see also some good sequential orders in connectors, for example, as well as in components coming mainly from aerospace and defense. Those are very strong at compensating some of the industrial connectors that Emmanuel was talking about, which showed some weakness sequentially. Did I answer your question?
Yep, perfectly. Thank you.
Thanks, Joe.
The next question is from Andrew Obin with Bank of America. Your line is open.
Hey, you have Sabrina Abrams on for Andrew Obin. How are you guys?
Good morning, Sabrina.
Morning.
Can you just talk, please, about the structure of inventory, on your own balance sheet and sort of how much of the issue is sort of a golden screw issue? How do you think about dealing with the potential bullwhip effect, down the line, you know, when lead times normalize? When do you think levels of working capital start to normalize?
Obviously, working capital is a huge issue for us. Working capital has been a use of cash in the first half, and a really large one. Right now, I would say that we're targeting to reduce our working capital by roughly something like a little bit more than $100 million in the second half. This is gonna be a function of collecting AR past dues and collecting some of the pricing that we agreed on and that we haven't collected yet. The large part of it is gonna be inventory. I think you know, your description of the golden screw, I think it's a good description.
We have a lot of our projects that are half finished or 90% finished and are not leaving the dock because we're missing a motor, we're missing a casting. We're focusing on making sure that we improve our supply chain. At the same time, as Luca was saying, we improve the velocity through our factories. I think that this is gonna give us some significant benefits in the second half in terms of working capital.
Great. Thank you. How are you thinking about getting the European business ready for potential disruptions related to Russian gas in the fall/winter?
There are two things that we're doing in the short term, and in the short term, we are across the board everywhere globally, we're really paying attention to our consumption of energy, and we are really working with the business in order to reduce our electrical energy consumption. Over the medium long term, we are investing heavily in renewables. I mentioned that we have committed $8 million of renewable projects, solar projects in our facilities globally. Those projects are gonna come online between the second half and the first quarter of 2023.
As a result, this should really help us reduce the consumption of external energy and produce our own energy in a significant portion. Like for instance, when a typical solar panel project for our facility is between 10%-20% of the energy that we need that we're gonna produce in-house. We're rolling out those projects for the medium term, and this is gonna help us, we think, in terms of our energy consumption.
Great. Thank you so much. I'll pass it on.
Thank you.
Our final question is from Matthew Summerville with D.A. Davidson. Your line is open.
Thanks. Couple questions on MT. What will priced cost coverage actually look like when all the actions you've taken, the contract negotiation process is fully complete? What will that coverage ratio look like? And then in these new contracts, is there anything structurally different about how you might be able to pass on raw material inflation and deflation in the future looking forward that is maybe different than the structure previously? And then I have a follow-up.
Okay. Thanks. Thanks, Matt. First of all, I'm very proud of the results that's been done by the team because the team has been able to shift, as we said, the auto paradigm of giving price, and they've been able to obtain price. When we look at the price, the cost-price equation, if you look at the entire inflationary cost including energy, etc., we are still not able to cover everything. For 2022, it's gonna be a hit when you look at the overall cost inflation. Better picture if you just look only on the material side. When you look at, as we're moving forward, then it would be once again being on the table of the negotiation, and it will be up to the team in trying to take that negotiation to our advantage.
As we've shared, the pain, then it will be shared also the other side when you move in the other direction. I think that will present an opportunity for us. As Emmanuel always described, this is a timely thing, and we will come out of this in the next 18, 24 months. The other side probably will be more positive than this one.
Got it. Just as a follow-up, sticking with MT, I think you mentioned 18 new EV platform wins in the quarter. How should we be thinking about what that kind of win rate that suggests, and how is that tracking to the plan you laid forward, or you set forth at your Analyst Day as of late? Thank you.
Sure. Thanks, Matt. First of all, these are electrified platforms, so you're talking about both EV and hybrid. I mean, 18 electrified platforms in the quarter is massive. You know, you can see some examples. These are customers like BYD or a new platform for Tesla. These are all very successful. Our win rate in awards of electrified platforms is considerably higher than our global market share today. In 2022, like in 2021, our market share in electrified platforms will be higher already than internal combustion engine. The other thing is that this is perfectly aligned for us to get to that 37% market share that we discussed during the Investor Day and that we said all in the prepared remarks.
We are on a good path there.
Got it. Thank you, Luca.
Thanks, Matt.
Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.