Can you turn it up, please?
No, we're live streaming, so I need the mic. Just keep talking, and I'm pulling up the band frequency as we go.
Okay. In terms of geographic expansion, we are covering the world, and you can see 45% of our revenue actually comes from North America, and the rest is quite well balanced. In terms of the performance, you see our organic revenue growth has been 7% for the last three years, organic revenue growth. What has enabled us to do this is really differentiating ourselves from the competition in the market, differentiating through execution or differentiating through innovation. Our drive for continuous improvement has pushed our EPS, good growth, as you can see for the last three years, above 15% every year. Last year, our free cash flow margin was 14%. If you look at last week, we had our earnings call, so you see the numbers were there.
Good growth, of course, because of acquisition, but also good organic revenue growth of 8%, good margin expansion across all the different businesses, which has pushed EPS to grow in the quarter year-over-year roughly 20%, and we updated our guidance for the full year. You see there, good organic revenue growth, good margin expansion, and an EPS for the full year that will grow between 19% and 20%. With that, I would say the main ways that you find that our differentiation is around is our growth. Growth is fueling our revenue growth for the next few years. Our continuous improvement drive is pushing the margin expansion, and trust me, there is much more to come. The acquisitions are really delivering value, if it is Habonim, Svanehøj, kSARIA, or the last one, SPX Flow. Therefore, with that, good backlog, good momentum in 2027.
Over to you, Mike.
Yeah, thanks, Luca. As a reminder, if you have any questions, just let me know, and we'll make sure we weave them into the conversation here. Maybe we just start high level. For your shareholder base, they understand, year in, year out, you tend to have market share gains across the segments. I don't know if it's as well understood beyond that, maybe just talk to why you're having such success at a high level with the share gains and the penetration. What do you do differently, and what do you bring to the table that's different relative to what others do?
If you look at, first of all, the way that we deal with the growth at ITT is, first of all, if your market is growing 5% and you as a sales or a business are growing 5%, you don't really get a lot of credit. I just want to share this to share a little bit the culture and the way that we recognize and we reward our people in ITT. Also, the other thing is we are really looking at volume growth. If you get growth because you get price, great. I mean, do we love price? Of course, we do. But, if you're growing just because of price and you are not growing in terms of volume, that is not really good enough, right? I wanted just to stress this because this is the way that we are really looking at growth within ITT.
Now, when it comes to the differentiation, what this market share gain, it comes really from differentiating from the competition, and it's different in all the different businesses. For example, if you talk about Flow Technologies and you are in the Middle East, our on-time delivery, 95% or plus. Think about those EPC, think about Saudi Aramco, and think about that 95% of all those lines in that project are delivered on time, when usually you always have these project delays. That really differentiates us from the rest in the market, and usually then market on-time delivery is not that great. If you look at friction, our brake pad business, on-time delivery of 99.95% for the last 10 years every single month, despite COVID, the war, everything. China is at 100% on-time delivery for the last year and a half. Quality measured in PPBs.
If an OEMs want to launch a car in three months, it's ITT that they call because of our flawless launches. All of this has created loyalty and has differentiated us from the competition. Of course, there are cost advantages, footprint, and all of that comes with it. But these are just some examples.
Is there anything about that you don't think sustainable as you think about what the path forward is for ITT? Then maybe secondarily, as you think about all the acquisitions you bring in, is this something you're able to then teach, impute on the new companies that you bring into the fold?
Sure. We honestly think that there is still a long way to go when it comes to organic growth and when it comes also to market share gains. If we think about the flow technologies, it's a very fragmented market, so there is plenty to go after. When you look at CCT, Connect & Control Technologies, we are a small player, so there is still a lot to go. Then when you look at in Motion Technologies, also on the friction side, our worldwide market share is between 31% and 32%. So, there is still plenty to go after, if this with the Japanese OEMs, high commercial vehicle, or high performance. So, I think that we can still push these market share gains and above market organic growth for a while.
When it comes to the acquisition, if we look at the acquisition that we made so far, if it is Habonim, kSARIA, Svanehøj, SPX Flow is relatively early, all of these acquisitions have been growing quite nicely. So, I think that some is because of the management team, of course, and therefore credit to them. Then being part of the ITT family, of course, you adjust from a cultural point of view the way that we look at growth, volume, right? The real growth. Then the incentive, the way that we pay, that we put in place, emphasizing profitable growth. What we put in there is also the money to push innovation and more R&D and more products. So, in that sense, we help them to push their growth even further.
You see it in Habonim, you see it in Svanehøj, you see it in kSARIA. Of course, for SPX Flow is relatively early.
You've got leverage down to about 2.3x , if I remember correctly?
2.3x at the end of Q3.
At the end of Q3. So, couple things here. One, what's the willingness to be more aggressive in the market on the short term on buybacks? But then secondarily, how do you think about what the market looks like? You talked to a fragmentation in the businesses that you serve. Is this ripe for opportunity for you? And then, how quickly are you willing to put capital back to work to be in the market for the M&A side of things?
Sure. When you look at the priorities, of course, what we are looking now is to generate the cash, deliver on the synergies, deliver on the SPX Flow deal, pay down the debt, and delever fast. We are doing this, and the team is performing very well on this front. Having said that, it could well be that we are able to add some bolt-on acquisitions in the next 6 to 12 months. Those bolt-on acquisition could be the similar size of Habonim or kSARIA, or maybe a little bit even larger. But no real larger transformational deal. When you talk about larger transformational deal, I think that we need to wait another 18 months to ensure, to prove to our board and to our shareholders that we have been able to deliver on SPX Flow, everything is working according to plan, and therefore we can move forward.
We are not shying away from M&A, even at this point in time, for small, medium, or even a little bit larger bolt-ons. When you look at the market, the area that we are looking at are really in flow technologies, where the market is very fragmented, and also in Connect & Control Technologies, where we made the acquisition of kSARIA in the end of 2024, particularly in aero defense, which is more our core. Those are the two areas that we are looking into.
As you referenced SPX Flow, maybe we just dig into that a little bit. Maybe a brief view on why that was the right fit for the portfolio for those maybe less familiar with the story, and then transition to how that is progressing as we sit here today so far.
Sure. SPX Flow was a great fit, both from an enterprise portfolio point of view and also from a flow technologies point of view, from our flow business. From an enterprise point of view, what we have been working the last few years is really to shift the portfolio towards more high growth, higher margin businesses. If you look at 2017, 2018, when we started this journey, 61% of the EBIT was coming from our automotive business, and that was not necessarily helping. We actually, after the acquisition of SPX Flow, automotive represents only 22% of the portfolio. We really shifted the portfolio to higher growth, higher margin business. From an enterprise point of view, made a lot of sense. Second, we wanted to expand our flow business.
When you look at SPX Flow, they are all in terms of pumps and valves and project in nutrition and health. We know pumps, we know valves, so we run projects in flow, and therefore these are very close adjacencies. We know those businesses. If you look at the market, adding nutrition and health makes the portfolio within flow technologies also more resilient in terms of covering different sectors of the economy. Then, when we look specific at the company, we cultivated SPX Flow for three years. So, we were able to meet the management team, their leadership team, the leadership team of their leadership team. I personally visited most of their sites. So, when we decided to make the move, we knew that company pretty well. And we saw that there was good opportunities. There was good management team managing these businesses, good brands.
If you think about Waukesha Cherry-Burrell, this is number one leader of America. Good leadership position. If you look at some of the pumps, Bran+Luebbe, metering pumps, these are very good brands, right? Mixers, Lightnin in Philadelphia, number one or number two, depending on the geography. In nutrition and health projects and solutions, they're not the leaders, but they are one of the top players. So, they ticked all the boxes in terms of brands, position in the market, management team, and also opportunities for creating value through cost synergies and revenue synergies.
Let's take that in two different ways. Let's start one with- So far, you're ahead of schedule. You feel really about where things are tracking. Maybe talk to what the next steps are and where the focus is organizationally in driving it towards that continued growth profile, but also maybe bringing some of that ITT know-how to the table.
Sure. Let's talk about the two pillars of value creation, and one is on the cost synergies, and then the other one is growth. So, when you look at the cost synergies, we gave a target to be at $80 million of cost synergies by year three. And it's roughly 26, 26 every year. And there are three buckets, really. A large bucket, which is G&A, corporate G&A and BU G&A. Another large bucket, which is purchasing and supply chain, and then footprint, which is the smallest one and the So, G&A and UG&A, these are, I wouldn't say easy, but they are the easiest of the three. You look at the organization and you design a lean organization, and this is what we execute. We execute it well, we execute it super fast, and we are ahead.
We are ahead in terms of the revenue that we will recognize, the synergy that we will recognize in the P&L in 2026, the run rate at the end of Needs a little bit more time. We set things up, but those are the ones that some have already started coming in, but they will mainly come in year two and year three. And footprint is the smallest portion, only 10%. We left it at the very end of the three years, and the reason for that is to be prudent. Every single time you touch a plant and you consolidate or reduce, you touch the customer, and this is the last thing that we want to do. We wanted to be prudent on that side. Ahead in terms of number and ahead in terms of timing and speed.
I'm not losing any sleep when it comes to the cost synergies today. Now, when you look at growth, we committed to grow high single digit for this business for the next few years. Listen, they're delivering, we're delivering in 2026. This, let's be honest, has got nothing to do with ITT. This is the backlog that the management team built. The only thing that we can get credit is that we saw it in the backlog, we saw in the funnel opportunity, and we're executing and delivering. In the meantime, we're putting the pillars to keep on growing high single digit in the next few years. And what are those? Well, first of all is leaning out the organization, making much faster in the decision-making, less bureaucratic, make the decision as close to the market, as close to the customer as possible.
There is no way that somebody sitting in Europe or sitting in the U.S. can make a great decision on the China market, on a China customer. We need to push the decision close to the China market and empowering our organization in China to make a decision on China. And the same it is in the Middle East or in Latin America. That decentralization, which is core to the way that we run ITT, is something that will feed the growth. Of course, is investing in innovation and in product. If we look at nutrition and health, nutrition and health, APV is a great brand. We invented, APV invented the homogenizer. Now, if you look at the standard homogenizer, they haven't gone through a VAVE, a value analysis, value engineering, probably for the last 15, 20 years.
We needed really to invest in R&D and rejuvenate our product and our portfolio, and that will feed further growth. And then, of course, there are revenue synergies. If you look at Latin America, in Latin America, Goulds Pumps, our flow business, is strong with a good install base, with a good The mixing, they don't have any They have got some sales rep. Of course, here we need to have our own people, and we can also use our facilities to assemble those mixers in Latin America. What this means? Reduction of lead time, being closer to the customer. Same things in the Middle East. We have a great performing factory in Dammam, Saudi, that we enlarge. This is where we can localize also the assembly of some of the SPX Flow pumps and also the mixers.
Then as well in China, where now we can localize some of the pumps that are made in Germany. All of this will keep on feeding the growth in the years to come.
The end markets seem good too. I mean, on the call, I think you said that high single digits. I know you said over the next few years you want to aspire to that, but on the third quarter conference call, you suggested high single digits is very much on the table for next year, which speaks to kind of ongoing order win rates and continued backlog progression, right?
That is absolutely correct.
Yeah.
That is right.
So, maybe we transition to CCT here. I know, as a company, you've kind of called this the year of CCT. What is driving the success there? You look at some of the kSARIA order and backlog levels, and they are growing at an extraordinarily rapid pace. What are the factors that are driving your success from a market perspective, and then what are you doing instantly on top of it from a share gain perspective?
Sure. When you look at CCT, there are really three business units and a lot of players. I would say for themselves. But even in that one, you have Control Technologies. Control Technologies probably is performing at market. I'm not so sure that we are beating the market with that. But when you look at connectors and we look at kSARIA, our cable assembly, definitely we are growing above the market and we're winning market share. So, you were talking about kSARIA specifically. When we acquired kSARIA, it was in the business of control, in the different process. The customer we talked to, they all speak very highly of kSARIA in terms of great quality, good on-time delivery, delivering always the product when they want it in a consistent manner and how they want it.
That sustainable and consistent execution is what differentiates them from many of the competitors. So, for example, if you look at the F-35, we double our content on the F-35 simply because we are performing much better than the other competitor. So, there is a lot of market share gain coming from execution. I know it might not sound particularly sexy, it's not a lot of cool words, but I can tell you that if you're executing consistently well, on-time delivery for your customer and with a good quality, those customers will tend to reward you with loyalty. Specifically today, when the demand is high, this demand outstrips the supply, and therefore that execution, that delivery becomes even more important.
Then on the connector side, being able to co-design with that defense customer the connector, prototyping 24, 48 hours, getting back, and it allows us to get specced in some of these programs. This is really what is feeding our market share gains.
Why are you so bullish on the margin opportunity here? I think you went out of your way on the conference call to talk to this being the biggest opportunity from a portfolio perspective. I know you do not want to talk aspirations, you will save it for the next analyst day, but what is it that makes you so excited?
Sure. I would say the tailwind that you get from the market, of course, is there. Everybody recognizes it. Listen, we have been growing this organic revenue growth for the last few years, and we really did not have any tailwind. It is good to have some today. Get excited about having this tailwind, this wind that is blowing. That is good. The other thing is that if I look at the level of pricing that we can get into this business, I think that we are doing a good job, but I would say on pricing, it is a good job. I think that we can definitely do much more in this business when it comes to pricing. There are companies out there that teach us how to do it.
You just look at them and just learn from what they are doing and how they are doing it. Pricing is definitely a great lever in this business. Also when you look at continuous improvement, and if I look at the lean journey, this business is the one that is the least mature when it comes to lean and continuous improvement. You go to the factory there in California, and you will go on the shop floor, and you have, just to give you an example, a tuning station. Why do you have a tuning station? Because your parts and your assembly are not just perfect to start with. You would never be allowed in automotive to have a tuning station. The customer would not pay for that, right?
That lean journey, that continuous improvement, is what we need to drive at a faster speed and with more passion. This is what I am sure that we will be able to do.
Gotcha. That makes a lot of sense here. On that pricing, you made a comment, did that start with the Boeing contract that got renewed, then how is that pricing continuing into this year?
Sure. Boeing, we have provided Boeing with a very good service, and after almost 10 or 11 years of that, we were in a position to renegotiate the contract. We renegotiated the contract, and now we have a five-year contract where we had a good double-digit, very healthy double-digit price increase in January 2026. We are going to have a healthy double-digit price increase in January 2027, and another healthy high single-digit price increase in January 2028 and in January 2029. This has allowed us to recover our margin because some of the components that we were making for Boeing, they were not making any money. It is good to be paid fairly for the good service that we are providing.
On the FT side, legacy, so excluding the SPX Flow piece, which we already talked about, maybe go by end market and talk to what you are seeing within the individual pieces there, and how that sets you up for 2027.
Sure. This is Listen, the ITT story goes beyond how the market is performing. Because if you look, for example, our short cycle business in legacy. Our short cycle business has been growing since 2021 every single year, every single quarter. If you look at the last couple of years has not been great for the short cycle in North America, but we have been growing the business, and I am talking about volume growth, right? Not just price. Our chemical orders have been growing for the last five years, despite the chemical market not doing that great. There is an outperformance there that continues. But now, if you look at the market, oil and gas orders are growing nicely, chemicals are growing nicely, general industrial, also mining are growing nicely.
Now, if you look at the region, it is fair to say that the largest growth engine that we have geographically speaking are the Americas. North America in particular, but also Latin America. What you have here is a powerful flywheel. This is the way that we see. We have a good revenue growth, which is double digit when you come to North America. On that revenue growth double digit, you have a book-to-bill, which is above one, which means that your orders are growing more than your revenue, which means that you are growing your backlog.
When you look at the funnel of opportunities, and we put in the funnel only the projects that are funded, are growing year-over-year, which means that the replenishment of opportunity in the funnel goes faster than the speed of the booking, which is faster than your speed of revenue. This is a powerful flywheel that gives us some confidence in the momentum as we enter 2027. Some people are concerned about the Middle East. We have a very good operation in the Middle East. On the Middle East, just to cover this area, listen, 2026 has been a very good year for our Middle East operation. Our factory in Hadera in Israel, despite the war for the last two years, have been growing orders, revenue, OI. This has been growing for the last couple of years, incredible.
If you look at the factory in Dammam in Saudi, this year, the growth in revenue will be more than 20%. This is because of the backlog and all the win that we had in the last couple of years. If you look at orders of course have slowed down, but Q3 has been good. Things have moved and actually booked some good orders when it comes to Q3. Some of the order that we had not booked in the first six months, we got them in Venezuela. Oil and gas is probably going to be a tailwind for us.
Great. Well, please join me in thanking Luca and the ITT team for the time today. Management will be available for a brief breakout session in the Chestnut Room. Stop the door on the stairs.