Executive Summary / Key Takeaways

• ITT Inc. is executing a strategic portfolio transformation, shifting towards higher-growth, higher-margin businesses in flow and connectors through recent acquisitions (Svanehøj, kSARIA) and divestitures (Wolverine), positioning automotive as 30% of the portfolio focused on high-margin Friction.
• Operational excellence and differentiated engineering are driving significant market share gains across segments, reflected in record orders exceeding $1 billion in Q1 2025 and a record ending backlog of $1.8 billion, providing strong revenue visibility.
• The company has demonstrated impressive margin expansion, surpassing its long-term operating margin target ahead of schedule, fueled by pricing actions, productivity improvements, and favorable operational leverage, despite cost inflation and temporary M&A amortization.
• Innovation like the new VIDAR industrial motor represents a significant opportunity to enter a new $6 billion market by offering a disruptive energy-saving solution that is a direct replacement for outdated technology.
• Management maintains its full-year 2025 adjusted EPS guidance of $6.30 (midpoint) and expects nearly $0.5 billion in free cash flow, signaling confidence in continued performance despite macro uncertainty and potential tariff impacts, which are being actively mitigated.

Setting the Scene: An Engineered Evolution

ITT Inc. stands as a diversified manufacturer of highly engineered critical components and customized technology solutions, serving vital functions across the transportation, industrial, and energy markets. At its core lies a repeatable operating model centered on deep engineering capabilities and applied expertise, enabling the company to tackle complex customer challenges and build lasting relationships that yield recurring revenue streams and aftermarket opportunities. This foundation of technical intimacy and problem-solving is crucial in markets where reliability and performance are paramount.

The company's recent history is defined by a deliberate and strategic transformation of its portfolio. Beginning in 2022 and accelerating through 2024, ITT has actively reshaped its business mix through targeted acquisitions and divestitures. Key moves include the acquisition of Habonim (valves) in 2022, Micro-Mode (connectors) in 2023, Svanehøj (cryogenic pumps for marine energy transition) in January 2024, and kSARIA (aerospace and defense cable assemblies) in September 2024. Complementing these additions, ITT divested noncore businesses, notably Wolverine Advanced Materials in July 2024. This strategic repositioning aims to pivot ITT towards higher-growth, higher-margin segments, reducing the overall exposure to the automotive market, which now represents 30% of the portfolio, focused solely on the highly differentiated Friction business.

Within this landscape, ITT competes with a range of established players, including larger, more diversified industrial conglomerates like Parker-Hannifin (PH), Eaton (ETN), Emerson Electric (EMR), Flowserve (FLS), and Honeywell (HON). While some of these competitors boast greater scale and often higher overall operating margins (e.g., PH at 22%, EMR at 20%, HON at 20% TTM), ITT carves out its competitive space through specialized engineering, application-specific performance, and strong customer relationships. Its strategy is not to compete head-to-head on scale across all fronts, but to leverage its technical expertise and operational execution to gain market share in targeted niches, particularly where reliability and customized solutions are critical.

Broad industry trends are also shaping the competitive environment and providing tailwinds for ITT's strategic focus areas. The global energy transition is driving demand for specialized pumps and valves capable of handling new fuels like LNG, LPG, ammonia, and CO2, a market where Svanehøj is a leader. Increased global defense spending and modernization efforts are boosting the aerospace and defense sector, creating opportunities for harsh-environment connectors and cable assemblies, a market strengthened by the kSARIA acquisition. While the global automotive market faces cyclicality and regional variations, the ongoing shift across powertrain technologies (ICE, Hybrid, EV) presents opportunities for differentiated friction materials. The industrial process market, while showing some regional softness in funnel activity, continues to require reliable flow equipment and aftermarket services, supported by investments in key growth regions like Saudi Arabia and India.

Technological Edge and Innovation Fueling Differentiation

ITT's ability to compete effectively and gain share against larger rivals is fundamentally rooted in its differentiated technology and commitment to innovation. This is not merely about having products, but about possessing proprietary knowledge and engineering prowess that translates into tangible, quantifiable benefits for customers.

In the Motion Technologies segment, the Friction business's ability to consistently outperform global automotive production (e.g., by over 700 basis points in Q3 2024, 730 basis points in 2024) is a direct result of its advanced brake pad formulations and testing capabilities. Investments in state-of-the-art testing centers, like the one in Huang Shan, China, allow ITT engineers to work closely with OEMs, providing fast, real-time data that accurately predicts performance in harsh conditions. This technical collaboration and validated performance are key differentiators, enabling share gains across regions and powertrains, even in a challenging market. The development of high-performance brake pads, with production ramping up in Q1 2025, targets premium applications where ITT's material science expertise can command higher value, contributing to future profitable growth, with more sizable impacts expected in 2026/2027.

The Industrial Process segment leverages specialized pump and valve technology for critical applications. The Svanehøj deepwell fuel pump's capability to handle a range of cryogenic and low-carbon fuels (LNG, LPG, methanol, ammonia, CO2) is a direct technological advantage in the marine energy transition market. With over 2000 ammonia-ready marine pumps in operation or on order, Svanehøj is a leader, providing customers with future-proofed vessels and securing a long-term aftermarket base. In the core Goulds Pumps business, best-in-class quality and operational performance, such as 100% on-time delivery in Saudi Arabia in Q3 2024, combined with close technical support and product localization, result in a near-perfect win rate on major projects like the Amiral complex. This operational and technical reliability is a critical differentiator against competitors like Flowserve, who also operate in this space.

In Connect & Control Technologies, ITT's expertise in harsh-environment connectors and cable assemblies is a key moat. The ability to rapidly develop customized interconnect solutions and achieve speed to market (a differentiator highlighted in Q3 2024) is crucial for winning content on leading defense platforms. The kSARIA acquisition significantly enhances this capability, bringing expertise in mission-critical cable assemblies, particularly fiber cabling, for aerospace and defense. kSARIA's position on platforms like the F-35 and its high single-digit CAGR growth outlook in the North American cable assembly defense market ($7B market) underscore the value of this specialized technology. This technical depth allows ITT to compete effectively against larger players like Honeywell and Emerson in specific aerospace and defense applications.

Perhaps the most significant recent innovation is the launch of VIDAR, a game-changing industrial motor technology. VIDAR directly addresses the massive energy waste in the global flow industry, where outdated fixed-speed motors power pumps and fans using nearly 10% of the world's electricity ($300B annual energy bill). Unlike expensive variable speed drives that require significant space and clean rooms, VIDAR embeds variable speed technology into a drop-in replacement motor. Pilot results demonstrate dramatic quantifiable benefits: one site saw motor speed drop by 24%, energy use decrease by over 50%, and noise levels plummet, saving roughly $20,000 per year per pump and eliminating 160 metric tons of CO2 annually. This technology enables ITT to enter a new $6 billion addressable market, providing a disruptive solution with clear economic and environmental advantages over existing alternatives and competitors.

These technological differentiators, supported by ongoing R&D and strategic investments, are foundational to ITT's competitive strategy. They enable the company to command pricing power, gain market share in targeted applications, and drive profitable growth, even when competing with larger, more scaled rivals.

Performance Reflecting Strategy and Execution

ITT's recent financial performance underscores the effectiveness of its strategic transformation and operational focus. The first quarter of 2025 demonstrated resilience in a fluid environment, with revenue flat year-over-year at $913 million. This was achieved despite headwinds from the prior year's Wolverine divestiture and unfavorable foreign currency translation, offset by contributions from acquisitions (Svanehøj, kSARIA) and organic growth in key areas. Organic revenue was flat overall, with strength in IP valves and Svanehøj, and CCT connectors, offsetting lower automotive and aerospace demand.

Profitability metrics highlight the impact of operational execution. Gross profit increased to $316.3 million in Q1 2025, expanding the gross margin to 34.6% from 33.1% in Q1 2024. This improvement was primarily driven by pricing actions and productivity savings, which more than offset increases in material and labor costs. Operating income saw a slight increase to $150.9 million in Q1 2025, with the operating margin remaining flat at 16.5%. On an adjusted basis, operating margin expanded 30 basis points to 17.4%, overcoming M&A dilution and unfavorable FX. This continued margin expansion builds on a strong 2024 performance where ITT achieved 16% operating income growth on 11% revenue growth, surpassing its long-term margin target ahead of schedule.

Segment performance in Q1 2025 reveals varying dynamics:

• Motion Technologies: Revenue decreased 11.8% to $346.1 million, primarily due to the Wolverine divestiture and unfavorable FX, but organic revenue grew 1.6% driven by rail strength. Operating margin expanded significantly to 19.5% (19.8% adjusted), demonstrating strong productivity and pricing power offsetting FX headwinds.
• Industrial Process: Revenue decreased slightly by 0.2% to $333.3 million. Organic revenue declined 3.5% as strength in valves and Svanehøj was offset by lower pump projects and baseline pumps. Operating margin was 19.1% (20.7% adjusted, excluding M&A dilution), reflecting higher restructuring and personnel costs but benefiting from pricing and productivity.
• Connect & Control Technologies: Revenue increased sharply by 26.8% to $234.7 million, largely driven by the kSARIA acquisition (contributing 26 points of growth). Organic revenue grew 2.6%, fueled by pricing actions and growth in defense and industrial connectors, partially offset by lower aerospace demand (Boeing). Operating margin was 15.3% (16.2% adjusted), impacted by temporary intangible amortization from kSARIA, but showing underlying strength from pricing and productivity.

Cash flow generation remains a key strength. Net cash from operating activities increased significantly to $113.4 million in Q1 2025 from $57.8 million in Q1 2024, driven by favorable working capital dynamics (receivables collections, customer advances, lower compensation payments). This strong start positions ITT to achieve its target of nearly $0.5 billion in free cash flow for 2025, a new milestone.

Capital deployment in Q1 2025 included the full repayment and termination of the kSARIA term loan ($229 million repaid) and $100 million in share repurchases. Subsequent to the quarter, ITT repurchased an additional $300 million in shares, demonstrating confidence in its long-term outlook and leveraging its balance sheet capacity, while still maintaining an active M&A pipeline targeting $500-$700 million or more in deployment in 2025.

A critical indicator of future revenue is the company's backlog, which reached a record $1.8 billion at the end of Q1 2025, up 21% year-over-year and 10% sequentially. This was bolstered by Q1 orders exceeding $1 billion, the most in ITT's history. The book-to-bill ratio was a robust 1.15, with IP and CCT both above 1.2. This record backlog provides significant visibility into future revenue, particularly in IP projects and CCT defense programs, underpinning the company's growth outlook.

Outlook and Growth Trajectory

ITT's outlook for 2025 reflects confidence in its strategic direction and operational capabilities, balanced against anticipated macro uncertainties in the second half of the year. Management is maintaining its full-year adjusted EPS guidance at the midpoint of $6.30, which implies growth despite absorbing headwinds from the Wolverine divestiture, a higher effective tax rate, and unfavorable foreign currency impacts. The guidance includes an estimated $0.17 unfavorable impact from temporary intangible amortization related to recent acquisitions, which will largely conclude by year-end. Acquisitions are expected to contribute approximately $0.20 of accretion, and share repurchases are anticipated to add about $0.10 net of interest expense.

The company expects full-year 2025 organic revenue growth of 3% to 5%, with the strongest growth anticipated in the IP and CCT segments. IP is projected to lead with around 5% organic growth, driven by the conversion of its record $1 billion backlog, including accelerating project shipments starting in Q2, and continued robust demand in aftermarket and valves. CCT is expected to be closely behind, with growth accelerating quarter-to-quarter as shipments to Boeing (BA) ramp up (expected to return with more regularity in Q3/Q4 2025, per recent commentary) and continued strength in defense and industrial connectors, supported by pricing actions. MT organic revenue is expected to be roughly flat for the year, with Friction outperforming the global automotive market through share gains and Rail achieving mid-to-high single-digit growth.

Margin expansion is expected to continue in 2025, with adjusted operating margin projected to increase by 90 basis points to 18.6% at the midpoint. This will be driven by ongoing productivity initiatives, favorable price-cost dynamics, and operational leverage from volume growth. Segmentally, MT is expected to reach its long-term target of 20% margin, IP is projected to land close to 22%, and CCT is anticipated to be just shy of 18% (above 21% excluding kSARIA dilution), demonstrating continued progress towards their respective targets.

The second quarter of 2025 is expected to show adjusted EPS growth of 6% to 10% year-over-year (8% at the midpoint), with total revenue growth in the mid-single digits and organic growth in the low-single digits. Operating margin is anticipated to expand by roughly 50 basis points year-over-year and over 100 basis points sequentially.

Longer-term growth drivers are tied to ITT's strategic focus areas:

• Energy Transition: Svanehøj's leadership in pumps for alternative marine fuels and carbon capture projects positions ITT for growth in this expanding market.
• Defense Modernization: The kSARIA acquisition and organic strength in CCT connectors align with increasing global defense spending and the need for advanced interconnect solutions.
• Industrial Efficiency: The VIDAR motor offers a disruptive solution for energy savings in the vast flow industry, opening a significant new market opportunity.
• Market Share Gains: Continued outperformance in Friction, KONI rail, IP aftermarket, and CCT connectors is expected to drive growth above underlying market rates.
• M&A: An active pipeline and balance sheet capacity provide potential for further value-accretive acquisitions in core focus areas.

Risks and Challenges

Despite the positive outlook and strong execution, ITT faces several risks and challenges that could impact its performance. Global macroeconomic uncertainty, including potential recessionary pressures, inflation, and fluctuating interest rates, could affect demand across its end markets. Geopolitical tensions and trade disputes, particularly the potential impact of tariffs, pose a tangible risk. Management estimates a tariff cost of $50 million to $60 million for the balance of 2025 prior to mitigation, primarily impacting the CCT and IP segments. While mitigation strategies (pricing, sourcing, cost control) are planned, their effectiveness and potential impact on margin or cash flow timing remain factors to monitor.

Specific market challenges include the operational issues at Boeing, which have caused a slowdown in commercial aerospace demand for CCT and introduce uncertainty regarding the timing and pace of recovery. Volatility in raw material prices and supply chain disruptions, although managed effectively to date, could re-emerge. The skilled labor shortage in manufacturing continues to present challenges and pressure labor costs.

Environmental liabilities, estimated at $54.5 million with a reasonably possible high range of $95.2 million across 26 sites, represent a potential financial exposure, although management does not currently expect a material adverse impact on financial statements from ongoing legal proceedings.

These risks necessitate continued operational rigor, supply chain resilience, and strategic flexibility to adapt to changing market conditions and mitigate potential headwinds.

Conclusion

ITT Inc. is undergoing a significant and well-executed transformation, strategically reshaping its portfolio towards higher-growth, higher-margin businesses aligned with compelling global trends like energy transition and defense modernization. The company's foundational strengths in engineering and operational excellence are translating into tangible results, driving market share gains, record orders, and impressive margin expansion that has surpassed long-term targets ahead of schedule.

The robust backlog provides a strong runway for future revenue, and innovation like the VIDAR motor offers exciting potential in new, large addressable markets. While macroeconomic uncertainty, tariff impacts, and specific customer challenges like those at Boeing present risks, management's proactive mitigation strategies, combined with a strong balance sheet and commitment to capital deployment (including share repurchases and an active M&A pipeline), position ITT to continue its value creation trajectory. The investment thesis hinges on ITT's ability to leverage its differentiated technology and operational DNA to outperform its markets and expand profitability, compounding value through strategic portfolio management despite competing with larger, more scaled industry players.