ITT Inc. (ITT)

Executive Summary / Key Takeaways

• ITT Inc. is strategically transforming into a higher-growth, higher-margin enterprise through disciplined M&A, continuous technological innovation, and robust operational execution, driving consistent outperformance in specialized markets.
• The company delivered strong Q3 2025 results, with total revenue up 13% to $999.1 million and adjusted EPS growing 21% to $1.78, fueled by organic growth and accretive acquisitions.
• Technological differentiators like the new VIDAR industrial motor, targeting a $6 billion market with significant energy savings, and advanced Geo-Pad brake materials are poised to unlock substantial long-term value and competitive advantage.
• ITT's strategic portfolio adjustments, including the acquisitions of Svanehøj and kSARIA and the divestiture of Wolverine, have repositioned the company towards higher-growth and higher-margin businesses, with acquisitions consistently outperforming expectations.
• Management has raised its full-year 2025 adjusted EPS outlook to a midpoint of $6.65, representing 13% growth year-over-year, and expects to achieve $0.5 billion in free cash flow, underscoring strong financial health and capital deployment flexibility.

Engineering a Future of Profitable Growth and Strategic Expansion

ITT Inc., established in 1920, stands as a diversified manufacturer of highly engineered critical components and customized technology solutions, serving the vital transportation, industrial, and energy markets. The company's core strategy revolves around applying its deep engineering capabilities to solve complex customer challenges, fostering valuable relationships and securing recurring revenue streams from long-lived platforms. This approach has positioned ITT as a specialist in applications where reliability and performance are paramount.

The competitive landscape for ITT is characterized by a mix of larger, more diversified industrial conglomerates and specialized niche players. Direct competitors such as Parker Hannifin Corporation (PH), Eaton Corporation plc (ETN), Emerson Electric Co. (EMR), Flowserve Corporation (FLS), and Honeywell International Inc. (HON) vie for market share across ITT's segments. While these rivals often possess greater scale and broader product portfolios, ITT differentiates itself through customized solutions and a focus on mission-critical applications. For instance, in motion control and industrial components, ITT's offerings emphasize durability in demanding environments, contrasting with Parker Hannifin's broader, more standardized lines. Similarly, in industrial processes, ITT's pumps and valves are designed for enhanced performance in harsh conditions, potentially offering greater energy efficiency than some of Eaton's products. ITT's expertise in customized control technologies for aerospace and defense also provides a distinct edge against Emerson's software-driven automation focus.

Technological Edge: The Engine of Differentiation

A cornerstone of ITT's investment thesis is its commitment to technological differentiation and innovation, which underpins its competitive moat and long-term growth strategy. The company's engineering DNA drives continuous advancements across its portfolio.

A prime example is VIDAR, a "game-changing" industrial motor launched in Q1 2025. This revolutionary technology addresses a significant market inefficiency: nearly 10% of global electricity powers industrial pumps and fans, translating to an annual energy bill exceeding $300 billion. VIDAR embeds variable speed technology directly into the motor, offering substantial energy savings and emission reductions. Unlike traditional variable speed drives that require considerable space and clean room environments, VIDAR is a "drop-in replacement" for existing motors, simplifying installation and accelerating payback. At one pilot site, a single VIDAR motor reduced motor speed by 24%, decreased energy use by over 50%, and lowered noise levels, all while maintaining the same flow at half the operating cost. This translated to annual savings of approximately $20,000 for the plant and eliminated 160 metric tons of CO2 emissions. ITT is targeting $150 million in VIDAR sales by 2030 and aims for a 10% market share in this new $6 billion addressable market, with ongoing investments for expansion into the European Union and larger U.S. sizes.

Beyond VIDAR, ITT is advancing other innovations. The Geo-Pad, a breakthrough material science in brake pads, is currently undergoing testing with a large European OEM, moving closer to commercialization. In the Industrial Process segment, Svanehøj's new high-pressure fuel pumps have demonstrated superior longevity in lab tests and are already operating on vessels, sustaining the segment's share gain momentum in harsh marine environments. The Connect & Control Technologies segment benefits from a new product development team that co-designs and rapidly prototypes connectors for harsh environments, driving new awards and market share gains on advanced defense platforms. These technological advancements are not merely product enhancements; they are strategic levers that enhance ITT's competitive positioning, drive higher average selling prices (ASPs), reduce customer operating costs, and ultimately contribute to stronger margins and sustained market leadership.

Strategic Portfolio Evolution: M&A and Divestitures

ITT's strategic transformation has been significantly shaped by its recent portfolio actions. The year 2024 was pivotal, marked by both strategic acquisitions and a key divestiture aimed at optimizing the company's growth and margin profile.

On January 19, 2024, ITT acquired Svanehøj Group AS for $407.6 million, integrating this Denmark-based supplier of pumps and aftermarket services for cryogenic marine applications into its Industrial Process (IP) segment. This acquisition has proven highly successful, with Svanehøj's orders growing over 59% year-to-date through Q3 2025 to more than $250 million, achieving a book-to-bill of 1.6. Even with projected revenue growth exceeding 30% for 2025, Svanehøj is expected to maintain a book-to-bill of nearly 1.3, demonstrating robust demand. Notably, Svanehøj has expanded its profitability, with EBITDA exceeding 20% in Q3 2025.

Further enhancing its Connect & Control Technologies (CCT) segment, ITT acquired kSARIA Parent, Inc. on September 12, 2024, for $460.1 million. kSARIA, a leader in mission-critical cable assembly and networking solutions for aerospace and defense, has contributed significantly to CCT's growth. kSARIA's orders surged 58% year-to-date through Q3 2025, with a book-to-bill of 1.2, securing awards on key defense platforms, including a vertical launch system for a new customer. The integration has also yielded commercial synergies, such as replacing a competitor's connector with ITT's Cannon HDx on an existing kSARIA platform.

Complementing these acquisitions, ITT divested its Wolverine Advanced Materials business in July 2024 for $171 million, recognizing a pre-tax gain of $47.8 million. This divestiture, formerly part of the Motion Technologies (MT) segment, strategically reduced the company's exposure to tariff impacts and streamlined its portfolio towards higher-growth opportunities. These strategic moves underscore ITT's commitment to actively manage its portfolio, ensuring capital is deployed into businesses with strong competitive advantages and attractive long-term growth prospects.

Financial Performance: A Story of Profitable Growth

ITT's financial performance in 2025 reflects the successful execution of its strategy, demonstrating consistent organic growth, margin expansion, and robust cash generation. For the third quarter ended September 27, 2025, ITT reported total revenue of $999.1 million, a 13% increase year-over-year, with organic revenue growing 6%. This growth was broad-based, driven by strong pump projects in IP, increasing aerospace and defense demand in CCT, and solid performance in Friction original equipment within MT.

Despite a $28.8 million decrease in reported operating income for Q3 2025, primarily due to a $47.8 million gain on the Wolverine divestiture in the prior year, adjusted operating income showed resilience. Gross profit for Q3 2025 was $355.2 million, maintaining a gross margin of 35.6%. For the nine months ended September 27, 2025, gross profit reached $1,018.3 million, with gross margin expanding to 35.3% from 34.5% in the prior year, driven by higher volume and net savings from productivity and sourcing initiatives.

Segment-wise, Motion Technologies' operating income decreased due to the Wolverine divestiture's prior-year gain, but benefited from productivity savings and higher volume, offsetting increased labor and material costs. Industrial Process saw its operating income rise by $11.6 million in Q3 2025, driven by higher sales volume, pricing actions, and productivity gains. Connect & Control Technologies' operating income increased by $8.1 million, benefiting from pricing, productivity, higher sales volume, and contributions from kSARIA. Overall, ITT's incremental margins, excluding the impact of acquisitions, were approximately 40% in Q3 2025, with expectations for similar performance in Q4 2025 and a range of 30% to 35% for 2026.

The company's liquidity remains strong. Net cash from operating activities increased by $101.6 million for the nine months ended September 27, 2025, primarily due to favorable working capital management, including improved accounts receivable collections and higher customer advanced payments. Free cash flow reached $368 million year-to-date through Q3 2025, a 46% increase over the prior year. ITT also maintains flexible financing, having entered into a new $1.1 billion revolving credit facility and a $750 million term loan in 2025, with $575 million outstanding on the term loan as of September 27, 2025.

Capital Allocation and Shareholder Returns

ITT's capital allocation strategy is geared towards maximizing shareholder value through a balanced approach of strategic investments, debt reduction, and direct returns to shareholders. Since early 2024, the company has deployed $1.9 billion of capital, allocating $200 million to capital expenditures, $900 million to M&A, and $800 million to dividends and share repurchases.

The company actively returns capital to shareholders, having repurchased $500.1 million of its shares during the nine months ended September 27, 2025, with $475 million remaining under its 2023 repurchase plan. Dividends have also seen consistent growth, with a quarterly dividend of $0.35 per share declared for Q3 2025, representing a 10% increase from the prior year. This disciplined capital deployment strategy underscores management's confidence in ITT's long-term outlook and its ability to generate sustainable returns.

Outlook and Guidance: Sustaining Momentum

ITT's management has expressed strong confidence in the company's future trajectory, raising its full-year 2025 adjusted EPS outlook to a midpoint of $6.65. This revised guidance represents a 13% increase over the prior year, or 16% excluding the impact of the Wolverine divestiture. The company anticipates achieving $0.5 billion in free cash flow for the full year, marking a new milestone. Total revenue growth is projected to be between 6% and 7%, with organic revenue growth in the range of 3% to 5%. Adjusted operating margin, excluding M&A impacts, is expected to expand by more than 100 basis points for the year, driven by continued productivity and significant margin expansion from acquisitions. The effective tax rate for 2025 is projected at 21.5%.

For the fourth quarter of 2025, ITT expects high single-digit revenue growth, with mid-single-digit organic growth led by CCT and IP. Operating margin is forecast to increase by approximately 130 basis points, with IP leading the expansion and MT expected to hit the 20% margin mark. This robust outlook is supported by a strong backlog, which stood at nearly $2 billion as of September 27, 2025, up 13% year-over-year, and a year-to-date book-to-bill ratio of 1.08. Looking into 2026, ITT anticipates continued growth, bolstered by IP project wins, CCT Defense Awards, and sustained outperformance in MT's Friction OE and rail businesses. Acquisitions like Svanehøj and kSARIA are expected to remain significant growth drivers, building on their strong order intake in 2025.

Risks and Challenges

Despite a positive outlook, ITT operates within a dynamic global environment that presents several risks. Global macroeconomic conditions, influenced by geopolitical tensions, inflation, and potential recessionary threats, remain uncertain. Inflationary pressures continue to impact raw material and energy costs, while a skilled labor shortage drives higher labor expenses. Although ITT has largely offset these through pricing and productivity, the fluid tariff environment, including new U.S. tariffs and retaliatory measures, could increase input costs and affect product competitiveness. While ITT's 2025 guidance does not anticipate a material net impact from tariffs due to mitigation strategies, the ultimate effects remain uncertain. The company also faces inherent risks from environmental liabilities and legal proceedings, though no material adverse impact is currently expected. Furthermore, while ITT's competitive positioning is strong in its niche markets, larger competitors with greater scale and faster innovation cycles in digital integration could pose a long-term challenge, requiring ITT to continuously invest in its technological roadmap.

Conclusion

ITT Inc. is executing a compelling investment thesis centered on strategic portfolio transformation, technological leadership, and disciplined operational execution. The company's recent financial performance, marked by robust revenue growth, expanding margins, and strong cash flow, demonstrates the efficacy of its strategy to become a higher-growth, higher-margin enterprise. Innovations like VIDAR and Geo-Pad are not merely incremental improvements but represent significant steps into new, high-value markets, solidifying ITT's competitive moats through quantifiable performance advantages.

The strategic acquisitions of Svanehøj and kSARIA have successfully repositioned the company, contributing meaningfully to both top-line growth and profitability, while the divestiture of Wolverine has streamlined its focus. With a strong backlog, a positive outlook for 2025 and beyond, and a commitment to balanced capital allocation, ITT is well-positioned to sustain its momentum. While macroeconomic uncertainties and competitive pressures persist, ITT's emphasis on specialized engineering, customer intimacy, and continuous innovation provides a resilient foundation for continued value creation for discerning investors.