ITT (ITT)

Engineered components manufacturer for critical industries ITT Inc. (NYSE: ITT) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales were flat year on year at $913 million. Its non-GAAP profit of $1.45 per share was 0.8% above analysts’ consensus estimates.

Company Overview

Playing a crucial role in the development of the first transatlantic television transmission in 1956, ITT (NYSE:ITT) provides motion and fluid handling equipment for various industries

Gas and liquid handling companies possess the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Lately, water conservation and carbon capture–which requires hydrogen and other gasses as well as specialized infrastructure–have been trending up, creating new demand for products such as filters, pumps, and valves. On the other hand, gas and liquid handling companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Illinois Tool Works (NYSE:ITW), Colfax (NYSE:CFX), and Fronius (private).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, ITT’s sales grew at a tepid 5.2% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about ITT.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. ITT’s annualized revenue growth of 9% over the last two years is above its five-year trend, suggesting some bright spots.

ITT also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, ITT’s organic revenue averaged 6.1% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, ITT’s $913 million of revenue was flat year on year but beat Wall Street’s estimates by 0.6%.

Looking ahead, sell-side analysts expect revenue to grow 4.5% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

ITT’s unit economics are better than the typical industrials business, signaling its products are somewhat differentiated through quality or brand. As you can see below, it averaged a decent 32.9% gross margin over the last five years. Said differently, ITT paid its suppliers $67.14 for every $100 in revenue.

In Q1, ITT produced a 34.6% gross profit margin, marking a 1.6 percentage point increase from 33% in the same quarter last year. ITT’s full-year margin has also been trending up over the past 12 months, increasing by 1 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

ITT has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.2%.

Looking at the trend in its profitability, ITT’s operating margin rose by 6.9 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, ITT generated an operating profit margin of 5.6%, down 10.8 percentage points year on year. Conversely, its gross margin actually rose, so we can assume its recent inefficiencies were driven by increased operating expenses like marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

ITT’s EPS grew at a decent 9.8% compounded annual growth rate over the last five years, higher than its 5.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into ITT’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, ITT’s operating margin declined this quarter but expanded by 6.9 percentage points over the last five years. Its share count also shrank by 7.4%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For ITT, its two-year annual EPS growth of 12.7% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q1, ITT reported EPS at $1.45, up from $1.42 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects ITT’s full-year EPS of $5.89 to grow 10.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

ITT has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.9% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that ITT’s margin dropped by 2.3 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

ITT’s free cash flow clocked in at $76.6 million in Q1, equivalent to a 8.4% margin. This result was good as its margin was 5.1 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

ITT’s five-year average ROIC was 16.8%, beating other industrials companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, ITT’s ROIC has stayed the same over the last few years. Rising returns would be ideal, but this is still a noteworthy feat since they're already high.

ITT reported $439.8 million of cash and $736.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $679.4 million of EBITDA over the last 12 months, we view ITT’s 0.4× net-debt-to-EBITDA ratio as safe. We also see its $16.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see ITT narrowly top analysts’ organic revenue, revenue, and EPS expectations this quarter. That ITT reiterated full-year EPS guidance means the company remains on track despite the choppy macro. Overall, this was a decent quarter. The stock remained flat at $138.02 immediately after reporting.

Updated: June 13, 2025 at 11:34 PM EDT

Are you wondering whether to buy ITT or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There are a lot of things to like about ITT. Although its revenue growth was uninspiring over the last five years, its expanding operating margin shows the business has become more efficient. And while its cash profitability fell over the last five years, its impressive operating margins show it has a highly efficient business model.

ITT’s P/E ratio based on the next 12 months is 23.1x. At this valuation, there’s a lot of good news priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $169.50 on the company (compared to the current share price of $150.46).