ITT Inc. (ITT) Business Profile

What it does

ITT manufactures components and customized equipment for transportation, industrial and energy customers. Its products are used inside vehicles, trains, factories, industrial plants, aircraft and other equipment. The company is headquartered in Stamford. Luca Savi is its president and chief executive officer.

The business has three main product groups. Motion Technologies makes brake pads for cars and commercial vehicles, as well as shock absorbers and other equipment that controls movement or absorbs impacts in trains and vehicles. It sells to vehicle manufacturers, other component manufacturers and replacement-parts customers.

Industrial Process makes pumps and valves that move or control liquids and other materials in industrial processes. Its customers operate in markets including energy, chemicals, pharmaceuticals, mining and marine applications. ITT also supplies replacement parts, maintenance services and equipment-monitoring systems. Following its acquisition of SPX FLOW, ITT added mixers and other flow and process equipment to its portfolio. The company refers to this business as Flow Technologies.

Connect & Control Technologies makes connectors and cable assemblies that carry power, signals or data, along with components that control flow or absorb energy. These products serve aerospace, defense, industrial, transportation, medical and energy applications. Some are designed for demanding conditions, such as high temperatures, pressure or corrosive environments.

ITT both produces standard configurations for equipment manufacturers and engineers customized systems to a customer’s order. It also sells replacement products and services for equipment already in use.

How it makes money

ITT earns revenue by selling components and equipment to manufacturers and end users, and by supplying replacement parts and services after equipment enters service. Some products are made in volume to predefined specifications; others are configured or engineered for a particular customer or project.

In Motion Technologies, brake pads are sold for installation on new vehicles, either directly to automakers or through other brake manufacturers. The business also sells pads for repairs through automakers’ service networks and independent aftermarket channels. Its rail products include shock absorbers, buffers and crash-mitigation equipment. Rail sales go to equipment manufacturers, operators and distributors, with repair and overhaul work available after installation.

In Industrial Process, pump and valve sales include both standard products and equipment for larger projects. Project pumps generally have longer lead times and are often managed by engineering, procurement and construction firms. Aftermarket offerings include replacement parts, service and plant optimization. SPX FLOW adds pumps, valves, mixers and aftermarket services.

Connect & Control Technologies sells connectors, cables and control components directly and through distributors. Its products are often installed on platforms with long service lives, creating replacement and aftermarket opportunities.

Prices reflect the markets and applications served. Large pump projects can involve competitive pricing because the original equipment provider can subsequently earn aftermarket business. In automotive components, ITT provides customers with pricing and efficiency concessions; certain contracts include compensation for changes in major commodity and energy costs, subject to a time lag.

Customers and how it sells

ITT serves equipment manufacturers, industrial end users, engineering and construction firms, vehicle and train operators, distributors, and repair networks. Its products reach transportation, energy, chemical, pharmaceutical, marine, mining, aerospace, defense and other markets.

Aumovio is ITT’s largest customer. Automakers sometimes specify ITT brake pads for braking systems produced by Aumovio; ITT also supplies Aumovio with aftermarket parts under a long-term agreement.

Sales channels differ by business. Industrial Process sells directly to end users and supports engineering, procurement and construction firms, as well as selling through independent distributors. Connect & Control Technologies also sells directly and through distributors. In rail, ITT sells to train manufacturers and operators as well as through distributors.

ITT sells across many countries, with revenue from both inside and outside the U.S. Its manufacturing and production facilities span North America, Europe and Asia. Industrial Process also has operations in Saudi Arabia. ITT’s SPX FLOW teams are working with Danone on capital plans and specialized equipment.

Suppliers and costs

ITT buys manufactured components, raw materials and subassemblies from third-party suppliers, contract manufacturers and commodity dealers. Inputs include motors, castings, mechanical seals and electronic components, as well as steel, copper, nickel, aluminum, rubber and specialty alloys. Wolverine Advanced Materials supplies ITT with shims and seals.

For most products, ITT has alternative sources or materials are readily available. In some cases, however, it relies on a single source for supply, manufacturing or assembly, or buys in markets with a limited number of suppliers. The company generally uses purchase orders to support material requirements, with exceptions for some specialty materials.

ITT uses both build-to-order production for predefined product configurations and engineer-to-order production for customized systems. Costs include materials, manufacturing, labor, research and development, sales and administration. The company also invests in capacity and equipment.

Material price increases and supply delays affected results in the latest reported year. ITT uses supplier contracts, customer price increases and productivity savings to mitigate inflation. It also uses regional sourcing where possible, maintains some inventory ahead of supply constraints and evaluates commodity hedges. ITT expects supply-chain disruptions, geopolitical disruptions and inflation challenges to continue.

Competitive position

ITT competes in brake pads and rail components, industrial pumps and valves, and connectors and control products. Our reading: ITT does not identify any direct competitors by name. (item1)

Brake-pad customers consider formulation and technical capabilities, product performance, quality, cost and the ability to meet delivery and volume schedules. Rail products must meet safety and compliance requirements and are designed for different train applications. Pump and valve markets are competitive and fragmented, with regional suppliers and a limited number of larger global peers. Connect & Control Technologies faces companies ranging from multinational corporations to local firms, depending on product and region.

Our reading: Customer-specific engineering and testing can provide a meaningful competitive position in brake pads and rail components, because designs must meet particular platform and safety requirements. Long customer relationships support that position, but customers also weigh price and delivery.

Our reading: An installed base offers a recurring-revenue advantage in pumps and valves because equipment needs replacement parts and service. Its strength is tempered by competition for new projects, where pricing can be aggressive.

Our reading: Application expertise, past installations and long-lived platforms support the connector business, but the evidence does not establish how durable that advantage is across every product and region. ITT also owns patents, trade secrets and other intellectual property, although no single right or related group is material to the company as a whole or to any core segment.

Growth opportunities

ITT’s growth plans include product development, capacity investment, expansion of aftermarket sales and acquisitions. In brake pads, it is developing formulations for electric and hybrid vehicles and low-emission braking. ITT plans to begin production of its GeoPAD formulation for a European automaker.

The company has completed its SPX FLOW acquisition, adding pumps, valves, mixers and related services. ITT is working to expand the acquired businesses through localization and its existing customer network. It is also expanding Waukesha Cherry Burrell’s presence in China and India. ITT reported growth in SPX FLOW revenue in the latest quarter and expects growth for the business for the full year.

ITT is investing in connector and cable-assembly development for aerospace and defense applications. It also acquired Aerospace Contacts to strengthen its supply chain and support growth in Connect & Control Technologies. In the latest quarter, that segment’s organic orders grew, while KONI orders grew 24.0%, supported by rail and European defense demand.

ITT raised its full-year organic revenue growth guidance. The company expects SPX FLOW supply-chain and procurement actions to deliver savings in the following year. It is also resizing European pump operations in response to a declining regional chemical market.

Structural risks

• Economic cycles: ITT’s businesses are exposed to industry and general economic cycles. Connectors tend to be affected early in a cycle, automotive and aerospace components in the middle, and industrial pumps later.
• Customer concentration: Aumovio is ITT’s largest customer. ITT also faces pricing and efficiency requirements in automotive components.
• Supply and costs: Raw-material availability and prices can change because of inflation, supply disruptions, currency movements, geopolitical events and tariffs. Some inputs depend on a single source or a limited supplier base.
• Acquisition integration: SPX FLOW adds operations, systems and personnel that must be integrated. ITT faces risks that the business underperforms expectations, anticipated benefits are not achieved, key employees leave or management attention is diverted.
• International and environmental exposure: ITT faces foreign-exchange movements, geopolitical instability and changes in local laws and taxation. Environmental obligations and future remediation costs are uncertain.
• Project and market demand: Some Saudi pump orders shifted later than expected, while the European chemical market has declined. ITT has warned that some automotive manufacturers could shut down earlier than expected in December.

Bottom line

Our reading

Our reading: ITT combines customer-specific components and equipment sales with replacement parts and services that can continue after installation. Its engineering relationships and installed base support that model, although competitive pricing and customer requirements remain important. (item1)

Our reading: SPX FLOW expands its exposure to industrial flow equipment and aftermarket work, while adding integration demands. Supply costs, economic cycles and automotive customer concentration remain material exposures. (item1; item1a; call_prepared)