ITT - Earnings Call - Q1 2025
May 1, 2025
Executive Summary
- Q1 2025 was resilient with revenue $913M, GAAP EPS $1.33, and adjusted EPS $1.45; adjusted margin expanded 30 bps to 17.4% despite FX and M&A amortization headwinds.
- Results modestly beat consensus: EPS $1.45 vs $1.44* and revenue $913M vs $907.5M*, aided by productivity and pricing; GAAP EPS declined YoY on higher interest and tax.
- Management maintained full-year adjusted guidance (organic growth 3–5%, adj. operating margin 18.1–19.0%, adj. EPS $6.10–$6.50, FCF $450–$500M) while lowering GAAP EPS ($5.80–$6.20) and GAAP margin (17.5–18.4%) to reflect tariff and tax effects.
- Catalysts: record orders >$1.0B (book-to-bill 1.15) and backlog $1.8B, $400M buybacks through April, and launch of VIDAR smart motor opening a $6B TAM; near-term watch items include tariff headwinds of $50–$60M and aerospace destocking.
What Went Well and What Went Wrong
What Went Well
- Orders hit a record >$1.0B; backlog rose to $1.8B (+21% YoY, +10% seq.), with book-to-bill 1.15, supported by kSARIA and Svanehøj.
- Margin execution: adjusted operating margin expanded to 17.4% and segment-level pricing/productivity offset FX and cost inflation; adjusted EPS grew 7% excluding the Wolverine divestiture.
- Strategic momentum: VIDAR launch enters $6B industrial motor TAM; CEO: “VIDAR is a game-changing industrial motor… the only industrial motor of its kind on the market”.
What Went Wrong
- GAAP EPS fell 1% YoY on higher interest and tax; GAAP operating margin flat YoY; aerospace demand weaker in CCT.
- CCT reported margin compression (15.3%, -240 bps YoY) from M&A dilution and higher materials/overhead; aerospace inventory normalization persists.
- Tariff headwind estimated at $50–$60M for the remaining 9 months of 2025, with potential margin/cash timing impact even if largely offset by price/sourcing actions.
Transcript
Operator (participant)
Welcome to ITT's 2025 First Quarter Conference Call. Today is Thursday, May 1, 2025. Today's call is being recorded and will be available for replay beginning at 12:00 P.M. Eastern. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one one on your touchtone phone.
If at any time your question has been answered, you may remove yourself from the queue by pressing star one one again. We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the call over to Mark Macaluso, Vice President, Investor Relations and Global Communications. You may begin.
Mark Macaluso (VP of Investor Relations)
Thank you, Tony, and good morning. Joining me in Stamford today are Luca Savi, ITT's Chief Executive Officer and President, and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT's financial results for the three-month period ended March 29, 2025, which we announced this morning following our earnings pre-release on April 10. Please refer to slide two of the presentation available on our website, where we note that today's comments will include forward-looking statements that are based on our current expectations.
Actual results may differ materially due to several risks and uncertainties, including those described in our 2024 annual report on Form 10-K and other recent SEC filings. Except for otherwise noted, the first quarter results we present this morning will be compared to the first quarter of 2024 and include certain non-GAAP financial measures. The reconciliation of such measures to most comparable GAAP figures are detailed in our press release and in the appendix of our presentation, both of which are available on our website. With that, it's now my pleasure to turn the call over to Luca, who will begin on slide number three.
Luca Savi (CEO)
Thank you, Mark, and good morning. ITT's first quarter results were resilient and in line with the preliminary earnings we announced on April 10. The environment has been fluid, to say the least, and still, our ITTers all around the world delivered. Once again, the resilience of our people and of our businesses came through.
For this, my heartfelt thank you to all our employees. One of the highlights of the quarter was our orders of more than $1 billion, the most of any quarter ever in ITT. This was bolstered by the kSARIA and Svanehøj acquisitions. Talking about orders, in Q1, we grew 7% or 2% organic. Our book-to-bill was 1.15, resulting in an ending backlog of $1.8 billion, up 21% year-over-year and 10% sequentially. Moreover, we expanded margin 30 basis points to 17.4% on flat sales.
We generated adjusted EPS of $1.45, up 7% without the loss of earnings from the Wolverine divestiture. We generated record Q1 free cash flow of $77 million, up more than 150%, and we repurchased $100 million of shares in Q1. On orders, Industrial Process grew 14% and 11% organic, driven by new large pump project awards, including Svanehøj, where orders were up nearly 70%. We continue to invest in fast-growing locations like our IP Saudi and India sites to drive further market share gains.
In Q1, I was pleased to spend time with Lala and Jaimin in Vadodara, India, to review our investments and marked expansion plans in this important growth region for ITT. Connect & Control grew nearly 40%, driven by kSARIA large platform awards with Defense Primes, including F-35. Both IP and CCT had a book-to-bill above 1.2.
On profitability, we continue to expand margin despite headwinds from foreign currency and M&A amortization. The team at Koni led MT to just shy of 20% margin offsetting 150 basis points of unfavorable FX. CCT grew 170 basis points to nearly 20%, excluding M&A dilution, driven by price actions and productivity. Lastly, IP grew 60 basis points to over 23%, excluding M&A dilution. Now, on capital deployment, we started 2025 moving at ITT speed.
Immediately after quarter end, we decided to release preliminary earnings. We then went into the market and started repurchasing ITT shares to reaffirm our confidence in the long-term outlook of ITT. We repurchased $300 million of ITT shares in April, in addition to the $100 million we did in Q1, lowering our share count by 4% for the year. Still, our capacity to execute M&A remains.
Lastly, on the outlook, after a resilient Q1, we have good visibility to a strong second quarter, with adjusted EPS growth expected to be roughly 8% at the midpoint. With this, we are maintaining our full-year adjusted guidance for 2025, even with uncertainty around the macro environment in the second half. Our strong cash generation is also expected to continue, driving us towards nearly $500,000,000 for the year, a new milestone for ITT.
Now, moving on from the results, earlier in Q1, we announced the launch of VIDAR. This is a perfect example of ITT's innovation, driven by our engineering DNA. With innovation, we stay ahead of competition. We do it in friction, where our engineers in Europe, North America, and China turn engineering challenges into market share gains. We are doing it in Svanehøj with our new cryogenic fuel pumps.
Emmanuel and I were fortunate enough to be together with Soren and the entire Svanehøj team last quarter in Denmark, as their new high-pressure pumps were tested with liquid nitrogen at minus 310 degrees Fahrenheit to replicate cryogenic operating conditions. We are doing it in our connectors defense business, where our new product development team is co-designing new connectors for harsh environments with our customers and quickly prototyping them.
This is driving new awards, including share gains on the world's most advanced defense platforms. We are doing it through ITT Ventures with our game-changing industrial motor VIDAR, which we believe is going to solve one of the biggest problems facing the global flow industry: wasted energy. Let's turn to slide four to discuss VIDAR in more detail. VIDAR is truly a game changer. Let me explain exactly how it will change the flow industry.
Nearly 10% of the world's electricity is used to power the motors that drive industrial pumps and fans, translating to an annual energy bill of over $300 billion. Yet, most of these systems rely on outdated motor technology that runs at fixed speed, requiring mechanical controls to regulate the flow. In these instances, the only solution available is a variable speed drive. Variable speed drives need space. Not only space, they require a clean room, and they are expensive.
Therefore, they're used in less than 20% of the cases. This is where VIDAR comes in. Not only does VIDAR embed variable speed technology into the motor to deliver energy savings and drastically reduce costs and emissions, but VIDAR is also a drop-in replacement, meaning customers can simply swap out their existing motor. It does not require a clean room.
It does not need more space, but it does quickly pay for itself. There are multiple customer pilots either underway or completed with thousands of hours of runtime under our belts. Our VIDAR GM can tell you that at one such pilot site, we replaced the existing motor with VIDAR, and we opened the control valve to 100%. The transformation was immediate. The motor speed dropped by 24%. Energy use decreased by over 50%, and noise levels plummeted.
All whilst VIDAR delivered the exact same flow at half the operating cost. This single motor saved our customer's plant 224,000 kWh annually, enough electricity to power 30 homes for an entire year. Additionally, it helped our customer eliminate 160 metric tons of CO2 emissions, the equivalent of removing 34 gas-powered cars from the road. The financial impact was impressive.
The plant saved roughly $20,000 per year from just one pump. A typical industrial plant will have hundreds. This revolutionary motor technology enables ITT to enter a new $6 billion addressable market. You will see and hear much more about VIDAR at our Capital Markets Day on May 15, including our targets for revenue growth. As you can see, VIDAR is a game changer for our customers, for ITT, and for the world. Now, let me turn the call over to Emmanuel to discuss our Q1 results in more detail.
Emmanuel Caprais (SVP and CFO)
Thank you, Luca, and good morning. ITT delivered another solid quarter. Let's begin with revenue. Growth was flat to prior year on a total and organic basis, mainly driven by our acquisitions and pricing actions, which fully offset lower volumes, including from the Wolverine divestiture in the prior year. There were, however, a number of highlights. In CCT, defense connectors grew over 20%, and general industrial connectors grew 4%. kSARIA contributed 26 percentage points of total growth.
This was more than offset by lower aerospace volumes, primarily due to Boeing, as we anticipated. CCT also had the stronger price realization of all the businesses in Q1. In Motion Technologies, the highlight was double-digit growth from Kony share gains. In friction OE, we saw strength in China, as well as continued growth in friction's independent aftermarket, which offset a market slowdown in North America and Europe.
Finally, in Industrial Process, strong marine pump shipments in Svanehøj, as well as growth in valves, offset lower pump shipments. On profitability, operating income grew 2% on flat sales, or 7%, excluding the Wolverine divestiture, primarily driven by shop floor productivity and price, which more than offset lower volumes in auto and aerospace, as well as cost inflation and unfavorable effects. IT was once again above 20% margin.
Excluding Svanehøj, margin would have been up 60 basis points. In MT, the team just about reached its 20% long-term target, despite a larger than expected FX headwind, expanding margin 160 basis points versus prior year and over 300 basis points, excluding FX. Finally, in CCT, excluding M&A dilution, margin was up 170 basis points to nearly 20%, driven by price gains and productivity. We expect CCT to continue to drive higher price realization as renegotiations in aerospace are finalized.
This performance, combined with a 1% lower share count, resulted in adjusted EPS of $1.45. We overcame $0.06 of lost earnings from Wolverine and $0.06 from unfavorable FX. Lastly, on free cash flow, our cash generation increased over two and a half times versus prior year and was a record for the first quarter. Our free cash flow margin also increased more than 500 basis points this quarter.
This is thanks to the efforts of our team to drive stronger cash collections, as well as more than $15 million of operating cash flow from our acquisitions. Let's turn to the Q1 operating margin and EPS bridges on Slide 6. The key takeaway here is the strong operational performance of our businesses that allowed us to grow margin on flat sales.
Included in the figures are 150 basis points of operational leverage, 40 basis points of productivity, which outweighed the dilutive margin impact of acquisitions and foreign currency. As you can see on the right, our operational performance, along with the contribution from our acquisitions, helped us overcome earnings headwinds from the 2024 divestiture of Wolverine: unfavorable foreign currency, higher interest expense, and a higher tax rate.
Excluding the divestiture, Q1 EPS would be up 7% for the quarter. Now, let's move to slide seven to discuss our 2025 guidance. After a solid Q1 performance, we are confirming our four-year adjusted outlook. We have good visibility to our performance in the second quarter, which gives us confidence despite the highly uncertain trade environment.
On revenue, our total growth is expected to be slightly higher due to FX, while organic revenue is expected to be within our original range of 3%-5%. In CCT, we expect to drive growth in defense as well as in aerospace, with a ramp in shipments to Boeing and benefits from pricing actions. In IP, we expect growth in project shipments to accelerate in the second quarter, while demand in aftermarkets and in valves remains robust.
This is partially attributable to the 90+% on-time delivery in our North America aftermarket business, which is allowing us to gain share. In MT, we expect outperformance in friction in the U.S. and Europe to accelerate throughout the year. For total ITT, price should account roughly one to two points of growth.
On margin, as we saw in Q1, productivity and price should continue to drive the bulk of our margin expansion, overcoming the impact of lower volume and higher cost inflation. We have already taken further actions to reduce structural costs while prudently investing in areas of our business that will drive growth, such as VIDAR. On revenue, our revenue growth and margin expansion are expected to drive adjusted EPS at the midpoint to $6.30.
This includes the $0.17 unfavorable impact from temporary intangible amortization that ended in April for Svanehøj and will conclude by the end of the year for kSARIA. Still, the 2024 acquisitions are expected to add approximately $0.20 of accretion this year. We will also realize an approximate $0.10 benefit from the $400 million of share repurchases executed through April, net of interest expense.
Finally, on cash, the solid start in Q1 puts us in position to deliver close to $500,000,000 of free cash flow this year. Let's talk briefly about our Q2 outlook. Revenue growth should be in the mid-single-digit range in total and low single-digit range on an organic basis, led mainly by project shipments in Industrial Process, including Svanehøj. Growth in CCT should accelerate quarter to quarter as shipments to Boeing ramp.
On margin, Motion Technologies should surpass 20%, and Industrial Process is expected to be over 21%. CCT margin should improve sequentially by roughly 200 basis points, but will be down year-over-year due to kSARIA amortization. Legacy CCT would have effectively hit their long-term margin targets in Q2.
In total, this should drive operating margin expansion of roughly 50 basis points year-over-year and more than 100 basis points sequentially, overcoming higher corporate costs related to the VIDAR launch. Higher income and lower share count is expected to drive adjusted EPS growth of 6% to 10% year-over-year and 8% growth at the midpoint.
Excluding the lost earnings from Wolverine, EPS growth would be 14%. Before we wrap up, I wanted to address our assumptions on tariffs. Our supply chain and sourcing teams have been working to quantify the potential exposure to ITT and to develop granular action plans to mitigate the impact by working with our customers and suppliers. As it stands today, our estimates of the tariff costs for the balance of 2025 is approximately $50 million-$60 million prior to our mitigation strategies.
Given the divestiture of Wolverine in MT, the largest impacts are expected in CCT and in ITT. Most of our products are USMCA certified, and we have assumed these exemptions remain intact. We issued price increases to our customers for the products that are not exempt, and we also continue to strictly control our costs, such as the restructuring actions we took in the first quarter in the event of a slowdown in the second half.
Taken all together, we expect our actions will offset the impact from an operating income perspective. There may, however, be some impact on margin as well as a timing element that could affect cash flow. One more thing to note: our 2025 EPS guidance has not changed. This is due to the uncertainty in the second half of the year, given the volatility in the macro environment. This is a very fluid situation, and we will stay close to this and take further actions as needed. Let me turn the call back to Luca to wrap up.
Luca Savi (CEO)
Thanks, Emmanuel. Few points before moving to Q&A. This was another resilient performance. We delivered on our Q1 commitments and have good visibility to a strong second quarter. We continue to expand our margin with more opportunities still to capture. We are maintaining our full-year guidance despite a great deal of uncertainty. We quickly deployed capital repurchase shares in April, and still, there is a lot of value we can create at ITT, including through game-changing innovations like VIDAR.
On May 15, you will be able to see this value creation come to life at ITT's next Capital Markets Day and hear from some of the ITT leaders delivering our results today and for the years to come. I look forward to seeing you there. Thank you for your ongoing support of ITT. As always, it has been my pleasure. Tanya, please open the line for Q&A.
Operator (participant)
Certainly. The floor is now open for questions. At this time, if you have a question or a comment, please press star one one on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star one one again. We do ask that while you post your question, you pick up your headset to provide optimal sound quality. Please limit your questions to one question and a follow-up. Thank you. Our first question will be coming from the line of Scott Davis, Melius Research. Your line is open, Scott.
Scott Davis (Chairman, CEO, and Lead Research Analyst)
Thank you Operator. Good morning, guys.
Luca Savi (CEO)
Good morning, Scott.
Scott Davis (Chairman, CEO, and Lead Research Analyst)
Hey, I think that the headline, to me at least, these order numbers are pretty big. Can you give us a little bit of color on why you think orders picked up so much? Is there maybe some impact of people trying to get ahead of price increases? Is there any other variables out there that you can kind of point to that could explain sequentially and year-over-year why you had such a big increase?
Luca Savi (CEO)
Sure. No, Scott, we don't think there is any purchasing ahead of what might happen. Also, the reason for that is, if you think about it, IP, for example, IP project orders were up 47%. Those projects, you have been working on those projects for months, in some cases for years. There is no acceleration in any shape or form on that one. Of course, there are the great acquisition performances, both from kSARIA as well as from Svanehøj. If you think about Svanehøj, it was up 70% year-over-year with a book-to-bill of 2.0. I would say this is for sure partly the market, but partly also market share gains in several sectors.
Scott Davis (Chairman, CEO, and Lead Research Analyst)
Okay. Helpful. And then just to clarify the big buyback that you did, presumably to help offset Wolverine, but not fully, of course, but help, but was that because of market weakness or because you see perhaps a lull in M&A? Any color behind that, please?
Luca Savi (CEO)
Sure. No, I would say that it's not related to the M&A. As a matter of fact, our pipeline is healthy. We keep on cultivating, and we are still targeting to do M&A this year. In an ideal world, we will be able to deploy $500 million-$700 million or a little bit more this year on M&A. It's not related to the lack of opportunity in M&A. It's just to reaffirm really the confidence in ITT and our medium and long-term outlook. As you've seen, our net ratio was probably one of the lowest in the multi-industrial. I think in one of your slides, you showed us at 0.3. You might have participated to that decision, Scott.
Scott Davis (Chairman, CEO, and Lead Research Analyst)
Best of luck, guys. I'll pass it off. Thank you.
Operator (participant)
Our next question will be coming from Mike Halloran of Baird. Your line is open.
Mike Halloran (Managing Director and Senior Research Analyst)
Hey, good morning, everyone.
Luca Savi (CEO)
Hi, Mike.
Mike Halloran (Managing Director and Senior Research Analyst)
Can we just bridge the previous guidance to the current guidance? It feels like pricing moves revenue up a little bit, probably some implicit pressure on the volumes. Not that you're seeing it today, but you're assuming back half maybe a little something, FX more favorable. Anything else I should be thinking about from a put and take from previous guide to the current guide?
Emmanuel Caprais (SVP and CFO)
Yeah, Mike. When you look at guidance to guidance, obviously, as you mentioned, we have a little bit of a positive impact from FX and also from share count, as we discussed.
Mike Halloran (Managing Director and Senior Research Analyst)
Yeah, share count.
Emmanuel Caprais (SVP and CFO)
I think when you look at a little bit of the headwinds, we have an increased tax rate, a little bit of more cost inflation. Also, we expect the second half to be a little lower than originally. Not baking at all a recession, but economic activity maybe to be a little bit slower. All in all, this is where we stand. We expect acquisitions to deliver a little bit better than originally.
That's really good news. When you look at the different components of the guidance, as we discussed, mid-single-digit organic revenue growth, we expect IP to be leading the pack with around 5% and CCT closely behind and MT to be roughly flat. One of the things that I think it's important to highlight is that we continue to expect, obviously, margin expansion.
We expect that IP for the year will land at close to 22%. MT is expected to be solidly at 20% in line with our long-term target. CCT just shy of 18% because, obviously, it is impacted by the kSARIA margin dilution. Without kSARIA CCT would be above 21%, which is really close to the long-term target. I think that all in all, EPS aligned with prior guidance. If everything goes well and the tariffs are resolved, this is good news. Other than this, no major change.
Mike Halloran (Managing Director and Senior Research Analyst)
That's super helpful. I appreciate that. Just kind of thinking about the resilience in the model here, I think the IP side, curious your thoughts on how that should track if you do get a little bit of softness. I know the pipeline, the backlog, the frontlog are all very attractive. How do you think that tracks? How do you think the customer base responds? Do you think there's enough inertia in what you're doing as well as the need in the market to have some sort of offset or at least be pretty resilient in the face of that?
Emmanuel Caprais (SVP and CFO)
When we look at the market in IP, we see a little bit of a slowdown in the funnel. The funnel is down year-over-year, and we think it accounts for all those projects that have been awarded that have not replenished as fast as we have seen in the past. I think it's fair to say that the funnel remains at an elevated level, even though it's declining.
Some of that decline is coming from North America. Specifically in there, we see decline also from an oil and gas and chemical standpoint. For us, as we discussed, we have a really strong backlog. The backlog in IP is at $1 billion, which is a record. It's up year-over-year, 15%, sequentially up 8%. As we discussed, book-to-bill above 1.2. I think that we are really confident in terms of our revenue number and our growth in 2025 for IP.
Luca Savi (CEO)
If I may add one point, Mike, if you look at the backlog that Emmanuel was talking about, in the last three years, it grew from $500,000,000 to $1,000,000,000. So 100% up in three years and 50% organically. Also, when you look at our project execution, when we close the project now, the closing margin of this project is higher than the margin of the project when we booked them. I think that this gives us confidence to continue to perform in IP.
Mike Halloran (Managing Director and Senior Research Analyst)
Really appreciate it. Thanks, gentlemen.
Luca Savi (CEO)
Thank you, Mike.
Operator (participant)
Thank you. Our next question comes from Vlad Bystricky of Citigroup. Vlad, your line is open.
Vlad Bystricky (VP and Equity Research Analyst)
Morning, guys.
Mike Halloran (Managing Director and Senior Research Analyst)
Morning, Vlad.
Vlad Bystricky (VP and Equity Research Analyst)
Thanks for taking my question. Maybe just following up on IP, you mentioned continued investments that you're making in Saudi and in India. I guess in the Saudi region in particular, can you talk about whether or how you're thinking about any potential risks to Saudi spending plans as we've seen crude oil prices pull back this year and whether you're hearing any change in tone from your customers there?
Luca Savi (CEO)
Sure. No, actually, we do not see any change in tone. As a matter of fact, when you look at the orders, if you look at the last three years, our orders by market being oil and gas have been orders up every single year, 2022, 2023, 2024. Chemical the same, general industrial the same. Q1 2025, energy, oil and gas keeps on growing. No major noise on that front. I would say also that on top of the market, we're benefiting, of course, from market share gains because of the way that Khaled and the team are performing in Saudi. More than 95% of time delivery, perfect project execution. The customers are very loyal to us.
Vlad Bystricky (VP and Equity Research Analyst)
That's great to hear, Luca. I appreciate it. Maybe just shifting to MT, you mentioned, I think, an expectation for friction OE outperformance to ramp in North America and Europe over the course of the year. Can you just talk about, is that based on OEM production schedules and platform introductions? Do you see any risk of further modifications to those schedules just given the current uncertainty in the environment?
Luca Savi (CEO)
No. To be honest with you, Q1 was very challenging for the European and North American market. The European market was down almost 7% in terms of production. North America is down 5%. The only resilient market that showed good growth was China with manufacturing up 11%. These were the market numbers. In China, we outperformed by a few hundred basis points. The reason why we are confident on the 400 basis points for the full year and ramping up is the platform that we want, the startup production that we see, and also the order book that we see now, for example, for the next three months. All of that gives us confidence of the outperformance of 400-500 basis points for the full year.
Vlad Bystricky (VP and Equity Research Analyst)
Great. Appreciate it, guys.
Luca Savi (CEO)
Thank you, Vlad.
Operator (participant)
Thank you. Our next question will be coming from Jeff Hammond of KeyBank Capital Markets. Your line is open.
Jeff Hammond (Managing Director and Senior Equity Research Analyst)
Yeah. How are you doing, guys?
Luca Savi (CEO)
Hi, Jeff.
Jeff Hammond (Managing Director and Senior Equity Research Analyst)
Hey. Just want to hit the good color on the tariff exposure. Can you just talk about how much of the $50-$60 you cover with price, where specifically you're announcing price increases, and then just any changes you're implementing around sourcing or otherwise to kind of further mitigate the headwinds?
Luca Savi (CEO)
Sure. When you look at the total exposure, Jeff, which is roughly between $50 million and $60 million for the next nine months, as we said, we are acting on cost and on the sourcing. When you're looking at the sourcing where you have material, for example, where you have two suppliers that are qualified and might be in different geographical locations, we're able to use that flexibility and that resilience that we built in the supply chain in the last few years to reduce the impact of the tariff.
When it comes to the commercial actions, the commercial actions are really on all the products that, for instance, are not USMCA compliant. A lot of those commercial actions that are executed or in progress tend to be the majority through the distribution, where we also have more pricing powers. All of these enable us to have no net impact to the EPS guidance for 2025.
Jeff Hammond (Managing Director and Senior Equity Research Analyst)
Okay. That's helpful. Then just back on M&A, a lot of companies have said, "Gosh, it's gotten more difficult. We got to ask a million questions on tariffs, and we don't know what's going to happen from a demand perspective," and that makes M&A difficult. It sounds like you guys still feel like you can get stuff to the finish line. Maybe just speak to actionability and if you've seen stuff fall out because of all this noise.
Luca Savi (CEO)
Sure. I think that now is the time to spend more in cultivating these opportunities on the M&A front. Now, the uncertainty means that, of course, you're going to be more granular and understand that it will be more the impact in the short term. If you have a very good strategic acquisition with a lot of value creation, sure, you need to be more granular, but largely the long-term picture will not change. This is the approach that we're having on the M&A front. Bartek, myself, and the entire team are busy in cultivating, meeting, and analyzing the opportunity. Granted, you might need to be a little bit more granular in your model in the first three, four years.
Jeff Hammond (Managing Director and Senior Equity Research Analyst)
Okay. Great. We'll see you guys in a couple of weeks.
Luca Savi (CEO)
Thank you. See you, Jeff.
Operator (participant)
Thank you. Our next question will be coming from Brad Hewitt of Wolfe Research. Brad, your line is open.
Brad Hewitt (VP and Equity Analyst)
Hey, good morning, guys. Thanks for taking my question.
Luca Savi (CEO)
Hi, Brad.
Brad Hewitt (VP and Equity Analyst)
On the IP side, very strong project orders in Q1 with the 47% growth. Just curious if you can walk through your updated growth assumptions for IP between projects and short cycles. I believe your prior guidance was mid-teens growth in projects and kind of low to mid-singles in short cycles.
Emmanuel Caprais (SVP and CFO)
Yeah. Sure. The guidance really hasn't changed much. Keep in mind, Brad, that while we're very happy with the project orders and the growth of 47%, this will not convert into revenue growth in 2025. Those are long lead projects. They take anywhere between 12-24 months. Our assumptions between projects and short cycle remain essentially the same. I think that, as I mentioned, in IP, really, for us, the focus is to make sure that we convert that backlog in a timely fashion. We're not really concerned of hitting our revenue target for 2025.
Luca Savi (CEO)
If we look at the short cycle, Brad, if I may add, the growth in project was very strong and short cycle not so much. To be honest, if we look at the short cycle orders sequentially, we were up 1%. The book-to-bill in the short cycle was 1.07. Even looking at the short cycle, on a weekly basis, the run rate in Q1 was higher than the average weekly rate of 2024. It does not have the growth that we saw in the past, but it is still staying at a very high level.
Brad Hewitt (VP and Equity Analyst)
Okay. That's helpful. Maybe switching over to the tariff side of things, you mentioned the $50 million-$60 million gross headwind for the rest of the year, most of that offset coming from price. I guess just curious, in your guidance, what are you embedding in terms of demand elasticity in response to those price increases?
Emmanuel Caprais (SVP and CFO)
As we mentioned, Brad, we did not bake anything in the guidance in terms of demand destructions due to those tariffs. We expect to be able to, obviously, pass all the cost increase through price and cost reduction actions as well. I think one thing that is important to highlight is the fact that we pretty much are in the same condition as everybody else.
For instance, in IP, most of the competitors buy their castings from China or from India. We do not believe that there will be any competitive disadvantages. We expect to be passing on, and we will see if that results in a little bit of a hit to demand in the second half. We continue to be very prudent and monitor the activity.
Brad Hewitt (VP and Equity Analyst)
Great. Thank you.
Emmanuel Caprais (SVP and CFO)
Thank you, Brad.
Operator (participant)
Our next question will be coming from Joe Ritchie of Goldman Sachs. Your line is open, Joe.
Joe Ritchie (Managing Director and Research Analyst)
Morning, guys. Thanks. Good morning, guys.
Luca Savi (CEO)
Good morning, Joe.
Joe Ritchie (Managing Director and Research Analyst)
Hey, I'm sorry if I missed it, but have you guys said how much of the $50 million-$60 million in tariff cost impact is coming from each segment? Just trying to gauge just in terms of your ability to kind of pass pricing. I know that sometimes it takes a little bit longer for the friction business.
Luca Savi (CEO)
Sure, Joe. The majority of the impact is actually in IP and in CCT. Because if you remember, in Motion Technologies, with the divestiture of Wolverine, the impact of the tariffs has been greatly reduced. We are in the region for the region, Europe for Europe, China for China, and Mexico for North America. All our products are USMCA compliant. When it comes to MT, the exposure in MT is only in the Koni shock absorbers that play a role in the aftermarket in the U.S. The majority is IP and CCT.
Emmanuel Caprais (SVP and CFO)
Which is, in a way, very favorable if you think about it from a business case because this is where we also have the largest pricing power, both in distribution and indirect.
Joe Ritchie (Managing Director and Research Analyst)
Yeah. That's good to hear. Thank you. Just a follow-on question. VIDAR seems really interesting. I'm just curious, as you think about the opportunity and getting after this opportunity, Luca, is it the same like sales force? Are you able to kind of cross-sell this with your pumps business as well? Just help us understand how you see this playing out.
Luca Savi (CEO)
Sure. The way that we are running this business is a completely separate job. We run it in ventures under Bartek Makowiecki, who's both the leader of business development and M&A as well as the leader of IP, but it's completely separated. There is Dan Kernan and his team who are based out of Syracuse. They have their own sales force, and therefore it's its own business. Granted, there might be some synergies, so there might be some incentives that you put in place for your pump sales if they are successful in helping VIDAR launch. It is completely separated.
Joe Ritchie (Managing Director and Research Analyst)
Okay. Understood. I'm sure we'll get more details at Investor Day. Thank you.
Luca Savi (CEO)
Exactly. We are waiting to see you there at the Capital Markets Day, Joe.
Operator (participant)
Our next question will be coming from Andrew Obin, Bank of America. Your line is open, Andrew.
Sabrina Abrams (Research Analyst)
Hey, you have Sabrina Abrams on for Andrew Obin. Good morning.
Luca Savi (CEO)
Morning, Sabrina.
Sabrina Abrams (Research Analyst)
Hey, guys. Apologies. This is going to be a little long, but you've given some helpful color on the bridge from prior guide to the updated guide, which is helpful, and you're keeping the 3%-5% organic with slower economic activity in the second half. I guess part of this question is, is the $50 million-60 million of gross tariff impact, is that over the course of the second half of the year, or is that an annualized number?
I guess could you just, A, talk about what's embedded in 3%-5% organic for pricing versus volume and how that's changed? I guess the $50 million-60 million, if that's an in-year number, I think the annualized price increase needed to offset would be around 2%. Is that the right way of thinking about tariff pricing?
Emmanuel Caprais (SVP and CFO)
Hey, Sabrina. Okay. The $50 million-$60 million is for the remaining nine months of the year, right? This is not an annualized impact, just the remaining months. In terms of, in terms, it is obviously included in the guidance and no net impact because we're expecting to offset, as I mentioned, with commercial actions as well as cost reductions. That's one. In terms of pricing, yeah, you're correct. It's around 2% price increase that we're planning in organic growth of mid-single digit. Yeah.
Sabrina Abrams (Research Analyst)
Thank you. The short cycle distribution business in CCT tends to be, I guess, a canary in the coal mine for you in terms of general macro industrial activity. I just wanted to ask how that business is trending. I understand you've had really great share gains in that business as well, but want to understand how is that business trending? Maybe any commentary on the tone you're hearing from your distributors? Are they showing any signs of weakness?
Luca Savi (CEO)
Sure, Sabrina. When you look at the revenue, connectors revenue grew 4% organic. Of course, here, defense and air were the main contributors. If you want to look at the leading indicators in terms of orders, connectors orders were up 11% year-over-year, and they were up 27% sequentially. A lot of this is a big play from defense. If you look at the distribution, you have distribution orders that year-over-year are down, but it's up sequentially 20%, and it's at a very high elevated level. Overall, still a positive picture, I would say.
Sabrina Abrams (Research Analyst)
Thank you.
Luca Savi (CEO)
Thank you.
Operator (participant)
Our next question will be coming from Damien Karas of UBS. Your line is open.
Luca Savi (CEO)
Morning, Damien.
Damian Karas (Analyst)
Hey. Good morning, everyone. Sorry if I missed this, but I wanted to ask about some of the pricing trends that you're seeing in MT. I'm just curious, is there going to be a transient period here in which you're going to maybe get hit with some of these tariff cost headwinds more immediately, and then over time, you'll offset that with price? Or could you just give us a sense of what kind of how pricing's playing out in that market?
Luca Savi (CEO)
Sure. When you look at just to talk about the tariffs for a second, tariff impact is mainly in IP and CCT. There is very minimum tariff impact in Motion Technologies and very little in friction because we are in the region for the region. When you're talking about North America, our products are USMCA compliant. That is on the tariffs front.
I think that when you look at the price-cost equation for ITT overall, we are positive in Q1. It would be positive for the full year, both in dollars and margin. That picture is the same on the Motion Technologies side. The team is able to gain efficiencies through operations as well as sourcing. Granted, we are sharing some of these efficiencies with our customers, but the price-cost equation in MT is positive today.
Emmanuel Caprais (SVP and CFO)
As we said in the past, we are focused on making sure that we recover any fluctuations in commodity from our customers. I think that as the team really progressed in making sure that they quantify those impacts, able to go back to customers and get a fair compensation.
Damian Karas (Analyst)
Okay. That's really helpful. I'm not sure if you talked about it, but could you just give us a little bit better sense on what's going on with Svanehøj and what's driving all the strength in the 2x book-to-bill and orders up 70%?
Luca Savi (CEO)
Sure. When we cultivated Svanehøj, when we decided to acquire Svanehøj, we saw the opportunity in market growing substantially in the foreseeable future. There is definitely a trend there due to the market they're operating in, in terms of the marine market and the shift to green energy. There is a market component to it. I would say also that the good quality product, the great performance and Søren the team together with Glenn and everybody is delivering to the customers, on-time performance, etc., enable them to win market share.
They are seen as leaders in three of the sectors they're operating in. Market plus performance are delivering these exceptional results. You may remember that after the acquisition, we also committed to probably a double-digit growth for Svanehøj for the next few years. This is what we're seeing. Orders will continue to deliver that.
Damian Karas (Analyst)
Yeah. It seems like that deal's certainly bearing fruit.
Luca Savi (CEO)
Indeed.
Damian Karas (Analyst)
All right, guys. Thanks. Best of luck.
Luca Savi (CEO)
Thank you, Damien.
Operator (participant)
Thank you. Our next question will be coming from Joe Giordano of TD Cowen. Your line is open, Joseph.
Hey, guys. This is Michael on for Joe.
Luca Savi (CEO)
Hey, Michael.
Emmanuel Caprais (SVP and CFO)
Hi, Michael.
You mentioned earlier about connector strength, and I know some people have been kind of contemplating a pre-buy. If there's any kind of color there, that would be certainly helpful. Any market dynamics at play as well would appreciate it.
Yeah, Michael. We are not aware of any pre-buy. When we look at our distributor inventory, it is not excessive. The point of sale information is also healthy. There is nothing that really points to a pre-buy. What is really difficult to understand is that you may have inventory buildup at our customers' customers and before the end customer, right? There may be that possibility. We do everything we can to understand the situation from a distribution standpoint. One thing that I wanted to highlight, unrelated to tariffs, is that we do see evidence of excess inventory in aerospace. We are working with our Tier 1s and also the airframers to make sure that they address the situation and that we continue to be good partners to them.
Great. That's helpful. That's actually another question I had too. I know you mentioned you saw arrow down low or, excuse me, mid-teens in the quarter. My understanding, if I remember correctly, there was supposed to be an OE ramp at 2Q. Does this destocking dynamic for A&D change that ramp timing? I know you guys are mostly levered to wide body, but any color there would be great. Thank you.
Yeah. We expect in the second half, sequentially, aerospace orders to pick up. They're still going to be slightly down versus the prior year. If you look at the full year, we expect air orders to be slightly up. A recovery in the second half. We're going to see improvements in the second quarter, continue to improve in the third and in the fourth. They're going to start converting into revenue probably in the second half.
Great. Thanks, guys.
Operator (participant)
Our next question will be coming from Nathan Jones of Stifel. Your line is open, Nathan.
Adam Farley (Equity Research Analyst)
Yeah. Good morning. This is Adam Farley on for Nathan.
Luca Savi (CEO)
Good morning. Good morning, Adam.
Adam Farley (Equity Research Analyst)
Hey, good morning. One more on tariffs. Your largest exposure to tariffs is in CCT. What are the primary components that are being exposed there? Do you have confidence in dual sourcing there or finding new sources of supply?
Luca Savi (CEO)
When we look at CCT, the main exposure there is the trade between Mexico and the U.S. That is mainly because there are many things that are going from the U.S. to Mexico, Mexico, U.S. You're talking mainly about connectors. In most of the cases, those are USMCA products. When it's not, we are able to act on a pricing side. This is in CCT through distribution, which is also where we have more pricing power. It is not so much a resourcing strategy when it comes to CCT and connectors as much as a commercial action.
Adam Farley (Equity Research Analyst)
Okay. That's helpful. I mean, are you actually seeing any signs of customers deferring their capital investment decisions, or is it more just caution on the back half? I'll leave it there. Thank you.
Luca Savi (CEO)
Sure. I would say no. We do not see those kind of things. Sure, you may have one project or two that have shifted to the right, but not to call it a trend. You see it in the orders of the project, which were up 47%. The funnel of opportunity in IP is actually staying at elevated level. It's practically flat sequentially. There are some regions like Europe, Middle East, and Asia-Pacific where actually the funnel is up. So far, we really haven't seen major shift to the right. Just a couple of examples and that's it.
Adam Farley (Equity Research Analyst)
Thank you for taking my questions.
Luca Savi (CEO)
Thanks, Adam.
Operator (participant)
Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.