ITT - Earnings Call - Q2 2025

Executive Summary

• ITT delivered a clean beat and raise: Q2 revenue $972.4M and adjusted EPS $1.64 vs S&P Global consensus ~$948.5M and ~$1.61, respectively, driven by strong IP project shipments, CCT pricing/M&A, and MT share gains; operating margin expanded to 18.0% (18.4% adj.). Estimates marked with asterisk are from S&P Global data.*
• Orders topped $1.0B for the second straight quarter (total $1,074M; +16% reported, +13% organic), book-to-bill ~1.1, and backlog “nearly $2B,” setting up H2 conversion.
• Guidance raised: 2025 total revenue growth to 5–7% (from 2–4%) and adjusted EPS to $6.35–$6.55 (from $6.10–$6.50) on better H1 execution and less volatile outlook; adjusted operating margin narrowed to 18.1–18.7% (from 18.1–19.0%) on mix/amortization.
• Key catalysts: improving orders trajectory in IP (projects) and CCT (defense/aero), pricing power, easing tariff headwind (now ~$25M gross vs ~$50–60M prior) with planned mitigation, and M&A accretion momentum (Svanehøj, kSARIA).

What Went Well and What Went Wrong

• What Went Well

  • Broad-based execution: operating income rose 10% YoY, adjusted EPS +10% to $1.64 on productivity, pricing, and acquisitions; all segments grew organically; cash from ops $154M; FCF $137M with 14% FCF margin in Q2.
  • Segment strength: IP margin to 21.5% (+140 bps) on pricing/productivity/volume; CCT total revenue +31% (kSARIA), with legacy CCT margin expansion via strategic pricing; MT margin +100 bps to 19.5% on productivity.
  • Orders/backlog quality: total orders $1,074M (+16%); IP orders +25% with share gains (Bornemann), CCT defense/aero awards, and MT wins across electrified platforms; backlog “nearly $2B,” +34% YoY.

• What Went Wrong

  • Mix/Amortization drag: Adjusted operating margin guide narrowed/lowered high-end (18.1–18.7%) due to mix (Svanehøj fast growth dilutive near-term) and higher M&A-related costs; temporary amortization at kSARIA remains through Q4.
  • FX headwinds: Unfavorable FX transaction effects pressured MT margins despite operational gains; management cited USD weakness as a transaction headwind.
  • Higher tax and interest expense weighed on reported EPS vs adjusted: Q2 included other tax special items (+$6.6M) and higher interest expense, tempering GAAP EPS growth to $1.52.

Transcript

Speaker 2

Welcome to ITT's 2025 Second Quarter Conference Call. Today is Thursday, July 31, 2025. Today's call is being recorded and will be available for replay beginning at 12:00 P.M. Eastern Time. 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 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing Star 1. We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the floor over to Mark Macaluso, Vice President, Investor Relations and Global Communications. You may begin.

Thank you, Bella, 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 June 28, 2025. Please refer to Slide 2 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 second quarter results we present this morning will be compared to the second quarter of 2024 and include certain non-GAAP financial measures.

The reconciliation of such measures to the most comparable GAAP figures is 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 3.

Speaker 1

Thank you, Mark, and good morning. I'd like to begin, as always, with a heartfelt thank you to all our ITTers. We could not have delivered these results without each and every one of you and your hard work. I'm humbled by our team's ability to achieve such strong performance once again. In May, we were fortunate to see many of you at our Capital Markets Day in New York City. There, we showcased ITT's enterprise strategy and value creation pillars. First, organic growth and margin expansion. Second, the compounding with M&A. When you look at our second quarter results, you see all of this value creation in action. Let me share some highlights. In Q2, we delivered $1 billion of orders, up 16% total and 13% organic, as all our businesses delivered a strong order intake, bolstered by the Katsa and Svanehøj acquisitions.

We generated record quarterly revenue of more than $970 million, up 7% total and 4% organic, with all segments contributing. Operating income grew more than twice the organic sales growth rate, and operating margin expanded over 100 basis points, excluding M&A. Our profitable growth and continued operational improvements resulted in adjusted EPS growth of 10%, or 16% excluding the Wolverine divestiture. Finally, we grew free cash flow to $214 million year-to-date, making significant progress to nearly half a billion dollars for the full year. Furthermore, free cash flow margin was 14% in Q2. To round out the highlights, we repurchased $500 million of ITT shares year-to-date, reaffirming our confidence in the long-term outlook of ITT and lowering our weighted average share count by 3%.

As you can see, a strong performance in Q2, built on ITT's pillars of value creation, organic growth, and margin expansion, compounding now with M&A, as we laid out at Capital Markets Day. Now, let's get into the details. Orders. Definitely one of the highlights of the quarter. Industrial Process grew 22%, driven by strength in goods pumps and Svanehøj. Notably, in the first six months of 2025, Svanehøj holders of nearly $200 million were above their full year 2024 revenue. A strong first half, to say the least. Furthermore, Bornemann won large awards on leading energy projects with two oil majors in Australia and the Middle East. The former in one of the world's largest LNG fields, where Bornemann won again thanks to our superior technology, our customer service, and our execution on the current pump project.

The latter at an onshore oil field in the UAE, where our customers standardized on Bornemann's twin screw pumps based on the performance track record of our existing solution. This is despite aggressive pricing by our competition during the bidding phase. Well done, Yeroun and Bornemann team. Moving to Connect and Control. We grew 9% organic, driven by Defense and Commercial Aerospace awards, and grew total orders 36%. Katsa continued to secure content on coveted defense platforms such as the Abrams tank and the battlefield communications program. As a result, their orders grew more than 25% this quarter. I was fortunate to be at Katsa headquarters in New Hampshire with Michael and the leadership team to work together on executing our commercial synergies. The team successfully replaced a competitor's connector with our Canon HDX on an important existing Katsa platform. There are many more still to capture.

In Motion Technologies, the friction team won 49 new electrified platform awards with leading OEMs in China, Europe, and North America, including Zeekr, Chery, BYD, and Mercedes-AMG. In Koni, once again, we saw strong orders across the board, mainly driven by rail and defense, including a notable win on a prominent U.S. battle vehicle. All in, our book-to-bill of 1.1 resulted in an ending backlog of nearly $2 billion, up 34% versus prior year and up 9% sequentially. On revenue, we saw broad-based organic growth across all segments as we worked to convert our robust backlog. IP grew 5% organically on project strength. Svanehøj also delivered strong top-line performance, growing 43%. CCT grew 4% organically as defense momentum continues and aerospace demand improves. In MT, friction OE grew 7% organically, continuing to outperform global auto production in all geographies.

On profitability, we continued to expand margin, growing 30 basis points after overcoming headwinds from temporary M&A amortization and foreign currency transaction costs. IP grew margin 100 basis points to nearly 22%, driven by volume, productivity, and price. The Svanehøj team also drove improvements in profitability as they are efficiently ramping up production capacity. MT grew margin by 140 basis points, driven by productivity savings, and this after offsetting 100 basis points of unfavorable FX impact. Finally, CCT grew margin 270 basis points, excluding M&A dilution. This was driven mainly by strategic pricing actions, with two additional customer price negotiations closed this quarter. On capital deployment, an incredibly strong cash performance, which put us in a position to act quickly to repurchase $400 million of ITT shares in April and May alone.

On M&A, we continued to progress several acquisition targets of size through the funnel, building our M&A muscle that will drive the next leg of value creation for ITT. Lastly, on the outlook, given our strong first-half performance, ramping contribution from acquisition, and the less volatile environment, we are raising our full-year adjusted EPS outlook to $6.45 at the midpoint, amounting to 10% growth versus prior year, or 13% growth if we exclude the lost earnings from our 2024 Wolverine divestiture. This is a testament to our team's ability to deliver day in and day out for our customers and our shareholders, no matter the environment. Emmanuel will talk more about our revised guidance shortly. Now, let's spend a few moments discussing our 2025 Capital Markets Day and a few examples of how, in Q2, we differentiated through execution, innovation, and M&A. First, on execution.

In our engineered valves business, thanks to the value of our patented Envision valve technology and the impeccable service we are providing to a large biopharma customer, our team is expected to double the size of a previous valves order to roughly $50 million. Next, friction China. To industrialize the new awards that Sula and the China team won in the last 18 months, we performed more than 150 process validations in Q2. This means that the team had to stop production lines two times per day to run small test batches of the newly awarded brake pads. Despite all this, our overall plant efficiency in Wuxi was more than 90% in Q2. Next, on innovation. At Capital Markets Day, you heard us talk about the geopolymer, the next breakthrough in material science in brake pads at ITT.

In Barger, Italy, I was fortunate to see the production line we designed that will make the geopolymer. We have the product, we have the manufacturing technology, and we have a customer. Today, we are one step closer to the commercialization of this unique and patented technology. In Svanehøj, we recently launched our new high-pressure fuel pump. The lab testing demonstrated this new pump will outlast our competitor's product. It has been running on an operating vessel since March, and the second pump will be installed on another vessel in August. This type of innovation for harsh environments will sustain Svanehøj's share gain momentum. Last but not least, Vidar, a revolutionary compact motor that embeds variable speed capabilities to deliver energy efficiency and better reliability for our customers.

At our launch event in June in Houston, we secured strategic wins, and now we have deployed Vidar in trials at two of the world's largest oil companies. The team already secured more than $1 million in orders, and last week, we started shipping. Finally, on M&A. We are still early on our M&A journey, but the success with Harmony, Svanehøj, and Katsa is promising, as Bartek shared at Capital Markets Day. We continue to progress acquisition targets through the funnel with rigor and a disciplined framework for deal selection, execution, and integration. Now, with all of these in mind, let me reiterate our 2030 financial targets on Slide 4. We expect to drive more than 5% organic revenue growth and approximately 10% growth in total on an average annual basis. Margin is expected to reach 23%, representing over 500 basis points of expansion compared to 2024.

This will drive more than $11 of adjusted EPS from our existing businesses and more than $12, including anticipated M&A. Free cash flow margin should reach 14% to 15%. As you can see, we have now started our journey towards these targets, and Q2 was a very good first step in that direction. Now, let me turn the call over to Emmanuel to discuss our Q2 results in more detail. Thank you, Luca, and good morning. As you can see, ITT delivered another strong performance in the second quarter. We saw a step-up in nearly every financial metric while also putting a significant amount of capital to work earlier in the quarter. Let's talk about some of the many highlights. On revenue, all segments contributed to the performance, growing 7% in total and 4% organically.

Industrial Process led the way with 5% organic growth on the strength of the project business. From an orders perspective, we saw growth in every short cycle product category this quarter, leading to a book-to-bill of 1.2. CCT grew 4% organically with strength in both aerospace and defense and grew revenue over 30% in total, including Katsa. Organic orders growth was also strong at 9%, led by commercial aerospace and defense awards on coveted platforms. Finally, in Motion Technologies, our rail business grew 10%, driven by share gains in Koni. Friction OE outperformed global auto production by over 500 basis points, growing 7%, led once again by our differentiation in China and strong execution in Europe and North America. Friction's performance has been remarkable in what continues to be a highly competitive global automotive market.

On profitability, we grew operating margin 30 basis points to 18.4% on higher volumes, pricing actions, including related to tariffs, and continued operational improvements. More than offsets the unfavorable foreign currency transaction impact stemming from a weaker U.S. dollar and the impact of temporary acquisition amortization from Katsa. At this point, the temporary amortization from Svanehøj has ceased, and it will end for Katsa in Q4. Notably, in MT, Yeroun and the Koni team delivered outstanding profitability, which is driving MT above 20% margin. The revenue growth and continued margin expansion drove adjusted EPS to $1.64, up 10% year over year and up 13% sequentially. If you exclude the loss of earnings from our 2024 divestiture of Wolverine, EPS growth in Q2 would be 16% year over year.

Finally, on cash, the teams drove strong cash collections while making progress on managing inventory and executing customer advances in the project business. These actions pushed free cash flow margin in the quarter to 14% while still funding further strategic CapEx toward innovation and productivity to ensure performance will continue. We are driving improvements in working capital, especially in MT, and leveraging the learnings from Svanehøj, whose working capital as a percentage of sales is just 9%. We also repurchased half a billion dollars of ITT shares through May, which lowered our weighted average share count by 3%. All in, a very strong, high-quality performance across the board. Let's quickly turn to the Q2 adjusted EPS bridge on Slide 6.

The key takeaway here is that the strong operational performance across our businesses, contributions from our acquisitions, and a lower share count enabled us to grow EPS while overcoming temporary M&A amortization impacts, unfavorable foreign currency transaction costs, higher interest expense, and the lost earnings from the Wolverine divestiture. Excluding the divestiture, adjusted EPS would be up 16%. Now, let's move to Slide 7 to discuss our revised 2025 guidance. After a strong first-half performance during which we grew revenue, expanded margin, and repurchased $500 million of ITT shares, we are raising our total revenue and adjusted EPS outlook for 2025. On revenue, our total growth is now expected to be slightly higher, to 5% to 7%, given the tailwind from foreign currency compared to our assumptions at the beginning of the year, while organic revenue remains within our original range of 3% to 5%.

Our visibility to a strong second half is improving, given the Q2 execution and the better-than-expected backlog position. We expect continued growth in the project business in ITT, firm demand in aerospace and defense, and outperformance in friction OE and rail to continue in the second half. On margin, we're narrowing adjusted operating margin to approximately 18.4% at the midpoint, up 60 basis points versus prior year. We expect this improvement will be driven by continued productivity in the legacy businesses and significant margin expansion in our acquisitions to year-end. In addition, we are driving considerable pricing, particularly in Connect and Control Technologies. Excluding M&A, we expect margin expansion to be more than 100 basis points for the year.

On EPS, we are raising the midpoint of our guidance by $0.15 to $6.45, a step change in our EPS outlook for the year, with a $0.25 increase at the low end and $0.05 improvement at the high end. This is due to improved productivity and FX benefits, partially offset by unfavorable mix and higher M&A-related costs. On cash, higher operating income and improving working capital puts us in a position to deliver close to half a billion dollars of free cash flow this year. Next, I would like to spend a moment addressing our updated assumptions on tariffs. Given the current economic landscape and status of negotiations with key U.S. trade partners, we now estimate the gross tariff costs before mitigation to be approximately $25 million in 2025, half our previous estimate.

We're offsetting this with pricing and productivity actions, and as such, there is no material impact expected in 2025. Briefly looking ahead to Q3, we expect double-digit growth in revenue or low single-digit growth on an organic basis, led by Industrial Process and Connect and Control. Friction will once again outperform global auto production, while strength in rail should continue, driving Motion Technologies to end roughly flat for the quarter. Operating margin will be up slightly year over year, led by continued margin expansion at IT and MT. In CCT, pricing and productivity will only partially offset the temporary amortization from Katsa, while total corporate costs will increase slightly compared to Q2 due to anticipated M&A-related costs. All this should result in EPS representing low teens growth year over year, slightly above the second quarter. Let me now turn the call back to Luca to wrap up. Thanks, Emmanuel.

A few points before Q&A. Our Q2 performance is a great first step towards our long-term commitments. We keep on driving the organic value creation through growth and margin expansion. All our businesses grew organically, and we saw strong margin expansion in many parts of the portfolio. As I said at Capital Markets Day, this is here to stay. On the inorganic front, our acquisitions are performing well and over-delivering on their commitments. Cash continues to ramp towards an expected half billion dollars of free cash flow this year, with a 14% free cash flow margin in Q2. Lastly, as a result of all of this, we raised the midpoint of our full-year EPS outlook by $0.15. It is ITT's differentiation through execution, innovation, and now M&A that will ensure the value creation continues.

As you can see, it was a strong quarter on all fronts, fully aligned to the value creation pillars we laid out at Capital Markets Day. Thank you for joining ITT today. As always, it has been my pleasure to speak with you. Bella, please open the line for Q&A. The floor is now open for questions. At this time, if you have a question or comment, please press Star 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing Star 1. Again, we do ask that while you post your question, you pick up your handset to provide optimal sound quality. Please limit your questions to one question and one follow-up. Thank you. Our first question comes from the line of Mike Halloran with Baird. Please go ahead. Your line is now open. Hey, Mary.

Hi, Mary. Hi, Mike. Hey, Mike. Hey, thanks for taking the questions. First, maybe just get some thoughts on what you're seeing on the capital side of things, capital equipment, larger projects. Not specifically to any segment. Did you see any pauses in the second quarter? Obviously, the orders were pretty good. I know the short cycle piece was up across all segments. Any signs of hesitancy or push-outs, or any change in the forward thought process from your customers anywhere? Hi, Mike. Thanks for the question. When you look at our performance in terms of orders, it's been remarkable. Of course, there is a lot of market share gains in there when you look at the projects, even of the legacy business, going up 22% year over year. It was not an easy compare when you look at 2024.

Then you look at the Svanehøj performance of the orders year to date for the six months, which is equivalent to their 2024 full-year revenue. Definitely a great performance on the orders front. Now, when we look at the funnel, the funnel is still elevated. It's down year over year, but this is because of really a tough compare. We haven't seen any major shift. We have seen probably just a couple of orders that shifted to the right, but no major change that will make us concerned right now. When we look at the orders, very strong. You were talking about market, very strong on the oil and gas, very strong also on the general industrial. That's helpful. Maybe you could just give your latest view on what you see the auto landscape developing as.

Obviously, the outperformance in this quarter, and as long as I've covered the stock, really, it's been incredible. Maybe talk about what you're assuming on that side as well. Sure. Let me start with the market first. The market in Q2, the production was up 2.6%. That was a nice figure. If you look at the forecast for the full year, it's a little bit better than what we thought three months ago. We think that the full-year production will be roughly flat or slightly positive to 90 million vehicles produced that will be produced in 2025. Granted, the story here is mainly a China story. Both Europe and North America will be down. This is the market. When you look at our outperformance, the outperformance was spread across all the three different regions.

You're talking about outperforming in Europe, outperforming in China by a lot, and outperforming in North America. Also outperforming across all the three different types of powertrain: internal combustion engine, hybrid, and EV. The outperformance, I'm happy to see, is continuing. Thank you. Really appreciate it. Thank you, Mike. Operator, I think we can go to the next question. Your next question comes from the line of Nathan Jones with Systifol. Please go ahead. Morning, Nathan. Hi, Nathan. Yeah. Hey, good morning, guys. This is Adam Farley on for Nathan. Hey, Adam. Hey. Maybe starting on CCT orders. Really strong orders growth. I know you're getting a lot of price. Maybe you could help us think about how the differences in share gains versus just overall market growth. Yeah. Thank you, Adam. Adam, you're right. We saw significant growth, 9% from an order standpoint, in the quarter.

A lot of that growth was fueled by aerospace and defense, specifically defense, where both our legacy business and our Katsa business continues to do really well. Our legacy business was up 25%. Katsa was up 36%. On the defense, we are pretty confident that we continue to make the difference and differentiate for our customers. As a result, we're gaining share on some really good platforms. We talked in Q1 about the large award that Katsa had on the F-35. We have more awards this quarter on Covid-19 platforms. Aerospace is doing well as well at plus 12%. Here, frankly, we are doing the best we can to support Boeing in their ramp-up plans, especially on the 737 MAX. All right. Thank you for that. Shifting gears a little bit to Motion Technologies' margins. The FX impact on margins kind of stood out.

What is the FX relationship there that's causing the margin compression? Sure. We've seen during the first half a depreciation of the dollar compared to the euro. While this helps from a translation standpoint, it hurts us from a transaction standpoint. What we're seeing here is the transaction impact that has an outsized impact on Motion Tech's margins. All right. Makes sense. Thank you for taking my questions. Thanks, Adam. Thanks, Adam. Your next question comes from the line of Joe Ritchie with Goldman Sachs. Please go ahead. Morning, Joe. Hi, Joe. Hey, guys. Hey, good morning. Can we double-click on Svanehøj for a second? Growing greater than 40% this quarter. You can't imagine that the end market is growing that quickly. Maybe just give us a little bit more color of what's happening there. Where are you really seeing the strength in that business? Sure.

Probably you remember that when we communicated this acquisition, we always expected this business to grow substantially in the years to come. I think that what is driving this outperformance of the market is really a flawless execution by our team when it comes to. Project and also service, as well as a differentiation on the product side. Differentiation on the product side that they keep on feeding with R&D investment and with new products like the one that I shared in the prepared remarks, the new high-pressure fuel pumps. It is across the board when you think about LNG, LPG, ammonia, and also large carriers. Joe, if I can complement what Luca was saying with some numbers. In the first half, Svanehøj grew orders by more than 80%. We expect for the full year for them to be a little bit above 20%.

This is because we have anticipated a lot of the orders that we were expecting in the second half in the first half. Really strong performance even for the full year. From a revenue standpoint, also for the full year, we expect them to be up 30% because we are converting all those orders that we got in 2024. We're now converting them in terms of revenue. Obviously, from a book-to-build standpoint, the picture is really strong. For the first half, we're over two times, and then we'll be largely over one for the full year. Joe, it's not just a question of orders and growth. If I can credit Store and John and the entire team, they generated year to date in terms of cash almost the same amount of cash that they generated in full year 2024. Their working capital is a single digit.

Great performance across the board. Yeah. That's amazing. That's great color. Congrats so far on that acquisition. Maybe just my second question, really focusing on the pumps business. Clearly, really good order growth this quarter. You did mention a couple of project delays. There have been other peers that have also been mentioning some things kind of slipping to the side. At the same time, Luca, you had some comments around aggressive pricing as well. Maybe just give a—it’s hard to kind of totally square the fact that your orders have been really good. You guys are executing really well. At the same time, there's some gyrations in the market. We're just trying to understand that a little bit better. Sure. I would say when you look at the funnel, the funnel is down year over year but was exceptionally high last year.

It's still a very healthy funnel, what we see. The move that we saw to the right were just a couple of examples. I think that the story here is really a story of share gains, Joe. Even when you look at the Boardman, we were able to win those orders because the service that the team has provided, the project execution with the customer. In one case, the customer came straight to us, no competition at all. In the second case, despite incredible competition from a price point of view, they stayed loyal because of the performance and the service. It is really a market share gain story. Great to hear. Thanks, guys. Thank you, Joe. Next question comes from the line of Jeff Hammett with KeyBank Capital Markets. Please go ahead. Morning, Jeff. Hey. Good morning, guys. Hi, Jeff. I think you said third quarter low, single-digit organic.

I'm just trying to understand the cadence in the fourth quarter. It seems like you'd have to have a step up. As you look at this order strength, how much is kind of giving you the visibility for second half versus giving you longer-dated visibility into 2026? Yep. I would say that for the projects that we're getting today, those are going to be delivered in 2026. From a project standpoint, our backlog is full, and we are secured in terms of delivering the revenue. It's a little bit different for the short cycle that we still need to get, mostly in pumps and also in connectors. Other than this, I think from an order standpoint, when it relates to projects, we are covered. We expect in Q4 similar growth rate, organic growth rate from a revenue standpoint than in Q3. Yeah, in the low to the mid single digit.

Okay. Great. I think you called out a healthy funnel, some acquisitions of size. I think you called out a step up in corporate around M&A. Just speak to—I guess maybe put a frame around what you consider an acquisition of size and just a little more color on the funnel. Sure. When we look at the funnel, the majority of the company that we are cultivating and that we see in the funnel have a revenue between $200 million and $400 million. This is the bulk of the opportunity that we have in the funnel. If you look, this is also the last couple of acquisitions that we made—Svanehøj and Katsa—that are executing and over-delivering, have approximately that size. The majority are around that size. Okay. Thanks a lot. Thanks, Jeff. Your next question comes from the line of Brad Hewitt with Wool Freezer. Please go ahead.

Good morning, Brad. Hey, good morning, guys. Thanks for taking my questions. Hi, Brad. You mentioned Svanehøj and Katsa trending ahead of expectations, and I think that's pretty visible in the order numbers. As we think about next year, is there any help you can give us in terms of thinking about the building blocks of the incremental year-over-year accretion from the two deals in 2026? Thank you, Brad, for the question. When you look at it from a profitability standpoint, both Svanehøj and Katsa are progressing well compared to our plans. When Luca is saying they're outperforming, they're outperforming from an orders, sales, profitability, and cash perspective. We saw some really strong year-over-year EBITDA margin improvements in Svanehøj as well as in Katsa. We're very pleased with that.

To have in mind kind of your guideline for what we expect out of acquisitions, we probably expect around 100 basis points of margin improvement every year. Maybe in some years, it'll be a little bit more, maybe in others, it'll be a little less, but that's the average we expect. That's helpful. Maybe switching over to the short cycle side of IP. You mentioned that orders inflected from negative in Q1 to positive in Q2. I'm curious if you saw any change in order activity on the short cycle side as you progressed through the quarter or maybe even into July. Not through the quarter, Brad. Q2 was a very good quarter across the board, both the baseline parts, service, and valves, which service and valves are growing double-digit when you look at the orders.

As a matter of fact, Q2 was probably the second highest quarterly orders performance in short cycle when you look at the weekly rate. July was a little bit softer, but that tends to be the thing. It's July; the first week is always a little bit softer. That happened last year and happened again this year. No different trend, I would say, in the quarter. Great. Thanks, Luca. Thank you, Brad. Your next question comes from the line of Vlad Bistricki with Citigroup. Please go ahead. Morning, Brad. Good morning, guys. Thanks for taking my call. Hi, Brad. Morning. I just wanted to ask you about the IP projects a little more. You mentioned the price competition you saw in Bornemann. It sounds like you were able to hold margins despite that.

Can you talk in general about margins you're booking into backlog on project wins in IP today versus segment margin and how we should think about mix going forward? Sure. Very good point because when you look at our mix in the backlog, you go back two years, and the mix was 60% short cycle, 40% project. Now, you look at the backlog today, it's the reverse: 58% project, 42% short cycle. This makes the improvement that you see in the margin of IP even more remarkable when you see that this big headwind that they have in terms of mix. The reason for that is because the team is able, A, to improve the margin in the project when we're booking, when we're winning, thanks to the execution, thanks to the performance that we have with those customers.

The second point, Vlad, very important, is that when we look at this project, when we close the project, when we ship everything, the margin of that project tends to be higher than the margin of when we book the project, when we won the order, which is a testimony to the great execution of the team, of the project manager. Well done, Max, and the project management team. Mix is a headwind, but we're able to compensate through the continuous improvement in execution. If you look at the year-over-year margin progression on all the projects that we shipped, we're in the neighborhood of 400 basis points improvement versus the prior year. That's really helpful, Keller. I appreciate that. Just shifting to CCT, can you talk about shorter cycle visibility at CCT and how you're thinking about the durability of growth momentum there? Sure.

When we look at the short cycle in CCT, we're mainly talking about connectors. I would say connectors orders in Q2 was the second highest quarter order performance ever. After a growth in orders in Q1 of 11%, the orders grew 12%. I'm just talking about connectors without Katsa here, so without the acquisition. Very good performance on the orders front. Granted, a lot of that comes from aero and defense, but we will expect for the full year also continue to grow double-digit. Got it. That's helpful, Luca. I appreciate it. I'll get back in with you. Thank you. Your next question comes from the line of Sabrina Abrams with the Bank of America. Please go ahead. Morning, Sabrina. Hi. Good morning, everyone. Good morning. Thanks for the question. I just want to be clear. I think you trimmed the—so I'll ask this as a two-parter.

I guess you trimmed the high-end of margin guide. Just want to understand what the driver of that is. I think because of the cadence of the 3Q year-over-year comments, you need to have a bigger year-over-year margin expansion in 4Q. I just want to understand that dynamic a little bit better. Thank you. Sure. It's really a small adjustment, and we like to be precise. I would say that the headwinds we're facing are a little bit of a higher M&A cost than what we were expecting. From a mix standpoint, those numbers that we talked about for Svanehøj, them growing really fast, their margin, even though it's improving, is still dilutive to the overall ITT margin. As a result, we take a little bit of a hit there. From a 4Q performance, we're expecting not a big difference between 3Q and 4Q from a margin standpoint.

We're pretty confident that our outlook from a margin standpoint is achievable and realistic. Thank you. I think looking at the CCT, if I take the core earnings, excluding the temporary amortization, you have really strong incrementals. I think the core incrementals are over 80%. In the slides, there was some mention about pricing actions. I know this has been a big focus for you, particularly on the Aero side. Can you talk about what's going so well here, like the strong execution in CCT? I'd love to know what's driving the really strong incrementals, whether it's more Aero or a short-cycle side. Thank you. Yes. Thank you, Sabrina. We're really happy with the way CCT is performing, even the legacy CCT. We are at 21.5% margin if you exclude Katsa, which is a really, really strong number. The incrementals are around 70%, as you mentioned, so really strong performance.

We have a really good contribution from pricing. Here, pricing is on two aspects. One is to make sure that we get compensated for inflation on some of the old contracts we had. As we mentioned, we closed another two contracts this quarter. The second one is strategic pricing, and that's more around the aftermarket and the repair and overhaul. That is generating 450 basis points of margin improvement just due to pricing. Some of that is offset by inflation, but it's a net positive. The last point I would make about CCT is that we talked for a long time about automation, and we're getting those projects in action right now. We have implemented automation projects in our Orchard Park facility, and they're now up and running, especially in the machining area, which is causing a lot of productivity.

We are about to kick off automation also in our Valencia plant for valves and switches, which should continue to help us expand margins. Thank you. I'll pass it on. Your next question comes from the line of Damien Carris with UBS. Please go ahead. Hey, good morning, everyone. Hi, Damien. Good morning. Hi. Sorry if I missed this earlier, but I was wondering if you could maybe talk to us a little bit about the pricing actions that you've taken since last quarter, and is there any additional price that you think you'll need to take in the second half, just thinking about some of the updated tariffs and maybe just to fill us in on what your updated assessment is of your tariff exposure as well. Thanks. Sure.

When you look at the tariffs, the exposure for 2025 today is half of what we thought a quarter ago, so roughly $25 million. This is mainly for some of the things that we're importing from Asia, some exposure on product for corning shock absorbers from Europe to North America, and a small portion of non-USMCA compliant products in CCT. When you look at that $25 million impact, we're able to mitigate it through price and actions together with the supplier and productivity actions also ourselves. Zero impact when it comes to income. If you look at the pricing, I would say price cost has been positive for Q2 for ITT, both from an income point of view and also margin. We expect that to be the same for the full year and across all the three different businesses.

I would say no major difference in terms of our pricing actions from Q2 to Q3. Strategic pricing and pricing to cover for inflation and tariffs. That's helpful. Luca, there's been a lot of deal activity in industrial process out there, it seems. For example, Baker Hughes has been involved in a couple of transactions. From your perspective, are you starting to see a riper deal environment in IP space? I'd be curious to hear your thoughts on where you think some of these deals are pricing. Sure. When we look at our funnel, the majority of the opportunity you know that we are going after in terms of the funnel in the connector, specifically on the aero and defense and in flow. Therefore, when we're looking at the funnel, those are the areas where we are focusing.

It's fair to say that the majority of opportunities are actually in the flow area. We are actively working the funnel. We are cultivating. As you can see, our M&A costs are probably ramping up. Two of the past acquisitions that we made, Habonim and Svanehøj, are in flow. It's still a very fragmented market. For sure, more acquisitions there will happen. Sounds good. Looking forward to seeing what that ends up looking like. Good luck. Me too. Thank you. Thanks, Damien. Our final question comes from the line of Joe Giordano with CD Cowan. Please go ahead. Hi, good morning. This is Chris Humphrey, Joe. Most of my questions have been addressed, but maybe when you look at the strength on pumps, what types of applications are driving that strength? Is it greenfields versus expansions of existing sites? How would you characterize customer urgency versus a normal level? Yeah.

Thanks, Chris. We got some fantastic orders in IP in Q2, up 23%. We saw some real strength in oil and gas, so energy, as well as in general industrial. On the green type of projects, we are also very happy with that because if you look at our year-to-date green orders, they're almost in line with what we got for the full year in 2024. That's very positive, obviously. Luca mentioned an order for Australia that we got. This is a decarbonization order with a major oil company. We got the first project in 2023, which was for more than $20 million. We got a follow-on order as we executed perfectly from a project management standpoint with that same customer for that same field. We were happy with the way the green projects are developing and the market share we're able to make. Thanks very much. Thank you, Chris.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.