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Q3 2012 Earnings Call

November 02, 2012 9:00 am ET


Melissa Trombetta

Denise L. Ramos - Chief Executive Officer, President and Director

Thomas Scalera - Chief Financial Officer and Senior Vice President


Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division

James Krapfel - Morningstar Inc., Research Division

Ajay Kejriwal - FBR Capital Markets & Co., Research Division

John G. Inch - Deutsche Bank AG, Research Division



Welcome to ITT's Third Quarter 2012 Earnings Conference Call. Starting the call today from ITT is Melissa Trombetta, Director of Investor Relations. She is joined by Denise Ramos, Chief Executive Officer and President; and Tom Scalera, Chief Financial Officer.

Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Daylight Time. [Operator Instructions]

It is now my pleasure to turn the floor over to Melissa Trombetta. You may begin your conference.

Melissa Trombetta

Thank you, Lin. Good morning, and welcome to ITT's Third Quarter 2012 Investor Review. Presenting this morning are ITT's Chief Executive Officer and President, Denise Ramos; and ITT's Chief Financial Officer, Tom Scalera.

I'd like to highlight that this morning's presentation, press release and reconciliations of GAAP and non-GAAP financial measures can be found on our website at

Please note that any remarks we make about future expectations constitute forward-looking statements under the Safe Harbor provision. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in ITT's 10-K and other public SEC filings.

So now let me turn it over to Denise.

Denise L. Ramos

Good morning, everyone. Let me start by saying that I appreciate you all joining us this morning. We in the Northeast know what many of you are dealing with in the aftermath of Hurricane Sandy, and we greatly appreciate you taking the time to be with us this morning. Our thoughts are with you and your families during these difficult times.

So now turning to Slide 3. One year ago this week, we successfully executed 2 simultaneous spinoffs and launched a more nimble and industrially focused ITT. This morning, I'd like to take this opportunity to share with you how our new focus has helped to create tremendous value for all of our stakeholders.

When I look back on all that we have accomplished in the last 12 months, one word comes to mind: impressive. And I'd like to take a moment to acknowledge the hardworking and dedicated team members all across ITT that united with a shared purpose to build a strong foundation for our future growth. I've traveled to nearly every location that ITT operates. I've met with dozens of customers and I've personally met hundreds of team members. And it is clear to me that we have a very strong culture of collaboration and customer focus. As a company, we are highly energized to work together to help our customers realize their goals. Our collective focus is tangible and I think it creates a unique competitive advantage.

Now I'd like to provide some of the specific performance highlights over the past year that are all aligned with the 6 profitable growth drivers we identified a year ago.

First, in emerging markets, which represents nearly 30% of our revenue. We have a tremendous operational foundation that we have utilized to drive targeted growth in key end markets and geographies. Over the 12 months ending September 30, our emerging market revenues have expanded 9%, and we are on track to achieve our premier target of 10% growth in 2012. We've seen significant growth in automotive in China, chemical in the Middle East and mining in Latin America, among others.

Second growth driver: aftermarket. In this very profitable segment, we began the year with the acquisition of Blakers, which expanded our service footprint in Australia. We continued throughout the year to focus on aftermarket expansion, growing the top line 8% over the 12 months ending September 30. We're growing the profitable aftermarket by developing a global service capability tailored specifically to this higher-margin revenue stream. We've also focused our portfolio of technologies on end markets that generate strong aftermarket demand, such as mining, oil and gas, chemical, rail, automotive and aerospace, to name a few.

Third growth driver, technology and innovation. At the core of our culture is our focus on highly engineered solutions. And accordingly, we have maintained above-average peer investment levels in R&D at over 3% of sales. These investments have led to some key successes because, as a more focused company, we are closer to our customers and better able to understand their needs and requirements.

Let me give you a few examples. Our teams have recently developed a high-performance copper-free brake pad that was designed with and validated by major global OEM customers. We've launched the mining slurry pump earlier this year that was developed with significant voice of the customer input and was named technology innovation of the year. We also launched the industry's first ECO line of shock absorbers that provide our customers with both environmental benefit and energy absorption capabilities.

Fourth growth driver, premier customer experience. We are committed to our customers. And today, we are driving our customer focus more intensely and we are closer to our customers than ever before. This past year, we were honored to have Goulds Pumps ranked top centrifugal pump manufacturer for the ninth consecutive year by readers of a leading North American chemical processing magazine. Interconnect Solutions has been named top supplier by several key customers and partners. And Control Technologies received 2 awards from customers for outstanding performance.

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