ITT Inc.’s (ITT Quick QuoteITT - Free Report) third-quarter 2023 adjusted earnings (excluding 3 cents from non-recurring items) of $1.37 per share surpassed the Zacks Consensus Estimate of earnings of $1.27 per share. The bottom line jumped 14.2% year over year, owing to segment operating income growth and benefits from share repurchases. Shares of the company have increased 4.4% since the earnings release on Nov 2.

Total revenues of $822.1 million beat the consensus estimate of $810 million. The top line increased 9.1% year over year, owing to higher sales volume and pricing actions, particularly within Industrial Process’ aftermarket business. The acquisition of Micro-Mode contributed 1% to the top line. Organic sales rose 5.4% year over year. Foreign currency translation had a 3% favorable impact on sales.

In the reported quarter, total orders climbed 5.5% year over year to $824.1 million.

Segmental Results

Revenues from the Industrial Process segment totaled $279.8 million, up 12.6% year over year. Our estimate for Industrial Process’ revenues was $ 277.5 million.

Higher sales volume and pricing actions drove the segment’s performance. Organic sales increased 10.9%. The adjusted operating income increased more than 24% year over year.

Revenues from the Motion Technologies segment totaled $359.5 million, reflecting a year-over-year increase of 5.1%. Our estimate for segmental revenues in the quarter was $358.4 million.

The impact of favorable foreign currency translation of $15.3 million higher sales volume aided the segment’s performance. Organic revenues inched up 0.6%. The adjusted operating income increased 12.8% year over year.

Revenues from the Connect & Control Technologies segment totaled $184.0 million, up 12.7% year over year, and up 7.7% organically. Our estimate for segmental revenues was $170.3 million.

Favorable pricing actions, volume growth in aerospace and defense components and the acquisition of Micro-Mode aided the segment’s performance. The adjusted operating income increased 10.6% year over year.

Margin Profile

During the third quarter, ITT’s cost of revenues increased 4.3% year over year to $542.7 million. The gross profit increased 19.7% to $279.4 million.

General and administrative expenses decreased 40.8% year over year to $66.9 million, while sales and marketing expenses rose 12.4% to $44.4 million. Research and development expenses inched up 2.5% year over year to $25.0 million.

The adjusted segmental operating income in the quarter increased 16.7% year over year to $159.7 million. The margin increased 120 basis points (bps) to 19.4%. Results benefited from productivity, pricing actions and higher sales volume.

Balance Sheet and Cash Flow

Exiting the third quarter, ITT had cash and cash equivalents of $430.8 million compared with $561.2 million at the end of fourth-quarter 2022. The company’s commercial paper and current maturities of long-term debt were $245.4 million compared with $451 million at the end of December 2022.

In the first three months of 2023, ITT generated net cash of $367.6 million from operating activities compared with $115.2 million cash generated in the year-ago period. During the first three months, capital expenditure totaled $68.5 million, down 7.1% year over year. Free cash flow was $299.1 million in the third quarter compared with free cash flow of $41.5 million at the end of the year-ago period.

During the third quarter, ITT paid out dividends of $71.9 million, up 8.8% year over year. Share repurchases were $60.0 million in the period compared with $245.6 million in the year-ago period.

2023 Outlook Raised

ITT expects adjusted earnings to be $5.15-$5.21 per share compared with adjusted earnings of $4.95-$5.15 per share anticipated earlier. The guided range reflects a 16-17% increase year over year. The Zacks Consensus Estimate of adjusted earnings is $5.11 per share.

ITT expects an approximately 9% (7-8% organically) increase in revenues in 2023 compared with 7-9% (6-8% organically) growth predicted earlier. Adjusted segment operating margin is estimated to be 18.3-18.9% compared with 17.7-18.5% stated before, indicating an increase of 110-170 bps. Free cash flow is estimated to be more than $400 million in 2023. This indicates a free cash flow margin of 12%.

Zacks Rank & Stocks to Consider

ITT currently carries a Zacks Rank #3 (Hold). Some better-ranked companies are discussed below:

Graco Inc. (GGG Quick QuoteGGG - Free Report) presently sports a Zacks Rank #1 (Strong Buy). GGG’s earnings surprise in the last four quarters was 7.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, estimates for Graco’s 2023 earnings have increased 1.3%. The stock has gained 12.9% in the past year.

Applied Industrial Technologies, Inc. (AIT Quick QuoteAIT - Free Report) presently carries a Zacks Rank #2 (Buy) and a trailing four-quarter earnings surprise of 13.9%, on average.

AIT’s earnings estimates have increased 2.7% for fiscal 2024 (ending June 2024) in the past 60 days. Shares of Applied Industrial have risen 23.5% in the past year.

A. O. Smith Corporation (AOS Quick QuoteAOS - Free Report) currently carries a Zacks Rank of 2. The company delivered a trailing four-quarter earnings surprise of approximately 14%, on average.

In the past 60 days, estimates for A. O. Smith’s earnings have increased 4.5% for 2023. The stock has soared 25.8% in the past year.