ITT - NYSE

Welcome to ITT's 2025 Third Quarter Conference Call. Today is Wednesday, October 29, 2025. Today's call is being recorded and will be available for replay beginning at 12 p.m. Eastern Time. [Operator Instructions] 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, Gigi, 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 3-month period ended September 27, 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 where otherwise noted, the third quarter results we present this morning will be compared to the third quarter of 2024 and include certain non-GAAP financial measures. The reconciliation of such measures to the 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 3.

Thank you, Mark, and good morning. I'd like to begin today with a sincere thank you to our ITTiers. Our teams around the world delivered strong results for yet another quarter. For all your hard work, my heartfelt thanks, especially to our team in Brazil as the plant was hit by a very destructive storm during the quarter, production was back up and running in less than 48 hours. Rodrigo, the entire Salto team and Nico, thank you for your dedication and commitment to our customers and to ITT. Now to our results. ITT's third quarter was another step towards our 2030 targets with organic growth and margin expansion compounded with M&A. Let me share some highlights. In Q3, we delivered nearly $1 billion of total orders for the third consecutive quarter, up 3%, bolstered once again by the strong order intake from our kSARIA and Svanehøj acquisitions. We grew revenue 13% total and 6% organic with all segments contributing to $999 million. Rest assured, we were on the phone after quarter end with the plan that left the millions back on the shop floor. Operating income grew nearly twice the organic sales growth rate and operating margin expanded over 100 basis points excluding M&A. Adjusted EPS grew 21%, and we grew free cash flow 46% to $368 million year-to-date and now expect to be at the high end of our previous range at $0.5 billion for the full year. Furthermore, free cash flow margin in the quarter was over 15%, surpassing the high end of our 2030 target communicated in May. We also continue to fund innovations like VIDAR, our game-changing industrial motor. VIDAR is installed with 3 large energy companies in North America. And now we have begun shipping Goulds Pumps with VIDAR motors. As Stan, our Global Head of Engineer remarked, the best just got better. Now let's get into the details. On revenue, we saw broad-based organic growth in Industrial Process and Connect & Control as we continue to convert the robust backlog. IP grew 11% organically mainly due to project, which grew over 50% including another strong top line performance from Svanehøj, growing 34%. In August, I was with the Svanehøj team reviewing the testing of our new deep well cargo and high-pressure fuel pumps. And I saw firsthand the shop floor full beautiful shining new pumps ready to ship. CCT delivered 25% total growth, bolstered by the kSARIA acquisition or 6% organically as defense momentum continues and aerospace demand ramps. And in MT Friction OE grew 4% organically, outperforming global auto production once again led by an outstanding performance in China, where we keep on winning with BYD, Great Wall, Geely and others. On profitability, we expanded margin 110 basis points excluding M&A. IP grew margins 70 basis points to nearly 22% and Svanehøj also improved its profitability with EBITDA exceeding 20% this quarter. MT grew margin to 110 basis points, driven by over 300 basis points of productivity savings offsetting 120 basis points of inflation and CCT grew margin 270 basis points, excluding kSARIA dilution. The team continues to make progress on key customer price negotiations, which we expect to finalize now in Q4. On cash, a robust performance, which allows us to pay down debt and lower our interest expense whilst funding investments for VIDAR and other game-changing innovations, including the Geo-Pad. The Geo-Pad is currently being tested on a dedicated platform with a large European OEM. More to come on this in the coming quarters. Given our strong performance to date, ramping contribution from acquisitions and the lower effective tax rate, we are raising our full year adjusted EPS outlook. Notably, the low end of our revised EPS guidance range is now above the previous high end. This represents 13% growth versus prior year or 16% if we exclude the lost earnings from our 2024 Wolverine divestiture. This is a testament to our team's ability to deliver for our customers and our shareholders day in and day out, no matter the environment. Emmanuel will talk more about our revised guidance shortly. Now let's turn to Slide 4 to talk about ITT's orders and revenue growth. As you recall from our Capital Markets Day in May, we demonstrated with numerous examples across all value centers that how ITT's differentiation is driving our share gains. Let's spend a few moments to discuss this further, beginning with orders. Year-to-date, over the last 3 years, orders have grown 19% to over $3 billion with strength across all segments and in attractive growing end markets, including defense and aero, rail and the energy transition. In Motion Technologies, the Friction team once again continued to outperform in the market. And in Q3 alone, we won 10 high-performance platforms and more than 40 electrified awards with leading OEMs in China, Europe and North America. Our market share in China has grown from 31% last year to above 34% today. At the same time, KONI expanded its leadership position on global high-speed rail and defense platforms. In Connect & Control, orders were up 27% and 6% organic on the strength in aerospace and defense. And our acquisitions continue to perform ahead of expectations with strong orders growth in 2025 and a book-to-bill comfortably above 1. kSARIA grew orders 58% year-to-date with a book-to-bill of 1.2, thanks to awards on coveted defense platforms. This included content on a vertical launch system with a brand new customer. We were at kSARIA headquarters in Hudson, New Hampshire together with the ITT Board earlier this month. We share with our Board how built-in process quality drives kSARIA's differentiation. Thanks, Mike and team, for your accomplishments. I'm incredibly positive about the growth we will drive together in the years to come. On Svanehøj, Soren and team won orders of over $250 million year-to-date. This represents 59% growth versus the prior year and the book-to-bill of 1.6. For the year, even with over 30% revenue growth, Svanehøj expects to end 2025 with a book-to-bill of nearly 1.3. This quarter, Svanehøj secured a first of its kind award to enter the U.S. land-based terminal market, which will involve the largest LPG pumping company history, capable also of handling ammonia. Notably, the Goulds Pumps team, which has strong connections on terminals in the U.S. introduced Svanehøj to this customer. Well done, Johnny and team for capturing this opportunity with a major U.S. EPC, another strong year with ITT. All in, our year-to-date book-to-bill of 1.08 resulted in an ending backlog of nearly $2 billion, up 13% compared to prior year-end. For the full year, we continue to expect a book-to-bill above 1, which puts us in a strong position to grow again in 2026. Speaking of growth, a main driver of our revenue growth has been our flawless execution on pump projects. One example of this is our Goulds Pumps team in Saudi. This team's performance secured another win rate of more than 95% in the last 2 years. In mid-November, I would be in Dammam with Bartek, [ Hamdi ] and the local team to recognize this outstanding accomplishment and to join the ribbon cutting of Phase 2 of our $24 million expansion to announce our manufacturing and testing capabilities to meet our future growth. The last thing I would like to highlight on growth is that 2/3 of ITT's revenue growth since 2023 came from volume and just 1/3 came from price. Clearly, we are gaining share. Now let me turn the call over to Emmanuel to discuss our Q3 results in more detail.

Thank you, Luca, and good morning. As you can see, ITT delivered another strong performance in the third quarter. We saw a step-up in growth with organic revenue, EPS and free cash flow well ahead of our initial expectations. Let's talk briefly about some of the many highlights. On revenue, all segments contributed to the performance, growing 13% in total and 6% organically. Industrial Process once again led the way with 11% organic growth on the strength of projects business, which grew over 50%. And from an orders perspective, for the second consecutive quarter, we saw growth in every short-cycle product category, most notably in parts and valves. CCT grew 6% organically with strength in both aerospace, which grew 18% and defense, which grew 4%. In total, CCT grew 25%. In Motion Technologies, KONI grew 12%, driven by share gains in rail. Friction OE outperformed global auto production by 360 basis points, growing 4%, led by China and Europe. On profitability, we grew operating margin 20 basis points to 18.5% on higher volumes, pricing actions, including related to tariffs and continued operational improvements. This more than offset the impact of inflation and temporary acquisition amortization from kSARIA, which will end in Q4. At the segment level, CCT margin expanded 270 basis points versus prior year, excluding the dilution from kSARIA. IP margin expanded 70 basis points to nearly 22 and in MT, Jeroen and the KONI team again delivered outstanding profitability, which is driving MT above 20% margin for the second consecutive quarter. The profitable growth drove adjusted EPS to $1.78, up 21% year-over-year. In addition to our strong operational performance, we also realized benefits from a lower share count, thanks to $500 million of share repurchases year-to-date and less unfavorable foreign currency impact, which more than offsets higher interest expense. Finally, on cash, an incredible performance by our teams to drive strong cash collections and negotiate customer advances while demonstrated early progress in managing inventory. These actions pushed free cash flow margin in the quarter to over 15%, while still funding further strategic CapEx towards innovation and productivity to ensure our performance continues. We're driving improvements in working capital, especially in MT and leveraging the learnings from Svanehøj whose working capital as a percentage of sales is now just 5%. All in, as you can see, a high-quality performance across the board. Let's quickly turn to Slide 6. The key takeaway here, similar to what I conveyed in Q2, is that the strong operational performance across our businesses, contributions from our acquisitions and a lower share count enabled us to grow EPS over 21%. We also realized a lower effective tax rate than planned. The earnings accretion from our acquisitions is increasing and will continue to do so as we lap the remaining temporary amortization impacts from kSARIA. We're also making strong operational improvements with 500 basis points improvement in Svanehsøj's EBITDA margin this quarter. Just to step back for a moment, even if you remove the $0.07 impact from the favorable FX, tax and other items, we still grew EPS over 16%. Now let's move to Slide 7 to discuss our revised 2025 guidance. After a strong third quarter performance, during which we grew revenue, expanded margins and generated a ton of cash, we are raising our total revenue and EPS outlook for 2025 and bumping our free cash flow outlook to the upper end of our previous range. On revenue, our total growth is now expected to be slightly higher at 6% to 7%, while organic revenue remains within our prior range of 3% to 5%. We expect continued growth in the project business in IP, given the strong backlog, firm demand in aerospace and defense and outperformance in Friction OE and rail. Our margin outlook remains strong. We expect to drive continued productivity in legacy businesses and significant margin expansion in our acquisitions as well as considerable pricing, particularly in CCT. Excluding M&A, we expect margin expansion to be more than 100 basis points for the year. On EPS, we're raising the midpoint of our guidance by $0.20 to $6.65, another step change in our EPS outlook for the year with a $0.27 increase at the low end and $0.13 improvement at the high end. This is due to improved productivity, profitable growth from our acquisitions and a slightly lower effective tax rate, now expected to be 21.5% for the year. Finally, on cash, we now expect to reach the high end of our guidance, delivering $500 million in free cash flow and a 13% margin this year. This reflects several years of structural improvement and disciplined execution from weekly receivable calls to a more granular approach to customer payment practices, ensuring ITT is top of mind with them, given the differentiated value we provide. These actions are driving consistently improving results, and we see further opportunities to strengthen cash performance, such as optimizing our advanced payments for large projects. With just 1 quarter left in 2025, let's spend a minute discussing our implied outlook for Q4. We expect high single-digit growth in revenue of mid-single-digit growth on an organic basis led by strong performances in Connect & Control and Industrial Process. Friction should once again outperform global auto production while strength in rail should continue. We expect operating margin to be up approximately 130 basis points, led by strong margin expansion at IP. In CCT, pricing and productivity should make -- should more than offset the remaining temporary amortization from kSARIA and MT should once again hit the 20% mark in Q4. In terms of other forecast items, we expect total corporate costs to be slightly up compared to Q3 due primarily to higher growth investments in VIDAR. This should collectively drive EPS growth just below 20% for the quarter. Let me now turn the call back to Luca to wrap up.

Thanks, Emmanuel. A few points before Q&A. Q3 was all about growth for ITT and another step on the journey towards our 2030 targets. The organic value creation through growth and margin expansion continued. And as you saw, we are compounding this growth with M&A as our acquisitions performed well ahead of expectations. Cash continues to ramp towards an expected $0.5 billion of free cash flow this year with a free cash flow margin this quarter of more than 15%. And we made another step change improvement in our full year EPS outlook, raising the midpoint by another $0.20. As you can see, ITT's growth is strong, ended its year to stay. Before opening the line for Q&A, there is one more heartfelt thank you I would love to give. Mark Macaluso, our Head of Investor Relations and Global Communications will be leaving ITT later this week to pursue another opportunity. Dear Mark, thank you. You had a real and great impact on ITT and in ITT. You elevated how we talked about our businesses. You challenged us and are thinking. You made us more efficient. You made us much, much better. You work hard, play hard and we had fun. Thank you. I learned a heck of a lot from you, and I would also have liked to keep on learning. One thing you didn't deliver though was to find an earnings call operator with a stronger Italian accent than mine to make me sound more [ anglicized ] accent. I know you probably wanted me to say fewer words, but we wanted you to know how grateful we all are. From all of us at ITT, thank you and best of luck. Gigi, please open the line for Q&A.

[Operator Instructions] Our first question comes from Mike Halloran from Baird.

Congrats, Mark. So two questions here. First question, maybe just spend some time given the state of the union as you see it for global auto production, Luca, and how you think that tracks in the next year. Obviously, the outperformance metrics will continue, but always good to understand your view on the baseline for the market.

Sure. So when you look at auto production, Q3 actually was a good quarter. The production worldwide was up and this is very much a China story where -- which was up 9.7%. But both Europe and North America were up as well. For the full year, Mike, though, the auto production will be overall up 2% year-over-year at 91 million vehicles produced. Once again, it's a China story. China up whilst Europe and North America are forecasted to be down low single digit. Now when it comes to 2026, it's still a little bit early to tell, but I would expect it to be flattish to low single digit up. And as you rightly said, we outperformed in the market in Q3, 360 basis points, expect to do so for the full year and also in 2026.

That makes sense. And then maybe just a little thought process on the funnel and what you're seeing on the IP side specifically. Certainly, it sounds like the momentum hasn't really changed, timing a little variable, comps are harder. But what are your customers saying? And how confident are you that this funnel can convert to orders in a pretty orderly fashion here?

Sure. So when we look at the funnel, you can see that the funnel year-over-year is down, but 2024 was an incredible year in terms of the opportunities. But there are a couple of important data and signs that confirmed some positive that we shared in the Q2 earnings. The former is that the funnel is up sequentially, Mike, and by quite a bit, by 22%. And I'm talking about active quotes, projects that are active. And the latter data is that without energy, the funnel is also up year-over-year by a healthy 9%. So very good positive signs, and the funnels are up as well in North America, in APAC as well as in Latin America. Another data, and then I will stop is when you look at the green project, we had very good orders intake on green projects, but also the funnel of opportunity is up considerably as well as the budget quote. So good positive signs on that front, Mike.

Our next question comes from the line of Jeff Hammond from KeyBanc Capital Markets Inc.

Best of luck to Mark. I'll plan to stay in touch. Just on the $0.20 guidance raise, I'm just wondering if you can unpack, I think you mentioned better profitability, better acquisitions and tax. I don't know if you can quantify those 3 pieces. It just seems like at a high level, the margins and top line aren't changing that much.

Yes. Thank you, Jeff. So yes, we raised our guidance -- full-year guidance EPS by $0.20, that's up 13% versus the prior year and plus 3% versus the prior guide. In Q4, like in Q3, we expect our businesses to exceed or come in line with the previous guidance. And we also expect lower corporate costs due to spending control measures. So if you think about it, Q3, we were up a little bit more than $0.10 compared to our previous guidance. In Q4, we're benefiting from higher revenue and improved margin from all the businesses, a little less than $0.10. And then we have a tax rate impact also that is positive, that is around $0.01.

Okay. Very helpful. And then I know it's a little early to look into '26 and you mentioned kind of views on auto production. But maybe just talk about any markets you think you're more excited about and maybe improving inflecting and others that maybe seem a little less certain.

Sure. So first of all, Jeff, we are entering 2026 with a strong backlog. And this is thanks to the IP project wins and also to the CCT Defense Awards. MT continued to outperformance. So I would say, from a market point of view, air and defense would be a tailwind. In automotive, the outperformance will drive the growth in Motion Technologies. And when you look the IP is a very strong backlog. And as we just shared with Mike, the funnel opportunity is also increasing. We are still very excited about the acquisition in terms of we expect Svanehøj and kSARIA to deliver on the growth in 2026, which is going to be fed by the huge orders growth that they had this year.

Our next question comes from the line of Vlad Bystricky from Citi.

Congratulations, Mark. Sorry to see you moving on, but wish you good luck. So just a couple of quick ones for me. Just in IP, the commentary around short cycle orders being up 5% seems quite encouraging, I guess, in the current environment. Can you just talk about maybe any color on regions or end markets that are driving that and how you're thinking about the sustainability of short-cycle momentum in IP?

Yes. So thanks, Vlad. Yes, we were pretty excited to see good short cycle activity. We had strong activity in parts as well as in valves. And if you look at parts, while July wasn't great, August and September really showed -- delivered the growth for us. And then from a baseline pump standpoint, we had also good numbers, slight growth. Valves was very strong. And here, what we're seeing is the foray we've made in the medical valves, especially on those weight loss drugs, which is delivering for us.

And Vlad, if I may add is that the short cycle is 5%, the legacy short cycle growth was actually 7% in the quarter. And when you look at that 7%, 4% was volume. So this is also another good sign.

That's really helpful color. And then just sticking in IP, you highlighted again the strong win rates that you're seeing in Saudi pumps. Can you just talk about underlying market demand trends there and the opportunities you're seeing in Saudi and Middle East more broadly, whether you're seeing any change in demand patterns in that region for IP?

Sure. Well, we are very excited about our growth opportunities there. As you can see, in all the quotes that we put there, the team won 95% of those quotes. The funnel is increasing. And when we look at the funnel sequentially in the Middle East is up 21%, and these are active projects. So the opportunities are there. It's a growth area. We see investment going as well in terms of downstream in the long term, there are further investment in other areas. And this is the reason why we are enlarging our facilities there and investing in manufacturing and engineering. I will be there also in November, as I said, celebrating the opening of the expansion and also meeting with some customers, but definitely a growth area for us.

And as Luca was saying, the region is very dynamic. And I think in addition to this, customers are recognizing the performance in project management, where we really are able to deliver the pump that they want on time with the quality that they require, and this is really making the difference for our business.

Our next question comes from the line of Joe Ritchie from Goldman Sachs.

Mark, congratulations. I'm sure we'll keep in touch, but I wish you the best. Yes. So maybe just kind of starting off, look, Svanehøj and kSARIA so far has just been tremendous, right? And I know you talked a lot at Investor Day about this -- your ability to potentially compound via M&A going forward. So I just want to get a sense, Luca, just on the funnel, like how attractive is your M&A funnel today, types of acquisitions that you're looking at? Any potential color there would be great.

Sure. Thank you, Joe. So when you look at the funnel, the funnel is rich of opportunities. And I can tell you, I'm spending quite a bit of time together with Bartek and the business leaders to look at opportunities, meeting management teams and visiting also some company sites. So those opportunities in the funnel are progressing and so this is good. I want to restate, they are in flow. So it's mainly pumps and valves and some on the connectors as well, mainly focused on aero and defense. So that is happening and is good. One thing is also we -- as you said, the 2 acquisitions we made have been successful. They are overdelivering on all fronts. We need to ensure that our process stay rigorous, both in terms of from a strategic point of view, it has to be on strategy and also financially that we are going to create value for our shareholders. So -- but all of that, I'm positive on the progress we are making there.

Yes. And Luca, I know sometimes these are really difficult to like figure out exactly when timing is going to work out, willing sellers, et cetera. As you kind of think about 2026 and your ability to get a few deals done, like how are you kind of handicapping whether you'll be able to get some things done?

Well, I would say, look, if you look at the last couple of years, for example, Joe, in the last couple of years since the beginning of 2024, we deployed $1.9 billion of capital. $200 million went on CapEx, $900 million went on M&A and $800 million went in dividends and share repurchases. So I would say we really are working hard to deliver the growth from an M&A point of view as well. But if things do not happen, we are going to deploy our capital and repurchase shares. So that is our backup option. But the capital will be deployed.

Okay. Great. And then if I could just squeeze one more in. Just on orders, sounded like the activity is very good, particularly on the industrial process side. I know you mentioned the book-to-bill kind of greater than 1 for the year. But as I kind of look at the fourth quarter, you've been kind of -- you've been in that $1 billion range for orders the last few quarters. Is that kind of like -- are you tracking towards a number in that ballpark for 4Q?

Yes. I would say, yes, Joe. And one thing that I want to stress on the orders is there has been a lot of phasing if you think about this year, right? So if you think about Q3, for sure, the book-to-bill in Q3 is not great, but there was a very tough comparison in IP projects versus the prior year when we booked a huge project in the Middle East and also on Svanehøj, many customers anticipated orders in the first half. And our philosophy, Joe, is to take the orders as soon as we can get them. So on the orders front is a good story for ITT. The book-to-bill for the full year will be comfortably above 1. And the backlog that we will have at the end of the year is going to be higher than the backlog that we had when we started in 2025. And as Emmanuel said, also the picture is good on the short cycle as well, which is good.

Our next question comes from the line of Matt Summerville from D.A. Davidson.

Just on the auto side of the business, can you talk about what you're seeing in aftermarket? And if that business, as you look out over the next several years, does that still really stay relegated from a geographic perspective to Europe? And then how should we be thinking about the ramp in high performance and VIDAR over the next year or two? And then I have a follow-up.

Sure. When you look at the aftermarket, the aftermarket, we are staying in Europe, there is no move to other regions. This is only the market where we play and we decided to play. And also in that market, we position ourselves only at the top end. The aftermarket probably is the only area where we saw some decline, and that is mainly -- is a market related that is not a share conversation to be had there. Now when we look at the high performance, the high performance is progressing well. The plant internally is producing a supply to our customers. We continue to win awards. So if you look, we won several awards in Q3 with a company like Daimler as well as Audi and the plant is also using green energy. That high-performance plant can run 100% with actually the green energy. So very positive growth on the high-performance side. When it comes to VIDAR. Well, VIDAR as well, I would say, is progressing well. We have it installed with 3 major energy companies in the U.S.A. Now what you find here, Matt, is a revolutionary product in an industrial environment. So we really need to test it, the customer really needs to see it working for some time. You will face the typical S-curve. Having said that, we are still committed to $150 million of sales by 2030 and a 10% market share on a $6 billion market in the long term. We keep on investing a lot, Matt, in this one to ensure that we have the product for the European Union as well as the larger sizes in the U.S.

And then just as a follow-up, I mean, the number of platform wins, I don't know the number off the top of my head year-to-date, but I feel like you've been winning 30, 40, 50 kind of on a per quarter basis here over the last couple of quarters. What is your actual win rate in MT friction OEM on the platforms you're competing on?

It's a very good win rate. So -- and I would say, if you look at also the electrified platforms, is year-to-date are 142, which is the same number of platforms that we won for the last year in 2024. So these platform wins is one of the pillar of our friction strategy to ensure that we keep on gaining share. So we are confident we will keep on improving our market share in the next few years as well because of these wins.

Our next question comes from the line of Joseph Giordano from TD Cowen.

So I guess if you guys start [ being ] on corporate expense, we'll know you were paying Mark too much, right? Is that the way we should think about it?

You got it. You got it.

You got it. So there's been a lot of talk now about like these chip shortages in Europe for auto and like potential shutdown of production as that plays out. Just curious what you're seeing there and what you're hearing in terms of like near-term visibility.

Sure. Well, when we look at Q3, Europe posted a very slight growth in terms of production of 1%. But both Europe and North America are forecasting for the full year a decline in production of roughly 2%. So these 2 markets from a production point of view are still challenged. So this is what we're seeing. Our customers are challenged from an investment point of view with a new platform from a competitive point of view, because the competitive environment is getting tougher with the Chinese OEMs. So -- but at the same time, the way that they need to win is with new models, new products coming to the market, and this is an opportunity for us to keep on increasing our market share.

So regarding the chip shortage, we read the headlines with Nexperia like everyone else. For the moment, our customers are not voicing any concern directly to us. We had a pretty strong month of October in terms of deliveries for Europe. So we don't know exactly what that means, but Europe was a little bit stronger than what we were expecting in October.

Okay. And as you start thinking about 2026, like you look at some of these businesses that Svanehøj and kSARIA orders up so large. I mean, obviously, that's going to derisk the revenue profile into next year. But are those sustainable order levels? Like how do you prepare for like -- is there likely to have some big decline in orders that you need to like calibrate what's the real kind of underlying multiyear trend line? Like how do you kind of -- how do you operate when you have those kind of dramatic moves one way or the other?

Yes. So this year, for sure, I would say if you had told us that Svanehøj would grow more than 50% in terms of orders year-to-date, we would have said no way. So what we saw during the year, though, is that a really strong first half with really, really strong growth. And customers actually pulled in orders in order to secure capacity within Svanehøj. And so that's why the second half is a little weaker. I don't expect that next year will be as strong as what we're seeing this year because on average, remember, we said that we expect growth of low double digits for the next 5 years. And so I think 2025 was especially strong. We think it's going to normalize over the year, but still delivering over the long-term low double-digit growth.

Our next question comes from the line of Damian Karas from UBS.

So obviously, you guys are doing quite well in IP, really strong organic growth there. We have been hearing from some peers out there that there's been some -- maybe some deferrals going on in the project space kind of in the process markets. Just curious if you happen to be kind of seeing any of that in your business?

So one thing that we share, Damian, the short answer is not really, not material. And as a matter of fact, the sign that we had in this quarter which was positive was on the funnel. The funnel has gone up sequentially by quite a bit. And when I'm talking about the funnel, I'm not inserting in the funnel budgetary quote. I'm talking just about funnel of active projects, so projects that are funded. So no, not really. We had in our orders some phasing because with programs always happen that away, but no.

Okay. That's good to hear. And Emmanuel, I was hoping you could maybe give us a little bit of framework for CCT margins thinking about 2026. There's that deal amortization, thinking about how that will factor in. And then maybe just some of the mix items that you think about the areas like OE and aftermarket and aerospace and events, energy and the like.

Sure. So let me start by saying that it's a little bit early for 2026, but let me give some broad strokes in terms of CCT. So obviously, CCT will continue to benefit from the aerospace recovery. And here, what's interesting is that, so far, we've seen more narrow-body recovery, and then we expect wide-body where CCT and our CT business is stronger in a chipset -- from a chipset standpoint. So aero volumes up. I think with that, this will be compounded by price. We have high expectations from a price standpoint for CCT. We -- on this point specifically, we continue to negotiate with Boeing, and we're making some really good progress. We value Boeing as a customer, and I think it shows in their proposal that they value us as well. And so this from a top line standpoint should be really a tailwind. And then from a profit standpoint, I think in CCT, there's a lot of -- there are a lot of opportunities from a sourcing and a manufacturing standpoint. We are seeing sites like our Orchard Park site, for instance, which is doing really well and also investing in automation process of projects in order to support the growth in bill rates. And we have other sites in CCT, where we still need to make progress. We still need to go after efficiencies. So we're working a lot of machining efficiencies. And so that should drive really margin expansion in addition to volume and price. And obviously, finally, the end of the temporary amortization that you discussed should bring a little bit more than $0.10 coming from kSARIA next year.

Our next question comes from the line of Sabrina Adams from Bank of America.

Congratulations, Mark.

Thank you very much, Sabrina.

I'm going to follow up on Damian's question there on margins. With the incrementals have had a lot of temporary amortization in the past 2 years and have been running maybe closer to 25%. And I think I'm seeing the implied incremental somewhere closer to 33% in Q4 and when you're anniversarying kSARIA, I guess maybe just some thoughts on how to think about incrementals into next year versus what we've seen in the past couple of years, as you anniversary the amortization because I think historically, been able to do closer to even 40%, just any direction there?

Yes, Sabrina. So when you remove the impact of acquisitions, our incremental in Q3 were around 40%, right? And all the businesses were really strong with Motion Tech the strongest. In Q4, we expect similar incrementals, excluding the impact of acquisitions. For 2026, we -- I think around 30% to 35% is probably a good number to keep in mind.

And I just want to ask a little bit about the pricing environment. Clearly, tariffs have not been an issue for your execution, but just in general, what are you seeing from your customers in terms of pricing acceptance? How is the pricing environment evolving? I think we've heard from some channel checks that there's been a lot of inflation push this year. Maybe next year, it will be more difficult, but I know you guys have some idiosyncratic pricing on the aero side. Just maybe thoughts there on how that's evolving.

Sure, Sabrina. So when it comes to pricing, the dynamic is different in the different businesses. I would say the most -- the area where we have more pricing power remain CCT. And this is where you will have -- you will see more impact. Now when it comes to IP, Sabrina, the pricing would be more strategic and so we will really have to be more analytical and understanding where we can really price the value for that specific pump in the specific region for the specific customers. And then when it comes to automotive, that is a completely different dynamic.

Our last question comes from the line of Nathan Jones from Stifel.

This is Andres on for Nathan. I wanted to quickly ask, margins were very strong 20.2% for Motion Technology. Can you provide the margin impact from FX transaction?

Sure. So when you look at Motion Tech, we are very excited that for the second quarter in a row, they are above 20%. And so the FX transaction, I want to say, was still negative in absolute value, but year-over-year was a benefit of around 100 basis points.

I appreciate that. And then I guess we talked a lot about A&D. Can you just provide a little bit more color on prospects for improving growth aside from A&D within [ CCT ]?

Yes. So A&D for us has been pretty strong. As I mentioned, A&D historically has been a little weaker than everybody else because we are more tilted towards wide-body than narrow-body. But in the quarter, orders for aerospace were up in the high teens, and defense was also up in the mid-teens -- sorry, in the mid-single digits. kSARIA was really strong as well. So the quarter in Q3 was pretty good. I think when you look at Q4, we expect growth to continue to accelerate with both aero and defense to be around the 20% mark in terms of growth. And obviously, this implies that we have to ramp up our production to make sure that we support our customers in delivering the products that they need.