Good morning and welcome to ITT's 2019 First Quarter Conference Call. Today is Friday, May 3, 2019. Today's call is being recorded and will be available for replay beginning at 12 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. [Operator Instructions] It is now my pleasure to turn the floor over to Jessica Kourakos, ITT's Head of Investor Relations. You may begin.

Thank you, Christie, and good morning. Welcome to ITT's first quarter 2019 earnings call. I'm Jessica Kourakos and with me today are Luca Savi, ITT's President and Chief Executive Officer; and Tom Scalera, ITT's Chief Financial Officer. 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 itt.com/ir. Before we begin, please note that our discussion will exclusively focus on non-GAAP or adjusted measures, unless otherwise indicated. During this call, we will make forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. No forward-looking statements can be guaranteed and actual results may differ materially from those projected. We undertake no obligation to publicly update any forward-looking statement whether as a result of new information, future events or otherwise. Forward-looking statements made on this call should be evaluated together with the risks and uncertainties that affect our business, particularly those disclosed in our SEC filings. With that, let me turn the call over to Luca.

Thank you, Jessica, and hello, everyone. Thank you for joining us today to discuss ITT's strong start to 2019. In the first quarter, ITT'ers all around the world delivered strong revenue and operating income growth by intensely focusing on our customers and by generating productivity with even greater speed. As you see in the results today, we're gaining share in our target growth markets and we are continuing to drive the cost and efficiency actions to deliver on our increased EPS commitments, despite the more volatile market conditions we face. Our Q1 results demonstrated the depth of our diversification and the magnitude of our self-help war chest. This quarter includes a number of record setting performances that we will highlight this morning. But I strongly believe two things about records: One, they're simply milestone on our journey of betterment; and two, they're made to be broken. So let's take a look at the Q1 financial highlights on slide 3. We grew organic revenue 5%. We grew segment operating income margins 120 basis points to a record 16.2%. We grew operating income margins 170 basis points to a record 15.1%. We grew earnings per share 18% to a record $0.91 per share. And we grew free cash flow 154%. As a result of the Q1 execution and the operating momentum ITT'ers are generating every day. We are raising the midpoint of our 2019 earnings guidance by $0.04 to $3.58 per share. So those highlights detail what we delivered in the quarter. Now I will discuss how we did it. The how demonstrates the sustainability of our results in the face of more difficult market conditions. Specifically we're focused on three key drivers in 2019 that will power our performance: Operational excellence, customer centricity and diversification and resilience. Starting with operational excellence:…

Thanks, Luca. Let me begin with the Q1 2019 results on slide 4. Organic orders increased 1% or 3% excluding a prior year Russian rail order. The growth was driven by a 26% oil and gas increase on project and short-cycle demand at IP. Transportation orders were up 1% on strong KONI rail and aerospace and defense demand, partially offset by auto and the $14 million prior year Russian rail order at Axtone. Excluding this order, transportation improved 4%. Project and short-cycle order strength in industrial pump applications was more than offset by industrial connectors and components The organic revenue growth of 5% reflected broad-based growth across all major end markets. Oil and gas grew 11%, Industrial grew 10%, and transportation grew 2%. By geography, North America grew 14% in the quarter and strength across major end markets including chemical, oil and gas, auto and aerospace and defense. Europe grew 1% on chemical and rail strength that was partially offset by lower auto production activity. Asia declined 4% on slower than anticipated auto production rates in China and delayed new platform launches. Segment operating income improved 9% or 13% excluding $4 million of unfavorable foreign exchange. The income expansion was driven by volume and productivity actions partially offset by higher commodity and tariff costs and mix. Strategic investments primarily at MT were more than offset by European government innovation incentives. In the quarter, we drove significant efficiency and cost-reduction actions within our corporate functions and we also drove interest environmental and tax rate favorability. The combination of the strong segment operating income expansion and the effective below the line cost management drove an 18% increase in earnings per share to an all-time record of $0.91 per share. Slide 5, shows our adjusted segment margin walk. Q1 margin improved 120 basis…

Thank you. The floor is now open for questions. [Operator Instructions] Thank you. Your first question is coming from Jeff Hammond of KeyBanc Capital Markets.

Hey, good morning guys.

Good morning Jeff.

Good morning Jeff.

Can you just talk about what you're seeing kind of into 2Q on Europe and China auto production demand? And then just maybe reference on the North America facility, it sounds like things are going very well there. Where you stand on a profitability basis? And where you think you'll be run rating kind of exiting the year? Thanks.

Okay. Thank you, Jeff. So when we look at the China and North America, we see that the trend in the European market that we saw in Q1 will probably continue in Q2 as well. And we expect it to outperform that market the same or more than we've been outperforming in Q1. When we look at the -- and we are comfortable with this visibility. When we look at China, we see the situation improving from a market point of view from Q1 to Q2 and that's the market and we will continue to outperform the market in China probably better in Q2 than we did in Q1. Now on China, I would say, probably we have also to bear in mind that China is more volatile. When China changes, it changes more and it changes faster. So, a little bit less stable than the European Union. The other thing is that you know that there has been an incentive in terms of the reduction of the VAT in China is a RMB2 trillion package that will -- reduction of VAT, which would reflect a reduction in the calc price of roughly 2.5%. It was implemented on the 1st of April and it's too early to see if really this has an impact or not. So that is for Europe and China. When it comes to the North American market, the North American market is going to be down. We think that it's going to be down in Q2 as well as it was in Q1, and we think that we're going to outperform the market substantially. This is higher probably then our expectations when we started the year. And this is exactly, because we are in very good platforms as we said during the -- before the largest and the fastest growing. In regard to this the North American facility is doing very well, and I would say is meeting and/or exceeding our more beautiful expectations.

Okay. Great. And then Luca, you mentioned in the prepared comments some signs of moderation and project activity or pipeline. Can you just kind of expand on that? Where you're seeing that? And kind of how it plays out in your mind? Thanks.

Sure. So when you look at IP, bear in mind that when we look at the IP orders, we are 3% up sequentially from Q4 2018 to Q1 2019. And Q4 2018 was already a very strong quarter in terms of orders. And when -- and those are mainly -- that is mainly in oil and gas story, because our orders were 31% up in oil and gas mainly upstream and downstream. So with all these orders that -- good performance in 2018, good performance in Q4 2018 good performance on the orders and in the oil and gas in Q1 2018, when we look at our funnel of opportunities is resetting and is reshaping. Practically if you want to look visually, it looks like it's a pear shape reversed in terms of all the opportunity that were closed today -- closing and negotiation came into the orders and we're resetting. So we now have a more on the opportunity side. On the chemical side, I would say, 2018 is going to be more of a revenue story, because we had very good order performance in 2018 and here what we have – we see also the funnel of opportunities resetting, but this is going to be a very good revenue story for 2019.

Okay. Thanks. I’ll get back in queue.

Thanks, Jeff.

Thank you. Your next question is from John Inch of Gordon Haskett.

Good morning, everybody.

Good morning, John.

Good morning, John

Good morning. I want to go back to the Silao plant. I think we were breakeven in 2018. Luca, you mentioned or perhaps it was Tom or Luca mentioned that there was a big profit improvement there. What sort of run rate are we at? And where would you expect to exit 2019 in that facility specifically which I guess is reflective of your OE North American friction profitability?

Okay. So when we look at the Silao facilities – Silao facility we started really need in shipping the products need of 2018 and we got it to breakeven in Q4 of 2018. Now it's – the facility is as I said is already profitable and we are expecting to be in the mid-teens for 2019. Having said that, Cesare and his team if you're listening, if you want to beat that please feel free.

And that -- I'm assuming 2020, as you continue to see volume ramp and order wins I'm assuming that that threshold based on sort of your Italy targets right or your Italy profitability, I'm assuming those numbers keep moving higher potentially. Or is there some sort of natural reinvestment barrier if you will? And the other thing is Luca does that plant have enough capacity to satisfy all of this growth? Or would you have to expand it kind of in the future?

Okay. All right, John. So first of all, we think that the Mexico facility is setting itself up to achieve the best profitability that we had in other plants. So that is a journey that will take probably another 18 to 24 months I would say. And I think, they are very well set to achieve that. Now, when it comes to the investment this is an area where we will continue to invest organically, because of the success that we are having on the awards on the orders and the ramping up of the platforms. So we're going to put down this year another couple of lines in the plant that – who's production has already been allocated. So when you talk about investment, no more investment in land, no more investment in plants, but we're going to add just the lines of awards that we have already won.

Got it. And then just as a follow-up here so Parker and 3M each announced this during season some recent very nosebleed valuation deals and many of us would like you to do deals. We think that you're set up to possibly be in a position to do that, but nobody wants you to destroy shareholder value. So Luca how are you thinking about your opportunity set in acquisitions particularly given the high valuation environment today just opposed against your own strategy maybe bolt-ons? Or how do you get around this? And what kind of activity should we be expecting kind of in 2019 if anything?

Good to hear John about your support for M&A. As a matter of fact M&A is a focus area for me, for Tom and for the entire team. I'm pleased to say that, first of all, just a couple of days ago on April the 30th we closed the Rheinhütte Pumpen acquisition which was a very good strategic acquisition for IP. And I can say it also that now all these three value centers, all these three businesses can now cultivate more actively and execute an acquisition and integrate. And this is exactly what they're doing. Now having said that, now more than ever we need to stay very, very disciplined and I agree with you in the sense that, a, the target the acquisition must be strategic of course and must create value. This is – we really need to stay very focused on that one and as a matter of fact, we walked away from a couple of deals in the last couple of months. So we definitely more than – more active now than ever before across all the three different we see, but we stay very disciplined in terms of generating value.

Got it. Thanks very much. Appreciate it.

Thank you. Your next question comes from Mike Halloran of Baird.

Hey, good morning, everyone.

Good morning, Mike.

Hi, Mike.

So on the – first on the short-cycled businesses you guys have broadly – any discernible momentum or trend that you saw through the quarter and in the first part of the second quarter here?

Okay. So when we look at the – as I said, the orders were positive, but also when you look at the short-cycle order, Mike those were positive. Those were up 4%. So all of this is good and also the backlog of the short-cycle order went up a bit. So, this is positive. So, it's not just kind of a revenue up, but also the orders. Having said that we see some moderation here and there, but North America we saw it strong. Now, if I look for instance at the orders of parts from our distribution channel those are the strong in the last three -- in the first quarter, those have been the strongest that have been in the last four years.

And then specifically as you work through the quarter and in the first part here, did you see sequential improvement, sequential moderation, normal seasonality? I mean how did those short-cycled businesses -- not just for IP, but also thinking on CCT any kind of trend as you work through the quarter from that perspective?

That's a very sharp point Mike and I would say that when we look at the distribution for instance on the CCT front we saw some moderation as we moved in the quarter. Now, we are monitoring closely to try to understand how much of that is coming from really the end market and the market situation that is slowing the growth or some specific resetting of the inventory levels at some of our distributors. But we've seen some of these signs.

Yes. And I would say Mike too the key driver of our IP short-cycled business as you know is our U.S. installed base. It's our largest market and increases in U.S. economic output capacity utilization broadly are a positive for our short-cycled business at IP. So, we're watching the signs but we also think we're playing in the right markets at the right times.

Okay. And then second one when you think about the strong IP backlog growth up 14% organically. Can you just unpack what that means for this year? How much of that do you expect to book this year? What that means from a growth perspective for this year? Any kind of color around the implications there would be great. Thank you.

Sure. Mike the backlog visibility has been fantastic. We indicated that we increased the backlog 19% in the quarter for IP. The good project volume that we generated from an order perspective added to our already strong position come into the year. So, we've had very high confidence in our project backlog conversion to revenue. That's been an underpinning element of our 2019 guidance all year so we just need to execute and deliver and ship those projects. But I would say that we have more project visibility now and backlog now than we planned on coming into 2019. Obviously, some of that will stretch into 2020, so we're starting to fill in a little bit into 2020 but I would say that what we've seen at this point gives us more confidence in the project element of our IP guidance for the year.

Appreciate it. Thanks.

Thanks Mike.

Thanks Mike.

Thank you. Your next question is from Bryan Blair of Oppenheimer.

Nice start to the year.

Thanks Bryan.

Good morning everyone. Nice start to the year.

Thanks Bryan.

Hi Bryan.

I just wanted to circle back to friction OE trends and the levels that have been in terms of expected revenue cadence throughout the year. I know there are a lot of moving parts here, but is it fair to expect kind of stabilization in terms of second quarter trends then solid acceleration in the back half given SOP timing and obviously as a little bit easier comps in the second half?

Yes, that's absolutely fair. I think that the first half is going to be worse than second half and the Q1 is probably worse than the Q2 in terms of also the -- our -- if I look at our platforms and our SOP. So, both from a market point of view and specifically for us ITT, the way that you described is spot on Bryan.

Okay, very helpful. Thank you. And then aftermarket was slightly positive in the quarter and good to see that resiliency and tough market backdrop. In Europe, how should we think about the core aftermarket growth outlook for this year and then China's obviously early stage? But on the aftermarket side, any color on expected 2019 contribution or potential 2020 ramp would be great as well.

Okay. So, when we look at the -- at Europe the aftermarket overall was positive. And this helped in terms of getting to almost flat from a friction point of view which in this market situation is really an outstanding performance. Now, when you look at the aftermarket is the tale of two stories. One is the independent aftermarket which was very, very positive in terms of growth and the other one was the OES where -- which didn't grow at all. So, overall positive. Aftermarket up more than 10% and when -- the OES because some specific dynamic with a couple of OEMs was actually negative. So, we see the aftermarket overall to keep on growing and it should be a growth for the entire year of roughly three percentage points up 3% for 2019.

Okay. Got it. And then, one last one, if I may. Tom, sorry if I missed this, but strong cash generation in the quarter year-on-year improvements. I know it's a seasonally weaker conversion quarter, but trend there seems really solid. Have you updated the adjusted free cash conversion guidance for the year?

We haven't yet, Bryan, but I think we certainly are encouraged and feeling good about the momentum that we're generating. Our working capital improved by 40 basis points as a percent of sales, when you adjust for foreign exchange in the quarter. So we're continuing to drive good working capital performance. You're seeing it flow through in the free cash flow. Improvement of 154% in Q1. So we are feeling incrementally better about our progression of free cash flow generation and moving our conversion guidance up. We just haven't done it quite yet, but I think all the momentum is going in the right direction.

And on the working capital, Bryan, I mean, one thing that I wanted to stress, again, the improvement at IP, where our working capital was 24.7% and is an improvement of 200 basis points. Well done, IP.

Very good. Thanks again, guys.

Thanks, Bryan.

Thank you. Your next question is from Matt Summerville of D.A. Davidson.

Thanks. Just back to IP, given the growth you're seeing in projects trying to balance out with the activity you're seeing in aftermarket, can you maybe help us and talk through what the anticipated margin cadence in that business looks like in Q2 and into the back half of the year?

Yes, Matt. So from a margin perspective it's -- I'd say, each quarter is going to have a different story from an IP perspective and some of that's going to be based on the mix of projects. We had a very high project delivery mix in Q1 of this year, still outperformed last year. But in general, we expect IP margins to outperform their prior year in every quarter. Now this is before we add in the Rheinhütte Pumpen acquisition, which will have a little bit of an impact on margins, but the core business we expect it to outperform the prior year in every quarter. There's no real pattern that I could point you to, as how it's going to roll out. I would say that Q2 and Q4 are going to be on the higher end of the margin profile and Q3, having just based on the shipments that we're seeing, is somewhere in the middle. But I would say, overall, good continued project execution and productivity initiatives that we're driving across the portfolio are going to give us that strong triple-digit margin expansion for the year, with each quarter doing better than prior year.

Got it.

And Matt, I would say that, when you look at IP and the 170 basis points improvement that we have seen in IP and you look at the net productivity -- the net productivity. A couple of those elements mainly are coming from the supply chain and a big one is also from better project execution that we see across the board.

Thank you for that color. And then just back over to friction OEM. You typically give a regional sort of scorecard between how your business performed versus the market. And I think you gave a global view of 500 basis points plus but I was hoping to maybe get some regional granularity there. Thank you.

Sure. Of course. So when we look at China, we outgrew the China market. But this was less than what we expected starting the year and this is due mainly to some timing of some customers' orders between Q4 of last year and Q1 of this year. And we expect to go back to the new normal beating in Q2 and Q3 of 2019. So China, our outgrow was at the lower end of our expectations. When it comes to Europe, we outgrow the range that we said before in terms of exactly where we expect it to be and this could be even more positive as we move into Q2 and in the next few quarters. And when we come to North America we beat our expectation in terms of the range. So when you look at globally, it is exactly in the range of 500, but it didn't come in the same way that we expected; less in China, the same in Europe, more in North America. This is exactly the way that it worked out.

Got it. And then, with respect to -- I think you called out China, but maybe you're seeing some of this in Europe even, but we've heard from other companies that they're being negatively impacted by delays in platform launches, major model redesigns. I guess, to what extent are you seeing that impact your business? And do you think you'll be able to effectively recapture that in the year? Or is it -- I guess, help me understand the visibility you have on some of these new platforms particularly in China.

Sure. So that's a very sure point, Matt. So when we look at Europe, we have not seen a big movement in terms of SOP or a big implication for us so far. So move Europe out of the way in that consideration for the moment, for us at least right now. And when we look at China, we have seen a little bit of that in terms of some of the SOP shifting to the right and what this means is really usually a shift of three to six months. So the impact is not a medium- long-term, it's a short-term impact. This is usually what happens. And it's not so much -- of course we will recapture that, because we won those awards and we will start the production, but it might be just start by three or six months later. And we saw a little bit of that in China and this is really also why we are seeing China not too outgrowing the way that we were expecting at the beginning.

Got it. Thank you guys.

Thank you, Matt.

Thank you. Your next question is from Andrew Obin of Bank of America.

Yes. Good morning. Great quarter.

Good morning, Andrew. Thank you.

Just back to China auto. Can you comment -- because I was in China, I think back in March and I was just amazed by how bad March was and all of the sort of percolations through the supply chain of production shortfall. Can you just comment on what are you seeing in April in China production volumes? And if you're surprised, is it in line with your expectations? Is it worse? And then the follow-up question on China, what's your exposure in China? Could you remind us versus OEM JVs versus Chinese OEs, because our understanding is that market share is shifting towards Chinese OEs? Thank you.

Okay. Sure. So yes, when you look at China, I think that the consumer confidence is -- has really been affected by everything that's going around in the world by the trade war between China and U.S. And therefore, this has impacted the consumer confidence and you see translated in the market. Now I think that there was some economic indicator that came out just yesterday in terms of the China that was actually giving some positive sign about the China economy during the later -- the latest compared to Q1. But we think that the situation will improve in Q2 and in the next few quarters, also favored by easy comparison when you think about Q3 and Q4 of last year. Now when we look at us, we are very well spread across all the different OEMs Andrew and this is a strategy that we implemented at the beginning very -- at the beginning when we started to work in China. We started with Western OEMs and then we diversified going back to the concept of diversification and we went also to the Chinese OEMs. Today, I would say, probably we are 65-35 something like that Western OEMs and the Chinese OEMs. And I would say Western and also Japanese OEM versus the Chinese OEM. It's true that you see this trend moving and as the Chinese OEM are gaining more share, they're getting also more sophisticated with the custom with their requirements and this is going to really play in our field. It's going to be very good for us.

That sounds great. And just a follow-up question. On IP capacity looking at your bookings, looking I think one of your competitors had strong bookings this morning. What do you feel is the industry capacity? And how much flexibility is there to deliver on -- to sort of flex up on deliveries in 2019? And I'm specifically talking about process downstream all that good stuff and chemicals?

Yes. Personally, Andrew, I don't see any issue with that, so I think that the industry and the market will be able to deliver and provide the good service to our customers. I don't see capacity issues. Also in addition to that when I look at ITT specifically, because our productivity and all the initiatives that we put in place in all our plans that actually is going to be a nice tailwind for our numbers.

Congratulations on great execution. Thanks.

Thanks, Andrew.

Thank you. Your next question is from Nathan Jones of Stifel.

Hi. Good morning. This is Adam Farley on for Nathan.

Hey, Adam.

You guys have provided a lot of updates on the auto markets within MT, which is very helpful. But shifting to the rail business, you guys called out some market share gains. So my question is, if you can provide some color around what happened in the quarter, where you're taking share and then your expectations for the full year.

Thank you, Adam. I was waiting for somebody to ask the question already. So I really appreciate it. So KONI had a great, great performance. So I want just to congratulate David, Huron [ph] and Charles, because when I look at the order performance in rail it was 31% year-over-year. And this is mainly because of rail where the orders grew more than 50%. This is mainly coming from two regions: Europe and China. Both Europe and China were strong. So when you look at China mainly is high-speed train and -- but also coach, which are -- which is a profitable -- very profitable train for us. , :

That's really helpful. Thanks. And then on the Smart Pad kind of a high level it sounds like there are some incrementally positive developments there. Again on a high level maybe if you could just tell us when you expect that to move to direct vehicle integration? Or just for provide any color on Smart Pad that'd be great.

Sure. On the Smart Pad we keep on investing. So we are actually utilizing it as a developmental tool right now. Now we are -- keep on working to improve also the applications. Now because of the specific situation in the market in the automotive many of the OEMs have actually slowed down some of the investments and --because they shifted more on the electrification, for instance. So we saw some investment from OEM coming down so we see that this could be postponed a little bit further down. But we keep on investing and we have not slowed down on the R&D perspective.

And one thing to add there Adam you may have seen that we did receive some government incentives supporting our innovation efforts in Europe and that was a nice offset to the investments we've been making in Smart Pad which as Luca indicated are going to be a longer-term investment. But the right one pp the right technology but we'll go at the pace of the market and if we can gain incentives and support from the local European governments along the way we'll certainly do that.

Okay. Great. Thank you.

Thank you. Your next question is from Joe Ritchie of Goldman Sachs.

Hi. Good morning, everyone and nice quarter.

Thanks Joe.

Thank you Joe.

So my first question Tom, if I heard you correctly on Q2 organic growth it sounded like you were calling for low single-digit growth yet. The orders in IP were really good. It sounds like Motion Tech organic growth should be better in 2Q than 1Q. And obviously the Control Technologies business is still doing well. So I'm trying to understand like why should we see a de-sell. It only tough get -- comps get all that much harder in the second quarter. So I'm just wondering what I'm missing here for 2Q.

Joe, the biggest piece is probably just the timing of project shipments at IP compared to what we had queued up to go out in Q1. So we always kind of talk about the fact that within IP there's that project variable anywhere from $10 million to $20 million of revenue that moves based on the ultimate delivery dates with our customers. That's probably one of the bigger variables. You'll see the biggest change from Q2 growth rates compared to Q1 growth rates at IP and I would tie that almost exclusively to project deliveries. You know, as far as Motion Technologies we kind of indicated that it would be more in the flattish range from an organic perspective. And I think CCT is trending in line. There's a little bit of adjustment on the short cycle that we're just being mindful of I would say. We have pretty good visibility through Q2 but we certainly don't get too far ahead of ourselves in any of our short-cycle projection. So those are some of the elements from an organic perspective that we're looking at in Q2 versus Q1.

Okay. That make sense, Tom. I guess so in -- following up on that comment if you're projects they're going to be a little bit more back half-weighted. You obviously had some good growth here in the first quarter. Does that then naturally imply that your incremental margins in 2Q in IP are going to be better?

Going back to yet to the earlier comment on the trajectory and the progression of the margins I think that's a -- good inference to make and the opposite being true perhaps in Q3 where we have a higher project shipment as a percent of the total. So you'll see kind of margins benefit from that mix in Q2. The mix will be more project-heavy in Q3 and kind of reflect that. And then in Q4 we're all in and working both fronts aggressively. So that's why we do think Q3 and Q4 will be the stronger margin quarters of the year in 2019.

Got it. If I could ask one more just on Motion Tech and the Mexico facility. So obviously it sounds like you guys are off to a really great start there. I guess, I'm trying to understand the longer-term margin potential of that facility. And I know that currently you have some production for North America that is being manufactured in Europe. So maybe try to -- if you can provide maybe some color on how you see the margins trajecting in that business over time. And how much better the margins can be potentially in Mexico versus where you're producing today in Europe for North America? Thank you. A – Luca Savi: Okay. So when we look at Mexico, our expectation is that for Mexico to be the best-performing facility worldwide both in terms of quality service to our customers and profitability. So this will be a journey as I said of two to three years, but we will expect the profitability there to be the best in the world. Now, what was the second part of the question Joe? Just the... Q – Joe Ritchie: Yes Luca, just a piece that I know that you're producing right now in Europe for North America as well? A – Luca Savi: Yes. Yes. Yes. Those -- that kind of thing obviously will float -- will change a little bit Joe, but you may always have some pieces producing in Europe for North America or in China for North America because when you win a global platform, you make the investment unless it's really huge only in one plant. So if you win a platform that is going to produce for instance 400 million pads and 300 of -- three million pads of those are going to be for China and one million for North America. You just do the investment in China produce everything over there and then you ship them because you ship brake pads very easy to pack you're not shipping air. So obviously, these are going to reduce. They're going to reduce those examples, those situations, but you will always have a little bit of that. Does it make sense Joe? Q – Joe Ritchie: Yes. That makes sense. Thank you both for your answers. A – Luca Savi: Thanks Joe.

Your next question is from Brett Linzey of Vertical Research. Q – Brett Linzey: Hi, good morning all. Appreciate you squeezing me in. Just wanted to focus on price cost. Just wondering what gross price was in the quarter. And specific to IP projects, how does the pricing look in that particular business? And then within the guidance bridge, you talked about productivity and cost actions. We should see some relief on input costs here. And I mean is that included in that bucket some relief? And then just the follow-up to that is the RPG acquisition I see you included in revenue, it doesn't look like there's any accretion in the guide. Is that just contingency? Any color would be good. A – Tom Scalera: Sure Brett. So on price cost, I would say for us in total price was neutralized. You know we have the headwind for Motion Technologies every year and the actions we put in place at IP and CCT we're able to offset price at the overall ITT level. So we're -- our price cost dynamic, I would say is always different because of the MT dynamic that we deal with. Certainly, we generated more than adequate productivity, both in supply chain and in our facilities to offset the increase in commodity costs. So a lot of that kind of combined into a very strong margin expansion that was really driven I would say by net productivity that our actions and supply chain productivity more than offset material and labor cost escalation. And that was the real driver behind the margin expansion in the quarter. On the RPG front, I would say just maybe a little too early at this point Brett for us to think the purchase accounting and some of the transitional issues…

Okay, great. Appreciate the insight. I’ll leave it there.

Thanks, Brett.

Thank you. We do have time for one final question. That question will come from Joe Giordano with Cowen.

Good morning, everyone.

Hey, Joe.

Good morning, Joe.

So, Parker Hannifin acquired one of your competitors in rotorcraft, and I know that it's a smaller area for you guys. That's one we've been talking about as gaining a lot of share over the last couple of quarters. Just curious if that acquisition changes the landscape at all.

I think it's a validation Joe, of the value of the platforms that we participate in. We do compete in some of the same spaces, in particular rotorcraft, which is an area of -- where we generated a lot of growth lately, and we're going to continue to go after market share in the global rotorcraft space. So, our goal is to maintain the technology and the overall performance that we've been generating to capture more and more share. So, we'll look forward to competing against any and all players in the space, but for us I think, it's a validation that we do play in some very attractive spaces.

And Joe, if I can build on that, this is an area where we have seen that our organic investment is really paying off. So we have developed a great engineering team, a great R&D team, operations in Orchard Park with a very moderate investment. We've been able to penetrate the rotorcraft organically and the return on investment of that initiative is really awesome.

Okay. And then, if I can shift over to CCT. If some of the margin growth that you've had over the last bunch of quarters here, partially because of the comps you had and now that Nogales is kind of at a normalized level. I just -- I'm just curious -- I just want to understand the forward opportunities. I think when we were talking under the old segment structure where the move was conceived to kind of bring it to a 20-ish percent kind of margin opportunity. Just kind of curious on an update there.

Sure. So when you look at the profitability at CCT, it's a fantastic 200 basis points improvement, very, very good improvement. And these - I will say, you have the negative price and mix was compensated by volume. So, all of this -- all of the net productivity really dropped to the bottom line coming from a lean project, coming from supply chain, coming from restructuring. Now, when you look -- we have -- as we've described before, we have a war chest of opportunities in CCT. So, if I think about example I shared with you before, in terms of being sourcing of the plating, this is something that is going to be implemented towards the end of the year and that profitability will come in in 2020. In addition to that is loading factories and move some of the product lines to factories like Shenzhen or even more in Nogales. So we have room to go to achieve the target goal that we set ourselves for the long-term.

Okay, great. And if I can sneak in one last one. Just given the kind of volatility in China, you guys had spent a lot of money on Wuxi to ramp that facility up. Is there any opportunity now to kind of step back and take out? I know those -- the MT facilities run very lean anyway but, curious if there was any opportunities to kind of readdress some maybe some cost in a more volatile market here.

No, Joe. When I look at those lines, they are running fully in terms of five days a week in terms of three shifts. And where we're looking at the structural cost, this is what we have done in Europe. And this is also what is help us delivering this margin improvement, and will help us deliver margin improvements in the next few quarters.

Great. Thanks, guys.

Thanks, Joe. End of Q&A

So, let me close. So before we break today, I would like to thank you all for being in the call. In particular, I'd like to thank all of our customers that trust us to deliver their most critical and safety technical solutions. We will keep working faster and harder every day, and we'll keep the customer at the center of all we do for our customer to succeed. And I'd like to thank all of our ITT'ers around the world they deliver for our customers and they deliver these beautiful record results. Thank you.

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