ITT Inc. (NYSE:ITT) Q1 2024 Earnings Call Transcript

ITT Inc. (NYSE:ITT) Q1 2024 Earnings Call Transcript May 2, 2024

ITT Inc. misses on earnings expectations. Reported EPS is $1.34 EPS, expectations were $1.36. ITT Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to ITT’s 2024 First Quarter Conference Call. Today is Thursday, May 2, 2024. 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 opened for your questions following the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Mark Macaluso, Vice-President, Investor Relations and Global Communications. Please, you may begin.

Mark Macaluso: Thank you, Victor and good morning. Joining me this morning 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 months period ending March 30, 2024, which we announced this morning. Before we begin, please refer to Slide 2 of today’s presentation, 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 2023 Annual report on Form 10-K and other recent SEC filings. Except for otherwise noted, the first-quarter results we present this morning will be compared to the first-quarter of 2023 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.

Luca Savi: Thank you, Mark, and good morning. ITT had a very good and active start to the year. We grew revenue, margin and EPS above expectations, closed this Svanehoj acquisition, invested to sustain our differentiation and continued to gain share with new profitable awards. We also reached an important milestone on our multi-year safety journey. Because of our unrelenting focus on safety, we delivered a 40% year-over-year reduction in recordable incidents, leading to an injury frequency rate of 0.5, approaching best-in-class performance. Our plans are safer and more efficient every day. So for the results you delivered and for your focus on safety, I want to thank all IT tiers, a heartfelt thank you. Now on to the results.

In Q1, we built on 2023 momentum in orders, revenue, margin and EPS. And all of our businesses contributed to this performance. Here are the highlights 7% organic orders growth or 13% in total, nearly $1 billion in order leading to a book-to-bill of 1.07, 9% organic revenue growth or 14% total, surpassing $900 million of sales in the quarter for the very first time. 120 basis-points of adjusted operating margin expansion to 17% with all businesses making significant progress on our long-term targets. And although we no longer report total segment margin, on that basis, we will be just 100 basis-points shy of our 2026 long-term target. As a result of all of this, we drove over 20% adjusted EPS growth to another new level of earnings for ITT.

Now the details. On orders, CCT led the way with 23% growth fueled by record aerospace orders and recovery in-demand in connectors. The connectors performance was encouraging after the business managed through a year of distributor destocking. MT grew 11% with strong growth in rail. Friction also won 47 new hybrid and electric vehicle awards with Tesla, Xiaomi, Geely and Mercedes, among others. And IP’s short-cycle business grew 9% sequentially, whilst winning nearly $70 million of project awards, leading to a book-to-bill of 1.06. On revenue, all three segments delivered strong revenue growth, driven by 8 percentage points of volume. This was led by Industrial Process, which drove 64% growth in profitable pump projects. MT delivered 8% growth led by strong friction OE outperformance and double-digit growth in rail whilst we continue to see a recovery in the friction aftermarket.

Finally, CCT grew 7% with 13% growth in aerospace and defense. We have seen a multi-quarter ramp-in defense that we expect will continue throughout 2024 and beyond. We are driving profitable growth, resulting in a 23% increase in operating income, nearly 2.5 times our organic revenue growth rate. Looking at margin by segment, MT surpassed 18% margin in Q1 after improving sequentially every quarter in 2023, highlighted by KONI, which drove margin above the empty segment average, well done [indiscernible] KONI China. CCT also delivered more than 18% margin, driven in-part by pricing. Our new CCT President, Michael Guhde is already hard at-work leveraging his operational experience from Parker-Hannifin and ITW to drive CCT towards its 22% margin target.

Finally, on a like-for-like basis, IP’s margin was up 140 basis-points even as the mix of revenues shift to projects. And including acquisitions, IP was still above 20%. Because of this performance, we are raising the low-end of our EPS guidance by $0.20 or $0.10 at the midpoint to a new range of $5.65 to $5.90. We now expect EPS growth of 11% at the midpoint above our long-term target. And given the strong top-line performance and momentum in orders, we are raising our organic growth guidance to 6% at the midpoint with a 20 basis-points increase in our margin outlook as well. Our teams deliver this performance whilst investing in the businesses. These investments will continue to drive strong returns for our shareholders and I was fortunate to see some of this firsthand last quarter.

In India and Saudi, I saw the investments that IP is making to expand testing capacity and capabilities. Khalid and the Saudi team will be able to test larger pump packages, sustaining our ability to gain share in the Middle-East. Similarly, in India, Lala and team are installing nearly four times their current power capacity to shorten lead times to customers and improve testing availability. As we expand our in-region for region strategy, IP expects to continue to gain share in these growing markets. We are also investing in our capabilities to execute decarbonization projects. At our Bornemann site in Germany, we are upgrading our testing facility to replicate field conditions on large sum packages. ITT would be one of few companies in the world with this capability.

We’re also making progress penetrating the high-performance break pad segment. We expect the new production lines in Termoli Italy to be up and running later this year as part of our EUR50 million investment for plant expansion and upgraded R&D capabilities. Notably, the Friction team has already won low-emission brake platform awards on high-performance vehicles even before the facility construction is complete. In addition, the team secured approval for over $20 million of government incentives in Europe, which will significantly reduce our cash outlay for the facility expansion. And again, in Friction in China, working closely with local OEMs, we drop 38% growth in Friction OE, a substantial outperformance in the largest automotive market in the world.

Well done Friction team. And finally, on innovation, the Embedded Motor Drive or EMD is delivering continued positive results in customer field trials. On average, EMD delivers energy savings of over 50% compared to standard motor and significant CO2 emissions reduction. We expect to start product commercialization in 2025, and we’ll share more with you on EMD in the coming quarters. All of these investments will sustain ITT’s differentiation over the long-term through profitable growth. A significant proportion of that growth will come from the nearly $1 billion of orders we booked this quarter. Let me tell you more about these on Slide 4. Building on our 2023 momentum, we grew orders 13% in total and 16% sequentially with strong performances in all businesses.

We are focused on growing and growing profitably. This means we look at each opportunity with the strategic lens and an opportunity level of selectivity. Here are a few examples. By leveraging our proprietary envision Valve technology, IP Engineered Valves won an award of more than $20 million to support the production of a groundbreaking weight-loss drug. This strategic award reinforces our partnership with these leading global pharmaceutical company. We’re also winning on green orders, not just in AP with large decarbonization projects, but also in friction with awards with hybrid and electric vehicles and in CCT with battery connectors. With this and other awards, green applications now represent approximately 16% of ITT’s revenue annually.

Moving forward, this will be bolstered by Svanehoj with its exposure to low-carbon and green fuel applications as part of the clean-energy transition. This quarter, [indiscernible] grew orders by more than 30% year-over-year, and we expect this will have delivered double-digit revenue growth for the next several years. Moving to CCT, we are seeing good orders momentum in Connectors distribution, especially in North-America. Whilst this is encouraging, we don’t expect full recovery in connectors until the second-half of the year. Additionally, Aerospace and defense components recorded its highest orders quarter ever. And finally, in Rail, orders were up 37%. As you can see, ITT’s growth is accelerating with organic orders growth of 7% and with a strong performance from Svanehoj, we grew orders 13% in total.

Our Q1 performance demonstrated once again that ITT is well-positioned to grow profitably. Now let me turn the call over to Emmanuel on Slide 5.

Emmanuel Caprais: Thank you, Luca, and good morning. Beginning with revenue, we generated 9% organic sales growth with all segments contributing. Volume drove most of the growth this quarter. IP projects were up 64%. CCT Aerospace and defense components were up 21% and Friction OE was up 12% with an outperformance well-above the historical 800 basis-point average. Svanehoj added 5 points to the total revenue growth and also want to reemphasize that its orders were up over 30% compared to the prior year. On profitability, margin expansion was primarily driven by MT, which grew more than 300 basis-points to surpass 18% faster than we anticipated. Excluding M&A, IP’s margin was up 140 basis-points. This was driven in-part by over 200 basis-points of margin expansion on projects as we continue to improve execution.

Collectively, our businesses drove 60 basis-points of productivity, which more than offset 40 basis-points of strategic investments related to new friction product formulations and product redesigns in IP and CCT. On earnings, adjusted EPS growth of 21% was driven by volume, price and productivity. In addition, we absorbed higher interest expense and a slightly higher effective tax-rate. Finally, on cash, after generating $430 million for all of 2023, this quarter, we grew our free-cash flow by 2% versus prior year, driven by increased profit. We continue to see significant opportunities for stronger cash generation as inventory and AR improve. All-in, a strong start to 2024 that gives us confidence in delivering the midpoint of our new EPS outlook.

Let’s move to Slide 6 to review the EPS bridge for Q1. Adjusted EPS grew 21% for the quarter to a record $1.42. Strong volume growth and higher price drove $0.23 of operating leverage, while net productivity contributed another $0.05. And the investments Luca described earlier had an impact of $0.03 this quarter. Included in the net M&A bar is roughly $7 million of intangible amortization coming from both Svanehoj and Micro-Mode of the $7 million, approximately $4 million is related to amortization of backlog that will be recognized over the next 12 months to 18 months and then tail-off. Once we finalize the purchase price allocation for Svanehoj, we will provide more color. Wrapping up the bridge, interest on the term-loan and commercial paper drove a $0.03 headwind this quarter.

As cash generation picks up, we anticipate paying down our outstanding debt further. Let’s turn to Slide 7 to discuss our 2024 guidance. Today, we are raising our guidance for organic revenue, operating margin and EPS given our strong first-quarter performance. To begin, we are increasing the midpoint of our organic revenue guide to approximately 6% due to friction outperformance, improvement in connector orders and the backlog we accumulated at the end of Q1, which is up 11% organically year-over-year. On operating margin, we expect 17.4% at the midpoint. Both MT and CCT eclipsed 18% this quarter and IP is driving higher-margin in the core business, mitigating M&A dilution. The higher revenue growth and operating margin is expected to drive adjusted EPS growth of 11% at the midpoint, $0.10 improvement from the previous guidance.

Before I move on, I also wanted to provide some color on what we expect in the second-quarter. Organic revenue should grow in the mid-single digits, led by CCT and MP, while IP will navigate a tough prior year compare on revenue and orders growth. We expect total margin expansion of 50 basis-points to 80 basis-points, which will drive EPS growth in the high single-digit range compared to the prior year. Let’s turn to Slide 8 to discuss capital allocation. Let me start by saying that we will always invest organically given the proven returns and organic growth we can generate. And now we’re intensifying our focus on M&A. We expect this will be a significant value-creation driver for ITT, and so we thought it would be beneficial to shed more light on our capital deployment framework.

In M&A, our primary targets are close to core acquisitions in flow and connectors. We focus on companies with leading market positions that manufacture highly-engineered components and have strong management teams. These targets may also present margin expansion potential, but the deal rationale always starts with a strategic fit. We have significant dry powder and we intend to effectively deploy capital in order to strengthen further our existing businesses. Along with acquisitions, we also regularly review our portfolio to ensure the businesses that we own align to our longer-term strategy. After M&A, we focus on returning capital to shareholders through dividends and share repurchases. If we don’t find the right targets for M&A, we intend to ramp-up the pace of share buybacks, allowing shareholders to benefit from ITT’s strong financial position and our $1 billion share repurchase program.

With that, let me turn the call-back to Luca.

Luca Savi: Thank you, Emmanuel. Before I wrap-up, I want to reemphasize a few points Emmanuel made on M&A. Historically, we created value through growing organically and expanding our margins. And whilst this will continue, now we also expect to drive further value inorganically as we continue to build the M&A muscle. In the past few years, we added experienced deal makers to our leadership team and strengthen our M&A teams in the business. As a result, we have stronger capabilities and our success in this area is growing as evidenced by the three acquisitions in the last two years. Among these, with Habonim which expanded our valves business by more than 50%, generated more than 100% cash conversion in 2023 and exceeded our expectations in all metrics, adding $0.08 of EPS in year-one.

And while it’s too early for Svanehoj the initial signs are encouraging. We continue investing in our capabilities and expect to accelerate the pace of M&A in a disciplined manner. And as Emmanuel said, it all starts with a strategic fit. Now let me wrap-up with a few points before Q&A. Q1 was another milestone quarter for ITT. And as a result, we raised our sales, margin and EPS guidance. Our businesses are outperforming their end-markets, be it energy, transportation or air and defense, generating nearly $1 billion of orders and a book-to-bill above one, leading to a record $1.5 billion backlog. We have many opportunities still to create value organically and with our strong financial position, we are working to compound this growth with enhanced M&A performance.

As always, it has been a pleasure speaking with you today. Thank you for joining. Victor, please open the line for Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question will come from the line of Joe Giordano from TD Cowen. Your line is open.

Joe Giordano: Hey, good morning, guys.

Luca Savi: Hi, Joe.

Joe Giordano: Hey, so on MT, I mean the margins there were really good. I’m guessing like higher than maybe you thought in the 1Q, I see in the slides, you’re talking about full-year kind of being roughly similar than you did in 1Q. Can you kind of just frame that with you got new platforms ramping and you have where are you with price, like how much of that full-year guide, it feels kind of conservative in light of what you put up in the 1Q? So maybe just walk us through the puts and takes there.

Luca Savi: Sure. Thank you, Joe. So first of all, we are very happy with the performance that MT put in Q1, more than 80%. Now I think that we are working on consolidating this for the full-year, Joe. Now when it comes to the dynamic of the price-cost, as you can see, the price-cost in terms for the full-year will be roughly neutral when it comes to Motion Technologies and will be roughly neutral for ITT as well. Of course, there are a lot of programs that we want and therefore, there is a lot of SOP and a lot of process validation that are happening in the line. And while this will help in the future, sometimes is also impacting the efficiency in the line.

Joe Giordano: Perfect. And can you maybe on CCT, on connectors specifically, just the what’s going on here with you guys on the order side, it just seems very different than what we’re seeing at others. I mean, it goes in my end-market by end-market, but generally, one of the only markets we see doing well right now are aerospace and connectors and like IT with data center. So where are you seeing this kind of strength and how kind of company-specific is this to ITT?

Luca Savi: Sure. Thanks, Joe. When it comes to the orders of CCT, they were at the record-high and specifically on the connectors at roughly $122 million total, they were a record-high as well. The growth there were aero for sure was up, defense was up, but also industrial orders were up. The only orders where we saw some declines were actually in the EV connectors. Now if you want to look at also in another dimension of the connectors between the OEMs and distribution, we had good growth both on the OEM side and on the distribution side. This was probably the highest order on record for connectors that we had having said that, it’s just one quarter.

Joe Giordano: Great to see. Thanks guys.

Luca Savi: Thanks, Joe.

Operator: And our next question will come from the line of Jeff Hammond from KeyBanc Capital. Your line is open.

Jeff Hammond: Hey, good morning, guys.

Luca Savi: Good morning, Jeff.

Jeff Hammond: So yes, I want to stay with the orders, so clearly impressive orders in MT. I’m just wondering a little more color in terms of what’s inflecting there and how much is just the aftermarket kind of through the destocking growth? And then just on CCT, any lumpiness in any of that orders, particularly on the aero side? I know that can change quarter-to-quarter?

Luca Savi: I would say, when you look at the orders picture, Jeff, Q1 orders are definitely one of the highlights of the quarter. For total ITT, a record almost $1 billion. And when you look at each value center is a good picture in each and every one and in the business in there. In Motion Technologies, don’t forget about rail. Rail is a good market right now and then the business is outperforming tremendously, both in Europe and in China. The Friction awards, I mean those 47 awards also in EV and a hybrid, we are already in terms of the awards at more than 40% of the total full-year target and we don’t tend to give easy target, Jeff. On CCT, the highest orders on record when it comes to distribution connectors, the highest on the components obviously push from the defense.

When you’re talking about aero and for sure there are news out there in terms of some of the production coming down. We are keeping an eye on the production rate of some of our customers. So-far talking to our customers, things have not changed, but we’re keeping an eye. And last on IP, the short-cycle performed very well as well with 1% growth year-over-year and 9% growth sequentially. So overall, a very good picture on orders.

Jeff Hammond: Okay, great. And then I appreciate the slide on capital allocation. I’m just wondering, as we look a year or two out, what do you think the kind of optimal balance sheet leverage is? And do you think you have a pipeline that can support getting there over a couple of year period?

Emmanuel Caprais: Yes, Jeff. So definitely, we’re very happy with the health of our balance sheet. We have almost no debt where we have worked really hard to make it the way it is today. When you think about the prospects from an M&A standpoint, clearly, as I discussed, we created a lot of value organically, both from a top-line and a margin standpoint. Thanks to those organic investments. In fact, if you look at our margin expansion, it was 350 basis-points since 2019. And obviously, we will continue with that. But as I said, we’re accelerating on M&A. Luca mentioned that we’ve been building the muscle on M&A. We have built a talented and experienced team. We have a clear and effective strategy. And so as a result, we’ve been able to really build a rich and actionable pipeline of targets.

We have today a pipeline of like serious targets of more than $10 million. The average revenue size of each company is around $200 million, $215 million. And I think our goal internally, obviously, doing it in a disciplined manner, as Luca mentioned, is to try to deploy roughly $500 million to $700 million on average each year to get to really to get to grow ITT inorganically. Our targets are still flow and connectors that hasn’t changed and so yeah, so we’re patiently building our execution on M&A.

Jeff Hammond: Okay, perfect. Thanks, guys.

Emmanuel Caprais: Thanks, Jeff.

Operator: Thank you. Our next question comes from the line of Michael Halloran from Baird. Your line is open.

Michael Halloran: Hey, good morning, everyone

Emmanuel Caprais: Good morning, Michael.

Michael Halloran: So a couple here. Following-up on the order side, MT specifically, maybe just talk about the auto piece and how you’re thinking about production on a full-year basis and just inventory levels in the channel?

Luca Savi: Sure. Thanks, Mike. So when you look at the quarter, the quarter worldwide was declining roughly 0.8% and it was a little bit different what expected. In terms of Europe was much weaker. Europe was down 2.5%, whereas China was surprisingly up more than 4% and I’m talking about car production here, of course. And North-America was up low-single digits. So when we look at the full-year, Mike, we are expecting Europe to be down low-single digit. We expect China actually the projection on China is better than at the beginning of the year. We expect it to be up low-single digit, whereas North-America up low-single digit as well. Overall, the production for 2024, we expect roughly around 90 million vehicles. On all of these, as you know, we outperformed and the outperformance was amazing in Q1, granted is a quarter.

And I want to mention two data points. One is China that despite the market growing 4.4%, I mean, our business grew 38%, an outstanding performance there. And Europe in even if the market — even though the market declined, the business not only outperformed, but was able to grow year-over-year. So an exceptional performance from the friction team.

Michael Halloran: Appreciate that. And then on the IP side of things, maybe just talk about underlying dynamics there, specifically two areas. One, what you’re seeing on the short-cycle chemical side of the business, general industrial side of the business, any trend changes either way there as well as how Svanehoj is doing as far as the organic business goes and the kind of the momentum you’re seeing there?

Luca Savi: Sure. Let me talk about the short-cycle, maybe the markets, I’ll leave it for Emmanuel. When you look at the short-cycle orders, as I said, they were up 1% year-over-year and that was mainly thanks to valves and service. When you look at sequentially, they were up 9% and that 9% is mainly only volume. And all the components of the short-cycle in the quarter were up sequentially, baseline parts, service and bars and all of that is really volume. If you look at that short-cycle orders, it’s probably the second-highest ever when we look at the million of dollars that we recorded per week. Now when it comes to-market, I would say that I don’t know if you want to say, yeah, I would say that we see some weakness probably on the chemical side, but the general industrial was strong. Now and on the geographical basis, I would say, the strength is mainly in North-America.

Emmanuel Caprais: And I would just add even when we look at our funnel, a lot of activity coming from the Middle-East, a really strong oil and gas chemical mining prospects for orders. So very, very healthy market for the moment for IP. And you see it in the book-to-bill, our book-to-bill was 106. I think, Mike, you had also a question on Svanehoj. And so just to give you a little bit of update on this. So we closed Q1 in-line with expectations, both on-sales and income. And as Luca mentioned, on-top of that, we had really strong orders. They registered 30% growth on orders. And so when you think about the strategic fit that continues to they continue to ring true and they are market-leader. They’re a very, very active player in energy transition.

And we continue to see that they built they continue to build long-term backlog. So we’re booking orders well into 2025 now. The integration also is progressing really well. And so all this is reinforcing our strategic rationale. And then finally, I would say, they already started generating cash, which is always.

Michael Halloran: Great. Really appreciate everyone. Thank you.

Emmanuel Caprais: Thanks, Mike.

Operator: Thank you. And our next question will come from the line of Scott Davis from Melius Research. Your line is open

Emmanuel Caprais: Good morning, Scott.

Scott Davis: Hey, good morning, guys. Congrats on the start to the year. It’s been fun to watch you guys kick some tail the last few years. So anyways, but you’ve been very generous on the M&A commentary, but I’m just kind of curious, we’ve been talking about flow-in particular consolidating for two decades now and there hasn’t been a lot of consolidation what has been the main barrier to perhaps maybe some of the transactions not occurring already? Is it more just a function of timing? Is it price? Is it that a lot of these things are niche assets and there just hasn’t been much of an appetite? I’m just kind of curious more big-picture than anything else, Luca, in your years of working in this, why we haven’t seen more consolidation already?

Luca Savi: Yes, sure. I think that it’s a good question. I’m not so sure I do have the question that they answer, Scott. It indeed a very fragmented market. There are plenty of opportunities. I think probably sometimes is people tend to play in the courtyard that they know and therefore they haven’t made the proper acquisition, but there is also a lot of things to do in cleaning your house, in putting your house in order first. So I think that when I look at many companies in flow, probably the performance is not up to where it’s supposed to be before starting M&A. If you’re asking me, for example, Scott, five years ago, it would have been very difficult to be bullish on acquisition in IP. It’s a different story now.

Scott Davis: Okay. That’s helpful. And guys, just a cleanup item, are rail margins higher than in auto? Are they pretty similar?

Emmanuel Caprais: So when you look at KONI business, rail margin are clearly on parallel higher than our friction business. And then when you look at Axtone, Axtone is in the low-teens. And the reason for this is because we’re still driving pricing to offset the cost inflation and the cost inflation has been really taking longer-than-expected because we had such a long backlog. So we have good line-of-sight to bring Axtone to the mid to-high teens this year. But I would say, rail margins, especially in KONI are trending really well.

Scott Davis: Yes, okay. Best of luck this year, guys. Thank you.

Emmanuel Caprais: Thank you, Scott.

Operator: Thank you. And our next question will come from the line of Joe Ritchie from Goldman Sachs. Your line is open.

Luca Savi: Good morning, Joe.

Joe Ritchie: Thanks. Hey, good morning, guys. Great start to be here just maybe focusing the first question on IP. So the projects business up 64%, but you still saw margins north of 20%. That’s pretty incredible just given historically what the mix has been on that business or what the margins have been on that business. Can you just kind of mark-to-market the margins that you’re seeing on the project business? And then if there’s an update that you can give us on the foundry closure that occurred last year and whether you’re starting to reap those benefits as well?

Luca Savi: Sure. Well, about it, Joe. I think that despite the big headwinds of mix, the margin improved more than 140 basis-points on an organic basis on a like-for-like. And the reason is really the result of the selectivity that we had in other acquisition and the good project execution and the rigor that we have. Just and we expect this to continue, Joe. I think that we are not done here. So just to give you an example, the backlog that today we have in our project business is a very healthy margin and on a year-over-year basis is up 300 basis-points. So this will continue the improvement of margin in IP on an organic basis. And that is for the project and that we got continued both in acquisition as well as in execution.

Now when he thinks about the foundry, the foundry we were is closed. So we have been able to close it successfully. We now we have been able to reduce our headcount in force because of the close-in the foundry, improve our safety performance and also improve the quality of the castings that today we are getting either from local region or also from North-America and Mexico. So it has gone well and completed

Joe Ritchie: That’s super helpful and great to hear. And then I guess maybe just continuing on the margin front. I know there was a question earlier on Motion Tech and obviously the strong incremental margins this quarter. Just help us help us kind of understand maybe the trajectory of the margins from here, do we move higher off of the 18.2% number? And what does that look like for the rest of the year?

Emmanuel Caprais: Yes. Thanks, Joe. So you’re right, incrementals were super strong in Motion Technologies over 60% in the first-quarter. We expect a similar number during for the rest of the year as well. So we’re very excited with the performance. There was a lot of work that was done from a pricing standpoint from a managing the commodity cost as well and trying to book in advance the steel prices, for instance and taking advantage of the reduction that we’ve been seeing towards the end of last year and at the beginning of this year. If you think about from a margin standpoint, I think we can confidently say that we expect Motion Tech to improve sequentially its margin quarter-after-quarter, but I would say, remain still within that 18% range, right, for the full-year.

So as Lucas said, we’re going to work on sustaining that higher-level of margin. This is a business that not very long ago was lower than much lower than this. And what we want to do is to make sure that we’re able to deliver on a consistent basis, a higher-level of profitability.

Joe Ritchie: Great guys. Thank you.

Emmanuel Caprais: Thanks, Joe.

Operator: Thank you. Our next question will come from the line of Damian Karas from UBS. Your line is open.

Damian Karas: Hey, good morning, guys.

Luca Savi: Hi, Damian

Damian Karas: Apologies. I’m joining the call a little bit late here, so sorry if I’m rehashing anything you’ve already discussed. But I thought maybe you could just give us a little bit of a walk across the globe for your auto business and any updates on kind of how you’re feeling about the OE side in each region as well as European aftermarket?

Luca Savi: Maybe I’ll start with the European aftermarket, Emmanuel. So when you look at-the-market that Damian, the market was down in Q1, I’m talking about production roughly 0.8%. We expect the market to be flat for the full-year overall at 90 million vehicle produced was a little bit of different picture from the beginning, what we expect at the beginning. In terms of Europe was worse, was down 2.5% in Q1, and we are expecting Europe to be down low-single digit in for the full-year. China, which was expected to be flat, was actually up 4.4%, which tells you something about the resilience of the market and we expect to be up for the full-year low-single digit. So this is a great news. And then North-America was up low-single digit and it will be up low-single digits also for the full-year.

In each and every one of these regions, we outperform quite well. Europe, despite the decline of the market, we actually grew. And China, we grew 38%. So an incredible outperformance. We won an incredible number of awards already in Q1. When it comes to the aftermarket, Emmanuel?