Welcome to ITT's 2021 First Quarter Conference Call. Today is Friday, May 7, 2021. Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Time. It is now my pleasure to turn the floor over to Mark Macaluso, Vice President of Investor Relations. You may begin.

Thank you, Stephanie, and good morning. It's my pleasure to welcome you to ITT's First Quarter 2021 Earnings Conference Call. Joining me here this morning are Luca Savi, ITT's Chief Executive Officer and President; and Emmanuel Caprais, Chief Financial Officer. Today's press release, presentation and reconciliations of non-GAAP financial measures to the most comparable GAAP measure can be found on our website at itt.com/investors. This call contains forward-looking statements that are subject to certain risks and uncertainties, including, but not limited to impacts from the COVID-19 pandemic. All such statements should be evaluated together with the safe harbor disclosures and the risks and other uncertainties that affect our business, including those discussed in our Form 10-K and other SEC filings. Actual results may vary materially from the assumptions presented today. Except where otherwise noted, the information we present this morning will be based on adjusted non-GAAP figures. These results exclude certain nonoperating and nonrecurring items, including, but not limited to, asbestos-related charges, restructuring, asset impairment, acquisition-related items and certain tax items. All adjustments in the quarter and expected for the full year 2021 are detailed in the reconciliations in the appendix. Before we begin, I'd like to provide a brief overview of our first quarter GAAP results compared to prior year. Q1 revenue increased 5.3% to $698 million. Segment operating income increased 52.5% to $119 million, and reported earnings per share increased 4.2% to $0.99. With that, let me turn the call over to Luca, who will begin on Slide #3.

Thank you, Mark, and good morning. I continue to be extremely proud of the way our teams have responded to the crisis. Your hard work is the reason why ITT has been able to effectively serve our customers throughout the pandemic. Earlier this week, I spoke to our colleagues in India. As you know, India is dealing with a surge in COVID cases across the country, and I want to thank our ITTers in Vadodara for continuing to take care of each other, our customers, and our business in this difficult time. Before we discuss our quarterly results, let's spend a minute recapping how we got where we are today. This is important as it sets the foundation on which Q1 results are based. The health of our people has been our top priority from day one. Early in the pandemic, we implemented Ready, Safe, Go across ITT. This allowed us to safely and effectively serve and support our customers faster than our competitors. We further strengthened our balance sheet through smart cash management. Today, we have nearly $1.5 billion of liquidity at our disposal. Moody's recognized our cash performance with an upgrade to our credit rating in the third quarter. Early on, we executed a plan to significantly lower our fixed costs. This resulted in structural reductions in 2020 of nearly $65 million. Our productivity and cost actions helped to offset the impact of materially lower volumes in 2020. Today, we continue to drive footprint optimization and sourcing excellence at both Industrial Process and Connect and Control Technologies, while remaining diligent on cost controls. This has resulted in a step-up in profitability above 2019 levels. All the actions taken over the past year, combined with ITTers' collective commitment and grit, have positioned us well to win in the recovery. We will continue to invest in innovation and growth, including important green projects to become a more sustainable ITT. We are aggressively and diligently pursuing acquisitions in our core markets to put our cash to work effectively and build on our strong businesses. I am invigorated by the progress across our businesses and the momentum, which is accelerating. Now moving to Q1. We delivered a strong quarter and an encouraging start to 2021. Let's get into it. ITT's first quarter sales were higher than 2019. Organic sales in Motion Technologies were up 17% after 10% organic sales growth in the fourth quarter of 2020. The new auto platforms that we won and Friction's ability to deliver for our customers drove 1,500 basis points of outperformance versus global auto production. And we secured positions on 9 new platforms with EV content during the quarter, 8 of which are in China, the largest automotive market in the world. This is building on the 42 EV platforms wins in 2020. Connectors grew sales in all regions, and orders were up 20% organically with strength primarily in the distribution channel. This is encouraging for Connect and Control Technologies heading into Q2. From a profitability perspective, ITT generated adjusted segment operating income growth of 27% and margin expansion of 300 basis points on 2% organic sales growth. Incremental margin was above 70% for the quarter. IP's margin was nearly 16%, driven by net productivity as we continue to drive supply chain improvements and better manufacturing performance. This follows a 15%-plus margin performance in Q4 of 2020. As a result of the revenue growth and margin expansion, ITT delivered adjusted earnings per share of $1.06, a sequential and year-over-year increase. Even more telling is the fact that EPS was $0.15 above the first quarter of 2019. Free cash flow was up 70%, representing a margin of nearly 16%. On capital deployment, we repurchased ITT shares totaling $50 million early in Q1, executing on our repurchase plan and achieving half of our full-year plan of $100 million. As a result of our strong Q1 performance and our confidence in ITT's ability to outperform, we are raising our outlook for 2021 across all facets of our guidance. On organic sales, we now anticipate growth of 5% to 7%, a 300 basis point increase on both the low and high end of our original guidance. This is driven by continued share gains in Motion Technologies amidst the broader auto market recovery, stronger growth in Connectors, and demand in the Industrial Process short cycle. On adjusted earnings per share, the increased sales volume and the strong productivity expected in 2021, combined with the carryover impact of our 2020 cost actions, will generate EPS in the range of $3.80 to $4 at the high end, which equates to 19% to 25% growth versus prior year. This is a $0.30 improvement at the midpoint from our prior guidance and puts ITT on pace to surpass 2019 EPS. Let's turn to Slide 4 to talk further about the first-quarter results. From a top-line perspective, Motion Technologies delivered a solid performance driven by strong auto growth and continued share gains in our three main regions. Our Friction OE business grew nearly 30% organically with impressive 42% growth in North America. We drove high single-digit organic growth in Connectors, mainly through distribution. Together with Ryan Flynn, our CCT President, in April, I visited our U.S. distributors and sales representatives in the Northeast and on the West Coast to work on our ongoing initiatives. We saw clearly that we have many opportunities to grow this business from a product and customer service standpoint. And while some of the Q1 growth may have been due to pent-up demand, especially in North America, our dedicated teams continue to work on the optimal commercial actions to gain market share. Our focus on operational excellence produced 280 basis points of net productivity in Q1. These included $50 million of savings from our 2020 cost actions. Industrial Process grew margin 450 basis points to 15.8% despite a 12% organic sales decline. And Motion Technologies expanded margin nearly 300 basis points to 20.6%. This included triple-digit margin expansion at both KONI and Wolverine. This quarter, I was fortunate to visit our world-class Friction plant in Barge, Italy. I saw firsthand the continuous improvement in plant productivity. Our team there has improved its processes to increase machine utilization and to respond more quickly to ever-changing order patterns from customers impacted by supply chain challenges. The strong MT and IP performances offset Connect and Control Technologies' margin decline driven by the pandemic's impact on aerospace. Rising raw material costs partially offset the strong productivity. The impact was 100 basis points this quarter, substantially higher than what we were expecting. We believe this trend will continue to affect our results for the remainder of 2021. Emmanuel will speak further about this in a moment. We continue to reinvest in our businesses to drive future organic growth. We are funding the most promising growth initiatives in key markets, including EVs, to ensure we keep winning in the marketplace. When I was in Barge, I also saw the expansion of our state-of-the-art Friction R&D center, including the testing and fast prototyping capabilities, which will be powered by solar panels later this year. This smart growth investment drove roughly 50 basis point impact this quarter. Rounding out the story of the quarter with free cash flow, we saw a substantial improvement in Q1. This was mainly driven by higher operating income generation in the segment and slightly lower CapEx. Our plan for the year still assumes approximately $100 million of CapEx, an increase of over 50% relative to 2020. In summary, ITTers around the world delivered a strong performance. We drove positive organic growth at an incremental margin of over 70%. We generated nearly 300 basis points of productivity and invested in ITT's future. We repurchased ITT shares worth $50 million and raised our dividend 30%, the ninth consecutive dividend increase. And we surpassed 2019 first quarter results in revenue, segment margin, EPS, and free cash flow. Let me now turn the call over to Emmanuel on Slide 5 to discuss the segment performance in more detail.

Thank you, Luca. Let me begin with Motion Technologies. Q1 organic revenue growth of 17% was primarily driven by strength in auto. Our strong momentum from last year carried forward as Q1 grew 5% sequentially over Q4 2020. Friction OE grew 29% organically, and we outperformed global auto production by 1,500 basis points. Segment margin expanded 280 basis points versus prior year and 110 basis points versus Q4 2020. This was mainly due to higher volumes and productivity benefits, partially offset by higher commodity costs. We are very pleased with the performance at KONI and Wolverine. Both delivered triple-digit margin expansion from operational efficiencies and higher volumes, and we continue to see more room to grow these margins. For Industrial Process, revenue was down 12% organically, driven by short-cycle declines, primarily in oil and gas and chemical markets. However, we continue to see steady sequential progress in short-cycle orders with 9% sequential growth from Q4 and a strong book-to-bill of 1.1. We continue to see healthy customer quoting activity, especially in the Middle East and North America. In fact, we have seen sequential strength versus the lower Q4 bookings. However, this quarter, we saw sales and order declines as large project spend continues to be slow. IP margin expanded 450 basis points to a segment record of 15.8%. This represents $6 million of operating income growth on $25 million of lower sales. Margin expansion was driven mainly by productivity benefits, including our global sourcing performance, significant cost actions taken in 2020 and favorable nonrecurring items, which collectively more than offset the decline in volume. As an example of our progress in IP, when we visited our Seneca Falls site last month, we were really pleased to see the strategies deployed by the manufacturing and engineering teams to reduce machining bottlenecks and accelerate output. We continue to drive further footprint optimization. And this quarter, we announced a third consolidation project in IP. Lastly, in Connect and Control Technologies, we generated sustained orders progress. Our Connector business was up 20% versus prior year and up 3% sequentially, driven by continued North American distribution strength. As expected, sales in aerospace continued to be weak on lower OE production and commercial passenger traffic. We expect that aero demand will remain low in Q2 but will begin to pick up in the second half of 2021. CCT margin decline was the result of lower volumes, partially offset by the benefits of our aggressive cost structure reset in 2020. As Luca mentioned, we are seeing early signs of performance improvement in CCT as we deploy MT's operational excellence playbook from shop floor productivity and improved on-time delivery to customer intimacy. And we delivered a much improved 29% decremental margin in Q1. As a reminder, for both our CCT and IP businesses, the impact of the COVID-19 pandemic was minimal until early Q2 2020. We expect favorable comparisons to peak in Q2. Just a few additional comments on EPS for the quarter. In addition to lower corporate costs, we also saw a benefit from both the CARES Act and foreign currency. Partially offsetting the share count benefit was a roughly $0.01 headwind from a higher-than-planned effective tax rate of 22%. You will find an EPS walk explaining our Q1 performance compared to 2020 in the back of our presentation. Let's turn to Slide 6 to review our revised outlook for 2021. Our end markets are continuing to show signs of recovery. Global auto production is increasing, albeit constrained by the global semiconductor shortage causing inventory levels to remain relatively low. We expect that demand will continue to be strong in the next few quarters, especially in North America and Europe despite headwinds related to supply chain challenges and rising raw material costs. Weekly run rates in our short-cycle businesses, primarily in Industrial Process and Connectors, showed encouraging signs of recovery in Q1, and April orders are in line with expectations. We believe that there is some pent-up demand from 2020 that has carried over into 2021. Given our Q1 performance and momentum in certain end markets, our outlook is more favorable than we anticipated in February. We expect that Connectors growth as well as the stronger growth in Friction stemming from continued share gains in auto will be partially offset by declines in pump project activity and commercial aerospace. Our assumption is that commercial aerospace may begin to recover in the second half of the year as passenger air traffic continues to increase. We are not anticipating a recovery in oil and gas in 2021, consistent with our initial outlook. The increase in adjusted segment margin expansion by 40 basis points across our range reflects our expectations for higher volumes and continued productivity generation in addition to the stronger-than-planned margin expansion from Q1. We expect this will be partially offset by inflation and higher raw material costs, driven by steel, copper, and to a lesser extent, tin. As you will see on Slide 7, our revised guidance assumes the incremental impact from this global trend will be $0.25 to $0.30 for the remainder of 2021. However, we remain optimistic in our team's ability to continue to mitigate this impact through strategic pricing and demand generation. We will continue to monitor this closely throughout the year. Our revised EPS guide reflects a $0.30 improvement at the midpoint of our range to $3.90, which would put us $0.09 above 2019. Some other items to note. Given the strengthening of the U.S. dollar, the foreign currency benefit contemplated in our guidance is less than originally planned. Our four-year effective tax rate is now expected to be approximately 22%. This will likely be partially offset by a slightly higher benefit from share repurchases given the execution in Q1. Our guidance also continues to assume a reduction of approximately 1% in our four-year weighted average share count. We are raising our free cash flow guidance by $25 million at the midpoint to reflect the impact of higher operating income, and we now expect free cash flow margin of 11% to 12%. Our higher growth outlook will require further working capital investment. However, we expect working capital to continuously decline as a percent of sales during the year and over the long term. On Slide 7, let's look at the components of our revised 2021 adjusted EPS guidance. As you can see, the majority of our earnings growth will be generated by stronger volumes and net productivity, partially offset by the incremental headwinds from rising raw material costs and our continued investment for growth. Before I turn it back over to Luca, I want to share some detail on what we're seeing thus far in the second quarter. The deltas in the second quarter will likely look incredibly strong given the pandemic impact in Q2 of 2020. Organic sales growth is expected to be above 20%, driven by MT's strong performance and an easy 2020 compare. This will be partially impacted by the global semiconductor chip shortage. The other segments are each expected to grow mid-single digits with anticipated strength in IP's short cycle. Our outlook for CCT has improved, given the strong organic sales and orders growth in Connectors in Q1. The margin expansion is expected to be several hundred basis points, driven by MT and to a lesser extent, CCT. From a total ITT perspective, adjusted segment margin should be equal or slightly above second quarter of 2019 of 16.1%, which we believe is a more representative comparison. The combined impact of higher sales and strong productivity will drive significant adjusted earnings per share growth. On a dollar basis, we expect Q2 will be slightly below the second quarter of 2019, and the second half of the year may look very similar to 2019. As a reminder, Q4 of 2020 was especially strong, therefore, we will have a tough comparison in the fourth quarter.

Thanks, Emmanuel. I am very pleased with ITT's results in the first quarter. We see signs of a recovery in our end market, and our people continue to differentiate ITT from the competition. We are leveraging and building upon the cost actions we executed in 2020 to drive solid incremental margins as sales volumes increase. And we are investing our capital effectively. As we said before, Friction continues to win in the marketplace and will be the springboard for growth in 2021. This performance should continue throughout the year, notwithstanding some of the macro headwinds related to supply chain and rising raw material costs that we will need to manage effectively. From an operational standpoint, we made further progress in our transformations at both Industrial Process and Connect and Control Technologies. I'm encouraged by what I saw during my visits over the past few months and what I heard in my conversations with employees, customers, and shareholders about the strength of ITT. We also appreciate the partnership with our distributors and sales reps, working as a team with ITT to deliver these results. We are laser-focused on growing ITT through acquisitions while funding high-return growth investments, and the momentum is accelerating. Our financial health is as strong as ever, and this will allow ITT to effectively deploy our capital on all fronts. We continue to deliver on our commitments, and Q1 has positioned us to surpass 2019. It has been my pleasure speaking with you this morning. With that, Stephanie, please open the line for Q&A.

Our first question comes from Damian Karas with UBS.

Congrats on the solid progress.

Thank you, Damian.

Thanks, Damian.

So I wanted to ask you about Friction here. At this stage, what is the auto production that you're assuming for the year? I think previously, you had said kind of 10% globally was the number you were working with. But given some of the supply chain issues and other developments we've seen, just wondering if you could share what your thoughts are on that and, I guess, your expectation for share gains for the full year.

Sure. Thanks, Damian. When we look at the auto production, when we enter into 2021, the expert in IHS were talking about a growth of roughly 14%. And as we moved into Q1, what we saw on one side, a positive side, a demand which was higher than expected. And on the other side, the negative, was really the supply chain disruption, the chip shortages that you're talking about as well as the COVID third wave in Europe. So today, what you see is IHS projecting roughly a growth of 12%, 83.5 million vehicles produced for the year. We are a little bit more conservative than that, around 10% or a little bit lower than 10%. And please always remember that we are projecting to outperform the market this year as well. We have done so for the last nine years as an average 880 basis points per year, and we expect to continue to outperform in the next few years as well.

Okay. That's helpful. Switching over to IP, the 15% margin target seems a bit outdated now. I'm curious if you believe there's a higher margin achievable for the IP segment, and does the opportunity to increase that margin become significantly more difficult from here?

Thanks, Damian. So for IP, you're right. We're extremely pleased with the progress we've made to date. Keep in mind, in the 15.8% margin for IP in Q1, there were a couple of nonrecurring items that were favorable. So most likely, our actual level is probably something like 140, 150 basis points under that 15.8%. We are really working right now to solidify that path to 15% plus. And there's still a lot of work that needs to be done because we have so many opportunities. I talked about how we announced a third consolidation project, and we have more to come. And so I think that right now, we're focused on really making sure that in a sustainable way, we can achieve that 15% plus. And then when this is done, we'll think about a different target.

Your next question comes from Matt Summerville with D.A. Davidson.

Sticking with MT for a second. Can you give a little more granularity on what you saw in the OE business by region during Q1? And how we should be thinking about the full year? In addition, what you saw on the aftermarket side of Friction as well.

Thanks, Matt. In terms of regional performance, China has seen significant growth primarily due to an easier comparison after being heavily affected by COVID in Q1 of 2020, which allowed us to outperform China by about 400 basis points. Meanwhile, the European market experienced a decline of about 1%, and we exceeded European performance by roughly 1,000 basis points. In North America, there was a 4.5% decline, but we outperformed by a multiple of a thousand. This highlights the varied performances across regions. It's important to note that the market has experienced considerable volatility, which increased during the second half of Q1, and we anticipate this volatility will continue into Q2. Feedback from our customers indicates that Q2 may be the most challenging quarter for automotive production this year. Looking at the full year, we project growth in Europe to reach double digits, North America to also see double-digit growth, and China to grow in the mid-single digits. Regarding the aftermarket, we've noted a year-over-year increase in the mid to high single digits, differing for OES and independent aftermarket segments. We expect the aftermarket to grow in the high single digits to low teens for the full year of 2021.

And then again, sticking with MT and the Friction side. The sporadic OEM shutdowns driven by the semiconductor shortage, is there any way to quantify the impact that had on your top line in Q1? How should we think about Q2, to your point that, that might be the most challenging period? And then what the full year impact might be?

The most important aspect of our operations is to remain closely connected to our customers. We have aligned our production and planning with customer schedules, which has been our approach in the first quarter, will continue in the second quarter, and will be our strategy for the entire year. This alignment is already reflected in our guidance. In the first half of the year, we anticipate that production will be reduced by approximately 2.5 million vehicles. The situation may improve slightly in the second half, with a potential for a similar impact, but we expect to see better performance from quarter to quarter.

Your next question comes from Mike Halloran with Baird.

First, on the balance sheet side of things, obviously, understanding the acceleration of share repurchase. First, what are the chances that, that changes through the year and gets upsized? And then could you put that in the context of how you're thinking about the M&A funnel, actionability and ability to deploy capital on that side?

Sure. Thanks, Mike. Our approach to capital deployment remains consistent. We prioritize organic investments first, as they yield the best returns with the least risk. Next, we focus on mergers and acquisitions, followed by returning capital to our shareholders. We are actively cultivating opportunities across all our businesses, including rail, where we aim to build a platform through both organic and inorganic means, investing around $500 million to $600 million. We have mentioned potential growth in material science within MT and some aerospace ventures in CCT. It is crucial that we maintain a thorough strategic and financial process. We are targeting regions like Europe and North America, with companies in our pipeline generating sales between $20 million and $200 million. Although we find current valuations somewhat high and COVID has complicated due diligence, we remain proactive. We have increased our dividend by 30% and repurchased $50 million in shares. We will persist with this strategy, as it has not changed.

And then Slide 7, you gave some good context on the raw material inflation for the remainder of the year, the $0.25, $0.30. Could you talk about how you're thinking about that price-cost through the year? I'm sure productivity is a good balancing mechanism there as well. But how does the inflation pressure layer through to the remainder of the year? Is it more concentrated 2Q and ease? When is that peak pain? But then also bounce that against how you're thinking about the pricing dynamics out there.

Yes. In the first quarter, we started experiencing commodity pressure, which we estimate will impact our results by about $3 million to $4 million. We have managed to pass some of this cost onto customers, particularly in our IP, CCT, and rail businesses. We anticipate that this trend will continue to increase and strengthen in the second quarter and the latter half of the year. One reason for this is our contracts on steel, which we booked six months in advance. By the end of the first quarter, we will be exhausting our last booking at a relatively favorable price. However, we face challenges in the Friction segment due to a highly competitive environment, making it difficult to request price increases from customers. To mitigate this, we will focus on productivity improvements, utilize some of our escalator contracts with customers, and negotiate for lower contractual price reductions to help offset the impact.

Your next question is from Scott Davis with Melius Research.

Good start to the year. You have mentioned M&A several times, and the press release reiterated this as well. Is there a preference for expanding in any specific segment, or do you view each equally? How do you approach this, and is there a possibility for a fourth area of growth?

Okay. I wish I could say I love my children equally in the family. Obviously, you haven't met them. But when it comes to ITT and Motion Technology, CCT, and IP, I would say, in Motion Technologies, the focus is really on rail, probably more than on the Friction side. Surely, we are looking at material science, but rail really has been the focus in Motion Technologies. When it comes to IP, pumps, and valves, we are looking at valves companies and some pumps. But here, really, the focus is niche companies that really have a product to differentiate, not big companies. We are not looking at playing the consolidation games over there. And when we look at CCT, we are looking in the aerospace environment. So these are really the three segments, I would say, the three industries where we are really looking after.

Okay. That's helpful. And then just to back up. I mean you commented on the nine EV wins, and it's hard to really have any context around whether that's good or bad given I don't know how many you bid on, so maybe you can comment on that. But really, the main question I have is just to clarify what the performance and technological differences in the product you're going to be supplying into those platforms versus perhaps a more traditional non-EV platform?

Sure. Sure, Scott. ITT's win rate in EV awards is considerably higher than our existing market share. And this will continue to feed our market share gains as the market is moving more and more into EVs. And one of the platforms in China is actually with BYD, which is one of the electric vehicle manufacturers, a Chinese electrical vehicle manufacturer. And when you look at the performance, there is a difference. As of today, the market, I would say, is not as well developed or sophisticated to require those kinds of differences, for instance, in the noise performance. But it will come. And this is exactly the reason why we opened a research and development center in China specifically focused on what we call the ePad, which is the pad in the material science for the electric vehicles. Just to give you an idea, Scott, electric vehicles are very silent. I don't know if you've driven a Tesla or an E-tron or whatever, but there is no noise. And therefore, the braking noise is something that you really need to make it zero, noise perfect. And this is a good opportunity for our material science excellence in Motion Technologies.

Your next question comes from Joe Ritchie with Goldman Sachs.

Hey, Luca, could you maybe start on some of the commentary on the Connector side of the business? Encouraging to see that your order growth number was up 20%. But I thought it was interesting that, that comment that you made in your prepared comments as it relates to like the opportunity that you're seeing with distributors. Can you just maybe elaborate on that a little bit more?

Of course, Joe. I had the chance to travel with Ryan, and we met with some of our distributors in the U.S. face-to-face. I also connected virtually with some of our sales reps earlier this week. There are opportunities across our portfolio and a chance for us to respond better to the market from an operational standpoint. We have areas to improve, and enhancements in our on-time delivery will help us capture more market share. The trend is positive, as reflected in last quarter's orders, which we are now seeing in this quarter's revenue. These are the market opportunities we recognize. With better performance and shorter lead times on our part, we will focus more on engineering to develop prototypes and provide faster samples to our sales reps and customers.

Got it. That's super helpful, and it's great to hear. I think maybe just following back on the question that Scott just asked. Know what your competitive advantage is on the Friction side of the business. But I guess, as you think about those eight wins in China, I'm curious to see if you can maybe provide some context what that means from like a market share perspective. I know that you still have that ambition to be able to double your market share there over the next few years. So any context around that would be helpful.

Sure. When we look at China, we closed our market share in China in 2020 at 24.5%. So this means that in 2020, in the COVID year, we were able to gain between 1.5 and 2 percentage of market share in one year. Now the win rate also in China for EVs on the award is higher than this market share, Joe, which means that it will translate into a continuous market share gain in the years to come.

And Joe, keep in mind that the volume for EVs, even if it's growing fast, is still relatively small. So we expect that the contribution of EV will take a little bit of time to materialize.

Your next question comes from John Inch with Gordon Haskett.

I just want to confirm. So I think you said, Emmanuel, we're talking $0.02 to $0.03 of raw material drag in the first quarter. Did you say how much was in the second quarter? Maybe you could say that. And I'm curious, what sort of pricing are you getting for your rising backlogs? And does it actually match raw price increases based on where they are today? Or are you guys trying to get ahead of the curve, anticipating further price increases in terms of your components and raw pricing?

We didn't disclose Q2. I believe it will likely be a bit higher than what we experienced in Q1 since some of the bookings from Q4 are running out. Regarding our pricing ability for what we have in the backlog, that explains the delay between receiving the cost increase and being able to pass it on to our customers. We're not really able to revisit pricing with our customers on the backlog. However, in rail, Connectors, and the short cycle, things turn around quickly, allowing us to incorporate the changes in the next iteration. For Friction, it will take more time and involve several discussions, but eventually, customers will understand that these changes are here to stay, and we will reach an agreement.

Your next question is from Scott Davis with Melius Research.

It’s a good start to the year. You have mentioned M&A several times, and the press release also touched on it. Is there a preference for expanding in any specific segment? Or do you view all segments equally? How do you think about that? Is there even a possibility for a fourth segment?

Okay. I wish I could say I love my children equally in the family. Obviously, you haven't met them. But when it comes to ITT and Motion Technology, CCT, and IP, I would say in Motion Technologies, the focus is really on rail, probably more than on the Friction side. Surely, we are looking at material science, but rail really has been the focus in Motion Technologies. When it comes to IP, pumps, and valves, we are looking at valves companies and some pumps. But here, really, the focus is niche companies that really have a product to differentiate, not big companies. We are not looking at playing the consolidation games over there. And when we look at CCT, we are looking in the aerospace environment. So these are really the three segments, I would say, the three industries where we are really looking after.

At this time, I would like to turn it back over to management for closing remarks.

We'd like to thank everyone for joining us today, and we'll talk to you soon. Have a great weekend, and Happy Mother's Day.

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