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Emmanuel Caprais

Thank you, Luca, and good morning. ITT delivered another solid quarter. Let's begin with revenue. Growth was flat to prior year on a total and organic basis, mainly driven by our acquisitions and pricing actions, which fully offset lower volumes, including from the Wolverine divestiture in the prior year.
There were, however, a number of highlights. In CCT, defense connectors grew over 20% and general industrial connectors grew 4%. kSARIA contributed 26 points of total growth. This was more than offset by lower aerospace volumes, primarily due to Boeing as we anticipated. CCT also had the stronger price realization of all the businesses in Q1.
In Motion Technologies, the highlight was double-digit growth from KONI share gains. In friction OE, we saw strength in China as well as continued growth in friction independent aftermarket, which offset a market slowdown in North America and Europe. Finally, the industrial process, strong marine pump shipments in as well as growth in valves offset lower pump shipments.
On profitability, operating income grew 2% on flat sales or 7%, excluding the Wolverine divestiture, primarily driven by productivity and price, which more than offset lower volumes in auto and aerospace, as well as cost inflation and unfavorable FX. IT was once again above 20% margin. Excluding Svanehoj margin would have been up 60 basis points. In MT, the team just reached -- just about reached its 20% long-term target despite a larger-than-expected FX headwind, expanding margin 160 basis points versus prior year and over 300 basis points, excluding FX.
Finally, in CCT. Excluding M&A dilution, margin was up 170 basis points to nearly 20%., driven by price gains and productivity. We expect CCT to continue to drive higher price realization as renegotiations in aerospace are finalized. This performance combined with a 1% lower share count resulted in adjusted EPS of $1.45. We overcame $0.06 of lost earnings from Wolverine and $0.06 from unfavorable FX.
Lastly, free cash flow. Our cash generation increased over 2.5 times versus prior year and was a record for the first quarter. Our free cash flow margin also increased more than 500 basis points this quarter. This is thanks to the efforts of our team to drive stronger cash collections as well as more than $15 million of operating cash flow from our acquisitions.
Let's turn to the Q1 operating margin and EPS bridges on Slide 6. The key takeaway here is the strong operational performance of our businesses that allowed us to grow margin on flat sales. Included in the figures are 150 basis points of operational leverage, 40 basis points of productivity which outweighed the dilutive margin impact of acquisitions and foreign currency.
As you can see on the right, our operational performance, along with the contribution from our acquisitions helped us overcome earnings headwinds from the 2024 divestiture of Wolverine, unfavorable foreign currency, higher interest expense and a higher tax rate. Excluding the divestiture, Q1 EPS would be up 7% for the quarter.
Now let's move to Slide 7 to discuss our 2025 guidance. After a solid Q1 performance, we are confirming our full year adjusted outlook. We have good visibility to our performance in the second quarter, which gives us confidence despite the highly uncertain trade environment. On revenue, our total growth is expected to be slightly higher due to FX, while organic revenue is expected to be within our original range of 3% to 5%. In CCT, we expect to drive growth in defense as well as in aerospace with the ramp in shipments to Boeing and benefits from pricing efforts.
In IP, we expect growth in project shipments to accelerate in the second quarter, while demand in aftermarket and in valves remains robust. This is partially attributable to the 90%-plus on-time delivery in our North America aftermarket business, which is allowing us to gain share. And in MT, we expect outperformance in Friction in the US and Europe to accelerate throughout the year.
For total ITT, price should account roughly 1 to 2 points of that. On margin, as we saw in Q1, productivity and price should continue to drive the bulk of our margin expansion, overcoming the impact of lower volume and higher cost inflation.
We have already taken further actions to reduce structural costs while prudently investing in areas of our business that will drive growth, such as VIDAR. Our revenue growth and margin expansion are expected to drive adjusted EPS at the midpoint to $6.30. This includes the $0.17 and favorable impact from temporary intangible amortization that ended in April for Svanehoj and will conclude by the end of the year for kSARIA. Still, the 2024 acquisitions are expected to add approximately $0.20 of accretion this year. We will also realize an approximate $0.10 benefit from the $400 million of share repurchases executed through April, net of interest expense.
Finally, on cash, the solid start in Q1 puts us in position to deliver close to $0.5 billion of free cash flow this year. Let's talk briefly about our Q2 outlook. Revenue growth should be in the mid-single-digit range in total and low single-digit range on an organic basis, led mainly by project shipments in industrial process, including Svanehoj, growth in CCT should accelerate quarter-to-quarter as shipments to Boeing.
Our margin, Motion Technologies should surpass 20%, and Industrial Process is expected to be over 21%. CCT margin should improve sequentially by roughly 200 basis points, but will be down year-over-year due to kSARIA amortization. Legacy CCT would have effectively hit their long-term margin targets in Q2.
In total, this should drive operating margin expansion of roughly 50 basis points year-over-year and more than 100 basis points sequentially overcoming higher corporate costs related to the VIDAR launch. Higher income and lower share count is expected to drive adjusted EPS growth of 6% to 10% year-over-year and 8% growth at the midpoint.
Excluding the lost earnings from Wolverine, EPS growth would be 14%. Before we wrap up, I wanted to address our assumptions on tariffs. Our supply chain and sourcing teams have been working to quantify the potential exposure to ICT and to develop granular action plans to mitigate the impact by working with our customers and suppliers. As it stands today, our estimates of the tariff cost for the balance of 2025 is approximately $50 million to $60 million prior to our mitigation strategy. Given the divestiture of Wolverine in MT, the largest impacts are expected in CCT and in IP.
Most of our products are USMCA certified, and we have assumed these exemptions remain intact. We issued price increases to our customers for the products that are not exempt. And we also continue to strictly control our cost such as the restructuring actions we took in the first quarter in the event of a slowdown in the second half.
Taken all together, we expect our actions will offset the impact from an operating income perspective. They may, however, be some impact on margin as well as the timing element that could affect cash flow. One more thing to note.
Our 2025 EPS guidance has not changed. This is due to the uncertainty in the second half of the year, given the volatility in the macro environment. It is a very fluid situation, and we will stay close to this and take further actions as needed.
Let me turn the call back to Luca to wrap up.

Luca Savi

Thanks, Emmanuel. A few points before moving to Q&A. This was another resilient performance. We delivered on our Q1 commitments and have good visibility to a strong second quarter. We continue to expand our margin with more opportunities still to capture. We're maintaining our full year guidance despite a great deal of uncertainty.
We quickly deployed capital repurchase shares in April and still there is a lot of value we can create at ITT, including through game-changing innovations like VIDAR. On May 15, you would be able to see this value creation come to life at ITT's next Capital Markets Day, and hear from some of the ITT leaders delivering our results today and for the years to come.
I look forward to seeing you there. Thank you for your ongoing support of ITT. As always, it has been my pleasure. Tania, please open the line for Q&A.

Question and Answer Session

Operator

(Operator Instructions)
Scott Davis, Emilius Research. Your line is open, Scott.

Scott Davis

Thank you, very good morning guys. Morning, Scott. And I think the headline to me at least these order numbers are pretty big. Can you give us a little bit of color on why you think orders picked up so much? Is there maybe some impact of people trying to get ahead of price increases? Is there any other variables out there that you can kind of point to that could explain sequentially, and year-over-year, why you had such a big increase?

Luca Savi

Sure. No, Scott. We don't think there is any purchasing ahead of what might happen. Also, the reason for that is if you think about it, IP, for example. IP project orders were up 47%. Those projects, we've been working on those projects for months, in some cases, for years. So there is no acceleration in any shape or form on that one. And then, of course, are the great acquisition performance both from kSARIA as well as from Svanehoj. If you think about Svanehoj was up 70% year-over-year with a book-to-bill of 2.0. So I would say this is, for sure, partly the market, but partly also market share gains in several sectors.

Scott Davis

Okay. Helpful. And then just to clarify, the big buyback that you did presumably to help offset Wolverine, but not fully, of course, but help -- but was that because of market weakness or because you see perhaps a on M&A? What -- any color behind that, please?

Luca Savi

Sure. No, I would say that it's not related to the M&A. As a matter of fact, our pipeline is healthy. We keep us on cultivating. And we are still targeting to do M&A this year. In an ideal world, we will be able to deploy $500 million to $700 million or a little bit more this year on M&A. So it's not related to the lack of opportunity in M&A, is just to reaffirm really the confidence in ITT and our medium- and long-term outlook. And as you've seen, our net debt ratio was probably one of the lowest in the multi-industrial. I think in one of your slides, you show that at 0.3%. So you might have participated to that decision, Scott.

Scott Davis

Well, best of luck guys I'll pass it on thank you.

Operator

Mike Halloran from Robert W. Baird & Co.

Mike Halloran

Hey, good morning. Everyone. Hi, So first, can you just bridge the previous guidance to the current guidance. It feels like pricing moves revenue up a little bit, probably some implicit pressure on the volumes. Not that you're seeing it today, but you're assuming back half maybe a little something FX more favorable. Anything else I should be thinking about from a put and take from previous guidance to the current guide?

Emmanuel Caprais

Yes, Mike. So when you look at guidance to guidance, we -- obviously, as you mentioned, we have a little bit of a positive impact from FX and also from share count as we discussed. I think when you look at a little bit of the headwinds, we have some -- an increased tax rate, a little bit of more cost inflation and also, we expect the second half to be a little lower than originally.
So not baking at all a recession, but economic activity maybe to be a little bit slower. So all in all, this is where we stand. We expect acquisitions to deliver a little bit better than originally. So that's really good news. And then when you look at the different components of the guidance -- so as we discussed mid-single-digit organic revenue growth, we expect IP to be leading the pack with around 5% and CCT closely behind and and MT to be roughly flat.
One of the things that I think is important to highlight is that we continue to expect obviously margin expansion. We expect that IP for the year will land at close to 22%. MT is expected to be solidly at 20%, in line with our long-term target and CCT just shy of 18%. Because obviously, it is impacted by the kSARIA margin dilution.
But without kSARIA, CCT would be above 21%, which is really close to the long-term target. So I think that, all in all, EPS aligned with prior guidance. If everything goes well and the tariffs are resolved, this is good news. Other than this, no major change.

Mike Halloran

That's super helpful. I appreciate that. So then just kind of thinking about the resilience of the model here. I think the IP side, give us your thoughts on how that should track if you do get a little bit of softness? I know the pipeline, the backlog, the all very attractive. How do you think that track? How do you think the customer base respond? Do you think there's enough inertia in what you're doing as well as the need in the market to have some sort of offsets or at least be pretty resilient in the face of that.

Emmanuel Caprais

So when we look at the market in IP, we see a little bit of a slowdown in the funnel. So the funnel is down year-over-year. And we think it accounts for all those projects that have been awarded that have not replenished as fast as we have seen in the past. But I think it's fair to say that the funnel is -- remains at an elevated level, even though it's declining.
Some of that decline is coming from North America. And specifically in there, we see decline also from oil and gas and chemical standpoint. But for us, as we discussed, we have a really strong backlog. The backlog in IP is at $1 billion, which is a record. It's up year-over-year 15%, sequentially up 8%, as we discussed, book-to-bill above 1.2. So I think that we are really confident in terms of our revenue number and our growth in 2025 for IP.

Luca Savi

If I may add 1 point, Mike, if you look at the backlog that man was talking about, in the last 3 years, it grew from $0.5 billion to $1 billion, so 100% up in three years, and 50% organically. And then also when you look at our project execution, when we closed the project now, the closing margin of this project is higher than the margin of the project when we book them. So I think that this gives us confidence to continue to perform in IP.

Mike Halloran

Really appreciate it thanks gentlemen.

Luca Savi

Thank you, Mike.

Operator

Vladimir Bystricky from Citi Research.

Vladimir Bystricky

Good Morning guys. Thanks for taking my thanks for taking my question. So maybe just following up on IP. You mentioned continued investments that you're making in Saudi and in India. I guess in the Saudi region, in particular, can you talk about whether -- or how you're thinking about any potential risks to Saudi spending plans as we've seen crude oil prices pull back this year and whether you're hearing any change in tone from your customers there?

Luca Savi

Sure. No, actually, we do not see any change in tone. As a matter of fact, when you look at the orders, if you look at the last three years, our orders by market, being oil and gas have been orders up every single year, '22, '23, '24. Chemicals, the same.
General industrial, the same. Q1 '25 energy, oil and gas, keeps on growing. So no major noise on that front. And I will say also that on top of the market, we are benefiting, of course, from market share gains because of our -- because the way and the team are performing in Saudi, more than 95% of time delivery, perfect project execution, so the customers are very loyal to us.

Vladimir Bystricky

That's great to hear, Luca, I appreciate it. And then maybe just shifting to MT. You mentioned, I think, an expectation for Friction OE outperformance to ramp in North America and Europe over the course of the year. Can you just talk about -- is that based on OEM production schedules and platform introductions. And do you see any risk of further modifications to those schedules just given the current uncertainty in the environment?

Luca Savi

No. And to be honest with you, Q1 was very challenging for the European and North American market. The European market was down almost 7% in terms of production. North America is down 5%. So the only resilient market that showed good growth was China with operation -- with manufacturing up 11%. So these were the markets number.
And in China, we outperformed by a few hundred basis points. The reason why we are confident on the 400 basis points for the full year and ramping up is the platform that we won, the start of production that we see and also the order book that we see now, for example, for the next three months. So all of that gives us confidence of the outperformance of 400 to 500 basis points for the full year.

Operator

Thank you.
Jeff Hammond from KeyBanc Capital Markets.

Jeff Hammond

Yeah, have a good morning.

Luca Savi

Guys. Hi. Hey, so.

Jeff Hammond

So just want to hit the -- good color on the tariff exposure. Can you just talk about how much of the $50 million to $60 million you cover with price, where specifically you're announcing price increases? And then just any changes you're implementing around sourcing or otherwise to kind of further mitigate the headwinds?

Luca Savi

Sure. When you look at the total exposure, Jeff, which is roughly between $50 million and $60 million for the next nine months. As we said, we are acting on cost and on the sourcing. So when you're looking at the sourcing where you have a material, for example, where you have two suppliers that are qualified and might be in different geographical location, we're able to use that flexibility and the resilience that we build in the supply chain in the last few years to reduce the impact of the tariff.
And then when it comes to the commercial actions, the commercial actions are really on all the products that recent are not USMCA compliant. And a lot of those commercial actions that are executed in progress, tend to be the majority through the distribution, so where we also have more pricing power. So all of these enable us to have no net impact to the EPS guidance for 2025.

Jeff Hammond

Okay. That's helpful. And then just back on M&A. A lot of companies have said, gosh, it's gotten more difficult. We got to ask a million questions on tariffs. And we don't know what's going to happen from a demand perspective and that makes M&A difficult. But it sounds like you guys still feel like you can get stuff to the finish line. Maybe just speak to actionability and if you've seen stuff fall out because of all this noise.

Luca Savi

Sure. I think that now is the time to spend more in cultivating these opportunities on the M&A front. Now the uncertainty means that, of course, you're going to be more granular and understand that it will be more the impact in the short term.
But if you have a very good strategic acquisition with a lot of value creation, sure, you need to be more granular, but largely, the long-term picture will not change. And this is the approach that we are having on the M&A front. So myself and the entire team are busy in cultivating meeting and analyzing the opportunity. Granted, you might need to be a little bit more granular at the -- in your model in the first three, four years.

Jeff Hammond

Okay great we'll see you guys in a couple weeks.

Luca Savi

Thank you. See you, Jeff.

Operator

Brad Hewitt from Wolfe Research.

Brad Hewitt

Hey good morning guys, thanks for taking my question. So on the IP side, very strong project orders in Q1 with the 47% growth. Just curious if you can walk through your updated growth assumptions for IP between projects and short cycle. I believe your prior guidance was like mid-teens growth in projects and kind of low to mid-singles in short cycles.

Emmanuel Caprais

Yeah, So -- sure. So the guidance really hasn't changed much. Keep in mind, Brad, that while we're very happy with the project orders and the growth of 47%, this will not convert into revenue growth in 2025. Those are long lead projects. They take anywhere between 12 to 24 months. So our assumptions between projects and short cycle, they remain essentially the same. I think that, as I mentioned, in IP, really for us, the focus is to make sure that we convert the backlog in a timely action. We're not really concerned of our -- of hitting our revenue targets for 2025.

Luca Savi

And when you look at the show cycle, Brad, if I may add, if we look at -- sure, the growth in project was very strong, and short cycle not so much. But to be honest, if we look the short cycle orders sequentially, we were up 1%. And the book-to-bill in the short cycle was 1.07, and then even looking at the short cycle, the -- on a weekly basis, the run rate in Q1 was higher than the average weekly rate of 2024. So doesn't have the growth that we saw in the past, but is still staying at a very high level.

Brad Hewitt

Okay. That's helpful. And then maybe Switching over to the tariff side of things. So you mentioned the $50 million to $60 million in gross headwind for the rest of the year, most of that offset coming from price. I guess, just curious in your guidance, what are you embedding in terms of demand elasticity in response to those price increases?

Emmanuel Caprais

So as we mentioned, Brad, we do not -- we did not bake anything in terms of -- in the guidance in terms of demand distractions due to those tariffs. We expect to be able to -- we expect to be able, obviously, to pass all the cost increase through price and cost reduction actions as well. I think one thing that it's important to highlight is the fact that we pretty much are in the same condition as everybody else.
For instance, in IP, most of the competitors buy their castings from China or from India. So we don't believe that there'll be any competitive disadvantages. And so we expect to be passing on. And we'll see if that results in a little bit of a hit to demand in the second half, we continue to be very prudent and monitor the activity.
Great, thank you. Thank you, Brad.

Operator

Joseph Ritchie from Goldman Sachs & Co
Thanks. Good.

Luca Savi

Morning, guys. Good morning, Joe.

Joseph Ritchie

Hey, I'm sorry if I missed it. But have you guys said how much of the $50 million to $60 million in tariff cost impact is coming from each segment. Just trying to gauge just in terms of your ability to kind of pass pricing? I know that sometimes it takes a little bit longer for the Friction business. Sure, Joe.

Luca Savi

Sure, Joe. The majority of the impact is actually in IP and in CCT. Because if you remember, in Motion Technologies, with the divestiture of Wolverine, the impact of the tariffs has been greatly reduced. We are in the region for the region, Europe for Europe, China for China and Mexico for North America. And all our products are USMCA compliant. So when it comes to MT, the exposure in MT is only in the that play a role in the aftermarket in the US So majority is IP and CCT.

Emmanuel Caprais

Which is, in a way, very favorable if you think about it from a business case because this is where we also have the largest pricing power, both in distribution and in direct.

Joseph Ritchie

Yeah ,that's good to hear. And then just a follow-up question. VIDAR seems really interesting. I'm just curious, as you think about the opportunity in getting after this opportunity, Luca. Is it the same like sales force? Are you able to kind of cross-sell this with your pumps business as well? Just like help us understand how you see this playing out.

Luca Savi

Sure. The way that we are running this business is a completely separate job. So we run it in ventures and who's both the leader of business development and M&A as well as the leader of IP, but it's completely separated. So there is and his team who are based out of we had -- that have their own sales force and therefore is its own business. Now granted, there might be some synergies. So there might be some incentives that you put in place for your comp sales if they are successful in helping VIDAR launch, but it's completely separated.

Joseph Ritchie

Okay. Understood. I'm sure we'll get more details at Investor Day.

Luca Savi

Thank you. Exactly. So, we're waiting to see you there at the customer market at the capital markets day, so.

Operator

Andrew Obin from Bank of America Securities.

Unidentified Participant

You have Sabrina Abrams on for Andrew Obin. Apologies, this is going to be a little long, but you've given some helpful color on the bridge from prior guide to the updated guide, which is helpful and you're keeping the 3% to 5% organic with slower economic activity in the second half. And I guess part of this question is, is the $50 million to $60 million of gross tariff impact, is that over the course of the second half of the year, or is that an annualized number?
And I guess, could you just talk about what's embedded in 3% to 5% organic for pricing versus volume and how that's changed? And then, I guess, the $50 million, $60 million, if that's in your number, I think like the annualized price increase needed to offset would be around 2%. So is that the right way of thinking about tariff pricing?

Emmanuel Caprais

Hi, Sabrina. Okay. So the $50 million to $60 million is for the remaining 9 months of the year, right? So this is not an annualized impact, just the remaining months. In terms of -- so it's obviously included in the guidance and no net impact because we're expecting to offset, as I mentioned, with commercial actions as well as cost reductions. So that's one. In terms of pricing, yes, you're correct, it's around 2% price increase that we're planning in organic growth of mid-single digits.

Andrew Obin

Thank you, and then the short-cycle distribution business in CCT tends to be I guess, a in the coal mine for you in terms of general macro industrial activity. And I just wanted to ask how that business is trending. I understand you've had really great share gains in that business as well, but I want to understand how is that business trending? And then maybe any commentary on the tone you're hearing from your distributors? Are they showing any signs of weakness?

Luca Savi

Sure, Sabrina. So when you look at the revenue, connectors revenue grew 4% organic. And of course, here, defense and aero were the main contributors. If you want to look at the leading indicators in terms of orders, connectors orders were up 11% year-over-year, and they were up 27% sequentially. Now a lot of this is a big play is, of course, on -- from the fans. And -- but then if you look at the distribution, you have a distribution orders that year-over-year are down, but it's up sequentially 20% and it's at a very high elevated level. So overall, still a positive picture, I would say.

Andrew Obin

Thank you.

Operator

Damian Karas from UBS.

Damian Karas

Good Morning Damien. Hey, good morning everyone. Sorry if I missed this, but I wanted to ask about some of the pricing trends that you're seeing in MT. I'm just curious, like is there going to be a transient period here in which you're going to maybe get hit with some of these tariff cost headwinds more immediately. And then over time, you'll offset that with price. Or could you just give us a sense like what kind of how pricing is playing out in that market?

Luca Savi

Sure. So when you look at -- just to talk about the tariffs for a second. Tariff impact is mainly in IP and CCT. There is very minimum tariff impact in Motion Technologies, and very little in friction because we are in the region for the region. And when you're talking about North America, our product are USMCA compliance. So that is on the tariff front.
I think that when you look at the price cost equation for ITT overall, we are positive in Q1. It would be positive for the full year, both in dollars and margin. And that picture is the same on the Motion Technology side. So the team is able to gain efficiencies through operations as well as sourcing, and granted, we are sharing some of these efficiencies with our customers, but the price cost equation in MT is positive today.

Emmanuel Caprais

And as we said in the past, we are focused on making sure that we recover any fluctuations in commodity from our customers. And I think that as the team really progressed in making sure that they quantify those impacts able to go back to customers and get a fair compensation.

Damian Karas

Okay. That's really helpful. And I'm not sure if you talked about it, but could you just give us a little bit better sense on what's going on with Svanehoj and what's driving all the strength in the 2 times book-to-bill and orders up 70%.

Luca Savi

Sure. When we cultivated Svanehoj, when decided to acquire Svanehoj, we saw the opportunity in market growing substantially in the foreseeable future. And so there is definitely a trend there due to the market they're operating in, in terms of the marine market and the shift to green energy. So there is a market component to it.
But I would say also that the good quality product, the great performance and the team together with plant and everybody is delivering to the customers on-time performance, et cetera, enable them to win market share. And they are seen as leaders in three of the sectors they're operating in. So market plus performance are delivering these exceptional results. You may remember that after the acquisition, we also committed to probably a double-digit growth for Svanehoj for the next few years. And this is what we are seeing and the orders will continue to deliver that.

Damian Karas

Yeah. It seems like that deal is certainly bearing fruit. Best of luck.

Luca Savi

Thank you, Damien Chow.

Operator

Joseph Giordano from TD Cowen.

Joseph Giordano

Hey guys, this is Michael on for Joe.

Luca Savi

Hi Michael.

Joseph Giordano

You mentioned earlier about connector strength, and I know some people have been kind of contemplating a prebuy. If there's any kind of color there that would be certainly helpful in the end market dynamics at play as well? I would appreciate it.

Emmanuel Caprais

Yeah, Michael. So we are not aware of any prebuy. When we look at our distributor inventory, it is not excessive. The point-of-sale information is also healthy. So there's nothing that really points to a pre-buy. What's really difficult to understand is that you may have inventory built up at our customers' customers, and that's before the end customer, right? So there may be that possibility.
So we do everything we can to understand the situation from a distribution standpoint. One thing that I wanted to highlight, unrelated to tariffs, but we do see evidence of excess inventory in aerospace. And so we are working with our Tier 1s and also our the airframers to make sure that they address the situation and that we continue to be good partners to them.

Joseph Giordano

Great. That's helpful. Actually another question I had, too. I know you mentioned you saw down low -- or excuse me, mid-teens in the quarter. My understanding, if I remember correctly, there was supposed to be like an OE ramp in 2Q. Does this destocking dynamic for A&D change that ramp timing? Any time that you guys are mostly levered to widebody, but any color there would be great.

Emmanuel Caprais

Thank you. Yeah, so we expect in the second half sequentially aerospace orders to pick up. They're still going to be slightly down versus the prior year.
And then if you look at the if you look at the full year, we expect our orders to be slightly up, so a recovery in the second half. So we're going to see improvements in the 2nd quarter, continue to improve in the 3rd and in the 4th, and then they're going to start converting into revenue probably in the in the second half.

Joseph Giordano

Great, thanks guys.

Operator

Nathan Jones from Stifel.

Unidentified Participant

This is Adam Farley on for Nathan. One more on tariffs. So your largest exposure to tariffs is in CCT. What are the primary components that are being exposed there? And do you have confidence in dual sourcing there or finding new sources of supply?

Luca Savi

So, when we look at CCT, is the main exposure there is the trade between Mexico and the US That is mainly because there are many things that are going from the US to Mexico, Mexico to US So we are talking mainly about connectors. And in most of the cases, those are USMCA products. And when it's not, we are able to act on a pricing side. And this is in CCT through distribution is also where we have more pricing power. So it's not so much a resourcing strategy when it comes to CCT and connectors as much as a commercial action.

Unidentified Participant

Okay. That's helpful. And then just maybe high level, I mean, are you actually seeing any signs of customers deferring their capital investment decisions? Or is it more just caution on the back half? And I'll leave it there.

Luca Savi

Sure. I would say, no, we do not see those kind of things. Sure, you might have one project or two that have shifted to the right. but not to call it a trend. And you see it in the orders of the project, which were up 47%. And the funnel of opportunity in IP is actually staying at elevated level. It's practically flat sequentially. And there are some regions like Europe, Middle East and Asia Pacific, where actually the funnel is up. So, so far, we really haven't seen major shift to the right. Just a couple of examples, and that's it.

Operator

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