ITT Corporation’s ITT shares inched up about 2% during the trading session on Oct 30, following its third-quarter 2015 earnings release. The company came up with adjusted earnings from continuing operations of 63 cents per share, which surpassed the Zacks Consensus Estimate of 59 cents by 6.8%.
However, on a year-over-year basis, adjusted earnings from continuing operations dipped 4.5% to 63 cents.
While improving operational performance and low corporate costs were the tailwinds, negative impact of foreign currency fluctuations remained the concern.
Inside the Headlines
ITT’s third-quarter revenues declined 8.4% year over year to $601.9 million, and missed the Zacks Consensus Estimate of $611 million. This was due to low revenues generation across all major segments.
On an adjusted basis, organic revenues dipped 1% year over year due to weakness in the global industrial and rail market as well as the upstream and midstream oil and gas markets. Nevertheless, aftermarket growth in automotive brake pads acted as the tailwind.
As for the segments, Industrial Process revenues edged down 8% year over year to $271 million. Dip in aftermarket sales owing to the impact of delayed customer maintenance triggered the decline in revenues.
Motion Technologiesrevenues fell 9% year over year to $180 million on the back of softness in rail markets.
Revenues in the Interconnect Solutions segment tumbled around 16% year over year to $83 million, largely due to a result of disruptions caused due to relocation of certain operations in North America. Moreover, volatility in oil & gas as well as industrial markets aggravated the fall.
Control Technologiesrevenues slipped 1% year over year to $70 million. This was due to softness in China resulting in industrial decline as well as decrease in the aerospace aftermarket.
ITT’s operating income dipped about 13.2% year over year to $103.9 million, mainly owing to the impact of unfavorable foreign exchanges and negative pricing.
During the quarter, ITT realized pre-tax benefit worth $45 million on the back of annual remeasurement of its asbestos liability and related insurance asset.
Liquidity and Cash Flow
As of Sep 30, 2015, the company had cash and cash equivalents of $504.9 million, down from $584.0 million at year-end 2014.
For the nine months ended Sep 30, 2015, net cash from operating activities totaled $147.1 million compared with $131.9 million in the nine months ended Sep 30, 2014.
Guidance Reiterated
Assessing its operational performance in the last nine months, ITT has reiterated its guidance for 2015. Adjusted earnings from continuing operations are expected to be in the range of $2.45–$2.55 per share.
Going Forward
There is no denying the fact that uncertainty in the global macro-economic environment, especially weakness in the industrial and Oil & Gas markets, are posing a major challenge for ITT. However, despite these challenges, we believe ITT’s comprehensive strategy, based on three pillars, namely, focused execution, strategic acquisitions and diligent capital-deployment initiatives, will act as its major strength, going forward.
Also, ITT anticipates a favorable decrease of $5 million in the net annual average (6 to 10 years) after-tax cash outflow projections as compared to the prior estimations. The optimism reflects the expectation of synergies from a single firm defense strategy that was deployed in the second quarter of 2015. Encouragingly, year-to date in 2015, this strategy has contributed towards the 15% decline in ITT’s net liability.
ITT currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include and Danaher Corp. DHR, Swire Pacific Limited SWRAY and Compass Diversified Holdings CODI. All stocks carry a Zacks Rank #2 (Buy).
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