ITT Corporation (ITT) reported second-quarter 2013 earnings per share of 51 cents, improving 15% year over year and outpacing the Zacks Consensus Estimate of 45 cents by 11.8%. Earnings were up 15% year over year. Profits during the quarter were driven by stronger operational performance, improved volumes and a favorable mix.
Total Revenue
Total revenue in the quarter surged 9.2% to $609.2 million from $557.9 million in the prior-year period. Organic revenue for the quarter grew 2%. Revenue growth during the quarter was driven by a 13% increase in Western Europe and a 12% increase in emerging markets. In addition, gains in key global end-markets with 19% growth in energy and 12% growth in the global automotive breakpad market and a solid performance from the recently acquired Bornemann Pumps business contributed to the top-line growth. These were offset by a 35% decline in global mining.
Segment Results
The Industrial Process segment reported revenues of $268.7 million, reflecting a 15.3% increase. Organic revenues contracted 1% due to decline in global mining. Overall revenue growth was driven by 40% increase in organic global oil and gas shipments and the impact from the company’s successful acquisition of Bornemann Pumps. Organic orders for the segment grew 8% driven by strong project activity particularly in the oil & gas markets. The total backlog for the segment grew 10% in 2013.
Revenues in the Motion Technologies segment increased 10.5% to $171.4 million, driven by significant gains in the global automotive brake pad market. Revenue growth reflects strong performance in Western Europe with revenues increasing 9% despite difficult markets and 70% growth in China. These gains were partially offset by unfavorable automotive shipment timing in North America and weakness in the global rail shock absorber market. Organic revenues for the segment grew 9% year over year.
Interconnect Solutions revenues in the quarter grew 0.4% to $100.3 million, driven by growth in defense and general industrial connectors, which was offset by a difficult comparison in oil and gas connectors. Organic revenues grew 1%.
Control Technologies revenues decreased 1.8% to $70.2 million as growth in the North American and European aerospace was fully offset by anticipated declines related to the fulfillment of an aerospace program and weakness in the global general industrial and defense markets.
Income and Expenses
Exiting the quarter, the company reported an operating income of $41.4 million compared with $57.0 million in the prior-year quarter. The decline was primarily attributable to higher costs of revenues and higher selling, general & admistrative expenses.
Operating margin expanded 70 basis points during the quarter driven by net operating productivity and increased volume, partially offset by the Bornemann Pumps operations and the funding of strategic investments.
Balance Sheet & Cash Flow
At the end of the quarter, cash and cash equivalents were $517.7 million with no long-term debt. The company had shareowners' equity of $660.5 million.
Outlook
Concurrent with the earnings release, the company raised its 2013 guidance. ITT expects adjusted earnings per share to be in the range of $1.86 to $1.92 compared with $1.80 to $1.90 mentioned earlier.
Total revenue is now expected to grow 10% to 11%, up from prior expectations of a 9% to 11% increase. The increased guidance is driven by growth in the oil and gas, chemical and industrial markets, share gains in the global automotive market, the impact of the Bornemann Pumps acquisition and emerging market growth, partially offset by weakness in the mining and defense end markets. Organic revenues are expected to grow in the range of 3% to 4%, up from 2% to 4% mentioned earlier.
ITT currently has a Zacks Rank #3 (Hold). Here are some other companies operating in the same sector that you might consider at the moment – AO Smith Corp. (AOS), having a Zacks Rank #1 (Strong Buy), Plug Power Inc. (PLUG) and Rexnord Corporation (RXN), carrying a Zacks Rank #2 (Buy).
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