Shares of ITT Corporation ITT rose around 1.6% during the trading session, after its first-quarter 2015 earnings release before the opening bell, to close at $40.28 on May 1.
The company’s adjusted earnings from continuing operations came in at 65 cents for the quarter, which surpassed the Zacks Consensus Estimate of 54 cents by 20.4% and the prior-year quarter figure of 62 cents by 4.8%.
Earnings were driven by strong growth in global automotive OEM volumes and increasing operating margins. However, negative foreign exchange impacts and weak oil & gas and industrial markets continued to remain the headwinds.
Inside the Headlines
ITT reported first-quarter revenues of $588.7 million, reflecting a 12.7% decrease from the year-ago quarter, and missed the Zacks Consensus Estimate of $642 million. Decline in revenues was attributable to lower organic revenue across all major segments and unfavorable foreign exchange impacts. On an adjusted basis, organic revenue dipped 5% on a year-over-year basis as weak performance of connector and shrink in large pump projects offset the global growth in automotive brake pads and short-cycle baseline pumps.
As per the segments, the Industrial Process revenues plummeted around 11% year over year to $255.6 million; Motion Technologies segment revenues declined 12% year over year to $191.2 million; revenues of the Interconnect Solutions segment tumbled around 23% to $77.5 million; and Control Technologies segment revenues recorded a 10% decline to $65.8 million, on a year-over-year basis.
ITT’s operating income moved north 5% year over year to $80.5 million. Operating margins increased 230 basis points to 13.7% in the first quarter of 2015.
Liquidity and Cash Flow
At the end of first-quarter 2015, the company had cash and cash equivalents of $570.1 million compared with $584.0 million at year-end 2014.
For the three months ended Mar 31, 2015, net cash from operating activities totaled $8.2 million compared with net cash used for operating activities of $13.2 million in the three months ended Mar 31, 2014.
In first-quarter 2015, ITT repurchased $80 million of shares and has deployed $133 million for share buybacks and acquisitions to date.
Guidance Lowered
ITT cut its earnings guidance for 2015 on concerns related to sluggishness in industrial and oil & gas markets along with negative impact of foreign exchange. Adjusted earnings per share from continuing operations has been lowered to the range of $2.50–$2.60 per share, from $2.55–$2.65 guided earlier.
Our Take
ITT missed revenues on continued primary market headwinds coupled with the negative effect of currency fluctuations. These factors hurt the organic revenue across all segments. Nevertheless, strong earnings aid it to tide over, which was fueled by global automotive brake pads and short-cycle baseline pumps gains. Apart from this, ITT has been successfully deploying its capital for expansion in high-growth Chinese automobile market. Consequently, ITT concluded the strategic acquisition of the leading aerospace environmental control systems manufacturer, Hartzell Aerospace in early second-quarter 2015 (read more: ITT Eyes Growth in Aerospace Industry on Hartzell Buy).
ITT currently has a Zacks Rank #3 (Hold). Some better-ranked players in this space are Compass Diversified Holdings CODI, Icahn Enterprises, L.P. IEP and Great Lakes Dredge & Dock Corporation GLDD. All stocks carry a Zacks Rank #2 (Buy).
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