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ITT Corp. (ITT) Q1 Earnings Meet, Revenues Top, Stock Down

ITT Corp. ITT posted adjusted earnings of 59 cents per share in the first quarter of 2016, in line with the Zacks Consensus Estimate but down 9.2% from the year-ago tally of 65 cents.

The company’s lackluster earnings performance failed to impress investors, leading to a 8.3% fall in the stock price to $34.59 on May 5.

While factors like lower share count and reduced effective tax rate proved to be a tailwind, lower investment returns and foreign exchange headwinds offset these improvements.

Inside the Headlines

ITT Corp.’s first-quarter revenues were up 3.5% year over year to $609.1 million and comfortably surpassed the Zacks Consensus Estimate of $595 million. Improvement in the top-line performance came on the back of contributions from the previously acquired Wolverine Advanced Materials and Hartzell Aerospace businesses.

On an adjusted basis, organic revenues decreased 2.5% year over year due to softness in the oil and gas and mining markets.

Segment-wise, Industrial Process revenues were down 18.3% year over year to $208.8 million. Weakness in the oil & gas and mining markets hampered the pumps and aftermarket businesses at this segment, resulting in the sales drop.

Motion Technologies revenues were up a decent 34.4% year over year to $257 million on the back of significant share gains from stellar momentum in global automotive brake pads. Also, robust performance of shock absorbers business in all core markets including rail acted as a major growth catalyst for this segment.

Revenues in the Interconnect Solutions segment were down 6.6% year over year to $72.4 million, largely due to sluggishness in the oil and gas and general industrial connector markets. Moreover, declines in sales of non-strategic legacy connectors also added to the woes.

Control Technologies revenues were up 9.3% year over year to $71.9 million. The solid growth at this segment can be largely attributable to impressive performance of the aerospace and defense businesses.

ITT Corp.’s adjusted operating income dipped about 9.7% year over year to $81 million mainly hit by lower organic volumes stemming from difficult market conditions in oil and gas as well as mining. In addition, unfavorable pricing pressure and product mix also maligned the adjusted operating income.

Liquidity and Cash Flow

As of Mar 31, 2016, the company had cash and cash equivalents of $430.9 million, up from $415.7 million at end of Dec 31, 2015.

For the three months ended Mar 31, 2016, net cash from operating activities totaled $5.7 million compared with $8.2 million in the year-ago period.

Guidance

ITT Corp. reiterated its full-year revenue guidance. For 2016, the company expects total revenue within flat to a decline of 4%. Adjusted EPS are projected in the range of $2.42–$2.68, flat at midpoint and up 2% excluding the impact of foreign exchange compared to 2015 levels.

The largely negative sentiment of management in relation to revenue expectations stems from the turbulence in oil & gas as well as chemical & industrial pump markets and currency fluctuations. However, increased productivity and benefits from restructuring strategies undertaken by the company will likely prove conducive to the adjusted segment operating margin. Also, the company expects an uptick in the automotive business, lower corporate costs and favorable full-year tax rate to boost results.

Going Forward

ITT Corp.’s first quarter faced the usual issues, namely, foreign currency headwinds, softness in oil and gas and mining markets, which has been affecting the company’s performance of late. Going forward, these factors are expected to keep hurting the company’s financials.

Meanwhile, ITT Corp.’s focus on enhancing operational excellence through its Lean Six Sigma program, restructuring initiatives and global sourcing efforts are expected to combat some of these challenges. In 2016, the company expects to generate over $100 million in productivity savings driven by the Lean transformation initiatives. Also, improving prospects at its transportation business coupled with bolt-on acqusitions like Wolverine Advanced Materials and Hartzell Aerospace are likely to bolster the company’s global footprint in the automotive, aerospace and industrial markets.

ITT Corp. currently carries a Zacks Rank #2 (Buy). Other favorably ranked stocks in the industry include Carlisle Companies Incorporated CSL, CLARCOR Inc. CLC and Honeywell International Inc. HON. All the three stocks hold the same Zacks Rank as ITT Corp.

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ITT CORP (ITT): Free Stock Analysis Report
 
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CARLISLE COS IN (CSL): Free Stock Analysis Report
 
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