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ITT's Q3 Earnings & Revenues Beat Estimates, Raises View

ITT Inc. ITT posted adjusted earnings of 66 cents per share in third-quarter 2017, beating the Zacks Consensus Estimate of 61 cents. Further, the figure improved 13.8% from the year-ago tally of 58 cents.

The strong bottom-line performance is largely attributable to the company’s initiatives to drive operational improvements. Moreover, improvement in sales as well as market growth strategies in key global end markets proved conductive to the strong performance.

Inside the Headlines

ITT’s third-quarter revenues came in at $645 million, up 10.8% on a year-over-year basis. Moreover, the figure came ahead of the Zacks Consensus Estimate of $604 million. Growth in revenues can primarily be attributed tostrength in transportation, led by strong performance in automotive as well as rail, partly offset by aerospace. Strength in general industrial and chemical markets also contributed significantly to year-over-year increase. Moreover, organic revenues increased 5% year over year on an adjusted basis.

Segment wise, Industrial Process revenues increased 1% year over year to $196 million. Increase in revenues came on the back of growth in short-cycle pumps and aftermarket service and parts, partly neutralizedby project declines in the midstream oil and gas as well asmining markets.

Total and organic revenues at the Connect and Control Technologies segment were flat year over year at $149 million. Stronger general industrial connectors, actuation components and oil & gas connector activity in the Middle East reflected well on the segment. The segment was formed by integrating the Interconnect Solutions and Control Technologies segments to streamline operations, capitalize on shared infrastructure and drive long-term growth in target markets.

Motion Technologiesrevenues continued their strong momentum and surged 25.6% year over year to $300 million. Further, organic revenues rose 12%. Significant share gains, double-digit OEM and aftermarket Friction growth as well as impressive growth in the shock absorber business proved conducive to the top-line improvement. Additionally, favorable effects from foreign exchange and Axtone acquisition supplemented the sales of this segment. 

ITT Inc. Price, Consensus and EPS Surprise

ITT Inc. Price, Consensus and EPS Surprise | ITT Inc. Quote

ITT’s adjusted segment operating income advanced 24% year over year to $91 million, mainly driven by strong productivity, restructuring benefits, improved performance on pump projects as well as the favorable impacts of foreign exchange.

Axtone Acquisition

In January, the company completed the buyout of customized components manufacturer, Axtone. ITT believes that this acquisition will continue to fortify foothold in the transportation industry – including railway, aerospace and automotive. In fact, in the third quarter, the strategic acquisitionbolsteredITT’s thriving Motion Technologies business and contributed meaningfully to revenue growth year over year.

Liquidity and Cash Flow

As of Sep 30, 2017, the company had cash and cash equivalents of $395.6 million, down from $460.7 million at end of Dec 31, 2016.

For the nine-month period ended Sep 30, 2017, net cash from operating activities totaled $178.4 million compared with $146.7 million in the year-ago period.

Share Repurchase

Year to date, the company has executed share repurchases of $32.9 million.

Guides Up

Concurrent with the third-quarter earnings release, ITT raised top and bottom-line guidance. The company currently projects adjusted EPS in the range of $2.50-$2.55, instead of the previousguidance of $2.40-$2.50. The upward revision came on the back of higher volumes and improved operational execution.

Additionally, the company expects GAAP revenue increase for 2017 in the range of 4-5% compared withthe previous guidance of 0-2%. The upward revision of revenue guidance is attributable to the strong year-to-date revenue and order growth as well as the favorable impacts of foreign exchange.

Our Take

ITT’s focus on business streamlining, cost controls and efficiency continues to prove beneficial to financial performance. The integration of its Interconnect Solutions and Control Technologies businesses into the Connect and Control Technologies segment will continue to enhance focus on target markets, streamline operations and leverage shared infrastructure and end markets. Moreover, the company’s simplified operational framework will help unlock growth opportunities, as well as drive long-term growth in the global aerospace and industrial markets.

This apart, the company’s focus on market expansion strategies are noteworthy and are likelytoact as a key driver of growth for the rest of the year. Going forward, the company expects its rail and auto businesses to act as major growth drivers, fueled by increase by recent acquisitions and growth in the aftermarket brake pad business. In addition, ITT expects to generate further OEM market share gains, particularly in Europe and China.

ITT currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other stocks worth considering in the same space include Nutanix Inc. NTNX, Leucadia National Corporation LUK and Honeywell International Inc. HON. While Nutanix sports a Zacks Rank #1 (Strong Buy), Leucadia National and Honeywell International carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nutanix has an excellent earnings surprise history, beating estimates in each of the trailing four quarters with an average beat of 12.9%.

Leucadia National has a modest earnings surprise history over the trailing four quarters, having beaten estimates thrice. It has delivered  an average beat of 21.2%.

Honeywell International has posted earning beats thrice in the trailing four quarters. It boasts an average beat of 1.2%.

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