ITT reports 2015 first-quarter results

Friday, 1 May 2015

Deploys $133 million to-date for repurchases and acquisition

 
GAAP Results:

• Total revenue down 13% to $589 million
• Segment operating margins expanded 230 bps to 13.7%
• EPS increased 17% to $0.42
• Lowering EPS and revenue guidance for the full year

Adjusted Results:

• Organic revenue down 5%
• Segment operating margins expanded 150 bps to a record 15.2%
• EPS increased 5% to $0.65
• Lowering full-year EPS guidance range by $0.05 to a new range of $2.50 to $2.60, driven by foreign exchange
• Lowering full-year organic revenue guidance to a new range of (2%) to 1%

Capital Deployment

• $80 million share repurchases in first quarter
• $53 million strategic aerospace acquisition completed in early second quarter

WHITE PLAINS, N.Y.,  May 1, 2015 – ITT Corporation (NYSE: ITT) today reported 2015 first-quarter financial results, including improved operating margins and earnings per share growth, that reflected strong net operating productivity and effective cost containment in a challenging macroeconomic environment.

On a GAAP basis, the company delivered revenue of $589 million in the first quarter, reflecting a 13 percent decline primarily driven by unfavorable foreign exchange and lower organic revenue. GAAP segment operating margins expanded 230 basis points to 13.7 percent, reflecting lower selling, general and administrative costs, including restructuring costs. First-quarter GAAP EPS increased to $0.42, compared with $0.36 in the prior year, due to increased operating income, partially offset by a higher effective tax rate.

On an adjusted basis, organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) declined 5 percent, reflecting growth in global automotive brake pads and short-cycle baseline pumps, offset by declines in large pump projects due to timing and difficult prior-year comparisons, coupled with weak connector performance. Adjusted segment operating margins expanded 150 basis points to a record 15.2 percent, reflecting solid operational execution, restructuring benefits from previous actions and favorable foreign exchange impacts. Adjusted EPS, which exclude special items, increased 5 percent to $0.65, reflecting solid segment operational performance, lower corporate costs resulting from cost containment actions, and a lower effective tax rate and share count. Adjusted EPS, excluding the $0.04 negative impacts from foreign exchange, grew 11 percent in the quarter.

“Despite the ongoing headwinds from foreign exchange and the global oil and gas and industrial markets, we continued our track record of delivering solid results, as reflected in our improved operating margins and earnings per share in the quarter,” said Denise Ramos, Chief Executive Officer and President. “In addition, we continued to effectively deploy capital by expanding our automotive capabilities in the high-growth Chinese market, and in early April we completed the acquisition of Hartzell Aerospace, which will provide key high-growth and next-generation aerospace platform opportunities. We are also pleased to have repurchased $80 million of outstanding shares so far this year.”
 

2015 First-Quarter Business Segment Results

All quarterly results are compared with the respective prior-year periods

Industrial Process designs and manufactures industrial pumps and valves for the oil and gas, chemical, mining and industrial markets.

• First-quarter GAAP revenue decreased 10 percent to $256 million. First-quarter GAAP operating income declined 16 percent to $20 million.
• Organic revenue decreased 6 percent, as increased sales of short-cycle baseline pumps and a strong aftermarket were more than offset by declines in large pump projects due to timing and difficult prior year comparisons in all key end markets.
• Adjusted operating income increased 18 percent to $29 million as product warranty favorability, foreign currency transaction impacts, cost controls and net operating productivity more than offset lower volume and pricing pressures.

Motion Technologies designs and manufactures braking technologies and shock absorbers for the automotive and rail markets.

• First-quarter GAAP revenue decreased 12 percent to $191 million. First-quarter GAAP operating income increased 2 percent to $41 million.
• Organic revenue increased 3 percent, as automotive OEM brake pad growth across major geographies – including Europe, China and North America – offset anticipated declines in the aftermarket due to timing impacts from our customer’s inventory management.
• First-quarter adjusted operating income increased 2 percent to $41 million, reflecting higher volume and net operating productivity, partially offset by $7 million of unfavorable foreign exchange and incremental strategic investments to expand in China.

Interconnect Solutions designs and manufactures connectors and interconnects for the oil and gas, industrial and transportation, and aerospace and defense markets.

• First-quarter GAAP revenue decreased 22 percent to $78 million. First-quarter GAAP operating income increased to $5 million.
• Organic revenue declined 17 percent due to delayed shipments resulting from operational disruptions caused by the relocation of certain operations to Mexico, weakness across our major markets including oil and gas, and expected declines in non-strategic connectors.
• Adjusted operating income declined 62 percent to $5 million, as restructuring savings were more than offset by volume declines and $5 million of operational disruption costs due to relocation of certain operations to Mexico.

Control Technologies designs and manufactures products including fuel management, actuation, and noise and energy absorption components for the aerospace and industrial markets, as well as aerospace environmental control system components.

• First-quarter GAAP revenue decreased 10 percent to $66 million. First-quarter GAAP operating income decreased 8 percent to $14 million.  
• Organic revenue decreased 9 percent, due to timing of commercial aerospace shipments, difficult comparisons related to a prior-year program and aftermarket, and softer industrial markets.
• Adjusted operating income decreased 5 percent to $15 million, as net operating productivity was more than offset by lower volume, unfavorable mix and strategic incremental investments.

 

Updated 2015 Guidance

On a GAAP basis, the company is lowering its previously announced full-year 2015 GAAP EPS and revenue guidance. GAAP EPS is expected to be in the range of $1.65 to $1.83 and GAAP revenue is expected to be down 8.5 to 5.5 percent.

On an adjusted basis, the company is lowering its full-year adjusted EPS guidance by $0.05 at the mid-point, driven by the expected negative impact of foreign exchange. Operationally, market headwinds are expected to be more than offset by execution benefits. Adjusted EPS is now expected to be in the range of $2.50 to $2.60, up 3 percent at the mid-point. Excluding the impact of foreign exchange, adjusted EPS would be up 14 percent at the mid-point. Organic revenue is now expected to range from down 2 percent to up 1 percent, compared to a previous range of up 1 to 3 percent, reflecting incremental pressures in the oil and gas and industrial markets partially offset by stronger global automotive OEM volumes.
 

Investor Call Today

ITT's senior management will host a conference call for investors today at 9 a.m. EDT to review performance and answer questions. The briefing can be monitored live via webcast at the following address on the company's Web site: www.itt.com/investors and will be available on the website from two hours after the webcast until Friday, May 8, 2015, at midnight.

For a reconciliation of GAAP to non-GAAP results, please click here.

All references to EPS are defined as diluted earnings per share from continuing operations.