Delivers results in challenging environment, updates 2015 EPS and revenue guidance
- Total revenue down 5% to $628 million
- Segment operating margins expanded 90 bps to 14.3%
- EPS increased to $1.56
WHITE PLAINS, N.Y., July 31, 2015
- Organic revenue up 1%
- Segment operating margins expanded 110 bps to record 15.2%
- EPS increased 15% to $0.69; excluding foreign exchange, EPS up 25%
– ITT Corporation (NYSE: ITT) today reported 2015 second-quarter financial results, including stronger operating margins and earnings per share growth, that reflected net operating productivity, restructuring savings from proactive actions and effective cost containment in a challenging macroeconomic environment.
On a GAAP basis, the company delivered revenue of $628 million in the second quarter, reflecting a 5 percent decline, primarily due to unfavorable foreign exchange. GAAP segment operating margins expanded 90 basis points to 14.3 percent. Second-quarter GAAP EPS increased to $1.56, compared with $0.44 in the prior year, primarily due to the recognition of a $101 million pre-tax benefit, or $0.70 per share, associated with implementing a new single-firm asbestos defense strategy.
On an adjusted basis, organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) increased 1 percent, reflecting higher volume and market share growth in global automotive brake pads and industrial pump projects and aftermarket. These gains were offset by declines in short-cycle baseline pumps, connector delivery delays and the timing of commercial aerospace shipments and aftermarket softness. Adjusted segment operating margins expanded 110 basis points to a record 15.2 percent for the second consecutive quarter, as strong net operating productivity funded strategic investments and more than offset operational disruption costs due to the relocation of certain connectors operations within North America. Adjusted EPS, which excludes special items, increased 15 percent to $0.69, reflecting solid segment operational performance, lower corporate costs and a lower share count. Adjusted EPS, excluding the $0.06 negative impact from foreign exchange, grew 25 percent in the quarter.
“Despite the persistent headwinds from foreign exchange and 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 growth in the quarter,” said Denise Ramos, Chief Executive Officer and President. “In addition, we are already starting to realize the benefits from effectively deploying our capital in the second quarter to acquire Hartzell Aerospace. The integration and performance of the business are on track, and we are seeing new opportunities to enhance our presence on key high-growth and next-generation aerospace platforms.
“However, while we are pleased with our first-half execution, we are mindful of the ongoing volatility in the global macro-economic environment, including recent intensifying pressures in global industrial markets, as well as the operational disruptions within our Interconnect Solutions business. As we manage through these conditions, we will continue our strong focus on optimizing our businesses and improving our execution across the company to drive enhanced long-term value for shareowners.”
2015 Second-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.
Motion Technologies designs and manufactures braking technologies and shock absorbers for the automotive and rail markets.
- Second-quarter GAAP revenue decreased 1 percent to $288 million. Second-quarter GAAP operating income increased 63 percent to $42 million.
- Organic revenue increased 4 percent, as growth in the Latin American and the Middle East aftermarket – coupled with strong project pumps, which was supported by a solid backlog entering into 2015 – was partially offset by softness in short-cycle baseline pumps and valves.
- Adjusted operating income increased 49 percent to $41 million due to strong net operating productivity, including restructuring benefits and cost containment actions, higher volume and favorable mix, and lower postretirement costs.
Interconnect Solutions designs and manufactures connectors and interconnects for the oil and gas, industrial and transportation, and aerospace and defense markets.
- Second-quarter GAAP revenue decreased 7 percent to $184 million. Second-quarter GAAP operating income increased 7 percent to $37 million.
- Organic revenue increased 9 percent, reflecting automotive OEM brake pad sales growth across major geographies, including Europe, China and North America. The results also reflect an increase in aftermarket due to solid Original Equipment Service volumes, an anticipated beneficial shift in an independent aftermarket customer’s order patterns and strength in our shock absorber business.
- Second-quarter adjusted operating income increased 6 percent to $37 million, reflecting higher volume, net operating productivity and a $2 million insurance recovery gain, partially offset by $7 million of unfavorable foreign exchange, prior-year legal settlement favorability and negative pricing impacts. Adjusted operating income, before the negative impact from foreign exchange, grew 27 percent in the quarter.
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.
- Second-quarter GAAP revenue decreased 20 percent to $83 million. Second-quarter GAAP operating results decreased to a loss of $1 million.
- Organic revenue declined 14 percent due to delayed shipments resulting from operational disruptions caused by the relocation of certain operations within North America, declines in market share and weakness across our major markets including oil and gas, and expected declines in non-strategic connectors.
- Adjusted operating income declined 67 percent to $5 million, as savings from restructuring initiatives were more than offset by a $6 million impact from operational disruptions due to the relocation of certain operations within North America and volume declines.
- Second-quarter GAAP revenue increased 1 percent to $75 million. The acquisition of Hartzell Aerospace contributed approximately $10 million in revenue and orders. Second-quarter GAAP operating income decreased 25 percent to $12 million.
- Organic revenue decreased 10 percent, due to timing of commercial aerospace shipments and aftermarket softness, as well as industrial declines driven by softer international markets and a difficult prior-year comparison in North America.
- Adjusted operating income decreased 22 percent to $13 million, as net operating productivity was more than offset by lower volume, unfavorable mix and higher legal costs.
On a GAAP basis, the company is lowering its previously announced full-year 2015 GAAP revenue guidance and raising its full-year EPS guidance. GAAP revenue is expected to be down 9 to 7 percent. GAAP EPS is now expected to be in the range of $2.32 to $2.50.
On an adjusted basis, the company is lowering its full-year EPS guidance by $0.05 at the mid-point, as the continuation of first-half operational execution, incremental second-half restructuring savings and favorable corporate cost controls are expected to be more than offset by lower second-half volumes and the disruption impacts at Interconnect Solutions. Adjusted EPS is now expected to be in the range of $2.45 to $2.55. Organic revenue is now expected to range from down 3 percent to down 1 percent, reflecting improved project execution at Industrial Process, which is expected to be more than offset by weakness at Interconnect Solutions and weaker second-half markets due to macroeconomic uncertainty.
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, Aug. 14, 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.