ITT Corporation

ITT reports 2016 third-quarter results

    11/4/2016

    Announces acquisition of Axtone, a leading manufacturer of railway technologies
    Continues to see benefits from effective management of net asbestos liability


    Results Highlights:
    • Revenue down 3% to $582 million, Organic revenue down 10%
    • Segment operating income down 21%, Adjusted segment operating income down 19%
    • EPS of $0.98, Adjusted EPS of $0.58 (includes unfavorable FX of $0.04)
    • Adjusts 2016 full-year guidance

    WHITE PLAINS, N.Y., Nov. 4, 2016 – ITT Inc. (NYSE: ITT) today reported 2016 third-quarter financial results that reflect the benefits of a diversified portfolio, corporate efficiency and effective capital deployment in today’s challenging economic environment. During the quarter, continued weakness in oil and gas, chemical and industrial, and mining markets, was partially offset by growth and share gains in the automotive friction market, as well as incremental benefits from our 2015 acquisition of Wolverine Advanced Materials.
     
    “In the third quarter, ITT focused on strategically managing through this difficult macro-environment, while we continued to drive long-term structural reset activities in our Industrial Process segment,” said ITT CEO and President Denise Ramos. “We have aggressively taken extensive restructuring actions since the market downturn started, but we are still navigating volatile short-cycle dynamics in the flow market that are negatively impacting our outlook for the balance of the year. However, at the same time, we’ve continued to deliver strong results in our transportation businesses and significant benefits from our strategic approach to long-term growth and value creation in areas including operational improvements, effective capital deployment and risk mitigation.
     
    “Importantly, we have continued to drive operational improvements that help us manage through the current challenging environment and better serve our customers. In the third quarter, Motion Technologies, Interconnect Solutions and Control Technologies’ Industrial business delivered significant operational improvements that drove solid margin expansion.
     
    “From a capital deployment perspective, we are pleased to announce today that we have an agreement to acquire Axtone, which would help us expand our strong global position in railway components. And, as it relates to returning value to shareholders, we have executed $70 million of share repurchases year-to-date.
     
    “During the quarter, we also delivered significant progress in the area of managing and mitigating future asbestos risk. In the quarter, we recognized an $82 million pre-tax net benefit attributable to improved acceptance rates, lower average settlement costs, and benefits from our single defense firm strategy, which reduced outstanding claims and lowered defense costs. As a result, we have reduced our net liability by 10 percent in 2016.”

    2016 Third-Quarter Results
    All quarterly results are compared with the respective prior-year periods.
     
    On a GAAP basis, revenue was down 3 percent to $582 million as share gains in our automotive friction business and incremental benefits from our acquisition of Wolverine Advanced Materials were more than offset by impacts from our Industrial Process business, including significant project declines in the oil and gas and mining markets and soft short-cycle pump activity. GAAP segment operating income decreased 21 percent to $67 million as the benefits from past restructuring and productivity actions and the Wolverine acquisition were offset by pricing headwinds, and lower volume and project profitability, primarily at Industrial Process. GAAP EPS decreased to $0.98 due to tax items and higher restructuring and realignment costs, partially offset by the benefit recognized as a result of the annual asbestos re-measurement. 
     
    On an adjusted basis, organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) decreased 10 percent as strong transportation growth was offset by significant project declines and softness in short-cycle pumps. Adjusted segment operating income declined 19 percent to $73 million as benefits from solid net operating productivity, restructuring and the acquisition of Wolverine were offset by lower pump volumes, pricing headwinds and lower profitability on complex projects at Industrial Process, in addition to $5 million of negative foreign exchange impacts. Adjusted EPS decreased 8 percent to $0.58 reflecting lower corporate costs, which were offset by a higher tax rate and the $0.04 per share unfavorable impact of foreign exchange.
     
    For a reconciliation of GAAP to non-GAAP results and guidance, please click here.

    2016 Third-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 chemical and industrial, oil and gas, and mining markets.
    • Total revenue decreased 28 percent to $195 million, with organic revenue down 26 percent. Both measures reflect the impact of challenging conditions in the oil and gas, mining and chemical and industrial markets on our projects, short-cycle pumps and aftermarket businesses. Total revenue also includes the impact of unfavorable foreign exchange.
    • GAAP operating income decreased 87 percent to $4 million, and adjusted segment operating income decreased 80 percent to $7 million. Both measures primarily reflect significantly lower volumes across key end markets, pricing headwinds and lower profitability on complex projects, and a $5 million negative impact from foreign exchange, which were partially offset by incremental restructuring savings.
     
    Motion Technologies designs and manufactures braking technologies, shock absorbers and specialized sealing solutions for the automotive and rail markets.
    • Total revenue increased 33 percent to $239 million, and organic revenue increased 10 percent. Both measures reflect significant share gains and market growth in global automotive brake pads in both the OEM and aftermarket. Total revenue also includes incremental revenue from the 2015 acquisition of Wolverine and the impact of unfavorable foreign exchange.
    • GAAP operating income increased 37 percent to $45 million, and adjusted segment operating income increased 34 percent to $47 million. Both increases reflect higher volumes, benefits from productivity actions and favorable impacts from the acquisition of Wolverine, which were partially offset by pricing pressures. 
     
    Interconnect Solutions designs and manufactures connectors and interconnects for the transportation and industrial, aerospace and defense, and oil and gas markets.
    • Total revenue decreased 5 percent to $79 million, and organic revenue declined 6 percent. Both decreases reflect significant declines in global oil and gas markets. Total revenue also reflects the impact of favorable foreign currency exchange.
    • GAAP operating income increased 61 percent to $6 million and adjusted segment operating income increased 26 percent to $6 million. Both measures reflect the benefits of improved productivity and restructuring actions and $1 million of favorable foreign exchange, which were partially offset by the unfavorable impacts of volume, and pricing. GAAP operating income benefited from lower restructuring costs compared to the prior year.
     
    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.
    • Total revenue was up 1 percent to $71 million and organic revenue increased 1 percent, primarily reflecting growth in industrial energy absorption markets.
    • GAAP operating income decreased 17 percent to $12 million and adjusted segment operating income decreased 12 percent to $13 million, reflecting the benefits of favorable productivity and restructuring savings, which were offset by a favorable incentive compensation adjustment in the prior year.
     
    Annual Asbestos Re-measurement
    The company also announced that it recognized an $82 million pre-tax benefit in the third quarter as a result of its annual re-measurement of its asbestos liability and related insurance assets. This benefit reflects lower acceptance rates and lower recent average settlement values, as well as benefits from its single defense firm strategy that delivered lower defense costs. The benefit was recognized as a special item and was excluded from adjusted results.
     
    The company also projects a favorable $5 million decrease in the net annual average (years 6-10) after-tax cash flow projections versus prior projections primarily due to its effective and comprehensive net liability management.
     
    Fourth-Quarter 2016 Pension Settlement
    ITT has initiated a program offering certain former U.S. employees with a vested pension benefit an option to take a one-time lump sum distribution as part of ITT’s overall plan to de-risk its pension plans. Based on an estimate of participants expected to accept the offer, ITT expects to recognize a non-cash pretax pension settlement charge of approximately $18-20 million in the fourth quarter of 2016. The settlement charge will be recorded as a special item and is excluded from our adjusted EPS guidance.
     
    2016 Guidance
    The company is lowering its previously announced full-year 2016 GAAP and organic revenue guidance. GAAP revenue is now expected to be down 5 percent to 6 percent, and organic revenue is expected to be down 9 to 10 percent, primarily due to lower short-cycle pump and project activity across all key end markets.
     
    The company is also adjusting its GAAP EPS and lowering its adjusted EPS guidance primarily due to lower short-cycle volumes, lower project profitability and unfavorable foreign exchange at Industrial Process. In addition, the revised adjusted EPS guidance also reflects a higher tax rate. GAAP guidance also includes the pension settlement and the asbestos benefit from the company’s annual re-measurement. As a result, the company now expects the GAAP EPS guidance range to be $1.96 to $2.15 and the adjusted EPS guidance range to be $2.20 to $2.30.
     
    Investor Call Today
    ITT's senior management will host a conference call for investors today at 9 a.m. ET 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 Thursday, Nov. 18, 2016, at midnight.
     
    All references to EPS are defined as diluted earnings per share from continuing operations.
     

About ITT

ITT is a diversified leading manufacturer of highly engineered critical components and customized technology solutions for the energy, transportation and industrial markets. Building on its heritage of innovation, ITT partners with its customers to deliver enduring solutions to the key industries that underpin our modern way of life. Founded in 1920, ITT is headquartered in White Plains, N.Y., with employees in more than 35 countries and sales in a total of approximately 125 countries. The company generated 2015 revenues of $2.5 billion.

Safe Harbor Statement

This release contains “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 (the “Act”). No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. All forward-looking statements included in this release are based on information available to us on the date hereof, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and future financial results of the industry in which we operate, and other legal, regulatory and economic developments. These forward-looking statements include, but are not limited to, future strategic plans and other statements that describe the company’s business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance.
 
We use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “future,” “may,” “will,” “could,” “should,” “potential,” “continue,” “guidance” and other similar expressions to identify such forward-looking statements. Forward-looking statements are uncertain and to some extent unpredictable, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.
 
Forward-looking statements in this release should be evaluated together with the risks and uncertainties that affect our business, particularly those mentioned in the Risk Factors section of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other documents filed from time to time with the Securities and Exchange Commission.
 

Investors

Melissa Trombetta
tel +1 914-641-2030
melissa.trombetta@itt.com

Media

Kathleen Bark
tel +1 914-641-2103
kathleen.bark@itt.com

MEDIA