Raises revenue and EPS guidance
- Revenue up 11% to $645 million
- Segment operating income up 14%
- EPS flat at $0.98
- $76 million pre-tax benefit from annual asbestos re-measurement
- FCF (cash flows from operations less capital expenditures) increased 26% to $99 million
WHITE PLAINS, N.Y., November 2, 2017
- Organic revenue up 5%; Organic orders up 8%
- Adjusted segment operating income up 24%
- Adjusted EPS up 14% to $0.66
- Adjusted FCF of $165 million, up 27 percent; represents 95% conversion
– ITT Inc. (NYSE: ITT) today reported strong 2017 thirdquarter financial results that reflect the company’s ability to drive operational improvements and leverage the benefits from proactive restructuring while advancing share gains and market growth strategies in key global end markets.
On a GAAP basis, the company delivered revenue of $645 million, an 11 percent increase over the prior year. Organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) increased 5 percent driven by strength in transportation, reflecting strong performance in automotive and rail partially offset by aerospace. Revenue results also reflect improved performance in the general industrial and chemical markets. Organic orders grew 8 percent primarily due to strong premium transportation share gains, as well as strength in the general industrial markets partially offset by lower pump project activity.
GAAP segment operating income increased 14 percent and adjusted segment operating income increased 24 percent, reflecting strong volumes, productivity and restructuring benefits, improved performance on pump projects and the favorable impacts of foreign exchange, partially offset by higher commodity costs. GAAP segment operating income includes the impact of higher pension costs related to an hourly pension plan freeze and higher acquisition-related costs.
GAAP EPS was flat at $0.98 and adjusted EPS, which excludes special items, increased $0.08 to $0.66, reflecting the 24 percent growth in adjusted segment operating income and favorable impacts from a lower tax rate and share count, partially offset by unfavorable corporate cost comparisons.
For a reconciliation of GAAP to non-GAAP results, please refer to www.itt.com/investors or click here
“In the third quarter, ITT continued to optimize execution across the enterprise while driving growth and share gains in stabilizing key end markets,” said CEO and President Denise Ramos.
"From an execution standpoint, we drove double-digit adjusted operating income growth across all our businesses and improved adjusted segment margins by 150 basis points. Our Motion Technologies (MT) team continued to execute at a very high level despite pressures from higher commodity costs. We also drove strong operational improvements in Industrial Process (IP) and Connect and Control Technologies (CCT) as we strengthened project performance at IP, delivered solid productivity improvements at our CCT facilities, and continued to leverage the benefits of proactive restructuring in both businesses. This momentum contributed to year-over-year adjusted margin expansion of 490 basis points at IP and 130 basis points at CCT.
“In addition, we continued to grow in our key end markets, including automotive, rail and general industrial. MT delivered a record revenue quarter, driven by double-digit OEM growth in automotive brake pads globally, solid automotive aftermarket growth in Europe, and strength in our shock absorber business due to demand from the China high-speed rail market. We were also pleased to see improved orders across general industrial markets in North America and Europe.
"In the quarter, we also advanced a number of key growth opportunities as we expanded our electric vehicle innovation and testing center in China, and won new business in the EV brake pad and EV connector markets. Our team also won significant new business including additional automotive platform wins in China, a new multi-million dollar rotorcraft platform and a record defense vehicle award for our shock absorber business. All of these multi-year awards are accelerating our forward momentum in exciting markets that will help drive our future growth."
2017 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, industrial, oil and gas, and mining markets.
Motion Technologies designs and manufactures braking technologies, shock absorbers and specialized sealing solutions for the automotive and rail markets.
- Total revenue increased 1 percent to $196 million, and organic revenue was flat, reflecting growth in short-cycle pumps and aftermarket service and parts, partially offset by project declines in the midstream oil and gas and mining markets and weaker valves.
- GAAP operating income increased 130 percent to $10 million, and adjusted segment operating income increased 133 percent to $17 million. Both measures primarily reflect favorable aftermarket mix and price, improved project performance and productivity, partially offset by higher material costs. GAAP operating income was also negatively impacted by a $4 million pension curtailment charge.
Connect and Control Technologies designs and manufactures harsh-environment connectors and critical energy absorption and flow control components primarily for the aerospace and defense and industrial markets.
- Total revenue increased 26 percent to $300 million, and organic revenue increased 12 percent, reflecting a record revenue quarter, driven by double-digit OEM and aftermarket Friction growth, strong growth in the shock absorber business due to strength in Europe and high-speed rail demand in China, and share gains in sealing solutions at Wolverine. Total revenue also includes favorable benefits from foreign exchange and the Axtone acquisition in early 2017.
- GAAP operating income increased 9 percent to $49 million, and adjusted segment operating income increased 12 percent to $53 million. Both increases reflect strong volume growth, benefits from the acquisition of Axtone and Friction productivity improvements, partially offset by commodity costs and pricing pressures. GAAP operating income includes the impact of higher acquisition-related costs.
- Total and organic revenue was flat at $149 million, reflecting improvement in general industrial connectors, actuation components, oil and gas connectors in the Middle East and rotorcraft share gains. These gains were offset by declines in aerospace components and energy absorption projects.
- GAAP operating income increased 1 percent to $18 million and adjusted segment operating income increased 11 percent to $21 million. Both measures reflect improved net productivity and restructuring benefits and strong operational improvements in the connectors business, partially offset by the impact of unfavorable foreign exchange. GAAP operating income also includes the negative impact of higher restructuring costs in the current year.
Annual Asbestos Re-measurement
The company also announced that it recognized a $76 million pre-tax net benefit in the third quarter as a result of its annual re-measurement of its asbestos liability and related insurance assets. This benefit reflects fewer projected cases and lower average settlement values. The benefit was recognized as a special item and was excluded from adjusted results. Since 2012, the company has driven strategies that reduced the gross liability by 47 percent. The company also projects no change in the net annual average after-tax cash flow projections compared to prior projections.
The company is raising its previously announced 2017 full-year revenue guidance to the new range of up 4 percent to 5 percent primarily due to the strong year-to-date revenue and order growth and the positive impacts of foreign exchange. In addition, the company is raising the midpoint of its previously announced adjusted EPS guidance by $0.07 to $2.52. The new adjusted EPS range is now $2.50 to $2.55. The updated adjusted EPS guidance reflects higher volumes and improved operational execution, partially offset by incremental commodity headwinds. The new adjusted EPS midpoint of $2.52 represents a 9 percent increase compared to the prior year, or a 10 percent increase excluding foreign exchange.
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 website: www.itt.com/investors
and will be available on the website from two hours after the webcast until Thursday, Nov. 16, 2017, at midnight.
All references to EPS are defined as diluted earnings per share from continuing operations.