ITT reports 2015 fourth-quarter and full-year results, 2016 guidance

Friday, 12 Feb 2016

Focus on strong execution and strategic advancement continues in 2016

2015 Full-Year GAAP Results:

• Revenue down 6% to $2.5 billion
• Operating income up 43%
• EPS increased to $3.44

2015 Full-Year Adjusted Results:

• Organic revenue down 1%
• Operating income flat, up 9% excluding foreign exchange
• EPS up 3% to $2.55, up 13% excluding foreign exchange

2016 Guidance:

• Total revenue flat to down 4%, GAAP EPS in range of $1.72 to $2.11
• Adjusted segment operating margin expansion of 70-90 bps
• Adjusted EPS in the range of $2.42 to $2.68, flat at midpoint of $2.55

Quarterly Dividend Raised by 5% to $0.124

WHITE PLAINS, N.Y., Feb. 12, 2016 – ITT Corporation (NYSE: ITT) today reported 2015 fourth-quarter and full-year financial results that reflected strong net operating productivity and effective cost containment in a challenging macroeconomic environment. The company also provided 2016 guidance.

On a GAAP basis, the company delivered revenue of $2.5 billion in 2015, reflecting a 6 percent decline, primarily due to the impact of unfavorable foreign exchange of $194 million. GAAP operating income increased 43 percent. Full-year GAAP EPS increased significantly to $3.44, compared with $2.03 in the prior year, primarily due to a $0.70 per share benefit associated with implementing a new single-firm asbestos strategy, in addition to the successful resolution of a federal tax audit.

On an adjusted basis, full-year organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) decreased 1 percent, reflecting solid growth in global automotive brake pads that was offset by declines in the oil and gas and global general industrial markets, difficult prior-year comparisons in chemical and industrial pumps, and declines in aerospace.

While full-year adjusted operating income was flat, it was up 9 percent excluding $30 million of foreign exchange, reflecting strong net operating productivity and restructuring benefits, lower corporate costs and the impacts of the strategic acquisitions of Wolverine Advanced Materials and Hartzell Aerospace. These gains were partially offset by negative impacts from pricing and mix, operational disruption costs due to the relocation of certain connectors operations and the funding of strategic investments to fuel future organic growth.

2015 adjusted EPS, which excludes special items, increased 3 percent to $2.55, as strong adjusted operating results and a lower effective tax rate and share count were partially offset by unfavorable foreign exchange of $0.24.  Adjusted EPS, excluding the negative impact from foreign exchange, grew 13 percent in 2015.

"In 2015, ITT collectively confronted a challenging macroeconomic environment that presented headwinds across a number of areas, including foreign exchange and oil and gas and industrial markets," said ITT CEO and President Denise Ramos. "Given these persistent external challenges, our ITT team focused on key target areas that would help us drive progress, and as a result, we produced record adjusted operating margins of 12.8 percent by realizing strong benefits from improved productivity, the proactive restructuring of our operations, and cost controls and improved efficiency.

"In addition, ITT continued to deploy our capital in balanced and effective ways to both position us for long-term success and to provide significant returns of value to shareowners. Over the course of the year, we executed the acquisitions of Wolverine Advanced Materials and Hartzell Aerospace, made organic investments to expand our growing global friction business, completed $80 million in share repurchases and provided a solid dividend. In addition, we also continued to effectively manage our net asbestos liability, resulting in improved cash flow projections and a significant 16 percent reduction in the net liability in 2015.

"As we look ahead to 2016, we remain mindful of the ongoing volatility in the global macroeconomic environment and the impact these conditions will continue to have on our businesses. As a result, we will maintain our strong focus on managing those areas over which we have control by optimizing and aligning our businesses and their respective cost structures to drive enhanced long-term value for shareowners."
 

2015 Fourth-Quarter Results

On a GAAP basis, the company delivered revenue of $667 million in the fourth quarter, reflecting a 1 percent increase. GAAP operating income increased 23 percent. Fourth-quarter GAAP EPS increased to $0.40, compared with $0.36 in the prior year.

On an adjusted basis, organic revenue increased 1 percent as strong growth in global automotive brake pads was partially offset by oil and gas market declines and global general industrial market weakness.

Adjusted operating income declined 4 percent as strong net operating productivity, restructuring benefits from proactive actions and lower corporate costs, including efficiencies and lower insurance and environmental costs, were more than offset by unfavorable impacts from pricing and foreign exchange, operational disruption costs due to the relocation of certain connectors operations and legal settlement-related impacts at Control Technologies. Adjusted operating income, excluding the negative $7 million impact of foreign exchange, increased 5 percent year-over-year.

Adjusted EPS decreased 2 percent to $0.58 as solid adjusted operating income gains and positive impacts of a lower share count were more than offset by the negative impact of foreign exchange and a higher effective tax rate. Adjusted EPS, excluding the negative $0.06 impact of foreign exchange, increased 8 percent in 2015.
 

2015 Fourth-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.

• GAAP revenue decreased 12 percent to $300 million. GAAP operating income increased 5 percent to $45 million.
• Organic revenue decreased 6 percent, reflecting strength in short-cycle baseline pumps and valves, due to solid backlog, offset by declines in project pumps as well as aftermarket sales due to the impact of delayed customer maintenance.
• Adjusted segment operating income decreased 13 percent to $40 million as strong net operating productivity, including restructuring benefits and cost containment actions, was more than offset by the negative impacts of pricing, volume, mix shift and $4 million of unfavorable foreign exchange.
• For the full-year 2015, Industrial Process expanded adjusted segment operating margins by approximately 230 basis points year-over-year, reflecting benefits from ongoing actions to optimize Industrial Process to better leverage previous investments, including reorganizing into three more focused verticals, which drives improved execution while lowering the structural cost base.

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

• GAAP revenue increased 35 percent to $212 million. GAAP operating income decreased 21 percent to 15 million, reflecting acquisition costs related to Wolverine Advanced Materials.
• Organic revenue increased 24 percent due to significant share gains and market growth in global automotive brake pads, as well as defense and Chinese rail shock absorbers.
• Adjusted segment operating income increased 24 percent to $26 million, reflecting higher volume and net operating productivity, and the acquisition of Wolverine Advanced Materials, which were partially offset by unfavorable impacts from pricing and foreign exchange.

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

• GAAP revenue decreased 6 percent to $85 million. GAAP operating income increased 171 percent to $5 million reflecting lower restructuring and realignment costs.
• Organic revenue declined 3 percent as strong defense program shipments were more than offset by weakness in the upstream oil and gas and general industrial connector markets.
• Adjusted segment operating income declined 57 percent to $5 million, as savings from restructuring initiatives and benefits from lower post-retirement costs were more than offset by impacts from operational disruptions due to the relocation of certain connectors operations and increased inventory and warranty-related costs.

 
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.

• GAAP revenue decreased 3 percent to $71 million, and GAAP operating income decreased 88 percent to $2 million, reflecting higher restructuring costs.
• Organic revenue decreased 12 percent due to declines in the aerospace, defense and industrial markets.
• Adjusted segment operating income decreased 52 percent to $8 million, as net operating productivity and the impact of the Hartzell Aerospace acquisition were more than offset by lower volume, unfavorable mix shift, legal settlement-related impacts and increased development costs for a new long-term aerospace platform.

2016 Guidance

The company announced 2016 guidance with total revenue flat to down 4 percent, and GAAP EPS in 2016 is expected to be in the range of $1.72 to $2.11. From a total revenue perspective, global friction share gains and positive impacts from the acquisitions of Wolverine Advanced Materials and Hartzell Aerospace are expected to more than offset significant declines in the global oil and gas and chemical and industrial pump markets, reflecting the benefits of a diversified portfolio. Total revenue also reflects the negative impacts of price and foreign exchange.

The company expects to offset the top-line headwinds by delivering adjusted segment operating margin expansion of 70 to 90 basis points due to impacts from increased productivity and benefits from restructuring and footprint optimization actions. Adjusted EPS is expected to be in the range of $2.42 to $2.68 per share, which is flat at the midpoint and up 2 percent excluding the impact of foreign exchange compared to 2015.

The company plans to continue to return capital to shareowners through increasing its dividend by 5 percent to $0.124 per share.
 

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 Friday, Feb. 26, 2016, 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.