ITT Announces Strong Third-Quarter 2014 Results

Friday, 31 Oct 2014

Revenue growth driven by gains in oil and gas, automotive and rail; Raising 2014 EPS guidance

• Total and organic revenue increased 4 percent
• GAAP EPS decreased to $0.87 due to the impact in 2013 of a significant tax benefit
• Adjusted EPS increased 22 percent to $0.66
• GAAP segment operating margins expanded 230 basis points to 14.4 percent
• Adjusted segment operating margins expanded 190 basis points to 15.1 percent

WHITE PLAINS, N.Y., Oct. 31, 2014 – ITT Corporation (NYSE: ITT) today reported that third-quarter 2014 total revenue grew by 4 percent to $657 million, reflecting growth in oil and gas project pumps in North America, Latin America and the Middle East; growth in the automotive brake pad aftermarket in Europe and market share gains in China; and global growth in rail shock absorbers. Organic revenue (defined as total revenue excluding foreign exchange, acquisitions and divestitures) was also up 4 percent.

Revenue results reflect growth in key geographies and end markets, including 14 percent growth in emerging markets, 15 percent growth in energy and 6 percent growth in transportation, partially offset by a 4 percent decline in industrial markets due to a decline in communication and other non-strategic connectors.

Third-quarter GAAP earnings from continuing operations decreased from $4.71 in 2013 to $0.87 per diluted share, reflecting the impact of a $4.08 per diluted share tax benefit in 2013 from a valuation allowance release. Adjusted earnings from continuing operations, which excludes special items, increased 22 percent to $0.66 per diluted share, reflecting strong segment operational performances and a lower effective tax rate, partially offset by increased corporate costs. Special items primarily included asbestos-related impacts, restructuring and realignment costs, repositioning costs and tax related items.

On a GAAP basis, total segment operating margins increased 230 basis points year-over-year to 14.4 percent. Total adjusted segment operating margins expanded by 190 basis points to 15.1 percent, reflecting strong net operating productivity and increased volume, partially offset by unfavorable mix and pricing, and growth investments.

"I am pleased to report that in the third quarter, ITT once again delivered a strong performance driven by our solid organic revenue growth and net operating productivity gains, which resulted in significant adjusted segment operating margin expansion and earnings per share growth," said CEO and President Denise Ramos. "These results demonstrate the power of our portfolio – which is diversified and balanced across key end markets, geographies and customers – and a strategy that is keenly focused on long-term growth and value creation for stakeholders.

"Our performance also reflects the consistent commitment and execution of employees across all of our businesses and the steady progress they are making on strategies such as driving the Lean transformation, turning around key businesses and leveraging targeted strategic investments for growth. All of these efforts will continue as we move into 2015, which will help us make further progress to build our capabilities as we face ongoing economic uncertainty and geopolitical volatility."
 

2014 Third-Quarter Business Segment Results

All results are compared with the prior-year third quarter

Industrial Process manufactures engineered fluid-process equipment for the oil and gas, chemical, mining and industrial markets and provides aftermarket services and parts.

• Third-quarter total and organic revenue was up 3 percent to $293 million. The increase reflects strong growth in oil and gas project pumps in North America, Latin America and the Middle East, partially offset by weaker chemical and industrial pumps and valves, as well as mining pumps in Asia and Latin America.
• GAAP operating income increased 12 percent to $31 million. Adjusted operating income increased 3 percent to $33 million, reflecting net operating productivity and favorable foreign exchange, partially offset by a higher mix of generally lower-margin large projects, operational impacts related to increased pump project complexity and incremental strategic investments.

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

• Third-quarter total and organic revenue increased 11 percent to $197 million, reflecting automotive brake pad aftermarket growth in Europe and share gains in China, as well as strong performance by the shock absorber business in the global rail end market.
• GAAP operating income increased 47 percent to $37 million. Adjusted operating income was up 35 percent to $37 million, reflecting increased volume, strong net operating productivity, benefits from the shock absorber business turnaround and favorable foreign exchange, partially offset by unfavorable pricing and incremental strategic investments.

Interconnect Solutions manufactures highly specialized connectors for the oil and gas, medical, industrial and transportation, and aerospace and defense markets.

• Third-quarter total and organic revenue decreased 5 percent to $98 million, reflecting strength in North American oil and gas connectors and Asian general industrial connectors, which was more than offset by weaker defense and communication connectors and expected declines in non-strategic connectors.
• GAAP operating income was up 4 percent to $11 million. Adjusted operating income was up 25 percent to $14 million due to net operating productivity and restructuring benefits, partially offset by lower volume and a negative mix shift.

Control Technologies manufactures specialized equipment including actuation, valve, and noise and energy absorption components for the aerospace and industrial markets.

• Third-quarter total and organic revenue increased 1 percent to $71 million. The results reflect growth in general industrial solutions, primarily in energy absorption, which was offset by defense weakness and the impact of an end-of-life aerospace program. Revenue from ongoing commercial aerospace programs improved 7 percent.
• GAAP operating income and adjusted operating income each increased 15 percent to $16 million, as net strong operating productivity was partially offset by a negative mix shift due to defense weakness and the impact of an end-of-life aerospace program, as well as incremental strategic investments.

Annual Asbestos Remeasurement

In the third quarter, ITT recognized a $59 million pre-tax benefit as a result of its annual remeasurement of its asbestos liability and related insurance asset. This benefit reflects a reduction in the estimate of the net liability primarily based on lower legal defense costs and lower acceptance rates. The benefit was recognized as a special item and was excluded from adjusted results.
 

Guidance

The company is raising its adjusted EPS guidance range and updating its total revenue guidance range. GAAP EPS is expected to be in the range of $2.01 to $2.06. Adjusted EPS guidance is being raised by $0.03 at the mid-point resulting in a new adjusted EPS range of $2.42 to 2.47, which represents 21 percent growth at the mid-point versus the prior year. The increase reflects the third-quarter operational outperformance by the Motion Technologies and Control Technologies businesses and the better-than-expected volume at Motion Technologies in the automotive brake pad business, as well as the expectation that these gains will be partially offset by unfavorable foreign currency in the fourth quarter.

The company is maintaining its organic revenue guidance and lowering the high-end of its total revenue guidance to reflect the impact of foreign currency. Both full-year organic and total revenue growth are now expected to be in the range of 5 to 6 percent versus the prior year.
 

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 from the Investor Relations page on the company's website.

For a reconciliation of GAAP to non-GAAP items and a statement regarding the usefulness of these measures to investors and management in evaluating our operating performance, please see the tables attached to this press release and visit the Non-GAAP Reconciliations page on the company’s website.