ITT reports 2016 first-quarter results

Thursday, 5 May 2016

Re-affirms 2016 full-year revenue and adjusted EPS guidance

GAAP Results:

• Revenue up 3.5% to $609 million
• Segment operating income down 10%
• EPS flat at $0.42

Adjusted Results:

• Organic revenue down 2.5%
• Segment operating income down 10%, flat excluding $8 million foreign exchange impact
• EPS down 9%, up 5% excluding ($0.09) foreign exchange impact

WHITE PLAINS, N.Y., May 5, 2016 – ITT Corporation (NYSE: ITT) today reported 2016 first-quarter financial results that reflected the benefits of a diversified portfolio and effective capital deployment in today's challenging economic environment, as the benefits of recent acquisitions and significant growth across our transportation businesses more than offset the negative impacts of continued weakness in the oil and gas and mining markets.

On a GAAP basis, the company delivered revenue of $609 million, a 3.5 percent increase, reflecting the incremental impacts of our 2015 acquisitions of Wolverine Advanced Materials and Hartzell Aerospace. GAAP segment operating income results were driven by the negative impacts of foreign exchange, pricing pressure and product mix. First-quarter GAAP EPS was flat at $0.42.

On an adjusted basis, first-quarter organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) decreased 2.5 percent, reflecting solid growth in global transportation that was more than offset by declines in oil and gas and mining markets.

First-quarter adjusted segment operating income was flat, excluding the $8 million impact from foreign exchange, reflecting solid net operating productivity and restructuring benefits, and the impacts of the strategic acquisitions of Wolverine Advanced Materials and Hartzell Aerospace. These gains were offset by negative impacts from lower organic volumes primarily related to the difficult market conditions in oil and gas and mining, pricing pressure and unfavorable product mix.

First-quarter adjusted EPS, which excludes special items, decreased 9 percent to $0.59, exceeding internal expectations, as a lower share count and lower effective tax rate were partially offset by lower investment returns at corporate and unfavorable foreign exchange of $0.09. Adjusted EPS, excluding the negative impact from foreign exchange, grew 5 percent in the first quarter.

For a reconciliation of GAAP to non-GAAP results, please click here.

"In the first quarter, ITT continued to confront a challenging macroeconomic environment that presented headwinds across a number of areas, including foreign exchange and the oil and gas and mining markets. For ITT, we realized the benefits of our balanced and diverse portfolio as the market headwinds we faced were offset by solid revenue growth in key global transportation markets. We also continued to drive an intense focus on corporate cost containment," said ITT CEO and President Denise Ramos.  

"In addition, our 2015 acquisitions of Wolverine Advanced Materials and Hartzell Aerospace – which are performing extremely well – have strengthened key transportation platforms and given us new opportunities for long-term growth. We are continuing to deploy our capital to both position ITT for long-term success and to provide returns of value to shareowners. Our latest organic investment is a new North American automotive brake pad facility to support recent multi-year platform wins with key customers.

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

2016 First-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.

• Total revenue decreased 18 percent to $209 million. GAAP operating income decreased 56 percent to $9 million.
• Organic revenue decreased 14.5 percent, reflecting the impact of weakness in the oil and gas and mining markets on our pumps and aftermarket businesses.
• Adjusted segment operating income decreased 58 percent to $12 million as restructuring benefits and cost containment actions were more than offset by the negative impacts of volume, $6 million of unfavorable foreign exchange and prior-year product warranty favorability.

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

• Total revenue increased 34 percent to $257 million. GAAP operating income increased 24 percent to $51 million.
• Organic revenue increased 14 percent due to significant share gains and market growth in global automotive brake pads, as well as growth in our shock absorbers business in all core markets including rail.
• Adjusted segment operating income increased 30 percent to $53 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.

• Total revenue decreased 7 percent to $72 million. GAAP operating income decreased 58 percent to $2 million.
• Organic revenue declined 6 percent due to market weakness in the oil and gas and general industrial connector markets and expected declines in non-strategic legacy connectors.
• Adjusted segment operating income declined 57 percent to $2 million, as savings from restructuring initiatives were more than offset by impacts from operational disruptions due to the relocation of certain connectors operations, lower volumes and unfavorable mix shift and pricing.

 
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 increased 9 percent to $72 million, and GAAP operating income decreased 27 percent to $10 million.
• Organic revenue decreased 1 percent as growth in aerospace and defense was partially offset by softness in global industrial markets.
• Adjusted segment operating income decreased 7 percent to $14 million, as net operating productivity and the impact of the Hartzell Aerospace acquisition were more than offset by the impact of prior-year reserve favorability.

 

Guidance

The company is re-affirming its previously announced 2016 full-year revenue and adjusted EPS guidance. Total revenue is expected to be flat to down 4 percent. 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 expects stronger automotive results, along with incremental benefits from Industrial Process restructuring actions, favorable corporate costs and a lower full-year tax rate, to help offset weakness in short-cycle pumps and aftermarket at Industrial Process.
 

New Holding Company Formation

ITT also announced that in mid-May 2016, the company intends to implement a company reorganization that would create a new holding company, ITT Inc., as its new publicly traded parent company. At the same time, the company intends to implement an internal reorganization that would separate its operating assets from its legacy liabilities and associated insurance assets. The move would also streamline the company's legal entity structure and facilitate future growth opportunities. The company's ticker symbol would remain ITT, and there would be no impact to ITT's consolidated financial position, cash flow or capital structure. For more information, please see the Form 8-K filed by the company with the Securities and Exchange Commission on May 5, 2016.
 

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, May 19, 2016, at midnight.

All references to EPS are defined as diluted earnings per share from continuing operations.