ITT reports 2016 fourth-quarter and full-year results, 2017 guidance

Tuesday, 14 Feb 2017

2016 Full-Year Results:

• Revenue down 3% to $2.4 billion, Organic revenue down 7%
• Segment operating income down 16%; Adjusted segment operating income down 12%
• EPS down to $2.02, Adjusted EPS down 9% to $2.32

2017 Guidance

• Total revenue down 2% to up 2%
• GAAP EPS in range of $1.45 to $1.75; Adjusted EPS in range of $2.18 to $2.48, flat at midpoint

Quarterly Dividend Raised to $0.128 per share

WHITE PLAINS, N.Y., Feb. 14, 2017 – ITT Inc. (NYSE: ITT) today reported 2016 fourth-quarter and full-year financial results that reflected a strong strategic focus on key long-term growth drivers including operational execution, market expansion and effective capital deployment, while effectively managing through the challenging market environment across several of the company’s end markets. The company also provided 2017 guidance.

“While we continued to face a difficult external environment across several of our key markets during 2016, we maintained our collective focus on addressing those challenges while advancing our essential long-term growth plans,” said ITT CEO and President Denise Ramos. “Throughout 2016, we proactively restructured our operations, drove cost controls and improved productivity and efficiency, which helped us mitigate some of the unfavorable impact from our markets. At the same time, we drove a number of strategic actions that will position us well for long-term value creation.

“To continue to drive value, we accelerated our structural reset of our Industrial Process business to optimize and align the business and its cost structure to current market conditions and to better propel the business in the long-term. In the transportation end market, we continued to gain market share and expand geographically as we grew revenue approximately 20 percent. We also significantly advanced our global automotive brake pad strategy to evolve from a regional to a global supplier while diversifying our customer base and increasing volume across platforms that drive stronger future aftermarket growth.

“In addition, we continued to deploy our capital in balanced and effective ways to both position us for long-term success and to return value to shareowners. We made organic investments to expand our global friction business and in January 2017, acquired Axtone Railway Components to further position us in the railway market. In addition, we returned about $114 million to shareholders by executing $70 million of share repurchases and increasing our quarterly dividend. We also implemented a new holding company structure to advance our legacy liability management strategy.

“As we look ahead to 2017, we are mindful that we will continue to face a challenging environment. As such, we will build on our strong foundation and accelerate our progress in driving world-class operational capabilities with the creation of our new Chief Operating Officer structure under Luca Savi. As always, we will continue to manage those areas over which we have control and drive enhanced long-term value for shareowners.”

On a GAAP basis, the company delivered revenue of $2.4 billion in 2016, reflecting a 3 percent decline that included an incremental $132 million from acquisitions, partially offset by an unfavorable $32 million foreign exchange impact. GAAP segment operating income decreased 16 percent, primarily reflecting lower volumes at Industrial Process and higher restructuring and realignment charges. Full-year GAAP EPS decreased to $2.02, compared with $3.44 in the prior year, primarily reflecting the decline in segment operating income, a $66 million lower benefit from asbestos-related matters and a $13 million pension settlement charge related to our pension de-risking strategies.

On an adjusted basis, full-year organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) decreased 7 percent as strong growth in global automotive brake pads was offset by significant declines in oil and gas and mining projects as well as weakness in chemical and industrial pumps.

Adjusted operating income decreased 12 percent as solid net operating productivity, restructuring benefits and the positive impact of the strategic acquisition of Wolverine Advanced Materials were more than offset by lower pump volumes and the unfavorable impact of foreign exchange and pricing pressures. Excluding foreign exchange, adjusted segment operating income was down 9 percent.

2016 adjusted EPS, which excludes special items, decreased 9 percent to $2.32, as lower corporate costs associated with improved efficiency and cost containment actions were offset by lower segment operating income, the negative impacts of foreign exchange and a higher tax rate. Adjusted EPS, excluding the negative impact from foreign exchange, decreased 5 percent.
 

2016 Fourth-Quarter Results

On a GAAP basis, the company delivered revenue of $588 million in the fourth quarter, reflecting a 12 percent decline that included a 2 percent negative impact from foreign exchange. GAAP segment operating income decreased 12 percent, primarily reflecting lower Industrial Process volumes, as well as the prior-year reversal of a customer-related liability and a 2016 pension settlement charge, which were partially offset by lower restructuring, realignment and acquisition-related costs. Fourth-quarter GAAP EPS decreased to $0.27, compared with $0.40 in the prior year, primarily due to a decline in segment operating income and prior-year asbestos and environmental insurance favorability, partially offset by lower tax expense.

On an adjusted basis, organic revenue declined 10 percent as strong growth in global automotive brake pads was offset by significant oil and gas and mining declines as well as weakness in chemical and industrial pumps. Adjusted operating income declined 16 percent reflecting solid net operating productivity, including restructuring benefits, and favorable foreign exchange benefits that were more than offset by lower pump volumes in the Industrial Process business, pricing pressures and prior-year post-retirement related benefits. Adjusted EPS decreased 17 percent to $0.48 as the positive impacts of a lower share count and $0.02 of favorable foreign exchange were offset by lower segment operating income and a higher tax rate.
 

2016 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 chemical and industrial, oil and gas, and mining markets.

• Total revenue decreased 29 percent to $212 million, with organic revenue down 28 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 69 percent to $14 million, and adjusted segment operating income decreased 55 percent to $18 million. Both measures primarily reflect significantly lower volumes across key end markets and project pricing pressures, which were partially offset by improving operational execution, incremental restructuring savings and the positive impact of foreign exchange. GAAP results also include favorable adjustments in 2015 to reserves established in purchase accounting for a prior acquisition and a pension settlement charge in 2016.

Motion Technologies designs and manufactures braking technologies, shock absorbers and specialized sealing solutions for the automotive and rail markets.

• Total revenue increased 8 percent to $228 million, and organic revenue increased 10 percent. Both measures reflect significant share gains and market growth in global automotive brake pads with Original Equipment Manufacturers and strength in seals and shims at Wolverine. Total revenue also includes the impact of unfavorable foreign exchange.
• GAAP operating income increased 73 percent to $27 million, and adjusted segment operating income increased 6 percent to $28 million. Both increases reflect higher volumes and benefits from productivity actions, which were partially offset by pricing pressures. GAAP results also reflect the impact of higher prior-year acquisition-related costs.

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

• Total and organic revenue decreased 6 percent to $80 million. Both decreases reflect significant declines in global oil and gas market activity and aerospace and defense weakness.
• GAAP operating income increased 41 percent to $7 million and adjusted segment operating income increased 38 percent to $7 million. Both measures reflect improved operational performance in our North American operating locations and net operating productivity and incremental restructuring savings, which were offset by prior-year post-retirement related benefits.

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 and organic revenue decreased 2 percent to $70 million, primarily reflecting declines in aerospace and defense that were offset by stable industrial volumes.
• GAAP operating income increased to $12 million and adjusted segment operating income increased 78 percent to $14 million, reflecting prior-year expenses related to a legal settlement and strategic investments in new programs, as well as net operating productivity and restructuring benefits, partially offset by unfavorable impacts related to volume and mix. GAAP results also reflect lower restructuring costs.

2017 Guidance

The company announced 2017 guidance with total revenue expected to be in the range of down 2 percent to up 2 percent and GAAP EPS expected to be in the range of $1.45 to $1.75.

From a revenue perspective, global friction share gains and positive impacts from the acquisition of Axtone are expected to be offset by lower pump volumes, pricing pressures and the negative impacts of foreign exchange. Adjusted EPS is expected to be in the range of $2.18 to $2.48 per share, which is flat at the midpoint and up 1 percent excluding the impact of foreign exchange compared to 2016.

The company plans to continue to return capital to shareowners through increasing its quarterly dividend by 3 percent to $0.128 per share and targeting up to $65 million of share repurchases, which will be based on various factors.

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. 28, 2017, 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