Earnings Preview: ITT Corporation


ITT Corporation (ITT) is slated to release its first quarter 2012 results before markets open on May 4, 2012. The Zacks Consensus Estimate for the first quarter is pegged at 32 cents (year-over-year decline of 83%), while the Zacks Consensus Estimate for the fiscal year 2012 is $1.67.

Fourth Quarter and Fiscal 2011 Recap

Total revenue in the quarter increased 10% to $518 million compared to $470 million in the prior-year period.

For fiscal 2011, the company reported revenues of $2.1 billion, which was 11% above the prior year with organic growth of 9% compared to the prior year. The primary driver of revenue growth was a robust 19% growth in emerging markets and strong growth in core markets of the company such as oil and gas, transportation and aerospace. 

ITT Corporation released its fourth quarter and full year 2011 earnings results and reported quarterly earnings per share from continuing operations of $0.36, which was a penny above the Zacks Consensus Estimate.

For the full year the company reported earnings of $1.60, reflecting a 23% increase compared to the prior -year period, driven by strong revenue growth and operating performance.

Agreement of Estimate Revisions

Over the past seven days, all the analysts covering ITT were Neutral about the quarterly estimates.

For fiscal 2012 as well, over the last seven days, all the analysts covering ITT were again Neutral about their estimates.

We believe analysts continue to expect margins to be under pressure due to high incremental costs involved after the transformation to be a stand-alone company. However, the company is positive about its performance in fiscal 2012 with EPS growth of 13% after adjusting for the incremental stand alone costs worth $20 million. Therefore, the analysts probably intend to wait and see the performance moving forward.  

Magnitude of Estimate Revisions

Over the past seven days, the Zacks Consensus Estimate has remained unchanged at 32 cents for the current quarter. For fiscal 2012 as well, the estimate was unchanged at $1.67 a share.

Surprise History

ITT has surpassed the Zacks earnings estimates in three of the last four quarters. The earnings surprise range from a low of a negative 0.85% to a high of positive 5.38%, with the average earnings surprise being a positive 2.28%.

Our Recommendation

The company continues to make investments in attractive growth areas such as air traffic management, emerging market expansion, product innovation, defense adjacency, diversity strategy and analytical instrumentation.

We are particularly bullish about two segments: a) water equipment (primarily pumps), which should benefit from the replacement and upgrading of aging networks in developed markets and the build out of infrastructure in the emerging markets, and b) ITT’s defense business, with the bulk of sales derived from electronic and network-centric warfare.

ITT Corporation continues to expand its product portfolio and geographical presence while making a number of strategic acquisitions. The acquisition of Godwin Pumps broadened the company’s global position in water, wastewater and industrial processes, and compliments ITT’s existing Fluid Technology portfolio.

The company is particularly focused on its presence in the emerging markets. The acquisition of Canberra Pumps increased its footprint in Latin America, enabling it to provide more products to the growing oil and gas and mining markets there.

The company currently holds a Zacks Rank #3 which implies a short term Hold rating on the stock.

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