ITT Corp. Beats Q2 Earnings on Higher Revs, Ups View

Zacks

ITT Corporation (ITT) reported strong second-quarter fiscal 2014 results, with quarterly earnings (excluding one-time items) of 60 cents a share which surpassed the Zacks Consensus Estimate of 52 cents by 15.4%. The figure also improved 18% year over year.

Profits during the quarter were driven by strong operational performance accelerated  business execution and steady progress of the company’s strategies.

Total Revenue

Total revenue in the quarter surged 8.8% to $663.0 million from $609.2 million in the prior-year period. Organic revenue for the quarter grew 8% while emerging markets and North America posted a 9% increase. Meanwhile, Europe reported 7% organic growth. Revenues also surpassed the Zacks Consensus Estimate of $635 million. 

The upside in top line primarily reflects strong growth in oil and gas markets, automotive brake pad market share gains and aftermarket expansion. Further, the company also reported market share gains across end markets.

Segment Results

The Industrial Process segment reported revenues of $289 million, reflecting an 8% increase. Organic revenues grew 8% on strong growth and share gains in oil and gas project pumps in North America, Europe and the Middle East, as well as global mining project pump growth in Latin America. Orders at the segment were up 6.3%.

Revenues in the Motion Technologies segment surged 16% to $198 million, while organic revenues were up 11%. The increase was driven by automotive brake pad share gains and growth in China, automotive aftermarket growth in Europe and strong performance by the shock absorber business in global rail and automotive end markets. Orders during the quarter were up a robust 23.4% year over year.

Interconnect Solutions’ organic revenues grew 2%. Revenues also surged 3% to $104 million in the quarter. The improvement was supported by growth in global aerospace, oil and gas, and general industrial connectors, partially offset by weaker defense and communication connectors. Orders at the segment declined 6.5% year over year.

In the Control Technologies segment, revenues increased 5% to $74 million and organic revenues rose 5%. The increase was driven by growth in demand for general industrial solutions, primarily energy absorption and aerospace components, partially hurt by the impact of a high-margin end-of-life aerospace program. Notably, orders at the segment augmented 5.2% year over year during the quarter.

Income and Expenses

Exiting the quarter, the company reported operating income of $54.5 million compared with $41.4 million in the prior-year quarter. The increase was primarily led by higher sales.

Operating margin expanded 142 basis points to 8.2% during the quarter, driven by net operating productivity and increased volume.

Balance Sheet & Cash Flow

At the end of the quarter, cash and cash equivalents were $527.7 million with no long-term debt. The company had shareholders equity of $1.2 billion.

In the first half of 2014, net cash from operating activities totaled $84.3 million while capital expenditures stood at $45.7 million.

Outlook

Encouraged with the strong second quarter and first half earnings, the company raised the guidance for fiscal 2014. ITT now expects total revenue to increase by 5% to 7% while organic revenue is anticipated to be up by 5% to 6% versus 4% to 6% (for both) projected earlier.

Adjusted earnings per share from continuing operations are now expected in the range of $2.38 to $246 compared with the range of $2.28 to $2.36 per share mentioned earlier.

The increase in adjusted earnings is expected to be driven by improved volume in global automotive brake pads and shock absorbers, and benefits from the turnaround in the shock absorber business.

ITT currently has a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering include The Andersons, Inc. (ANDE), Ashland Inc. (ASH) and North American Palladium Ltd. (PAL), each carrying a Zacks Rank #2 (Buy).

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