ITT Curtails Guidance Again Despite Q2 Earnings Beat - Analyst Blog
ITT Corporation’s ITT shares inched up 1% during the trading session after its second-quarter 2015 earnings release, to close at $38.00 on Jul 31. The company reported second-quarter 2015 adjusted earnings from continuing operations of 69 cents per share, which surpassed the Zacks Consensus Estimate of 59 cents by 17%. Also, on a year-over-year basis, the bottom line improved 15%.
ITT Corporation - Earnings Surprise | FindTheBest
The company’s earnings for the reported quarter largely benefited from improvement in operating productivity, cost-saving initiatives and restructuring efforts.
Inside the Headlines
ITT’s second-quarter revenues declined 5.3% year over year to $628.2 million, but outpaced the Zacks Consensus Estimate of $616 million.
Decline in revenues was led by lackluster performance of the company’s Interconnect Solutions segment and unfavorable foreign exchange impact.
On an adjusted basis, organic revenues inched up 1% year over year. Delay in connector delivery, unfavorable timing of commercial aerospace shipments and softness in aftermarket proved to be significant headwinds. These were, however, more than offset by the company’s improving share in the global automotive brake pad markets and greater volume of industrial pump projects, which contributed to revenue growth on an adjusted basis.
As for the segments, Industrial Process revenues edged down 0.7% year over year to $287.5 million. Sluggish performance of short-cycle baseline pumps and valves business lines triggered the decline in revenues.
Motion Technologies revenues fell 6.9% year over year to $184.4 million. Unimpressive performance of the KONI shock absorber business primarily resulted in the revenue decline of this segment. Also softness in North American rail markets aggravated the fall.
Revenues in the Interconnect Solutions segment tumbled around 20.2% to $82.7 million. The decline was largely a result of disruptions caused due to relocation of certain operations in North America. Moreover, volatility in oil & gas markets and weakness in key geographies aggravated the fall.
Control Technologies revenues rose 1.1% to $74.5 million, on a year-over-year basis. Benefits reaped from the Hartzell aerospace acquisition acted as a key driver of growth for this segment.
ITT’s operating income improved a significant 201% year over year to $164.5 million, mainly driven by restructuring benefits and cost-saving initiatives.
Liquidity and Cash Flow
As of Jun 30, 2015, the company had cash and cash equivalents of $497.4 million, down from $584.0 million at year-end 2014.
For the six months ended Jun 30, 2015, net cash from operating activities totaled $89.5 million compared with net cash used for operating activities of $84.3 million in the six months ended Jun 30, 2014.
Guidance
Despite improved operational execution and significant savings from the ongoing restructuring initiatives, the company anticipates that macroeconomic uncertainty will weigh heavily on its financials, going forward. Macroeconomic volatility will likely hurt the performance of Interconnect Solutions in second half of the year, thereby proving to be a major drag on revenues.
Keeping this in mind, ITT has further slashed its earnings guidance for 2015. Adjusted earnings from continuing operations has been lowered to a range of $2.45–$2.55 per share from $2.50–$2.60 guided earlier. This is the second guidance cut announced by ITT this year.
Going Forward
There is no denying the fact that uncertainty in the global macro-economic environment, especially weakness in the industrial markets, is posing a major challenge before ITT. Apart from this, internal issues of the Interconnect Solutions business are adding to the company’s woes.
However, despite these challenges, we believe ITT’s comprehensive strategy, based on three pillars, namely, focused execution, strategic acquisitions and diligent capital-deployment initiatives, will act as its major strength, going forward.
ITT currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include AO Smith Corp. AOS, Dycom Industries Inc. DY and Danaher Corp. DHR. While both AO Smith and Dycom sport a Zacks Rank #1 (Strong Buy), Danaher carries a Zacks Rank #2 (Buy).
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