ITT Inc (ITT) Earnings & Revenues Trump Estimates in Q1

ITT Inc. ITT posted adjusted earnings of 64 cents per share in first-quarter 2017, comfortably beating the Zacks Consensus Estimate of 60 cents by 6.7%. The figure fared even better in year-over-year comparison, having increased 8% from the year-ago tally of 59 cents.

The company is enjoying a truly impressive streak and hasn’t missed earnings estimates for 22 straight quarters.

Despite the impressive beat, the share price remained relatively flat at $41.94 at the close of regular trading session on Monday.

Improved efficiency, robust growth in segment operating income and cost containment actions proved to be tailwinds for the company’s bottom line, while currency headwinds proved to be a drag.

Inside the Headlines

ITT Inc.’s first-quarter revenues came in at $625.8, up 2.7% on a year-over-year basis. The figure also surpassed the Zacks Consensus Estimate of $603 million.

Organic revenues increased 3% year over year. The growth was driven by solid growth in automotive, aerospace and defense markets, which was somewhat offset by project declines in the oil and gas segment.

In terms of segments, Industrial Process revenues declined 11% year over year to $186 million. In addition, organic revenues also fell 11%. Challenging conditions in the oil & gas sector, mining, chemical & industrial markets, along with sluggish aftermarket parts activity, more than offset growth in short-cycle pumps and service businesses. Also, currency fluctuations added to the woes.

Revenues at the Connect and Control Technologies segment were up 6% year over year to $153 million. In addition, organic revenues expanded 7% on a year-over-year basis. Stronger general industrial, defense, and oil & gas connector activity reflected well on the segment. The segment was recently formed by integrating the Interconnect Solutions and Control Technologies segments to streamline operations, capitalize on shared infrastructure and drive long-term growth in target markets.

Motion Technologies revenues continued their strong momentum and climbed 12% year over year to $287 million. Furthermore, organic revenues rose 10%. Significant share gains and market growth in automotive brake pads in China and Europe, and stellar sales to aftermarket customers proved conducive to the top-line improvement. Additionally, higher sales of seals and shims at Wolverine supplemented the sales of this segment.

ITT Inc.’s adjusted operating income rose about 8% year over year to $78 million, mainly driven by restructuring and operational improvement benefits, and higher productivity at connector operating locations.

ITT Inc. Price, Consensus and EPS Surprise

ITT Inc. Price, Consensus and EPS Surprise | ITT Inc. Quote

Axtone Acquisition

On Jan 26, ITT Inc. completed the buyout of customized components manufacturer – Axtone – and is currently on track with its integration. Axtone provides components for railway and other harsh-environment industrial markets.

ITT Inc. believes that this acquisition will be complementary to its KONI brand. This, in turn, will fortify its foothold in the transportation industry – including railway, aerospace and automotive. Precisely, the strategic buyout will boost ITT Inc.’s thriving Motion Technologies business and aid it in gaining a higher share in profitable aftermarkets. ITT Inc. projects the deal to be accretive to its earnings in the first full year of operations after its conclusion.

Liquidity and Cash Flow

As of Mar 31, 2017, the company had cash and cash equivalents of $348.5 million, down significantly from $460.7 million on Dec 31, 2016.

For the three-month period ended Mar 31, 2017, net cash generated from operating activities came in at $27.1 million compared with $5.7 million in the prior-year period.

Share Repurchase and Dividend

During the year 2016, ITT Inc. returned about $114 million to shareholders by executing $70 million of share repurchases. Additionally, early in the reported quarter, the company announced a 3% hike in dividend to 12.8 cents per share. Moving ahead, it has plans of targeting up to $65 million of share repurchases.

Segment Changes

The company is integrating its Interconnect Solutions and Control Technologies businesses to create a new operating segment: Connect and Control Technologies. The new segment will be involved in designing and manufacturing harsh environment connectors and critical energy absorption and flow control components, chiefly for the aerospace and defense, and industrial markets.

The restructuring will help enhance focus on target markets, streamline operations and leverage shared infrastructure and end markets.

2017 Guidance

ITT Inc. reiterated its guidance for full-year 2017 top line, while raising the outlook for earnings. Total revenue growth is expected to range between a decline of around 2% or increase up to 2%. Adjusted EPS is now projected to be in the band of $2.28–$2.48 per share, up from the previously projected range of $2.18–$2.48.

To Conclude

ITT Inc. started 2017 on an impressive note, with both the top and bottom lines beating estimates. The company’s focus on business streamlining, cost controls and efficiency continues to prove beneficial to its financial performance. It continues to leverage the benefits of the structural reorganization at Industrial Process and drive solid operational improvements at its connector facilities. Its simplified operational framework will help unlock growth opportunities, as well as drive long-term growth in the global aerospace and industrial markets.

However, macroeconomic woes, which have been plaguing the company for around a year, acted as major dampeners, thus putting pressure on its key financials. The company’s three-pronged growth strategy, which focuses on operational execution, market expansion and effective capital deployment, helped it brave past tough market conditions.

ITT Inc. presently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the sector include Leucadia National Inc. LUK, Hitachi, Ltd. HTHIY and 3M Company MMM. While Leucadia National and Hitachi boast a Zacks Rank #1 (Strong Buy), 3M Company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hitachi has a whopping average earnings surprise of 227.5% for the trailing four quarters.

Leucadia has a positive average earnings surprise of 7%, thanks to two strong beats over the trailing four quarters.

3M Company surpassed earnings estimates in three of the trailing four quarters, resulting in an average surprise of 1.3%.

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