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ITT's Q1 Earnings & Revenues Surpass Estimates, Rise Y/Y

Zacks Equity Research

ITT Inc. ITT pulled off a positive earnings surprise of 8.33% in the first quarter of 2019. Quarterly adjusted earnings came in at 91 cents per share, outpacing the Zacks Consensus Estimate of 84 cents. The bottom line also came in 18.2% higher than the year-ago figure.

Revenues came in at $695.5 million, up 0.9% year over year. The top line also surpassed the consensus estimate by 2.7%. Notably, revenues improved 5% year over year on an organic basis.

Segmental Breakup

First-quarter revenues of the company’s Industrial Process segment were $216 million, up 13.6% year over year. Organic sales jumped 16%, driven by increase in pump projects and strong aftermarket demand in oil and gas, chemical, and industrial markets.

Quarterly revenues of the company’s Motion Technologies segment declined 7.9% year over year to $315 million. Notably, forex woes had 7% adverse impact on sales. Organic sales declined 1% in the quarter, mainly on account of auto OEM weakness, which was partially offset by strength in rail and the auto independent aftermarket.

Connect & Control Technologies segment generated $165 million revenues, up 4.5% year over year. Organic sales increased 6%, driven by rise in aerospace and defense from OEM and aftermarket connectors and components.

ITT Inc. Price, Consensus and EPS Surprise

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

Costs/Margins

Cost of sales in the first quarter was $476.7 million, up 2.5% year over year. Gross profit margin was 31.5%, down 100 basis points (bps).

Sales and marketing expenses in the quarter came in at $40.2 million compared with $43.5 million recorded in the year-ago quarter. Adjusted operating margin declined 300 bps to 13%.

Income tax expenses were $19.7 million versus $7.6 million in the year-ago quarter.

Balance Sheet/Cash Flow

Exiting the first quarter, ITT had cash and cash equivalents of $554 million, down from $561.2 million recorded as of Dec 31, 2018.

In the first three months of 2019, the company generated $42.1 million cash from operating activities, lower than $42.4 million recorded in the year-ago period. Capital expenditure totaled $29.2 million, increasing 1.7% from $28.7 million spent in the previous-year quarter. Adjusted free cash flow was $12.9 million, down from $13.7 million recorded during the first three months of 2018.

Notable Developments

The company completed the acquisition of Germany-based Rheinhutte Pumpen Group from Aliaxis Group S.A. Rheinhutte Pumpen specializes in manufacturing flow pumps (axial and centrifugal).

The acquired assets — to be integrated with ITT’s Industrial Process segment — will strengthen the company’s business opportunities in Europe. Earnings accretion is anticipated in the initial year of the buyout completion.

Outlook

ITT is poised to grow on the back of robust end-market sales and greater operational efficacy. Nonetheless, foreign exchange pressure, escalating compensation costs and material price inflation remain concerns. Based on the existing market conditions, this Zacks Rank #3 (Hold) company has revised its total revenue growth guidance for 2019 from 2-4% to 3-5%. Notably, it continues to anticipate organic revenue growth in the range of 3-5%.Moreover, adjusted earnings view for the year has been revised from $3.42-$3.66 per share to $3.50-$3.66.

Stocks to Consider

Some better-ranked stocks in the same industry are listed below:

Carlisle Companies Incorporated CSL currently sports a Zacks Rank #1 (Strong Buy). The company pulled off a positive average earnings surprise of 19.07% in the past four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Federal Signal Corporation FSS holds a Zacks Rank #2 (Buy). The company delivered a positive average earnings surprise of 21.75% in the trailing four quarters.

Honeywell International Inc. HON also carries a Zacks Rank of 2. The company delivered positive average earnings surprise of 3.50% in the trailing four quarters.

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