Why Is ITT (ITT) Up 17.4% Since Last Earnings Report?

A month has gone by since the last earnings report for ITT (ITT). Shares have added about 17.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ITT due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

ITT’s Q3 Earnings and Revenues Beat Estimates, Rise Y/Y

ITT pulled off third-quarter 2019 positive earnings surprise of 7.8%. Quarterly adjusted earnings came in at 97 cents per share, outpacing the Zacks Consensus Estimate of 90 cents. The bottom line also increased 18.3% from the year-ago figure.

Revenues totaled $711.9 million, up 4.5% year over year. The top line also surpassed the consensus estimate of $709 million by 0.4%. Notably, revenues jumped 4% on an organic basis.

Segmental Breakup

Third-quarter revenues of Industrial Process were $240.3 million, up 17.2% year over year. Organic sales jumped 10%, driven by increase in pump projects and strong short-cycle business on account of baseline pump strength.

Quarterly revenues of Motion Technologies declined 2% year over year to $304.5 million. Notably, forex woes had 4% adverse impact on sales. Organic sales increased 2% in the quarter, mainly on account of global rail share gains and Friction OEM growth, partially offset by softness in the Wolverine business.

Connect & Control Technologies generated $167.9 million revenues, up 1% year over year. Organic sales decreased 1% due to lower defense components as well as industrial and oil and gas sales.

Costs/Margins

Cost of sales in the third quarter was $480.6 million, up 5.8% year over year. Gross profit margin was 32.5%, down 80 basis points (bps).

Sales and marketing expenses were $41.6 million compared with $40.8 million in the year-ago quarter. Adjusted operating margin increased 90 bps to 16.6%. Income tax expenses were $34.1 million, up from $25.9 million.

Balance Sheet/Cash Flow

Exiting the third quarter, ITT had cash and cash equivalents of $555.7 million, down from $561.2 million recorded as of Dec 31, 2018.

In the first nine months of 2019, the company generated $221.7 million cash from operating activities, lower than $246.6 million recorded in the year-ago period. Capital expenditure totaled $69.3 million, declining from $63.8 million spent in the first nine months of 2018. Adjusted free cash flow was $193.8 million, down from $214.1 million.

Notable Developments During the Quarter

In July 2019, ITT completed the acquisition Rockledge, FL-based Matrix Composites, Inc. for approximately $29 million. This move is in sync with its growth policies.

The buyout will boost the Connect and Control Technologies segment’s aerospace product offerings, and help in solidifying its technological capabilities and add 115 skilled people to its employee base. Earnings accretion from the buyout is predicted in the first year of deal closure.

Outlook

Based on the existing market conditions, the company anticipates total revenue growth of 3-5% for 2019. Also, it continues to anticipate organic revenue growth in the range of 3-5%. Adjusted earnings view for the year has been increased to $3.73-$3.75 per share, reflecting a 11-cent increase to the mid-point from its prior guidance.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 7.73% due to these changes.

VGM Scores

At this time, ITT has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise ITT has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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