It has been about a month since the last earnings report for ITT (ITT). Shares have lost about 6.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is ITT due for a breakout? 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 drivers.
ITT's Q2 Earnings and Revenues Surpass Estimates, Up Y/Y
ITT pulled off a positive earnings surprise of 4.5% in the second quarter of 2019. Quarterly adjusted earnings came in at 93 cents per share, outpacing the Zacks Consensus Estimate of 89 cents. The bottom line also came in 13.4% higher than the year-ago figure.
Revenues totaled $719.9 million, up 3% year over year. The top line also surpassed the consensus estimate by 2.3%. Notably, revenues jumped 5% year over year on an organic basis.
Second-quarter revenues of the company’s Industrial Process segment were $232.6 million, up 14.5% year over year. Organic sales jumped 12.6%, driven by increase in pump projects and strong aftermarket demand in oil and gas, chemical parts and service markets.
Quarterly revenues of the company’s Motion Technologies segment declined 3.8% year over year to $317.7 million. Notably, forex woes had 5.3% adverse impact on sales. Organic sales increased 1.3% 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 segment generated $170.2 million revenues, up 3.7% year over year. Organic sales increased 4.8%, driven by rise in commercial aerospace connectors and components.
Cost of sales in the second quarter was $487.9 million, up 3.6% year over year. Gross profit margin was 32.2%, down 20 basis points (bps).
Sales and marketing expenses were $42.7 million compared with $43.4 million in the year-ago quarter. Operating margin increased 40 bps to 11.9%.
Income tax expenses were $19.3 million, up from $8.9 million.
Balance Sheet/Cash Flow
Exiting the second quarter, ITT had cash and cash equivalents of $531.9 million, down from $561.2 million recorded as of Dec 31, 2018.
In the first six months of 2019, the company generated $101.1 million cash from operating activities, lower than $119.3 million recorded in the year-ago period. Capital expenditure totaled $45.8 million, declining from $46.3 million spent in the first six months of 2018. Adjusted free cash flow was $82.1 million, down from $91 million.
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 $3.58-$3.68 per share, reflecting a 5-cent increase to the mid-point from its prior guidance.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, ITT has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ITT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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