ITT Corporation (ITT)

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ITT (ITT)

Q3 2010 Earnings Call

October 29, 2010 9:00 am ET

Executives

Thomas Scalera - Director of IR

Denise Ramos - Chief Financial Officer and Senior Vice President

Steven Loranger - Chairman, Chief Executive Officer, President and Head of Human Resources

Analysts

Gautam Khanna - Cowen and Company, LLC

Terry Darling - Goldman Sachs Group Inc.

James Lucas - Janney Montgomery Scott LLC

Scott Gaffner - Barclays Capital

C. Stephen Tusa - JP Morgan Chase & Co

Jeffrey Sprague - Citigroup

Deane Dray - Citigroup Inc

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the ITT Corporation Third Quarter 2010 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Tom Scalera, Director of Investor Relations. Sir, you may begin your conference.

Thomas Scalera

Thank you, Paula. Good morning, and welcome to ITT's Third Quarter 2010 Investor Review. Presenting this morning are Chairman and CEO, Steve Loranger; and Chief Financial Officer, Denise Ramos. I'd like to highlight that this morning's presentation, press release and reconciliations of GAAP and non-GAAP financial measures can be found on our website at itt.com\ir.

As always, please note that any remarks we may make about future expectations, plans and prospects, as well as other circumstances set out in our Safe Harbor statement constitute forward-looking statements for purposes of the Safe Harbor provision. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in ITT's Form 10-K, as well as our other public SEC filings.

And now let me turn the things over to Steve.

Steven Loranger

Thanks, Tom, and I thank all of you for joining us this morning. Our strong third quarter results demonstrate that our attractive portfolio produces consistent and reliable results time and time again. This strong performance reflects our intense focus, as always, on strategic execution. And in this quarter again we saw some top-notch operating results by teams all across ITT, and it wasn't easy. Our focused productivity and cost management programs more than offset external headwinds, including some significant volatility in commodity pricing and foreign exchange.

We saw some very strong organic growth in our Fluid Technology and Motion & Flow Control businesses where our markets continue to strengthen across the majority of our product segments and geographic regions. We're extremely pleased with the prior investments that we've made in emerging markets where we continue to see great results, in fact, growing 22% in the quarter, and of course we're expected to maintain strong growth rates in emerging markets for the next several years.

In our Defense & Information Solutions business, we saw a 25% improvement in orders. And in addition, we recently generated several key strategic wins that validate ITT leadership position in a number of important programs. For example, in early October, we were awarded a $1.4 billion contract to provide comprehensive support services for all U.S. Army facilities in Kuwait. And this represents the fourth major facilities operations contract awarded ITT in 2010, and it solidifies our role as a premier provider of base operation services in the Middle East.

In the third quarter, ITT was also recognized as a leading provider of space-based imaging payloads, winning two very important contracts to build next-generation imaging systems that are going to serve commercial and government markets. Our technologies will ultimately support imaging programs for both DigitalGlobe and GeoEye. And as a leading provider of electronic countermeasures, we've also won several pivotal 2010 awards for both ground and airborne jamming capabilities. This includes CREW 3.2 and CREW 3.3 programs and the development technology under the Next Generation Jammer program for the Naval Air Systems Command.

Our ongoing strategy to further align our business portfolio with macro trend is progressing very, very nicely. We're expanding in air traffic management, and we're pleased with the investments that we've made in the Fluid Technology business, notably in the Analytics business and the Godwin Pump businesses, both of which are exceeding our expectations. Another point of specific pride in the quarter is the nice accretion that we're already seeing from these 2010 acquisitions.

And so all of these execution and this performance and program wins gives us great confidence in increasing our guidance for the full year. We're on track to deliver $4.30 per share in 2010, which represents a 15% increase in full year adjusted EPS. And that's another record performance for ITT. In fact, a performance that follows the best in class results in 2009, and it handily tops our prior record during the 2008 pre-economic crisis period where our EPS was $3.99. Our performance is even more notable when you consider these growth rates are being achieved while we're also investing in our future.

As you know, we take a long-term approach to sustainable, predictable growth. And in 2010, we are elected to reinvest the equivalent of six EPS points of growth into incremental investments for our future, the third straight year of incremental investments to an already strong base. These investments are in all attractive growth areas such as air traffic management, emerging market expansion, product innovation, our defense adjacency, diversity strategy and analytical instrumentation. Absent those critical investments which are already benefiting our bottom line, our 2010 earnings would actually be on track for some 21% growth.

So simply put, we believe our quarterly results and the full year outlook demonstrate that this portfolio continues to produce solid results. And now let's turn things over to Denise to review the financials.

Read the rest of this transcript for free on seekingalpha.com