ITT Corporation (ITT)

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ITT (ITT)

Q4 2011 Earnings Call

February 29, 2012 9:00 am ET

Executives

Melissa Trombetta -

Denise L. Ramos - Chief Executive Officer and President

Thomas Scalera - Chief Financial Officer

Analysts

James C. Lucas - Janney Montgomery Scott LLC, Research Division

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division

Ajay Kejriwal - FBR Capital Markets & Co., Research Division

James Krapfel - Morningstar Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the ITT Corporation Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Melissa Trombetta, Director of Investor Relations. You may begin your conference.

Melissa Trombetta

Thank you, Laurie. Good morning, and welcome to ITT's Fourth Quarter 2011 Investor Review. Presenting this morning are ITT's Chief Executive Officer and President, Denise Ramos; and ITT's Chief Financial Officer, Tom Scalera. I'd like to highlight that this morning's presentations, press release and reconciliations of GAAP and non-GAAP financial measures can be found on our website at itt.com/ir. Please note that all historical data is unaudited and any remarks we make about future expectations, plans, prospects and other circumstances set out in our Safe Harbor statement constitutes 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. Let's now turn to Slide 3, where Denise will discuss our results.

Denise L. Ramos

Thank you, Melissa and welcome, everyone. I appreciate you joining us as we announce our financial results for the fourth quarter and full year 2011 and provide 2012 guidance. I'm particularly excited since this will be the first time we are sharing financial performance since we completed the spinoff. And I think you'll see we are already delivering on the long-term premier metrics we announced at our inaugural Investor Day. At the same time, let me acknowledge that we understand there is a lot of information to absorb, and that this is the first time we are sharing our results as a stand-alone company. But we're confident that as the nuances of our position and our advantages become clearer, you will be just as excited as we are about our capability to drive profitable growth and create value. So with that, let me turn to the results.

In 2011, we delivered solid revenue and order growth, as well as strong full year earnings, even as we executed the strategic transformation of our company. For the full year 2011, organic revenues were up 9%, reflecting market share gains in the chemical, oil and gas, power and transportation market. Organic orders were up 13% and we had a record backlog at year end. Adjusted pro forma earnings per share were up 23%, based on strong revenue growth and solid segment operating margin expansion. And in addition, we ended the year with a strong balance sheet. We have $690 million in cash, we have no long-term debt and we have investment-grade credit ratings from all 3 agencies. So this provides us a very strong foundation from which to drive future profitable growth. I'm very pleased that in 2011, we really saw the investments we've made over the past several years drive strategic wins across all of our businesses and across the globe. So let me share a few of my favorite fourth quarter examples.

Our Industrial Process business generated significant wins across a variety of geographies from South America to the Middle East, as a result of our strategic investments to drive global growth in the oil and gas and mining markets. This performance has continued into the first quarter, with our exciting announcement last week of our agreement with Shell, which is the sixth strategic agreement we've signed in the last 2 years.

Motion Technologies, previous investments in R&D and technology, laid the foundation for more than 16% increase in revenue as we grow globally with customers such as Ford in North America. Our decision to acquire the remainder of our Korean joint venture helped drive growth in that market, as demonstrated by a significant win in the medical connectors market. And our Control Technologies business recently won 2 key direct Embraer aerospace platforms as a result of our investment in new technologies.

Now, for the future. ITT has 6 key growth drivers, that I hold each business accountable to. And these are listed on Slide 4. So let me share with you the progress we made in 2011. Our first growth driver is the emerging markets, where we grew 19% in 2011 and we also continue to expand our footprint in a significant way. Since the spin announcement, I have traveled extensively in the emerging markets, visiting nearly half of our locations, where I met with key customers, employees and other stakeholders. In December, I visited Brazil, where we completed the upgrade and expansion of our facility in Salto to better serve customers in the oil and gas, chemical, pulp and paper and general industrial market. Our expanded capabilities and localized product offering support our growth strategy in Brazil, as well as throughout Latin America. Our customers and distributors, many of whom I met during the facility’s reopening are very pleased with our enhanced ability to ensure a premier customer experience and with our commitment to the region. In addition, last month I was in China to announce a $10 million investment to produce brake pads and create an R&D center in Wuxi. With China being the #1 auto market in the world, we are well positioned to grow with our global and local customers in this important market. During discussions surrounding the announcement with employees and with customers and with government officials, we saw tremendous interest in the opportunities we have across all our businesses to support the priorities that China articulated in its most recent 5-year plan, including middle class growth, urbanization and sustainable development. In these emerging markets and across the globe, we're not only focused on new platforms, but on the highly profitable aftermarket business, which is our second growth driver.

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