UPDATE: ITT CEO: Asbestos Charge Caused Investor Blackout
(Updates with comments from conference call, additional details throughout.)
By Bob Tita
Of DOW JONES NEWSWIRES
CHICAGO -(Dow Jones)- ITT Corp.'s (ITT) self-imposed gag order toward
investors in recent weeks stemmed from the company's pending charge for asbestos
liability claims, Chairman and Chief Executive Steve Loranger said Friday.
The company avoided speaking with Wall Street analysts and investors after it
became apparent that the company's third-quarter results would be affected by
the $131 million charge for future asbestos liability.
"The most prudent course was to enter a quiet period while the asbestos charge
was being finalized," Loranger said during a conference call Friday with
analysts. "When we have activity inside the company that could be material [to
earnings], we have to err on the side of caution."
Many investors interpreted ITT's silence as a signal the company was in
negotiations for a large acquisition or the sale of its defense electronics
business. ITT's stock price is up about 8% this month. The stock set a new 52-
week high Oct. 19 at $56.95 during the height of deal-inspired trading
activity. The stock Friday was recently trading down at 6.8% at $50.62.
Loranger avoided commenting specifically on deal activity, but said the run-up
in the stock price was caused by "misguided speculation" that the company "did
not feel inclined at all to comment on."
ITT reported a 73% drop in third-quarter profit because of the charge for
asbestos liability. The defense and industrial conglomerate said Friday earnings
fell to $59 million, or 32 cents a share, from $216.3 million, or $1.17 a share,
during the same period a year earlier. Excluding the asbestos charge of 71 cents
a share, income from continuing operations totaled $190 million, or $1.03 a
share. Revenue fell 6% to $2.7 billion.
Wall Street analysts polled by Thomson Reuters expected the company to earn 90
cents a share, excluding the asbestos charge, on revenue of $2.7 billion.
The White Plains, N.Y., company raised its 2009 profit outlook to $3.70 to $
3.74 a share from $3.50 to $3.70 a share previously. ITT's revenue forecast for
the year is unchanged at $10.9 billion to $11 billion.
ITT's exposure to asbestos liability is primarily from pumps sold before 1985
that had gaskets and packing that allegedly contained asbestos. The gaskets and
packing were manufactured by other companies. Asbestos, which was once widely
used for fire proofing, is a suspected carcinogen in humans. The $131 million
set aside for claims is the projected amount needed for the next 10 years, ITT
said.
The company also expects to use insurance to offset its costs for asbestos
claims. The company does not expect further charges for asbestos.
"This charge does not represent any change or increase for our exposure to
asbestos liability," Loranger said.
The third-quarter performance of the ITT's business segments continued the
pattern seen in recent quarters with the best growth in revenue and income
coming from ITT's defense electronics services business.
Defense unit revenue rose 2% from a year earlier to $1.57 billion. Operating
income rose 8% to $203.3 million. ITT continues to see robust demand for its
night vision equipment and signal-jamming technologies that disrupt counter
improvised explosives aimed at U.S. troops in Afghanistan and Iraq. New orders
in the defense segment during the quarter were down 34% from the same quarter a
year earlier. The company attributed the decline to a particularly high order
volume in the third quarter of 2008. Revenue from ITT's fluid technology unit,
which makes pumps for water and sewage treatment plants and industrial
operations, fell 13% in the quarter. Operating income from the unit dropped 18%.
ITT's motion and flow control unit, which supplies equipment and components to
the automotive, aerospace and rail industries, reported a 22% decline in revenue
and 28% decline in operating income.
Loranger predicted the company's 2010 revenue growth would be modest, but
profits will receive a boost from lower expenses for business restructuring and
improved productivity.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
(END) Dow Jones Newswires
10-30-091058ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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