ITT Corp.ITT came up with adjusted earnings from continuing operations of 58 cents per share for the fourth-quarter of 2015, which surpassed the Zacks Consensus Estimate of 55 cents by 5.5% but fell 1.7% year over year.
The year-over-year decline in adjusted earnings was largely resulted by negative impact of foreign exchange and a higher effective tax rate. However, improvement in adjusted operating income and positive impact of a lower share partially arrested the decline in adjusted EPS.
For full-year 2015, on a GAAP basis, the company's earnings per share increased to $3.44 from the year-ago tally of $2.03. Also, on an adjusted basis, earnings per share were $2.55, up 3% on a year-over-year basis. The growth came largely on the back of lower effective tax rate and favorable share count. Also, a fall in cost of revenues and escalating adjusted operating income supplemented the year-over-year increase.
Inside the Headlines
ITT's fourth-quarter revenues inched up 1% year over year to $666.8 million, and surpassed the Zacks Consensus Estimate of $636 million. On an adjusted basis, organic revenues increased 1% year over year.
While aftermarket growth in global automotive brake pads supported the top-line performance; plummeting oil & gas prices and sluggishness in the global general industrial market acted as headwinds, stunting top-line growth.
For full-year 2015, the company reported revenues of $2,485.6 million, down 6% on a year-over year basis. On an adjusted basis, organic revenues were down 1%. Year-over-year decline in revenues were primarily led by unfavorable foreign exchange impact of $194 million. Moreover, decline in aerospace sales, volatility in oil & gas markets and global industrial slowdown dragged the revenues.
Segment-wise, Industrial Process revenues were down 12% year over year to $300 million. Fall in project pumps, coupled with a dip in aftermarket sales owing to delayed customer maintenance, triggered the decline in revenues.
Motion Technologies revenues shot up 35% year over year to $212 million on the back of significant share gains from stellar momentum in global automotive brake pads. Moreover, impressive performance of Chinese rail shock absorbers bolstered the growth.
Revenues in the Interconnect Solutions segment tumbled around 6% year over year to $85 million, largely due to weakness in upstream oil & gas as well as industrial connector markets.
Control Technologies revenues slipped 3% year over year to $71 million. This was due to lackluster performance of industrial, aerospace and defense markets.
ITT's adjusted operating income dipped about 4% year over year mainly due to unfavorable impact from pricing and foreign exchange fluctuations. Also, operational disruption costs, resulting from relocation of certain connector operations and legal settlement-related impact at Control Technologies, proved to be a drag on adjusted operating income.
Liquidity and Cash Flow
As of Dec 31, 2015, the company had cash and cash equivalents of $415.7 million, down from $584.0 million at year-end 2014.
For the 12 months ended Dec 31, 2015, net cash from operating activities totaled $229.7 million compared with $244.7 million in the 9 months ended Dec 31, 2014.
Ushering in good news for investors, ITT Corp. has hiked its dividend by 5% to $0.124 per share as per its commitment to return capital to shareholders.
Concurrent with the earnings release, ITT Corp. has offered full-year revenue guidance which can be largely described as unimpressive. For 2016, it expects total revenue within flat to a decline of 4%. Adjusted EPS are projected in a range of $2.42-$2.68, flat at midpoint of $2.55.
The largely negative sentiment of management in relation to revenue expectations stems from the turbulence in oil & gas as well as chemical & industrial pump markets and currency fluctuations. However, previously acquired businesses, including Wolverine Advanced Materials and Hartzell Aerospace, are expected to aid revenues. Moreover, increased productivity and benefits from restructuring strategies undertaken by the company will likely help expand adjusted segment operating margin by 70-90 basis points during the year.
There is no denying the fact that uncertainty in the global macro-economic environment, especially weakness in industrial and oil & gas markets, has been posing a major challenge for ITT. However, despite these challenges, we believe ITT's comprehensive strategy, based on three pillars, namely, focused execution, strategic acquisitions and diligent capital-deployment initiatives, will act as its major strength, going forward. Also, the company's concerted efforts toward achieving operational excellence through its Lean Six Sigma program, with strategic restructuring initiatives and global sourcing efforts, looks promising.
ITT currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include LSB Industries Inc. LXU , Macquarie Infrastructure Corp. MIC and Noble Group Ltd. NOBGY . All three stocks hold a Zacks Rank #2 (Buy).
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