Markets
ITT

ITT Inc. (ITT) Q4 Earnings & Revenues Beat Estimates in Q4

ITT Inc.ITT posted adjusted earnings of 48 cents per share in fourth-quarter 2016, comfortably beating the Zacks Consensus Estimate of 42 cents by 14.3%. However, the figure was down 17% from the year-ago tally.

Despite the impressive beat, the share price remained relatively flat at $41.90 at the close of regular trading session on Tuesday.

The bottom-line decline is largely attributable to higher tax rate and lower segment operating income. Moreover, tepid sales proved to be a drag.

For full-year 2016, the company's adjusted earnings per share fell by 9% to $2.32. However, the figure also steered past the projected range of $2.20-$2.30. While improved efficiency and cost containment actions proved to be tailwinds, this was more than offset by lackluster segment operating income. Also, currency headwinds and higher tax rate proved to be a drag on the bottom line.

Inside the Headlines

ITT Inc.'s fourth-quarter revenues came in at $588.4, down 11.8% on a year-over-year basis. However, the metric surpassed the Zacks Consensus Estimate of $551 million.

Organic revenues decreased 10% year over year. Persistent weakness in the oil & gas sector, and mining markets played spoilsport. Moreover, currency fluctuations and softness in chemical & industrial pump business compounded the top-line decline.

For full-year 2016, the top line descended 3% to 2,405.4 million, largely attributable to foreign currency headwinds.

In terms of segments, Industrial Process revenues plunged 29% year over year to $212 million. In addition, organic revenues fell 28%. Challenging conditions in the oil & gas sector, mining, chemical & industrial markets, as well as softness in short-cycle pumps and aftermarket businesses, weighed down the sales performance of this segment. Also, currency fluctuations added to the woes.

Revenues at the Interconnect Solutions segment were down 6% year over year to $80.0 million. In addition, organic revenues shrunk by 6% on a year-over-year basis. Decline in oil and gas market activity, along with weakness in aerospace and defense businesses, proved to be a drag on the segment's performance.

Control Technologies revenues fell 2% to $70 million on a year-over-year basis. Declines in aerospace and defense markets more than offset the improvements in industrial volumes, leading to the overall decline.

Motion Technologies revenues climbed 8.0% year over year to $228 million. Furthermore, organic revenues rose 10%. Significant share gains and market growth in automotive brake pads from stellar sales to both OEM and aftermarket customers proved conducive to the top-line improvement. Also, higher sales of seals and shims at Wolverine supplemented the sales of this segment.

ITT Inc.'s adjusted segment operating income declined about 16% year over year to $66 million, mainly hit by lower pump volumes in the Industrial Process business, prior-year post-retirement related benefits and pricing headwinds.

ITT Inc. Price, Consensus and EPS Surprise

ITT Inc. Price, Consensus and EPS Surprise | ITT Inc. Quote

Axtone Acquisition

On Jan 26, 2017, ITT Inc. completed the buyout of customized components manufacturer - Axtone. During the third quarter, the company had entered into a definitive agreement to buy the components provider for railway and other harsh-environment industrial markets.

ITT Inc. believes that this acquisition will be complimentary to its KONI brand. This, in turn, will fortify its foothold in the transportation industry - including railway, aerospace and automotive. Precisely, this strategic buyout will boost ITT Inc.'s thriving Motion Technologies business and aid it gain a higher share in profitable aftermarkets. ITT projects the deal to be accretive to its earnings in the first full year of operations after its conclusion.

Liquidity and Cash Flow

As of Dec 31, 2017, the company had cash and cash equivalents of $460.7 million, up from $415.7 million in the year-ago quarter.

For the twelve-month period ended Dec 31, 2016, net cash from operating activities totaled $240.7 million compared with $229.7 million in the prior-year period.

Share Repurchase and Dividend

During the year, ITT Inc. returned about $114 million to shareholders by executing $70 million of share repurchases.

Additionally, subsequent to the end of the quarter, the company announced a 3% hike in dividend to 12.8 cents per share. Moving ahead, it has plans of targeting up to $65 million of share repurchases.

2017 Guidance

Concurrent with the fourth-quarter 2016 results, ITT Inc. offered its guidance for full-year 2017. Total revenue is expected to see a decline of around 2% or increase up to 2%.. Adjusted EPS is projected to be in the band of $2.18-$2.48 per share, which is flat at the midpoint but up 1%, excluding the impact of foreign exchange compared to the year-earlier figure.

While global friction share gains and benefits from the Axtone buyout are likely to bolster top-line performance; this is likely to be offset by lower pump volumes, pricing pressures and foreign currency headwinds.

To Conclude

ITT Inc. ended 2016 on an impressive note, with both the top and bottom lines beating estimates. However, macroeconomic woes, which have been plaguing the company for around a year, acted as major dampeners, thus putting pressure on key financials. The company's three-pronged growth strategy, which focuses on operational execution, market expansion and effective capital deployment, helped it brave past tough market conditions.

The company's focus on business streamlining, cost controls and efficiency proved conducive to the financial performance for 2016. During the year, ITT focused on restructuring its Industrial Process business to optimize its cost structure, as well as expanded its transportation business. The Zacks Rank #3 (Hold) company also continues to reinforce its brake pad business, in a bid to evolve from a regional to a global supplier.

Key Picks

Some better-ranked stocks in the sector include Leucadia National Inc. LUK , Swire Pacific Limited SWRAY and Hitachi, Ltd. HTHIY . While Leucadia National flaunts a Zacks Rank #1 (Strong Buy); Swire Pacific and Hitachi carry a Zacks Rank #2 (Buy).

Leucadia has a long-term earnings growth expectation of 18.0%. You can see the complete list of today's Zacks #1 Rank stocks here .

Swire Pacific is currently trading at a forward P/E of 11.04x.

Hitachi has a whopping average earnings surprise of 103.5% for the trailing four quarters.

Zacks' Top Investment Ideas for Long-Term Profit

How would you like to see our best recommendations to help you find today's most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ITT Inc. (ITT): Free Stock Analysis Report

Leucadia National Corporation (LUK): Free Stock Analysis Report

Swire Pacific Ltd. (SWRAY): Free Stock Analysis Report

Hitachi Ltd. (HTHIY): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

ITT HTHIY SWRAY

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More