ITT reports strong 2018 third-quarter results

Friday, 2 Nov 2018

Raises EPS and Organic Revenue guidance mid-points

2018 Third-Quarter GAAP Results

• Record Q3 Revenue up 6% to $681 million
• Record Q3 Orders up 10% to $722 million
• Segment Operating Income up 33% to $108 million
• EPS up 28% to $1.25

2018 Third-Quarter Adjusted Results

• Organic Revenue up 7%
• Organic Orders up 11%
• Record Q3 Adjusted Segment Operating Income up 17% to $107 million
• Record Q3 Adjusted EPS up 24% to $0.82

 
Strategic Highlights

• $38 Million Net Gain on Sale of Former Connector Operating Location
• $18 Million Benefit from Annual Asbestos Re-Measurement and Insurance Settlement-in-Principle
• Increased Investment in ITT Smart Pad and Rotorcraft Technology
• Announces Incremental Share Repurchases of up to $25 Million

WHITE PLAINS, N.Y., November 2, 2018 – ITT Inc. (NYSE: ITT) today reported 2018 third-quarter financial results that reflect strong top-line growth and the company’s continued focus on operational execution and strategies to win share in key global end markets.  "For the third consecutive quarter, ITT delivered record results and double-digit growth across key metrics including adjusted segment operating income and adjusted EPS," said CEO Denise Ramos. "This performance was driven by our intense focus on optimizing execution, which is reflected in solid operational progress at each of our three business segments, strong productivity gains that drove our record 15.7 percent adjusted segment operating income margin and a 30 percent increase in adjusted free cash flow reflecting a 100 percent conversion. Our results also reflect our ability to drive growth and market share gains in strategic global end markets as we delivered 5 percent or better organic revenue growth at each segment. Going forward, we’ll continue to focus on advancing operational excellence while building our momentum in target markets that will propel our future growth."

Revenue and Orders

On a GAAP basis, the company delivered record third-quarter revenue of $681 million, reflecting a 6 percent increase, which included a 1 percent decline from foreign exchange.  Organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) increased 7 percent driven by strength across key end markets, including 6 percent in transportation, 8 percent in industrial, and 8 percent in oil and gas.  Organic orders grew 11 percent led by a 74 percent increase in projects driven by increased chemical, petrochemical, and general industrial activity, a 33 percent increase in connectors, and 6 percent growth in Friction on OEM strength in North America and China and aftermarket growth in Europe.

Segment Operating Income

GAAP segment operating income increased 33 percent to $108 million on segment margins of 15.9 percent with strong results at each business segment.  Adjusted segment operating income increased 17 percent to $107 million on adjusted segment operating margins of 15.7 percent, an improvement of 150 basis points.  The growth reflects volume leverage at each segment, solid operating productivity and supply chain actions, partially offset by unfavorable foreign exchange and commodity cost impacts. In addition, GAAP segment operating income was favorably impacted by lower restructuring, realignment, and acquisition-related costs.

Earnings Per Share

GAAP EPS increased 28 percent to $1.25.  Adjusted EPS increased 24 percent to $0.82, reflecting the growth in adjusted segment operating income and favorable impacts from a lower tax rate, partially offset by higher corporate costs, primarily related to incentive compensation.  GAAP EPS benefited from a $38 million gain on sale of a former Connector operating location, favorable tax adjustments, and lower restructuring, realignment, and acquisition-related costs, partially offset by a lower annual net asbestos re-measurement benefit.

Guidance

The company is narrowing the range of its previously announced 2018 full-year total revenue guidance to a new range of up 6 percent to up 7 percent reflecting stronger share gains offset by increased foreign exchange pressures and is narrowing the range and raising the mid-point of its organic revenue guidance to a new range of up 4 percent to up 5 percent primarily due to share gains and strong year-to-date order growth.

The company is also raising the mid-point of its previously announced 2018 full-year adjusted EPS guidance by 4 cents to $3.14, which represents a 21 percent increase compared to the prior year.  The updated adjusted EPS guidance range of $3.13 to $3.15 reflects volume, price, and mix benefits as well as additional net operating productivity, partially offset by unfavorable foreign currency, material costs, and higher incentive compensation costs.  The company is also raising and tightening its previously announced 2018 full-year GAAP EPS guidance to a new range of $3.69 to $3.75.

2018 Third-Quarter Business Segment Results

All quarterly results are compared with the respective prior-year period.

Motion Technologies

• Total revenue increased 3 percent to $310 million, which includes an organic revenue increase of 5 percent and a 2 percent unfavorable impact from foreign exchange. The revenue growth was driven by a 7 percent increase in Friction on share gains in automotive OEM brake pads in North America and China, and aftermarket growth in Europe. KONI sales grew 3 percent on strength in high-speed rail and the aftermarket that was partially offset by a prior year defense program. This growth was partially offset by an anticipated decline in Wolverine from a sealing platform transition timing.
• GAAP operating income increased 19 percent to $59 million, and adjusted segment operating income increased 8 percent to $57 million.  Both increases reflect higher sales volume, an improved aftermarket mix, and strong operating and supply chain productivity, partially offset by unfavorable contractual pricing, higher commodity costs, and $4 million in strategic investments in global growth and Smart Pad technologies.  In addition, GAAP operating income was favorably impacted by lower acquisition-related impacts.

Industrial Process

• Total revenue increased 4.5 percent to $205 million, and organic revenue increased 6 percent, reflecting 11 percent growth in projects on strong petrochemical and oil and gas activity and 4 percent growth in short-cycle activity due to chemical and bio-pharmaceutical valve demand, partially offset by a 1 percent decline in baseline pumps due to timing.
• GAAP operating income increased 66 percent to $24 million, and adjusted operating income increased 35 percent to $24 million, reflecting benefits from higher volumes, favorable short-cycle product mix, operating productivity, continued project performance improvements, and price partially offset higher material costs.  In addition, GAAP operating income was favorably impacted by lower restructuring costs.

Connect and Control Technologies

• Total and organic revenue increased 11 percent to $166 million, reflecting 13 percent growth in aerospace led by commercial aerospace connectors and components, and rotorcraft, 75 percent growth in oil and gas connectors on strength in all regions, and 6 percent growth in general industrial on strength in electric vehicle connectors.
• GAAP operating income increased 44 percent to $26 million and adjusted segment operating income increased 25 percent to $27 million.  Both measures reflect benefits from higher volumes, improved productivity gains in Connector operations, and restructuring benefits driven by the CCT integration, partially offset by increased material costs and increased investments in rotorcraft.  In addition, GAAP operating income was favorably impacted by lower restructuring and realignment costs.

Annual Asbestos Re-measurement

The company recognized an $18 million pre-tax net benefit in the third quarter reflecting the annual re-measurement of its asbestos liability and related insurance assets, and an insurance settlement-in-principle.  This benefit more than offset the quarterly provision and both were recognized as special items and excluded from adjusted results.  During 2018, the company has driven strategies that reduced the net liability by 10 percent. The company also forecasts no change in the net annual average after-tax cash flow projections compared to the prior projection.

Investor Call Today

ITT's senior management will host a conference call for investors today at 9 a.m. ET to review performance and answer questions.  The briefing can be monitored live via webcast at the following address on the company's website: www.itt.com/investors and a replay of the webcast will be available for 90 days following the presentation.  A replay will also be available telephonically from two hours after the webcast until Friday, November 16, 2018, at midnight.

For a reconciliation of GAAP to non-GAAP results, please refer to www.itt.com/investors or click here.
All references to EPS are defined as diluted earnings per share from continuing operations.

About ITT

ITT is a diversified leading manufacturer of highly engineered critical components and customized technology solutions for the transportation, industrial, and oil and gas markets.  Building on its heritage of innovation, ITT partners with its customers to deliver enduring solutions to the key industries that underpin our modern way of life.  ITT is headquartered in White Plains, N.Y., with employees in more than 35 countries and sales in a total of approximately 125 countries.  The company generated 2017 revenues of $2.6 billion. For more information, visit www.itt.com.

Safe Harbor Statement

This release contains "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our business, future financial results and the industry in which we operate, and other legal, regulatory and economic developments. These forward-looking statements include, but are not limited to, future strategic plans and other statements that describe the company’s business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance.

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Where in any forward-looking statement we express an expectation or belief as to future results or events, such expectation or belief is based on current plans and expectations of our management, expressed in good faith and believed to have a reasonable basis. However, there can be no assurance that the expectation or belief will occur or that anticipated results will be achieved or accomplished.  More information on factors that could cause actual results or events to differ materially from those anticipated is included in the Risk Factors section of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other documents filed from time to time with the Securities and Exchange Commission.

The forward-looking statements included in this release speak only as of the date hereof. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Investors:

Jessica Kourakos
+1 914-641-2030
jessica.kourakos@itt.com

Media:

Kathleen Bark
+1 914-641-2103
kathleen.bark@itt.com