ITT Reports Strong 3rd Quarter Results Raises 2019 Earnings Guidance Announces $500 Million Share Repurchase Program

ITT Reports Strong 3rd Quarter Results Raises 2019 Earnings Guidance Announces $500 Million Share Repurchase Program

WHITE PLAINS, N.Y.–(BUSINESS WIRE)–$ITT #ITTEarnings–ITT Inc. (NYSE: ITT) today reported 2019 third-quarter financial results that reflected the company’s strong operational execution and share gain strategies in key global markets. The company is also raising its 2019 earnings per share guidance and announcing a $500 million share repurchase program.

Revenue

 

Segment

OI Margin

 

EPS

 

Operating Cash Flow

+5%

 

-90 bps

 

+7%

 

-10%

 

 

 

 

 

 

 

Organic

Revenue

 

Adj

Segment OI Margin

 

Adj

EPS

 

Adj

Free Cash Flow

+4%

 

+90 bps

 

+18%

 

-9%

*Performance relative to comparable three months ended September 30, 2018.

Revenue of $712 million +5%; Organic Revenue +4%

Segment OI Margin of 15.0%; Adj Segment OI Margin of 16.6%

EPS of $1.34 up 7%; Adj EPS of $0.97 up 18%

Adj EPS Full Year Guidance Midpoint Increased to $3.74

New $500 Million Share Repurchase Program

“I am proud of the hard work ITTers all around the world delivered with an intense focus on meeting our customers’ needs and generating productivity improvements. As a result of their efforts in the quarter, we grew revenue, expanded margins, and raised our adjusted full year EPS guidance midpoint to $3.74,” said ITT Inc. Chief Executive Officer and President Luca Savi. “Our diversified and resilient businesses delivered 5 percent revenue growth and 18 percent adjusted EPS growth to a record 97 cents per share. And our proactive cost containment actions and war chest of opportunities will help us continue to drive exceptional performance in increasingly uncertain global markets. In addition, the two close-to-core strategic acquisitions that we completed this year are already accretive to earnings and we will continue to pursue similar value creating acquisitions going forward. Lastly, consistent with our strong balance sheet and track record of solid returns to shareholders, we are announcing a new $40 million increase to our share repurchase authorization and a new $500 million indefinite term share repurchase program.”

Revenue and Orders

Revenue grew 5 percent, including a 2-point unfavorable impact from foreign exchange and 3-point benefit from our strategic Rheinhütte Pumpen and Matrix Composites acquisitions. Organic revenue (defined as total revenue excluding foreign exchange, acquisitions and divestitures) increased 4 percent, driven by the strength of our diversified portfolio as our industrial businesses grew 10 percent and transportation grew 2 percent, more than offsetting a 5 percent decline in oil and gas.

Organic orders declined 4 percent, due to pump project delays and difficult comparisons, along with slower industrial demand. Transportation orders were flat as growth in rail and commercial aerospace was offset by the timing of defense programs. Compared to the second quarter of 2019, the company’s third quarter organic orders were flat.

Segment Operating Income

Segment operating income declined 1 percent to $107 million and generated a margin of 15.0 percent, which included higher acquisition-related costs and restructuring charges. Adjusted segment operating income grew 10 percent to $118 million and produced a record margin of 16.6 percent. This improvement was driven by continued productivity and supply chain improvements and cost containment actions, as well as increased volume. These gains were partially offset by higher commodity costs and tariffs, and strategic investments.

Earnings Per Share

GAAP EPS grew to $1.34, compared to $1.25 in the prior year, primarily due to a $52 million increase in net asbestos benefit driven by effective insurance recovery strategies, partially offset by a $38 million gain on sale of a former connector operating location in the third quarter of 2018 and higher acquisition, restructuring, and legal costs. Adjusted EPS grew 18 percent to a record $0.97, reflecting the increase in adjusted segment operating income, a 21 percent reduction in corporate costs, and a lower tax rate.

Third-Quarter 2019 Business Segment Results

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

Motion Technologies

Total revenue decreased 2 percent to $305 million, including a 4-point unfavorable impact from foreign exchange. Organic revenue increased 2 percent, reflecting global rail share gains and Friction OEM growth that outpaced the global market by 1,200 basis points1 with significant outperformance in North America, Europe, and China. These improvements were partially offset by weakness in the Wolverine business.

Operating income decreased 3 percent and adjusted operating income increased 1 percent to $57 million, primarily reflecting operational improvements and the benefit of restructuring actions, offset by higher commodity costs, tariffs, strategic investments, and $2 million of unfavorable foreign exchange.

____________________
1 Based on recognized auto industry data as of October 16, 2019

Industrial Process

Total revenue increased 17 percent to $240 million, including a 9-point benefit from our Rheinhütte Pumpen acquisition and a 2-point unfavorable impact from foreign exchange. Organic revenue increased 10 percent reflecting pump project growth of 38 percent from strength in chemical and mining. The short-cycle portion of our business grew 2 percent on baseline pump strength, partially offset by lower service and industrial valves sales.

Operating income decreased 7 percent to $22 million due to higher restructuring and acquisition-related costs. Adjusted operating income increased 31 percent to $31 million, primarily reflecting supply chain and productivity improvements, project execution, and the accretive impact from our Rheinhütte Pumpen acquisition, which was partially offset by unfavorable project mix, higher commodity costs, and incremental strategic investments.

Connect and Control Technologies

Total revenue increased 1 percent to $168 million, including a 3-point benefit from our Matrix Composites acquisition and a 1-point unfavorable impact from foreign exchange. Organic revenue decreased 1 percent driven by lower defense components due to strong prior year program activity, as well as declines in industrial and oil and gas sales, partially offset by 7 percent growth in commercial aerospace.

Operating income increased 9 percent to $28 million and adjusted segment operating income increased 11 percent to $30 million, driven by benefits from productivity and supply chain improvements and restructuring actions, which were partially offset by an increase in commodity costs and negative mix.

Annual Asbestos Remeasurement

The company recognized a $68 million pre-tax net benefit in the third quarter reflecting the annual remeasurement of its asbestos liability and related insurance assets. This benefit was driven by effective insurance recovery strategies and is excluded from the adjusted results and adjusted guidance. During 2019, the company has reduced the net asbestos liability by 11 percent. The company also forecasts no change in the net annual average after-tax cash flow projections compared to the prior year’s projection.

Guidance

Based on the strong third quarter performance and incremental productivity gains and cost actions expected for the fourth quarter of 2019, ITT is raising and tightening its Adjusted EPS guidance to a range of $3.73 to $3.75 from the previous range of $3.58 to $3.68. The raise represents an 11 cent increase to the mid-point from our prior guidance and a 16 percent increase compared to the prior year. The company is also raising its previously announced 2019 full-year GAAP EPS guidance to a range of $3.63 to $3.67. There is no change to the previous revenue or organic revenue guidance of up 3 to 5 percent.

Share Repurchase Update

On October 30, 2019, the company’s Board of Directors approved a $40 million share repurchase authorization to effectively close out our $1 billion share repurchase program. In addition, the Board approved a new $500 million share repurchase program with an indefinite term. The company’s capital deployment priorities are focused on funding strategic organic investments and close-to-core acquisitions, while also returning value to shareholders.

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. 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 15, 2019, 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.

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 events and future operating or financial performance.

We use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “future,” “may,” “will,” “could,” “should,” “potential,” “continue,” “guidance” and other similar expressions to identify such forward-looking statements. Forward-looking statements are uncertain and to some extent unpredictable, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.

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.

Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation:

uncertainties regarding our exposure to pending and future asbestos claims and related liabilities and insurance recoveries;

uncertain global economic and capital markets conditions, including trade disputes between the U.S. and its trading partners;

risks due to our operations and sales outside the U.S. and in emerging markets;

fluctuations in foreign currency exchange rates;

fluctuations in customers’ levels of capital investment and maintenance expenditures, especially in the oil and gas, chemical, and mining markets;

failure to compete successfully in our markets;

the extent to which there are quality problems with respect to manufacturing processes or finished goods;

failure to integrate acquired businesses or achieve expected benefits from such acquisitions;

risks related to government contracting, including changes in levels of government spending and regulatory and contractual requirements applicable to sales to the U.S. government;

volatility in raw material prices and our suppliers’ ability to meet quality and delivery requirements;

failure to manage the distribution of products and services effectively;

loss of or decrease in sales from our most significant customer;

fluctuations in our effective tax rate;

failure to retain existing senior management, engineering and other key personnel and attract and retain new qualified personnel;

failure to protect our intellectual property rights or violations of the intellectual property rights of others;

the risk of material business interruptions, particularly at our manufacturing facilities;

the risk of cybersecurity breaches;

changes in laws relating to the use and transfer of personal and other information;

failure of portfolio management strategies, including cost-saving initiatives, to meet expectations;

fluctuations in the level of returns on our postretirement benefit plans;

changes in environmental laws or regulations, discovery of previously unknown or more extensive contamination, or the failure of a potentially responsible party to perform;

failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation, export controls and trade sanctions, including recently announced tariffs;

risk of product liability claims and litigation; and

risk of liabilities from past divestitures and spin-offs.

More information on factors that could cause actual results or events to differ materially from those anticipated is included in our reports filed with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2018 (particularly under the caption “Risk Factors”), our Quarterly Reports on Form 10-Q and in other documents we file from time to time with the SEC.

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.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

 

 

Three Months

 

Nine Months

For the Periods Ended September 30

2019

 

2018

 

2019

 

2018

Revenue

$

711.9

 

 

$

680.6

 

 

$

2,127.3

 

 

$

2,066.7

 

Costs of revenue

480.6

 

 

454.1

 

 

1,445.2

 

 

1,390.0

 

Gross profit

231.3

 

 

226.5

 

 

682.1

 

 

676.7

 

General and administrative expenses

69.5

 

 

68.0

 

 

187.5

 

 

196.6

 

Sales and marketing expenses

41.6

 

 

40.8

 

 

124.5

 

 

127.7

 

Research and development expenses

23.8

 

 

24.2

 

 

73.1

 

 

74.7

 

Loss (gain) on sale of long-lived assets

0.1

 

 

(40.0

)

 

(0.3

)

 

(40.5

)

Asbestos-related benefit, net

(56.2

)

 

(4.3

)

 

(31.8

)

 

(10.5

)

Operating income

152.5

 

 

137.8

 

 

329.1

 

 

328.7

 

Interest and non-operating (income) expenses, net

(0.4

)

 

0.7

 

 

(1.3

)

 

4.0

 

Income from continuing operations before income tax expense

152.9

 

 

137.1

 

 

330.4

 

 

324.7

 

Income tax expense

34.1

 

 

25.9

 

 

73.1

 

 

42.4

 

Income from continuing operations

118.8

 

 

111.2

 

 

257.3

 

 

282.3

 

Loss from discontinued operations, net of tax benefit of $0.1, $0.0, $0.1 and $0.0, respectively

(0.1

)

 

(0.1

)

 

(0.2

)

 

 

Net income

118.7

 

 

111.1

 

 

257.1

 

 

282.3

 

Less: Income attributable to noncontrolling interests

0.1

 

 

0.2

 

 

0.4

 

 

0.5

 

Net income attributable to ITT Inc.

$

118.6

 

 

$

110.9

 

 

$

256.7

 

 

$

281.8

 

Amounts attributable to ITT Inc.:

 

 

 

 

 

 

 

Income from continuing operations, net of tax

$

118.7

 

 

$

111.0

 

 

$

256.9

 

 

$

281.8

 

Loss from discontinued operations, net of tax

(0.1

)

 

(0.1

)

 

(0.2

)

 

 

Net income attributable to ITT Inc.

$

118.6

 

 

$

110.9

 

 

$

256.7

 

 

$

281.8

 

Earnings per share attributable to ITT Inc.:

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

Continuing operations

$

1.35

 

 

$

1.27

 

 

$

2.93

 

 

$

3.21

 

Net income

$

1.35

 

 

$

1.27

 

 

$

2.93

 

 

$

3.21

 

Diluted:

 

 

 

 

 

 

 

Continuing operations

$

1.34

 

 

$

1.25

 

 

$

2.90

 

 

$

3.18

 

Net income

$

1.34

 

 

$

1.25

 

 

$

2.90

 

 

$

3.18

 

 

 

 

 

 

 

 

 

Weighted average common shares – basic

87.8

 

 

87.6

 

 

87.7

 

 

87.7

 

Weighted average common shares – diluted

88.7

88.7

 

88.6

 

88.7

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

 

 

September 30,
2019

 

December 31,
2018

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

555.7

 

 

$

561.2

 

Receivables, net

574.3

 

 

540.0

 

Inventories, net

414.6

 

 

380.5

 

Other current assets

161.7

 

 

163.4

 

Total current assets

1,706.3

 

 

1,645.1

 

Plant, property and equipment, net

521.7

 

 

518.8

 

Goodwill

909.8

 

 

875.9

 

Other intangible assets, net

147.7

 

 

136.1

 

Asbestos-related assets

330.0

 

 

309.6

 

Deferred income taxes

149.1

 

 

164.5

 

Other non-current assets

299.6

 

 

196.8

 

Total non-current assets

2,357.9

 

 

2,201.7

 

Total assets

$

4,064.2

 

 

$

3,846.8

 

Liabilities and Shareholders’ Equity

 

 

 

Current liabilities:

 

 

 

Commercial paper and current maturities of long-term debt

$

122.7

 

 

$

116.2

 

Accounts payable

340.4

 

 

339.2

 

Accrued liabilities

425.7

 

 

416.7

 

Total current liabilities

888.8

 

 

872.1

 

Asbestos-related liabilities

741.6

 

 

775.1

 

Postretirement benefits

196.2

 

 

208.2

 

Other non-current liabilities

237.7

 

 

166.5

 

Total non-current liabilities

1,175.5

 

 

1,149.8

 

Total liabilities

2,064.3

 

 

2,021.9

 

Shareholders’ equity:

 

 

 

Common stock:

 

 

 

Authorized – 250.0 shares, $1 par value per share

 

 

 

Issued and outstanding – 87.6 shares and 87.6 shares, respectively

87.6

 

 

87.6

 

Retained earnings

2,313.6

 

 

2,110.3

 

Total accumulated other comprehensive loss

(403.6

)

 

(375.5

)

Total ITT Inc. shareholders’ equity

1,997.6

 

 

1,822.4

 

Noncontrolling interests

2.3

 

 

2.5

 

Total shareholders’ equity

1,999.9

 

 

1,824.9

 

Total liabilities and shareholders’ equity

$

4,064.2

 

$

3,846.8

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN MILLIONS)

 

For the Nine Months Ended September 30

2019

 

2018

Operating Activities

 

 

 

Income from continuing operations attributable to ITT Inc.

$

256.9

 

 

$

281.8

 

Adjustments to income from continuing operations:

 

 

 

Depreciation and amortization

81.1

 

 

82.5

 

Equity-based compensation

12.3

 

 

16.9

 

Gain on sale of long-lived assets

(0.3

)

 

(40.5

)

Asbestos-related benefit, net

(31.8

)

 

(10.5

)

Other non-cash charges, net

25.8

 

 

10.1

 

Asbestos-related payments, net

(20.1

)

 

(42.3

)

Contributions to postretirement plans

(19.7

)

 

(9.7

)

Changes in assets and liabilities:

 

 

 

Change in receivables

(41.9

)

 

(23.5

)

Change in inventories

(28.2

)

 

(22.2

)

Change in contract assets

(13.4

)

 

19.7

 

Change in contract liabilities

(9.1

)

 

1.7

 

Change in accounts payable

3.6

 

 

(10.3

)

Change in accrued expenses

(7.2

)

 

(7.3

)

Change in income taxes

23.3

 

 

6.0

 

Other, net

(9.6

)

 

(5.8

)

Net Cash – Operating activities

221.7

 

 

246.6

 

Investing Activities

 

 

 

Capital expenditures

(69.3

)

 

(63.8

)

Proceeds from sale of long-lived assets

1.4

 

 

42.7

 

Acquisitions, net of cash acquired

(113.1

)

 

 

Other, net

0.2

 

 

 

Net Cash – Investing activities

(180.8

)

 

(21.1

)

Financing Activities

 

 

 

Commercial paper, net borrowings (repayments)

11.5

 

 

(16.0

)

Short-term revolving loans, borrowings

 

 

246.5

 

Short-term revolving loans, repayments

 

 

(233.8

)

Long-term debt, issued

7.1

 

 

3.2

 

Long-term debt, repayments

(2.1

)

 

(2.1

)

Repurchase of common stock

(38.3

)

 

(55.8

)

Proceeds from issuance of common stock

11.6

 

 

5.8

 

Dividends paid

(26.1

)

 

(23.9

)

Other, net

(0.6

)

 

(0.1

)

Net Cash – Financing activities

(36.9

)

 

(76.2

)

Exchange rate effects on cash and cash equivalents

(10.6

)

 

(11.4

)

Net Cash – Operating activities of discontinued operations

1.1

 

 

(1.9

)

Net change in cash and cash equivalents

(5.5

)

 

136.0

 

Cash and cash equivalents – beginning of year (includes restricted cash of $1.0 and $1.2, respectively)

562.2

 

 

391.0

 

Cash and cash equivalents – end of period (includes restricted cash of $1.0 and $1.2, respectively)

$

556.7

 

 

$

527.0

 

Supplemental Disclosures of Cash Flow Information

 

 

 

Cash paid during the year for:

 

 

 

Interest

$

2.2

 

 

$

1.0

 

Income taxes, net of refunds received

$

47.9

 

 

$

31.0

 

Key Performance Indicators and Non-GAAP Measures

 
Management reviews a variety of key performance indicators including revenue, segment operating income and margins, earnings per share, order growth, adjusted free cash flow, and backlog, some of which are non-GAAP. In addition, we consider certain measures to be useful to management and investors when evaluating our operating performance for the periods presented. These measures provide a tool for evaluating our ongoing operations and management of assets from period to period. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including, but not limited to, acquisitions, dividends and share repurchases. These metrics, however, are not measures of financial performance under accounting principles generally accepted in the United States of America (GAAP) and should not be considered a substitute for measures determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators for purposes of our reconciliation tables.

 
Organic Revenues and Organic Orders are defined as revenue and orders, excluding the impacts of foreign currency fluctuations, acquisitions and divestitures. Divestitures include sales of portions of our business that did not meet the criteria for presentation as a discontinued operation. The period-over-period change resulting from foreign currency fluctuations is estimated using a fixed exchange rate for both the current and prior periods. Management believes that reporting organic revenue and organic orders provides useful information to investors by helping identify underlying trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers.

 
Adjusted Operating Income, Adjusted Segment Operating Income, Adjusted Operating Margin, and Adjusted Segment Operating Margin are defined as total operating income and segment operating income, adjusted to exclude special items that include, but are not limited to, asbestos-related costs, restructuring costs, realignment costs, certain asset impairment charges, certain acquisitions-related expenses, and unusual or infrequent items. Special items represent significant charges or credits that impact the current results, which management views as unrelated to the Company’s ongoing operations and performance. Adjusted operating margin and adjusted segment operating margin are defined as adjusted operating income or adjusted segment operating income divided by revenue. We believe that adjusted operating income and adjusted segment operating income are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.

 
Adjusted Income from Continuing Operations, Adjusted EPS and Adjusted EPS Guidance are defined as income from continuing operations attributable to ITT Inc. and income from continuing operations attributable to ITT Inc. per diluted share, adjusted to exclude special items that include, but are not limited to, asbestos-related costs, restructuring costs, realignment costs, certain asset impairment charges, certain acquisition-related expenses, income tax settlements or adjustments, and other unusual and infrequent non-operating items. Special items represent significant charges or credits, on an after-tax basis, that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. We believe that adjusted income from continuing operations is useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.

 
Adjusted Free Cash Flow is defined as net cash provided by operating activities less capital expenditures, adjusted for cash payments for restructuring costs, realignment actions, net asbestos cash flows and other significant items that impact current results which management views as unrelated to the Company’s ongoing operations and performance. Due to other financial obligations and commitments, including asbestos expenses, the entire free adjusted cash flow may not be available for discretionary purposes. “Trailing 12 months (TTM) Adjusted free cash flow conversion” is defined as adjusted free cash flow from the trailing 12 months divided by the adjusted income from continuing operations from the trailing 12 months. We believe that adjusted free cash flow and TTM adjusted free cash flow conversion provide useful information to investors as it provides insight into the cash flow metric used by management to monitor and evaluate cash flows generated by our operations. We believe that adjusted free cash flow provides useful information to investors as it provides insight into the primary cash flow metric used by management to monitor and evaluate cash flows generated by our operations.

 
Working Capital is defined as the sum of net receivables, net inventory and current contract assets less accounts payable and current contract liabilities. We believe that working capital provides useful information to investors as it provides insight into the primary cash flow metric used by management to monitor and evaluate cash flows generated by our operations.
Contacts
Investors:Emmanuel Caprais
+1 914-641-2030
[email protected]:Lisa Wolfe
+1 914-641-2103
[email protected]
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