ITT (ITT) Down 7.4% Since Earnings Report: Can It Rebound?
Zacks Equity Research
Updated
It has been about a month since the last earnings report for ITT Inc. ITT. Shares have lost about 7.4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
ITT Earnings & Revenues Trump Estimates in Q1
ITT posted adjusted earnings of $0.64 per share in first-quarter 2017, comfortably beating the Zacks Consensus Estimate of $0.60 by 6.7%. The figure fared even better in year-over-year comparison, having increased 8% from the year-ago tally of $0.59.
The company is enjoying a truly impressive streak and hasn’t missed earnings estimates for 22 straight quarters.
Improved efficiency, robust growth in segment operating income and cost containment actions proved to be tailwinds for the company’s bottom line, while currency headwinds proved to be a drag.
Inside the Headlines
ITT’s first-quarter revenues came in at $625.8, up 2.7% on a year over year basis. The figure also surpassed the Zacks Consensus Estimate of $603 million.
Organic revenues increased 3% year over year. The growth was driven by solid growth in automotive, aerospace and defense markets, which was somewhat offset by project declines in the oil and gas segment.
In terms of segments, Industrial Process revenues declined 11% year over year to $186 million. In addition, organic revenues also fell 11%. Challenging conditions in the oil & gas sector, mining, chemical & industrial markets, along with sluggish aftermarket parts activity, more than offset growth in short-cycle pumps and service businesses. Also, currency fluctuations added to the woes.
Revenues at the Connect and Control Technologies segment were up 6% year over year to $153 million. In addition, organic revenues expanded 7% on a year-over-year basis. Stronger general industrial, defense, and oil & gas connector activity reflected well on the segment. The segment was recently formed by integrating the Interconnect Solutions and Control Technologies segments to streamline operations, capitalize on shared infrastructure and drive long-term growth in target markets.
Motion Technologies revenues continued their strong momentum and climbed 12% year over year to $287 million. Furthermore, organic revenues rose 10%. Significant share gains and market growth in automotive brake pads in China and Europe, and stellar sales to aftermarket customers proved conducive to the top-line improvement. Additionally, higher sales of seals and shims at Wolverine supplemented the sales of this segment.
ITT Inc.’s adjusted operating income rose about 8% year over year to $78 million, mainly driven by restructuring and operational improvement benefits, and higher productivity at connector operating locations.
Axtone Acquisition
On Jan 26, ITT Inc. completed the buyout of customized components manufacturer – Axtone – and is currently on track with its integration. Axtone provides components for railway and other harsh-environment industrial markets.
ITT Inc. believes that this acquisition will be complementary to its KONI brand. This, in turn, will fortify its foothold in the transportation industry – including railway, aerospace and automotive. Precisely, the strategic buyout will boost ITT Inc.’s thriving Motion Technologies business and aid it in gaining a higher share in profitable aftermarkets. ITT Inc. 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 Mar 31, 2017, the company had cash and cash equivalents of $348.5 million, down significantly from $460.7 million on Dec 31, 2016.
For the three-month period ended Mar 31, 2017, net cash generated from operating activities came in at $27.1 million compared with $5.7 million in the prior-year period.
Share Repurchase and Dividend
During the year 2016, ITT returned about $114 million to shareholders by executing $70 million of share repurchases. Additionally, early in the reported quarter, the company announced a 3% hike in dividend to $0.128 per share. Moving ahead, it has plans of targeting up to $65 million of share repurchases.
Segment Changes
The company is integrating its Interconnect Solutions and Control Technologies businesses to create a new operating segment: Connect and Control Technologies. The new segment will be involved in designing and manufacturing harsh environment connectors and critical energy absorption and flow control components, chiefly for the aerospace and defense, and industrial markets.
The restructuring will help enhance focus on target markets, streamline operations and leverage shared infrastructure and end markets.
2017 Guidance
ITT reiterated its guidance for full-year 2017 top line, while raising the outlook for earnings. Total revenue growth is expected to range between a decline of around 2% or increase up to 2%. Adjusted EPS is now projected to be in the band of $2.28–$2.48 per share, up from the previously projected range of $2.18–$2.48.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
ITT Inc. Price and Consensus
ITT Inc. Price and Consensus | ITT Inc. Quote
VGM Scores
At this time, ITT's stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is suitable for both momentum and value investors.
Outlook
Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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