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

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November 01, 2019 06:45 ET (10:45 GMT)

*DJ ITT Inc 3Q Adj EPS 97c >ITT

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*DJ ITT Inc 3Q Rev $712M >ITT

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*DJ ITT Inc 3Q Net $118.6M >ITT

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*DJ ITT Inc Sees FY Adj EPS $3.73-Adj EPS $3.75 >ITT

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November 01, 2019 06:45 ET (10:45 GMT)

Press Release: 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)--November 01, 2019--

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.

Segment
Revenue OI Margin EPS Operating Cash Flow
------------- ------------------------ ------ -----------------------
+5% -90 bps +7% -10%
------------- ------------------------ ------ -----------------------

Organic Adj Adj Adj
Revenue Segment OI Margin EPS 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

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Press Release: ITT Reports Strong 3rd Quarter -2-

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, December 31,
2019 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
--------------------------------------- -------------- -------------

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