ITT Reports Solid 2018 Full-Year and Fourth-Quarter Results, 2019 Guidance
2018 Full-Year Results:
- Revenue up 6% to $2.75 Billion
- Organic Revenue up 4%
- Orders up 10%, Organic Orders up 8%
- Segment OI up 27%
- Adjusted Segment OI up 18%
- GAAP EPS up 191% to $3.75
- Adjusted EPS up 25% to $3.23
- Net Cash - Operating Less Capital Expenditures (“FCF”) up 106%, Adjusted FCF up 34%
2018 Fourth-Quarter Results:
- Revenue down 1% to $678 Million
- Organic Revenue up 1%
- Orders Flat, Organic Orders up 2%
- Segment OI up 17%
- Adjusted Segment OI up 11%
- GAAP EPS of $0.57
- Adjusted EPS up 28% to $0.82
2019 Guidance & Capital Deployment
- Total Revenue up 2% to 4%; Organic Revenue up 3% to 5%
- Adjusted Segment OI Margins up 60-120 bps
- GAAP EPS in Range of $2.69 to $3.05
- Adjusted EPS in Range of $3.42 to $3.66, up 10% at Midpoint of $3.54
- Announcing: 10% Increase in Quarterly Dividend to $0.147
- Announcing: Up to $25 Million in New Share Repurchases
- Announcing: Signing of Rheinhutte Pumpen Acquisition (Not Reflected in ITT Guidance)
WHITE PLAINS, N.Y., – ITT Inc. (NYSE: ITT) today reported 2018 full-year and fourth-quarter financial results that reflected the company’s continued focus on operational execution and strategies to win share in key global end markets. The company also provided 2019 guidance.
“Our 2018 results were fueled by ITT’ers around the world servicing our customers better through strong execution while we continue to build our operational capabilities, all of which helped us gain market share,” said CEO and President Luca Savi. “Looking ahead, our team is energized by the many actions we have identified in 2019 that will further benefit our customers while advancing ITT’s ability to continue growing our top line, expanding our margins, driving strong cash flow growth, and funding future strategic investments."
Full-Year ResultsRevenue and Orders
The company delivered record revenue of $2.75 billion in 2018, a 6 percent increase that included favorable foreign exchange of $46 million, and $6 million from the Axtone acquisition which was completed in the first quarter of 2017. Full-year organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) increased 4 percent driven by continued growth in the industrial and transportation markets. Industrial growth was fueled by higher pump and valve demand in the petrochemical, chemical and biopharmaceutical markets. Transportation growth was driven by continued market share gains in automotive, and strength in rail and commercial aerospace. Organic revenue growth was partially offset by a decline in the oil and gas market as growth in connectors was more than offset by pump project timing.
The company received record orders of $2.89 billion, a 10 percent increase that included favorable foreign exchange of $49 million and $18 million from the Axtone acquisition. Organic orders grew 8 percent powered by growth in pump projects in petrochemical, chemical, and oil and gas, growth in connectors across major markets, and strong North American and Chinese friction OEM growth. Continued orders strength drove a $132 million increase in our year-end backlog, representing a 14 percent increase, excluding foreign exchange.
Segment Operating Income
GAAP segment operating income increased 27 percent reflecting strong operational execution across business segments. Adjusted segment operating income improved 18 percent and adjusted segment operating margin improved 150 basis points from global volume leverage, manufacturing and purchasing productivity, and foreign exchange, partially offset by higher commodity prices. Our operating income was also impacted by incremental strategic investments to support long-term growth, including the ITT Smart Pad, rotorcraft noise and vibration technologies, and the ramp up of our North American friction manufacturing facility. In addition, GAAP segment operating income was favorably impacted by lower restructuring, realignment, and acquisition-related expenses, and a favorable legal settlement.
Earnings Per Share
Full-year GAAP EPS increased to $3.75, compared to $1.29 in the prior year due to provisional tax charges of $1.45 related to the 2017 U.S. Tax Cuts and Jobs Act recorded in 2017, significant segment operating income growth, a favorable 2018 deferred tax valuation adjustment of $0.27, and an after-tax gain of $0.30 on the sale of a former operating location, partially offset by higher after-tax net asbestos costs of $0.18. Adjusted EPS increased 25 percent to $3.23, reflecting strong segment operating income growth, in addition to a lower tax rate and share count, partially offset by higher corporate and incentive costs.
Fourth-Quarter ResultsRevenue and Orders
The company delivered revenue of $678 million, a 1 percent decrease, which included $15 million of unfavorable foreign exchange. Organic revenue increased 1 percent on growth in industrial markets from broad-based chemical strength and growth in transportation markets from friction dealer aftermarket, KONI rail, and commercial aerospace connectors. This growth was partially offset by flat global OE friction that outperformed global markets and a decline in oil and gas from project timing and connectors.
The company recorded flat orders of $667 million that included unfavorable foreign exchange of $13 million. Organic orders grew 2 percent reflecting a 30 percent increase in project pumps led by oil and gas and mining, and strong broad-based demand for connectors and control products. In addition, fourth-quarter orders growth was negatively impacted by a prior year $18 million defense order at Connect and Control Technologies.
Segment Operating Income
GAAP segment operating income increased 17 percent to $95 million on segment margins of 14.0 percent. Adjusted segment operating income increased 11 percent to $96 million on adjusted segment operating margins of 14.1 percent, an improvement of 140 basis points. The growth reflects volume benefits and net productivity improvements, including supply chain actions at each segment and the continued operational improvements at Connector facilities. Operating income growth was partially offset by unfavorable price, mix, increased strategic investments, higher commodity costs, and foreign exchange. In addition, GAAP segment operating income benefited from lower restructuring, realignment, and acquisition-related costs and a favorable legal settlement.
Earnings Per Share
Fourth-quarter GAAP EPS increased to $0.57, compared with a loss per share of $0.75 in the prior year, primarily due to the provisional tax charges of $1.45 related to the 2017 U.S. Tax Cuts and Jobs Act recorded in 2017. Adjusted EPS increased 28 percent to $0.82 reflecting net productivity benefits, lower corporate costs, and tax favorability due to the lower U.S. corporate tax rate and Italian rate reduction actions.
2019 GuidanceThe company announced 2019 guidance with total revenue expected to be in the range of up 2 percent to 4 percent, or approximately $2.83 billion at the midpoint, including foreign exchange headwinds of $37 million. GAAP EPS is expected to be in the range of $2.69 to $3.05.
Organic revenue is expected to be up 3 to 5 percent, due to the benefits of our diversified multi-industrial portfolio, including global friction and rail share gains and chemical, petrochemical, and oil and gas project backlog. The organic growth will reflect accelerating automotive production ramp-ups from recent share gains in North American, Chinese and European markets, and as a result, we expect our Friction OEM business to continue to outperform global market production. In addition, the 18 percent increase in backlog, excluding foreign exchange, entering 2019 at both CCT and IP will provide topline momentum into 2019.
Adjusted EPS is expected to be in the range of $3.42 to $3.66 per share, which is up 10 percent at the $3.54 midpoint. The 10 percent increase will be driven by solid segment operating productivity and lower functional corporate costs, partially offset by a higher tax rate and foreign exchange headwinds. The 2019 effective tax rate of approximately 22.5 percent in the adjusted EPS guidance compares to a 2018 rate of 20.8 percent.
The company plans to continue to return capital to shareholders through increasing its quarterly dividend, for a seventh straight year, by 10 percent to $0.147 per share. The company is also targeting up to $25 million of incremental new share repurchases which, when combined with the $25 million of share repurchases previously authorized in November 2018, could result in total repurchases of up to $50 million in 2019.
Signing of Rheinhütte Pumpen AcquisitionToday ITT announced an agreement to acquire Rheinhütte Pumpen Group for €81 million. This strategic acquisition will expand ITT’s portfolio of highly engineered industrial pump technologies and will bolster IP’s presence in international markets and target end-markets. The proposed transaction will be funded from the company’s cash and revolving credit facility. The proposed transaction is subject to customary closing conditions, including appropriate regulatory approvals and is not reflected in ITT’s 2019 guidance provided above.
2018 Fourth-Quarter Business Segment ResultsAll quarterly results are compared with the respective prior-year period
- Total revenue decreased 2 percent to $291 million, due to a 3 percent impact from unfavorable foreign exchange. Organic revenue increased 1 percent driven by a 16 percent increase in KONI primarily due to global strength in rail, partially offset by a 3 percent decline at Wolverine on weakness in shims and gaskets. Organic revenue for Friction was flat, however we continued to significantly outperform the global market due to strength in North America and China where we outperformed the market by 23 and 16 points of growth, respectively. Motion Technologies was also awarded a major new front axle, copper-free award for a cross-over platform in North America.
- GAAP operating income increased 40 percent to $48 million, and adjusted segment operating income increased 12 percent to $42 million. Both increases reflect strong operating and supply chain productivity, partially offset by higher commodity costs and increased strategic investments. In addition, GAAP operating income benefited from a favorable legal settlement and lower acquisition-related costs.
- Total revenue decreased 2 percent to $229 million, due to a 2 percent impact from unfavorable foreign exchange. Organic revenue was flat as an 11 percent decrease in large pump projects primarily related to delivery timing was offset by a 5 percent increase in short-cycle activity due to strength in baseline pumps, aftermarket parts, and valves.
- GAAP operating income decreased 3 percent to $27 million, and adjusted operating income decreased 2 percent to $28 million, reflecting acquisition due diligence costs, a temporary increase in costs due to product line reset activities, lower project volumes, and unfavorable impacts from foreign currency and mix. The decline was partially offset by price actions targeted to offset tariff impacts and supply chain savings.
Connect and Control Technologies
- Total and organic revenue increased 4 percent to $159 million, driven by growth in aerospace as commercial aerospace grew 9 percent and rotorcraft grew 86 percent. Strength in medical and electric vehicle connectors drove the 3 percent increase in general industrial markets. This growth was partially offset by a 4 percent decrease in oil and gas connectors.
- GAAP operating income increased 4 percent to $20 million and adjusted segment operating income increased 24 percent to $26 million. Both measures reflect benefits from higher volumes, improved productivity gains in Connector operations, and restructuring benefits, partially offset by increased material costs. In addition, GAAP operating income was unfavorably impacted by a $5 million legal accrual.
Investor Call TodayITT'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, March 8, 2019, at midnight.
For a reconciliation of GAAP to non-GAAP results, please refer to the section titled "Key Performance Indicators & Non-GAAP Measures." All references to EPS are defined as diluted earnings per share from continuing operations.
About ITTITT 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 2018 revenues of $2.75 billion. For more information, visit www.itt.com.
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