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ITT (ITT) Down 4.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for ITT (ITT - Free Report) . Shares have lost about 4.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ITT due for a breakout? Before we dive into how investors and analysts have reacted as 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 Beats Q3 Earnings Estimates, Increases '21 Projections

ITT reported better-than-expected results for third-quarter 2021. Its earnings surpassed estimates by 6.45% and sales beat the same by 2.65%.

The company’s adjusted earnings in the reported quarter were 99 cents per share, surpassing the consensus estimate of 93 cents. Also, the bottom line improved 20.7% from the year-ago figure of 82 cents on improved sales and margin generation. Share buybacks and low taxes aided the results (by 3 cents per share).

However, inflation in raw material and supply-chain woes had adverse impacts.

Revenue Details

In the quarter under review, ITT’s net sales were $689.6 million, reflecting year-over-year growth of 16.6%. The results benefitted 15.6% from growth in organic sales. Segmental results flourished in the quarter.

Also, the company’s revenues surpassed the Zacks Consensus Estimate of $672 million.

Organic sales in the quarter increased 27.6% year over year, with organic orders representing growth of 26.8%.

It currently reports under three business segments — Industrial Process, Motion Technologies, and Connect and Control Technologies. The segmental information is briefly discussed below:

Revenues from Industrial Process totaled $210.7 million, rising 8.6% year over year. The results gained 8.1% from growth in organic sales. Business related to valves, short cycle parts, and service flourished in the quarter. Orders increased 25.5% year over year.

Revenues from Motion Technologies totaled $332.3 million, reflecting year-over-year growth of 22.3%. The results gained from a 20.3% contribution from organic sales growth on the back of a rise in the automotive aftermarket business, the Friction aftermarket and sealing, and other tailwinds. Orders grew 23.6% from the year-ago quarter.

Revenues from Connect and Control Technologies totaled $147.1 million, increasing 16.8% year over year and up 17% organically. Results benefitted from strength in the industrial market, partially offset by the softness in the commercial aerospace market. Orders expanded 40.8% year over year.

Margin Profile

In the quarter under review, ITT’s cost of revenues increased 16.7% year over year to $467.6 million. It represented 67.8% of the quarter’s sales compared with 67.8% in the year-ago quarter. Gross profit increased 16.5% year over year to $222 million and as a percentage of sales, it was 32.2%.

General and administrative expenses expanded 18.7% year over year to $55.9 million, while sales and marketing expenses increased 12% to $37.4 million. Research and development expenses grew 14.2% to $22.5 million.

Adjusted segmental operating income in the quarter increased 21.2% year over year to $115.7 million. Margin expanded 60 basis points (bps) to 16.8%. Results benefitted from sales growth, and gains from productivity and commercial actions. However, supply-chain woes, inflation in raw material costs, woes related to growth investments, and other headwinds played spoilsport.

Balance Sheet and Cash Flow

Exiting the third quarter, ITT had cash and cash equivalents of $585.8 million, up 1.2% from $578.8 million in the previous quarter. Its total non-current liabilities were down 2.8% sequentially to $410 million.

In the first three quarters of 2021, ITT used $127.9 million for its operating activities against net cash generation of $318.1 million in the year-ago period. Capital expenditure was $52.6 million, up from $47.6 million in the year-ago quarter. Free cash outflow was $180.5 million against an inflow of $270.5 million in the year-ago period.

In the first nine months of 2021, the company paid out dividends of $57 million, up from $29.7 million in the year-ago period. Share repurchases were $111.7 million, up from shares worth $83.9 bought back in the year-ago period.

Outlook

Solid results for the third quarter motivated ITT to increase its projections for 2021. Supply-chain woes are prevalent headwinds.

For 2021, the company anticipates adjusted earnings of $4.01-$4.06 per share, up from $3.90-$4.05 per share mentioned earlier. The revised projection suggests year-over-year growth of 25-27%.

Revenues are expected to increase 11-13% year over year and 8-10% organically. Adjusted segmental operating margin is predicted to increase 170-220 bps year over year to 16.9-17.4%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, ITT has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, ITT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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