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ITT Shares Increase 1.2% Since Reporting Q2 Earnings Beat

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ITT Inc.’s (ITT - Free Report) second-quarter 2023 adjusted earnings (excluding 2 cents from non-recurring items) of $1.33 per share surpassed the Zacks Consensus Estimate of adjusted earnings of $1.17 per share. The bottom line jumped 35.7% year over year, owing to higher revenues. Shares of the company have increased 1.2% since the earnings release on Aug 3.

Total revenues of $833.9 million beat the consensus estimate of $789 million. The top line increased 13.7% year over year, owing to growth across all segments. The acquisition of Micro-Mode contributed 1% to the top line. Organic sales rose 12.5% year over year. Foreign currency translation had a 1% favorable impact on sales.

In the reported quarter, total orders climbed 14% year over year, thanks to pump project wins and aftermarket demand, aerospace growth, and Friction OE and rail share gains.

Segmental Results

Revenues from Industrial Process totaled $293.6 million, up 22.5% year over year. Our estimate for Industrial Process’ revenues was $265.5 million.

Growth in projects, baseline pumps, parts and service drove the segment’s performance. Organic sales increased 22.6%. The adjusted operating income augmented more than 66% year over year.

Revenues from the Motion Technologies segment totaled $368.8 million, reflecting a year-over-year increase of 11.3%. Our estimate for segmental revenues in the quarter was $351.2 million.

The impact of favorable foreign currency translation of $5.3 million and higher sales volume in Friction OE and pricing actions aided the segment’s performance. Organic revenues inched up 9.7%. The adjusted operating income increased 22.2% year over year.

Revenues from the Connect & Control Technologies segment totaled $172.2 million, up 5.5% year over year and up 3.1% organically. Our estimate for segmental revenues was $169.1 million.

Growth in aerospace and defense and the acquisition of Micro-Mode aided the segment’s performance. The adjusted operating income increased 7.5% year over year.

ITT Inc. Price, Consensus and EPS Surprise ITT Inc. Price, Consensus and EPS Surprise

ITT Inc. price-consensus-eps-surprise-chart | ITT Inc. Quote

Margin Profile

During the second quarter, ITT’s cost of revenues increased 8.4% year over year to $553.9 million. The gross profit increased 26% to $280.0 million.

General and administrative expenses decreased 20% year over year to $68.4 million, while sales and marketing expenses rose 8.7% to $43.9 million. Research and development expenses inched up 5.8% year over year to $25.7 million.

The adjusted segmental operating income in the quarter increased 34.1% year over year to $156.2 million. The margin increased 280 basis points (bps) to 18.7%. Results benefited from higher sales volume and pricing actions.

Balance Sheet and Cash Flow

Exiting the second quarter, ITT had cash and cash equivalents of $462.1 million, compared with $561.2 million at the end of fourth-quarter 2022. The company’s commercial paper and current maturities of long-term debt were $396.5 million compared with $451 million at the end of December 2022.

In the second quarter, ITT generated net cash of $197.8 million from operating activities, compared with $54.2 million cash generated in the year-ago period. During the second quarter, capital expenditure totaled $46.3 million, down 2.5% year over year. Free cash flow was $151.5 million in the second quarter, compared with free cash flow of $6.7 million at the end of the year-ago period.

During the second quarter, ITT paid out dividends of $48.1 million, up 8.6% year over year. Share repurchases were $60.5 million in the period compared with $240.9 million in the year-ago period.

2023 Outlook Raised

ITT expects adjusted earnings of $4.95-$5.15 per share, compared with adjusted earnings of $4.65-$4.95 per share anticipated earlier. The guided range reflects a 11-16% increase year over year. The midpoint of the guided range — $5.05 — lies above the Zacks Consensus Estimate of adjusted earnings of $4.94 per share.

ITT continues to expect a 7-9% (6-8% organically) increase in revenues in 2023. Adjusted segment operating margin is estimated to be 17.7-18.5%, compared with 17.3-18.1% stated before, indicating an increase of 50-130 bps. Free cash flow is estimated to be $350-$400 million in 2023. This indicates a free cash flow margin of 11-12%.

Zacks Rank & Other Stocks to Consider

ITT currently carries a Zacks Rank #2 (Buy). Some other top-ranked companies are discussed below:

Greif, Inc. (GEF - Free Report) presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks.

GEF delivered a trailing four-quarter earnings surprise of 7.7%, on average. GEF’s earnings estimates have increased 12.7% for fiscal 2023 in the past 60 days. Its shares have risen 7.9% in the past year.

Caterpillar Inc. (CAT - Free Report) presently carries a Zacks Rank of 2. CAT’s earnings surprise in the last four quarters was 18.5%, on average.

In the past 60 days, estimates for Caterpillar’s earnings have increased 7.3% for 2023. The stock has gained 48.8% in the past year.


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