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ITT Down 5.3% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for ITT Inc. (ITT - Free Report) . Shares have lost about 5.3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next 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 Q2 Earnings Beat Estimates, 2017 Guidance Raised

ITT reported second-quarter 2017 results, with adjusted earnings of 65 cents per share beating the Zacks Consensus Estimate of 63 cents. Strong productivity and restructuring benefits led to better-than-expected earnings. However, the bottom line came in 3% lower than the year-ago tally of 67 cents.

Higher environmental costs along with unfavorable foreign exchange, more than offset favorable impacts of improved efficiency, a lower tax rate and interest expense.

Inside the Headlines

The company’s second-quarter revenues came in at $630.9, up 0.8% on a year-over-year basis. The figure also surpassed the Zacks Consensus Estimate of $627 million.

Organic revenues declined 2% year over year due to lower industrial and global oil and gas pump project activity, which was somewhat mitigated by growth in automotive market.

Adjusted operating income for the reported quarter was $88.3 million compared with $92.2 million in the second quarter of 2016. The decrease in adjusted operating income was attributable to a rise in commodity costs, unfavorable foreign exchange and a rise in strategic investments.

Segment Performance

Total revenue and organic revenue at the Industrial Process declined 10% year over year to $192 million. The decline was primarily attributable a lesser number of oil and gas projects in North America, Asia and Latin America along with declines in baseline oil and gas pumps.

Revenues at the Connect and Control Technologies segment declined 3% year over year to $150 million. In addition, organic revenues fell 2% on a year-over-year basis. The decrease was primarily due to a decline in demand in commercial aerospace and restrictions on sales of military-specification connectors.

Motion Technologies’ revenues continued the strong momentum and climbed 12% year over year to $290 million. Additionally, organic revenues recorded an increase of 5%. Significant share gains and market growth in automotive brake pads in Europe and China and strong sealing solutions at Wolverine proved favorable to the top-line improvement.

Balance Sheet

Cash and cash equivalents totaled $355.3 million as of Jun 30, 2017 compared with $460.7 million on Dec 31, 2016. For the six months ended June 30, 2017, cash flow from operating activities totaled $92.7 million and capital expenditures were $53.3 million. At the end of the quarter, the company had 88 million shares outstanding.

2017 Guidance

For full-year 2017, ITT raised its previously announced revenue guidance of a decline of around 2% or increase up to 2% to the range of 0% to 2%, due to the favorable impact of foreign exchange. Adjusted earnings are now projected to be in the band of $2.40–$2.50 per share, up from the previous estimate of $2.28–$2.48.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter.

ITT Inc. Price and Consensus

 

VGM Scores

At this time, ITT's stock has a subpar Growth Score of D, a grade with the same score on the momentum front. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our style scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. 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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