ITT Corporation’s (ITT) second quarter 2010 earnings results, released before the opening bell today, beat the Zacks Consensus Estimate on the bottomline. The company reported earnings per share from continuing operation of $1.22, which increased 12% year over year and was above the Zacks Consensus Estimate of $1.07. Earnings in the quarter were driven by strong productivity and solid operating margins. Adjusted earnings per share from continuing operation was $1.14, up 9% year over year.
Total Revenue
Total revenue of $2.7 billion was 3.5% below the Zacks Consensus Estimate of $2.8 billion for the quarter. The 1% year-over-year increase in the company’s revenue was driven by an increase in organic orders in commercial businesses in the emerging markets. The company also witnessed significant market recovery during the quarter.
Segment Performance
Defense & Information Solutions segment sales declined by 3% year over year to $1.5 billion, led by declined volume of tactical radios and counter improvised explosive device units. This was partially offset by growth in special purpose jammers, radar, composite structures, increased activity under the Automatic Dependent Surveillance-Broadcast (ADS-B), air-traffic control program and strong revenue from its international night vision goggle. Orders in the segment decreased by 49% organically, with a backlog of $4.1 billion.
Operating income for the segment declined by 2% year over year. The business transformation initiatives, however, improved the segment’s productivity and lowered its expenses.
Fluid Technology segment revenue increased by 1% year over year to $878 million, primarily driven by the acquisition of Nova Analytics. Organically, revenue decreased by 4% due to municipal weakness in Europe and comparative better oil and mining projects in the prior-year quarter. This decline was partially offset by improvement in the residential markets and good performance in the US treatment and global dewatering projects. The segment recorded order growth of 15% organically.
Operating income for the segment increased by 16% year over year due to good productivity and a decline in restructuring charges.
Motion & Flow Control segment revenue increased by 17% year over year to $361 million. Organic growth was 21% led by improvements in auto, connectors, marine, beverage and growth in the emerging markets. The segment recorded order growth of 17% organically.
Operating income for the segment increased by 27% year over year due to strong productivity and reduced restructuring charges.
Income
Consolidated operating income for the quarter was $324 million compared with $303 million in the year-ago quarter. ITT Corporation incurred total SG&A expense of approximately $375 million compared with approximately $389 million in the second quarter of 2009.
Balance Sheet
Cash and cash equivalents were $844 million with long-term debt of $1.4 billion and shareowner’s equity of $4.0 billion.
Acquisitions
During the quarter, the company expanded its Fluid technology segment with the addition of Canberra Pumps in Brazil. The company also signed a definitive agreement to acquire Godwin Pumps. The acquisitions strengthened the segment portfolio.
Outlook
For the third quarter of 2010, ITT Corporation expects adjusted earnings per share to decrease by 6% year over year to a range of 94 cents to 98 cents. The quarter’s earnings are expected to decline due to changes in customer order pattern and dilutive impact of the portfolio repositioning actions. Revenue for the quarter is expected to increase by 1% year over year to approximately $2.7 billion.
For full-year 2010, the company expects adjusted earnings per share, including 11 cents dilutive impact from acquisition and discontinued acquisition, to be in the range of $4.08 to $4.18. Revenue is expected to be about $11 billion, up 3% compared with 2009. Organically, revenue is expected to grow by 2%, down from the prior expectation of 3%.
Sales growth in Defense & Information Solutions in 2010 is expected to be flat, Fluid Technology is expected to be 6% and Motion & Flow Control is expected to be 14%.
Headquartered in New York City, ITT Corporation is a global multi-industry leader in high-technology engineering and manufacturing. It is engaged in the design, manufacture, and sale of a wide range of engineered products and services.
ITT Geospatial Systems, a part of ITT Corporation, offers innovative night vision, remote sensing and navigation solutions. These solutions provide sight and situational awareness at the space, airborne, ground and soldier levels. Major competitors of ITT are Lockheed Martin Corporation (LMT) and Raytheon Co. (RTN).
We currently maintain our Neutral rating on ITT Corporation, with a Zacks #3 Rank over the next one-to-three months.
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