ITT Reports 2017 Fourth-Quarter and Full-Year Results, 2018 Guidance
2017 Full-Year Results:
- Revenue up 8% to $2.6 billion, Organic revenue up 3%
- Segment Operating Income (OI) up 17%, Adjusted Segment OI up 11%
- GAAP EPS of $1.29 includes U.S. tax law charge, Adjusted EPS up 12% to $2.59
- Free Cash Flow (FCF = cash flows from operations less capital expenditures) increased to $134 million; Adjusted FCF conversion of 100%
2017 Fourth-Quarter Results:
- Revenue up 16% to $684 million, Organic revenue up 8%
- Segment OI up 36%, Adjusted Segment OI up 29%
- GAAP loss per share of $0.75 includes U.S. tax law charge
- Adjusted EPS up 33% to $0.64
- Total revenue up 5% to up 8%
- Adjusted segment OI margins up 100-150 bps
- GAAP EPS in range of $2.46 to $2.78
- Adjusted EPS in range of $2.85 to $3.15, up 16% at midpoint of $3.00
Raises Quarterly Dividend 5% to $0.134 per share
WHITE PLAINS, N.Y., February 16, 2018 – ITT Inc. (NYSE: ITT) today reported 2017 fourth-quarter and full-year financial results that reflected a strong strategic focus on optimizing execution, expanding in key end markets and deploying capital effectively to drive growth and share gains. The company also provided 2018 guidance.
"I’m extremely pleased with the exceptional growth that we delivered in 2017 and with the strong share gains that we delivered in key growth markets," said CEO and President Denise Ramos. "Throughout the year, ITT continued to optimize execution while leveraging those accomplishments to drive momentum and share gains with key customers, end markets and geographies. Heading into 2018, we are intensifying our focus on optimizing execution, accelerating innovation and delivering growth."
The company delivered revenue of $2.6 billion in 2017, reflecting an 8 percent increase that included $74 million from the Axtone acquisition, and favorable foreign exchange of $30 million. On an adjusted basis, full-year organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) increased 3 percent due to 7 percent growth in transportation markets, driven by automotive brake pads and high-speed rail, that was partially offset by lower pump project activity in oil and gas markets.
GAAP segment operating income increased 17 percent reflecting lower restructuring expenses and strong operational results. Adjusted segment operating income increased 11 percent as sales volume growth in automotive brake pads, benefits from past restructuring actions at our Industrial Process and Connect and Control Technologies businesses, and improved productivity were partially offset by higher commodity costs, unfavorable price and mix, foreign exchange and incremental investments to support long-term growth.
Full-year GAAP EPS decreased to $1.29, compared with $2.02 in the prior year, due to the $1.45 in provisional charges related to the 2017 U.S. Tax Cuts and Jobs Act, consisting mainly of a one-time tax on historic unremitted foreign earnings and the write-down of U.S. deferred tax assets from the lower U.S. corporate tax rate, partially offset by lower year-over-year restructuring costs and the benefit of an insurance settlement in 2017. Adjusted EPS increased 12 percent to $2.59 reflecting strong segment operating income growth from higher volumes and net productivity, in addition to a lower tax rate and share count, partially offset by higher incentive costs and the negative impact of foreign exchange.
"From an execution standpoint, we drove strong adjusted EPS growth reflecting double-digit adjusted operating income growth in all three segments. We also delivered a 15 percent increase in adjusted free cash flow and a conversion rate of 100 percent," Ramos said.
"In addition, we continued to innovate with our customers to drive future growth. For example, in our MT business, we grew full-year organic revenue by 10 percent and won 75 new automotive friction platforms, including 42 in China, through our ability to partner with customers. We also launched our revolutionary ITT SMART Pad. Further, we secured significant multi-year awards in rotorcraft and the aerospace and defense markets; won a growing number of electric vehicle connector awards in the North America and EMEA markets; and achieved a record award in our KONI shock absorber business.
"We also continued to deploy our capital in balanced and effective ways to both position us for long-term success and return value to shareholders. In 2017, we made strategic organic investments to expand our global friction business in China and North America to support our extensive share gains in those regions, and we acquired Axtone Railway Components to enhance our position in the global railway market. In addition, we continued to return value to shareholders by executing $30 million of share repurchases and increasing our quarterly dividend.
"As we look ahead, we are pleased with the stabilization in our key end markets but will also continue to watch these markets closely, especially given the recent volatility. Nonetheless, we expect to fully build on the momentum we've generated over the past few years to accelerate our customer-focused innovation and growth and to continue to create long-term value for shareholders."
2017 Fourth-Quarter Results
The company delivered revenue of $684 million in the fourth quarter, reflecting a 16 percent increase. Organic revenue increased 8 percent due to growth in transportation as a result of solid performance in auto and rail, in oil and gas due to strong upstream pump and connector activity, and in general industrial driven by robust baseline pump activity. Organic orders grew by 9 percent as strong growth in global auto friction, aerospace and defense, and general industrial was partially offset by declines in pump projects.
GAAP segment operating income increased 36 percent, and adjusted segment operating income increased 29 percent reflecting strong incremental margins on higher volumes, restructuring savings at Industrial Process and Connect and Control Technologies, and productivity benefits across all business units, partially offset by higher commodity costs and unfavorable foreign exchange.
Fourth-quarter GAAP loss per share was $0.75, compared to earnings per share of $0.27 in the prior year. The decline was primarily due to impacts from the change in U.S. tax laws, partially offset by the benefit of an insurance settlement in 2017. Adjusted EPS increased 33 percent to $0.64 due to strong segment operating income growth from higher volume, net productivity and restructuring benefits, along with a favorable tax rate and benefits from the Axtone acquisition.
2017 Fourth-Quarter Business Segment Results
All quarterly results are compared with the respective prior-year periods.
Industrial Process designs and manufactures industrial pumps and valves for the chemical and industrial, oil and gas, and mining markets.
- Total revenue increased 10 percent to $233 million, with organic revenue up 8 percent. Both measures reflect strength in short-cycle pumps and aftermarket as well as growth in pump projects, particularly in oil and gas and mining in Latin America and petrochemical in international markets. Total revenue also includes the impact of favorable foreign exchange.
- GAAP operating income increased 98 percent to $28 million partially reflecting lower restructuring expenses. Adjusted segment operating income increased 53 percent to $27 million. Both measures primarily reflect favorable short-cycle volumes and continued improvement in project execution and productivity, partially offset by higher material costs and the negative impacts of foreign exchange.
Motion Technologies designs and manufactures braking technologies, shock absorbers and specialized sealing solutions for the automotive and rail markets.
- Total revenue increased 31 percent to $299 million, and organic revenue increased 13 percent. Both measures reflect significant share gains and market growth in global OE automotive brake pads, particularly in North America and China, and in the European aftermarket, as well as strength in shock absorbers in the European and Chinese railway markets, and growth in seals in key markets at Wolverine. Total revenue also includes the impact of favorable foreign exchange and the Axtone acquisition.
- GAAP operating income increased 27 percent to $34 million, and adjusted segment operating income increased 34 percent to $38 million. Both increases reflect benefits from the Axtone acquisition, volume growth and productivity improvements in friction, and favorable foreign exchange, partially offset by commodity cost headwinds and strategic investments for growth. GAAP operating income also reflects higher year-over-year acquisition-related costs.
Connect & Control Technologies designs and manufactures products including fuel management, actuation, and noise and energy absorption components for the aerospace and industrial markets, as well as aerospace environmental control system components.
- Total revenue increased 3 percent to $153 million, and organic revenue increased 1 percent primarily reflecting growth in oil and gas connectors, particularly in North America and the Middle East, and strength in heavy vehicle, electric vehicle and actuation components, offset by weak medical and defense connectors.
- GAAP operating income increased 3 percent to $19 million and adjusted segment operating income increased 2 percent to $21 million, reflecting net productivity and restructuring benefits, as well as operational improvements in the connectors business, partially offset by unfavorable mix, price and impact from foreign exchange.
The company announced 2018 guidance with total revenue expected to be in the range of up 5 percent to 8 percent, partially reflecting favorable foreign exchange. GAAP EPS is expected to be in the range of $2.46 to $2.78.
Organic revenue is expected to be up 2 to 4 percent, due to the benefits of our diversified multi-industrial portfolio, including global friction and rail share gains and improvements in short-cycle industrial and chemical markets. 2018 Adjusted EPS is expected to be in the range of $2.85 to $3.15 per share, which is up 16 percent at the $3.00 midpoint. The projected 16 percent increase will be driven by operating productivity and benefits from restructuring, volume, mix and foreign exchange, partially offset by incremental strategic investments and headwinds from commodities and pricing. The 2018 effective tax rate of 23 to 24 percent in the Adjusted EPS guidance compares to the 2017 rate of 24.3 percent.
The company plans to continue to return capital to shareholders through increasing its quarterly dividend, for a sixth straight year, by 5 percent to $0.134 per share and targeting up to $50 million of share repurchases.
Investor Call Today
ITT'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 Web site: www.itt.com/investors and will be available on the website from two hours after the webcast until Friday, March 2, 2018, at midnight.
For a reconciliation of GAAP to non-GAAP results, please click here.
All references to EPS are defined as diluted earnings per share from continuing operations.
ITT 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 2017 revenues of $2.6 billion. For more information, visit www.itt.com.
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