Second-quarter revenue up 1 percent to $2.7 billion with significant increase in organic orders in commercial businesses.
Second-quarter earnings from continuing operations up 12 percent to $1.22 per share. Adjusted earnings from continuing operations up 9 percent to $1.14 per share, topping previous guidance.
Company announces plans to divest CAS, Inc., a component of the Defense & Information Solutions segment; classifies CAS as a discontinued operation.
Strong operational performance expected to offset the $0.11 full-year dilutive impact of acquisitions and discontinued operations announced in the second quarter; adjusted full-year earnings per share guidance of $4.08 to $4.18 represents 11 percent growth at the mid-point compared with 2009.
Excluding special items, income from continuing operations for the quarter was $211 million, or $1.14 per share, representing 9 percent year-over-year growth. Special items resulted from the completion of a tax audit.
"We are pleased with ITT's strong productivity and solid operating margins this quarter, and we are making substantial progress realigning our portfolio of essential products and services to drive future growth," said Steve Loranger, ITT's chairman, president and chief executive officer. "Our Motion & Flow Control business once again delivered exceptional performance with significant increases in revenue and operating income. Our Defense & Information Solutions business delivered improved productivity and lower expenses driven by its business transformation. Our Fluid Technology team posted solid margin expansion with outstanding productivity. We are growing in emerging markets and seeing market recovery in some of our commercial businesses, driving significant growth in organic orders. All in, it adds up to a great first half."
During the quarter the company announced that it acquired Canberra Pumps in Brazil and that it signed a definitive agreement to acquire Godwin Pumps as part of ITT's portfolio repositioning strategy. These businesses will be included in the Fluid Technology segment. The company also today announced its plans to divest CAS, Inc., a systems engineering and technical assistance (SETA) component of the Defense & Information Solutions segment.
"Our strategies for long-term sustainable growth include increasing our presence in emerging markets, rebalancing our revenue mix and strengthening the portion of our business that is aligned with global macro trends, including the need for fresh water and modernized infrastructure, and we made good progress in the second quarter. The purchase of Godwin will build our global position in water, wastewater and industrial process, and Canberra Pumps expands our position in Latin America and enables us to sharpen our focus on the growing oil and gas market," Loranger said. "Our plans to divest CAS will reduce the potential for perceived organizational conflicts of interest for ITT as a top-tier defense contractor. CAS is an outstanding business; however, as we continue to grow our Defense & Information Solutions business revenues in adjacent platforms, we believe CAS would be better positioned for growth with another company."
CAS is being classified as a discontinued operation, including full-year 2009 revenues of $230 million; and taken together with the Godwin and Canberra acquisitions, the 2010 full-year dilutive impact of these portfolio repositioning activities is expected to be $0.11. The company projects this will be offset by strong operational performance.
"Notwithstanding the one-time impact of our repositioning strategy on our full-year outlook, we are poised for double-digit earnings growth in 2010, building on a best-in-class earnings performance in 2009. The focused execution of our global teams, combined with improving conditions in certain end markets, gives us confidence in our ability to deliver a strong second half and raise our outlook for the full year -- and we are well positioned for sustainable growth over the long term," Loranger said.
Second-Quarter Segment Results
Defense & Information Solutions
Second-quarter 2010 revenue for the Defense segment was $1.5 billion, down 3 percent compared to the year-ago period. Backlog at the end of the quarter was $4.1 billion. Second-quarter volume declines from strong prior-year results for tactical radios and counter improvised explosive device units were 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 international night vision goggle revenues. Organic orders declined 49 percent from a very strong prior-year period due to deferral of an international radio order and delayed award timing of service contracts and jammer upgrades.
Significant wins during the quarter included a $1.4 billion Systems Engineering 2020 award under the FAA's next generation air transportation system, and a NASA range operations contract. The company also recently won two independent contracts, totaling up to $800 million, from the U.S. Army Corps of Engineers to provide operations and maintenance support for the Afghanistan National Security Forces.
Strong productivity and cost reductions in the segment were offset by costs related to the business transformation that was implemented in the first quarter, higher pension costs, and lower volumes, resulting in a 2 percent decline in second-quarter operating income to $194 million.
Second-quarter 2010 Fluid Technology revenue of $878 million was up 1 percent on a year-over-year basis, primarily driven by the acquisition of Nova Analytics. Organic revenue (defined as total revenue excluding foreign exchange, acquisition and divestiture impacts) was down 4 percent, as improvement in residential markets and strength in U.S. treatment and global dewatering was offset by municipal weakness in Europe and a decline versus a strong year-ago period in oil and mining projects. Organic orders for the segment were up 15 percent, largely driven by solid demand in industrial aftermarket services, strong mining, oil and gas projects, and a strong U.S. municipal market.
Recent key achievements include a treatment project order in Qatar and a dewatering project in Norway. ITT also signed a memorandum of understanding with the PUB, Singapore's national water agency, to establish a joint research and technology testing program to further develop energy-efficient water and wastewater treatment solutions.
Second-quarter segment operating income was $130 million, up 16 percent from the comparable prior-year period, driven by exceptional productivity and lower restructuring and realignment costs.
Motion & Flow Control
Second-quarter 2010 revenue for the Motion & Flow Control segment grew 17 percent on a comparable prior-year basis to $361 million. Organic revenue was up 21 percent, driven by improvements in auto, connectors, marine, beverage and growth in emerging markets. Organic orders were up 17 percent on strong demand for connectors, improving aerospace demand, emerging market growth in beverage, general industrial strength and global wins in high-speed rail.
Key business achievements during the quarter included brake pad orders for the new BMW "5 series," Renault and Opel models. The business also experienced increased demand for its PulpJet Pump, which is used in fast food chains to dispense smoothie beverages.
Operating income of $42 million was up 27 percent, driven by increased revenue as well as strong productivity and a reduction in restructuring charges.
For the third quarter of 2010, taking into account customer order patterns and the expected dilutive impact of the portfolio repositioning actions on the quarter, ITT projects adjusted earnings per share will be down 6 percent compared with the year-ago period, in the range of $0.94 to $0.98. Revenue for the third quarter is expected to be up 1 percent to approximately $2.7 billion.
For the full year, taking into account the expected $0.11 impact of acquisitions and discontinued operations, the company projects 2010 adjusted continuing earnings per share guidance will be $4.08 to $4.18. The midpoint of $4.13 represents 11 percent growth compared with the prior year.
Revenue for the full year is expected to grow approximately 3 percent to $11 billion. Organic revenue is expected to grow 2 percent, compared with a previous forecast of 3 percent growth.
Based on current order patterns, the company now projects 2010 Defense & Information Solutions revenue for the full year to be flat, versus a previous forecast of 3 percent growth. Fluid Technology revenue is expected to grow 6 percent, from a previously announced forecast of 5 percent growth, and organic revenue for the segment is expected to be flat. Based on improving market conditions, total revenue growth guidance for Motion & Flow Control is increased to 14 percent from the previous forecast of 6 percent growth, and organic revenue is expected to grow 18 percent.
Investor Call Today
ITT's senior management will host a conference call for investors today at 9:00 am Eastern Daylight Time to review second-quarter performance and answer questions. The briefing can be monitored live via webcast at itt.com/investors.
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About ITT Corporation
ITT Corporation (itt.com) is a high-technology engineering and manufacturing company operating on all seven continents in three vital markets: water and fluids management, global defense and security, and motion and flow control. With a heritage of innovation, ITT partners with its customers to deliver extraordinary solutions that create more livable environments, provide protection and safety and connect our world. Headquartered in White Plains, N.Y., the company reported 2009 revenue of $10.9 billion.
Safe Harbor Statement
Certain material presented herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 (the "Act"). These forward-looking statements include statements that describe the Company's business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. Whenever used, words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target" and other terms of similar meaning are intended to identify such forward-looking statements. Forward-looking statements are uncertain and to some extent unpredictable, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed in, or implied from, such forward-looking statements. Factors that could cause results to differ materially from those anticipated include: Economic, political and social conditions in the countries in which we conduct our businesses; Changes in U.S. or international government defense budgets; Decline in consumer spending; Sales and revenues mix and pricing levels; Availability of adequate labor, commodities, supplies and raw materials; Interest and foreign currency exchange rate fluctuations and changes in local government regulations; Competition and industry capacity and production rates; Ability of third parties, including our commercial partners, counterparties, financial institutions and insurers, to comply with their commitments to us; Our ability to borrow or refinance our existing indebtedness and availability of liquidity sufficient to meet our needs; Changes in the value of goodwill or intangible assets; Acquisitions or divestitures; Personal injury claims; Uncertainties with respect to our estimation of asbestos liability exposure and related insurance recoveries; Our ability to effect restructuring and cost reduction programs and realize savings from such actions; Government regulations and compliance therewith; Changes in technology; Intellectual property matters; Governmental investigations; Potential future employee benefit plan contributions and other employment and pension matters; Contingencies related to actual or alleged environmental contamination, claims and concerns; Changes in generally accepted accounting principles; Other factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and our other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Investor Contact: Thomas Scalera / T: +1 914 641 2030, E: thomas.scalera[.]itt.com.