ITT Industries, Inc. announced third quarter 2005 net income of $189.3 million, up $79.5 million over the third quarter 2004, including the net benefit of special items. Diluted earnings per share (EPS) for the third quarter, including the net benefit of special items, were $2.00.
The company realized an $0.85 per share benefit from special items, primarily a favorable tax settlement arising from the conclusion of IRS audits for the years 1998-2000, which was partially offset by restructuring costs of $0.22 per share. The net effect of these special items was a $0.63 increase in reported EPS for the third quarter 2005. Adjusting results to exclude these special items, earnings for the third quarter 2005 were $1.37 per share, up 17 percent over the comparable 2004 figure of $1.17.
"We're continuing to see the benefits of a balanced portfolio that includes strong core businesses with good long-term growth prospects, especially in our water and defense businesses," said Steve Loranger, ITT Industries' Chairman, President and Chief Executive Officer. "Overall, our revenues rose 16 percent to $1.93 billion, and organic revenue grew 12 percent, marking the eighth consecutive quarter of double-digit organic revenue growth, once again led by our Defense businesses. We continue to strengthen our participation in fast-growing markets of the Asia-Pacific region, with our Fluid Technology businesses realizing significant order and revenue gains in Russia, India and China."
Given the company's strong performance through the first nine months, Loranger said the company is in a position to tighten the company's full-year financial forecast range.
Third Quarter 2005 Segment Highlights
- Third quarter Fluid Technology revenues were $704.1 million, up $84.9 million or 14 percent from the same period last year, with organic revenue growth of 13 percent. Revenue growth was driven by a 24 percent evenue increase in Advanced Water Treatment and 23 percent growth in the Industrial & BioPharm group. Segment operating income was $76.2 million and operating margin was down 160 basis points. Adjusting to exclude restructuring costs, operating income was $91.4 million, up 14 percent from the comparable figure in 2004, while margins remained relatively flat.
- The Advanced Water Treatment business won several significant orders during the quarter, including a first-of-its-kind project in New Mexico that will supplement surface drinking water sources with treated wastewater. The project involves technologies from throughout the company's Fluid Technology portfolio, including ITT's reverse osmosis designs, chlorination dosing equipment, instrumentation and pumping equipment. Advanced Water Treatment also received a $5 million order to supply water treatment equipment for textile wastewater reuse in southern India, and an order to provide an oil refinery with the world's largest ozone system for removing nitrogen oxides, a common pollutant produced in refineries and other industrial operations.
- The Wastewater business also grew revenues by 8 percent and grew orders by 17 percent. Additional order opportunities are expected for dewatering pumps as global mining activity increases, and there has been increasing demand for submersible wastewater pumps in new geographic markets like Russia.
- The Industrial & BioPharm group continues to show strong revenue gains in every region of the world. Activity has remained strong with the high price of oil and the growing global demand for energy. The group received a $4 million order for rubber lined slurry pumps as part of system to remove harmful sulfur dioxides from a power plant.
Defense Electronics & Services
- Defense Electronics & Services revenues for the third quarter were $806.7 million, up $176.5 million or 28 percent over last year, due to the acquisition of the Remote Sensing business and increased sales, particularly at Night Vision, Systems and Aerospace/Communications. Organic revenue growth was 19 percent. Operating income rose 35 percent to $96.8 million, and operating margin rose 60 basis points.
- Order input grew 40 percent, with organic orders up 31 percent, led by ongoing demand for night vision goggles and SINCGARS radios. The Defense backlog now stands at $3.9 billion, up 17 percent over the period last year.
- ITT's Night Vision group received an Omni VII contract worth a potential $1.4 billion to help meet the US Army demand for the next several years. Deliveries on the initial $160 million order will begin in early 2006. This and other contracts have increased the backlog at Night Vision to more than $500 million.
- Demand for ITT's SINCGARS tactical radios continues to grow, with additional orders of $82 million in the third quarter. The company has been successful in developing a module to make ITT's SINCGARS radios compatible with the Joint Tactical Radio System (JTRS) program. The module uses ITT technology to provide high speed voice, video and data transmission, and provides advanced mobile ad hoc networking capabilities.
Motion & Flow Control
- Motion & Flow Control revenues for the third quarter were $249.2 million, up 3 percent on higher volume in Leisure Marine, Friction Materials and Aerospace Controls. Operating income declined 8 percent to $29.4 million and margin declined 140 basis points. Excluding restructuring costs, operating income was down 2 percent to $32.4 million, while operating margin declined 70 basis points, primarily due to performance in the auto tubing business. The auto tubing business recorded a charge for credit issues related to current developments in the auto industry - without the charge, Motion & Flow Control margins would have been 90 basis points higher in the quarter.
- ITT's Friction Materials business is enjoying a 70 percent win rate so far this year on new OEM platforms in Europe, including wins on new Toyota, Fiat, Audi and Volkswagen models. The business successfully inaugurated production at its U.S. production plant in Arkansas.
- Aerospace Controls, which produces switches and actuators, grew revenues 6 percent, and grew orders 45 percent over the prior year, benefiting from strong growth in the commercial and military aerospace industries.
- Electronic Components revenues for the third quarter were $170.3 million, down 2 percent or $4 million from same period last year, with growth in the transportation and cellular handset markets more than offset by weakness in automotive, military, and industrial demand. Operating income declined $16.8 million to ($8.3) million as reported. Adjusting for the effects of restructuring, operating income declined $6.3 million to $3.1 million, primarily due to continued challenges in keypads operations.
- Order activity grew 15 percent compared to the third quarter 2004, due primarily to activity in the mobile phone and military/aerospace markets, increasing the business's book-to-bill ratio to 1.11.
- The Electronic Components group has secured 15 platform wins for its mechatronic technology, primarily joystick controls. It plans to launch 12 new products in this area in the fourth quarter, with customers such as Bobcat and Caterpillar, among others.