ITT Industries Reports First Quarter
ITT Industries, Inc. announced first quarter 2004 net income of $88.9 million, up $2.2 million including the net benefit of special items. Diluted earnings per share (EPS) for the quarter, including the net benefit of special items, was $0.94, up $0.02 per share from reported EPS in the first quarter 2003.
During the first quarter 2004, the company realized a $0.05 per share benefit from several tax items, which was partially offset by other special items, primarily restructuring costs, of ($0.03) per share. The net effect of these special items was a $0.02 increase in reported EPS for the first quarter. Adjusting results to exclude the benefit of these special items, earnings for the first quarter 2004 were $0.92, up 11 percent over the comparable adjusted figure of $0.83 for the same period in 2003.
"The first quarter was a very good one for us, with strong earnings and double digit organic revenue growth, as we continue to expand our higher margin, high-growth business segments, and continuously improve our operating performance across the company," said Lou Giuliano, Chairman, President and Chief Executive Officer of ITT Industries. "We are accelerating organic top- line and earnings growth, led by our Defense, Water/Wastewater and Electronic Components businesses. We have supported this strategy through new product development and finding better ways to serve our customers, supplemented with strategic acquisitions that create value and improve market strength in our existing businesses. A good example of this is our acquisition of WEDECO, which has significantly enhanced our presence and product offering in the global water treatment market."
"Based on our recent assessment of business conditions in all of our segments and the strong first quarter performance, we have raised our earnings target for the year to a range of $4.40-$4.50, up 14-17 percent over adjusted 2003 EPS. Our previous range for 2004 was $4.15-4.25. We now estimate that full-year 2004 revenues will range from $6.4 to $6.6 billion, up 14-18 percent from last year, and are raising our full-year 2004 cash forecast by $25 million."
First Quarter Financial Highlights
- First quarter 2004 revenues rose 17 percent to $1.5 billion, helped by revenue increases in all four business segments, acquisitions and positive impact of foreign currency translation. Excluding foreign exchange and acquisitions, first quarter revenue grew 10 percent.
- Higher revenues and continued process improvements combined to increase net income $2.2 million or 3 percent to $88.9 million or $0.94 per share. Excluding the net benefit of special items of $0.02 per share, earnings for the first quarter 2004 were $0.92, up 11 percent over the comparable adjusted figure of $0.83 for the first quarter 2003.
- Segment operating income in the quarter grew 14 percent over the first quarter 2003 to $146.6 million on higher revenue and operational improvements.
- In February, the company announced its intention to buy the Remote Sensing Systems (RSS) business of Eastman Kodak for $725 million in cash, complimenting its own space imaging business. Once completed, the acquisition of RSS, combined with ITT's existing space imaging business, will form a new Space Systems division in the Defense Electronics & Services segment, which is expected to generate $600 million in annualized revenue.
- The company's first quarter 2004 cash usage from operations was $116 million, which includes a previously announced $100 million voluntary pre-funding of the U.S. Salaried Pension Plan. Adjusted for capital expenditures of $29 million and the pension pre-funding, the company's free cash flow usage was $45 million.
First Quarter Segment Highlights
First quarter 2004 Fluid Technology revenues were $574.9 million, up $71.3 million or 14 percent from the first quarter 2003. Revenue growth was driven by organic growth in water treatment and in the industrial pump group, recent acquisitions and the positive impact of foreign currency translation. Segment operating income was $52.9 million. After adjusting for the effects of restructuring costs, operating income was relatively flat compared to the first quarter 2003, at $55.9 million. Operating margin declined 150 basis points primarily due to start-up costs of acquisitions and foreign currency translation/transaction.
In January, the company completed its acquisition of German-based WEDECO Water Technologies, a world leading provider of ultra-violet and ozone oxidation water treatment systems, and Shanghai-based Hengtong giving ITT the disinfection technology and global reach needed to grow its dynamic wastewater treatment business. Water treatment, which includes biological treatment, filtration, desalinization and disinfection, is the fastest growing segment within the water/wastewater business.
The industrial process pump business saw organic revenue growth of 13 percent, a reflection of progress on its strategy to develop its international business. Growth was particularly strong in the petrochemical market.
Defense Electronics & Services
Defense Electronics & Services revenues for the first quarter were $506.5 million, up $115.1 million or 29 percent, due to increased sales at nearly all of the segment's businesses, particularly Night Vision, Aerospace Communication and Systems. Operating income rose $14.3 million or 42 percent to $48.7 million, and operating margin rose 80 basis points on increased sales of higher margin products. The Defense backlog now stands at $3.16 billion, up 5 percent over the first quarter of 2003.
The company is working to develop the next generation technology in space, night vision and communication markets. Initial test results for Night Vision's goggles that combine infrared and light intensification technology are encouraging, boding well for the company's potential participation in the next generation Night Vision program, which is expected to be a $1 billion program over six years.
The Systems division continues to register strong growth through new engineering and technical support contracts for a variety of defense and space agencies. Demand in this area is particularly strong as the Department of Defense looks to contractors to provide critical tasks required to accommodate the global deployment of troops.
Motion & Flow Control
Motion & Flow Control revenues for the first quarter were $274.0 million, up $15.9 million or 6 percent on higher volume in motion and leisure marine, and the positive impact of foreign currency translation. Operating income was up $1.1 million to $39.1 million, while operating margin declined 40 basis points.
The businesses within Motion & Flow Control continue to expand, taking existing products and modifying them for new end markets. The company's friction materials unit, a leading provider to the auto market, has begun supplying friction materials for the heavy truck market. Though the truck market for friction materials is in its early stages, the company believes it will provide the opportunity for double digit revenue growth.
The spa-whirlpool business has grown significantly in the last year thanks to new products, the benefits of improved operational performance and strategic outsourcing. Its new Magna whirlpool pump, designed in collaboration with ITT's Goulds unit, provides added pressure and could generate close to $10 million in incremental revenue in the next few years.
Electronic Components revenues rose $17 million or 12 percent to $161.8 million, in line with expectations and reflecting a modest improvement in several of the key markets such as mobile handsets. Organic revenue was up 5 percent in the quarter. First quarter orders were up 34 percent to $192.9 million, with a book to bill ratio of 1.19. Operating income rose $5.7 million to $5.9 million with a corresponding increase in operating margin. Excluding the effects of restructuring, operating income declined $1.8 million to $7.2 million, and operating margin declined 180 basis points from the first quarter 2003. Sequentially, first quarter margin improved 140 basis points.
New customer satisfaction initiatives and new products are driving the growth in the company's connectors and switches for mobile telephones, with multiple new platform wins and higher content per phone. While global handset sales are expected to grow 10 percent this year, we expect our businesses in this market to grow revenues by 25 percent.
Electronic Components continues to take its products to new end markets. Its mechatronic joystick control switches have captured the interest of heavy equipment manufacturers such as Caterpillar. New business with Caterpillar alone in this area is expected to triple to $20 million per year by 2006.
About ITT Industries
ITT Industries, Inc. (http://www.itt.com) supplies advanced technology products and services in key markets including: electronic interconnects and switches; defense communication, opto-electronics, information technology and services; fluid and water management and other specialty products. Headquartered in White Plains, NY, the company generated $5.63 billion in 2003 sales. In addition to the New York Stock Exchange, ITT Industries stock is traded on the Midwest, Pacific, Paris and Frankfurt exchanges. Certain material presented herein consists of forward-looking statements which 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. Such factors include general economic conditions, foreign currency exchange rates, competition and other factors all as more thoroughly set forth in Item 1. Business and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements in the ITT Industries, Inc. Form 10-K Annual Report for the fiscal year ended December 31, 2003, and other of its filings with the Securities and Exchange Commission.
NOTE: ITT Industries believes that investors' understanding of the company's operating performance is enhanced by the use of certain non-GAAP financial measures, including adjusted GAAP net income and adjusted GAAP EPS, which Management considers useful in providing insight into operating performance, as it excludes the impact of special items that cannot be expected to recur on a quarterly basis. Management also believes that investors can better analyze the company's revenue growth by utilizing an organic revenue growth measure that excludes the effect of foreign exchange translation and the effect of recent acquisitions. In addition, Management considers the use of free cash flow to be an important indication of the company's ability to make acquisitions, fund pension obligations, buy back outstanding shares and service debt. Free cash flow, adjusted net income, adjusted EPS and organic revenue are not financial measures under GAAP, should not be considered as substitutes for cash from operating activities, EPS, net income or revenue as defined by GAAP, and may not be comparable to similarly titled measures reported by other companies. A reconciliation to the GAAP equivalents of these non-GAAP measures is set forth in the attached unaudited financial information.
Source: ITT Inc.