ITT Industries Reports Q1 and Raises FY 2005 Guidance
ITT Industries, Inc. announced first quarter 2005 net income of $116.5 million, up $27.6 million over the first quarter 2004 including the net benefit of special items. Diluted earnings per share (EPS) for the quarter, including the net benefit of special items, was $1.24, up $0.30 per share from reported EPS in the first quarter 2004.
During the first quarter 2005, the company realized a $0.36 per share benefit from several tax items, which was partially offset by other special items, primarily restructuring costs and discontinued operations, of $(0.25) per share. The net effect of these special items was a $0.11 increase in reported EPS for the first quarter 2005. Adjusting results to exclude the benefit of these special items, earnings for the first quarter 2005 were $1.13 per share, up 22 percent over the comparable adjusted figure of $0.93 for the same period in 2004.
"We're off to a great start for the year, with strong performance in our core businesses contributing to the sixth consecutive quarter of double-digit organic revenue growth," said Steve Loranger, Chairman, President and Chief Executive Officer of ITT Industries. "Our Defense business continues to perform well, reporting 53 percent revenue growth, with organic revenue growth of 26 percent, and solid margin expansion. Fluid Technology saw 11 percent revenue growth, with organic revenue growth of 7 percent, and continued favorable order activity going into the second quarter. Higher revenue, along with operational improvements and strong cash flow combined to make this a very solid quarter for ITT."
"Taking everything into consideration, with our strong first quarter and improved visibility across most of our businesses, we're raising our earnings target for the full year to a range of $5.10-$5.25, up 12 - 15 percent over adjusted 2004 EPS. Our previous range for 2005 was $5.00 - $5.15. We now estimate that full-year 2005 revenues will range from $7.4 - $7.6 billion, up 10-13 percent from last year, and we are raising our full-year 2005 cash forecast to $500 - $550 million. This revised guidance reflects the long-term growth opportunities that we believe exist throughout ITT's portfolio."
First Quarter Financial Highlights
- First quarter 2005 revenues rose 25 percent over first quarter 2004 to $1.9 billion on sales growth in all four business segments, the acquisition of Kodak's Remote Sensing business and the positive impact of foreign currency translation. Organic revenue, excluding foreign exchange and acquisitions, grew 13 percent in the first quarter and organic order growth was 20 percent.
- Segment operating income in the quarter grew 17 percent over the first quarter 2004 to $173.5 million on higher revenue and operational improvements.
- The company's first quarter 2005 cash from operations improved approximately $127 million over the first quarter 2004.
First Quarter Segment Highlights
- First quarter Fluid Technology revenues were $639.6 million, up $64.7 million or 11 percent from the first quarter 2004. Revenue growth was driven by organic growth in wastewater, building trades and industrial product sales, as well as acquisitions and the positive impact of foreign currency translation. Segment operating income was $56 million and operating margin declined 40 basis points when including the impact of restructuring. Adjusting to exclude the effects of restructuring costs, operating income was $62.5 million, up 12 percent from the comparable figure in the first quarter 2004, and operating margin increased slightly.
- ITT's core water and wastewater business continues its growth trend on strong demand for its pumps and water treatment technologies. The wastewater business grew first quarter revenues 16 percent over last year, and grew organic revenues 11 percent.
- Order activity for Fluid Technology's late cycle businesses continues to be favorable going into the second quarter, with the company pursuing a number of business opportunities in a broad range of markets, including industrial, chemical and mining in virtually every region of the world.
- As part of ITT's ongoing initiative to better align its business structure with its customer base, the company combined its Industrial and Engineered Products groups within Fluid Technology to create a $550 million business focusing on Industrial and BioPharm markets.
Defense Electronics & Services
- Defense Electronics & Services revenues for the first quarter were $775.7 million, up $269.2 million or 53 percent over last year, due to the impact of the Remote Sensing business acquisition and to increased sales at nearly all of the segment's businesses, particularly Night Vision, Aerospace/Communication and Systems. Organic revenue growth was 26 percent. Operating income rose $29.1 million or 60 percent to $77.8 million, and operating margin rose 40 basis points on increased sales of higher margin products. The Defense backlog now stands at a record high $3.52 billion, up 11 percent over the first quarter of 2004.
- The company's Night Vision business continues its growth trend, and in the first quarter won a sole source contract for Enhanced Night Vision Goggles (ENVGs) from the U.S. Army. The contract has a potential estimated value of $560 million over five years. The ENVG combines the strengths of image intensification and infrared technologies into one unit, allowing soldiers to complete their missions more effectively, even when confronted by low-light conditions or obscurants such as smoke and fog.
- Based on the military's ongoing and growing need for secure communication systems, ITT's Aerospace/Communications division is well along in its plan to triple the production rate of its SINCGARS channel-hopping radio systems over its production level at the end of 2004.
Motion & Flow Control
- Motion & Flow Control revenues for the first quarter were $297.6 million, up $23.6 million or 9 percent on higher volume in friction materials and Aerospace Controls, and the positive impact of foreign currency translation. Organic revenue growth was 5 percent. Operating income declined $0.5 million to $38.6 million due to costs associated with restructuring; excluding restructuring costs, operating income was up $4.9 million to $44.2 million, while operating margin rose 60 basis points on improved product mix and operational improvements.
- ITT's friction materials business continues to gain market share in Europe, with 33 percent revenue growth in the first quarter. The company remains on track to open a new production facility in the U.S. and begin product shipments in the third quarter of this year.
- The company's Aerospace Controls business reported revenue growth of 22 percent for the quarter on increased demand for its switches, valves and actuators, and profitability increased on higher volume and operational improvements.
- Electronic Components revenues for the first quarter rose $16.3 million or 10 percent to $173.7 million, with organic revenue growth of 8 percent, and a book-to-bill ratio of 1.04. Operating income was reduced by $6 million due primarily to an increase in restructuring costs. Excluding the effects of restructuring, operating income was relatively flat at $8.4 million.
- Sales growth in the Electronic Components segment was led by the company's mechatronic switches for off-road and heavy vehicles, which grew revenue by 48 percent over the same period last year. Stronger military and commercial aerospace markets led to increased sales of ITT's fiber optic and rack-and-panel connectors in those areas.
- In an effort to better align the company's business structure with its end markets and enhance new product development, Electronic Components reorganized six product marketing units into two value centers:
Commercial, which includes telecommunications, automotive and computer markets; and Industrial, which includes military and commercial aerospace, industrial, medical, energy and off-road transportation. Reorganization activities are expected to wrap up in the second quarter, with the goal of a more cost-efficient, streamlined, more customer-focused organization.
Source: ITT Inc.