ITT Industries Reports Record Q4 EPS
ITT Industries reported fourth quarter 2004 net income of $121.6 million, up $13.5 million or 12 percent over the period in 2003. Fourth quarter 2004 Fluid Technology revenues rose 23 percent.
Diluted earnings per share (EPS) for the quarter, including the net impact of special items, was a record high $1.29, up $0.14 per share from reported EPS in the fourth quarter 2003. During the fourth quarter 2004, the company realized a $0.15 per share benefit from the gain on the sale of an investment, which was partially offset by some special items, including restructuring costs, discontinued operations and tax charges of ($0.14) per share. The net effect of these special items was a $0.01 per share benefit to reported EPS for the fourth quarter. Adjusting results to exclude the impact of these special items, earnings per share for the fourth quarter 2004 were $1.28, up 21 percent over the comparable adjusted figure of $1.06 for the period in 2003.
"We finished 2004 on a positive note, continuing our long-term growth trend in double digit earnings and revenue growth, and we begin 2005 with noticeable momentum, riding a strong increase in order activity across all of our businesses," said Steve Loranger, Chairman, President and Chief Executive Officer. "Fourth quarter orders in our Fluid Technology business grew at the highest rate of the year, particularly within our Water/Wastewater and Industrial Products groups. Even excluding the impact of acquisitions, our water/wastewater business orders continue to grow at a double-digit rate, pointing to a strong year ahead. Our Defense group continues to grow, bringing the backlog to a new record of $3.45 billion. The Motion & Flow Control and Electronic Components segments posted significant revenue and profit gains through targeted new product introductions and process improvements. In short, the stage is set for continued growth in revenue, earnings and cash flow for 2005."
Fourth quarter 2004 segment operating income was $202.7 million; excluding restructuring costs, segment operating income was $216.1 million, up $39.9 million from the period in 2003. Fourth quarter revenues were up 28 percent to $1.94 billion, attributable to organic sales growth in all segments, the impact of recent acquisitions in Defense and Fluid Technology, and the positive impact of foreign currency translation. Excluding acquisitions and foreign currency translation, sales grew 13 percent in the quarter.
Full Year 2004 Results
Reported net income for 2004 was $432.3 million and EPS was $4.58, up 7 percent and 7 percent respectively over 2003. The comparison includes the $0.35 per share favorable impact of tax items and net gain on the sale of an investment, and was offset by $0.33 per share for net restructuring costs and charges related to discontinued operations taken during the year. After restating 2003 figures to adjust for discontinued operations, 2004 EPS grew 17 percent over the adjusted $3.89 for 2003.
Full year 2004 revenues were $6.76 billion, up 21 percent from the prior year driven by increased sales in all four segments, recent acquisitions and the positive impact of foreign currency translation. Excluding acquisitions and currency translation, organic revenue growth was 12 percent in 2004. Segment operating income for 2004 was $717.3 million; excluding restructuring, segment operating income was $753.3 million, up $116.6 million over 2003. The company said cash from operations was $528.6 million, which includes a $100 million voluntary pre-funding of the company's U.S. salaried pension plan. Free cash flow (defined as cash from operations before pension pre-funding, minus capital spending) of $463.5 million, down from $626.4 million in 2003, due to the occurrence of 2003 tax refunds and deferrals, and higher working capital requirements to fund sales growth.
"We expect continued revenue growth and operational improvements in all of our business areas, and have confidence in our full-year 2005 projected EPS of $5.00 - $5.15 with revenue of $7.15 - $7.43 billion," Loranger said. "We've begun reinforcing the successful ITT Management System, taking pro-active steps in a series of initiatives, from realignment of our infrastructure to global sourcing and expansion of our Value-Based Six Sigma capabilities, all in an effort to ensure that our costs are in line to achieve our stated earnings target of $7 $8 per share by 2008, reflecting our forecast 12 – 16 percent annual EPS growth rate. Beyond our planned Value-Based Six Sigma savings, our goal is to reduce costs by an additional $25 million per year."
Primary Business Results
Fourth quarter 2004 Fluid Technology revenues rose 23 percent to $749.1 million, helped by increased demand for water/wastewater treatment systems, the impact of the WEDECO acquisition and the positive impact of foreign currency translation. Organic revenue grew by 9 percent over the fourth quarter 2003.
Fluid Technology fourth quarter operating income was $80.3 million; excluding restructuring costs, segment operating income rose 13 percent to $89.9 million, while operating margin declined 100 basis points due to costs associated with acquisition integration and foreign exchange transactions.
ITT's water and wastewater businesses continue their growth pattern, with 15 percent organic growth in fourth quarter orders, and 13 percent organic revenue growth. The Advanced Water Treatment unit grew organic revenue by 27 percent. In October ITT was selected to provide the world's largest UV disinfection system in British Columbia, Canada, and was also selected to construct a 30-million gallon/day desalination plant in the Middle East.
Various business units within Fluid Technology have accelerated their cross-selling activities in order to better leverage the breadth of the company's expertise in fluid management. In the fourth quarter, a joint effort between Goulds and Flygt resulted in ITT capturing one of its largest pump orders to date – a $7 million order to supply vertical turbine pumps in California.
Defense Electronics & Services
Revenues for Defense Electronics & Services rose 49 percent to $746.6 million in the fourth quarter 2004, due to significant revenue growth within the Systems, Communications and Night Vision units, and the acquisition of Remote Sensing Systems (RSS).
Fourth quarter segment operating income was $77.8 million; excluding the effects of restructuring charges in the fourth quarter 2003, segment operating income rose 32 percent on higher revenues and the acquisition of RSS. Operating margin declined 140 basis points due to mix favorability in the fourth quarter 2003.
The Defense segment backlog reached a record $3.45 billion for the full year following significant new orders within the unit's Tactical Communications, Night Vision, Space and Systems business units. Segment orders in the fourth quarter were up 18 percent. The company expects to bid on business opportunities worth nearly $8 billion over the next 18 months.
The company's Systems business grew revenues by more than 60 percent in the fourth quarter, having won new contracts for military maintenance and operations, as well as engineering services, such as ITT's contract with the Jet Propulsion Laboratory's (JPL) Deep Space Network. The ITT team at JPL tracks the communication of a number of space probes, including the Mars rovers and the Cassini satellite, which recently sent back signals from the European Space Agency probe Huygens of the first ever surface photos of Saturn's moon Titan.
Motion & Flow Control
Fourth quarter Motion & Flow Control revenues increased 10 percent to $272.4 million, with significant gains in the Friction Materials, Aerospace Controls and Leisure Marine. Excluding the impact of foreign currency translation, segment revenues grew by 4 percent.
Segment operating income was $35.4 million; excluding restructuring costs, segment operating income rose 20 percent to $37.8 million and operating margin grew by 130 basis points on product mix and process improvements.
ITT's friction materials revenues increased 29 percent in the fourth quarter, and orders grew 26 percent, as the business continues to improve its competitive position in the OEM and aftermarket segments of the brake pad business. Plans are in place to begin brake pad production in the US in the second half of 2005, with shipments beginning in the third quarter.
New products, global sourcing and customer service continue to drive growth in revenue and operating income in the Leisure Marine business, particularly in the Spa/Whirlpool unit. New products represented 35 percent of revenues in this business in 2004, up from 25 percent in 2003, and are expected to represent 45 percent of revenues in 2005.
Electronic Components revenues for the fourth quarter 2004 rose 15 percent to $178.6 million, with growth particularly strong in mobile handsets, industrial and aerospace connectors and switches. Organic revenue grew 12 percent over the fourth quarter 2003.
Fourth quarter 2004 segment operating income was $9.2 million; excluding restructuring costs, segment operating income for the fourth quarter 2004 grew 68 percent to $10.6 million as the company begins to see the benefit of restructuring actions taken in recent quarters. Similarly, operating margin grew by 180 basis points.
The company is expanding its product offering and growing sales in the high-end mechatronics field, which includes control panels, joystick assemblies, multifunction grips and switches for a variety of end products for customers such as Genie and Caterpillar. The company realized greater than 30 percent growth in this business in 2004 and forecasts an additional 24 percent growth in 2005.
The Electronic Components business continues executing its plan to rationalize its manufacturing footprint and focus its product line on more value-adding products in order to improve operating margins.
About ITT Industries
ITT Industries, Inc. (NYSE: ITT) supplies advanced technology products and services in key markets including: fluid and water management including water treatment; defense communication, opto-electronics, information technology and services; electronic interconnects and switches; and other specialty products. Headquartered in White Plains, NY, the company generated $6.8 billion in 2004 sales.
In addition to the New York Stock Exchange, ITT Industries stock is traded on the Midwest, Pacific, Paris, London and Frankfurt exchanges.
Source: ITT Inc.