UPDATE: ITT 3Q Net Profit Surges On Sale Proceeds; Revenue Flat

ITT Corp.'s (ITT) third-quarter net profit more than doubled from a year ago as the proceeds from the sale of a business offset flat revenue and costs for asbestos liability.

The diversified defense and industrial company's results exceeded profit expectations for the quarter and ITT said the transformation of its business portfolio toward higher-growth businesses remains on course.

"Our ongoing strategy to further align our business portfolio with macro growth trends is progressing nicely," Chairman and Chief Executive Steve Loranger said Friday during a conference call. "The pipeline [of potential acquisitions] is robust and we're in due diligence with a couple of companies."

During the third quarter the company completed the purchase of Godwin Pumps and announced the acquisition of two other businesses. ITT said recent acquisitions like Godwin have been quickly integrated into ITT and are contributing to the company's profit. The White Plains, N.Y., company raised its 2010 earnings guidance to a range of $4.28 to $4.32 a share from $4.08 to $4.18 a share forecast in July.

During the third quarter, the continued weakness in ITT's defense and information solutions segment--the company's largest business unit--was offset by solid sales and income growth from the company's fluid technology segment and motion and flow control unit. Net profit rose to $145 million, or 78 cents a share, from $59 million, or 32 cents a share, in the third quarter a year ago.

Income in the quarter ended Sept. 30 was aided by an after-tax gain of $152 million from the sale of CAS Inc., a defense systems engineering and technical assistance firm. The gain helped to blunt a $198 million special expense for asbestos liability claims against ITT.

ITT's exposure to asbestos liability mostly stems from pumps the company once sold that had gaskets and packing that allegedly contained asbestos. The gaskets and packing were manufactured by other companies. Asbestos, which was once widely used for fire proofing, is a suspected carcinogen in humans. The money set aside by ITT is based on the projected amount it will need for claims over the next 10 years, ITT said. The company also uses insurance to cover its costs for asbestos claims.

Excluding special items, the company said its adjusted earnings from continuing operations in the quarter totaled $1.08 a share, topping analysts' consensus estimate of 99 cents a share. But ITT's $2.64 billion in revenue during the quarter was flat compared with a year earlier and came in below analysts' estimate of $2.70 billion.

At ITT's fluid technology unit, which makes pumps for municipal water plants and industrial processes, operating income rose 7.4% in the third quarter while revenue grew 11.4%. ITT's motion and flow control unit, which supplies components to the automotive, aerospace, rail and beverage industries, reported a 12.5% increase in operating profit as revenue climbed 17.3%.

Operating income from the defense business dropped 11% to $178 million and revenue slipped 9.5% to $1.36 billion. Defense had been the company's best-performing segment in recent years, benefiting from increased demand for ITT's radios, night-vision goggles and other equipment used by U.S. troops in Afghanistan and Iraq. But with cuts in U.S. defense spending anticipated as combat operations in the Middle East ratchet down, ITT has been paring its defense holdings and investing in other business lines.

"We no longer expect to see large surges in orders," Chief Financial Office Denise Ramos said. "We are certain that our defense business is very well-positioned to produce sold returns and cash flows."

The company's third-quarter backlog of fully funded military orders increased by $175 million from the second quarter to $4.3 billion. The company also recently racked up $4.8 billion in additional defense orders that have yet to be added to funded order backlog. Among the company's newest contracts is a $1.4 billion deal to manage U.S. military facilities in Kuwait.

ITT's stock closed was recently trading down 0.21% at at $48.11.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

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