ITT ITT Inc

ITT Corporation (ITT) reported fairly good results for the fourth quarter and fiscal 2011. The company achieved top-line growth of 10% year over year in the fourth quarter 2011. The company’s sales increased across all of its four business segments.

Fourth Quarter Highlights

Total revenue in the quarter increased 10% to $518 million compared to $470 million in the prior-year period.

For fiscal 2011, the company reported revenues of $2.1 billion which was 11% above the prior year with an organic growth of 9% compared to the prior year. The primary driver of revenue growth was a robust 19% growth in emerging markets and strong growth in core markets of the company such as oil and gas, transportation and aerospace. 

ITT Corporation released its fourth quarter and full year 2011 earnings results and reported quarterly earnings per share from continuing operations of $0.36, which was a penny above the Zacks Consensus Estimate.

For the full year the company reported earnings of $1.60 reflecting a 23% increase compared to the prior year period, driven by strong revenue growth and operating performance.

Agreement of Analysts

Among the analysts covering the stock in the last 7 days, none revised their estimates upward for the first quarter of 2012. However, for the last 30 days 2 analysts lowered the estimates for the current year. Similarly, for the first quarter of 2013, none increased their estimates but one analyst lowered the estimate in the past 7 days.

We believe analysts expect margins to be under pressure due to high incremental costs involved after the transformation to be a stand-alone company. Further, some of the company’s long cycle projects are also expected to be a drag on margins.

However, the company is positive about its performance in fiscal 2012 with an EPS growth of 13% after adjusting for the incremental stand alone costs worth $20 million.  

Magnitude of Estimate Revisions

During the last 7 days, for the first quarter of 2012, the current estimate was stagnant at 31 cents a share. However, for the current year 2012, the estimate was lowered 2 cents from $1.71 to $1.69 a share.

Again for second quarter of 2012, in the last 7 days, the Zacks Consensus estimate was lowered by a penny to 43 cents a share. For fiscal 2013 as well, the Zacks Consensus Estimate decreased 1 cent from $1.93 to $1.92.

Earnings Surprises

The fourth quarter earnings surprise for ITT was a penny or 2.86%. The upcoming quarter as well as fiscal 2012 it is expected to remain at break-even, while fiscal for 2013 is expected to report a negative earnings surprise of (0.52)%.

Summary

The company continues to make investments in attractive growth areas such as air traffic management, emerging market expansion, product innovation, defense adjacency, diversity strategy and analytical instrumentation.

We are particularly bullish about two segments: a) water equipment (primarily pumps), which should benefit from the replacement and upgrading of aging networks in developed markets and the build out of infrastructure in the emerging markets, and b) ITT’s defense business, with the bulk of sales derived from electronic and network-centric warfare.

ITT Corporation continues to expand its product portfolio and geographical presence while making a number of strategic acquisitions. The acquisition of Godwin Pumps broadened the company’s global position in water, wastewater and industrial processes, and compliments ITT’s existing Fluid Technology portfolio.

The company is particularly focused on its presence in the emerging markets. The acquisition of Canberra Pumps increased its footprint in Latin America, enabling it to provide more products to the growing oil and gas and mining markets there.

The company currently holds a Zacks Rank #3 which implies a short term Hold rating on the stock.

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