ITT (NYSE:ITT) misses second-quarter revenue estimates

Manufacturer of engineered components for critical industries ITT Inc. (NYSE: ITT) did not meet analysts’ expectations in Q2 CY2024, with revenue increasing 8.6% year-over-year to $905.9 million. Non-GAAP earnings were $1.49 per share, an improvement from earnings of $1.33 per share in the same quarter last year.

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“This quarter, we also took a significant step in transforming ITT’s portfolio, shifting toward attractive defense and aerospace connectivity markets while reducing our exposure to automotive. Today, we announced both the acquisition of kSARIA and the sale of Wolverine. This follows three prior acquisitions to expand our flow and connector portfolios and the sale of two non-core product lines. In total, we have committed more than $1 billion to acquisitions over the past two years. Additionally, in the second quarter, we repurchased $79 million of ITT stock and paid down nearly $40 million of debt. With our strong execution, portfolio actions and effective capital deployment, we continue to grow our core businesses and further strengthen ITT’s portfolio through M&A,” said ITT CEO and President Luca Savi.

With a key role in the development of the first transatlantic television broadcast in 1956, ITT (NYSE:ITT) provides motion and fluid management equipment for a variety of industries

Gas and liquid handling

Gas and liquids companies have the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Recently, water conservation and carbon capture—which require hydrogen and other gases, as well as specialized infrastructure—have been gaining popularity, creating new demand for products such as filters, pumps, and valves. Gas and liquids companies, on the other hand, are dependent on economic cycles. For example, consumer spending and interest rates can have a huge impact on industrial production, which drives demand for their offerings.

Increase in sales

A company’s long-term performance can provide signals about the quality of its business. Even a bad business can shine for a quarter or two, but a top-shelf business tends to grow for years. Over the past five years, ITT has grown sales at a weak 4.6% compound annual growth rate. This shows that it has failed to grow in any meaningful way, and it is a rough starting point for our analysis.

Long-term growth is key, but in the industry, a half-decade of historical perspectives can fail to account for new industry trends or demand cycles. ITT’s 10.6% annual revenue growth over the past two years is higher than the five-year trend, suggesting demand has accelerated recently.

ITT also reports organic revenue, which excludes one-time items like acquisitions and currency movements because they don’t accurately reflect fundamentals. Over the past two years, ITT’s organic revenue has averaged 10.1% year-over-year growth. Because that number aligns with normal revenue growth, we can see that the company’s core operations (not M&A) have driven most of its results.

For the quarter, ITT revenue rose 8.6% year over year to $905.9 million, falling short of Wall Street estimates. Looking ahead, Wall Street is expecting sales to grow 8.1% over the next 12 months.

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Operating margin

Operating margin is an important measure of profitability because it shows the portion of revenue left after all basic expenses—from cost of goods sold to advertising and payroll—have been factored in. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

ITT has been an optimally managed company for the past five years. It has been one of the most profitable companies in the industrial sector, boasting an average operating margin of 15.4%.

Looking at profitability trends, ITT’s annual operating margin increased by 2.5 percentage points over the past five years, indicating improved company efficiency.

ITT generated an operating profit margin of 17.6% in the quarter, which is in line with the same quarter last year. This indicates that the company’s cost structure has been stable recently.

EPS

We track long-term earnings per share (EPS) growth for the same reason we track long-term revenue growth. However, when compared to revenue, EPS highlights whether a company’s growth has been profitable.

ITT’s EPS has grown by a solid 10% compound annual growth over the past five years, more than the 4.6% annual growth rate of revenue. This tells us that the company has become more profitable as it has grown.

A dive into the quality of ITT’s earnings can give us a better understanding of its performance. As we mentioned earlier, ITT’s operating margin was flat this quarter, but it’s up 2.5 percentage points over the past five years. Additionally, the number of shares outstanding decreased by 7.1%. These are positive signs for shareholders, as improving profitability and share repurchases are turbocharging EPS growth relative to revenue growth.

As with revenue, we also look at EPS in the more recent period, as it can provide insight into an emerging theme or company development. In the case of ITT, the two-year annual EPS growth of 18.5% was higher than the five-year trend. We love it when earnings growth accelerates, especially when it accelerates from an already high base.

In Q2, ITT reported EPS of $1.49, compared to $1.33 in the same quarter last year. That print beat analyst estimates by 2.2%. Over the next 12 months, Wall Street expects ITT to grow its earnings. Analysts are forecasting EPS of $5.62 last year to rise 11.4% to $6.26.

Key takeaways from ITT’s Q2 results

It was good to see that ITT beat analysts’ organic revenue and EPS expectations for the quarter. On the other hand, full-year EPS estimates fell short of Wall Street estimates. Overall, it was a mediocre quarter for ITT. Shares were flat at $141.46 immediately following the report.

Is ITT worth investing in now? When making a decision, it’s important to consider valuation, business features, and what’s happened in the last quarter. We’ve covered that in our full research report, which you can read here , it’s free.