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Engineered components manufacturer for critical industries ITT Inc. (NYSE: ITT) fell short of analysts' expectations in Q2 CY2024, with revenue up 8.6% year on year to $905.9 million. It made a non-GAAP profit of $1.49 per share, improving from its profit of $1.33 per share in the same quarter last year.
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ITT (ITT) Q2 CY2024 Highlights:
- Revenue: $905.9 million vs analyst estimates of $916.4 million (1.1% miss)
- EPS (non-GAAP): $1.49 vs analyst estimates of $1.46 (2.2% beat)
- EPS (non-GAAP) Guidance for the full year is $5.78 at the midpoint, missing analysts' estimates by 1.4%
- Gross Margin (GAAP): 34.9%, up from 33.6% in the same quarter last year
- Free Cash Flow of $134.5 million, up from $30.1 million in the previous quarter
- Organic Revenue rose 6% year on year (12.5% in the same quarter last year)
- Market Capitalization: $11.64 billion
Playing a crucial role in the development of the first transatlantic television transmission in 1956, ITT (NYSE:ITT) provides motion and fluid handling equipment for various industries
Gas and Liquid HandlingGas and liquid handling companies possess the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Lately, water conservation and carbon capture–which requires hydrogen and other gasses as well as specialized infrastructure–have been trending up, creating new demand for products such as filters, pumps, and valves. On the other hand, gas and liquid handling companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Over the last five years, ITT grew its sales at a weak 4.6% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. ITT's annualized revenue growth of 10.6% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
ITT also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, ITT's organic revenue averaged 10.1% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company's core operations (not M&A) drove most of its performance.
This quarter, ITT's revenue grew 8.6% year on year to $905.9 million, missing Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 8.1% over the next 12 months.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. 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-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.4%.
Looking at the trend in its profitability, ITT's annual operating margin rose by 2.5 percentage points over the last five years, showing its efficiency has improved.
This quarter, ITT generated an operating profit margin of 17.6%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
ITT's EPS grew at a solid 10% compounded annual growth rate over the last five years, higher than its 4.6% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into ITT's quality of earnings can give us a better understanding of its performance. As we mentioned earlier, ITT's operating margin was flat this quarter but expanded by 2.5 percentage points over the last five years. On top of that, its share count shrank by 7.1%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For ITT, its two-year annual EPS growth of 18.5% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, ITT reported EPS at $1.49, up from $1.33 in the same quarter last year. This print beat analysts' estimates by 2.2%. Over the next 12 months, Wall Street expects ITT to grow its earnings. Analysts are projecting its EPS of $5.62 in the last year to climb by 11.4% to $6.26.
Key Takeaways from ITT's Q2 Results It was good to see ITT beat analysts' organic revenue and EPS expectations this quarter. On the other hand, its EPS guidance for the full year fell short of Wall Street's estimates. Overall, this was a mediocre quarter for ITT. The stock remained flat at $141.46 immediately after reporting.
