ITT (ITT) Up 9.5% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for ITT (ITT). Shares have added about 9.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ITT due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

ITT Q1 Earnings & Revenues Surpass Estimates, Decline Y/Y

ITT reported better-than-expected results in first-quarter 2020, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

In the quarter, the company pulled off a positive earnings surprise of 8.1%. Quarterly adjusted earnings were 80 cents per share, outpacing the Zacks Consensus Estimate of 74 cents. However, the bottom line declined 12.1% from the year-ago figure.

Revenues of $663.3 million were down 4.6% year over year. However, the top line surpassed the consensus mark of $623 million by 6.4%. Also, revenues fell 5% on an organic basis.

Segmental Breakup

First-quarter revenues of Industrial Process were $227 million, up 5% year over year. Organic sales climbed 1%, driven by an increase in pump projects.

Quarterly revenues of Motion Technologies declined 5% year over year to $298 million. Organic sales decreased 3% in the quarter mainly due to lower Friction sales on account of soft demand in China and Europe, owing to the coronavirus outbreak.

Connect & Control Technologies generated $139 million revenues, down 16% year over year. Organic sales dipped 17% due to temporary plant shutdowns in China and Europe, owing to the coronavirus outbreak, lower commercial and defense components sales.

Costs/Margins

Cost of sales in the first quarter was $453.9million, down 4.8% year over year. Sales and marketing expenses were $41.6 million compared with $40.2 million in the year-ago quarter.

Gross profit margin was 31.6%, up 10 basis points (bps).

Income tax expenses were $24.7 million, up from $19.7 million.

Balance Sheet/Cash Flow

Exiting the first quarter, ITT had cash and cash equivalents of $839.9 million, up from $612.1 million as of Dec 31, 2019.

In the first three months of 2020, the company generated $53.5 million in cash from operating activities, higher than $42.1 million recorded in the year-ago comparable period. Capital expenditure totaled $22.2 million, declining from $29.2 million spent in the year-ago comparable period. Free cash flow was $31.3 million, up from $12.9 million reported a year ago.

2020 Guidance

On uncertainties, regarding the impacts of the coronavirus outbreak on financial and operating results, ITT has now withdrawn its previously announced guidance for 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -32.52% due to these changes.

VGM Scores

Currently, ITT has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise ITT has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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