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ITT (ITT) Up 8.5% 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 8.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

ITT Q2 Earnings & Revenues Beat Estimates, Decrease Y/Y

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

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In the reported quarter, the company pulled off an earnings surprise of 58.3%. Quarterly adjusted earnings were 57 cents per share, outpacing the Zacks Consensus Estimate of 36 cents. However, the bottom line declined 38.7% from the year-ago figure.

Revenues of $514.7 million were down 29% year over year. However, the top line surpassed the consensus mark of $507 million by 1.5%. Also, revenues fell 27.6% on an organic basis.

Segmental Breakup

Second-quarter revenues of Industrial Process were $193.3 million, down 16.9% year over year. Organic sales declined 16.6%, owing to lower revenues from pump projects and weakness across the short-cycle business.

Quarterly revenues of Motion Technologies declined 37.3% year over year to $199.3 million. Organic sales decreased 34.7% in the quarter mainly due to lower Friction sales on account of soft demand, owing to the coronavirus outbreak.

Connect & Control Technologies generated $122.9 million revenues, down 27.8% year over year. Organic sales dipped 29.3%, owing to weakness across aerospace and defense end markets amid the coronavirus outbreak.

Costs/Margins

Cost of sales in the second quarter was $351.1 million, down 28.1% year over year. Sales and marketing expenses were $35.7 million compared with $42.7 million in the year-ago quarter.

Gross profit margin was 31.8%, down 40 basis points.

In the quarter, income tax benefits were $28.1 million compared with income tax expenses of $19.3 million in the year-ago quarter.

Balance Sheet/Cash Flow

Exiting the second quarter, ITT had cash and cash equivalents of $819.1 million, up from $612.1 million as of Dec 31, 2019. Short-term debt and current maturities of long-term debt were $247.5 million compared with $86.5 million at the end of 2019. Free cash flow in the quarter increased to $168.8 million from $55.3 million in the year-ago quarter.

In the first six months of 2020, the company generated $203.1 million in cash from operating activities, higher than $101.1 million recorded in the year-ago comparable period. Capital expenditure totaled $34.3 million, declining from $45.8 million spent in the year-ago comparable period.

2020 Guidance

ITT expects the pandemic to continue impacting its businesses throughout 2020. It believes that the reduction in demand for automotive and aerospace components will continue to hurt its top-line performance. In addition, volatile oil and gas market, and weak capital expenditure might affect its performance.

On uncertainties, regarding the impacts of the coronavirus outbreak on financial and operating results, ITT has not provided its earnings and revenues guidance for 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, ITT has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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 has been net zero. Notably, ITT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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