Why Is ITT (ITT) Down 43.9% Since Last Earnings Report?

It has been about a month since the last earnings report for ITT (ITT). Shares have lost about 43.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ITT due for a breakout? 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’s Q4 Earnings & Revenues Surpass Estimates, Increase Y/Y

ITT reported strong fourth-quarter 2019 results wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

In fourth-quarter 2019, the company pulled off a positive earnings surprise of 7.6%. Quarterly adjusted earnings came in at 99 cents per share, outpacing the Zacks Consensus Estimate of 92 cents. The bottom line also improved 20.7% from the year-ago figure.

In 2019, the company’s adjusted earnings were $3.81 per share, up 18% year over year.

Revenues of $719.1 million were up 6% year over year. The top line also surpassed the consensus mark of $714 million by 0.7%. Also, revenues rose 4% on an organic basis.

In 2019, ITT reported revenues of $2,846.4 million, up 3.7% on a year-over-year basis.

Segmental Breakup

Fourth-quarter revenues of Industrial Process were $255.2 million, up 11.4% year over year. Organic sales climbed 4%, driven by an increase in pump projects and a strong short-cycle business on account of baseline pump strength and higher service activity.

Quarterly revenues of Motion Technologies ascended 4.5% year over year to $304.4 million. Organic sales increased 7% in the quarter, mainly on account of Friction OEM growth, partially offset by softness in the Wolverine business. However, forex woes had a3% adverse impact on sales.

Connect & Control Technologies generated $160.8 million revenues, up 1.4% year over year. Organic sales dipped 2% due to lower defense components as well as industrial and aerospace sales.

Costs/Margins

Cost of sales in the fourth quarter was $491.1 million, up 4.9% year over year. Sales and marketing expenses were $41.4 million compared with $40.5 million in the year-ago quarter.

Gross profit margin was 31.7%, up 70 basis points (bps).

Income tax expenses were $16.8 million, up from $15.3 million.

Balance Sheet/Cash Flow

Exiting the fourth quarter, ITT had cash and cash equivalents of $612.1 million, up from $561.2 million as of Dec 31, 2018.

In 2019, the company generated $357.7 million cash from operating activities, lower than $371.8 million recorded in the previous year. Capital expenditure totaled $91.4 million, declining from $95.5 million spent in 2018. Adjusted free cash flow was $318.8 million, up from $308.9 million.

Outlook

Based on the existing market conditions, the company anticipates total revenues from a 3% decline to 1% increase for 2020. Adjusted earnings view for the year is set at $3.72-$4.02 per share, indicating growth of 1.6% at the midpoint from the year-ago reported figure.

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 -19.19% due to these changes.

VGM Scores

At this time, ITT has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, 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 indicates a downward shift. Notably, ITT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.