ITT Industries Announces Third Quarter Results and Profit Improvement Program
16 October 1997
ITT Industries Announces Third Quarter Results and Profit Improvement Program
- Earnings Up 25 Percent, Before Special Charges -
- Automotive to Save $115 Million/Year by 1999 -
WHITE PLAINS, N.Y., Oct. 16 -- ITT Industries, Inc.
today announced results for the third quarter, along with details
of an extensive program designed to improve financial performance. The main
elements of this program are:
-- a long-term cost reduction program for the company's automotive
business which will help the company to achieve its 8 percent operating profit
margin milestone;
-- an integration plan for the company's fluid technology business,
designed to accelerate the combination benefits of the recent acquisition of
Goulds Pumps;
-- disposition of additional non-core businesses in the company's
continuing program to refine its portfolio in order to maximize shareholder
value.
With these actions, along with a decision to modestly increase
environmental reserves, the company will take an after-tax charge of
$145.8 million, or $1.20 per share, in the third quarter. On a pre-tax
basis, the cash impact is $73 million. The company anticipates that annual
savings from the automotive restructuring will be approximately $115 million
by 1999.
Following these restructuring actions, employment at the company will be
reduced by approximately 1900, around 3 percent of a worldwide workforce of
60,000, with most of the reduction within the automotive unit. Approximately
half of these positions are in general and administrative, and factory
overhead areas, and the remainder are in manufacturing roles. Total
employment will be further reduced by the sale of some operations, employees
of which will generally transfer with the businesses to the buyers.
"The actions we are announcing today are part of our long-standing
commitment to shareholders to take decisive measures in order to continue
creating true economic value throughout our company," said Travis Engen,
Chairman, President and Chief Executive. "Through the streamlining of our
manufacturing operations, and the sale of non-core assets, we will achieve
annualized savings that will put us in a better position to improve operating
margins and deliver value to both customers and shareholders. It is essential
that we remain competitive on a global basis, and these actions will make us
that much stronger."
Third quarter 1997 net income, before special charges, was $54.7 million,
or $.45 per fully diluted share, for a gain of 25 percent over the period last
year. Operating income for the third quarter of 1997, excluding the special
charges, was $115.1 million, up from $109.4 million in 1996. Sales from
ongoing segments rose to $2.02 billion, up from $1.97 billion in the third
quarter of 1996. After special charges, the company reported a third quarter
loss of $91.1 million, or a loss of $.75 per fully diluted share.
The company also reported that net income for the first nine months of
1997, before special charges, was $181.6 million, or $1.49 per fully diluted
share. Earnings increased 19.9 percent over the $151.4 million or $1.26 per
share reported in 1996. Operating income reached $375.6 million, up
$9.0 million or 2.4 percent over the 1996 figure. Total sales from ongoing
segments of $6.33 billion were essentially flat compared to the first nine
months of 1996. After special charges, third quarter year to date earnings
are $35.8 million or $.29 per fully diluted share.
Automotive Restructuring Will Bring Greater Operating Efficiency
The restructuring actions announced during the quarter result from a
far-reaching program begun in early 1997 that has accelerated under the
direction of Frank Macher, president of ITT Automotive. This program is aimed
at automotive's manufacturing operations, reducing the cost base through
improved process, reduced infrastructure and plant capacity rationalization.
During the quarter, the company announced to employees the closing of its
automotive plant in Mississauga, Ontario, and the downsizing of automotive
facilities in Asheville, North Carolina; Kettering, Ohio; Frankfurt, Germany
and other locations. The plan also includes actions to streamline and
optimize overhead and administrative cost structures. The automotive program
will take approximately 15 months to complete and the company anticipates that
it will generate annual savings of $115 million by 1999. The total cash
impact of this charge will be $53 million during implementation.
In addition, ITT Automotive expects to dispose of a body parts
manufacturing operation in Bergneustadt, Germany this year. Other
dispositions in 1997 have included the North American aftermarket operations
and the seat subsystems unit. Together these three businesses have annual
sales of approximately $560 million.
ITT Automotive recorded operating income, without the impact of the
special charges, of $61.6 million, down from $73.6 million in the prior year.
Sales were $1.11 billion for the third quarter 1997, down from $1.27 billion
last year, which is more than explained by foreign exchange translation and
product price reductions. During the period, global vehicle production was
relatively flat, but ITT Automotive benefited from content and mix gains. ITT
Automotive recorded an operating margin of 5.5 percent, down from 5.8 percent
last year, excluding special charges. Operating margins continue to be under
pressure from price declines and the movement of customers to the lower cost
MK20 anti-lock brake system.
Goulds Integration on Schedule
The company completed its purchase of Goulds Pumps in late May and has
been integrating its operations throughout the third quarter. The integration
team has initiated a wide range of manufacturing, distribution and sales
facility consolidations, product rationalizations, and sales and marketing
reorganizations to accelerate the realization of benefits from the
acquisition. The team's efforts will enable the company to leverage the
mutual strengths of the combined operations, increase higher margin
after-market sales, and increase the efficiency of the production and sales
organization. As part of these actions, ITT Fluid Technology will record
restructuring charges in the third quarter. In addition, there are special
charges primarily associated with changing Goulds' accounting policies to
conform with the company's. The cash impact of these charges is approximately
$8 million.
As part of its portfolio management, and in light of the Goulds Pumps
acquisition, ITT Fluid Technology has also announced to employees its
intention to sell its Barton fluid measurement business. Barton had 1996
sales of $73 million.
ITT Fluid Technology reported third quarter sales of $504.5 million, up
54.5 percent from the prior year, primarily due to the revenue addition from
Goulds. Third quarter operating income was $42.9 million, up 65.0 percent from
last year, excluding the special charge. Operating margin rose to 8.5 percent
for the quarter excluding special charges, up from 8.0 percent for the period
in 1996.
Defense Shows Strong International Growth
ITT Defense & Electronics announced in the third quarter that it had
completed the formation and staffing of a joint venture with Siemens-Plessey
and Racal on a tactical communications project for the British Ministry of
Defense, which could ultimately result in joint venture sales of $6 billion
over the life of the project. This major award continued a trend of strong
international sales, which now account for 15 percent of defense revenues.
The quarter also included announcements of contract awards from the Republic
of Korea for $40 million in radar equipment, and a $41.4 million award from
Boeing for an electronic countermeasures system for the B1-B aircraft. ITT
Cannon, a manufacturer of electrical connectors, showed strong revenue and
income growth during the quarter with large orders from Boeing, Motorola,
Nokia and IBM.
ITT Defense & Electronics reported operating income of $28.4 million for
the third quarter, which was up 14.0 percent from 1996. Sales were
$404.8 million for the quarter, up 7.9 percent from 1996. Operating margin
improved to 7.0 percent, up from 6.6 percent for the period in 1996.
Company Continues Effort to Build Portfolio Balance
Since it was launched as an independent company in December of 1995, ITT
Industries has undertaken a strategy of building its market leadership
position in key sectors. Approximately 75 percent of the company's revenue is
generated by products that hold number one or number two positions in their
respective markets.
As part of this effort, the company has divested businesses not considered
integral to the core strategy. In early October, the company completed the
sale of its European semiconductor business. Combined with asset writedowns
for the Bergneustadt and Barton divestitures, third quarter charges related to
these portfolio actions total $55.6 million after tax.
3rd Quarter Highlights
(millions, except EPS)
Q3 97* Q3 96
Revenue $2,060.4 $2,044.8
Net Income $54.7 $43.7
EPS $0.45 $0.36
Shares Fully Diluted 121.9 120.4
*All figures adjusted to exclude special charges.
ITT Industries ( http://www.ittind.com ) is a leading worldwide
diversified manufacturing company, with 1996 sales of $8.4 billion in its
three primary business segments: Automotive, Defense and Electronics, and
Fluid Technology. ITT Automotive is one of the largest independent suppliers
of systems and components to automotive manufacturers. ITT Defense and
Electronics is a leader in the design, manufacture and support of high
technology electronic systems and components for defense and commercial
markets. ITT Fluid Technology is one of the world's leading manufacturers of
products, systems and services for the movement, measurement and control of
fluids.
In addition to the New York Stock Exchange, ITT Industries' stock is
traded under the symbol ("IIN") on the Midwest, Pacific, London, Frankfurt and
Paris exchanges.
SOURCE ITT Industries, Inc.