ITT Industries' Q3 Results Show Improved Performance
20 October 1998
ITT Industries' Third Quarter Results Show Improved Performance In Continuing Businesses
EPS is $0.52, Excluding Non-Recurring Items and GM Strike;
Op Income, Margins Up;
Share Repurchase Program Ahead of Schedule
WHITE PLAINS, N.Y., Oct. 20 -- ITT Industries, Inc.
today announced third quarter and nine-month 1998 earnings, along
with details of new financial reporting segments and an update on its ongoing
share repurchase program.
The company's net income from operations for the third quarter was
$62.3 million, or $0.52 per diluted share, excluding non-recurring items such
as the gain on the sale of its automotive businesses, and the impact of the GM
strike. This is up $12.3 million or 24.6 percent from the comparable period
1997, before non-recurring items. For the nine months ending September 30,
net income was $203.5 million, or $1.69 per fully diluted share, before the GM
strike. This figure is up 17.7 percent or $30.6 million from the comparable
$172.9 million, or $1.43 per share reported for the first nine months of 1997.
"We are encouraged by the improving performance of our continuing
businesses," said Travis Engen, chairman, president and chief executive of ITT
Industries. "Operating income from our ongoing operations is up more than
8 percent, and operating margins were up 2.1 percentage points in our defense
businesses and up 1.1 percentage points in our connectors business."
With the disposition of two automotive units, Brake and Chassis, and
Electrical Systems, their financial results have been reclassified into
"Discontinued Operations." Consequently, third quarter and nine-month Sales
and Operating Income for ITT Industries are reported excluding the results of
these two units. Third quarter operating income from ongoing operations was
$87.4 million, up 8.4 percent or $6.8 million from the third quarter 1997.
Total sales from ongoing segments for the quarter were $1.0 billion, up
1.9 percent or $19.1 million. Operating income from continuing operations
for the first nine months of 1998 reached $276.6 million, up 15.6 percent or
$37.3 million from the same period last year. Total sales from continuing
operations were up 15.7 percent or $433.2 million to $3.2 billion.
Including the effects of the GM strike, the company reported third quarter
net income of $41.9 million, or $0.35 per diluted share. Most of the strike's
impact was felt in the automotive business units which ITT Industries divested
during the quarter. For the nine months, the company reported net income of
$173.4 million, or $1.44 per fully diluted share. This figure is up slightly
from the comparable $172.9 million, or $1.43 per share reported for the period
in 1997.
Automotive Dispositions Completed
The completions of the sale of two automotive units were the key events in
the third quarter. On September 25, the company closed the sale of its Brake
and Chassis business unit to Continental AG for $1.9 billion, and on September
28, completed the sale of its automotive Electrical Systems business to Valeo
SA for $1.7 billion. The gain on the sale of these two business units was
$1.5 billion or $13.10 per share.
"We've achieved what we set out to do: conduct a strategic review of our
automotive business options to maximize value. This resulted in the
divestiture of two automotive units for an attractive price before the end of
the third quarter," Mr. Engen said. "We see our remaining businesses as
strong platforms for growth, and we are now well positioned to grow these
businesses through acquisitions and internal growth. We will continue to
aggressively pursue all alternatives that offer us the best opportunities to
strengthen our market positions, accelerate growth and increase shareholder
value."
To ensure that the company's profit improvement remains on course, Mr.
Engen said the company is finalizing a restructuring program in those units
experiencing weakness in their end markets. Specific actions will be announced
in the fourth quarter.
Share Repurchase Program Ahead of Schedule
Mr. Engen said the company's $1.1 billion share repurchase program,
launched on July 29, is well ahead of schedule. As of October 19, the company
had repurchased 13.5 million shares, or approximately 11 percent of the shares
outstanding as of the second quarter, at an average price of approximately
$33 per share.
New Reporting Segments
Effective in the third quarter, the company has begun reporting its
financial results under new reporting segments: Connectors & Switches, Defense
Products & Services, Pumps & Complementary Products, and Specialty Products.
The four new segments highlight the diversity and balance of the company's
portfolio, and better reflect each of the businesses that will be going
forward. The new segments are described in detail under "Primary Business
Results" below.
Primary Business Results
Connectors & Switches
This business, formerly included within the "Defense & Electronics"
segment, consists of the company's products marketed under the Cannon brand.
These products include connectors, switches and cabling used in
telecommunications, computing, aerospace and industrial applications, as well
as network services. The Connectors & Switches segment represents about
12 percent of the company's sales and 14 percent of its operating income.
The company reported operating income for the Connectors & Switches
segment of $12.8 million, an increase of $1.1 million or 9.4 percent over the
same period in 1997, while sales for the period were down 3.6 percent to
$133.0 million, a reflection of lower global demand. The increase in
operating income, and an operating margin increase of 1.1 percentage points
are due primarily to productivity improvements throughout the business. In
September, the Cannon business unit identified restructuring projects at
facilities in North America and Europe that will further enhance productivity.
The company is taking a $16 million charge in the third quarter to cover these
moves, offset by a one-time gain realized through the sale of the unit's
Pomona Electronics business. Nine-month operating income in Connectors &
Switches is up 15.5 percent to $38.8 million, with its operating margin up
1.5 percentage points. Nine-month revenues are $408.0 million, down 2.3
percent from the period last year.
Defense Products & Services
The businesses in this segment are those that directly serve the military
and government agencies with products and services. These include air traffic
control systems, jamming devices that guard military planes against
radar-guided weapons, digital combat radios, night vision devices and
satellite instruments. Approximately 33 percent of the sales in this segment
are generated through contracts for technical and support services which the
company provides for the military and other government agencies. The Defense
Products & Services segment represents approximately 29 percent of the
company's sales and approximately 24 percent of its operating income.
The company reported Defense Products & Services operating income of
$23.2 million, an increase of 39.8 percent or $6.6 million over the third
quarter 1997 due to strong performance in the avionics and systems units, and
the acquisition of Kaman Sciences at year end 1997. Operating margins
increased 2.1 percentage points due to cost controls and other productivity
enhancements. Sales for the quarter increased 4.2 percent over 1997 to
$278.1 million, due to the doubling of export sales and to the acquisition of
Kaman Sciences. During the quarter, ITT Industries was awarded service
contracts with the U.S. Air Force totaling $298.4 million dollars.
Nine-month operating income for Defense Products & Services was up
23.9 percent or $13 million to $67.4 million. Nine-month sales for this
segment were $925.9 million, up $134.6 million, due to the acquisition of
Kaman Sciences and an increase in international sales.
Pumps & Complementary Products
This segment contains ITT Industries' pump businesses, including brands
such as Flygt, Goulds, Bell & Gossett, A-C Pump, Lowara and Vogel, making ITT
Industries the world's largest pump producer. Businesses within this segment
also supply mixers, heat exchangers and related products with brands such as
McDonnell & Miller and ITT Standard brand names in addition to those mentioned
above. This segment represents approximately 40 percent of the company's
sales and approximately 38 percent of its operating income.
For the third quarter, ITT Industries reported operating income for the
Pumps & Complementary Products segment of $37.6 million, up $0.7 million or
1.9 percent from the same quarter 1997, on slightly higher sales of
$436.9 million. Operating margin in this segment increased 0.1 percentage
points, despite difficult conditions in the industrial markets.
Nine-month operating income for Pumps & Complementary Products was $105.5
million, an increase of 22.7 percent over the comparable period in 1997.
Sales for the nine months within this segment were up slightly to
$1.29 billion, as higher North American demand for improved fresh water supply
systems and an increase in European spending on wastewater treatment offset a
slackening industrial market. The company is continuing to execute its plan
to consolidate operations in these business areas to enhance productivity and
reduce costs.
Specialty Products
Businesses in the Specialty Products segment produce engineered valves and
switches for industrial and aerospace applications, products for the marine
and leisure markets, fluid handling materials such as stainless steel and
flexible tubing for various industrial markets, and specialty shock absorbers
and brake friction materials for the transportation industry. This segment
represents approximately 19 percent of ITT Industries' sales and approximately
24 percent of its operating income.
For the third quarter, ITT Industries reported operating income for the
Specialty Products segment of $13.8 million, down $1.6 million or 10.4 percent
from the same period last year, on sales that were up 4.9 percent or
$8.9 million. Before the GM strike, sales were up in this segment by more
than 11 percent, with strong volume gains particularly in aerospace controls,
fluid handling and friction materials.
Nine-month operating income for the Specialty Products segment is down
$0.4 million to $64.9 million, which is more than accounted for by costs
associated with the GM strike. Nine-month sales for this segment were
relatively flat at $604.8 million.
ITT Industries Third Quarter and Nine Month Financial Results, 1998
(in millions, except EPS)
Third Quarter Nine Months
1998 1997 1998 1997
Total Sales $1,039.1 $1,067.5 $3,232.5 $2,983.0
Operating Income
From Ongoing
Segments $87.4 $80.6 $276.6 $239.3
Net Income
Before Non-Recurring
Items $41.9 $50.0 $173.4 $172.9
Shares, Diluted 118.1 118.4 120.3 120.9
Diluted EPS Before
Non-Recurring Items and
Gain on Sale of Automotive
Business Units $0.35 $0.41 $1.44 $1.43
About ITT Industries
ITT Industries, Inc. (http://www.ittind.com) is a global industrial manufacturing
company with leading positions in the markets that it serves, generating
annual global sales of $4.4 billion. ITT Industries is the world's largest
producer of pumps and also produces systems and services to move and control
water and other fluids. The company is also a leading supplier of
sophisticated military defense systems, including night vision devices, secure
communication systems and avionics, and provides advanced technical and
operational services to a broad range of government agencies. ITT Industries
is a leading provider of electrical interconnects for cellular telephones,
aerospace, network communications, "smart cards" for personal data storage,
and PC cards for laptop computers. Further, ITT Industries provides products
for highly-focused industrial markets, such as shock absorbers serving
high-end, specialized auto needs, trains and bridges, fluid handling products
such as brake and fuel line tubing, engineered valves, aerospace controls and
brake friction materials. Based in White Plains, NY, ITT Industries employs
approximately 35,000 people around the world.
In addition to the New York Stock Exchange, ITT Industries' common stock
is traded under the symbol ("IIN") on the Midwest, Pacific, London, Frankfurt
and Paris exchanges.
Certain material presented herein consists of forward-looking statements
which involve known and unknown risks, uncertainties and other important
factors that could cause actual results to differ materially from those
expressed in or implied from such forward-looking statements. Such factors
include those set forth in Item 1. Business and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Forward-Looking Statements in the ITT Industries, Inc. Form 10-K Annual Report
for the fiscal year ended December 31, 1997, and other of its filings with the
Securities and Exchange Commission.
ITT Industries and its subsidiaries' news releases are available at no
charge via fax and the Internet. For ITT Industries news and information on
the Internet, visit http://www.ittind.com. To receive releases by fax, call
800-758-5804, extension 110006.