ITT Corporation (ITT) -0.29%
ITT’s fourth quarter earnings came in above expectations as benefits from recent acquisitions and operational improvements offset higher costs from aggressive restructuring and realignment activities.
Fourth-quarter revenue for the Defense Electronics and Services segment was up 39 percent, led by growth in ITT’s Advanced Engineering & Sciences and Night Vision businesses. At the close of 2008, the Defense segment had a funded backlog of $5.24 billion, providing good visibility into the year ahead. Like other defense companies that have reported earnings thus far, ITT is predicting there will be no defense cuts by the new U.S. administration.
Sales in ITT’s Fluid Technology segment were roughly flat in the quarter, but saw significant growth in international and emerging markets on higher demand for their water and waste water management. The Motion and Control segment revenues fell 12 percent in the fourth quarter as demand the segment’s end markets, including marine and automotive, came to a grinding halt.
ITT’s full-year results were impressive, as revenues increased 30 percent on strong organic growth across all of its business segments. ITT’s free cash flow grew 33 percent to $871 million, representing a 112 percent conversion of income from continuing operations. (Growing free cash flow is frequently a prelude to increased earnings.)
ITT maintained earnings guidance for 2009, but sales guidance was lowered from the forecast made in December. Higher margins are expected to compensate for the lower revenues. First-quarter earnings guidance was a disappointing 53 cents to 63 cents, well below the 82-cent consensus estimate.
ITT is hopeful that they will benefit from the forthcoming U.S. stimulus package, although they did not include any stimulus money in their forecast due to a lack of visibility of Washington. Management said they could potentially benefit from water and wastewater treatment plant construction, and they mentioned talks with the Secretary of Transportation about infrastructure development with respect to next generation FAA technology.
Goodrich Corp (GR) +0.77%
Goodrich, a leading aerospace parts supplier, topped projections as fourth-quarter earnings rose 29 percent on higher business-jet and defense sales. However, the company reduced its 2009 guidance (originally given in Oct. 2008) to reflect updated expectations for 2009 pension expense and the uncertainty of the global economic environment.
In the fourth quarter, higher revenue from defense and corporate-aircraft customers helped overcome a 40 percent decline in sales to Boeing after an eight-week machinists strike at the planemaker resulted in fewer parts shipments.
Goodrich expects global airline capacity to contract slightly in 2009, but remains confident their aftermarket sales will perform above market trends because of their “excellent product positions on the newer, more fuel-efficient airplanes that are least likely to be removed from service.” In addition, Boeing and Airbus are expected to deliver more new airplanes in 2009 than they delivered in 2008, which will boost original equipment sales.
Goodrich makes a number of the products for the highly demanded planes of the future, the Boeing 787 Dreamliner and Airbus A350, which are expected to generate “significant revenues for Goodrich for many years to come, and will help Goodrich sustain its position as an industry leader in its commercial aerospace markets.” Both Boeing and Airbus hope to deliver their first planes by early 2010.
Cisco Systems (CSCO) +1.41%
After the closing bell, Cisco announced posted fiscal second-quarter profit that topped analysts’ estimates. We will go through the details tomorrow of what should be a very interesting report. Because Cisco’s quarter ended on January 24, this will be our first taste of 2009’s business climate.
Cisco is a barometer for the technology industry because it is the dominant seller of routers and switches, which both direct and control the flow of data. Bloomberg acknowledges that large companies account for most sales of switches, which they use to run their corporate networks. Phone carriers and Internet service providers mostly purchase routers.
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Peter Lazaroff, Junior Analyst
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