ITT Stock Exhibits Strong Prospects Despite Increasing Costs
ITT Inc. ITT ITT is benefiting from strength across its segments. The IP segment is gaining from growth in pump projects in the energy, mining and decarbonization markets. Strength in the general industrial end market is aiding the segment’s aftermarket business. The acquisition of Svanehøj also bodes well for the segment. Growth in component and connector sales within the aerospace and defense markets is aiding the CCT segment. The acquisition of Micro Mode augurs well for the segment.
Solid momentum in the friction OE (original equipment), KONI and Axtone businesses is driving growth of the MT segment. Strong demand for the company’s brake components and specialized sealing solutions, shock absorbers and damping technologies in OEM and rail transportation markets are likely to drive the segment’s performance in the quarters ahead. For 2024, ITT expects its organic sales to increase in the band of 4-7% from the year-ago level.
The company aims to expand its market share, product offerings and customer base through strategic acquisitions. In August 2024, ITT inked a deal to acquire kSARIA Parent, Inc. The acquisition will enhance its product portfolio, technological capabilities and market reach, thereby driving growth and operational efficiency. The acquisition is expected to close during the third quarter of 2024, subject to customary closing conditions.
The January 2024 acquisition of privately held Svanehøj Group A/S (Svanehøj) for approximately $395 million will expand ITT’s offerings, particularly in the marine pumps market. The acquisition of Micro-Mode Products, Inc. in May 2023 expanded the company’s product portfolio and customer base, specifically for long-term defense programs. It also grew its North America connectors platform, enhancing the CCT segment.
ITT acquired Clippard Instrument Laboratories’ product lines in August 2022. The stainless steel, brass and aluminum cylinders, and volume tanks contributed by this acquisition expanded the company’s compact automation product range targeting the robotics, packaging and automation end markets. The acquisitions of Svanehøj and Micro-Mode contributed 4% to sales growth in second-quarter 2024.
ITT is committed to handsomely rewarding its shareholders through share buybacks and dividend payments. During the first six months of 2024, it paid out dividends of $52.6 million, up 9.4% year over year. Also, in 2023, dividend payments totaled $95.8 million while share repurchases were $60 million. The quarterly dividend rate was hiked 10% in February 2024. Also, in October 2023, the company’s board approved a $1 billion share repurchase program for an indefinite time.
In the past year, this Zacks Rank #3 (Hold) company’s shares have gained 34.6% against the industry’s 1.1% decline.
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However, ITT has been dealing with the negative impact of high operating costs and expenses over time. In 2023, its cost of sales recorded a year-over-year increase of 5.4% due to rising raw material and labor costs. General and administrative expenses increased 39% year over year in 2023. Also, sales and marketing expenses rose 10.8% year over year in the same period due to increasing personnel and other sales-related costs. The trend continued in the second quarter of 2024, with the cost of sales rising 6.5% year over year. General and administrative expenses also increased 12.3% year over year in the same period. As a percentage of revenues, the metric rose 30 basis points to 8.5%.
ITT’s international presence keeps it exposed to the risk of adverse currency fluctuations. This is because a strengthening U.S. dollar is likely to require the company to either raise prices or contract profit margins in locations outside the United States. Thus, adverse currency movements are a worry. In the second quarter, foreign currency translation hurt sales by 1%.
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