(Adds details about defense business performance and updated stock price.)
CHICAGO -(Dow Jones)- ITT Corp.'s (ITT) second-quarter net profit rose 13% from a year earlier, but weakness in the company's defense business triggered a sell-off of ITT shares Friday.
ITT closed down 5.6%, or $2.80, at $47.12 as investors appeared to focus on the performance of ITT's defense segment, where second-quarter orders fell 49% from a year ago. The lower order volume contributed to defense revenue falling 2.7% in the second quarter from a year ago. Operating income from defense declined 1.5% from a year ago.
Moreover, the company forecast that defense revenue for the year will be flat with 2009, compared with its earlier prediction that revenue would rise 3%.
ITT's defense and information solutions segment is the company's largest business unit. But with cuts in U.S. defense spending expected in the coming years as military operations in the Middle East end, ITT has been aggressively bulking up its other business units and trying to replace military contracts that are ending or in jeopardy of being axed with defense and aerospace programs that are likely to be spared.
The diversified industrial and defense company announced Friday it received $800 million worth of contracts from the U.S. Army Corps of Engineers for information services in Afghanistan.
"We think we've made the appropriate adjustments" in defense, said Chairman and Chief Executive Steve Loranger during a conference call with Wall Street analysts. "We delivered a very strong second quarter. We're pleased with ITT's strong productivity and solid operating margins this quarter."
ITT's motion and flow-control business continued its recent run of strong performance. Revenue from the unit, which supplies equipment and components to the automotive, marine and beverage markets, increased 17.2% from a year earlier, while income grew 27.3% on lower costs for restructuring and improved productivity.
In the company's fluid-technology unit, which makes pumps for residential water plants and industrial processes, lower restructuring costs helped operating income rise 16.1% from a year earlier as revenue increased 1%.
Overall in the quarter ended June 30, ITT's net profit rose to $226 million, or $1.22 a share, from $200 million, or $1.09 a share. Earnings were helped by a gain of 8 cents a share from the reversal of a previous tax reserve. Excluding the noncash gain, earnings from continuing operations totaled $211 million, or $1.14 a share. Revenue for the quarter increased just slightly from a year earlier to $2.73 billion. But ITT's overall operating margin expanded to 13.4% from 12.6% a year earlier.
Revenue in the quarter was slightly less than Wall Street analysts' projection of $2.83 billion, even as earnings topped analysts' expectation of $1.07 a share without the tax gain.
For the third quarter, the White Plains, N.Y., company projected it will earn 94 cents to 98 cents a share on revenue of $2.7 billion. ITT cut the top end of its full-year adjusted profit guidance, and narrowed the range to $4.08 to $4.18 a share, compared with an earlier forecast of $4.05 to $4.20 a share. Revenue is seen rising 3% from 2009 to $11 billion.
Analysts expected third-quarter profit of $1.10 a share on $2.85 billion of revenue, with full-year income of $4.19 a share on $11.37 billion of revenue.
ITT said the analysts' views didn't include a charge of 11 cents a share against full-year earnings and a charge of 4 cents a share against third-quarter profit to account for discontinued operations and the dilution of income caused by ITT's acquisition of Canberra Pumps in Brazil and Godwin Pumps in the U.S.
ITT said it intends to sell CAS Inc., a defense-engineering and technical-services firm with sales of $320 million last year. The divestment would eliminate a potential conflict with U.S. regulations regarding defense equipment suppliers that also operate engineering and consulting firms that work on behalf the U.S. government with defense contractors.
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