Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



ITT Courts Bigger Profits

Shares of for-profit educator ITT Educational Services (NYSE: ESI  ) leapt 14% in the wake of Thursday morning's report of astounding profits growth. Reporting on the results for Q3 2005, the no-longer-under-investigation company announced that it had transformed 12% revenue growth into an 86% increase in profits.

That over-hyphenated mouthful in the paragraph above provided much of the impetus for ITT's earnings growth. Last year, the company spent $6.5 million on lawyers and accountants to defend itself against a federal investigation, dragging down its results. This year, the removal of related anticipated costs in a "reserve for special legal and other investigation costs" put $9.8 million (pre-tax) dollars back in the company's coffers.

In other words, the investigation made ITT's results this quarter look better than they "really" were by (a) depressing profit last year and (b) inflating profit this year -- compounding the company's comparative performance. Even if we backed out the legal costs from both Q3 2004 and Q3 2005, however, the company would still have boosted its GAAP profits by an impressive 25% -- far in excess of revenue growth.

Overall, it was a stellar quarter in any light -- including a cash flow perspective. In Q3, ITT reversed the trend of declining free cash flow that had plagued it earlier this year. This company invests cash in its business in two major forms: capital expenditures and expenditures on facilities and land. Deducting those costs from its cash generated from operations, the company produced $41.6 million in free cash flow in Q3 2005, more than double the $19.5 million generated in the year-ago quarter.

That performance helped strengthen the company's already robust balance sheet, which now reflects $82 million more in net cash and equivalents than it did one year ago -- $394.5 million in all, and still zero debt. For its size, ITT now has the strongest balance sheet of any company in the industry, with cash and equivalents making up 15.4% of its total market cap. For comparison, that's better than (in order) Career Education (Nasdaq: CECO  ) , Strayer (Nasdaq: STRA  ) , Apollo Group (Nasdaq: APOL  ) , Corinthian (Nasdaq: COCO  ) , or DeVry (NYSE: DV  ) .

Strong cash flow is no stranger to ITT. Read about its past success in:

The Motley Fool has kicked off its ninth annual Foolanthropy campaign! Nominate your favorite charities on ourFoolanthropy discussion boardthrough Nov. 6. For guidelines on what makes a charity Foolish,

Fool contributor Rich Smith does not own shares of any company mentioned in this article.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 497775, ~/Articles/ArticleHandler.aspx, 10/24/2016 5:05:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
APOL $8.87 Up +0.38 +4.48%
Apollo Group CAPS Rating: *
CECO $7.09 Down -0.01 -0.14%
Career Education CAPS Rating: *
COCOQ.DL $0.00 Down +0.00 +0.00%
Corinthian College… CAPS Rating: *
DV $22.66 Up +0.33 +1.48%
DeVry CAPS Rating: **
ESINQ $0.02 Down +0.00 +0.00%
ITT Educational Se… CAPS Rating: **
STRA $46.37 Up +0.76 +1.67%
Strayer Education CAPS Rating: **