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Ingersoll-Rand Plc (IR - Analyst Report) reported second quarter net income of $317.2 million or $1.05 per share compared with $365.8 million or $1.16 in the year-earlier quarter.

Adjusted EPS from continuing operations stood at $1.14 in the reported quarter, which fell from $1.18 in the year-ago quarter but beat the Zacks Consensus Estimate by 6 cents.

Quarterly revenues of $3,933 million beat the Zacks Consensus Estimate of $3,891 million and rose 3% year over year. Revenues from the U.S. were up 4%, while revenues from the International segment were up a modest 1%.

Segment Performance

Climate Solutions delivered sales of $2.0 billion in the second quarter, up 5% year over year. The year-over-year increase was driven by slight increase in commercial HVAC revenues in Americas, Europe and Asia, partially offset by increased revenues from parts, services and solutions. Revenues from the Thermo King sub-segment also increased by high-single digit percentage.

The Industrial Technologies segment posted revenues of $763 million in second quarter, down 3% year over year. The dip in the segment revenues was driven by lower revenues from the air and productivity, aided by a decline in volume in all geographic regions.

Residential Solutions segment posted a solid 9% year-over-year increase in revenues to $713 million in the reported quarter.The increase in revenues was driven by higher sales to the booming builder markets in the U.S and from increased sales to South American customers.

The Security Technologies segment recorded sales of $399 million in second quarter, down 3% year over year. However, after adjusting the impact of product line transfer to the Residential Solutions, revenues were up 3%.  

Margins

Operating margin for the second quarter of 2013 was 12.3% compared with 12.5% in the year-ago quarter. Adjusted operating margin stood at 13.0% compared with 12.8% in the year-ago quarter. The year-over-year adjusted margin improvement was driven by increased volume, productivity initiatives and improved pricing, partially offset by inflation and an increase in investment spending.

Balance Sheet and Cash Flows

As of Jun, 2013, cash and cash equivalents aggregated $2.2 billion. Long-term debt stood at $3,155.1 million. During the reported quarter, the company completed a $1.55 billion debt offering. The net proceeds from the offering will be redeployed to fund the redemption of senior Notes due in 2013 and 2014 and to fund expenses related to the spinoff of the Allegion security businesses.

Net cash from operating activities for six months ended Jun, 2013 came in at $428.8 million compared with $305.6 million in same period in the prior year.

Capital expenditure for the period increased to $139.2 million compared with $113.8 million in preceding year.

Share Repurchase

The company repurchased approximately 9 million shares for approximately $480 million in the reported quarter as a part of a share repurchase program worth $2 billion. The company expects to complete this program by the first quarter of 2014.

Update on Spinoff

In Dec 2012, Ingersoll approved a plan to spin off its commercial and residential security businesses. The company expects the divestiture to be completed prior to year-end 2013. The new security company is an Irish plc named Allegion, which will trade on the New York Stock Exchange under the ticker ALLE.

 Outlook

For third quarter 2013, Ingersoll projects revenues to be between $3.65 billion and $3.75 billion. Adjusted EPS from continuing operations is targeted to be in the range of $1.07 to $1.12, with reported EPS to be in the range of 82 cents to 87 cents.

For full year 2013, management expects revenues to be in the range of $14.2 billion to $14.4 billion with adjusted EPS from continuing operations between $3.50 and $3.60. EPS from continuing operations are expected to be in the range of $2.75-$2.95. The costs related to the proposed spinoff of the Allegion security businesses are expected to be in the range of $0.50 to $0.60 per share and additional costs from the early retirement of debt is expected to reduce EPS by $0.15 per share.

The available cash flow is expected to be $1.1 billion by the end of 2013.

Ingersoll currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look in the industry include Chart Industries Inc. (GTLS - Snapshot Report), Gardner Denver Inc. and Johnson Controls Inc (JCI - Analyst Report), each carrying a Zacks Rank #2 (Buy)
 

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