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Ingersoll-Rand Plc (IR - Analyst Report) reported first quarter 2014 net income of $79.0 million or 28 cents per share compared with $88.0 million or 29 cents per share in the year-earlier quarter. Although net income decreased significantly year over year, earnings declined marginally on a per share basis due to lower number of outstanding shares in the reported quarter.

Excluding non-recurring items, adjusted earnings from continuing operations for the reported quarter were 29 cents per share compared with 22 cents in the year-ago quarter. Adjusted earnings from continuing operations were on the higher end of the company’s guidance and well exceeded the Zacks Consensus Estimate of 25 cents.

Quarterly revenues of $2,722.9 million were ahead of the Zacks Consensus Estimate of $2,697 million and rose 3% year over year. Revenues from both the U.S. and the International segment were up 3% each compared with the year-ago period.

Segment Performance

Climate delivered sales of approximately $2,040.8 million in first quarter 2014 compared with $1,958.7 million in the year-ago quarter. The year-over-year increase was driven by low single-digit increase in commercial HVAC (heating, ventilation, and air conditioning) revenues and mid single-digit improvement in revenues from parts, services and solutions. Revenues from the Thermo King sub-segment also increased by a low-teen percentage.

Industrial segment posted revenues of $682.1 million in the first quarter, up marginally year over year. Air compressors and industrial products revenues increased slightly in the reported quarter, while Club Car revenues declined by a high-single digit percentage due to adverse impact by weather-related issues which caused production and shipment delays.

Margins

Operating margin for the first quarter of 2014 was 5.7% compared with 4.5% in the year-ago quarter. Consolidated adjusted operating margin stood at 6.0% compared with 5.4% in the prior-year period. Adjusted operating margin for Climate segment was 6.6% for the reported quarter and improved by 2.1 percentage points year over year due to higher volumes, pricing, lower restructuring costs and productivity actions, partially offset by inflation. Adjusted operating margin for Industrial segment was 12.1% and declined from 15.2% in the year-ago quarter due to negative product mix, inflation, higher investments and weather-related production and shipment delays.

Balance Sheet and Cash Flows

At quarter end, cash and cash equivalents aggregated $897.9 million, while long-term debt stood at $3,152.3 million. Net cash utilized in operating activities during the quarter was $126 million compared with $8 million cash utilization in the prior year. Capital expenditure for the quarter declined to $50.5 million from $67.1 million in the year-earlier quarter. Working capital was 4.4% of revenues at the end of the reported quarter compared with 3.7% in the year-ago period.

Share Repurchase

The company repurchased approximately 13 million shares for approximately $800 million in the reported quarter as part of its $2 billion share repurchase program. Ingersoll has approved a new $1.5 billion share repurchase program that will commence during the second quarter.

Dividend Hike

Ingersoll increased its quarterly dividend by 19% year over year to 25 cents per share. The increased dividend was paid on Mar 31, 2014 to shareholders of record on Mar 14.

Outlook

For full year 2014, management reiterated its earlier guidance and continues to expect revenues to increase by 3%-4% year over year due to slow-to-moderate growth in global industrial and construction markets. Adjusted earnings from continuing operations are expected to be between $3.05 and $3.20.  Reported earnings for 2014 are expected to be in the range of $2.95-$3.10. Free cash flow for the year is expected to be $900 million.

For second quarter 2014, Ingersoll projects revenues to increase by 4%-5% year over year. Adjusted earnings from continuing operations are expected to be in the range of $1.09 to $1.13 per share, with reported earnings in the range of $1.08 to $1.12.

Ingersoll currently carries a Zacks Rank #3 (Hold). Other stocks that are worth a look in the industry include Colfax Corporation (CFX - Analyst Report), Dover Corporation (DOV - Analyst Report) and Flowserve Corp. (FLS - Analyst Report), each carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on DOV
Read the Full Research Report on FLS
Read the Full Research Report on IR
Read the Full Research Report on CFX


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