Back to top

Image: Bigstock

Ingersoll-Rand (IR) Down 11.1% Since Earnings Report: Can It Rebound?

Read MoreHide Full Article

It has been about a month since the last earnings report for Ingersoll-Rand plc (IR - Free Report) . Shares have lost about 11.1% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is IR due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Ingersoll Q4 Earnings in Sync, Offers Bullish 2018 View

Ingersoll reported relatively healthy fourth-quarter 2017 results with adjusted earnings from continuing operations of $1.02 per share compared with 84 cents in the year-earlier quarter. The healthy year-over-year improvement in adjusted earnings was largely driven by top-line growth. Adjusted earnings were in sync with the Zacks Consensus Estimate.

GAAP earnings for the quarter were $459.9 million or $1.81 per share compared with $198.8 million or 75 cents per share in the year-ago period. The year-over-year increase in GAAP earnings was primarily attributable to non-cash tax-related benefits of $241.2 million (95 cents per share) related to U.S. tax legislation. For full year 2017, the company recorded GAAP earnings of $1,302.6 million or $5.05 per share compared with $1,476.2 million or $5.65 per share in 2016.

Quarterly revenues were $3,618.1 million, up from $3,358.8 million in the year-ago quarter. Revenues exceeded the Zacks Consensus Estimate of $3,516 million. Organic revenues improved 6% year over year. Organic revenues from North America were up 7% while that from International markets were up 4%. For full year 2017, revenues increased to $14,197.6 million from $13,508.9 million in 2016 on diligent execution of operational plans.

Segmental Performance

The Climate segment recorded sales of $2,760 million compared with $2,559 million in the year-ago quarter. The upside was driven by solid revenues from commercial and residential HVAC (heating, ventilation and air conditioning) businesses, particularly in underserved markets in China.

The Industrial segment reported revenues of $858 million in the quarter, up from $800 million in the prior-year quarter.

Margins

Operating margin was 10.7% compared with 10.5% in the year-ago quarter owing to higher volume and productivity improvements, partially offset by material and other inflation. Adjusted operating margin improved to 11.1% from 10.9% in the prior-year quarter. Adjusted operating margin for the Climate segment was 12.9% compared with 13.7% in the year-ago quarter owing to higher material price inflation. Adjusted operating margin for the Industrial segment was 13.2%, up from 11.6% in the year-ago quarter driven by higher mix of services, new product development and cost reductions.

Balance Sheet and Cash Flow

As of Dec 31, 2017, cash and cash equivalents were $1,549 million while long-term debt was $4,064 million compared with respective tallies of $1,715 million and $4,070 million. Net cash from operating activities for 2017 was $1,524 million compared with $1,522 million in the prior-year period. Ingersoll spent $1 billion on share buybacks in 2017, $106 million of which was spent in the fourth quarter. Free cash flow for full year 2017 was $1,340 million, which equated to 118% of adjusted net income. Return on invested capital was 21.2% for the year.
 
Bullish Outlook

Ingersoll offered a bullish guidance for 2018. It expects adjusted earnings from continuing operations to be within $5.00 and $5.20 per share, while revenues are expected to rise 5-5.5%. Cash flow from operating activities is expected to be in the range of $1.45 billion to $1.55 billion, with free cash flow between $1.2 billion to $1.3 billion.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, IR has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for growth and momentum investors while value investors may want to look elsewhere.

Outlook

IR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Ingersoll Rand Inc. (IR) - free report >>