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Ingersoll-Rand Beats EPS, Revs Down

IR

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Ingersoll-Rand Plc (IR - Analyst Report) reported adjusted earnings per share (EPS) of $1.07 in its third quarter of 2012 compared to 81 cents per share in the year-ago quarter and $1.15 per share in the last quarter, comprehensively beating the Zacks Consensus Estimate of 99 cents.

The rise in the earnings was primarily driven by the company’s effective operational strategy. The company’s earnings surpassed management’s prior guidance range of 95 cents and $1.00 per share for the quarter.

Revenues

Sales amounted to $3.6 billion; declining 8.1% year over year and 6% sequentially. Total revenue, excluding the recently divested Hussmann business and the impact of currency translation, were up 1% year over year.

Revenue in the quarter was at the lower-end of management’s guidance range of $3.6 billion to $3.7 billion. Moreover, sales were in line with the Zacks Consensus Estimate of $3.6 billion.

Geographically, revenues from U.S. markets escalated 3% annually, whereas revenues from international operations were down nearly by 7% (down 1% excluding currency).

Segment-wise, Climate Solutions delivered sales of approximately $2 billion, down 15% year over year and 1.3% sequentially. The year-over-year decline in revenue was primarily due to weakened commercial HVAC sales and Thermo King refrigerated transport sales.

The Industrial Technologies segment posted revenues of $702 million, up nearly 1% year over year but down 11.2% sequentially.

Revenues from the Residential Solutions segment increased 11% year over year but declined 14.4% sequentially to $558.6 million.

Finally, the Security Technologies segment recorded sales of $391 million, down 7% year over year and nearly 5% sequentially. The year-over-year decline was primarily due to the weakened sales in the overseas business and low sales in the Americas.

Margins

Adjusted operating margin for the third quarter of 2012 came in at 12.5% compared with 11.4% in the year-ago quarter and 12.4% in the previous quarter.

The company’s improved price structure and high productivity neutralized the negative effects of inflationary pressures, unfavorable product mix and currency conversion, which resulted in the annual rise in operating margin in the quarter.

The effective adjusted tax rate came in at 16.1% in the third quarter of 2012 compared with 28.4% in the year-ago quarter.

Balance Sheet and Cash Flows

Exiting third quarter of 2012, cash and cash equivalents amounted to $929.6 million, rising from $903.4 million at the end of the previous quarter. Net inventories amounted to a total of $1,462.1 million in comparison with $1,475.0 million at the end of the prior quarter. Long-term debt was $2,271.6 million versus $2,871.5 million in the previous quarter.

Cash flow from operating activities for the first nine months of 2012 amounted to $735.5 million. Capital expenditure for the period was $170.9 million.

Share Repurchase

In the third quarter of 2012, Ingersoll-Rand bought-back 7.6 million shares. As of October 18, 2012, the company repurchased a total of 10.8 million shares worth $480 million. For 2012, the company expects to repurchase shares worth $840 million in order to complete its $2 billion share repurchase program.  

Outlook

For the fourth quarter of 2012, management expects revenues to fall within $3.4 billion to $3.5 billion with EPS from continuing operations between 64 cents and 70 cents. The tax rate is projected to be at 29% for the quarter.

For 2012, Ingersoll-Rand projects revenues to be between $13.95 billion and $14.05 billion. The revenue is likely to be negatively impacted by currency translation. EPS for 2012 is targeted to be in the range of $3.17 – $3.23. The tax rate is projected to be at 19% for the quarter. The available cash flow is expected to be $1.0 billion by the end of 2012.

Our Recommendation

Ingersoll-Rand currently has a Zacks Rank #3, which implies a short-term (1-3 months) Hold rating on the stock.

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