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Why Is Ingersoll (IR) Up 10.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Ingersoll Rand (IR - Free Report) . Shares have added about 10.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ingersoll due for a pullback? 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 catalysts.

Ingersoll Rand Q2 Earnings Beat Estimates, Fall Y/Y

Ingersoll Rand has reported better-than-expected results for the second quarter of 2020, with earnings surpassing estimates by 47.62%.

Its adjusted earnings in the quarter under review were 31 cents per share, reflecting a decline from the year-ago number of 44 cents. The result also surpassed the Zacks Consensus Estimate of 21 cents.

Revenue Details

Ingersoll Rand’s revenues of $1,264.4 million in the second quarter reflected a decline of 20.8% from the year-ago quarter. Organic sales in the quarter declined 19.3% year over year, while acquisition had a positive 0.1% impact. However, unfavorable movements in foreign currencies had an adverse impact of 1.6%.

The company’s revenues surpassed the Zacks Consensus Estimate of $1,159 million.

Adjusted orders in the quarter decreased 22.7% year over year to $1,210 million.

The company reports revenues under four market segments. A brief discussion of the quarterly results is provided below:

The Industrial Technologies & Services segment generated revenues of $829.6 million. Sales decreased 19.3% year over year on a 17.3% fall in organic sales. Forex woes had an adverse 2.1% impact on sales and acquisitions had a 0.1% positive impact. The segment’s adjusted orders in the quarter decreased 25% year over year.

Precision & Science Technologies’ revenues totaled $195.8 million. On a year-over-year basis, the segment’s revenues decreased 9.1% on an organic sales decline of 8.1% and forex woes of 1.3%. Acquisitions had a positive impact of 0.3%. The segment’s adjusted orders were down 7.8% year over year.

The Specialty Vehicle Technologies segment generated revenues of $217.5 million. Sales decreased 6.6% year over year on a 6.5% fall in organic sales and forex woes of 0.1%. The segment’s adjusted orders in the quarter increased 5.2% year over year.

High Pressure Solutions’ revenues totaled $21.5 million. On a year-over-year basis, the segment’s revenues decreased 82% on a fall in organic sales of 81.9% and forex woes of 0.1%. The segment’s adjusted orders were down 86.9% year over year.

Margin Profile

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter decreased 23% year over year to $241 million. Also, margins plummeted 50 basis points (bps) to 19.1%.

On a segmental basis, supplemental adjusted EBITDA margin increased 280 bps year over year to 22.2% for Industrial Technologies & Services, while increased 90 bps to 30.3% for Precision & Science Technologies. Also, margin for Specialty Vehicle Technologies segment grew 270 bps year over year to 18.9% and plummeted sharply from 27.3% in the year-ago quarter to (70.7%) in the second quarter of 2020 for High Pressure Solutions.

Balance Sheet & Cash Flow

Exiting the second quarter of 2020, Ingersoll Rand had cash and cash equivalents of $1,173.6 million, up 111.2% from $555.7 million recorded in the last reported quarter. Long-term debt increased 11.4% sequentially to $3,816.7 million.

During the quarter, the company repaid $1,600 million of its long-term debts, while also secured $1,980.1 million as proceeds from these debts.

The company’s liquidity of $2.2 billion at the end of the second quarter of 2020 comprised of cash of $1.2 billion and credit facilities of $1 billion.

In the first half of 2020, it generated net cash of $315.8 million from operating activities, increasing 142.7% year over year. Capital expenditure totaled $25.4 million versus $24.7 million in the previous year’s comparable period. Free cash flow rose 175.5% year over year to $290.4 million.

Outlook

The company noted that the safety of workers and customers remain top priorities in the present difficult environment. Also, it expects to deliver $95 million from the accelerated synergy actions related to the business combination of Ingersoll-Rand’s Industrial segment with Gardner Denver. The savings are part of $250-million savings expected from the transaction in the first three years of the completion.

The company refrained from providing projections for 2020 due to the uncertainties related to the coronavirus outbreak.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.


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