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Why Is Ingersoll (IR) Down 3% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Ingersoll-Rand PLC (Ireland) (IR - Free Report) . Shares have lost about 3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 catalysts.

Ingersoll Beats Q2 Earnings & Revenues, Reaffirms View

Ingersoll reported strong second-quarter 2017 results with adjusted earnings per share (EPS) of $1.49 compared with $1.38 in the year-earlier quarter. Adjusted earnings beat the Zacks Consensus Estimate of $1.46.

The company’s GAAP earnings were $1.38 per share compared with $2.86 in the year-ago period. The year-over-year decrease despite higher revenues was primarily due to rise in operating expenses.

Quarterly revenues were $3,908.4 million, up from $3,688.2 million in the year-ago quarter. Revenues beat the Zacks Consensus Estimate of $3,795 million. Organic revenues improved 7% year over year. Organic revenues from North America were up 10% while that from International markets were relatively flat.  

Segmental Performance

The Climate segment recorded sales of $3,144 million compared with $2,935 million in the year-ago quarter. The upside was driven by solid revenues from commercial and residential HVAC (heating, ventilation and air conditioning) businesses.

The Industrial segment reported revenues of $765 million in the quarter, up from $753 million in the prior-year quarter.

Margins

Operating margin was 14.3% compared with 13.9% in the year-ago quarter. Adjusted operating margin improved to 14.4% from 14% in the prior-year quarter. Adjusted operating margin for the Climate segment was 16.8% compared with 16.9% in the year-ago quarter. Adjusted operating margin for the Industrial segment was 12.5%, up from 10% in the year-ago quarter.

Balance Sheet and Cash Flow

As of Jun 30, 2017, cash and cash equivalents totaled $1,310.1 million while long-term debt was $3,704.5 million. Net cash used in operating activities in the first half of the year was $405.5 million compared with $428.1 million in the prior-year period. Working capital was 5.1% of revenues for second quarter compared with 5.6% in second quarter 2016.

Outlook

Ingersoll reaffirmed its guidance for 2017. It expects adjusted EPS from continuing operations to be in the range of $4.35 to $4.50 while revenues are expected to rise 2%. Cash flow from operating activities is expected to be $1.4–$1.5 billion while free cash flow is projected within $1.1–$1.2 billion.

How have estimates been moving since then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

VGM Scores

At this time, Ingersoll-Rand's stock has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated also a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 value, growth, and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.




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