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Ingersoll-Rand (IR) to Post Q4 Earnings: Beat in the Cards?

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Ingersoll-Rand Plc (IR - Free Report) is slated to report fourth-quarter 2018 results on Jan 30, before the market opens.

The company reported better-than-expected results thrice in the last four reported quarters, the average positive earnings surprise being 5.55%. Notably, Ingersoll's third-quarter 2018 adjusted earnings of $1.75 per share outpaced the Zacks Consensus Estimate of $1.72.

Over the past year, the company’s shares have gained 0.6% against 15.6% decline recorded by the industry it belongs to.

We expect the company to score an earnings beat in the fourth quarter as well.

Why a Likely Positive Surprise

Our proven model shows that Ingersoll has the right combination of the two key ingredients to beat earnings. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

This is the case here as you will see below:

Earnings ESP: Ingersoll has an Earnings ESP of +0.13% as the Most Accurate Estimate is pegged at $1.29, higher than the Zacks Consensus Estimate of $1.28.

Zacks Rank: The company carries a Zacks Rank #3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors Likely to Drive Better-Than-Expected Q4 Results

Ingersoll believes that the prospects in its end markets are bright. The company expects the commercial Heating, Ventilation and Air Conditioning (HVAC) business to continue gaining from strong demand across North America, Europe as well as China. As a matter of fact, the company expects to maintain the sustained growth globally in both bookings and revenues, supported by strength in both services and equipment. In its Residential HVAC business, the company stands to gain from continued strength in replacement markets. In addition, strength in the Transport Solutions, Industrial Fluid Management and Material Handling businesses will bolster its revenues in the quarters ahead.

The Zacks Consensus Estimate for fourth-quarter 2018 revenues of the company’s Climate and Industrial segments are currently pegged at $2,943 million and $902 million, respectively. The Climate segment reported $2,760 million and Industrial segment generated $858 million in the year-ago quarter.

Ingersoll has not provided any separate projection for the fourth quarter. However, a look at the yearly forecast will fairly provide a picture for the to-be-reported quarter. For 2018, the company anticipates adjusted earnings within $5.55-$5.60, higher than the previous forecast of $5.00-$5.50.

Ingersoll expects that increased productivity, pricing actions, management of material cost and other inflation metrics and recent share-buyback moves will continue to boost its bottom-line growth in the near term. In addition, new investments made toward footprint-optimization initiatives are expected to trim costs and expand the company’s near-term margins.

However, rising cost remains a major cause of worry for Ingersoll. In the third quarter, the company’s cost of sales flared up 9.2% year over year. Quarterly selling and administrative expenses rose 7.6% from the year-ago figure. Ingersoll noted that material cost inflation (on account of Section 232 and Section 301 tariff implementation) will continue to escalate its costs, in turn, affecting its profitability in the quarters ahead. It is worth mentioning that although the company’s investments will likely support revenue growth, costs related to these investments are likely to dent the company’s 2018 earnings by 28 cents per share.

The consensus estimate for the fourth-quarter 2018 operating income of the company’s Climate and Industrial segments are currently pegged at $385 million and $128 million, respectively. The Climate segment reported $480 million and the Industrial segment recorded $111 million in the year-ago quarter.

Other Key Picks

Here are some other companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Colfax Corporation has an Earnings ESP of +1.43% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEX Corporation (IEX - Free Report) carries a Zacks Rank #3 and has an Earnings ESP of +0.24%.

Illinois Tool Works Inc. (ITW - Free Report) carries a Zacks Rank #3 and has an Earnings ESP of +0.12%.

Zacks' Top 10 Stocks for 2019

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Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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Illinois Tool Works Inc. (ITW) - free report >>

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