Ingersoll-Rand Beats Estimates

Zacks

Ingersoll-Rand Plc (IR) reported a net income of $235.6 million or 78 cents compared with $242.2 million or 76 cents in the earlier-year quarter. The quarterly earnings beat the Zacks Consensus Estimate of 70 cents.

For fiscal 2012 the company reported adjusted EPS of $3.28 versus $1.01 in the year ago quarter.  The fiscal earnings were  ahead of the Zacks Consensus estimate of $3.23. The increase in earnings for fiscal 2012 was driven by strength in business operations.

Revenues

Revenues amounted to $ 3470 million compared with revenues of $3,507 million in 4Q11. Moreover, sales beat the Zacks Consensus Estimate of $3449 million. For Fiscal 2012 revenues declined 5% year over year to $14,035 million.

Segment-wise, Climate Solutions delivered sales of approximately $1.8 billion in fourth quarter down 3% year over year.  The year-over-year decline in revenue was primarily due to flat HVAC revenues with some decline in equipment and systems, offset by increased revenues from parts, services and solutions.

The Industrial Technologies segment posted revenues of $765 million in fourth quarter up 3% year over year. The increase was driven by gain in oil free air compressor sales.

Revenues from the Residential Solutions segment decreased 5% year over year to $422 million in the reported quarter. The decrease in revenue was driven by lower sales to customers.

Finally, the Security Technologies segment recorded sales of $445 million, up 7% year over year in the reported quarter,The year-over-year increase was primarily due to the increase in sales in the Americas and strong growth in Asia.

Margins

Adjusted operating margin for the fourth quarter of 2012 came in at 10.6% compared with 9.7% in the year-ago quarter. The company’s improved price structure and operational excellence neutralized the negative effects of inflationary pressures, unfavorable revenue mix and higher investment spending which resulted in the annual rise in operating margin in the quarter.

Balance Sheet and Cash Flows

As of Dec, 2012 Cash and cash equivalents amounted to $882.1 million down from $1106.7 million at the end of the previous year. Long-term debt was $2,269.3 million versus $2,879.3 million in the year-ago period.

Net cash from operating activities as of Dec 2012 amounted to $1180.9 million. Capital expenditure for the period was $262.6 million.

Share Repurchase

In fourth quarter 2012, Ingersoll-Rand purchased 10 million shares and purchased a total of 18.4 million shares worth $840 million in 2012.

Spin-off of Commercial and Residential Security Businesses

In Dec 2012, Ingersoll Rand approved a plan to spin off its commercial and residential security businesses. The separation will result in two standalone companies: Ingersoll Rand and the new security company.

The company expects the spin-off to be completed prior to year-end 2013. Post completion, Ingersoll-Rand plc will cease to have any ownership stake in the new security company and the new security company will become an independent publicly traded company.

Outlook

For first quarter 2013, Ingersoll-Rand projects revenues to be between $3.1billion and $3.2 billion. . EPS from continuing operations is targeted to be in the range of 35 cents – 40 cents.

For Fiscal 2013, management expects revenues to be in the range of $14.2 billion to $14.6 billion with EPS from continuing operations between $3.45- and $3.65. The available cash flow is expected to be $1.1 billion by the end of 2013.

Refrigerated transport markets and commercial HVAC replacement activity are expected to witness slow year-over-year growth, especially in Europe which would experience low economic growth in 2013. The North American consumer market, especially residential HVAC, would be on the path to recovery in fiscal 2013.

The North American non-residential construction market is expected to continue with its weak demand pattern with moderate growth in commercial markets, partially offset by weakness in institutional markets.  Going forward Ingersoll-Rand expects moderate growth in industrial markets, global parts and services and across most of the company’s businesses in Asia and Latin America.

However, the company operates in an intensely competitive landscape that includes big players such as Altra Holdings, Inc (AIMC) and Gorman- Rupp Co (GRC).

Ingersoll-Rand currently has a Zacks Rank #3 (Hold). One of its competitors, IDEX Corporation (IEX)  carries a Zacks Rank #2 (Buy).

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