Ingersoll-Rand Misses Guidance

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Ingersoll-Rand Plc (IR) reported a net income of $88.0 million or 29 cents per share compared with $95.6 million or 31 cents in the year-earlier quarter. Ingersoll failed to meet its earlier guidance of EPS from continuing in the range of 35 cents to 40 cents.

Excluding non-recurring items, adjusted EPS came to 42 cents for the reported quarter compared with 37 cents in the year-ago quarter. Adjusted earnings for first quarter 2013 beat the Zacks Consensus Estimate by a penny.

Revenues failed to meet the Zacks Consensus Estimate of $3,166 million and came in at $3,112 million, down 1% year over year. Revenues from the U.S. were up a modest 1%, while revenue from the International segment dipped 4%.

Segment Performance

Climate Solutions delivered sales of approximately $1.6 billion in the first quarter, down 3% year over year. The year-over-year decline in revenue was primarily due to a fall in revenue from Commercial HVAC in all geographic regions, partially offset by increased revenues from parts, services and solutions. Revenues from the Thermo King sub-segment also declined by a mid-single digit percentage.

The Industrial Technologies segment posted revenues of $680 million in first quarter down 1% year over year. The dip in the segment revenue was driven by lower revenues from the air and productivity, aided by a decline in volume in Asia. However, it was partially offset by a rise in volume from the Americas and Western Europe.

Residential Solutions segment posted a solid 10% year-over-year increase in revenue to $464 million. However, excluding the impact of product line transfer from the Security Technologies segment, revenues increased 6% year over year. The increase in revenue was driven by higher sales to the booming builder markets in the U.S.

The Security Technologies segment recorded sales of $352 million, down 7% year over year. However, excluding the impact of product line transfer to the Residential Solutions, revenues were down 3%.  The year-over-year decrease was primarily due to the decrease in sales in the Americas and the overseas market.

Margins

Adjusted operating margin for the first quarter of 2013 was 7.4% compared with 7.5% in the year-ago quarter. Negative effects of inflationary pressures, unfavorable revenue mix, lower volume and higher investment spending neutralized the positive effect of improved price structure and operational excellence.

Balance Sheet and Cash Flows

As of Mar, 2013, cash and cash equivalents aggregated $832.9 million. Long-term debt stood at $2,271.1 million.

Net cash from operating activities dropped significantly and came in at a negative $8 million compared with $16.4 million in the year-earlier quarter. Capital expenditure for the period increased for the period to $71.4 million compared with $52.9 million in the year-ago quarter.

Share Repurchase

Subsequent to the quarter-end, Ingersoll announced a share repurchase program worth $2 billion. The company expects to complete this program by the first quarter of 2014.

Update on Spinoff

In Dec 2012, Ingersoll 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 divesture to be completed prior to year-end 2013. Post-completion, Ingersoll will cease to have any ownership stake in the new security company, which will become an independent publicly traded firm.

Reaffirms Outlook

For second quarter 2013, Ingersoll projects revenues to be between $3.8 billion and $3.9 billion. Adjusted EPS from continuing operations is targeted to be in the range of $1.05 to $1.10, with EPS to be in the range of $0.99 to $1.04.

For full year 2013, management expects macro-economic headwinds to continue and has reiterated its conservative revenue guidance. Management expects revenues to be in the range of $14.2 billion to $14.6 billion with adjusted 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. Including the costs associated with the planned spin-off of the Residential Security Businesses, EPS from continuing operations is expected to be in the range of $2.85 to $3.25.

The company operates in an intensely competitive landscape that includes big players such as The Babcock & Wilcox Company (BWC), EnPro Industries, Inc. (NPO) and Omnitek Engineering Corp. (OMTK), each carrying a Zacks Rank #1 (Strong Buy). Ingersoll currently has a Zacks Rank #2 (Buy).

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