Ingersoll-Rand plc IR reported better-than-expected results for the third quarter of 2019, with earnings surpassing estimates by 4.2%. This was the company’s eleventh consecutive quarter of impressive results.
Adjusted earnings in the quarter under review were $1.99 per share, surpassing the Zacks Consensus Estimate of $1.91. Also, the bottom line grew 13.7% from the year-ago quarter figure of $1.75 on solid revenue growth, margin expansion and lower share count.
Revenues Improve Y/Y
Ingersoll-Rand’s net sales were $4,344.3 million in the third quarter, reflecting 7.8% growth from the year-ago quarter. Organic sales in the quarter grew 6% year over year, while acquisition had a positive 3% impact. However, unfavorable movements in foreign currencies had an adverse impact of 1%.
The company’s revenues surpassed the Zacks Consensus Estimate of $4,284 million by 1.4%.
Bookings in the quarter rose 3% year over year to $4,162 million.
The company reports revenues under two market segments. A brief discussion of the quarterly results is provided below:
The Climate segment generated revenues of $3,470.9 million, accounting for roughly 79.9% of net revenues in the reported quarter. Sales grew 7.2% year over year on 8% growth in organic sales. Healthy growth in heating, ventilation and air conditioning (HVAC) markets boosted organic sales. Forex woes had an adverse 1% impact on sales.
The segment’s bookings in the quarter under review rose 0.9% year over year (or up roughly 2% organically) to $3,269 million.
Industrial’s revenues totaled $873.4 million, representing 20.1% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues grew 10.2% on gains of 12% from acquisitions, partially offset by a 2% adverse impact of unfavorable movements in foreign currencies. Organic revenues were flat in the quarter.
The segment’s bookings in the quarter under review grew 10.5% year over year (or flat organically) to $894 million.
Operating Margin Improves Y/Y
In the reported quarter, Ingersoll-Rand’s cost of sales rose 8% year over year to $2,935.8 million. Cost of sales was 67.6% of the quarter’s net sales versus 67.4% in the year-ago quarter. Selling & administrative expenses rose 8.2% year over year to $785.3 million. It represented 18.1% of net sales in the reported quarter.
Adjusted operating profit grew 12.7% year over year to $684.4 million. Margin grew 70 bps year over year to 15.8%. Margin improvement was driven by favorable pricing, volume growth and better productivity, partially offset by unfavorable product mix, tariffs, other inflationary pressures and growth investments.
Interest expenses in the quarter under review rose 32.2% year over year to $64.1 million. Effective tax rate in the quarter was 19.7%.
Balance Sheet & Cash Flow
Exiting the third quarter, Ingersoll-Rand had cash and cash equivalents of $830.9 million, down 5.1% from $875.6 million recorded in the last reported quarter. Long-term debt was flat sequentially at $4,921.9 million.
In the first three quarters of 2019, the company generated net cash of $1,089.8 million from continuing operating activities, roughly 15.2% above the year-ago period. Capital expenditure totaled $186.2 million versus $251.2 million in the previous year’s comparable period. Free cash flow rose 37.1% year over year to $992.7 million.
During the first three quarters of 2019, the company distributed $383.1 million as dividend payouts and repurchased shares worth $500.1 million.
For 2019, Ingersoll-Rand anticipates gaining from strengthening HVAC markets, and effective operating system and execution capabilities. Also, weakness in industrial spending will be dealt with efficiently.
The company anticipates revenues growth of 5.5-6.5% for 2019, including roughly 1.5% contribution from the Precision Flow Systems buyout (done in the second quarter of 2019). Organic sales growth projection is maintained at 5-6%.
Adjusted earnings per share are predicted to be roughly $6.40 (guidance maintained). Effective tax rate (adjusted) will likely be 20-21%, lower than previously mentioned 21-22%.
Free cash flow conversion will be more than 100%. Also, the company is working toward combining its Industrial segment with Gardner Denver Holdings, Inc GDI, which is likely to be completed in 2020. This is expected to help Ingersoll-Rand create more value for shareholders by forming a company dedicated to climate solutions.
Ingersoll-Rand PLC (Ireland) Price, Consensus and EPS Surprise
Ingersoll-Rand PLC (Ireland) price-consensus-eps-surprise-chart | Ingersoll-Rand PLC (Ireland) Quote
Zacks Rank & Stocks to Consider
With a market capitalization of roughly $29.3 billion, Ingersoll-Rand currently carries a Zacks Rank #3 (Hold).
Two better-ranked stocks in the Zacks Industrial Products sector are Brady Corporation BRC and Dover Corporation DOV. Both stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 60 days, earnings estimates for the companies have improved for the current year. Further, average earnings surprise for the last four quarters was 9.68% for Brady and 6.70% for Dover.
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Ingersoll-Rand PLC (Ireland) (IR) : Free Stock Analysis Report
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