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Ingersoll-Rand (IR) Q4 Earnings Surpass Estimates, Up Y/Y

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Ingersoll-Rand plc IR has kept its earnings streak alive in the fourth quarter of 2018, pulling off a positive earnings surprise of 3.1%.

Adjusted earnings in the quarter under review were $1.32 per share, surpassing the Zacks Consensus Estimate of $1.28. Also, the bottom line increased 29.4% from the year-ago tally of $1.02 on the back of solid revenue growth and margin expansion.

In 2018, Ingersoll-Rand’s adjusted earnings were $5.61 per share, surpassing the Zacks Consensus Estimate of $5.58. On a year-over-year basis, the bottom line increased 24.4% from $4.51 in 2017.

Segmental Performance Drives Revenues

Ingersoll-Rand’s net sales were $3,895 million in the fourth quarter, reflecting 7.7% growth over the year-ago quarter. This improvement was primarily driven by 8% organic growth.

Further, the top line surpassed the Zacks Consensus Estimate of $3.85 billion.

Bookings in the quarter increased 16% year over year to $4,142 million. Organically, bookings grew 17%.

The company reports revenues under two market segments. A brief discussion of the quarterly results is provided below:

The Climate segment generated revenues of $3,002 million, accounting for roughly 77.1% of net revenues in the reported quarter. Sales grew 8.8% year over year, driven by 9% growth in organic sales and 1% gain from acquired assets, partially offset by 1% adverse impact of forex woes.

The segment’s bookings in the quarter under review increased 20% year over year to $3,274 million.

Industrial’s revenues totaled $894 million, representing 22.9% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues grew 4.2% on the back of 6% gain from organic sales, partially offset by 2% adverse impact of unfavorable movements in foreign currencies.

For 2018, the company’s net sales were $15,668 million, up 10.4% year over year. The top line was above the Zacks Consensus Estimate of $15.61 billion.

Operating Margin Improves Y/Y

In the reported quarter, Ingersoll-Rand’s cost of sales increased 8% year over year to $2,745 million. Cost of sales was 70.5% of the quarter’s net sales versus 70.3% in the year-ago quarter. Selling & administrative expenses expanded 2.1% to $703.4 million. It represented 18.1% of net sales in the reported quarter versus 19% in the year-ago quarter.

Adjusted operating profit increased 17.3% year over year to $469 million. Margin grew 90 bps year over year to 12%. Margin improvement was driven by favorable pricing, volume growth and better productivity, partially offset by tariffs, material inflation, and growth investments.

Interest expenses in the quarter under review decreased 9.1% year over year to $49 million. Effective tax rate in the quarter was 16.5%, down from the guided figure of 21%.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Ingersoll-Rand had cash and cash equivalents of $903.4 million, down 11.6% from $1,022.5 million recorded in the last reported quarter. Long-term debt was roughly flat sequentially at $3,740.7 million.

In 2018, the company generated net cash of $1,474.5 million from operating activities, roughly 5.6% below the prior year. Capital expenditure totaled $365.6 million versus $221.3 million in the previous year. Free cash flow decreased 16.7% year over year to $1,148.7 million.

During the year, the company distributed $479.5 million as dividends and repurchased shares worth $900.2 million.

It is worth mentioning here that the company announced a share buyback program worth more than $1.5 billion in the fourth quarter of 2018.

Outlook

For 2019, Ingersoll-Rand anticipates gaining from strengthening end markets, solid backlog and effective operating system. Also, headwinds from tariffs and inflation will be dealt with efficiently.

The company anticipates revenues to increase 4-5% year over year, including organic sales growth of 5-6%. On a segmental basis, Climate revenues are anticipated to grow 4-5% and Industrial revenues to increase by 3-4%.

Adjusted earnings per share are predicted to be $6.15-$6.35. Effective tax rate (adjusted) will likely be 21-22%.

The company expects to buy back shares worth $500 million in the year. Free cash flow conversion will be more than 100%. The company plans to utilize the free cash flow to pay dividends, buy back shares and make acquisitions.

Ingersoll-Rand PLC (Ireland) Price, Consensus and EPS Surprise

 

Ingersoll-Rand PLC (Ireland) Price, Consensus and EPS Surprise | Ingersoll-Rand PLC (Ireland) Quote

Zacks Rank & Stocks to Consider

With a market capitalization of roughly $23.2 billion, Ingersoll-Rand currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are DXP Enterprises, Inc. DXPE, Twin Disc, Incorporated TWIN and Colfax Corporation CFX. While DXP Enterprises currently sports a Zacks Rank #1 (Strong Buy), Twin Disc and Colfax carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings estimates for DXP Enterprises and Colfax for 2019, and that for Twin Disc for fiscal 2019 (ending June 2019) have improved over the past 60 days. Positive earnings surprise for the last four quarters was 112.62% for DXP Enterprises, 220.64% for Twin Disc and 8.88% for Colfax.

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