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Why Is Ingersoll (IR) Up 15.6% Since Last Earnings Report?

·5 min read

It has been about a month since the last earnings report for Ingersoll Rand (IR). Shares have added about 15.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ingersoll due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Ingersoll Rand Q3 Earnings Surpass Estimates, Up Y/Y

Ingersoll Rand reported impressive results for third-quarter 2020, with earnings surpassing estimates by 29.03%. Also, sales in the quarters exceeded expectations by 5.22%.

For comparison purpose, the company provided supplemental data, assuming the above-mentioned transaction was completed in January 2018. Its adjusted earnings in the quarter under review were 40 cents per share, reflecting growth of 2.6% from the supplemental number of 39 cents in the year-ago quarter. The bottom line also surpassed the Zacks Consensus Estimate of 31 cents.

Revenue Details

Ingersoll Rand’s revenues of $1,335.2 million in the third quarter reflected a decline of 9.8% from the year-ago quarter’s supplemental number. Organic sales in the quarter declined 10.8% year over year, while acquisition had a positive 0.3% impact. Also, movements in foreign currencies had a positive impact of 0.7%.

However, the company’s revenues surpassed the Zacks Consensus Estimate of $1,269 million. Orders in the quarter totaled $1,363.8 million, decreasing 7.7% from the year-ago quarter’s supplemental number.

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

Industrial Technologies & Services generated revenues of $902.6 million, accounting for 67.6% of net revenues in the reported quarter. Sales decreased 8.3% year over year on a 9.3% fall in organic sales. Movements in foreign currencies had a positive impact of 0.7% and acquisitions contributed 0.3%. The segment’s orders in the quarter decreased 7.4%.

Precision & Science Technologies’ revenues totaled $209.9 million, representing 15.7% of net revenues in the third quarter. On a year-over-year basis, the segment’s revenues increased 0.9%. Organic sales decline of 1.1% was more than offset by 1.8% gain from movements in foreign currencies and 0.2% gain from acquisitions. The segment’s orders were down 7.3%.

The Specialty Vehicle Technologies generated revenues of $191 million, accounting for 14.3% of net revenues in the reported quarter. Sales increased 1.1% year over year on 0.9% hike in organic sales and 0.2% benefit from foreign currency movements. The segment’s orders in the quarter increased 29.8%.

High Pressure Solutions’ revenues totaled $31.7 million, representing 2.4% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues decreased 68.3% on a fall in organic sales of 68.1% and forex woes of 0.2%. The segment’s orders were down 80.6%.

Margin Profile

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter decreased 3% year over year to $284 million. Also, margins increased 150 basis points (bps) to 21.3%.

On a segmental basis, supplemental adjusted EBITDA margin increased 370 bps year over year to 24% for Industrial Technologies & Services, and jumped 350 bps to 30.7% for Precision & Science Technologies. Also, margin for Specialty Vehicle Technologies segment grew 510 bps to 19.7% but plummeted sharply from 26.9% in the year-ago quarter to 4.1% in the third quarter of 2020 for High Pressure Solutions.

Balance Sheet & Cash Flow

Exiting the third quarter of 2020, Ingersoll Rand had cash and cash equivalents of $1,313.3 million, up 11.9% from $1,173.6 million recorded in the last reported quarter. Long-term debt increased 0.5% sequentially to $3,837.2 million.

The company’s liquidity of $2.3 billion at the end of the third quarter of 2020 comprised cash of $1.3 billion and credit facilities of $997 million.

In the third quarter, it generated net cash of $186.7 million from operating activities, increasing 63.5% year over year. Capital expenditure totaled $8.1 million versus $9.1 million in the previous year’s comparable quarter. Free cash flow rose 69.9% to $178.6 million.

Outlook

The company anticipates realizing $100 million savings in 2020 as a result of synergy actions related to the combination of Ingersoll-Rand’s Industrial segment with Gardner Denver. These savings are part of $250-million savings expected from the transaction in the first three years of the completion.

It refrained from providing projections for 2020 due to the uncertainties related to the coronavirus outbreak. However, the company expects revenues to be sequentially higher in the fourth quarter of 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 100% due to these changes.

VGM Scores

At this time, Ingersoll has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Ingersoll has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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