Why Is Ingersoll (IR) Down 3.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Ingersoll Rand (IR). Shares have lost about 3.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Ingersoll due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Ingersoll Rand Tops Q1 Earnings Estimates, Raises View
Ingersoll reported better-than-expected results for first-quarter 2021. Its earnings surpassed estimates by 25%, whereas sales beat the same by 4.22%.
It is worth mentioning here that the company came into existence when Gardner Denver Holdings, Inc. acquired the Industrial segment of Ingersoll-Rand plc in February 2020. It is a global industrial company, with expertise in mission-critical flow creation and industrial technologies. For comparison purposes, the company provided supplemental data, assuming the above-mentioned transaction was complete in January 2018.
Its adjusted earnings in the quarter under review were 45 cents per share, reflecting growth of 104.5% from the supplemental number of 22 cents in the year-ago quarter. The bottom line gained from revenue growth and margin expansion. Further, the bottom line surpassed the Zacks Consensus Estimate of 36 cents.
Revenue Details
Ingersoll Rand’s revenues of $1,369.8 million in the first quarter reflected growth of 17% from the year-ago quarter’s supplemental number. Organic sales in the quarter expanded 11.6% year over year, while acquisition had a positive 1.4% impact. Also, movements in foreign currencies had a positive impact of 4%.
Also, the company’s revenues surpassed the Zacks Consensus Estimate of $1,314 million.
Orders in the quarter totaled $1,705 million, increasing 29% from the year-ago quarter’s supplemental number.
It is worth noting here that Ingersoll Rand completed the divestment of a majority stake in its High Pressure Solutions business on Apr 1, 2021. The other party to the transaction was American Industrial Partners. The HPS business has been classified as discontinued operations beginning the first quarter of 2021.
The company now reports revenues under three segments. A brief discussion of the quarterly results is provided below:
Industrial Technologies & Services generated revenues of $913.8 million, accounting for 66.7% of net revenues in the reported quarter. Sales increased 14.8% year over year on 8.9% growth in organic sales. Movements in foreign currencies had a positive impact of 4.2% and acquisitions contributed 1.7%. The segment’s orders in the quarter grew 17.2%.
Precision & Science Technologies’ revenues totaled $215.7 million, representing 15.7% of net revenues in the first quarter. On a year-over-year basis, the segment’s revenues increased 12.2%. Organic sales grew 6.7%, while movements in foreign currencies contributed 4.4%. Also, acquisitions had a positive impact of 1.1%. The segment’s orders were up 18.3%.
The Specialty Vehicle Technologies generated revenues of $240.3 million, accounting for 17.6% of net revenues in the reported quarter. Sales increased 29.6% year over year on a 28.7% hike in organic sales and a 0.9% benefit from foreign currency movements. The segment’s orders in the quarter increased 89.8%.
Margin Profile
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter increased 57.5% year over year to $293 million. Also, margins increased 550 basis points (bps) to 21.4%.
On a segmental basis, supplemental adjusted EBITDA margin increased 610 bps year over year to 23.1% for Industrial Technologies & Services and jumped 350 bps to 31.2% for Precision & Science Technologies. Also, margin for the Specialty Vehicle Technologies segment grew 1,020 bps to 20.1%.
Balance Sheet & Cash Flow
Exiting the first quarter of 2021, Ingersoll Rand had cash and cash equivalents of $1,639.6 million, down 6.4% from $1,750.9 million recorded in the last reported quarter. Long-term debt decreased 0.9% sequentially to $3,823.2 million.
The company’s liquidity of $2.6 billion at the end of the first quarter of 2021 comprised cash of $1.64 billion and credit under revolving facilities of $995 million.
In the first quarter, it generated net cash of $122.6 million from operating activities, increasing from $38 million generated in the year-ago quarter. Capital expenditure totaled $15 million versus $7.6 million in the previous year’s comparable quarter. Free cash flow rose 253.9% to $107.6 million.
Outlook
Ingersoll Rand hiked its projections for 2021. It now anticipates revenue growth in low-double digits (on a year-over-year basis) for the year. The projection, excluding sales contribution from the Specialty Vehicle Technologies segment, represents an improvement from high-single to low-double-digit sales growth mentioned earlier.
Notably, revenues are predicted to increase in mid-teens in the first half of 2021 and high-single digits in the second half of the year. Foreign currency translation is anticipated to boost sales by low-single digits for the year, including a mid-single-digit range for the first half and a low-single-digit range for the second half.
Adjusted EBITDA is anticipated to be $1.12-$1.15 billion for the year. The projection, excluding $150-$160 million contribution from the Specialty Vehicle Technologies segment, reflects improvement from $1.23-$1.26 billion mentioned earlier.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -100% due to these changes.
VGM Scores
At this time, Ingersoll has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Ingersoll has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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