The shares of industrial products maker Ingersoll-Rand (NYSE: IR) rose just under 14% in April, according to data provided by S&P Global Market Intelligence. Most of that gain came in the last days of the month following the company's earnings release and, on the same day, news that it was making some big changes to its business.
On April 30, Ingersoll-Rand announced continuing earnings of $0.82 per share -- up 61% year over year. Revenues advanced 6%, with operating margins improving by 170 basis points. Management also raised its guidance for full-year earnings. It was a pretty good quarter, but it wasn't really what investors were so excited about. The strong results simply provided a solid foundation for the other big news drop of the day.
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Just before Ingersoll-Rand reported earnings, there were rumors that it would acquire Gardner Denver Holdings (NYSE: GDI). On the same day it reported earnings, Ingersoll-Rand confirmed that the rumors were true, sort of. Ingersoll-Rand will spin off a portion of its business to shareholders and then merge that operation with Gardner Denver, a provider of compressors, blowers, and vacuum pumps. That new company will be a diversified industrial business and take the Ingersoll-Rand name. The remaining businesses, focused in the climate control space for the residential, industrial, and transportation sectors, will continue on their own under a new name
Effectively, Ingersoll-Rand is both acquiring Gardner Denver and splitting up its business. Investors clearly cheered the move, which will allow the company to bulk up in key areas and focus on others. Industrial conglomerates linking up and then breaking up to increase their focus is a market trend, with giant DowDuPont providing perhaps the best example.
While investors are clearly pleased with the news out of Ingersoll-Rand, there is a lot of work to be done before anything happens here. Note, too, that splitting a business up is a complicated effort -- and so is consummating an acquisition. More conservative types should probably stay on the sidelines of what is now something of a special-situations play. The time to take a second look will be when the dust settles on the split and merger.
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