January 18, 2022

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Why Is Ingersoll-Rand (IR) Down 2% Since Last Earnings Report?

It has been about a month since the last earnings report for Ingersoll-Rand (IR). Shares have lost about 2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ingersoll-Rand 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 Q4 Earnings & Revenues Lag, Bookings Dip

Ingersoll-Rand reported weaker-than-expected fourth-quarter 2019 results.

Adjusted earnings were $1.40 per share, missing the Zacks Consensus Estimate of $1.42. However, the bottom line grew 6.1% from the year-ago quarter figure of $1.32 on strong revenue growth.

In 2019, Ingersoll-Rand’s adjusted earnings were $6.37 per share, up 14% from $5.61 in 2018.

Segmental Performance Drives Revenues

Ingersoll-Rand’s net sales were $4,151 million in the fourth quarter, reflecting 7% growth from the year-ago quarter. Organic sales grew 5% year over year.

The company’s top line marginally missed the Zacks Consensus Estimate of $4,153 million.

Bookings in the quarter declined 4% year over year to $3,975 million.

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

Climate generated revenues of $3,183.7 million, accounting for roughly 76.7% of net revenues in the reported quarter. Sales grew 6.1% year over year on 7% growth in organic sales. Healthy growth in Commercial heating, ventilation and air conditioning business boosted organic sales.

The segment’s bookings fell 7% year over year (or down 6% organically) to $3,057 million.

Industrial’s revenues totaled $967.2 million, representing 23.3% of net revenues in the quarter. On a year-over-year basis, the segment’s revenues grew 8.2% on gains from solid demand for small electric vehicles, offset by continued weakness in the industrial short cycle markets. Organic revenues were down 2% in the quarter.

The segment’s bookings in the quarter grew 6% year over year (or down 4% organically) to $918 million.

Operating Margin

In the fourth quarter, Ingersoll-Rand’s cost of sales rose 5.8% year over year to $2,904.3 million. Cost of sales was 70% of the quarter’s net sales compared with 70.5% in the year-ago quarter. Selling & administrative expenses rose 16.7% to $821.2 million. It represented 19.8% of net sales in the reported quarter.

Adjusted operating profit grew 7.1% year over year to $501.6 million. Margin grew 10 bps to 12.1%.

Interest expenses rose 29.2% year over year to $63.3 million. Adjusted effective tax rate in the quarter was 20%.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Ingersoll-Rand had cash and cash equivalents of $1,303.6 million, up 44.3% from $903.4 million recorded as on Dec 31, 2018. Long-term debt was $4,922.9 million, up 31.6% on a year-over-year basis.

In 2019, the company generated net cash of $1,956.3 million from continuing operating activities, roughly 32.6% above the 2018 level. Capital expenditure totaled $254.1 million compared with $365.6 million in the previous year. Free cash flow rose 60% to $1,838.7 million.

During 2019, the company distributed $510.1 million as dividend payouts and repurchased shares worth $750.1 million.

Outlook

Earlier, Ingersoll-Rand had announced that its climate company will be known as Trane Technologies plc. This climate company will come into existence in early 2020 after Ingersoll-Rand completes the divestment of its Industrial segment to Gardner Denver Holdings.

For 2020, Ingersoll-Rand anticipates revenues to increase 3-5% year over year for Trane Technologies.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -10.56% due to these changes.

VGM Scores

At this time, Ingersoll-Rand has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, 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.

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