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

Ingersoll-Rand plc (NYSE: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