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Ingersoll Rand Reports Strong Second-Quarter 2017 Results

SWORDS, Ireland--(BUSINESS WIRE)--Ingersoll-Rand plc (NYSE:IR), a world leader in creating comfortable, sustainable and efficient environments, today reported diluted earnings per share (EPS) from continuing operations of $1.35 for the second quarter of 2017. The company reported net earnings of $359 million, or EPS of $1.38, for the second quarter of 2017. Excluding restructuring costs of ($0.01) and a discrete non-cash tax item of ($0.13), adjusted continuing EPS was $1.49.

“Financial and operational performance was again strong in the second quarter driven by focused execution of our business strategy”

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Second-Quarter 2017 Results
Financial Comparisons – Second-Quarter Continuing Operations
$, millions Q2 2017 Q2 2016** Y-O-Y Change

Organic Y-O-Y

Bookings $ 3,850 $ 3,745 3 % 4 %
Net Revenues $ 3,908 $ 3,688 6 % 7 %
Operating Income $ 558 $ 513 9 %
Operating Margin 14.3 % 13.9 % 0.4 PPts
Adjusted Operating Income* $ 563 $ 518 9 %
Adjusted Operating Margin 14.4 % 14.0 % 0.4 PPts
Continuing EPS $ 1.35 $ 2.88 -53 %
Adjusted Continuing EPS $ 1.49 $ 1.38 8 %
Restructuring Cost ($5.5 ) ($5.1 ) ($0.4 )

** Restated for adoption of ASU 2017-07. See tables in news release for additional information. 2Q 2016 results also included $398 million of net income, or EPS of $1.51, from the sale of the company’s remaining interest in Hussmann. The gain was recorded in Other Income.

“Financial and operational performance was again strong in the second quarter driven by focused execution of our business strategy,” said Michael W. Lamach, chairman and chief executive officer. “Growth in revenue in our Commercial and Residential HVAC businesses was again exceptional and our Industrial segment continued to make solid steady progress growing organic bookings at 5 percent and expanding operating margins. Our Transport business was down modestly, as anticipated. Overall, our performance was in-line with our internal expectations and gives us further confidence we are on track to deliver against our full-year 2017 EPS guidance and that we are continuing to build a stronger, more durable company over the long term.”

Highlights from the Second Quarter of 2017 (all comparisons against the second quarter of 2016 unless otherwise noted)

  • Enterprise revenue up 6 percent, organic revenue up 7 percent. North American organic revenue up 10 percent; international organic revenues flat year-over-year.
  • Operating margin up 40 basis points, adjusted operating margin up 40 basis points; improvement driven by increased price, volume and productivity.
  • Discrete non-cash tax item of ~($33) million, or EPS of ($0.13), to record a valuation allowance on deferred tax assets, primarily net operating loss carryforwards in Latin America, which remain available for future use when markets recover.

Second-Quarter Business Review (all comparisons against the second quarter of 2016 unless otherwise noted)

Climate Segment: delivers energy-efficient products and innovative energy services. The segment includes Trane® and American Standard® Heating & Air Conditioning which provide heating, ventilation and air conditioning (HVAC) systems, and commercial and residential building services, parts, support and controls; energy services and building automation through Trane Building Advantage™ and Nexia™; and Thermo King® transport temperature control solutions.

$, millions Q2 2017 Q2 2016** Y-O-Y Change

Organic Y-O-Y

Bookings $ 3,118 $ 3,037 3 % 3 %
Net Revenues $ 3,144 $ 2,935 7 % 8 %
Operating Income $ 527 $ 497 6 %
Operating Margin 16.8 % 16.9 % -0.1 PPts
Adjusted Operating Income $ 529 $ 498 6 %
Adjusted Operating Margin 16.8 % 16.9 % -0.1 PPts

** Restated for adoption of ASU 2017-07. See tables in news release for additional information.

  • Revenue up 7 percent, organic revenue up 8 percent. Bookings up 3 percent, organic bookings up 3 percent.
  • Operating margin declined slightly as revenue gains, productivity improvements and price increases were offset by inflation and currency.

Commercial HVAC

  • Reported and organic revenue up mid-single digits with gains in applied and unitary equipment, parts and service.
  • Regionally, high-single digit revenue growth in North America; Asia was up low-single digits and EMEA was up slightly.
  • Reported and organic bookings down low-single digits. High-single digit organic bookings increases in Asia and EMEA, Latin America down mid-single digits. North American bookings down mid-single digits primarily due to difficult comparisons that included a major contracting order in 2016. Excluding the 2016 contracting order, Q2 North American commercial HVAC orders were up mid-single digits.

Residential HVAC

  • Revenue and bookings up high-teens; significant improvement in operating margins.
  • Strategic investments and consistent execution continue to yield market share gains.

Transport Refrigeration

  • Reported revenues down low-single digits and organic revenues down slightly due to trailer market declines in the Americas and EMEA.
  • Bookings increased low-single digits due to strong orders for truck in Europe and North America and for auxiliary power units. North America trailer orders up low-single digits.

Industrial Segment: delivers products and services that enhance energy efficiency, productivity and operations. The segment includes compressed air and gas systems and services, power tools, material handling systems, ARO® fluid management equipment, as well as Club Car® golf, utility and consumer low-speed vehicles.

$, millions Q2 2017 Q2 2016** Y-O-Y Change

Organic Y-O-Y

Bookings $ 733 $ 708 3 % 5 %
Net Revenues $ 765 $ 753 1 % 2 %
Operating Income $ 92 $ 70 31 %
Operating Margin 12.1 % 9.3 % 2.8 PPts
Adjusted Operating Income $ 96 $ 75 27 %
Adjusted Operating Margin 12.5 % 10.0 % 2.5 PPts

** Restated for adoption of ASU 2017-07. See tables in news release for additional information. Q2 2016 also included a reclassification of new product development costs which were an $8 million, or 1.1%, negative impact on operating margins. Excluding reclassification, operating margin was 10.4%; adjusted margin was 11.1%.

  • The company continues to maintain focus on improving operating margins through driving mix to services, new product development and cost reductions.
  • Bookings up 3 percent and organic bookings up 5 percent. Revenue growth of 1 percent, organic revenue growth of 2 percent.
  • Regionally, revenue growth in North America was partially offset by declines in overseas markets.

Compression Technologies

  • Margin improvement from continued commercial focus and cost containment.
  • Bookings up mid-single digits in both aftermarket and equipment.
  • Equipment revenue down low-single digits. Aftermarket parts and services revenues up mid-single digits.

Industrial Products

  • Bookings were up mid-single digits; all the businesses had increased bookings.
  • Revenues up low-single digits.

Small Electric Vehicle (Club Car)

  • Bookings down low-single digits. Revenues up low-single digits with gains in consumer vehicles and aftermarket

Balance Sheet and Cash Flow

$, millions Q2 2017 Q2 2016** Y-O-Y Change
Cash From Operating Activities Y-T-D $ 406 $ 428 -$22
Free Cash Flow Y-T-D* $ 340 $ 356 -$16
Working Capital/Revenue* 5.1 % 5.6 % 50 bps improvement
Cash Balance 30 June $ 1,310 $ 929 $ 381
Debt Balance 30 June $ 4,066 $ 4,086 -$20

** Restated for adoption of ASU 2016-09.

  • The company repurchased $667 million or 7.9 million shares July year to date; $325 million or 3.8 million shares repurchased in the second quarter.
  • $65 million of channel expansion acquisitions July year to date.
  • Second-quarter cash flow from operating activities was $449 million.
  • Working capital to revenue ratio improved 50 basis points.

Company Raises Full-Year 2017 Revenue, EPS and Cash Flow Guidance

  • Revenues up ~4.5 percent; organic revenues up ~4.5 percent compared with 2016.
  • Continuing EPS of ~$4.22, including EPS of $(0.15) for restructuring and EPS of $(0.13) for the discrete non-cash tax item in Q2; adjusted continuing EPS of ~$4.50.
  • Average diluted shares of approximately 259 million including the $667 million year-to-date share repurchase.
  • Cash flow from operating activities ~$1.5 billion. Free cash flow ~$1.2 billion.

Unchanged Guidance Items

  • Adjusted effective tax rate* of approximately 21 percent to 22 percent.
  • Capital allocation: ~$1.9 billion; $1.5 billion between share buyback and bolt-on acquisitions and ~$410 million for dividends. Year to date the company has spent $667 million on share buybacks, $205 million on dividends and $65 million on acquisitions.

This news release includes “forward-looking statements,” which are statements that are not historical facts, including statements that relate to the mix of and demand for our products; performance of the markets in which we operate; our share repurchase program including the amount of shares to be repurchased and timing of such repurchases; our capital allocation strategy; our projected 2017 full-year financial performance and targets including assumptions regarding our effective tax rate. These forward-looking statements are based on our current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from our current expectations. Such factors include, but are not limited to, global economic conditions, the outcome of any litigation, demand for our products and services, and tax law changes. Additional factors that could cause such differences can be found in our Form 10-K for the year ended December 31, 2016, Form 10-Q for the quarter ended March 31, 2017, Form 10-Q for the quarter ended June 30, 2017 and other SEC filings. We assume no obligation to update these forward-looking statements.

This news release also includes non-GAAP financial information which should be considered supplemental to, not a substitute for, or superior to, the financial measure calculated in accordance with GAAP. The definitions of our non-GAAP financial information and reconciliation to GAAP is attached to this news release.

All amounts reported within the earnings release above related to net earnings (loss), earnings (loss) from continuing operations, earnings (loss) from discontinued operations, and per share amounts are attributed to Ingersoll Rand’s ordinary shareholders.

Ingersoll Rand (NYSE:IR) advances the quality of life by creating comfortable, sustainable and efficient environments. Our people and our family of brands — including Club Car®, Ingersoll Rand®, Thermo King® and Trane® — work together to enhance the...