- Third-quarter adjusted earnings per share (EPS) excluding restructuring and acquisition-related inventory step-up costs was above previous guidance range at $1.21, up 10 percent compared with 2014
- Revenues were $3.5 billion in the third quarter. Organic revenues (excluding acquisitions and currency) were up 6 percent compared with 2014
- Record Q3 adjusted operating margin of 14.0 percent excluding restructuring; 1.0 percentage point adjusted operating margin improvement
- Full-year 2015 adjusted EPS from continuing operations forecast, excluding restructuring and other one-time costs, updated to $3.69 to $3.74; GAAP EPS from continuing operations forecast of $2.57 to $2.62
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 $1.17 for the third quarter of 2015.
The company reported net earnings of $300.9 million, or EPS of $1.12, for the third quarter of 2015. Third-quarter net earnings included $312.9 million, or EPS of $1.17, from continuing operations, as well as a net loss of $(12.0) million, or EPS of $(0.05), from discontinued operations. Results for the third quarter of 2015 also included charges of $11.8 million or EPS of $(0.04) from restructuring and acquisition- related inventory step-up costs. Excluding the Q3 2015 charges, 2015 adjusted EPS from continuing operations was $1.21. This compares with net earnings from continuing operations of $298.3 million, or EPS of $1.10, for the third quarter of 2014. Third-quarter 2014 net earnings were $291.3 million, or EPS of $1.07, including a net loss of $(7.0) million, or EPS of $(0.03), from discontinued operations (see attached tables for additional details).
“We exceeded our EPS forecast, improved operating performance and delivered profitable growth in the third quarter through a series of actions that offset expected headwinds in the global economic environment, particularly in Asia and Latin America,” said Michael W. Lamach, chairman and chief executive officer. “While we expect continuing challenges from slow industrial markets for the remainder of the year, we will continue to grow revenue, earnings and cash flow as well as increase productivity, particularly in our businesses where we see market weakness. ’’
Additional Highlights from the 2015 Third Quarter
Revenues: The company’s reported revenues increased 3 percent to $3,487 million, compared with revenues of $3,385 million for the 2014 third quarter. Revenues, excluding acquisitions and currency, increased 6 percent compared with last year. U.S. revenues were up 9 percent excluding acquisitions compared with 2014 and revenues from international operations decreased 7 percent (up 1 percent, excluding currency and acquisitions).
Operating Margin: Adjusted for restructuring and acquisition-related inventory step-up costs, the operating margin for the third quarter of 2015 was 14.0 percent, compared with the adjusted operating margin for the third quarter of 2014 of 13.0 percent (see attached tables for additional details). The 1.0 percentage point year-over-year adjusted margin increase was due to volume, price and gains from productivity initiatives offset by non-material inflation, negative currency, an increase in investment spending and the impact of the initial year of results from the Engineered Centrifugal Compression acquisition. The third-quarter reported operating margin was 13.6 percent, compared with 13.0 percent in 2014.
Interest Expense and Other Income/Expense: Interest expense was $55.8 million for the third quarter of 2015, compared with $52.3 million in the same period last year due to higher average debt balances. Other income totaled $12.2 million for the third quarter of 2015, compared with $9.6 million of income for the 2014 third quarter, primarily due to higher foreign exchange gains.
Taxes: The company had an adjusted effective tax rate of 25.9 percent in the third quarter of 2015. The effective adjusted rate for the third quarter of 2014 was 23.8 percent.
Third-Quarter Business Review
The Climate Segment delivers energy-efficient solutions globally and includes Trane® and American Standard® Heating and Air Conditioning, which provides heating, ventilation and air conditioning (HVAC) systems and commercial and residential building services, parts, support and controls; and Thermo King®, the leader in transport temperature control solutions. Revenues for the third quarter of 2015 were $2,758 million and increased 4 percent (up 8 percent ex-currency) compared with the third quarter of 2014. Bookings decreased 1 percent (up 3 percent ex-currency) year- over-year primarily due to difficult comparisons with record level 2014 bookings in North American transport and negative currency comparisons.
On a year-over-year basis, total HVAC revenues increased by a mid-single digit percentage and were up by an upper-single digit percentage excluding the impact of currency. Commercial HVAC revenues increased by a low-single digit percentage, with gains in North America and Europe partially offset by declines in Asia and Latin America. Excluding currency, Commercial HVAC revenues in North America increased by a mid-single digit percentage in the quarter compared with last year and increased by a high-teens percentage in Europe and the Middle East. HVAC revenues excluding currency, increased by an upper-single digit percentage in Latin America and revenues in Asia were flat in the third quarter compared with last year. In Residential HVAC, revenues were up low-teens due to positive market growth and restocking by independent distributors.
Third-quarter 2015 Commercial HVAC bookings were down slightly as gains in North America were offset by declining orders in overseas markets. Third-quarter orders, excluding currency, increased by a mid-single digit percentage compared with last year.
Total Thermo King refrigerated transport revenues increased by a mid-single digit percentage (low-teens percentage ex-currency) in the third quarter compared with last year due to low-teens organic growth in both North America and Europe. Bookings declined in the third quarter of 2015 primarily due to difficult comparisons with record prior year orders in North America and the impact of currency on overseas orders.
Third-quarter 2015 segment operating margin was 15.5 percent (15.8 percent adjusted operating margin), compared with 14.3 percent last year. The year-over-year margin improvement was due to higher volumes and productivity, partially offset by inflation, negative currency and higher investment spending.
The Industrial Segment delivers products and services that enhance energy efficiency, productivity and operations. It includes Ingersoll Rand® compressed air systems and services, power tools and material handling systems, ARO® fluid management equipment, as well as Club Car® golf, utility and rough terrain vehicles. Total revenues in the third quarter of $729 million declined 2 percent compared with the third quarter of 2014. Organic revenues also decreased approximately 2 percent and organic bookings declined by 4 percent compared with last year.
Revenues for air compressors and industrial products decreased by a low- single digit percentage compared with the third quarter of 2014 as gains in North America air compressors, primarily due to an acquisition, were offset by negative comparisons in overseas markets. Organic revenues and bookings both declined by a mid-single digit percentage compared with last year. Third-quarter parts and service organic revenues increased by a mid-single digit percentage.
Club Car revenues increased by a mid-single digit percentage (increased high- single digits ex-currency) compared with the third quarter of 2014, from increased sales of golf cars and utility vehicles.
Third-quarter segment operating margin for Industrial was 13.9 percent (14.4 percent adjusted operating margin) compared with 14.7 percent (14.8 percent adjusted operating margin) last year. The decline in operating margin was due to lower volumes, the first-year inclusion of the Engineered Centrifugal Compression acquisition related amortization costs, negative currency, and inflation, partially offset by productivity and price.
At the end of the third quarter, cash balances and total debt balances were $652 million and $4.6 billion, respectively. Working capital was 5.4 percent of revenues, compared with 4.0 percent in 2014.
Based on a forecast of slow-to-moderate growth in worldwide construction and retrofit markets, and softer industrial markets for the remainder of the year, the company expects fourth-quarter 2015 organic revenues, which exclude currency and acquisitions, to increase in the range of 2 to 3 percent compared with 2014, and reported revenues are also expected to be up 2 to 3 percent. Adjusted EPS from continuing operations for the fourth quarter of 2015 are expected to be in the range of $0.90 to $0.95, with reported EPS of $0.87 to $0.92. Restructuring expenses in the fourth quarter are expected to approximate $0.02 per share. The fourth-quarter forecast reflects a tax rate of approximately 24 percent for continuing operations and an average diluted share count of approximately 266 million shares.
Organic revenues for the full-year 2015 are expected to increase in the range of 4 to 5 percent. Full-year reported revenues are expected to increase by approximately 3 percent compared with 2014. Full-year adjusted EPS from continuing operations are expected to be in the range of $3.69 to $3.74, with full-year reported continuing EPS expected to be $2.57 to $2.62. Restructuring expenses are expected to approximate $0.06 per share. The forecast includes a tax rate of 25 percent for continuing operations and an average diluted share count for the full year of approximately 268 million shares. Free cash flow for full-year 2015 is expected to approximate $950 million before the $375 million net tax payment associated with the IRS agreement announced in the second quarter, and the impact of restructuring.
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 projected 2015 fourth-quarter and full-year financial performance, the resolution of tax disputes previously described in the company’s periodic filings, the financial impact of such resolution and expectations related to cash outflows related to the resolution, and 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, demand for our products and services, the impact of currency 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, 2014, our Form 10-Q for the quarters ended March 31, 2015, and June 30, 2015, and other SEC filings. We assume no obligation to update these forward-looking statements.
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