Ingersoll-Rand plc (Ireland) (IR)

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Ingersoll-Rand Plc. (IR)

Q4 2012 Earnings Conference Call

February 1, 2013; 10:00 a.m. ET


Mike Lamach - Chairman & Chief Executive Officer

Steve Shawley - Senior Vice-President & Chief Financial Officer

Joe Fimbianti - Director of Investor Relations

Janet Pfeffer - Vice President, Business Development & Investor Relations


Jeff Sprague - Vertical Research Partners

Shannon O’Callaghan - Nomura

Jamie Sullivan - RBC Capital Markets

Stephen Volkmann - Jefferies

Josh Pokrzywinski - MKM Partners

Jeff Hammond - KeyBanc Capital Markets

Julian Mitchell - Credit Suisse

Deane Dray - Citi Research

Steven Winoker - Sanford Bernstein

Steve Tusa - JPMorgan



Good day ladies and gentlemen and welcome to the Ingersoll-Rand, fourth quarter 2012 earnings conference call. At this time all participants are in a listen-only mode. Later we’ll have a question-and-answer session and instructions will follow at that time. (Operator Instructions).

I would now like to turn the conference over to your host for today, Ms. Janet Pfeffer, Vice President, Business Development and Investor Relations. Ma’am, you may begin.

Janet Pfeffer

Thank you Mary. Good morning everyone. We released earnings at 7:00 a.m. this morning and the release is posted on our website. We’ll be broadcasting in addition to this phone call through our website at, where you will find the slide presentation that we’ll be using. This call will be recorded and archived on our website.

If you’d please go to slide two, our forward-looking statements made on today’s call that are not historical facts are considered forward-looking and are made pursuant to the Safe Harbor provisions of Federal Securities law. Please see our SEC filings for a description of some of the factors that may cause actual results to vary from anticipated results.

This release also contains non-GAAP measures, which are explained in the financial tables attached to this morning’s release.

Now, I’d like to introduce the participants in today’s call. We have Mike Lamach, Chairman and CEO; Steve Shawley, Senior Vice-President and CFO; and Joe Fimbianti, Director of Investor Relations.

With that, please go to slide three, and I’ll turn it over to Mike.

Mike Lamach

Thanks Janet. Good morning and thanks for joining us on today’s call. Today we’ll cover three broad areas. First, we’ll take a look back on the full year 2012. Second, we’ll look at of course fourth quarter 2012 results; and finally we’ll conclude by looking at 2013’s outlook and guidance.

Given the impending security spend, we’ll be delaying the analyst meeting that we traditionally have hosted in March until later in the year, closer to the effective date of the spend. The analyst meeting is usually where we would step back a little from quarterly results and look at our progress over time and plans for the future, and since that won’t occur for several months, I’ll spend a few extra minutes this morning recapping our full-year 2012 and our progress on the transformation that we began in the company a few years ago.

Steve will then take you through fourth-quarter results and I’ll end with our outlook we have for 2013. So again, we’ll spend just a few more minutes this morning than we normally do. I don’t want anybody to get nervous. We’ll obviously have a lot of time for questions towards the end.

Let me start with full year 2012. In a macro environment of low revenue growth, our revenues for the year were up 1%. We increased adjusted earnings per share 23%, and grew operating margins 30 basis points in the face of some very challenging mix.

Our pricing excellence program delivered price realization, significantly over direct material inflation. Our lien focus continued to show significant results in the implemented value streams, and we continue to invest in the future of the business, funding significant new product developments and building our services footprint further.

Revenues from products launched in the last three years were about a quarter of our total revenue. We also invested in common systems, and we will have the first go-lives this year. As you recall, the program will continue through 2016.

Our capital allocation strategy has been consistent and shareholder focused. We continue to increase our dividends with the announcement of additional 31% of an increase in December. The 2013 dividend will exceed now the 2008 peak by 17%.

In 2011 and ‘12 we repurchased 55 million shares for $2 billion. In 2012 we repurchased 840 million in shares, and in December announced a new $2 billion repurchase authorization that will be used by the first quarter of 2014. Finally, we concluded a significant strategic review with our board, and in December announced the plan to spin off of our security business, which will occur late this year.

Please go to slide four. As I’ve talked about before, we started on a journey in 2010 to increase the operating capability of the company. We focused these efforts in two broad areas, innovation and operational excellence. In the area of innovation we’ve almost doubled the proportion of our revenues from new products, which we measure as a percentage of total revenues delivered by new products introduced in the last three years.

The new offerings have been in every sector of the business, from air compressors to unitary HVAC, to electronic locks, to new service offerings. Through new processes, talents and investments, we have increased our capability and results in areas like intellectual property development and protection, speed to market, margin improvement, and market share growth.

In 2012, intellectual property disclosures were up 270% and patent filings were up 75% over the prior year. We are by no means done. We’ll continue to invest in innovation and are focusing on multiple growth platforms identified during our planning process.

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