Ingersoll-Rand plc (Ireland) (IR)

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Ingersoll-Rand Plc (IR)

Q1 2011 Earnings Call

April 21, 2011 10:00 am ET


Janet Pfeffer - Vice President of Business Development and Investor Relations

Michael Lamach - Chairman, Chief Executive Officer and President

Steven Shawley - Chief Financial Officer and Senior Vice President


Joshua Pokrzywinski - MKM Partners LLC

Jeffrey Hammond - KeyBanc Capital Markets Inc.

Andrew Casey - Wells Fargo Securities, LLC

Eli Lustgarten - Longbow Research LLC

Steven Winoker - Sanford C. Bernstein & Co., Inc.

Robert McCarthy - Robert W. Baird & Co. Incorporated

Michael Wherley - Janney Montgomery Scott LLC

Julian Mitchell

Andrew Obin - BofA Merrill Lynch

Deane Dray - Citigroup Inc

Mark Koznarek - Cleveland Research Company



Good day, everyone, and welcome to the Ingersoll-Rand First Quarter 2011 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Ms. Janet Pfeffer, Vice President, Investor Relations and Business Development. Please go ahead, ma'am.

Janet Pfeffer

Thank you, Christie. Good morning, everyone. Welcome to Ingersoll-Rand's First Quarter 2011 Conference Call. 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 will be using this morning. This call will be recorded and archived on our website and will be available tomorrow morning.

Our release this morning included the announcement of our intention to divest the Hussmann North American Stationary Refrigeration Equipment business as well as the Service, Equipment and Installation businesses in Mexico, Australia and New Zealand. Therefore, the results of operations intended to be divested have been reclassified to discontinued operations for the first quarter 2011 and all prior periods presented. Earnings referred to in this call, unless specifically stated, will mean earnings from the continuing operations of the company.

If you would please go to Slide 2. I'd like to remind you that statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor Provisions and Federal Securities laws. Actual results may differ. Please see our SEC filings for a description of some of the factors that may cause actual results to vary from anticipated. In addition, please refer to Slide 18, which covers the use of non-GAAP measures to describe the company's performance.

Now I'd like to introduce the participants on this morning call. We have Mike Lamach, Chairman, President and CEO; Steve Shawley, Senior Vice President and CFO; and Joe Fimbianti, Director of Investor Relations.

With that, please go to Slide #3, and I'll turn it over to Mike.

Michael Lamach

Thanks, Janet. Good morning, and thank you for joining us on today's call. In the first quarter, we continued our focus on driving top-tier operational performance and delivered strong revenue growth of 13%. We expanded margins 240 basis points and more than doubled earnings per share.

First quarter earnings from continuing operations was $0.35 per share at the top of our first quarter earnings guidance range. For the quarter, revenues were $3.1 billion, up 13% versus prior year, 12%, excluding currency. During the quarter, we continue to see strong bookings, as most of our businesses are showing solid growth. For the company, orders were up 12% and 11%, excluding currency. Order rates improved in each of our segments except for Commercial Security, which was down slightly due to timing of projects -- orders in China. Our backlog also increased by 7%.

Operating margin for the quarter was 7.4%, up 240 basis points, primarily driven by volume and productivity. In early April, our Board approved a 71% increase in our dividend and a $2 billion share repurchase program. These are both indications of our progress and strengthening our financial position, which has enabled us to move from a singular focus on debt reduction over the past three years to a more balanced capital allocation strategy.

Please go to Slide 4. This morning, we announced our intention to divest the Hussmann North American Stationary Refrigeration Equipment business as well as the Equipment, Service and Installation businesses in Mexico, Australia and New Zealand, which total about $800 million in revenue.

During the past several months, we have conducted a comprehensive study of the business and ultimately concluded that although the business has substantial margin expansion potential, it was in the best interest of Hussmann and Ingersoll-Rand to look at strategic alternatives for Hussmann. We implemented a rigorous and thorough review process, which in the end came down to a prioritization of our investments.

We're in discussions with several parties and expect to close the sale in the third quarter. We expect the reclassification of the business to discontinued operations to impact our previous guidance for full year continuing earnings per share guidance negatively by $0.10 to $0.12. That amount includes the impact of actions we are planning to take once we close the transaction to offset or recover our stranded costs. I'll address this further when I cover full year guidance in a few minutes.

Understand that we won't know the exact numbers until a definitive agreement is signed and we close. What we're reflecting today is our best estimate as of now. Given that we are heavily engaged in the disposition process, we're not going to be able to comment or answer questions today regarding items such as expected proceeds, participants in the process or specific timing. Upon closing, proceeds will be used to accelerate our share repurchase program.

Please go to Slide 5. This slide gives a summary of our quarterly order rates for the past five quarters. Orders for the first quarter 2011 were up 12% overall, 11% excluding currency. All sectors, except for Commercial Security, saw year-over-year gains. We had especially strong gains in the Industrial, Air and Productivity and Transport Refrigeration and solid gains in Commercial HVAC Equipment and Services.

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