Ingersoll-Rand plc (Ireland) (IR)

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Ingersoll-Rand plc (IR)

Q3 2012 Earnings Conference Call

October 19, 2012 10:30 AM ET


Michael W. Lamach - Chairman, CEO and President

Steven R. Shawley - CFO and SVP

Janet Pfeffer - VP, Business Development & Investor Relations


Nigel Coe - Morgan Stanley

Michael Wherley - Janney Capital Markets

Jeffrey Sprague - Vertical Research Partners Inc.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

Deane Dray - Citigroup Global Markets Inc.

Steven Winoker - Sanford Bernstein

Joshua Pokrzywinski - MKM Partners

Andrew Obin - Bank of America-Merrill Lynch

Julian Mitchell - Credit Suisse

Jamie Sullivan - RBC Capital Markets



Good day, ladies and gentlemen, and welcome to the Ingersoll-Rand Third Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, today’s conference is being recorded for replay purposes.

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

Janet Pfeffer

Thank you, Mary. Good morning, everyone. Welcome to Ingersoll-Rand third quarter 2012 conference call. We released earnings this morning at 7 a.m. and the release is posted on our website. We will be broadcasting, in addition to this call, through our website at, and that is where you will also find the slide presentation that we will be using this morning.

If you would please go to slide two. 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 of Securities Law. Please see our SEC filings for a description of some of those factors that may cause actual results to vary materially from anticipated. This release also includes non-GAAP measures, which are explained in the financial tables attached to our news release.

Now I’d like to go ahead and introduce the participants on this morning’s call. Michael Lamach, Chairman and CEO; Steve Shawley, Senior Vice President and CFO; and Joe Fimbianti, Director of Investor Relations.

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

Michael W. Lamach

Thanks, Janet. Good morning and thank you for joining us on today’s call. Earnings per share from continuing operations for the third quarter were $1.07. That’s $0.09 better than the midpoint of our guidance range from July. About half the beat came from operations and the remainder was from other income. Versus our prior guidance, revenues were slightly below the low end of our revenue guidance range.

We are pleased with our ability to navigate a challenging market environment and to deliver above our earnings commitment with solid operational execution in all the businesses. Margin increased to 110 basis points despite a slight year-over-year decline in revenues on a reported basis. Versus last years third quarter, operating margins were up in each of the sectors.

Markets were somewhat softer, somewhat lower our outlook, particularly in China, which continues to show slower than expected growth. We also saw a slowing in international industrial markets.

Foreign exchange negatively impacted revenues by 2%. Revenues including foreign exchange were up 1%; excluding FX we saw a moderate growth in revenues in industrial and single-digit declines in Climate and Security. Residential revenues were up 11% year-over-year. Excluding Hussmann, orders were down 1%, but up 2% excluding currency.

Operating margin for the quarter was 12.5%, up 110 basis points versus prior-year. Margins improved for pricing and productivity, partially offset by unfavorable mix, currency and investment spending year-over-year. Steve will give you more details in a few minutes, but to highlight a few areas residential delivered 430 basis points of margin improvement and gain share on the quarter.

Industrial improved margins are 140 basis points and 1% revenue growth. Climate increased margins a 100 basis points on a comparable basis in the face of a challenging mix between Trane and Thermo King. And finally Security delivered 20 basis points of margin improvement despite continuing soft markets.

All businesses continue to realize positive pricing, and in the third quarter our price realization outpaced direct material inflation for the sixth consecutive quarter. Our focus on operational excellence and innovation delivered excellent results in the quarter, and enabled us to effectively navigate global market conditions.

I’m very encouraged by execution performance in the face of generally slowing market conditions, which we expect to continue to present challenges in the last quarter of the year.

Now Steve will take you through the quarterly results in more detail.

Steven R. Shawley

Thanks, Mike. Please go to slide number 4. Orders for the third quarter 2012 were down 1% overall and up 2% excluding currency. Global commercial HVAC bookings were up slightly. Transport orders were flat with double-digit increase in North America offset by soft European truck and trailer orders and lower marine demand. Industrial orders excluding currency were up 2% with order growth in the Americas and Club Car, partially offset by weakness in euro.

Residential bookings were down 1%. Commercial Security orders in the quarter were down 3% excluding currency, mainly impacted by the timing of large project orders in Asia as well as slower activity in Europe.

Please go to slide 5. Here is a look at the revenue trends by segment and region. Note that the Climate information on this slide excludes Hussmann from the comparisons. The top half of the chart shows the third quarter revenue change for each sector. For the total company third quarter revenues excluding Hussmann were down 1% on a reported basis versus last year and were up 1% excluding currency.

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