01—Abstract
Summary
Summary of the 10-K filed February 12, 2016. Cited figures are marked; the original filing is the authoritative source.
Ingersoll-Rand plc (NYSE: IR, the filing is under the Trane Technologies ticker TT in the request, but the document itself is Ingersoll-Rand's FY2015 10-K filed February 12, 2016) reported 2015 net revenues of $13.30 billiona, up 3.2% year over year, driven by 4.5% volume/mix and 2.4% acquisitions, partly offset by a 3.9% currency headwind.
Operating income rose 3.8% to $1.458 billionb, and operating margin edged up to 11.0% from 10.9%. Net earnings attributable to the company fell sharply to $664.6 million from $931.7 million, and diluted EPS from continuing operations dropped to $2.57 from $3.27. The decline was driven mainly by a roughly $227 million tax charge to settle the IRS dispute over intercompany debt for 2002-2011, which pushed the effective tax rate to 43.3% from 24.3%.
Segment results were mixed. Climate (about 77% of revenue) grew 3.5% to $10.2 billionc with segment margin up to 12.7%, supported by higher volumes in commercial and residential HVAC and Thermo King. Industrial grew 2.1% to $3.1 billion, helped by the roughly $850 million Engineered Centrifugal Compression acquisition from Cameron, but its segment margin fell to 12.1% from 14.7% due to acquisition step-up amortization, weak industrial markets, and currency.
Cash flow from continuing operations was $886 milliond, down from $992 million, reflecting the IRS payment of about $364 million net. Capital returns remained significant: dividends were raised 10% to $0.32 per quarter for 2016, and the company repurchased $250 million of shares in 2015 with about $417 million left on its authorization. Total debt was $4.24 billion, the debt-to-capital ratio rose to 41.9%, and cash fell to $737 million.
For investors, the key points are steady organic HVAC and transport demand, margin improvement in Climate, and a recurring-revenue strategy built on parts, service, and rentals. Offsetting these are currency pressure from a stronger dollar, weakness in industrial end markets, the lingering tax exposure from the Allegion spin-off and Irish reorganization, and asbestos liabilities of about $714 million, which are partly offset by insurance receivables of about $316 million. Management expects moderate construction growth and flat to slow industrial growth in 2016, and it plans to sell its remaining Hussmann stake for about $425 million in the first half of 2016.
02—Key points
Key Highlights
- Net revenues rose 3.2% to $13.30 billion in 2015, with volume/mix up 4.5% and acquisitions adding 2.4%, partly offset by a 3.9% currency headwind.
- Operating income increased 3.8% to $1.458 billion, and operating margin improved to 11.0% from 10.9%.
- Net earnings attributable to Ingersoll-Rand fell 29% to $664.6 million, primarily because of a roughly $227 million charge to settle IRS intercompany debt disputes, which lifted the effective tax rate to 43.3%.
- Climate segment revenue grew 3.5% to $10.2 billion, and its segment margin rose to 12.7%; Industrial revenue grew 2.1% to $3.1 billion, but its margin fell to 12.1% from 14.7%.
- Operating cash flow from continuing operations declined to $886 million from $992 million, reflecting the approximately $364 million net IRS cash outflow.
- The quarterly dividend was raised 10% to $0.32 per share starting March 2016, and about $417 million remains on the $1.5 billion share repurchase authorization after $250 million of 2016 repurchases to date.
- Pending sale of the remaining Hussmann equity stake to Panasonic for about $425 million, expected to close in the first half of 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Trane Technologies kept $0.05.
- Revenue$13.30B100.0%
- Cost of revenue−$9.28B69.8%
- Gross profit$4.02B30.2%
- Operating costs−$2.53B19.0%
- Operating income$1.49B11.2%
- Interest, other & tax−$827.1M6.2%
- Net income$664.6M5.0%
Where FY2015 revenue went
$13.30B- Cost of revenue: $9.28B, 70% of revenue
- SG&A: $2.53B, 19% of revenue
- Net income: $664.6M, 5.0% of revenue
- R&D: $205.9M, 1.5% of revenue
- Interest, other & tax: $827.1M, 6.2% of revenue
Kept 5.0% as net incomeNet income $664.6M · 5.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 12, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $13.30B$12.89B | +3.2% |
| Cost of Revenue | $9.28B$8.98B | +3.3% |
| Gross Profit | $4.02B$3.91B | +2.9% |
| R&D Expenses | $205.90M$212.30M | −3.0% |
| SG&A Expenses | $2.53B$2.50B | +1.1% |
| Operating Income | $1.49B$1.40B | +6.2% |
| Interest Expense | $223.00M$225.30M | −1.0% |
| Net Income | $664.60M$931.70M | −28.7% |
| EPS (Basic) | $2.51$3.44 | −27.0% |
| EPS (Diluted) | $2.48$3.40 | −27.1% |
| Shares Outstanding (Basic) | 265.10M270.50M | −2.0% |
| Shares Outstanding (Diluted) | 267.80M274.30M | −2.4% |
05—Questions
Frequently Asked Questions
Why did net earnings fall so sharply in 2015 despite higher revenue and operating income?
The main driver was a tax charge of about $227 million recorded to settle the IRS dispute over intercompany debt and distributions for 2002-2011. This pushed the effective tax rate to 43.3% from 24.3% in 2014. Net earnings attributable to Ingersoll-Rand fell to $664.6 million from $931.7 million, and diluted EPS from continuing operations fell to $2.57 from $3.27.
How healthy is the company's balance sheet and liquidity?
Total debt was $4.24 billion at year-end 2015, and the debt-to-total-capital ratio rose to 41.9% from 41.1%. Cash fell to $737 million from $1.7 billion, largely due to acquisitions and share repurchases. The company has $2.0 billion of committed revolving credit facilities, which are undrawn and support its $2 billion commercial paper program. Credit ratings are Baa2/BBB, and the public debt has no financial covenants.
What is driving growth and margin performance across the segments?
Climate, which makes up about 77% of revenue, grew 3.5% on higher volumes in commercial and residential HVAC and Thermo King, and its margin rose to 12.7% from productivity gains and favorable mix. Industrial grew 2.1%, mainly from the Cameron centrifugal compression acquisition, but organic volume fell and its margin dropped to 12.1% from 14.7%, reflecting acquisition amortization and weak industrial markets.
What key risks should investors watch?
Key risks include the ongoing asbestos liability of about $714 million, partly offset by insurance receivables of about $316 million; currency exposure, since about 38% of revenue is generated outside the U.S. and the Euro and Chinese Yuan are the largest exposures; tax exposure tied to the 2013 Allegion spin-off and the Irish reorganization; commodity cost volatility in steel and copper; and weak construction and industrial demand. The company also carries $5.7 billion of goodwill and $2.7 billion of indefinite-lived intangibles, so impairment is a risk if conditions deteriorate.
What are management's capital allocation priorities for 2016?
Management raised the quarterly dividend 10% to $0.32 per share and expects available cash flow, committed credit lines, and capital market access to fund the higher dividend and continued share repurchases. Capital expenditures are planned at about $244 million in 2016. Management also expects to receive about $425 million in net proceeds from the Hussmann stake sale in the first half of 2016.
06—Continue