01—Abstract
Summary
Summary of the 10-K filed February 12, 2018. Cited figures are marked; the original filing is the authoritative source.
Ingersoll-Rand plc, now Trane Technologies plc, reported 2017 net revenues of $14.20 billiona, up from $13.51 billion in 2016, with growth driven mainly by higher volumes in both the Climate and Industrial segments.
Operating income was $1.67 billionb, or an 11.7% margin, compared with $1.60 billion and 11.9% in 2016. Net earnings attributable to Ingersoll-Rand plc were $1.30 billion, down from $1.48 billion, and diluted earnings per share were $5.05, compared with $5.65 in 2016. The 2017 results include a $520 million premium paid on the early retirement of certain intercompany debt, and the 2016 results include a $397.8 million gain on the sale of the Hussmann equity investment.
The company generated $1.56 billionc of net cash from continuing operating activities and repurchased about $1.0 billion of ordinary shares during 2017. Quarterly dividends rose from $0.40 to $0.45 per share in August 2017, and total dividends declared were $1.70 per share for the year. Cash and cash equivalents were $1.55 billion at year-end, against total debt of $4.06 billion, and a $1.11 billion current debt balance includes a $750 million 6.875% senior note due August 2018 that management intends to refinance.
The company also reported a $21.0 milliond net provisional income tax benefit from the Tax Cuts and Jobs Act, and an effective tax rate of 5.7% for 2017. Subsequent events include a January 2018 agreement to form an equally owned joint venture with Mitsubishi Electric for variable refrigerant flow and ductless HVAC systems, and the January 18, 2018 acquisition of ICS Cool Energy for approximately £142 million, net of cash acquired. Backlog at December 31, 2017 was $2.50 billion, up from $2.20 billion a year earlier.
02—Key points
Key Highlights
- Net revenues rose to $14.20 billion in 2017 from $13.51 billion in 2016, a 5.1% increase, led by volume growth in Climate ($11.17 billion) and Industrial ($3.03 billion).
- Operating income was $1.67 billion (11.7% margin) versus $1.60 billion (11.9% margin) in 2016; management cited material inflation in excess of pricing as a margin headwind.
- Net earnings attributable to Ingersoll-Rand plc fell to $1.30 billion from $1.48 billion, mainly because 2016 included a $397.8 million Hussmann gain and 2017 included a roughly $520 million premium on early debt retirement.
- Diluted EPS from continuing operations was $5.14 versus $5.52 in 2016; the effective tax rate fell to 5.7% from 16.2%.
- Shareholder returns: about $1.0 billion of share repurchases in 2017, with approximately $900 million left under the $1.5 billion program, and the quarterly dividend was raised to $0.45 from $0.40.
- Balance sheet: $1.55 billion of cash and $4.06 billion of total debt; a $750 million 6.875% note due August 2018 is classified as current and is planned for refinancing.
- Subsequent events: a Mitsubishi Electric VRF/ductless joint venture agreement and the ICS Cool Energy acquisition (approximately £142 million, net of cash acquired).
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Trane Technologies kept $0.09.
- Revenue$14.20B100.0%
- Cost of revenue−$9.81B69.1%
- Gross profit$4.39B30.9%
- Operating costs−$2.72B19.2%
- Operating income$1.67B11.7%
- Interest, other & tax−$362.7M2.6%
- Net income$1.30B9.2%
Where FY2017 revenue went
$14.20B- Cost of revenue: $9.81B, 69% of revenue
- SG&A: $2.72B, 19% of revenue
- Net income: $1.30B, 9.2% of revenue
- R&D: $210.8M, 1.5% of revenue
- Interest, other & tax: $362.7M, 2.6% of revenue
Kept 9.2% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 12, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $14.20B$13.51B | +5.1% |
| Cost of Revenue | $9.81B$9.31B | +5.4% |
| Gross Profit | $4.39B$4.20B | +4.4% |
| R&D Expenses | $210.80M$207.90M | +1.4% |
| SG&A Expenses | $2.72B$2.60B | +4.7% |
| Operating Income | $1.67B$1.60B | +3.9% |
| Interest Expense | $215.80M$221.50M | −2.6% |
| Net Income | $1.30B$1.48B | −11.8% |
| EPS (Basic) | $5.11$5.70 | −10.4% |
| EPS (Diluted) | $5.05$5.65 | −10.6% |
| Shares Outstanding (Basic) | 254.90M259.20M | −1.7% |
| Shares Outstanding (Diluted) | 258.10M261.70M | −1.4% |
05—Questions
Frequently Asked Questions
How did revenue and profitability trend in 2017?
Net revenues grew 5.1% to $14.20 billion, driven mainly by higher volumes. Operating income rose to $1.67 billion from $1.60 billion, but operating margin slipped to 11.7% from 11.9% because material inflation exceeded pricing gains. Net earnings attributable to the company declined to $1.30 billion, largely because 2016 included a $397.8 million gain on the Hussmann sale and 2017 included a roughly $520 million premium on early debt retirement.
What drove the change in the effective tax rate?
The 2017 effective tax rate was 5.7%, versus 16.2% in 2016. The filing attributes the decline mainly to the remeasurement of net U.S. deferred tax liabilities, the premium on early retirement of intercompany debt, a claim for refund of previously paid interest, and excess tax benefits from share-based payments under ASU 2016-09. Partly offsetting these were the transition tax, a change in permanent reinvestment assertions, and a valuation allowance on Brazilian deferred tax assets. The company recorded a net provisional benefit of $21.0 million from the Tax Cuts and Jobs Act, which remains subject to change during the measurement period.
How much capital did the company return to shareholders, and how is its debt position?
In 2017 the company repurchased about $1.0 billion of ordinary shares and paid $430.1 million in dividends to ordinary shareholders. Total debt was $4.06 billion at year-end, with $1.11 billion classified as short-term, including the $750 million 6.875% notes due August 2018, which management intends to refinance. Cash and equivalents were $1.55 billion, of which about $1.1 billion was held by non-U.S. subsidiaries. The company had $2.0 billion of unused revolving credit commitments and a $2.0 billion commercial paper program with no balance outstanding.
What are the most significant risks flagged in the filing?
The filing highlights exposure to global operations, including currency fluctuations, trade restrictions, and political and economic instability. It also cites competition, commodity price volatility (steel, copper, aluminum), cyclical demand in construction and industrial markets, cybersecurity, and climate-related refrigerant regulation such as the Kigali amendment. Goodwill of $5.9 billion and indefinite-lived intangibles of $2.7 billion carry impairment risk, and asbestos-related claims, environmental remediation, and tax positions tied to the 2013 Allegion spin-off remain ongoing exposures.
What are the company's recent and planned strategic moves?
During 2017 the company completed several acquisitions, mainly channel acquisitions, for $157.6 million in cash, focused on expanding North American distribution and telematics. In January 2018 it agreed to form a 50/50 joint venture with Mitsubishi Electric to market VRF and ductless HVAC systems in the U.S. and select Latin American countries, expected to be operational in the first half of 2018. It also acquired ICS Cool Energy for approximately £142 million, net of cash acquired, and planned to close a non-U.S. Industrial manufacturing facility, with the cost not expected to be material. Capital expenditures for 2018 are estimated at about $300 million.
06—Continue