Hamilton, Bermuda-based Ingersoll Rand Co. Limited, a diversified industrial firm, last week announced earnings and revenues for the second quarter of 2007. The company reported net earnings of $964.1 million, or diluted earnings per share of $3.17, for the second quarter of 2007.
Second-quarter net earnings included $208.0 million, or EPS of $0.68 from continuing operations, as well as $756.1 million of income equal to EPS of $2.49 from discontinued operations. Discontinued operations included EPS of $2.22 from the gain on the sale of the Road Development business, EPS of $0.28 from the earnings of discontinued businesses, and the retained costs of divested businesses equal to EPS of ($0.01).
Excluding the Road Development gain, net income for the second quarter totaled $288.3 million or EPS of $0.95. The operating results of the Road Development, Bobcat, Utility Equipment and Attachments businesses were reclassified as discontinued operations for the second quarter of 2007 and all prior periods.
Net earnings for the 2006 second quarter of $313.5 million, or EPS of $0.95, included EPS of $0.60 from continuing operations and EPS of $0.35 from discontinued operations. Discontinued operations included EPS of $0.37 related to the operating earnings of discontinued businesses, and the retained costs of divested businesses equal to EPS of ($0.02).
“Second quarter 2007 performance continued to demonstrate the benefits of our transformed business portfolio, expanded market and geographic diversity and innovation,” said Herbert Henkel, chairman, president and CEO. “We again offset several soft domestic markets with strong revenue growth from international operations, new product offerings and recurring revenues. We are positioned to withstand isolated market downturns, and our continuing focus on innovation and operational excellence will sustain our ability to grow and deliver solid financial results.”
The company’s revenues increased by 9 percent to $2.22 billion, compared with revenues of $2.05 billion for the 2006 second quarter. Currency had a 2%-percent favorable impact on year-over-year revenue gains. Second-quarter domestic revenues increased by 2 percent, while revenues from international operations increased by approximately 17 percent.
Total recurring revenues, which include revenues from parts, service, rental, and used equipment, increased by 11 percent compared with the second quarter of 2006, and accounted for 19 percent of total revenues.
On April 30, the company sold its Road Development business to AB Volvo for net cash proceeds of approximately $1.05 billion. A gain on the sale of $676 million, equal to EPS of $2.22 per share, was recorded in discontinued operations in the second quarter of 2007.
On May 15, the company announced the initiation of a process to explore strategic alternatives for its Bobcat and construction-related businesses, including Utility Equipment and Attachments. The company is currently considering a number of alternatives, including the outright sale of the business or a spin-off to shareholders, to determine the ultimate disposition of these operations. The company expects to conclude its decision making process in the third quarter.
The operating results of these businesses have been reclassified as a single line item, net of tax, in discontinued operations for the second quarter of 2007 and all prior periods.
“The disposition of our construction-related businesses is the culmination of our strategy to transition away from cyclical, heavy machinery businesses,” said Henkel. “This represents another important step in our transformation to a diversified industrial company. The market and operational characteristics of our current businesses in aggregate offer the prospect of more consistent financial performance over the long term.”
The combined revenues of discontinued operations (Bobcat, Utility Equipment, Attachments and Road Development) declined slightly in the second quarter of 2007 compared with last year.
Bobcat second-quarter revenues declined by approximately 9 percent compared with record 2006 results as ongoing weakness in new equipment markets in North America offset market share gains, increased recurring revenues and growth from international markets. Despite the revenue decline, operating margins approximated 15 percent and increased significantly compared with the fourth quarter of 2006. Second-quarter orders increased by approximately 5 percent compared with last year and backlog levels also improved. Dealer inventories remain well balanced and consistent with demand levels.
Utility Equipment and Attachments revenues increased significantly compared with the second quarter of 2006 with solid growth in all geographic regions. Second-quarter operating earnings and margins also improved compared with last year.
The company has realigned its segment reporting in 2007 to account for the recent sale of the Road Development business and proposed disposition of the Bobcat, Utility Equipment and Attachments businesses.
The company now classifies its businesses into three reportable segments based on industry and market focus: Climate Control Technologies, Industrial Technologies, and Security Technologies. The results of Club Car are reported as part of the Industrial Technologies segment.
Industrial Technologies is focused on providing solutions to enhance customers’ industrial and energy efficiency and provides equipment and services for compressed air systems, tools, fluid power production and energy generation systems. The segment also includes Club Car golf cars and utility vehicles. Total revenues in the second quarter increased by approximately 12 percent to $750 million.
Air Solutions revenues increased by 19 percent with improved activity in industrial and process markets for complete air compressor units in all geographic regions and increased revenues from the aftermarket business. Activity in oil-free products increased significantly with the strongest growth in North American markets.
Productivity Solutions revenues increased slightly, as expanding activity in fluid handling, material handling and industrial markets outside of North America offset sluggish domestic markets, particularly for tools.
Club Car revenues increased by 10 percent compared with the second quarter of 2006, primarily reflecting ongoing market share gains in a soft golf market, increased parts and rental revenues, and higher sales of utility and off-road vehicles.
“Most of Ingersoll Rand’s major worldwide end markets enjoyed solid demand during the first half of 2007,” said Henkel. “Second-quarter orders for the total company increased by approximately 9 percent compared with 2006, with year-over-year improvement at all business segments. During the third quarter, the company expects to undertake a series of high return restructuring actions to reduce costs and improve productivity. These restructuring actions, in aggregate, are expected to total approximately $23 million and reduce third quarter and full year EPS by 6 cents and 7 cents, respectively. Based on our recent order pattern and current projections for material prices, we expect third-quarter 2007 earnings of $0.85 to $0.90 per share, excluding restructuring costs and gains on the sale of businesses,” said Henkel. “Earnings from continuing operations are expected to be $0.67 to $0.70 per share, with discontinued operations in the range of $0.18 to $0.20."
