Hamilton, Bermuda-based Ingersoll-Rand Co., last week announced that total revenues increased by 8 percent and pre-tax earnings from continuing operations increased by 16 percent in the fourth quarter of 2007, compared with the 2006 fourth quarter.
The company reported diluted earnings per share of $9.06 ($2.5 billion) for the fourth quarter of 2007. Earnings per share from discontinued operations were $8.45 ($2.3 billion). The earnings of discontinued operations include three components: a gain on the sale of the Bobcat, Utility Equipment and Attachments (compact equipment) businesses of $9.30 per share ($2.6 billion); a charge of EPS -$1.00 (-$277.0 million), to increase the reserve for expected future asbestos costs; and EPS of $0.15 ($39.9 million), which represent the earnings and retained costs from discontinued businesses.
EPS from continuing operations of $0.61 ($171.0 million) were negatively impacted by 18 cents per share from a significantly higher effective tax rate of 38.4 percent in the quarter.
Reported net earnings per share totaled $0.72 ($222.0 million) for the fourth quarter of 2006, with EPS of $0.04 ($11.9 million) from discontinued operations and EPS from continuing operations of $0.68 ($210.1 million).
“The fourth quarter of 2007 included several significant actions, which taken together will complete our portfolio transformation." said Herbert Henkel, chairman, president and CEO. “In the fourth quarter we generated solid revenue growth, demonstrating operational focus and discipline while executing a significant portfolio change.”
The company's revenues increased by approximately 8 percent to $2.3 billion, compared with revenues of $2.1 billion for the 2006 fourth quarter. Approximately 4 percentage points of the revenue increase was attributable to currency. Recurring revenues, which are comprised of parts, service, rental and used equipment, increased by 11 percent compared with the fourth quarter of 2006 and accounted for 18 percent of total revenues.
Full-year 2007 net revenues were $8.8 billion, a 9-percent increase compared with net revenues of $8.0 billion in 2006. Excluding acquisitions and currency, revenues increased by 6 percent. Operating income for 2007 totaled $1.1 billion compared with $998.5 million in 2006. Operating margin for 2007 was 12.1 percent, compared with 12.4 percent in the prior year. Higher revenues and productivity improvements were partially offset by cost inflation, unfavorable product mix and restructuring costs.
During 2007 the company divested its Road Development, Bobcat, Utility Equipment and Attachments businesses for gross proceeds of $6.2 billion. The after-tax gain on the sale of Road Development was recorded in discontinued operations for second-quarter 2007 results and amounted to approximately $635 million. The after-tax gain on the sale of the Bobcat, Utility Equipment and Attachments businesses was recorded in discontinued operations for the fourth quarter and totaled approximately $2.7 billion.
“Ingersoll Rand had a solid close to the year and has continuing momentum as it enters 2008,” said Henkel. “Many of Ingersoll Rand's major end markets continued to experience solid demand as we closed out 2007, and orders increased by about 7 percent compared with last year. Our backlog at year end increased in all of our business segments and was up by more than 20 percent overall compared with year-end 2006.
"Based on our recent order pattern and a review of customer and channel activity, we expect moderate growth in 2008. We expect slow growth in North America and Western Europe and continued brisk growth in the developing economies of Eastern Europe, Asia and Latin America. Consistent with this environment, we anticipate revenue growth of approximately 6 to 7 percent for 2008, with 2 percent related to currency. Operating margins are expected to increase by 1.0 to 1.5 percentage points in 2008 based on higher volumes, improved cost productivity and a somewhat lower level of material cost inflation relative to the past few years.
"Based on a projected May 31 closing date, Ingersoll-Rand's full year 2008 earnings from continuing operations are forecast to be $3.80 to $3.90 per share, with discontinued operations at 6 cents per share of cost. It is anticipated that the Trane acquisition will require a number of one-time charges, primarily inventory step up, currently estimated at $0.40 to $0.45 per share. These charges are not reflected in our full-year forecast. This full year forecast reflects a tax rate of 22-23% for continuing operations and an average diluted share count of 312 million shares. Available cash flow in 2008 is anticipated to exceed $1.1 billion.”
The company said it expects end market activity and material costs in the first quarter of 2008 to be consistent with the fourth quarter of 2007. As a result, it expects first-quarter 2008 revenue growth of 6 to 7 percent compared with 2007 and earnings from continuing operations in a range of $0.72 to $0.77 per share. In addition, first quarter 2008 earnings will include a substantial year-over-year increase in interest income from high cash balances related to recent divestitures. This benefit will be partially offset by a higher projected tax rate of approximately 22 percent for continuing operations.
