Ingersoll-Rand Company (IR)

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See all Bulls Reasons Bulls: Reasons To Buy Company now less cyclical 0% agree Company now less cyclical Ingersoll-Rand's divestures and planned acquisition of Trane have turned it into a premier "cyclical-lite" with smoother earnings that should command a higher multiple. View or Edit Reason 0 votes 0% agree Trane and Ingersoll-Rand make a great combination 0% agree Trane and Ingersoll-Rand make a great combination Adding Trane's line of commercial business to Ingersoll-Rand's existing Climate Control segment makes the combined company a leader in a profitable business with huge recurring revenues from servicing and maintenance. Management's target for synergies from the Trane... read more View or Edit Reason 0 votes 0% agree Bears: Reasons To Sell Feeling Bearish? Be the first to explain why this would make a poor investment Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

Top Contributors Jonathan Sheets Mario Ricchio www.zacks.com Related Articles United Technologies (UTX) Dollar Exchange Rates Gardner Denver (GDI) Net income

In 2006, the number of convenience stores in the U.S. increased 3.2%.^[2] This resulted in a 9% revenue increase due to increased sales volume for Ingersoll-Rand's refrigeration products which include display cases used in convenience stores.^[3] Likeswise, in 2007 a weak dollar resulted in a $201 million dollar boost to Ingersoll-Rand's international revenues.^[4] On the other hand, a 15% increase in the price per metric tonne of cold rolled steel coil and a 12% increase in the price per metric tonne of cold rolled steel plate increased the cost of doing business for Ingersoll-Rand in 2007. As a result, the company's operating margins decreased from 12.4% in 2006 to 12.0% in 2007.^[5] Ingersoll-Rand competes with other manufacturing companies such as United Technologies (UTX), Textron (TXT) and Gardner Denver (GDI).

[edit] Business Overview

In 2007 Ingersoll-Rand sold its road construction and small industrial vehicles business businesses in an effort to limit the companies exposure to the cyclical construction and industrial equipment industries.^[1] Ingersoll-Rand also began the acquisition of Trane, inc in 2007.^[1] The Trane acquisition is expected to be completed in 2008.^[1]

[edit] Segments

IR 2007 Revenues by Segment^[6]

IR 2007 Revenues by Geography^[6]

• Climate Control Technologies (38% of revenue) designs and manufactures refrigeration systems for trucks, display cases and walk-in storage coolers.^[7] The segment sells its products under the Thermo King, Hussmann and Koxka brand names.^[7] The segment competes with companies like United Technologies (UTX).
• Industrial Technologies (33% of revenue) designs and manufactures compressed air systems, tools, fluid handling systems, utility vehicles and golf carts.^[8] Industrial Technologies sells its products under the Ingersoll-Rand and Club Car brand names.^[8] The segment competes with companies like Textron (TXT) and Gardner Denver (GDI).
• Security Technologies (29% of revenue) designs and manufactures locks, biometric access control systems, electronic security systems and security software.^[9] Security Technologies sells its products under the Schlage, LCN, Von Duprin and CISA brands.^[9]

[edit] Financials

Ingersoll-Rand Total Revenues, Operating Income and Net Income^{[6] [5]}

[edit] Key Trends and Forces

[edit] Increases in the number of convenience stores increase the demand for Ingersoll-Rand's refrigerated display cases

In 2006, there were 145,119 convenience stores in the United States^[2] up 3.2% from 140,655 stores in 2005.^[10] As a result of the increase in the number of convenience stores, Ingersoll-Rand's Climate Control Technologies revenue increased 9% due to increased volume in 2006.^[3] In general, when the number of convenience stores increases, demand for refrigerated display cases increases as convenience store owners seek to outfit their new stores. The increased demand for refrigerated display cases results in increased volume for Ingersoll-Rand's Climate Control Technologies segment. On the other hand, when the number of convenience stores decreases, the demand for refrigerated display cases decreases along with Ingersoll-Rand's Climate Control Technologies sales volume.

EUR to USD Exchange Rates^[11]

[edit] Favorable exchange rates gave Ingersoll-Rand a $201 million dollar international revenue boost in 2007

Between June 18, 2007 and June 18, 2008, the U.S. dollar depreciated in relation to the euro, the Canadian dollar, the pound and the Chinese yuan.^[11][12][13] As a result of the weak dollar, Lennox received a $201 million dollar boost to international revenues in 2007.^[4] In general, when foreign currencies depreciate relative to the U.S. dollar, the value of Ingersoll-Rand's international sales decreases. On the other hand, exchange rates resulting in a weak U.S. dollar boost the value of Ingersoll-Rand's international sales.

[edit] Rising steel prices result in decreased operating margins for Ingersoll-Rand

Between January 2007 and December 2007 the price of hot rolled steel coil rose from $549 per metric tonne to $630 per metric tonne. During the same period the price of hot rolled steel plate rose from $747 per metric tonne to $837 per metric tonne.^[14] Partially as a result of the increase in the price of steel, Ingersoll-Rand's operating margins decreased from 12.4% in 2006 to 12.0% in 2007.^[5] In general, when the price of steel increases, it is more expensive for Ingersoll-Rand to manufacture their products and their operating margins will decrease. On the other hand, when the price of steel decreases, it is less expensive for Ingersoll-Rand to manufacture their products and their operating margins increase.

[edit] Key Competitors

• United Technologies (UTX) manufactures commercial and residential HVAC products and systems as well as other products such as refrigeration products, elavators, escalators, military aircraft engines and fire safety products. The companies refrigeration products compete with those produced by Ingersoll-Rand's Climate Control Technologies segment and its HVAC products will compete with Ingersoll-Rand's Trane products once the acquisition is completed.^[15]
• Textron (TXT) manufactures helicopters, small airplanes, business jets, auto parts, tools, fluid handling systems and E-Z-GO golf carts. The companies tools, fluid handling systems and golf carts compete with those produced by Ingersoll-Rand's Industrial Technologies segment.^[16]
• Gardner Denver (GDI) manufactures pnuematic and fluid handling systems. The company's products compete with those produced by Ingersoll-Rand's Industrial Technologies segment.^[17]

Ingersoll-Rand and Key Competitors 2007 ($ in millions)

[edit] References

1. ↑ ^{1.0 1.1 1.2 1.3} IR 2007 10-K Item 1: Recent Acquisitions and Divestitures, pg 5
2. ↑ ^{2.0 2.1} Progressive Grocer: Industry Total Trends
3. ↑ ^{3.0 3.1} IR 2007 10-K Item 7: Climate Control Technologies, pg 31
4. ↑ ^{4.0 4.1} IR 2007 10-K Item 7: Results of Operations, pg 28
5. ↑ ^{5.0 5.1 5.2} IR 2007 10-K Item 15: Consolidated Statements of Income, pg 67
6. ↑ ^{6.0 6.1 6.2} IR 2007 10-K Item 15: Segment Information, pg 110-111
7. ↑ ^{7.0 7.1} IR 2007 10-K Item 1: Climate Control Technologies, pg 6
8. ↑ ^{8.0 8.1} IR 2007 10-K Item 1: Industrial Technologies, pg 6
9. ↑ ^{9.0 9.1} IR 2007 10-K Item 1: Security Technologies
10. ↑ Progressive Grocer: National C-Store Count Increases 1.8 Percent
11. ↑ ^{11.0 11.1} EUR to USD Exchange Rates
12. ↑ USD-CAD Exchange Rates
13. ↑ Historic Exchange Rates: USD-CNY Look up on 6/18/07 and 6/18/08
14. ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
15. ↑ Google Finance: UTX
16. ↑ Google Finance: TXT
17. ↑ Google Finance: GDI