Ingersoll Rand Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in millions of dollars except per-share data. The company reports Industrial Technologies and Services (ITS) and Precision and Science Technologies (PST); comparisons below are to 2021.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $1,439.9 | $1,279.1 | $2,776.9 | $2,408.6 |
| Gross profit / margin | $569.8 / 39.6% | $512.7 / 40.1% | $1,095.9 / 39.5% | $964.8 / 40.1% |
| Operating income / margin | $197.4 / 13.7% | $140.1 / 11.0% | $354.4 / 12.8% | $261.4 / 10.9% |
| Income from continuing operations | $137.8 | $138.3 | $243.7 | $228.4 |
| Net income attributable to Ingersoll Rand | $138.5 | $233.9 | $242.2 | $143.5 |
| Diluted EPS | $0.34 | $0.55 | $0.59 | $0.34 |
- Q2 revenue grew 12.6%, driven by pricing ($102.9), acquisitions ($66.5) and organic volume ($60.0), partly offset by foreign exchange ($68.6). First-half revenue rose 15.3% on pricing, volume and acquisitions, partly offset by FX.
- Q2 operating income increased 41%; selling and administrative costs were 19.1% of revenue versus 20.9%. Gross margin declined 50 basis points, which management attributed primarily to segment mix.
- Q2 net income fell mainly because 2021 included substantial discontinued-operation income, including a Club Car sale gain. Continuing-operations income was nearly flat. First-half net income increased as discontinued-operation results improved year over year.
- Adjusted EBITDA, a non-GAAP measure, was $334.9 (23.3% margin) in Q2 versus $292.1 (22.8%); first-half adjusted EBITDA was $638.5 (23.0%) versus $536.1 (22.3%). Management cited pricing and volume gains, partly offset by cost inflation and product mix.
Cash flow, debt and liquidity
- First-half cash from continuing operating activities was $236.2, versus $234.8. Free cash flow, a non-GAAP measure, was $196.9 versus $208.9, reflecting higher capital spending ($39.3 versus $25.9).
- Cash and cash equivalents were $1,309.2 at June 30, down from $2,109.6 at year-end. Total debt was $2,757.3, down from $3,440.6. The company repaid the €589.1 million Euro Term Loan balance using cash and recorded a $1.1 debt-extinguishment loss.
- The $1,100.0 revolving credit facility was undrawn and fully available; the company reported compliance with debt covenants. First-half financing cash use was $914.8, including $639.5 of debt repayments and $253.7 of share repurchases.
- Operating working capital increased $172.2 to $1,147.6, principally from higher inventories and receivables. Management said cash flow and revolver availability should fund foreseeable needs, while noting that future cash generation and borrowing access are not assured.
Segments and material changes
- ITS: Q2 revenue rose 9.8% to $1,150.5; segment adjusted EBITDA rose 12.9% to $292.0 and margin expanded 70 basis points to 25.4%. First-half revenue was up 11.7% and margin expanded 60 basis points to 24.6%.
- PST: Q2 revenue rose 25.0% to $289.4, primarily from acquisitions, while segment adjusted EBITDA increased 9.3% to $77.7 and margin contracted 390 basis points to 26.8%. First-half revenue grew 31.2%, largely from acquisitions, while margin fell 320 basis points to 27.7%.
- Q2 orders increased 6.4% in ITS and 24.7% in PST; PST’s increase included acquisitions. Management said COVID-related demand for certain PST products eased modestly but remained above pre-pandemic levels.
Outlook, risks and unusual items
- The filing provides no specific quantified earnings or revenue guidance. Management described demand and outlook as tied to industrial production, capacity utilization and customer investment, and said supply-chain constraints could hinder delivery lead times.
- COVID-related shutdowns at some China facilities contributed to component shortages. Management also cited cost inflation, product mix and adverse currency movements; approximately 56% of first-half revenue was denominated in non-U.S. currencies.
- The company reported limited physical operations and sales in Russia and Ukraine and no material adverse impact to date, but warned that escalation or prolonged conflict could increase risks. It also highlighted geopolitical and regulatory exposure, including material cash balances in China.
- The 2020 restructuring program had incurred $117.8 of expense through June 30; expected total program expense was approximately $123–$138. Asbestos and silica litigation reserves were $132.6, with a $143.7 insurance recovery receivable; the company said actual outcomes could differ and unexpected developments could be material. Environmental liabilities accrued were $14.5.
- Foreign-currency translation reduced first-half other comprehensive income by $240.9, contributing to a $249.4 total other comprehensive loss attributable to the company. The company identified no impairment indicators for goodwill or other intangible assets.
Key facts for investors to verify
- Whether pricing continues to offset inflation and mix pressures, particularly PST’s margin decline.
- How supply constraints, COVID-related disruptions and currency movements affect order conversion, revenue and cash generation.
- Whether working-capital investment moderates and free cash flow supports debt reduction, repurchases and other capital needs.
- The effect of variable interest rates despite the company’s interest-rate swaps and caps, and the sustainability of liquidity and covenant headroom.
- Developments in asbestos and silica claims, related insurance recoveries, environmental matters and the remaining Club Car sale transfer.