Ingersoll Rand Inc. quarterly report, Q2 FY2021

Business context and reporting period

Ingersoll Rand Inc. is a global manufacturer of compressors, pumps, vacuum and blower equipment, and related aftermarket products and services. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021. Results are in millions of dollars except per-share data. Comparisons are affected by the February 2020 acquisition of Ingersoll Rand Industrial and by the 2021 divestitures of Club Car and High Pressure Solutions (HPS); those divested businesses are presented as discontinued operations.

Financial performance and position

MetricQ2 2021Q2 2020Six months 2021Six months 2020
Revenue$1,279.1$1,025.4$2,408.6$1,642.2
Gross profit / margin$512.7 / 40.1%$308.6 / 30.1%$964.8 / 40.1%$511.9 / 31.2%
Operating income (loss) / margin$140.1 / 11.0%$(45.0) / (4.4)%$261.4 / 10.9%$(124.3) / (7.6)%
Continuing-operations income (loss), net$138.3$(151.9)$228.4$(193.2)
Net income (loss)$234.6$(176.5)$144.5$(213.4)
Diluted EPS$0.55$(0.43)$0.34$(0.62)
Adjusted EBITDA / margin$292.1 / 22.8%$217.5 / 21.2%$536.1 / 22.3%$329.7 / 20.1%

Q2 revenue increased 24.7%, driven by organic volume growth of $132.0, favorable currency of $62.9 and pricing of $31.7. Six-month revenue rose 46.7%; management attributed the increase to acquisitions ($448.3), organic volume ($179.7), currency ($92.4) and pricing ($46.0). The six-month comparison includes six months of Ingersoll Rand Industrial in 2021 but only four months in 2020. Adjusted EBITDA is a non-GAAP measure.

Q2 continuing-operations operating cash flow was $147.3 and free cash flow was $135.7; for the six months, these were $234.8 and $208.9, respectively. Six-month capital expenditures were $25.9. Cash and equivalents were $3,669.9 at June 30, versus $1,750.9 at year-end 2020. Total debt was $3,864.0, yielding approximately $194.1 of net debt. The $1,100.0 revolving facility had no borrowings, $84.1 of letters of credit and $1,015.9 of unused availability. The company reported compliance with debt covenants.

Management reported Q2 orders up 52.8% year over year in Industrial Technologies and Services and up 26.8% in Precision and Science Technologies. Segment adjusted EBITDA margins were 24.7% and 30.7%, respectively, compared with 22.2% and 30.3% a year earlier.

Material changes, outlook and risks

  • Divestitures: Club Car sale substantially closed June 1 for $1.68 billion cash; the company recorded a $256.7 pretax gain. HPS majority-interest sale substantially closed April 1, generating $278.3 cash proceeds for a 55% interest sold; the company retained 45% and recorded a $211.7 pretax loss. Post-closing adjustments remained possible. The divestitures generated $1,903.8 of discontinued-operations investing cash flow in the first half.
  • Reported earnings include unusual items: Q2 net income includes $96.3 of after-tax discontinued-operations income, principally reflecting the Club Car gain. Six-month net income includes an $83.9 discontinued-operations loss after tax, including the HPS sale loss. Q2 other income included a $30.1 gain from settlement of post-acquisition matters. Club Car sale-related tax expense was $162.8 in Q2.
  • Restructuring and synergies: The 2020–2022 restructuring program is expected to cost approximately $350.0; management expects approximately $300.0 of annualized cost synergies by the end of 2022. Cumulative program expense through June 30 was $92.4. Further costs were anticipated, but not yet estimable.
  • Demand and outlook: Management said orders strengthened in the first half as markets recovered from COVID-19 disruption, while some growth reflected deferred 2020 demand. Supply-chain continuity remained a focus. No numerical consolidated revenue or earnings guidance is provided in the supplied filing text. Management noted uncertainty around COVID-19 and its effects on customers, suppliers and end markets.
  • Transactions: The company agreed to acquire Seepex for €431.5 million, with closing expected in Q3 subject to approvals and customary conditions. It completed the Maximus Solutions acquisition on July 30 for approximately C$135.4 million, subject to adjustment.
  • Risks and contingencies: Key disclosed risks include COVID-19, supply availability and input costs, foreign exchange, variable-rate debt and interest costs, acquisition integration, and global economic conditions. The company reported asbestos-related litigation reserves of $127.5 and probable insurance recoveries of $132.1; it cautioned actual outcomes could differ. Environmental liabilities accrued were $13.4. Management did not expect these matters to have a material adverse effect based on information available.

Most important facts for investors to verify

  1. Separate underlying continuing-business performance from discontinued operations and divestiture gains or losses when assessing earnings and cash generation.
  2. Assess comparability: 2020 included only four months of Ingersoll Rand Industrial in the first half, while 2021 includes six months; COVID-19 also depressed the prior-year comparison.
  3. Track whether order growth, pricing, and aftermarket demand convert into sustained organic sales and margins, particularly amid supply-chain and cost pressures.
  4. Monitor delivery of the stated $300 million annualized synergy target against restructuring costs, timing and execution risks.
  5. Verify final sale adjustments, completion of remaining legal-ownership transfers, and the accounting and funding impact of Seepex and Maximus Solutions.
  6. Evaluate debt service and variable-rate exposure alongside available cash and revolver capacity; assess changes in asbestos recoveries, litigation estimates and other contingencies.