Ingersoll-Rand Plc (IR) recently sold a 60% stake in the Hussmann business to funds managed by private equity firm Clayton, Dubilier & Rice, LLC (CD&R), effective September 30.
On August 9, 2011, Ingersoll-Rand Plc agreed to divest a 60% stake in its Hussmann business to private equity firm Clayton Dubilier& Rice, LLC.
Generating revenues of $800 million, Hussmann provides display cases, refrigeration systems, installation and services to food retailers around the world.
The sale fetched Ingersoll-Rand gross proceeds of approximately $370 million. It will continue to retain a 40% interest in the business.
Ingersoll-Rand plans to use the cash from this transaction for its previously announced $2 billion share repurchase program. Ingersoll-Rand has already purchased more than 18 million shares and expects to purchase more than 35 million shares by the end of 2011.
Earlier, Ingersoll-Rand revised its outlook for the third quarter of 2011. The company now expects EPS from continuing operations of $0.77 – $0.80, down from the earlier estimate of $0.85 – $0.95.
The revised outlook estimate includes $0.04 of EPS from Hussmann operations and excludes the impact of impairment charges.
Ingersoll now expects revenues to come between $3.90 billion and $3.95 billion, down from the previous estimate of $4.05 billion and $4.15 billion. The revenue guidance includes $200 million of revenue from Hussmann.
Management stated that revenues were negatively affected by slower than expected end-markets in several businesses. Consumer-related businesses, such as residential heating, ventilation and air conditioning (HVAC), golf and residential security, were adversely affected, which accounted for the majority of the decline in the guidance. Furthermore, commercial security activity was slower than management’s expectations. Nevertheless, transport, industrial and commercial HVAC revenues remained strong.
Meanwhile, operating income for the third quarter was negatively impacted by lower volumes and an unfavorable product mix in the residential and security segments.
For 2011, EPS from continuing operations (excluding impairment charges) is projected between $2.70 and $2.80, including a $0.07 per share contribution from Hussmann. This was down from the earlier estimate of $2.90 – $3.10.
For 2011, Ingersoll-Rand anticipates revenues between $14.85 billion and $15.00 billion, down from the previous estimate of $15.30 billion to $15.50 billion. The bottom-line was negatively impacted by lower volumes and by unfavorable product mix in the residential and security segments, partially offset by the benefit of a lower share count due to share repurchases.
The guidance includes approximately $600 million of revenue from Hussmann.
The downgrade in the revenue guidance is primarily due to lower than expected demand levels in key North American residential and commercial security markets. In addition, the strengthening of the dollar against the Euro is also expected to have a negative impact on revenues, mainly in the fourth quarter.
We continue to maintain a Neutral recommendation on Ingersoll-Rand. Our neutral recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold.
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