Ingersoll-Rand to Sell Security Business (IR) (JCI)

The Security Technology business recorded sales of $391 million in the third quarter of 2012, down 7% year over year and nearly 5% sequentially. The year-over-year decline was primarily due to the weakened sales in the overseas business and lower sales in the Americas.

Ingersoll Rand is a globally diversified industrial company, which designs, manufactures, sells a range of industrial and commercial products and services. It provides energy-efficient solutions, residential solutions, technology and security related services both in the domestic and international markets.

Ingersoll Rand, which competes with Johnson Controls Inc. (JCI), has been streamlining its business to better focus on core business in recent times. Earlier, the company divested its security installation and service business, which is sold under the Integrated Systems and Services brand in United States and Canada. The company also closed the sale of 60% stake of its Hussmann business to Clayton, Dubilier & Rice, LLC.

The company modified its portfolio by divesting its cyclical, low-growth and asset-intensive businesses and simultaneously acquiring businesses supporting consistent revenue and earnings performance.

Along with the divestiture, the company is also expected to announce a new $2 billion share buyback program and a roughly 30% increase in the company's dividend, which currently stands at $0.16 per quarter.

In the third quarter of 2012, Ingersoll-Rand bought-back 7.6 million shares. By Oct 18, 2012, the company repurchased 10.8 million shares for $480 million. Since the inception of the share repurchase program in June 2011, the company has bought-back 47 million shares for $1.6 billion.

With the structural changes in the company’s top management level, its overall operations are expected to improve. Additionally, buyback of shares and dividend increase underline IR’s strategy to increase shareholders’ value in the long run.

However, earnings estimates have been static in the last few days even though the company reported better-than-expected results for the third quarter of 2012.

Hence, we 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.