Diversified industrial goods manufacturer Ingersoll-Rand Plc (IR) is scheduled to report its third-quarter 2014 results before the opening bell on Oct 22. In the last reported quarter, Ingersoll beat the Zacks Consensus Estimate by a couple of cents. Let’s see how things are shaping up for this announcement.
Growth Factors in the Third Quarter
During third-quarter 2014, Ingersoll acquired the Centrifugal Compression division of Cameron International Corp. (CAM) for $850 million. Ingersoll’s compressed air systems and services business provides a wide range of centrifugal, reciprocating and rotary air compressor products and this acquisition will further expand its existing portfolio.
Post acquisition, the Turbo-Air and MSG brands of Cameron International’s Centrifugal Compression division will be added to Ingersoll's lineup and boost its compression unit offerings. The products are likely to expand Ingersoll’s industrial segment into areas such as air separation, petrochemical, chemical, and process gas and fast-growing power generation applications.
Ingersoll continues to focus on improving the efficiencies and capabilities of products and services within its core businesses after the divesture of the commercial and residential security businesses. The company continues to focus on its strategic priorities, which include a disciplined capital allocation; strong and flexible balance sheet position; and cash flows enhancement to support dividend growth. The structural changes in the company are further expected to unlock additional value.
However, despite efforts to reposition its portfolio to focus on high-barrier markets, upfront costs are likely to lead to earnings dilution in the near term. Consequently, the company is continually under stress to maintain profitability through stringent cost-cutting measures. Additionally, Ingersoll’s international operations are subject to economic risks and results of operations may be adversely affected by changes in economic conditions, foreign currency fluctuations and changes in local government regulation.
Earnings Whispers
Despite inherent business strengths, our proven model does not conclusively show that Ingersoll is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.
Zero Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -0.96%. This indicates a likely miss in earnings.
Zacks Rank #3 (Hold): Ingersoll’s Zacks Rank #3 when combined with -0.96% ESP reduces the predictive power of ESP. Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Arch Capital Group Ltd. (ACGL) earnings ESP of +2.07% and Zacks Rank #2.
Abaxis, Inc. (ABAX) earnings ESP of +4.55% and Zacks Rank #2.
Nordson Corporation. (NDSN) earnings ESP of +0.88% and Zacks Rank #2.
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