Strong demand for its industrial technology products has led Ingersoll Rand executives to lift their 2022 organic sales forecast by 3 percentage points but noted that that increase will be largely offset by the strength of the U.S. dollar.
North Carolina-based Ingersoll Rand produced net income of $139 million in the second quarter on $1.4 billion in sales. Excluding, among other things, a $96.3 million gain from discontinued operations in Q2 of 2021, the company’s adjusted EBITDA rose 15% year over year to $335 million.
IR’s industrial technologies and services group grew its top line nearly 10% to $1.15 billion and added 70 basis points to its adjusted EBITDA margin, which finished the quarter at 25.4%. Revenues from its core compressors lineup rose in the mid-teens and overall organic sales growth topped 14%. The company’s precision and science technology division, meanwhile, grew revenues 25% year over year to $289 million but investments in M&A, as well as internal growth projects and the COVID-caused lockdowns in China, cut its adjusted EBITDA margin by nearly four points to 26.8%. Organic growth was nearly 6%.
Chairman and CEO Vicente Reynal and his team now expect organic growth in industrial tech and services to climb 11% to 13% for the full year. That bodes well, they said, for earnings in the second half and into 2023, when hoped-for improvements in the company’s supply chain. A greater impact of pricing actions and a running down of inventories should also work their way down the income statement.
“The good news is the backlog is there to do it for the back half of this year,” CFO Vik Kini told analysts on a conference call. “It's just a matter of us continuing to execute and seeing a little bit more normalization in the supply chain.”
Echoing comments from his peers at Illinois Tool Works earlier this week, Reynal also noted on the call that IR’s sales teams saw some acceleration in momentum in July, suggesting that demand is holding up well in most of the company’s end markets and geographic regions.
“We're seeing that some of these large projects that have been in the pipeline and there's been a lot of conversations, they're getting released,” Reynal said. “We're seeing some good momentum […] Some of these are energy transition-related and/or expansion of capacities and also, in some cases, onshoring.”
On the M&A front, Ingersoll Rand recently completed three purchases worth about $34 million. The acquired businesses are based in Missouri, China and India and have about $23 million in annual revenues marketing nitrogen gas, air dryers and cavity pumps. Reynal said they all have grown at least 20% annually over the past three years and noted that similar bolt-on deals lie ahead. IR has signed eight letters of intent and its M&A funnel is more than five times larger than two years ago.
Shares of Ingersoll Rand (Ticker: IR) were down slightly in afternoon trading Aug. 4. They have fallen about 10% over the past six months, trimming the company’s market capitalization to about $20 billion.
