Ingersoll-Rand PLC’s fourth-quarter earnings rose 52%, but the company’s profit came in below expectations because of rising costs for raw materials, reported The Wall Street Journal.
The industrial conglomerate’s 7.1% operating margin for the quarter ended Dec. 31 was up from a year earlier, but down from the third quarter, highlighting the cost of materials pressures facing the company’s business segments. The biggest quarter-to-quarter margin erosion occurred in the company’s door lock and security access segment, where the fourth-quarter operating margin slipped to 17.9% from 22.1% in the third quarter.
“The productivity benefits were eroded by the steep run-up in material costs in the quarter,” said Chairman and Chief Executive Michael Lamach during a conference call Wednesday with analysts. “The majority of Ingersoll-Rand’s major end-markets continued to recover in the fourth quarter, although some challenges remain, especially in the commercial building markets in North America and Europe.”
Rising costs for steel, aluminum, copper, plastic resin and other materials clipped fourth-quarter profits for many manufacturers. Raw material prices have been reacting to rising consumption caused by improving economic conditions in the U.S. and Europe and surging infrastructure and industrial expansion in developing countries such as China.
Ingersoll, whose brands include Trane heating and air-conditioning systems, Thermo King refrigerators for truck trailers, Schlage locks and Club Car golf carts, gave a cautious view for the current quarter. It forecast earnings of 25 cents to 35 cents on revenue of $3.1 billion to $3.2 billion. Analysts projected earnings of 35 cents a share on revenue of $3.19 billion.
For 2011, the company projected earnings of $2.90 to $3.10 a share on revenue of $15 billion to $15.3 billion, while analysts forecast earnings of $3.07 a share on revenue of $14.94 billion.
KeyBanc Capital Markets analyst Jeffrey Hammond described the company’s outlook as disappointing and lowered his rating on the company’s stock to “hold” from “buy.”
“Operating margins were well below expectations,” Mr. Hammond said in a note to investors. “In all cases, [material] inflation was cited as an unfavorable offset.”
For the fourth quarter, Ingersoll reported a profit of $212.1 million, or 62 cents a share, up from $139.4 million, or 42 cents a share, a year earlier. Revenue increased 13% to $3.7 billion, with currency fluctuations subtracting one percentage point from the growth.
Analysts polled by Thomson Reuters expected the company to earn 65 cents a share from revenue of $3.6 billion.
In Ingersoll’s climate-solutions segment, its largest business unit by revenue and includes commercial heating and cooling, revenue rose 16% and profit was up 61% from a year earlier. Bookings were up 7%, mostly due to the commercial HVAC business. In the residential segment, which includes residential heating and air conditioning systems, revenue rose 12%. Bookings were up 22%, mostly on gains in the residential HVAC business.