Ingersoll Rand Reports Strong First-Quarter 2018 Results

Highlights (versus prior year, unless otherwise noted):

Ingersoll-Rand plc (NYSE:IR), a world leader in creating comfortable, sustainable and efficient environments, today reported diluted earnings per share (EPS) from continuing operations of $0.51 for the first quarter of 2018. Excluding restructuring costs of ($44.4M) and debt redemption premium and related charges of ($16.6M), adjusted continuing EPS was $0.70.

First-Quarter 2018 Results

Financial Comparisons - First-Quarter Continuing Operations

“We are off to a strong start in 2018. Through sustained execution of our business strategy and healthy end markets, we delivered double-digit bookings and revenue growth in our Climate and Industrial segments and 23 percent adjusted continuing EPS growth in the first quarter. This demonstrates our continued progress in building a more sustainable and resilient company for the long-term,” said Michael W. Lamach, chairman and chief executive officer. "At this early stage in the year, our volumes are exceeding our initial expectations and we see good pricing receptivity in the market driving margin expansion. Margin improvement is being partially dampened by persistent and rising inflation. We continue to see growth opportunities ahead as our markets and customers move toward solutions that address energy efficiency and lower greenhouse gas emissions. Overall, we are confident that we will exceed the high end of our ranges for revenue and EPS for 2018, and we plan to provide our comprehensive guidance update per our normal cadence on our second quarter earnings call.”

Highlights from the First Quarter of 2018 (all comparisons against the first quarter of 2017 unless otherwise noted)

• Bookings up 14 percent, strong organic bookings growth of 9 percent with growth across all businesses.
• Enterprise revenue up 13 percent, organic revenue up 8 percent with growth in virtually all products and geographies and particularly strong growth in services and parts.
• Enterprise reported revenue growth included approximately 4 percentage points of growth from foreign exchange and approximately 1 percentage point from acquisitions.
• Enterprise revenue mix was 66 percent equipment and 34 percent services and parts, reflecting our services focus.
• Operating margin flat; adjusted operating margin up 20 basis points driven by strong volume, positive price and productivity partially offset by material and freight inflation.
• Restructuring costs of $44.4M were consistent with the company's expectations. Costs were primarily related to a European footprint optimization to shift production to plants near customer demand.
• Q1 adjusted effective tax rate* of 20.4 percent consistent with expectations for full-year estimated adjusted effective tax rate of 21 percent to 22 percent.

First-Quarter Business Review (all comparisons against the first quarter of 2017 unless otherwise noted)

Climate Segment: delivers energy-efficient products and innovative energy services. The segment includes Trane^® and American Standard^® Heating & Air Conditioning which provide heating, ventilation and air conditioning (HVAC) systems, and commercial and residential building services, parts, support and controls; energy services and building automation through Trane Building Advantage™ and Nexia™; and Thermo King^® transport temperature control solutions.

• Bookings up 15 percent, organic bookings up 11 percent. Revenue up 12 percent, organic revenue up 8 percent.
• Broad-based revenue growth in all businesses and regions, and services.
• Climate reported revenue growth included approximately 3 percentage points of growth from foreign exchange and approximately 1 percentage point from acquisitions.
• Climate revenue mix was 68 percent equipment and 32 percent services and parts, reflecting our services focus.
• Operating margin expansion due to reduced restructuring actions primarily related to plant consolidation within the U.S. in 2017; adjusted operating margin positive impacts from price, volume and productivity were more than offset by inflationary headwinds.

Industrial Segment: delivers products and services that enhance energy efficiency, productivity and operations. The segment includes compressed air and gas systems and services, power tools, material handling systems, ARO^® fluid management equipment, as well as Club Car^® golf, utility and consumer low-speed vehicles.

• Bookings up 10 percent and organic bookings up 5 percent. Revenue up 15 percent with organic revenue up 9 percent.
• Strong revenue growth in all products and services.
• Industrial reported revenue growth included approximately 5 percentage points of growth from foreign exchange and approximately 1 percentage point from acquisitions.
• Industrial revenue mix was 61 percent equipment and 39 percent services and parts, reflecting our services focus.
• Operating margin down 200 bps primarily due to increased restructuring actions principally related to European footprint optimization to shift production to plants near customer demand; adjusted operating margin up 190 bps driven by strong revenue growth, positive price and productivity more than offsetting inflation headwinds.

Balance Sheet and Cash Flow

• The company repurchased $250 million or 2.8 million shares in the first quarter.
• Acquisition pipeline remains active; Trane / Mitsubishi Electric joint venture regulatory approval expected Q2 2018.
• First-quarter cash flow from continuing operating activities was ($46) million, consistent with the company’s expectations and normal business seasonality.
• Working capital / revenue on track for 2018.

Guidance

• The company will provide a full update to 2018 guidance in conjunction with its second quarter 2018 earnings call per its normal cadence.

This news release includes “forward-looking statements,” which are statements that are not historical facts, including statements that relate to the mix of and demand for our products; performance of the markets in which we operate; our share repurchase program including the amount of shares to be repurchased and timing of such repurchases; our capital allocation strategy including projected acquisitions; the timing of receiving regulatory approvals for our joint venture; our projected 2018 full-year financial performance and targets including assumptions regarding our effective tax rate and other factors described in our guidance. These forward-looking statements are based on our current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from our current expectations. Such factors include, but are not limited to, global economic conditions, the outcome of any litigation, demand for our products and services, and tax law changes. Additional factors that could cause such differences can be found in our Form 10-K for the year ended December 31, 2017, as well as our subsequent reports on Form 10-Q and other SEC filings. We assume no obligation to update these forward-looking statements.

This news release also includes non-GAAP financial information which should be considered supplemental to, not a substitute for, or superior to, the financial measure calculated in accordance with GAAP. The definitions of our non-GAAP financial information and reconciliation to GAAP is attached to this news release.

All amounts reported within the earnings release above related to net earnings (loss), earnings (loss) from continuing operations, earnings (loss) from discontinued operations, and per share amounts are attributed to Ingersoll Rand’s ordinary shareholders.

Ingersoll Rand (NYSE:IR) advances the quality of life by creating comfortable, sustainable and efficient environments. Our people and our family of brands - including Club Car^®, Ingersoll Rand^®, Thermo King^® and Trane^® - work together to enhance the quality and comfort of air in homes and buildings; transport and protect food and perishables; and increase industrial productivity and efficiency. We are a $14 billion global business committed to a world of sustainable progress and enduring results. For more information, visit ingersollrand.com.

4/25/18

(See Accompanying Tables)

• Table 1: Condensed Consolidated Income Statement
• Table 2: Business Review
• Tables 3 - 5: Reconciliation of GAAP to Non-GAAP
• Table 6: Condensed Consolidated Balance Sheets
• Table 7: Condensed Consolidated Statement of Cash Flows
• Table 8: Balance Sheet Metrics and Free Cash Flow

*Non-GAAP measures definitions

Organic revenue is defined as GAAP net revenues adjusted for the impact of currency and acquisitions. Organic bookings is defined as reported orders closed/completed in the current period adjusted for the impact of currency and acquisitions.

• Currency impacts on net revenues and bookings are measured by applying the prior year’s foreign currency exchange rates to the current period’s net revenues and bookings reported in local currency. This measure allows for a direct comparison of operating results excluding the year-over-year impact of foreign currency translation.

Adjusted operating income is defined as GAAP operating income plus restructuring costs in 2018 and 2017. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 3 and 4 of the news release.

Adjusted operating margin is defined as the ratio of adjusted operating income divided by net revenues.

Adjusted continuing EPS in 2018 is defined as GAAP continuing EPS plus restructuring costs and debt redemption premium and related charges, net of tax impacts. Adjusted continuing EPS in 2017 is defined as GAAP continuing EPS plus restructuring costs, net of tax impacts. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 3 and 4 of the news release.

Free cash flow in 2018 and 2017 is defined as net cash provided by (used in) continuing operating activities, less capital expenditures, plus cash payments for restructuring. In 2018, the Company updated its definition of free cash flow to exclude the impacts of discontinued operations. As a result, free cash flow amounts in 2017 have been restated to conform with the current year definition. Please refer to the free cash flow reconciliation on table 8 of the news release.

Working capital measures a firm’s operating liquidity position and its overall effectiveness in managing the enterprises’ current accounts.

• Working capital is calculated by adding net accounts and notes receivables and inventories and subtracting total current liabilities that exclude short term debt, dividend payables and income tax payables.
• Working capital as a percent of revenue is calculated by dividing the working capital balance (e.g. as of March 31) by the annualized revenue for the period (e.g. reported revenues for the three months ended March 31) multiplied by 4 to annualize for a full year.

Adjusted effective tax rate for 2018 is defined as the ratio of income tax expense, plus or minus the tax effect of adjustments for restructuring costs and debt redemption premium and related charges, divided by earnings from continuing operations before income taxes plus restructuring costs and debt redemption premium and related charges. Adjusted effective tax rate for 2017 is defined as the ratio of income tax expense, plus or minus the tax effect of adjustments for restructuring costs, divided by earnings from continuing operations before income taxes plus restructuring costs. This measure allows for a direct comparison of the effective tax rate between periods.

Adjusted OI + D&A is defined as adjusted operating income plus depreciation and amortization expense.

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Ingersoll-Rand plc
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