Ingersoll-Rand Plc (NYSE:IR) Q4 2014 Earnings Conference Call - Final Transcript

Jan 30, 2015 • 10:00 am ET

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Ingersoll-Rand Plc (NYSE:IR) Q4 2014 Earnings Conference Call - Final Transcript

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Presentation
Executive
Mike Lamach

operating margins 140 basis points in 2014. Our Lean focus again showed significant results in the implemented value streams and we continue to invest in the future of the business by funding significant new product development, investing in IT platform and building our channel services footprint and product management capabilities.

We generated $810 million of cash flow, our capital allocation strategy remains focused on maximizing shareholder value and it's consistent with our overall financial strategy.We continue to increase our dividend with a 19% increase in 2014. We repurchased 22 million shares for $1.4 billion in 2014 funded by the remaining Allegion dividends and from free cash flow. We announced two value enhancing acquisitions during 2014, the purchase of the Cameron Centrifugal Compression division which closed at the beginning of this month and is now part of our compressor business unit and FRIGOBLOCK, which we expect to close in the first half of 2015 which will become part of our Thermo King Transport refrigeration business unit.

Our performance in 2014 where we outperformed the three year path laid out in late 2013 confirms our conviction to our strategy and positions us well going into a challenging global economic backdrop for 2015.Let's go to Slide 4. We've delivered steady improvements in operating margins over the past three years. Climate margins are up 340 basis points over that period. Overall, our operating margins were up 230 basis points over the last three years despite a tough year in industrial for 2014. As I'll review when I go through 2105 guidance we expect industrial to recover and a 40% organic operating leverage in 2015.

Please go to Slide 5. This chart locks to the change in operating margin from 2013 at 8.9% to the 2014 which was 10.9% shown on a reported basis, but we strike out restructuring Uni-box. Overall margins expanded 200 basis points on a reported basis and 140 basis points on an adjusted basis. The margin expansion was delivered from a combination of organic growth driven by our strategies to invest in new product and service offerings, maintaining a positive gap between pricing and interim inflation to pipes analytics and value pricing and productivity.

Executive
Mike Lamach

From strategic sourcing, implementing our Lean operating system and overhead cost just of Lean altogether outpacing other inflation.We continue to invest in new products, IT infrastructure and systems and service and sales footprint underpin the future growth of the business. 2014's margins performance exceeded our annual goal delivering 85 to 100 basis points of margin improvements. I've always said that most improvements are not typically linear, but being ahead of goal going into 2015 is a great place to be, given the short movements that the world is seeing in exchange rates and oils and metals markets and the economic ripples that that will create.

So, now Sue will walk you through the fourth quarter and I'll come back and take you through 2015's outlook.

Executive
Sue Carter

Thank you, Mike. Let's slide go into Slide 6 please. At the