Ingersoll-Rand is driving growth with three levers: accelerating revenue growth to 2- 3 times GDP, operational excellence to lift operating margin to 14%-15% by 2016, and allocate surplus capital to create value for shareholders via smart share repurchase and portfolio rationalization.
Key long-term trends that should drive Ingersoll-Rand’s sales growth include the need to reduce energy consumption, continued global urbanization, the requirement to increase industrial productivity and reduce resource intensity, as well as food and water scarcity and the impact of climate change.
As a leading global supplier of comfortable, sustainable, and energy-efficient environments, Ingersoll-Rand has very strong global market positions for its core products around the world. Operational and functional excellence should enable steady margin expansion at least through mid-decade.
New products introduced within the past three years totaled 25% of Ingersoll-Rand’s sales in 2013, up from 13% as recently as 2008; patent invention disclosures have almost tripled from 2011 to 2013; key new products include ThermoKing’s Precedent transport refrigeration, a new variable-speed 20 SEER Trane residential HVAC system, and an oil-free centrifugal compressor.
Ingersoll-Rand has reduced its plants to 49 after the Allegion spin-out from 94 in 2009. The company has an expanded set of analytics it has developed to optimize segmenting its served markets that sharply reduces its product development times while increasing its speed to market.
Each year through 2016, Ingersoll-Rand is targeting 100-150 basis points of margin improvement from its functional transformation of its back-office expense, with the upgrade of its ERP system being rolled out geographically through 2017; this, along with improved capital efficiency, enhanced pricing, and material productivity, should enable Ingersoll-Rand’s operating margin to hit 14%-15% by 2016.
Ingersoll-Rand believes that the predictability of its sales and earnings should be enhanced now that its operational facility rationalization is complete and its backoffice simplification and ERP system implementation are well underway, allowing its business to be managed with greater rigor.