Ingersoll-Rand PLC Earnings Call Insights: Available Cash and Corporate Costs

Ingersoll-Rand PLC (NYSE:IR) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Available Cash

Jeff Sprague – Vertical Research: Can we get a little more color on the cash side, sort of, available cash 1.1 billion. Do you have an early idea of what the cash requirements are on the restructuring and spend cost in 2013 and any other one-offs that may actually happen to available cash?

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Steven R. Shawley – SVP and CFO: We talked about this in December. We talked about refinancing we are planning in the middle of the year. We are planning on refinancing the z-tranche do I think in August and probably another 300 million on top of that to take care of the cash associated with the spend cost, restructuring et cetera, so what that will do is that will free up most of the $1.1 billion to go towards the share repurchase throughout the year.

Jeff Sprague – Vertical Research: Just totally shifting gears. On Europe, the notion that it gets better over the course of 2013, if only modestly. Is that predicated on some early indication on orders somewhere? Is it more just kind of the low operating level that you’re seeing across Europe and some expectation that there’s just some underlying bounce that ought to occur?

Michael W. Lamach – Chairman and CEO: First, Jeff, you look at Western Europe, Eastern Europe and Middle East and so when we look at that collectively, we’re really saying the Middle East will be up again mid-single digits, maybe a little bit better. Eastern, Europe up maybe a little bit less than that and still a fairly weak Western Europe. So net-net we’re not expecting great things out of Europe, but do think coming off the lows that we saw, we should see just a little bit of latter year growth, and that’s supported with what we’re hearing from long term customers.

Corporate Costs

Shannon O’Callaghan – Nomura: Can you just talk about corporate costs a little bit? One, in terms of just the ’13 costs of the ongoing entity and then in terms of this accelerated restructuring you are doing, are you going to be able to keep it at that level post-spin, is that some of the aim here instead of absorbing kind of incremental public company costs for the two companies?

Michael W. Lamach – Chairman and CEO: Let me just address the numbers question first Shannon. In 2013, we expect the corporate unallocated costs would be somewhere in $180 million range about $45 million a quarter, and don’t forget, we’re making heavy investments in common systems throughout all of this. If we really ramp that up this year – in fact, some of the story about corporate costs in Q4 was common systems related, so that’s a big piece to be increased in 2013. We also are seeing an uptick in pension and benefit costs, and we have some technology costs falling out, associated with the technology centers that are managed by Paul Camuti here in the corporate center. That’s what really seized up the increase in 2013 and like Mike said, we’ve pulled all the deal costs out of 2013. So that increase is not really deal cost related. I think if you look at the glide path of corporate costs going into the future, some of the restructuring obviously is going to have to impact corporate overheads. Also, you look at the common system spend sort of tapering down through 2015 and ’16, I would say we’d hit likely the peak of the spend for systems in late ’14, early ’15. So you’ll see that start to come down with the abatement of the systems projects.

Shannon O’Callaghan – Nomura: So, I guess with that kind of peeking out in some of the restructuring savings, do you think the combined corporate cost of the two future entities can equate this 180 you’re talking about for ’13 or do you think it goes higher because of additional public company costs for two companies?

Michael W. Lamach – Chairman and CEO: Well we’re working on the stranded costs here as a part of what we’re doing with restructuring that we’re talking about for quarter one and going forward. So we’re dealing with that now, but clearly there’s going to be additional public company costs for new security out in the marketplace. So, I mean, just for right now the place holder is 180 for the year and we’ll update you going forward as to how much of the stranded cost will be addressed and what the standalone cost with security once we file the forms.

Steven R. Shawley – SVP and CFO: Longer term, we target 180 to be the summation of the two standalone companies, but that’s going to go through a little bit of a peeking here in ’14 and ’15 because of the systems projects and probably ramp back down to normalized level after we go through that.