Q4 2024 Earnings Summary
- Ingersoll Rand expects margin expansion in 2025, particularly returning to a 30% EBITDA margin profile in the PST segment as they integrate the ILC Dover acquisition, realize synergies, and benefit from productivity improvements and restructuring actions. Additionally, growth in higher-margin recurring revenue, especially in the ITS segment, is contributing to improved margins.
- The company anticipates organic growth acceleration in the second half of 2025, driven by investments in underpenetrated regions like Latin America, Middle East, India, and APAC ex-China, targeted new product development, and continued progress in recurring revenue, with expectations of mid-single-digit growth in these regions.
- Ingersoll Rand has a strong M&A pipeline with over 200 companies in the funnel and 7 transactions under LOI, aiming to acquire an additional 400 to 500 basis points of annualized inorganic revenue in 2025, which is incremental to current guidance, supporting revenue and EPS growth.
- Ingersoll Rand anticipates flat or declining margins year-over-year in Q1 2025 due to tough comparisons from strong margins in Q1 2024. Management advises to "taper those expectations" for margin expansion in Q1 2025.
- Lower-than-expected orders in Q4 2024, primarily due to softness in China, resulted in flat organic order growth. Management confirms organic revenue growth down low single digits in Q1 2025, indicating potential weakness in early 2025 performance.
- Margins in the Precision and Science Technologies (PST) segment declined in Q4 2024, impacted by lower volumes in the ILC Dover Aerospace and Defense business and organic volume declines, mainly from China. This could challenge the company's ability to meet margin expansion goals in the near term.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +4.3% (from $1,821.4M to $1,898.6M) | Total Revenue increased modestly, building on prior period drivers such as acquisitions and pricing enhancements; however, the growth rate moderated compared to earlier quarters, suggesting that while previous efforts continue to yield benefits, the pace of expansion has slowed. |
Operating Income | +13.7% (from $333.2M to $378.8M) | Operating Income expanded markedly due to strong margin improvements from operational execution and pricing strength that had been developing in previous periods; these factors amplified the effect of increased gross profit while offsetting cost pressures. |
Net Income & EPS | Flat Net Income; EPS +1.8% (from $0.56 to $0.57) | Net Income stayed essentially flat as gains from higher revenues and gross profit were offset by increased expenses such as higher interest costs and tax provisions; a slight EPS increase reflects minimal overall net benefit similar to trends observed in prior periods. |
Precision and Science Technologies | +24% (from $312.6M to $387.6M) | This segment showed a dramatic increase driven by strategic acquisitions and strong pricing execution, which built on momentum from previous quarters and delivered significantly higher revenue performance. |
Aftermarket | +7.8% (from $637M to $686.1M) | Aftermarket revenues grew due to focused operational execution and a continuous emphasis on aftermarket parts and services, a strategy that has been refined over previous periods to increase its revenue contribution. |
Revenue from the Americas | +15.4% (from $484.9M to $559.5M) | Growth in the Americas was bolstered by robust acquisition activity and strong pricing improvements that were already contributing in past quarters, resulting in a notable surge in revenue despite competitive market pressures. |
Revenue from EMEIA | Slight Decline | EMEIA revenue experienced a slight drop as macroeconomic headwinds—particularly in parts of Western Europe—continued to exert pressure despite efforts to leverage acquisitions and pricing strategies that were partially successful in previous cycles. |
Revenue from Asia Pacific | Essentially Flat | Revenue in Asia Pacific remained flat as earlier gains were offset by lower organic volume and possible unfavorable foreign currency impacts, echoing the mixed performance seen in prior periods for the region. |
Interest Expense | +65% (from $37.4M to $61.8M) | The significant increase in Interest Expense reflects a rise in long-term debt—likely driven by recent acquisition financing—combined with slightly higher borrowing costs, a trend that contrasts with the previous period’s lower debt base partially mitigated by derivative contracts. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue Growth | FY 2024 | 5% to 7% | no current guidance | no current guidance |
Adjusted EBITDA | FY 2024 | $2.01B to $2.04B (13% YoY) | no current guidance | no current guidance |
Adjusted EPS | FY 2024 | $3.28 to $3.34 (12% YoY) | no current guidance | no current guidance |
FX Impact | FY 2024 | Approximately flat; noted as a 100 bps improvement | no current guidance | no current guidance |
M&A Contribution | FY 2024 | $455 million | no current guidance | no current guidance |
Corporate Costs | FY 2024 | $170 million | no current guidance | no current guidance |
Total Revenue Growth | FY 2025 | no prior guidance | 3% to 5% | no prior guidance |
Organic Growth | FY 2025 | no prior guidance | H1: Flat; H2: 4% (with half [2%] from pricing and half from volume) | no prior guidance |
Adjusted EBITDA Phasing | FY 2025 | no prior guidance | 46% to 54% split between first and second halves | no prior guidance |
Adjusted EPS Phasing | FY 2025 | no prior guidance | 46% to 54% split between first and second halves | no prior guidance |
M&A Impact | FY 2025 | no prior guidance | Targeting 400 to 500 basis points of annualized inorganic revenue growth | no prior guidance |
Regional Growth Assumptions | FY 2025 | no prior guidance | Americas: Upper end low single digits; Mainland Europe: Lower end low single digits; China: Flat; Middle East/India/Rest of Asia: Mid single-digit growth | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue Growth | Q4 2024 | 5% to 7% YoY for FY 2024 | 4.24% YoY (from 1,821.4In Q4 2023 to 1,898.6In Q4 2024) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Ongoing margin expansion targets and near-term margin moderation concerns | Expects more than 100bps of year-over-year margin expansion for full year, with the highest margin expansion in Q1 and some moderation afterward. | Reiterated mid-30% EBITDA margin targets with near-term margin moderation in Q1 2025, emphasizing sequential improvements in the latter half of 2025. | Consistent; added clarity on short-term headwinds |
Continued softness in orders from China affecting overall order growth | Negative impact on overall growth due to tough comps in EV/solar; however, core business remained solid, and funnel activity for large projects was encouraging. | Softer than anticipated; organic growth was essentially flat, partly due to timing of large orders. Book-to-bill in China held near 1, but still weighed on overall results. | Recurring issue with continued negative impact |
Expansion into underpenetrated regions (Latin America, Middle East, India, APAC ex-China) | Positive results and investments in Middle East and India; also highlighted growth initiatives in Southeast Asia. | Robust growth in orders and revenue, reflecting focused investments in these underpenetrated regions. | Recurring topic with continued momentum |
Strong M&A pipeline and potential synergies from acquisitions such as ILC Dover | Emphasis on a robust M&A pipeline, particularly in life sciences. ILC Dover expected to expand the addressable market by $10B, with opportunities for cross-selling. | Over 200 companies in the M&A funnel; disciplined approach with multiples <10x pre-synergy EBITDA. ILC Dover driving cross-selling and margin synergies, especially in life sciences. | Recurring focus with ongoing progress |
Recurring revenue growth contributing to improved margins | Mentioned indirectly in relation to IIoT solutions (Aircom), but no explicit margin link. | Cited by Vikram Kini as a positive contributor to the margin profile, particularly in ITS. | Now explicitly cited as a margin booster |
Sequential improvement trends in the life sciences business | Saw +15% sequential order growth in Q1 2024 despite overall softness; optimistic about biotech funding. | Stable from Q3 to Q4 2024, with no V-shaped rebound. ILC Dover’s life sciences expected to grow in the low double-digit range, driven by biopharma and APIs. | Recurring mention with stable outlook |
Reshoring and infrastructure investments driving demand in Europe, Middle East, and India | Pipeline of reshoring-related orders in Europe (Chips Act) and infrastructure activity in the Middle East & India. | No mention. | No longer mentioned |
Potential for PST segment margin recovery following restructuring and productivity actions | Generally optimistic; PST at 30.8% margin but no explicit discussion of restructuring and productivity actions. | Expects to return to 30%+ EBITDA margin profile by 2025, driven by integration and synergy actions from ILC Dover. | Recurring with more concrete recovery steps |
Organic growth acceleration expected in the latter half of 2025 | No mention. | Approximately 4% organic growth in H2 2025 (split evenly between price and volume), supported by moderating comps and regional & product initiatives. | Newly introduced topic |
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China Sales and Outlook
Q: How did China perform this quarter and what's the outlook?
A: Management noted that China sales were softer than anticipated due to timing of large orders, leading to overall company organic order growth being essentially flat. However, the China book-to-bill ratio in Q4 was approximately 1 , indicating stability. They observe stability in China with order rates moving sideways from the first half to the second half of 2024. Moreover, certain businesses like blower and vacuum are growing organically at high single digits. For 2025, they are assuming China to be completely flattish. -
PST Margins and ILC Dover Impact
Q: What's causing the margin pressure in PST, and how will it improve?
A: Margins in PST were impacted by lower volumes, particularly in the ILC Dover Aerospace and Defense business, and organic volume declines, mainly from China. Despite this, management remains optimistic about achieving mid-30s EBITDA margins over time. They expect margins to return to around 30% as they progress through 2025. Integration activities and synergies from ILC Dover will contribute to margin improvement. -
Demand Outlook and Growth Assumptions
Q: What's the demand outlook and growth assumptions for the coming year?
A: The company expects organic growth to be approximately flat in the first half of the year, with approximately 4% growth in the back half. About half of the back-half growth will come from pricing, resulting in 2% organic volume growth. Regionally, Americas are planned at the upper end of low single digits, Europe at the lower end, China is assumed to be flat, and Middle East, India, and rest of Asia are expected to grow in the mid-single digits. In Q4, orders were lighter primarily due to China, but excluding China, organic orders would have been up low single digits in both segments. -
Tariffs and Cost Impact
Q: What's your exposure to tariffs and plans to offset tariff actions?
A: Management stated that their exposure to tariffs is relatively limited, with domestic U.S. purchases from China being a single-digit percentage of cost of goods sold. Being largely "in-region for the region" in manufacturing insulates them. They have mitigation plans ready, including shifting to alternate sources and implementing pricing actions. They successfully navigated similar situations in 2021 and feel confident in managing any impacts effectively. -
M&A Plans and Impact on Guidance
Q: Can you clarify the M&A impact on guidance and plans for acquisitions?
A: The 400 to 500 basis points of M&A impact is incremental to their guidance and excludes any wraparound effect from 2024 deals. The company is focusing on bolt-on acquisitions similar to SSI Aeration, Excelsior Blower, and Toshniwal. The pipeline includes smaller, bolt-on deals rather than larger acquisitions like ILC Dover. -
Life Sciences Business Performance
Q: How is the ILC Dover Life Sciences business performing?
A: Management is very pleased with the ILC Dover Life Sciences business, which continues to see double-digit revenue growth. Growth is in line with expectations and above the market. For 2025, they expect continued momentum with growth in the high single-digit to low double-digit range. The business is exposed to strong markets like biopharma, including areas related to GLP-1 and gene therapy treatments. -
Margin Expectations and Guidance
Q: Should we expect margins to be down year-over-year in Q1?
A: Management indicated that the steepest margin comparison is in Q1, and they do not expect meaningful margin expansion year-over-year in that quarter. As the year progresses, particularly in the back half, they expect margins to improve. Levers like pricing, productivity, restructuring actions, and M&A synergies will contribute to margin enhancement. -
Timing of Projects
Q: Can you update us on the delayed projects you mentioned last quarter?
A: While there's no dramatic change, customer conversations have increased, indicating positive movement. Some projects are moving in the right direction, and importantly, none have been canceled. Factors vary by project, but overall dialogue remains active. -
Marketing Qualified Leads (MQLs) Trend
Q: How are your Marketing Qualified Leads (MQLs) trending?
A: MQL activity remains strong, finishing the year up low double digits in both Q4 and the full year 2024. Management is encouraged by this trend, and customer conversation activity has increased. The long-cycle pipeline is also up low double digits, indicating solid demand.