Ingersoll Rand cuts profit view, shares tumble

Ingersoll Rand cuts profit view, shares tumble

Stock Market Predictions

(Global Markets) - Ingersoll Rand Plc (IR.N) cut its profit forecast for the rest of the year on Friday, blaming weak demand in North America for residential heating and cooling systems and commercial security products.

The warning sent shares of the U.S. maker of air conditioners and locks down as much as 18 percent to their lowest level in more than two years, and came as Wall Street is getting nervous that corporate profit growth may be slowing.

Analysts, on average, look for the companies that make up the widely watched Standard & Poor's 500 index .SPX to report 13.5 percent earnings growth in the third quarter, down from an average forecast of 17 percent as of July 1.

"You don't have to be a rocket scientist to know that residential markets were not going to be doing anything substantial for a company's results," said Eli Lustgarten, an analyst at Longbow Research. "This (Ingersoll forecast) is a warning sign, to show you that improving profits and beating guidance is not going to be easy for a while."

Electric products maker Cooper Industries Plc (CBE.N) also cited weak demand for products used in residential and commercial buildings when it cut its third-quarter forecast earlier this month.

Ingersoll's troubles are twofold: The second-half recovery in consumer demand for air conditioning and security systems that it expected has not materialized, and consumers who have replaced air conditioners or heaters have opted for lower-priced units, rather than the more profitable, and more expensive, high-efficiency systems, analysts said.

The Ingersoll cut could be the start of a wave of earnings warnings in the industrial sector, which is grappling with weak demand in the United States and Europe, one analyst said.

"My feeling is this is the first of many in the industrial space in the next couple of weeks," said Eric Landry, an analyst at Morningstar in Chicago.

Ingersoll, which is headquartered in Davidson, North Carolina, but incorporated in Dublin, generates 67 percent of its revenue in North America. That makes it more reliant on its home market than bigger U.S. industrials, including General Electric Co (GE.N), United Technologies Corp (UTX.N) and Honeywell International Inc (HON.N), which have used growth in Asia and the Middle East to offset sluggish U.S. spending.

Ingersoll shares were down $4.21, or 13 percent, at $27.75 in early-afternoon trading, the sharpest decline on the New York Stock Exchange. They touched a low of $26.13 earlier in the session. The earlier low marked Ingersoll's biggest one-day drop since the 1987 "Black Monday" stock market crash.

The Standard & Poor's capital-goods industry index .GSPIC was down 1.9 percent, and U.S. stocks were broadly lower as investors worried the global economy is slowing.

Q3 PROFIT COULD DROP

Ingersoll, which makes Schlage locks and Trane air conditioners, cut its third-quarter profit forecast to a range of 77 cents to 80 cents per share. At its midpoint, that is down 12.8 percent from the company's prior forecast and would represent a decline from 80 cents per share in the year-earlier third quarter.

Analysts were expecting the company to post a profit of 91 cents a share for the quarter before special items, according to Thomson Global Markets I/B/E/S.

For the year, Ingersoll now expects earnings of $2.70 to $2.80 per share. At its midpoint, that is down 8 percent from prior guidance and below the $2.96 per share Wall Street had looked for.

The Ingersoll warning did not catch investors entirely unawares. Nomura analyst Shannon O'Callaghan earlier this month cut his third-quarter forecasts on a range of big industrials, including Ingersoll, GE, SPX Corp (SPW.N) and 3M Co (MMM.N), warning that he expected forecast cuts.

Not all the recent news from the sector has been as bleak. Last week Honeywell said its third-quarter earnings would likely come in at the high end of its forecast range of 96 cents to $1.01 per share.

(Reporting by Scott Malone in Boston, additional reporting by Mike Tarsala in New York and Fareha Khan in Bangalore; Editing by Derek Caney and John Wallace)