Fourth-Quarter 2016 Results February 1, 2017 Safe Harbor This - - PowerPoint PPT Presentation

Fourth-Quarter 2016 Results

February 1, 2017

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Safe Harbor

This presentation includes “forward-looking statements,” which are statements that are not historical facts, including statements that relate to the mix of and demand for our products; performance of the markets in which we operate; our share repurchase program including the amount of shares to be repurchased and timing of such repurchases; our projected 2017 full- year financial performance and targets including assumptions regarding our effective tax rate. These forward-looking statements are based on our current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from our current

• expectations. Such factors include, but are not limited to, global economic conditions, the
• utcome of any litigation, demand for our products and services, and tax law changes.

Additional factors that could cause such differences can be found in our Form 10-K for the year ended December 31, 2015, Form 10-Q for the quarters ended March 31, 2016, June 30, 2016, and September 30, 2016, and other SEC filings. We assume no obligation to update these forward-looking statements. This presentation also includes non-GAAP financial information which should be considered supplemental to, not a substitute for, or superior to, the financial measure calculated in accordance with GAAP. The definitions of our non-GAAP financial information and reconciliation to GAAP is attached to the earnings news release that can be found at www.ingersollrand.com and are defined in footnotes at the end of this presentation. All data for beyond the fourth quarter of 2016 are estimates.

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Leading market shares Strong, recognized brands Well positioned in both geographic and end markets

Strategic Foundation Continues to Underpin Top-Quartile Performance

Sustainable and Profitable Growth, Cash Flow and Shareholder Value

Sustained Growth Operational Excellence Winning Culture Cash Flow / Dynamic Capital Allocation

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Consistent Progress Against Key Metrics*

Net Revenue Operating Margin

• Adj. Continuing EPS*

Free Cash Flow*

Versus 2015

+2% reported +3% organic

+60 bps

* Includes certain Non-GAAP financial measures. See the company’s Q4 2016 earnings release for additional details and reconciliations.

+11% +37%

Full Year 2016

$13,509M 11.6% $4.13 $1.35B

>100% adj. net income

• FCF was 121% of adjusted net income*
• Full-year operating leverage of 44%
• Repurchased ~4.9M shares for $250M in 2016

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Steady Operating Performance Improvement

$11.5 $12.0 $12.5 $13.0 $13.5 $14.0 2013 2014 2015 2016

Net Revenue

3% CAGR

In Billions

$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 2013 2014 2015 2016

Adjusted EPS

0% 5% 10% 15% 20% 25% 2013 2014 2015 2016

Cash Flow ROIC

6 Ppts 16% CAGR

0% 2% 4% 6% 8% 10% 12% 14% 2013 2014 2015 2016

Adjusted Operating Margin

2.3 Ppts

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• Continued strong operating results

– FCF $353M in Q4; $1.35B 2016 – Combined operating results for segments exceeded guidance

• EPS miss vs guidance driven by discrete items
• Robust Commercial & Residential performance

– Commercial bookings up high-single digits & Residential bookings up low-teens – Margin expansion in both Commercial and Residential

Key Takeaways Q4 2016

• Industrial business steady on recovery path

– Revenue up sequentially vs. Q3

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Q4 2016 Guidance to Actual Bridge

Q4 2016 Adjusted EPS Guidance (at mid-point) $0.91 Operations earnings 0.01 Corporate Costs (0.04) Foreign Exchange Losses (0.01) Higher Tax rate (0.03) Q4 Actual Adjusted EPS $0.84

• Combined operating results for Climate & Industrial exceeded guidance.
• Higher than anticipated corporate costs were driven by stock-based and

annual incentive-based compensation and increased IT infrastructure and security investments.

• Higher than anticipated profits from high tax jurisdictions caused an increase

in the tax rate.

Highlights

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Q4 Total Company Performance

Operating Margin Net Revenue

10.8% 10.3%

Q4 '15 Q4 '16

$3,326 $3,359

Q4 '15 Q4 '16

14.2% 13.4%

Q4 '15 Q4 '16 +1% +2% Organic

• 50 bps
• Adj. Operating Margin*

11.3% 10.8%

• Adj. OI + D&A %**

* Adjusted margin excludes restructuring in 2015 and 2016 ** Adjusted operating income + depreciation and amortization divided by revenue

• 80 bps
• Revenue up 1%, +2% organic
• Adj. margin 10.8%, down 50 bps Y-O-Y
• Adj. EPS of $0.84 , down 11%

Highlights

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Y-O-Y % Change

Reported

Organic

Q1 2015 3% 5% Q2 2% 4% Q3 (2%) 1% Q4 1% 2% Q1 2016 1% 4% Q2 2% 3% Q3 2% 3% Q4 6% 7% Climate C

Commercial HVAC

+ low-teens

• N. America

+ low-teens

• L. America

+ low-teens

• EMEA

+ mid-single digits

• Asia

+ high-teens

Residential HVAC

+ low-teens

Transport

+ mid-single digits Total

+ 9%, +10% Organic

Industrial

Compression Tech

• low-single digits

Industrial Products

• low-single digits

Small Elec. Vehicle

+ low-single digits

Total

• 2%, -1% Organic

Y-O-Y Change in Organic Bookings

Very Strong Q4 Bookings Led by Commercial and Residential Businesses

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North America Europe Asia Latin America

Climate Industrial Climate Industrial

Revenue change Y-O-Y

Q4 Reported Q4 Organic Climate +3% +4% Industrial

• 4%
• 3%

Total +1% +2% Climate Industrial Climate Industrial

Middle East/Africa

Climate Industrial

C O N S O L I D A T E D R E S U L T S

Q4 Segment Organic Revenue Change by Region

11 E n t e r p r i s e

Lower Q4 Margin Primarily due to Steel Inflation and Higher Than Anticipated Corporate Costs

• Improvements in material productivity offset by other inflation, including higher

than anticipated corporate costs resulted in a 40 bps headwind

• Solid operational performance offset by steel inflation
• The company continues to invest in products, while expanding channels

Highlights

10.8% (0.2) (0.3) 10.3%

4Q 2015 Volume / Mix / FX Price/Material Inflation Productivity/Other Inflation Investment/Other 4Q 2016

0.4 (0.4)

(0.2) Investment (0.1) Other/Rest

• 50 bps

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C L I M A T E S E G M E N T

Q4 Strong Commercial and Residential HVAC Offsetting Transport Results

Operating Margin Net Revenue

12.9% 13.6%

Q4 '15 Q4 '16

$2,492 $2,559

Q4 '15 Q4 '16

15.4% 15.8%

Q4 '15 Q4 '16

+3%

+4% Organic +70 bps

• Adj. OI + D&A %**

+40 bps

• Adj. Operating Margin*

12.9% 13.6%

* Adjusted margin excludes restructuring in 2015 and 2016 ** Adjusted operating income + depreciation and amortization divided by revenue

• Strong Commercial and Residential HVAC revenue growth
• Strong unitary and aftermarket
• Operations performance delivered 70 bps of adjusted operating margin improvement

Highlights

13 I N D U S T R I A L S E G M E N T

Q4 Organic Revenues Declined by 3%

12.7% 10.5%

Q4 '15 Q4 '16

Operating Margin

$834 $800

Q4 '15 Q4 '16

Net Revenue

15.8% 13.5%

Q4 '15 Q4 '16

• 4%
• 3%

Organic

• 220 bps
• Adj. OI + D&A %**
• 230 bps
• Adj. Operating Margin*

13.8% 11.4%

* Adjusted operating margin excludes restructuring in 2015 and 2016 ** Adjusted operating income + depreciation and amortization divided by revenue

• Q4 performance slightly exceeds revenue and operating margin guidance
• Continuing initiatives to drive margin improvements

Highlights

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2013 2014 2015 2016

1,345** 810 862 985**

Strong Balance Sheet and Free Cash Flow

$ Millions YE 13 YE 14 YE 15 YE 16

Cash 1,937 1,705 737 1,715 Debt 3,521 4,224 4,218 4,070 Net Debt 1,584 2,519 3,481 2,355

Free Cash Flow

$ Millions

*Reported – includes Allegion security business and excludes restructuring and one-time spin costs and refinancing premium

**Excludes the impact of the IRS agreement and restructuring in 2015 and excludes restructuring and the proceeds on the sale of Hussmann in 2016

Post Security Spin

1,151*

• 2011 to 2016 avg. FCF % of net income = 100%
• 2016 FCF % of adjusted net income = 121%
• FCF increase from higher operating results and working

capital management

$5.14/share

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2016 Dynamic Capital Allocation Focused on Delivering High Returns

Strategic Business Investment Maintained Strong Balance Sheet at BBB Metrics  Digital  Energy efficiency  Channel Expansion  No meaningful debt maturities until 2018 Building value through acquisitions  Working on our pipeline of targets

$0.64 $0.84 $1.00 $1.16 $1.36 $1.60 2012 2013 2014 2015 2016 2017F

Share Repurchase – Minimum Offset Dilution from Benefits Program  YTD 2016: Repurchased 4.9M shares for $250M  Dividend increased to $1.60 / share  20% annual CAGR 2012 to 2017 Competitive Dividend Payout

36 55 76 98 103 108 2011 2012 2013 2014 2015 2016

Cumulative share repurchase 2011 to 2016 --108 million shares

Guidance

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2017 Forecast for End-Market Performance

End Markets

Americas EMEA Asia Guidance Commercial HVAC

Up mid-single digits

Residential HVAC

Up mid-single digits

Transport

Down low-single digits

Compression-related & Industrial Products

Down low-single digits

Golf / Utility

Flat/Up low-single digits

Organic Revenue

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2017 Enterprise Guidance

FY Guidance Climate ‒ Revenue Reported ‒ Revenue Organic

~3% ~4% Adjusted Operating Margin 14.5% to 15.0%

Industrial ‒ Revenue Reported ‒ Revenue Organic

~-2% ~-1% Adjusted Operating Margin 11.0% to 12.0%

Total ‒ Revenue Reported ‒ Revenue Organic

~2% ~3% Adjusted Operating Margin 12.2% to 12.6%

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2017 Guidance: Full-year Continuing Adjusted EPS $4.30 to $4.50

Full Year Y-O-Y change in revenue

• Reported
• Organic

~2% ~3% EPS continuing $4.15 to $4.35

Restructuring – (add back)

($0.15) EPS continuing – adjusted $4.30 to $4.50 EPS – discontinued ($0.13)

Share Count – Millions

~262

Free Cash Flow

$1.1B to $1.2B

Tax Rate

21% to 22%

Corporate G&A

~$240M

CAPEX

~$250M

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2017 Capital Allocation Priorities

• 2017 expected FCF range of $1.1B to $1.2B
• Continued investment in the core business
• Technology, channel expansion and productivity

enhancements

• Dividends of ~$420M ($1.60 per share, annualized)
• Target deployment of $1.5B for share buybacks and

acquisitions combined

• EPS guidance includes $250M (of $1.5B) share

buyback to offset dilution

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• U.S. Manufacturing
• In-region for-region manufacturing and supply chain strategy
• Sourcing with local U.S. vendors to lower manufacturing cycle

time

• ~95% of finished goods sold in U.S. are manufactured in the U.S.
• Net Exporter
• U.S. Corporate Tax Rate Reduction
• ~65% of revenues from the U.S.
• Pay significant U.S. taxes
• Reduction in the U.S. tax rate benefits Ingersoll Rand’s U.S.-

based earnings

Topics of Interest for 2017

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Topics of Interest for 2017

• Status of Industrial Segment
• Solid Q4 results
• Growth in food, pharma and tech verticals and aftermarket soft in

general industrial, large compressors and energy

• OPEX gains, restructuring and cost reductions drive improved
• perating margins in 2017 despite low-single digit revenue decline
• Status of Climate Segment
• Commercial and Residential HVAC markets continue upward

momentum

• Expect Transport revenues to be down low-single digits Y-o-Y
• N. America trailer industry down low-teens
• Growth in Europe, Asia and in aftermarket partially offset lower

North American trailer revenues

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Topics of Interest for 2017

• Currency impact on 2017
• ~35% of revenues outside U.S.
• Expect weaker Euro and Asian currencies
• Net currency expected to have a ~1 percentage point drag
• n revenues and a ~10 cent negative impact on 2017 EPS
• Price/Cost 2017
• Material inflation in Q4 results
• 2017 - Expect flat nonferrous cost, inflation in steel
• Targeting price/material inflation gap of 10 to 20 basis

points positive

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• Continued strong 2016 results driven by execution of our business operating

system

• Strong 2016 full-year cash conversion resulted in $1.35B of FCF
• Top-quartile organic growth, EPS growth and cash flow percentage of net

income

• Commercial HVAC business is strong driven by customer demand trends for

energy efficiency and productivity

• Expect continued progress through 2017 for Industrial, albeit quarterly results

may show some cyclicality

• Commodity inflation expected in 2017, primarily driven by steel. We expect

positive price/material cost spread of 10 to 20 basis points.

• 2017 targeted cash deployment of ~$1.5B for share buybacks and acquisitions

and ~$420M of dividends

• Adjusted EPS guidance tied to strength of business; adjusted EPS range of

$4.30 - $4.50

Summary: Top Quartile Performance with Industrial Improving

Appendix

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Q4 Organic Revenue Up 2% Year-Over-Year

Reported

2015 2016 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY

Climate

6% 2% 4% 2% 3% 3% 4% 3% 3% 3%

Industrial

7% (1%) (2%) 5% 2% (7%) (4%) Flat (4%) (4%) Total 6% 2% 3% 3% 3% Flat 2% 2% 1% 2% 2013

Organic*

2015 2016 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 4Q FY

Climate

9% 5% 8% 5% 7% 4% 5% 3% 4% 4%

Industrial

4% (4%) (2%) (2%) (1%) (5%) (3%) 1% (3%) (3%) Total 8% 3% 6% 3% 5% 2% 3% 3% 2% 3%

*Organic revenues excludes acquisitions and currency

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Flat Organic

• 7%

5%

• 3%
• 10%

5%

Reported Organic*

*Organic revenues excludes acquisitions and currency

Q4 Revenue Up 1% and Organic Up 2%

3% 4%

• 3%

Climate Industrial

Reported Organic*

• 4%

Segment Revenue Change Geographic Revenue Change Americas Europe, Middle East, Africa Asia

N.A. Organic +6%

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Q4 2016 Y-O-Y Revenue Change

Reported Organic

Climate

• Commercial HVAC

+ Low-single + Mid-single

• Residential HVAC

+ Low teens + Low-teens

• Transport
• Mid-single
• Mid-single

Total Climate 3% 4%

Industrial

• Compression-related Products
• Mid-single
• Low-single
• Industrial Products
• High-single
• High-single
• Small Electric Vehicle

+ Low-single + Low-single Total Industrial

• 4%
• 3%

Total Company

1% 2%

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Full-Year 2017 Guidance Bridge

2016 EPS Continuing Operations (GAAP) 2016 Restructuring + other one-time items*

$5.52 (1.39)

Operations – includes ($0.15) of restructuring

0.29 to 0.49

Currency

(0.10)

Investments

(0.15)

Tax rate/other

(0.02)

2017 EPS Continuing Reported (GAAP)

$4.15 to $4.35

2017 forecast restructuring (add back)

(0.15)

2017 Continuing EPS (Adjusted)

$4.30 to $4.50

*Includes restructuring, Hussmann gain on sale and 4Q legal settlement

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Non-GAAP Measures Definitions

Organic revenue is defined as GAAP net revenues adjusted for the impact of currency and acquisitions. Organic bookings is defined as reported orders closed/completed in the current period adjusted for the impact of currency and acquisitions.

• Currency impacts on net revenues and bookings are measured by applying the prior year’s foreign currency exchange

rates to the current period’s net revenues and bookings reported in local currency. This measure allows for a direct comparison of operating results excluding the year-over-year impact of foreign currency translation.

• Acquisition growth rate impacts from 2015 versus 2014 for both net revenues and orders are calculated by excluding

the net revenues and orders from companies acquired in 2015. We are adjusting the 2015 to 2014 growth rate comparisons for the Engineered Centrifugal Compression business acquired in January 2015 and reported in our Industrial segment, and the Frigoblock acquisition completed in March 2015 and reported in our Climate segment, to allow for a direct comparison of operating results to prior periods. Adjusted operating margin is defined as the ratio of adjusted operating income divided by net revenues.

• Adjusted operating income is defined as GAAP operating income plus restructuring expenses in 2016. In 2015

acquisition-related Inventory Step-up costs were also excluded from this measure. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 3 & 4 of the news release. In 2016 Adjusted EPS is defined as GAAP EPS plus restructuring expenses and legal settlement, less the gain recognized on the sale of the Hussmann equity interest in Q2 2016, net of tax impacts and a legal matter. In 2015 Adjusted EPS was defined as GAAP EPS plus restructuring expenses, acquisition inventory step-up costs, Venezuela re- measurement of monetary assets and the IRS agreement, net of tax impacts. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 3 & 4 of the news release. Legal Settlement of a lawsuit originally filed by a customer in 2012. The lawsuit related to a commercial HVAC contract entered into in 2001, prior to our acquisition of Trane U.S. Inc. and the charge in the fourth quarter of 2016 represents the settlement and related legal costs.

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Non-GAAP Measures Definitions

Free cash flow in 2016 and 2015 is defined as net cash provided by operating activities, less capital expenditures, plus cash payments for restructuring. In 2015 this definition also excluded the cash impact of the IRS agreement which occurred in the third and fourth quarters. Please refer to the free cash flow reconciliation on table 8 of the news release. Cash flow return on invested capital is defined as annual free cash flow divided by the sum of gross fixed assets, receivables and inventory less accounts payables Working Capital measures a firm’s operating liquidity position and its overall effectiveness in managing the enterprises’ current accounts.

• Working capital is calculated by adding net accounts and notes receivables and inventories and subtracting

total current liabilities that exclude short term debt, dividend payables and income tax payables.

• Working capital as a percent of revenue is calculated by dividing the working capital balance (e.g. as of

December 31) by the annualized revenue for the period (e.g. reported revenues for the three months ended December 31 multiplied by 4 to annualize for a full year). Adjusted effective tax rate for Q4 2016 is defined as the ratio of income tax expense, plus or minus the tax effect

• f adjustments for restructuring costs and legal settlement, divided by earnings from continuing operations before

income taxes plus restructuring expenses and legal settlement. Q4 2015 adjustments were comprised of restructuring costs and acquisition inventory step-up charges. This measure allows for a direct comparison of the effective tax rate between periods excluding adjustments. Adjusted OI + D&A is defined as adjusted operating income plus depreciation and amortization expense. Operating leverage is defined as the ratio of the change in adjusted operating income for the current period (e.g. Q4 2016) less the prior period (e.g. Q4 2015), divided by the change in net revenues for the current period less the prior period.