Diversified industrial manufacturer Ingersoll-Rand (NYSE:IR) reports Q2 2006 earnings results tomorrow morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Eighteen analysts follow Ingersoll, splitting their ratings a poetic 7 to 11, buy vs. hold.
  • Revenues. Sales are expected to rise 9% year over year, to about $3 billion.
  • Earnings. Profits are predicted to do even better, with the consensus calling for 13% growth to $0.95 per share.

What management says:
Judging from the above, analysts are on board with CEO Herbert Henkel's projection that the company can achieve long-term revenue growth of 8% to 12% and earnings growth of 12% to 15%. Last quarter's performance lent further credence to these objectives, with the company posting 13% growth in product orders, and Henkel opining that "Ingersoll Rand's major end markets remained strong as we entered 2006."

Henkel's projections for Q2 give us some context on what analysts mean when they say that earnings will be "$0.95." The CEO projected $0.92 to $0.97 per share in profits from continuing operations, minus $0.02 for the costs of discontinued operations. Thus, analysts have tagged the firm to hit the very top of its earnings guidance, and can be expected to react unhappily if it merely hits somewhere in the middle. Chances are that they won't be disappointed, however. In addition to making the above short-term predictions, Henkel also raised full-year guidance by about 2% last quarter, advising investors to expect somewhere in the neighborhood of $3.55 per share for the year from continuing operations, minus $0.08 for discontinued operations. That's a net of about $3.47 a share.

What management does:
For well more than a year now, we've heard other heavy-industry companies lamenting what the high cost of raw materials has done to their margins. No such whining emanates from the management offices here, though.

True, growth in cost of goods sold has outpaced sales growth 11% to 10% over the last six months. But as sales grow, the company hasn't just kept its selling, general, and administrative costs flat -- it's actually edged them down a tad. As a result, slightly smaller gross margins haven't kept operating margins from expanding nicely. (Pay no attention to the apparent deterioration of the net, by the way. That owes mainly to a large one-time credit from discontinued operations taken back in Q4 2004, which inflated the numbers for the next three quarters.)

Margins %




























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

This Fool says:
In previewing Ingersoll's earnings report last quarter, I warned Fools to keep an eye on accounts receivable and inventories, both of which had been outpacing sales growth slightly in recent quarters. As of today, though, that worry appears to have abated. True, A/R continues to grow faster than sales, but the 11% to 10% difference is pretty negligible, especially in light of last quarter's year-over-year decline in inventories. From a slightly longer-term viewpoint, the last six months show inventories sitting, on average, only about 3% higher than they did one year previously.

Long story short, I don't think this is something we need worry about now -- but it won't hurt to keep an eye on the issue tomorrow, just to make sure last quarter's numbers were no fluke.

Related Companies:

  • Capstone Turbine (NASDAQ:CPST)
  • Caterpillar (NYSE:CAT)
  • Cummins (NYSE:CMI)
  • Tyco (NYSE:TYC)
  • Toro (NYSE:TTC)

Relive the heady days leading up to and following Ingersoll Rand's Q1 in:

Tyco is a Motley Fool Income Investor recommendation. To discover more promising stocks with dynamic dividends, sign up today for a free 30-day guest pass .

Fool contributor Rich Smith does not own shares of any company named above.