Ingersoll Rand Inc Earnings - Q3 2025 Analysis & Highlights
Key Takeaways
Ingersoll Rand's Q3 2025 earnings call highlighted durable growth driven by disciplined execution and IRX, strategic M&A, and a focus on controlling controllable factors amidst a dynamic macro environment. Key discussion points included order growth, margin performance affected by tariffs, strategic capital deployment, and unchanged full-year revenue guidance.
Key Financial Results
Q3 adjusted EBITDA was $545 million, with an adjusted EBITDA margin of 27.9%.
Adjusted earnings per share for the quarter were $0.86, up 2% year-over-year and 11% on a two-year stack.
Free cash flow for the third quarter was $326 million and is approximately flat year-over-year on a year-to-date basis.
Orders showed continued strength in the third quarter, up 8% year-over-year or up 2% organically with a book-to-bill of 0.99 times.
Since the end of 2024, backlog is up high teens from a percentage perspective.
Corporate costs were $30 million, largely reflecting incentive compensation adjustments aligned with performance.
The Q3 adjusted tax rate was 23.9%.
Business Segment Results
IT&S third quarter orders finished up 7%, book-to-bill for the quarter was 0.99 times, and it is 1.04 times year-to-date.
IT&S delivered organic order growth in the low single digits, making the third consecutive quarter of positive organic order growth.
IT&S adjusted EBITDA margins finished at 29%.
P&ST Q3 orders were up 11% year-over-year, with a book-to-bill of 1.01 times.
P&ST organic orders were up 7%.
P&ST delivered adjusted EBITDA of $128 million, which was up 8% year-over-year with a margin of 30.8%.
P&ST adjusted EBITDA margins improved 130 basis points sequentially and up 80 basis points year-over-year, demonstrating continued strong execution.
Capital Allocation
The company has $3.8 billion in total liquidity.
Leverage increased modestly to 1.8 times.
$249 million was spent on M&A, $193 million in share repurchases, and $8 million in dividends within the quarter.
The $193 million in share repurchases made in the third quarter represented approximately 2.5 million shares.
Year-to-date, the company has deployed $460 million to M&A at an average pre-synergy adjusted EBITDA purchase multiple of approximately 9.5 times and returned approximately $700 million to shareholders through share repurchases.
The company will continue to evaluate more share repurchases without affecting their M&A bolt-on approach.
Industry Trends and Dynamics
The company is seeing good exposure to some secular trends, whether markets around wastewater or even the life science investments that they have done, whether it could be biopharma, medical device and some of the tools business.
Clean energy continues to be a good end market when you think about countries like Brazil or even some countries in Europe and even India.
Competitive Landscape
With in-region for region, the company offers eventually a bit of a better competitive advantage.
The company is taking the Section 232 tariffs as a great opportunity for them to accelerate their market share and penetration.
Macroeconomic Environment
The year-over-year margin decline was primarily driven by tariff-related dilution and targeted investments to support organic growth.
The effect of incremental Section 232 tariffs and other tariff increases announced in August is impacting guidance.
Pricing actions have been executed to offset these incremental tariffs, with realization expected in 2026.
Backlog growth has resulted in a delayed realization of pricing actions previously taken in the second half of the year.
The company's current guidance does not reflect any of the potential tariff reductions which were announced yesterday.
The company remains nimble and prepared to adapt to a continued dynamic global market environment.
Growth Opportunities and Strategies
The company's acquisition pipeline is robust, with a strategic focus on targeted bolt-on opportunities that enhance their existing portfolio.
The company remains committed to their capital allocation strategy using their strong free cash flow and disciplined M&A approach to pursue targeted, high return bolt-on acquisitions that add market-leading products and technologies to their portfolio.
Year-to-date, the company has closed 14 transactions with nine additional transactions under LOI.
These high return bolt-ons, averaging a 9.5 times pre-synergy multiple, expand the company's technological capabilities.
The company remains on track towards achieving their annual target of adding 400 basis points to 500 basis points of inorganic revenue acquired on an annual basis.
The acquisition of Dave Barry Plastics is the second addition that the company has made to their life science platform this year.
The company introduced in Europe their META contact cooled compressor, packaged in a remarkably compact design, offering unmatched best in class efficiency.
The META 45 produces up to an 11% increase in flow, while occupying 40% less space.
The META compressor delivers a 14% reduction in energy consumption.
Flexan successfully transferred the manufacturing of critical Class III implantable silicon-based devices without any disruption to downstream manufacturing or patient care supply chains.
As a result of this seamless transition, customer product yield rates saw a substantial improvement, increasing from 55% to over 90%, reinforcing the company's value proposition in life sciences.
Financial Guidance and Outlook
Full year guidance for total revenue and expectations for organic volume growth remain unchanged.
The midpoint of adjusted EBITDA guidance has been modified to $2.075 billion, largely driven by two main factors: the effect of incremental Section 232 tariffs and other tariff increases announced in August, and backlog growth resulting in a delayed realization of pricing actions previously taken in the second half of the year.
The midpoint of adjusted EPS guidance has been reduced to $3.28 from $3.40.
The company expects both segments' adjusted EBITDA margin percentage to be approximately flat on a sequential basis compared to the third quarter.
The adjusted tax rate is anticipated to be roughly 23.5%, net interest expense to be about $220 million, and CapEx to be around 2% of revenue.
The share count assumption has been updated to approximately 402 million shares, which reflects the impact of the share repurchases made year-to-date.
The company expects the full year of 2025 book-to-bill to finish at or slightly above 1 time.
Margin expansion is expected to remain a little bit muted during the first half of 2026 as the company will continue to comp the tariffs, which have been put in place throughout 2025.
