At Ingersoll Rand, we believe the measure of a great company is consistent, year-after-year top-quartile performance on the most important metrics to our customers, employees and shareholders. Our long-term goal is to increase organic revenue at least twice as fast as the underlying rise in gross domestic product.
We believe we can grow at this rate because our businesses are supported by strong macro-economic trends. World population is expected to increase by 2.4 billion people, or nearly 33 percent, by 2050. Cities will grow even faster, absorbing an additional 3 billion people. It is estimated that, around the globe, 75 percent of the building inventory and public infrastructure that will exist in 2050 has not yet been constructed.
Achieving Premier Performance – Our Strategy
Growth Excellence. We use analytics to make clear, strategic choices on what markets to pursue and how to succeed by introducing productive, energy-efficient and reliable products and services to deliver on our customers’ needs.
Urbanization at this scale will radically disrupt the planet if it is not sustainable for the economy and the environment. Bridging successfully to the mid-21st century will depend in large part on society’s ability to rise to the challenges of climate change and resource depletion.
As a company that provides solutions for energy efficiency, economic productivity and greenhouse gas mitigation, Ingersoll Rand is positioned to help meet these challenges. We continue to invest heavily in product innovation and operational excellence to drive growth and improve profitability.
The year 2015 was an exceptionally unstable period in the energy sectors, in foreign exchange rates, in emerging markets and in the stock market. Nonetheless, Ingersoll Rand extended its multi-year record of top-quartile, diversified industrial peer group performance as measured by organic revenue and earnings growth, incremental margins and total shareholder return.
The company’s net revenue for 2015 grew 3 percent from 2014 on a reported basis. Operating margin increased 10 basis points to 11 percent, adjusted EPS was up 12 percent to $3.73 (USD). Adjusted EPS is a non-GAAP financial measure. Click for additional information and reconciliation.
Adjusted EPS is a non-GAAP financial measure. Adjusted EPS for 2015 is 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. Adjusted EPS for 2014 is defined as GAAP EPS plus Restructuring expenses and the redemption premium expense incurred for the early retirement of debt net of tax impacts
The Company reports its financial results in accordance with generally accepted accounting principles in the United States (GAAP). This supplemental table provides non-GAAP financial information and a quantitative reconciliation of the difference between Adjusted EPS and EPS, the financial measure calculated and reported in accordance with GAAP.
Adjusted EPS should be considered supplemental to, not a substitute for or superior to, EPS calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of our businesses as determined in accordance with GAAP. In addition, these measures may not be comparable to non-GAAP financial measures reported by other companies.
We believe that Adjusted EPS provides important supplemental information to both management and investors regarding financial and business trends used in assessing our financial condition and results of operations.
We use a disciplined and dynamic model for deploying the company’s free cash flow, weighing investments in the business, dividends, share repurchases and potential portfolio transactions in line with market conditions to create maximum shareholder value. The company’s dividend increased 16 percent. In 2015, executing on our capital allocation strategy, we repurchased 4.4 million Ingersoll Rand shares for $250 million (USD).
During the past five years, and including 2016, the company’s dividend has grown at a compound average annual rate of 24 percent, amounting to approximately one-third of our strong free cash flow. During this same period the company returned more than $6 billion (USD) to shareholders through dividends and the repurchase of approximately 100 million Ingersoll Rand shares.
The past five years have also been a period of sustained operational improvement at Ingersoll Rand. We have deployed the Ingersoll Rand business operating system throughout our businesses, including strategy development, competitive analysis, engineering, product management, supply chain, manufacturing, customer support and all supporting functions. We have expanded our business without adding fixed costs, headcount or facilities footprint, while improving productivity and reducing our time-to-market. As a result, the company’s operating margins have improved 270 basis points since 2011.
This financial performance underscores a commitment we all share at Ingersoll Rand: to shape the direction of future innovation and create a better experience for our customers. Acting on this commitment, we continue to fully deploy a business operating system that enables us to execute with discipline and precision in pursuit of continuous improvement. And we’ve created a culture that embodies employee engagement, diversity and a passion for helping our customers succeed.
The company’s top-quartile performance in 2015 demonstrates this formula is working well. It is a testament to the power of strategy, discipline, innovation and, above all, the commitment of our employees around the world to the vision, purpose and values of Ingersoll Rand.