Industrial conglomerate Ingersoll-Rand posted profit that met Wall Street's expectations Friday, but its shares fell over 4 percent after the Bermuda-incorporated company said U.S. authorities were looking into its past tax filings.
The company, which maintains its administrative headquarters in Montvale, New Jersey, said the Internal Revenue Service had proposed changes to its 2001 and 2002 tax filings, but executives on a conference call with analysts declined to specify the amount of the proposed changes.
"We believe that the numbers the IRS are kicking around are not realistic," said Herbert Henkel, chairman and chief executive of Ingersoll, which makes products ranging from refrigerated trailers to air compressors and security technology. "To put a number out there at this point in time would be misleading."
Henkel said it would "be surprising" if the IRS did not look into tax filings from subsequent years.
Ingersoll reincorporated in Bermuda at the end of 2001. The IRS questions focus on loans between the Bermuda entity and its U.S. affiliate, Henkel said, adding that the company believes it is "adequately reserved" for any potential charges.
Deutsche Bank analyst Nigel Coe, in a note to clients, wrote that the IRS notice "threatens the large U.S. tax shield and hence the sustainability of (Ingersoll's) low tax rate."
Andrew Obin, of Merrill Lynch, wrote that he estimated the intercompany debt would account for about 45 cents of forecast 2007 earnings per share.
Ingersoll forecasts 2007 profit of $3.45 per share to $3.55 per share, and earnings from continuing operations of $2.62 to $2.68.
International Sales Boost Quarter
Ingersoll, which has been remaking its portfolio of businesses to become less cyclical, said each of its three units posted higher sales and operating income.
Ingersoll posted net earnings of $964.1 million, or $3.17 per share, for the second quarter, up from $313.5 million, or 95 cents per share, a year earlier.
Excluding a gain of $2.22 per share from the sale of its road-development business, it earned 95 cents per share in the quarter, matching analysts' average forecast, according to Reuters Estimates.
Revenue rose 9 percent to $2.23 billion, with international growth of 17 percent sharply outpacing a 2 percent rise in U.S. revenue.
Ingersoll, which sold its road development business earlier this year, reclassified that unit as a discontinued operation.
It also reclassified its Bobcat compact equipment segment and utility equipment business.
Ingersoll has said it is considering the sale or spin-off of those businesses, and on Friday it said it expects to make a final decision in the current quarter.
It said it would begin a restructuring in the current quarter that would reduce quarterly profit by 6 cents a share and full-year profit by 7 cents a share.
Ingersoll said it expects third-quarter earnings of 85 cents to 90 cents a share. Analysts, on average, have forecast 90 cents per share, according to Reuters Estimates.
Ingersoll shares were down $2.23 to $48.46 on the New York Stock Exchange. Including today's action, the shares are up about 25 percent so far this year, outpacing the 13 percent rise in the Standard & Poor's capital goods index.