Ingersoll Rand's Q3 2025: Contradictions Emerge on Order Trends, Tariff Impacts, Margins, and Pricing

Date of Call: October 31, 2025

Financials Results

• EPS: $0.86 adjusted EPS for Q3, up 2% YOY and up 11% on a 2-year stack; full-year midpoint adjusted EPS guidance reduced to $3.28 from $3.40
• Gross Margin: Management stated gross margins are flat to slightly up versus prior periods (no percentage disclosed) and that tariff-related dilution pressured margins
• Operating Margin: Adjusted EBITDA margin of 27.9% for Q3 (company); PST adjusted EBITDA margin 30.8%, ITS/IPS ~29%; adjusted EBITDA full-year midpoint revised to $2.075B

Guidance:

• Total revenue and expected organic volume growth for 2025 remain unchanged
• Midpoint of adjusted EBITDA guidance revised to $2.075 billion
• Midpoint of adjusted EPS guidance reduced to $3.28 (from $3.40)
• Expect both segments' adjusted EBITDA margins to be approximately flat sequentially vs Q3
• FY assumptions: adjusted tax rate ~23.5%, net interest ≈ $220M, CapEx ≈ 2% of revenue, diluted share count ≈ 402M
• Guidance does not assume potential tariff reductions announced yesterday

Business Commentary:

• Organic Growth and Order Momentum:
• Ingersoll Rand reported positive organic orders for the third consecutive quarter, with orders up 2% year-to-date and a book-to-bill ratio of 1.04x.
• The company saw improvement in order trends across all regions, except for a timing issue in one industry segment.

• The growth in orders is attributed to disciplined execution and strategic bolt-on acquisitions, despite tariff-related uncertainties.

• EPS and Revenue Guidance Adjustment:

• The company adjusted its full-year adjusted EPS guidance to $3.28 due to tariff-related impacts, with the midpoint of adjusted EBITDA guidance revised to $2.075 billion.
• This adjustment was primarily due to the recent announced tariff increases and delayed pricing realization.

• Ingersoll Rand expects both segments to maintain approximately flat adjusted EBITDA margins sequentially in Q4.

• Tariff Impact and Strategic Response:

• Ingersoll Rand is facing a gross headwind from tariffs, with an estimated impact exceeding $100 million this year.
• The company implements proactive measures, including pricing actions and operational tariff mitigation efforts.

• Strategic flexibility is maintained to leverage strong free cash flow for potential share repurchases and M&A opportunities.

• Segmental Performance and Innovation:

• The Industrial Technologies and Solutions (ITS) segment reported a 7% increase in orders, driven by high single-digit growth in compressors.
• Orders in Asia Pacific were up mid-single digits, while orders in EMEA were down due to timings in industrial vacuum and blower projects.
• Innovation is highlighted by the introduction of the META Contact Cool Compressor, enhancing productivity and reducing costs.

Sentiment Analysis:

Overall Tone: Neutral

• Management emphasized durable growth, disciplined M&A and $326M Q3 free cash flow, and reported Q3 adjusted EBITDA margin of 27.9% and EPS up 2% YOY, but downgraded EPS midpoint and flagged >$100M tariff headwind and near-term margin caution, signaling balanced optimism with caution.

Q&A:

• Question from Michael Halloran (Robert W. Baird & Co. Incorporated): Can you discuss end-market momentum across segments and regions into 2026 and whether any macro green shoots will break out of choppy demand?
  Response: Organic orders improving (third consecutive quarter positive), broad regional improvement except lumpiness in vacuum/blower in Europe; backlog heavy entering 2026 and secular end-markets (wastewater, life sciences) are helping offset slower core industrial recovery.

• Question from Michael Halloran (Robert W. Baird & Co. Incorporated): Will margins uptick in 2026 and what needs to happen for segments to reach 2027 targets?
  Response: Margins expected muted in early 2026 as tariff impacts work through; management expects gross margins flat-to-slightly-up and to continue self-help (IRX, pricing, operational mitigation) to reach 2027 EBITDA targets (~30% ITS, mid-30s PST).

• Question from Julian Mitchell (Barclays Bank PLC): Can you parse the main drivers of the weaker-than-expected EBITDA incrementals this year and outlook for 2026 margin progression?
  Response: Primary drag is tariffs (largest), plus deleverage from lower organic volume offset by M&A/Fx and ongoing commercial investments; expect muted margins in first half 2026 then improvement in back half as pricing and actions convert.

• Question from Julian Mitchell (Barclays Bank PLC): What was the split of price versus volume in Q3 and how should we expect price ramp in coming quarters?
  Response: Price contribution in Q3 was ~2.7% companywide; Q4 pricing percent expected to be similar to Q3, with additional realization shifting into 2026 due to backlog timing.

• Question from Jeffrey Sprague (Vertical Research Partners, LLC): What is the gross tariff headwind and incremental impact from August Section 232 actions?
  Response: Tariff headwind is now slightly in excess of $100 million year-to-date (up from prior ~$80M estimate); price actions taken and expected to convert into relief in 2026.

• Question from Andrew Kaplowitz (Citigroup Inc.): How is the clean energy vertical (renewable natural gas) impacting ITS and do comps ease in 2026?
  Response: Clean energy/RNG was a drag on revenue in Q3 but orders in ITS Americas were still up mid-single digits; tough comps from prior IRA-driven acceleration have largely passed and clean energy remains a constructive end market globally.

• Question from Andrew Kaplowitz (Citigroup Inc.): Was PST order strength broad-based or driven by specific acquisitions and how is legacy Gardner Denver Medical performing?
  Response: PST strength was broad across the portfolio with Life Sciences (including legacy Gardner Denver Medical/ILC platform) performing particularly well and contributing materially to growth.

• Question from Nigel Coe (Wolfe Research, LLC): Any initial view on 2026 from backlog and customer engagement and how will tariffs annualize into 2026?
  Response: Early 2026 read is positive with sustained backlog and MQL momentum, but tariffs will wrap into 2026 causing muted margin expansion early in the year; company is pursuing pricing plus operational mitigation and considers Q4 tariff assumptions conservative/worst-case.

• Question from Joseph Ritchie (Goldman Sachs Group, Inc.): Why did pricing realization lag given backlog dynamics and will tariff removals meaningfully expand margins?
  Response: Pricing lagged because recent price increases flowed into backlog rather than revenue due to typical order-to-revenue cadence and stronger-than-normal backlog; if tariffs disappear, pricing is sticky and cost relief could benefit margins, though prices were set to cover costs 1:1.

• Question from Christopher Snyder (Morgan Stanley): Can you provide ITS organic order performance by region for Q3?
  Response: Q3 ITS organic orders: Americas up mid-single digits, China/Asia Pacific positive (China low-single digits, rest of APAC mid-teens), EMEA down high-single digits driven by timing in vacuum/blower project business.

• Question from Stephen Volkmann (Jefferies LLC): What are the additional cost actions you mentioned and timing of benefit?
  Response: Company recorded restructuring charges tied mainly to headcount reductions (not footprint) as proactive cost measures; payback roughly ~1 year and benefits are more pronounced into 2026 due to timing.

• Question from Stephen Volkmann (Jefferies LLC): Are you seeing reshoring demand in life sciences turn into quotes/orders?
  Response: Yes — increased quoting activity and customer conversations around reshoring (APIs, small-molecule) are real but multi-year; some revenue may materialize in 2027–2028, and ILC expertise positions the company to capture opportunity.

• Question from Joseph O'Dea (Wells Fargo Securities, LLC): Is PST becoming more book-and-ship within quarter and is mix driving price realization delays?
  Response: PST has a larger short-to-medium cycle component (more book-and-ship) versus project-heavy ITS; pricing realization delays are more pronounced in ITS due to longer backlog and project timing, while PST continues healthy margin expansion.

• Question from Joseph O'Dea (Wells Fargo Securities, LLC): What's your inorganic appetite — bolt-ons versus larger deals over next 12–18 months?
  Response: Remain laser-focused on bolt-ons (14 closed YTD, 9 LOIs) with strong returns (avg pre-synergy ~9.5x) while remaining open to larger platforms intermittently; strategy is frequent bolt-ons with occasional larger acquisitions every 3–5 years.

• Question from Nathan Jones (Stifel, Nicolaus & Company, Incorporated): Any change in quote-to-order elongation or engineering resource constraints as leading indicators?
  Response: Quote-to-order dynamics are stable overall with some pockets improving, funnel not showing cancellations, and engineering/resource constraints have slightly alleviated but remain a consideration.

• Question from Nicole DeBlase (Deutsche Bank AG): What is the sizing and payback of the cost/headcount actions into 2026?
  Response: Headcount actions are global and expected to deliver roughly a one-year payback as a reasonable proxy for the realized savings into 2026.

• Question from Nicole DeBlase (Deutsche Bank AG): Will you continue buybacks in Q4 given prior commentary and current balance sheet?
  Response: Yes; balance sheet supports continued buybacks alongside M&A and the company will opportunistically repurchase shares as dislocation continues.

• Question from David Raso (Evercore ISI): How does the Section 232 change affect competitive dynamics and pricing leverage?
  Response: Removing exclusions increases tariff exposure for imported compressors, which can advantage in-region manufacturing (including the company) and may accelerate share gain; pricing stickiness improved as actions convert to list prices.

• Question from David Raso (Evercore ISI): Can you reprice longer-dated backlog?
  Response: Long-cycle (12–18 month) projects often have contractual clauses allowing adjustments for material/alloy changes and the company can work supply-chain mitigations, but short/medium-cycle backlog is difficult to reprice without reopening contracts.

Contradiction Point 1

Order Trends and Demand Cadence

It involves shifts in the reported order trends and demand cadence, which are crucial for understanding the company's performance trajectory and future expectations.

Can you discuss end market trends and how you expect momentum to develop through 2026? - Michael Halloran(Robert W. Baird & Co. Incorporated)

2025Q3: Orders have continued positively sequentially, with 3 positive quarters of organic orders. The trend is improving across regions, except for some lumpiness in Europe's vacuum and blower business. - Vicente Reynal(CEO)

How did demand and order cadence progress in the second half of the year? What assumptions are in guidance for seasonality or improvement in the second half? - Michael Patrick Halloran(Robert W. Baird & Co. Incorporated)

2025Q2: We typically don't guide orders externally, but we had a book-to-bill of 1.06x in the first half of the year. The quarter continued with stable momentum, showing no significant declines. - Vicente Reynal(CEO)

Contradiction Point 2

Margin Expansion and Tariff Impact

It involves differing expectations regarding margin expansion and the impact of tariffs, which are critical for assessing the company's financial performance and cost management strategies.

How do you see margins evolving into 2026, and what actions are needed to reach 2027 targets? - Michael Halloran(Robert W. Baird & Co. Incorporated)

2025Q3: Margin expansion in ITS is expected to be muted in the first half of 2026 due to tariffs. We're leveraging IRX for operational mitigation. ITS is at 29% EBITDA margin, slightly below the target. - Vicente Reynal(CEO)

Can you clarify the phasing of the second-half sales and EBITDA growth? Is the Q3 EBITDA estimate approximately $550 million? - Julian C.H. Mitchell(Barclays Bank PLC)

2025Q2: We expect margin expansion, driven by volume, pricing, and operational leverage. We expect pricing to continue to be slightly positive and for volume to improve sequentially in the back half of the year. - Vicente Reynal(CEO)

Contradiction Point 3

Tariff Impact and Pricing Strategy

It involves the Company's strategy to manage and mitigate the impact of tariffs on their financial performance, affecting investor expectations and margin projections.

Can you explain the gross headwind from tariffs and the impact of new 232 tariffs? - Jeffrey Sprague (Vertical Research Partners)

2025Q3: Tariffs added over $100 million of headwind this year. The recent 232 tariffs increased this impact. Pricing actions are in place with the timing to realize this offsetting costs in 2026. - Vikram Kini(CFO)

What is the tariff hedge in the guidance regarding price vs. cost mitigation? - Jeff Sprague (Vertical Research Partners)

2025Q1: We have implemented a combination of price and surcharges to offset tariff impacts. We're taking a disciplined approach with pricing, and all actions are designed to give flexibility for future adjustments. - Vicente Reynal(CEO)

Contradiction Point 4

Order Trends and Backlog Conversion

It involves the Company's assessment of order trends and backlog conversion rates, which are critical for understanding future revenue growth and operational planning.

How does the backlog impact pricing realization, and is there a difference between short-term and long-term backlogs? - Jeffrey Sprague (Vertical Research Partners)

2025Q3: The backlog burning rate in the second half is lower, affecting pricing realization. Short-cycle orders typically convert to revenue quicker, but backlog has added complexity. 2026 pricing should normalize with backlog conversion. - Vikram Kini(CFO)

What trends are you observing in short-cycle vs. long-cycle businesses, and when will PST achieve positive organic revenue growth? - Mike Halloran (Baird)

2025Q1: We saw a good balance in both short and long cycles. While the elongation of decision-making on long cycles was observed, there was positive momentum in organic orders across both cycles. - Vicente Reynal(CEO)

Contradiction Point 5

Pricing Expectations

It involves differing expectations regarding pricing actions and their impact on revenue and profitability.

Can you quantify the contribution of price and volume in Q3 and the rate of price realization in upcoming quarters? - Julian Mitchell (Barclays Bank PLC)

2025Q3: Price was about 3% in Q3, with the Q4 guide driven by tariffs and delayed pricing action. We expect pricing to remain consistent in Q4. - Vicente Reynal(CEO)

Could you clarify the assumptions in the guidance for demand trends this year? Are you expecting improvement, increased stability, or maintaining current stability in end markets? - Michael Halloran (Baird)

2024Q4: We expect our full-year organic volume to be down a bit. We expect about 2% volume growth for 2025, consistent with the last 5-plus years, and then expect our pricing to be up about 5% for the year. - Vicente Reynal(CEO)