Janet Pfeffer - VP, Treasury and IR Mike Lamach - Chairman and CEO Sue Carter - SVP and CFO Joe Fimbianti - Director of IR.

Josh Pokrzywinski - Buckingham Research Andrew Casey - Wells Fargo Securities Nigel Coe - Morgan Stanley Joe Ritchie - Goldman Sachs Julian Mitchell - Credit Suisse Steve Volkmann - Jefferies Steve Tusa - JPMorgan David Raso - Evercore ISI Jeff Sprague - Vertical Research Company Steven Winoker - Bernstein Research.

Good day, ladies and gentlemen, and welcome to the Ingersoll Rand Fourth Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference call is being recorded.

I would like to introduce your host for today’s conference Janet Pfeffer, Vice President, Treasury and Investor Relations. Please go ahead..

Thank you, Kate, and good morning, everyone. Welcome to our fourth quarter 2014 conference call. We released earnings at 7 this morning and the release is posted on our website. We’ll be broadcasting, in addition to this phone call through our website of ingersollrand.com, where you will find the slide presentation that we will be using.

This call will be recorded and archived on our website. If you’d please go to slide 2. Statements made in today’s call that are not historical facts are considered forward-looking statements and are pursuant to the Safe Harbor provisions of Federal Securities laws.

Please see our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. This release also includes non-GAAP measures, which are explained in the financial tables to our news release.

Now I’d like to introduce the participants on this morning’s call Michael Lamach, Chairman and CEO; Sue Carter, Senior Vice President and CFO; and Joe Fimbianti, Director of Investor Relations. With that, please go to slide 3, and I’ll turn it over to Mike..

Great, thank you, Janet, good morning and thanks for joining us on today’s call. This morning I’ll spend a few minutes for capping our full year 2014 and our progress on the transformation that we’ve been working on with the company for the past few years.

Then Sue will take you through the fourth quarter results and I’ll then provide outlook for 2015 before we open it up to your questions. So starting with full year 2014. The past year demonstrated continued progress in the implementation of our multiyear strategy for growth, operational excellence and shareholder value.

We invested in our core businesses, matured in key strategic capabilities and delivered excellent financial results. All in all navigating shifts and changes in global markets. For the year our revenues were up 4%, markets were uneven around the globe.

Our growth in Europe, Middle East and Africa was double digits where I believe we outpaced the market in most or all of our businesses. Growth in North America was mid single digits, while revenues in Latin America and Asia were lower for the full year due to market and currency headwinds.

Adjusted earnings per share were $3.33 a year-over-year increase of 25%. Sue will take you through the bridge in a few minutes, so I’ll leave that for Sue on the quarter. There will be some puts and takes but the short answer is that volume and operational leverage with guidance particularly in the Climate segment.

We grew adjusted operating margins 140 basis points in 2014. Our Lean focus again showed significant results in the implemented value streams and we continue to invest in the future of the business by funding significant new product development, investing in IT platform and building our channel services footprint and product management capabilities.

We generated $810 million of cash flow, our capital allocation strategy remains focused on maximizing shareholder value and it’s consistent with our overall financial strategy. We continue to increase our dividend with a 19% increase in 2014.

We repurchased 22 million shares for $1.4 billion in 2014 funded by the remaining Allegion dividends and from free cash flow.

We announced two value enhancing acquisitions during 2014, the purchase of the Cameron Centrifugal Compression division which closed at the beginning of this month and is now part of our compressor business unit and FRIGOBLOCK which we expect to close in the first half of 2015 which will become part of our Thermo King Transport refrigeration business unit.

Our performance in 2014 where we outperformed the three year path laid out in late 2013 confirms our conviction to our strategy and positions us well going into a challenging global economic backdrop for 2015. Let’s go to Slide 4. We’ve delivered steady improvements in operating margins over the past three years.

Climate margins are up 340 basis points over that period. Overall, our operating margins were up 230 basis points over the last three years despite a tough year in industrial for 2014. As I’ll review when I go through 2105 guidance we expect industrial to recover and a 40% organic operating leverage in 2015. Please go to Slide 5.

This chart locks to the change in operating margin from 2013 at 8.9% to the 2014 which was 10.9% shown on a reported basis, but we strike out restructuring Uni-box. Overall margins expanded 200 basis points on a reported basis and a 140 basis points on an adjusted basis.

The margin expansion was delivered from a combination of organic growth driven by our strategies to invest in new product and service offerings, maintaining a positive gap between pricing and interim inflation to pipes analytics and value pricing and productivity from strategic sourcing, implementing our Lean operating system and overhead cost just of Lean altogether outpacing other inflation.

We continue to invest in new products, IT infrastructure and systems and service and sales footprint underpin the future growth of the business. 2014’s margins performance exceeded our annual goal delivering 85 to 100 basis points of margin improvements.

I’ve always said that most improvements are not typically linear, but being ahead of goal going into 2015 is a great place to be, given the short movements that the world is seeing in exchange rates and oils and metals markets and the economic ripples that that will create.

So, now Sue will walk you through the fourth quarter and I’ll come back and take you through 2015’s outlook..

Thank you, Mike. Let’s slide go into Slide 6 please. At the high level our bookings for the quarter were up 5%, revenues were also up 5%. Foreign exchange was 2 percentage points of headwind to both to excluding foreign exchange both orders and revenues were up 7%.

Our operating margins without restructuring were up 230 basis points and operating leverage in the quarter was excellent at 61%.

Adjusted earnings per share for the fourth quarter were $0.82 up 34% versus last year and consistent with Mike’s commentary for the full year, the fourth quarter was a very strong quarter particularly in terms of margin expansion and earnings performance. Let me start by taking you through a bridge to our guidance for the quarter. Let’s go to Slide 7.

As you recall we updated our guidance on October 24 to reflect the incremental interest expense from the bond issuance and early retirement of our 2015 notes. So, our starting point on a reported basis is a range of $0.63 to $0.67 or midpoint of $0.65. Okay, get all the way to an adjusted basis since that seems to be where most of you are tracking.

Volume and operational performance particularly in Climate delivered a $0.11 incremental to guidance. Our financial statements continued to reflect the official rate in Venezuela and therefore we did not book the recent charge which was included in our guidance.

Movements in currencies including the euro, Asian and Latin American currencies resulted in a $0.04 negative versus guidance and $0.04 of other positive items mainly in other income that brings us to $0.79 of reported earnings per share. There were $0.03 of add back in the quarter to bring you to the $0.82 on an adjusted basis.

So, with that let’s go to Slide 8 please. Orders for the fourth quarter of 2014 were up 5% on a reported basis and up 7% excluding currency. Climate orders were up 6% and up 8% excluding currency. Global commercial HVAC bookings were up mid single digits, transport orders were up high single digits led by North American trailer.

Orders in the industrial segment were up 3% on a reported basis and up 6% excluding currency. Given that more of industrials revenues come from outside of the U.S. its foreign currency impact is larger than in Climate. We saw order growth in all regions and industrial products and a small decline Club Car. Please go to Slide 9.

Just look at the revenue trends by segment and regions. The top half of the chart shows revenue change for each segment. For the total company fourth quarter revenues were up 5% versus last year on a reported basis and up 7% excluding currency. Climate revenues increased 5% on a reported basis and 7% excluding foreign exchange.

Commercial HVAC and transport revenues were each up mid single digits. Residential HVAC revenues were up high single digits. Industrial revenues were up 3% on a reported basis and up 6% excluding currency and I’ll give more color on each segment in the next few slides.

The bottom chart shows revenue change on a geographic basis with and without currency. Excluding currency revenues were up 6% in America. Up 22% in Europe, Middle East and Africa led by strong HVAC performance and Asia was down 3%. Please go to Slide 10.

This chart shows the change in operating margin from fourth quarter 2013 of 7% to fourth quarter 2014 which was 10.7% consistent with prior quarter, this is shown on a reported basis where we spiked out the restructure to give you adjusted margins as well.

Volume mix and foreign exchange collectively were 70 basis points positive versus prior year, pricing was slightly less than direct material inflation impacted by negative price in Asia mainly China. Productivity versus other inflation was positive 210 basis points driven by strong productivity in the quarter.

Year-over-year investments and other items were lowered by 100 basis points and in the box you can see that this was comprised of 40 basis points from investments and 140 basis points from lower restructuring cost. In the gray box at the top of the page, overall leverage on an adjusted basis was excellent at 61%. Please go to Slide 11.

The Climate segment includes Train, commercial and residential HVAC and Thermo King Transport refrigeration. Total revenues for the fourth quarter were $2.4 billion that is up 5% versus last year on a reported basis and also up 7% excluding currency. Global commercial HVAC orders were up mid single digit. Orders were up in all geographic regions.

Trains, commercial HVAC fourth quarter revenues were up mid single digits. Commercial HVAC equipment revenues were up low single digits while HVAC cards, services and solutions revenue were up high single digit versus prior year.

Thermo King orders were up high single digits versus 2013's fourth quarter with a significant increase in North American trailer orders. Thermo King revenues were up mid single digit with truck trailer revenue down as increases in North America were more than offset by lower revenues in foreign exchange overseas.

Residential HVAC revenues were up high single digit versus last year. The adjusted operating margins for Climate was 12.2% in the quarter, 210 basis points higher than fourth quarter 2013 due to volume and productivity partially offset by inflation. Climates operating leverage was over 50% in the quarter. Please go to Slide 12.

Fourth quarter's revenues for the industrial segment were $795 million up 3% on a reported basis and up 6% excluding currency. Air systems and services, power tools, fluid management and materials management revenues and orders were up low single digits versus last year.

Revenues in the Americas were up mid single digit while revenues in Europe and Asia were down low-single digits including impacts of currency. Club Car revenues in the quarter were up mid single digits and orders were down low single digits versus prior year.

Industrial's adjusted operating margin of 15.8% was slightly down compared with last year, as volume and productivity was offset by the impact inflation, investments and currency. Please go to Slide 13. For the full year, working capital as a percentage of revenue was 3.1%, the increase versus prior year was primarily inventory.

This includes some incremental inventory related to the regional standard change in residential HVAC, additionally we have been intentionally increasing stocked inventory levels of key assemblies in order to ensure availability of supply.

We had good collections in the quarter with our day sales outstanding and days payable outstanding both improving over the prior year. Going forward, we expect our working capital to be in the 3% to 4% range. Please go to Slide 14, cash flow was $810 million in 2014.

Cash conversion was 87% for the year below our long term target of 100% mainly by our strategy for working capital as I addressed on the last slide. As you will see when we look at 2015, we expect to be back at that 100% target this year. Our balance sheet remains very strong.

We have no debt maturities this year given the financing we did in October and the early retirement of 2015 note. Our cash balance was unusually high at the end of December as we have the cash on hand to fund the Cameron acquisition on January 2nd of 2015. We expect free cash flow in 2015 to be in the range of $950 million to $1 billion.

And with that I am going to turn it back to Mike to take you through 2015 guidance..

Great, thanks Sue. And please go to Slide 15. It’s certainly an interesting time to try to predict exactly what will happen over the next 11 months in order to give you guidance. In the past few months the world has experienced discount in oil markets and foreign exchange rates.

So I will give you the best view of what we see in the market sitting here today and some more color on how it could be impacted from further improvements in foreign exchange. Starting with North American non-residential, we anticipate the first positive year in institutional market since 2008.

Albeit in a more moderate pace than the current batch forecast. We have started to see some positive signs in our recorded pipeline particularly in K-12 education. We continue to see growth in commercial and industrial based on this mid single digit growth for 2015 in North American commercial HVAC markets.

We expect Latin American, Asian, European, and Middle East HVAC equipment markets in the aggregate to the up lower mid single digits at constant currency but flat down after considering currency. We expect North American transport market to be up mid single digit in 2015 and European markets to be down including FX.

We expect residential HVAC industry motor-bearing unit shipments for the year to be up low single digits in 2015, the revenue should be up mid single digits due to favorable mix. We expect industrial markets to be up low to mid single digits and Gulf markets are expected to be up low single digits.

Aggregating those market backdrops we expect our revenues for full year to be up 4% to 5% versus 2014. Overall, foreign exchange will be a headwind for about 3 percentage points. We report the Cameron Centrifugal business for the entire year and that's going to add 3 points so for organic growth excluding FX front and back at 4% to 5% range.

Translating that to our full year outlook by segment we expect climate revenues to be up 2% to 3% on a reported basis and 4% to 5% excluding currency. The industrial segment revenues are forecasted between a range of up 13% to 14% on reported basis and 4% to 5% excluding Cameron and foreign exchange.

As Sue noted industrial has a higher proportion of revenues outside of the U.S. as compared to Climate. So, industrial expense is more impacted from FX relative to Climate. Operating margins, we expect Climate margins to be in the range of 12.5% to 13.5%.

We expect industrial margins including Cameron operations and amortization, but excluding the impact of the inventory step up to be 14.5% to 15.5%. The inventory step up will be recorded in the first and second quarters and is about $12 million per quarter.

Since its non cash, and isolated to those two quarters we felt it was more representative of ongoing earnings to spike out the step up and should note that we are in the final validation stages for the purchase accounting for Cameron, for the amortization and step up numbers might move around a little but this is our best estimate as of right now.

If you peel out the Cameron impact the legacy industrial business is leveraging at about 40%. Please go to Slide 16. Transitioning to earnings, the reported earnings for share range is estimated to be 360 to 375 per share. Excluding the Cameron inventory step up which is in the range of 366 to 381, an increase of 10% to 14% versus 2014.

When you exclude the impact to bring in Cameron revenue and earnings and for the first time this year, the legacy company is leveraging at about 48%.

Given the outperformance in 2014 with full year EPS growth of 25%, we are on path for articulated three year cagier growth target range of 15% to 20% even if they had wins from currency and uneven markets. As a note for 2015, FX is a headwind of about 3% to revenue and $0.17 to earnings.

This reflects full year tax rate forecast of 25% in an average diluted share count of 270 million shares. To give you some more insight into the sensitivity to additional movement in currency, in 2014, about 63% of our revenues were denominated in dollars. Only 7% is in China and another remaining 30%.

The Euro is about 10%, Asia outside of China and Latin America were 6% to 7% each and other currencies such as the Canadian dollar, the British pound make up the remainder.

So our much of the focus has been on the movement and outlook for the euro currency movements in Asia and Americas have been significant for example between August and December, the Yen, dollar and Malaysian ringgit all moved down 10% to 15%. And since half of the revenues in Asia are outside of China this has an impact.

We built our guidance around the Euro at 116. to give you some simple math to gauge sensitivity of $0.01 move in the euro means about a penny in earnings. And if all currencies move 1% versus the dollar, although it's very unlikely they will all move the same magnitude that would be about $0.02 of earnings.

Now to focus on the first quarter guidance to the right hand column on this chart, first quarter 2015 revenues are forecast to up 4% to 5% on a reported basis and you can see the currency and acquisition impact on the slide.

Reported first quarter earnings for share forecast to be $0.26 to $0.30, the inventory step up all hit in the first and second quarters and impact first quarter by $0.03. Adding this back to get to adjusted basis, the EPS range is $0.29 to $0.33.

And it seemed this morning there are some questions about first quarter guidance so let me give you some more color now in order to address that. At the midpoint first quarter is about 8% of the total year adjusted earnings and historically it would be closer to 9% or 10% but slightly less than normal. There are few things impacting the first quarter.

First it's the portion of the full year Cameron’s earnings are less in the first quarter due to the calendarization of their revenues. Second, the cost are higher in the first quarter than historical due to the timing of the cost incurred relative to our healthcare program and equity compensation trends. Specifically, this year in the U.S.

for the first time our employees are all participating in health savings accounts with their health care program. So, employees are in credits their health care saving accounts they are doing certain activities related to wellness.

Those fund at the beginning of the year but we will see the benefit to us in the year to lower healthcare cost as we go along. Third, to get more benefit later in the year from lower copper because of our layering strategy we added the year with copper lock at about 70% for the first half.

So, copper movements won't have much impact in the first part of the year. And then finally foreign exchange of course is more negative versus prior year in the first quarter given the variance of rates from the year ago.

So, we provided EPS bridges for both first quarter and full year in the appendix and that will help give you the walk from year to year. For the full year 2015 we expect to generate free cash flow of $950 million to $1 billion which is at a long term target of 100% net income.

We intend to increase the dividend as appropriate to be consistent with the pat ratio in the peer range. We expect FRIGOBLOCK to close in the first half of this year and we will utilize 100 million of Euros of cash to do that.

We anticipate a minimum of 250 million of spending for share repurchase which will offset delusion from equity issuance and that will leave us about 350 million of cash that we see as a toggle between value, accretive acquisitions and share repurchase.

We have a pipeline of acquisition opportunities related to our core business and we weigh those risk adjusted opportunities against buyback in terms of returns and shareholder value.

So, in closing we are pleased to have delivered another solid year with 2014 margin improvement and earnings growth ahead of our targets, our strategies for growth and operational excellence have delivered a multiyear trend of excellent operating leverage, margin and earnings improvements.

Our focus is to continue to grow earning of cash flow through further implementation of those strategies. We have proactively worked to deliver productivity and make good investments for the future. Our new product line is the strongest as it has been in decades. If any of you read the AHR show this week, you saw clear evidence of that.

We continue to invest in new product and service offerings, our IT infrastructure and systems and by further developing our people and our operating capabilities. We continue to execute a consistent value maximizing capital allocation program.

So from the progress that we have made and the results we have delivered and believe that we are well positioned as we enter 2015 and for the future. And with that Sue and I will be happy to take your questions..

Thank you. [Operator Instructions] Our first question comes from the line of Josh Pokrzywinski with Buckingham Research. Your line is open..

Hi good morning guys. Mike you talked a little bit about the differences between institutional and commercial and some of the momentum you are seeing in K-12, can you put that in terms of apply versus unitary for the year.

I guess maybe starting off with what bookings were for each in the quarter and then how you are thinking about the difference between the two businesses?.

Well, the unitary markets globally worldwide and in North America were very strong low double digit team type growth there. So we are seeing that in commercial industrial and obviously some of that happening in small institutional projects where unitary would be applied.

You might see more unitary in sort of the lower schools, K-6 maybe some smaller middle schools, you’ll kind of see in the bigger high schools perhaps more applied. So that was kind of the mix K-12 that happened.

But, we have worked hard over the last five plus years that we got relative parity in margins between applied unitary and we got good utilization and capacity left for whatever that mix would swing.

So, I think that from a company point of view we feel good about the contribution margin as applied more unitary and we feel good about the capacity upside that we have got in our facilities to build out, if we were potentially surprised by better markets we would have the ability to work against that, execute against that..

Do you think that unitary pace is applied in 2015?.

Yes, I do. I actually do. I think that applied, you probably look at something more like a mid single digit growth rate. I do think that that will sustain itself over a multiyear period if you look at what's required from an institutional infrastructure perspective that would make sense that that would be the case.

So, as you get through that route into multiyear view you may see an exchange where unitary comes back into more normalized low to mid single digit type growth pattern that it could sustain that way for a while..

Our next question comes from the line of Andrew Casey with Wells Fargo Securities. Your line is open..

Thanks. Good morning everyone. In the quarter it looks like productivity benefit really accelerated versus last quarter and it was against a little bit easier comp, but that doesn't buy itself explaining.

Could you give a little bit more detail on what drove that and kind of what you expect going forward?.

So, Andy when you think about what happened in the fourth quarter overall, first of all we talked about that the revenues guide was up and the revenues that came through were good revenues that provided some additional leverage and when you look at the pieces of the business we gone from good productivity out of our cost base, we got some good productivity out of the direct material inflation and from some of our other components of cost whether it would be something like warranty or other item, so really when you take in you look at the quarter and all of the pieces everything was just better than the way that we had looked at it because people in our businesses did a great job of not only executing on the revenue side, but they also did a great job of executing on the cost side which like I said cross board and all of the different categories gave us additional productivity.

So, there is no really one big thing that you can look at but -.

Yes, Andy one thing that maybe to emphasize to this point is we would look normally at every quarter on a really detailed risk and opportunity assessment in the quarter and looked at that through the last minute of the quarter end.

And it was a case and I wanted to hats off to the team, the whole team sort of business team and functional team because it was a function of executing all the opportunities and managing all the risks in a way where you get the best net out of that that's possible and it's just like that..

Okay. Thank you. And just quick follow up on that.

So based on your description of a lot of things going right it seems like that should be sustainable at least for the short term as that accurate?.

Andy I always say that you have only room for breakage? Okay, I mean that was a perfect quarter for us but compares with the you don’t tell things aren’t perfect so that you are allowing for breakage so we will continue to look at things on a risk adjusted basis and I would suggest that that’s a pretty good leverage that we have in quarter and I dial you back on something looks a lot more like the gross margins of the business for us, okay because that over a very long period of time which is what we have done over five years and going multi years into the future if you are able to leverage that at your gross margins it’s phenomenal, it means there’s no fixed cost investments, very hard to sustain, means keep hard doing that but that would be a fantastic 10 year sort of view and that from the operating system that we are building as we have five good years of that we would like to have at least five more before we call that something sustainable..

Our next question comes from the line of Nigel Coe with Morgan Stanley, your line is open..

Thanks. Good morning everyone.

Maybe just obviously conversations on closing Cameron and maybe just if you can talk Mike about sensitivity of Cameron’s to the oil price and how the operating fund for Cameron has changed if at all since you announced deal?.

Sue will give first crack at that she has been really close, very, very close to that team effectively with sensitivity, oil and gas..

Alright, so Nigel the way that I would start looking at that piece of the business as you divided really into sort of four almost equal categories or pieces of the business, so you got the engineered aero piece of the business which is largely the air separation and pieces you can't replant aero piece there was two pieces though again let’s call each of the pieces 25% of the business for the sake of argument, there was two pieces of business that were really going flux with just the IGR industrial indices.

So, those are not going to be as exposed you got the process gas pieces of the business again another 25% of the business and that has some exposure that comes to the oil and gas side but then pieces of the business is going to look at a lot of things that are hydrocarbon.

So, well you have an impact from the oil and gas pricing, you also have the piece that says that there was some power generation.

So, conversion from vehicle to a lower natural gas price which is a good thing and something that around the globe that business has so products into which it’s not necessarily seeing as much impact as well as petrochemicals which have been strong and so that’s another 25% of the business and that of course the other side of the aftermarket.

So again, when you think about the business, the exposure directly to oil and gas is really in that one piece but it is not the entire piece of the business and it’s not just a negative.

And one of the things that you asked Nigel was impacts, since we actually signed up the transaction and so what we’ll see is if you recall the commentary when we bought the business was that this is, the long lease bookings for the business so the things that you book in one year going to sell the next year.

We saw some lighter bookings in the back half of 2014 before we actually started operating the business. So, we will expect some of the lightness that we talk about is more in the back half.

Mike talked about in his commentary that their first quarter revenues were like that’s part of the normal cycle that isn’t anything to do with the market or how we are seeing the business.

So, not a lot of oil and gas exposure and truthfully let me expand that out just a little bit and talk about the total company because that maybe another question that you might have is for the total company. I would say you could ask to me the oil and gas piece maybe 2% of revenues something in that range.

So, I think we are on solid footing with the Cameron business, we’re looking at the synergies we think we’re going to continue to do a really good job of executing notes and the fourth piece of the business that I didn’t mention was the aftermarket piece and the service piece which is our intention to grow..

Yes, thanks Sue that was really helpful knowing we definitely thinking -- from the lower price and then just the follow on, on the investment spending with the heard to the industrial margins in 2014 and I am wondering what is the investment outlook for 2015 overall things around, what sort of rate is that growing at and to what extent did investment spent get pulled forward into 2014?.

So again, Nigel when I think about the investments spending and I think about 2015 so our incremental spending is going to be up on a year-over-year basis.

It goes from something like $64 million up to sort of $82 million number with the investments for 2015 and so here is how I would look at those actual investment is when we start to look at them and we look at where we are investing money. So about 50% of the investment dollars in 2015 are going to be in product and product related type of area.

So, I mean that one include any go to market type of pieces out of the investment spend and then you are going to have the other pieces which are going to be the business operating system so call at another 25% and then the IT system and so when you think about sort of that break down and think about it in terms of overall strategy we want to continue to grow the investments in our product and how we go to market with the product.

We certainly want to continue to invest in the business operating system per the strategy and those things are really paying off for us. So, we think that those numbers in 2015 are good investments and something that is really going to be helpful for us..

Nigel, let me add, the remaining piece was with the IT systems and infrastructure piece and we did some of the infrastructure pieces typically that relates to security and some – and making sure that we were doing that and largely from headquarter basis, it's the best way to spend that as opposed to every business unit making a different decision about that.

So that's the source of the other piece of investment. We probably flattened out here from an IT perspective through about 2018 and then we begin to sort of roll up lot of the depreciation in 2019. So that piece of it as you mentioned I think flattens out here in 2015. .

Our next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is open..

Great, thank you and good morning everyone. My first question is on price cost. Like we did get the HR show earlier this week and it seems like you are getting really good pricing on your commercial HVAC products with all the new products that you actually – that you can clearly there is a cost tailwind as well this year.

And I am just trying to understand what’s embedded in your guidance in terms of the price cost tailwind that you should see in 2015?.

Joe, let me try that one on and the Mike can add some color if he chooses at the end. So the way that I would think about our pricing versus the direct material inflation which is how we talk about it is, we look to have a positive spread in sort of 20 to 30 basis point revenue. So, it looks a lot like 2014.

So, we built that capability and in the pricing with our ability to anticipate and react. So, we are focused on maintaining that spread regardless of sort of what's happening on the commodity side. Now having said that, we are fully aware that copper has come down and in price.

Now the impact to an Ingersoll Rand based on the way that we buy copper is really going to be more in the back half of the year. So, we go into the front half of the year being we bought 70% of the copper that we are going to buy.

So, you are not going to have a direct impact in the earlier part of the year based on that commodity spend and then we also have exposure on the aluminum and the steel side which are more than the flattish.

So overall, in 2015, again you have got the piece that you know with the benefit coming out of copper but we still think that in total direct material is going to have a slight headwind for us and we think we are going to have pricing that's 20 to 30 basis points above that direct material inflation overall..

Joe, it’s important concept there because we look at scenarios that are kind of 40 basis points of deflation, 40 inflation I would lean more towards the deflationary story than inflationary story but again it was just really testing ourselves around the ability to wrap the spread.

The only place where it's been difficult in the quarter for us was really China where you have got just the lot of many local competitors, pricing lower on anticipated cost so that was the one place where we didn’t catch up with ourselves, but it actually was quite close. It wasn’t like we really missed it out there.

So, I think that 20, 30 basis points positive spread pick your number on inflation and that's what we hope to do during the year..

That’s really helpful color guys and I guess maybe my one follow up question here is really on the applied market Mike mentioned earlier that your expectation is below what dodges for 2015 and when I take a look at your order trends for this quarter it looks like you declined.

So, I am just curious like what are you seeing in that market today, what gives you the confident that we will get some growth as we head into 2015, it does look like municipal standing has gotten better, I am just curious what you are thinking?.

Yes, actually total [indiscernible] actually up in bookings little bit in the quarter looks embedded but they were up and then as we are talking to our people around the globe and we have the ability of course to see little bit further out with pipeline that we will look at in our sales pipeline and that's more positive reflecting some of the K-12 activities that I mentioned, which I think will translate into bookings in the year.

Being that K-12 schools generally are a little bit smaller and typically had a lot of activities between April and September possibility there that we will see some of that come through toward the middle or early fall in the year and that would be a good indication for us that we are seeing momentum there.

Our view about being a little bit lighter than dodge has better view now for the long time but particularly in the last year around how institutional cover would really take shape and it has a lot to do with industry capacity of trades people about how funding flows through municipalities and states and just the ability to construct as much infrastructure frankly it's not going to snap back at that double digit rate.

I believe that you will see more sustained mid single digit curve going forward..

Our next question comes from the line of Julian Mitchell with Credit Suisse. Your line is open..

Hi thank you.

Just the question on the industrial guidance because your sales and margins have been flat there for about four years, but your guidance today for 2015 you have got a decent organic growth rate of 4 to 5 dialed in and I also think you are looking at what close to 40% incremental margins on the underlying business ex Cameron so maybe talk a bit about the conference on the organic growth step up.

I saw you had a one good quarter of orders and also why the incremental underlying suddenly take off?.

So Julian, when we think about industrial and what's happening in those markets, you are right, as we look at 2015 we have got the revenue growth on the legacy business we are looking at that 40% leverage in 2015. We think that the business has got good line of sight to the market, to the orders that they are expecting.

They all been owning their strategies and again if you think about what we were doing with reorganization of the business and going to a business unit structure and focusing on growth that gives us a lot of confidence that we have got people that are looking at right things in terms of the products and the revenue growth they have also been looking in prioritizing some really good payback investments that support the growth those include product development, service infrastructure investments for the business and other channel investments and so when you look at 2015 there are larger percentage of the investment spends and they are of our revenue profile but we think that those are, we think that those are the right things for those businesses to be doing.

And so what we think is as you put all of those pieces together with the team is focused on the businesses and growth focused on their different markets and the focus on investments to really grow those businesses that’s what gives us confidence that the business will have that 2015 that we are projecting..

Julian, mechanically to Club Car last year, last 10 days on a storm about 10 days, first on these issues that we are not going fax really write after that so you don’t have that repeating.

So just by having a more normal low single digit Club Car business leveraging at really good margins which it normally would do plus not having to repeat last year ice storm again happened in February. So let’s hope that we don’t get one down there again that out of snap back even mechanically much better just to do that alone..

Thanks and then my follow up would just be on the Climate adjusted operating margin, it looks like you are hitting the margin target that one year early, you hit the guidance.

So looking beyond that given your running at such a good rate where are you targeting sort of medium term, the margins and Climate can get to assuming no major gyration in organic sales growth outlook?.

Yes, Julian if you recall, our structural view was something in the 14% to 16% range for the Climate so I think clearly, we think there is structural opportunity up in that area so let’s work on that probably next.

We are always away from that at this point in time and I think that they are going to continue to see that but again it takes investments, we’re investing heavily into product, channel, service footprint all around a long term view that that’s structural in the business.

We can update that in May talk about it that point in time but we are really pleased to be where we’re at this point, it’s great execution by the entire global team both residential and commercial and the service business. So, all [indiscernible] there really..

Our next question comes from the line of Stephen Volkmann with Jefferies. Your line is open..

Thank you very much. Good morning..

Good morning..

I’m wondering about your comments about building a little bit of inventory in 2015 and I guess I’m just curious your thinking behind that what areas were that be and what gives you confidence of that’s sort of helpful strategy?.

We saw some of the higher margin businesses last year was order volatility that you can literally be 200% sort of a historical rates and so market volatility that we are seeing in the world is translating the order volatility on stock and semi assembled products and we want to make sure is that with that stuff is very quick turn.

Somewhat discretionary in terms if you got the product you are going to sell it, we don’t want to be stingy on that we want to make sure we protected against the possibility that sort of volatility and so widening out the corn barns, widening of the stock rates and we think about the certain product in the company that we say if the zero stock of product literally 100.0x you want product you get the product if want it and we really like that when those products, the contribution is accretive of the overall margins of the company.

So, margins accreted to the company’s overall margin profile, stock, semi stock, we want to have product when you want to buy it and there is no point with cost to capital being what it is, you feel stingy about that. So it’s just straight economics..

Okay, thanks.

And then maybe a quick follow up are there any share changes in any of your product lines that you like to color for us and I guess Thermo King continues to look pretty good and sort of in that vein, are you worried at all about competition in the compressor business with your competitor having kind of euro cost base?.

Yes, if you listen to me for a long enough I don't talk about sort of market share one way or the other much because I think that over the long run if you are growing margins and your growth rate is higher than your peer set, you must be doing good job.

Our approach is to be top quartile every single year around incremental margins and organic growth. That’s what we have done over the last five years on margin and last couple of three years on our organic growth profile company.

So that's our formula and I can tell you that we feel like the investment and the product and service it's working and I feel like even more that toward the compressed air side of our business, the tool side of our business and fluid side of our business our pro rata as Sue mentioned that is good, good for us as well.

We see good growth opportunities. We see some pockets of growth and some niche opportunities for the product that we have assessed. We have done a lot of strategic analytic behind the scenes to support that. So we feel good about that. We are going to poke in those areas.

So compressed air, tools, fluids, all big ideas that we have got to kind of throw that disproportional.

The product growth team around the company, you heard me talk about that, we have doubled those in 2015, we have got outsized growth and share and margin performance in those last year for the six that we had and feel like we have got the capacity to take on and do six more for 12 in total.

I am excited about that going into 2015 eventually really having that match the value stream of the company. In fact all of those product growth teams are actually value streams in the company anyway.

So that was pre requisition to selecting those so this is over the next five years looking out I think really good model to draw the company and focus our strategy..

Our next question comes from the line of Steve Tusa with JPMorgan. Your line is open..

Good morning. I have one question in two parts. On the commodities side, first of all what you are assuming on price, was price realization kind of the majority of that 20 basis points this year.

Is that the same thing you are assuming on price and then assuming all other commodities like steel and aluminum are wash and you just marked copper to where it is today, you said plus, minus 40 basis points I am not sure what you were saying but we know it's not going to be a drag so what would copper be?.

My comment on the 40 basis points was rather than trying to be self precise in our ability to predict flux rates to commodities we run cases toward how quickly can we respond or react business in different inflation or deflation environments and could we sustain 20, 30 basis points of improvement.

A big part of that though is not just relationship between the cost of commodity and pricing of the current product.

Its making sure that there is a an economic value estimation of new product that better value prices what's it's replacing and where there is an opportunity to grow margins on the top line relative to that economic value created, that's the big idea obviously that we are doing fairly well at this well.

So the introduction of new products for us is enormous opportunity to raise the margin profile of the company even if we were to hold commodity and pricing flat on the legacy product which is not our goal of course, it's price there too. But, not all that out that's how we come back to 20, 30 basis points positive but on multiple scenario..

So basically, you are saying is that you are going to use some of that commodity tailwind to drive to kind of get these new products out there?.

No, different thing. The commodity tailwind largely it's going to be reflective on competitive pricing at some point in time. And so that’s going to take its own I think competitive dynamics into consideration.

New products that we are launching and when you look at the as an example the energy efficiency or the reliability of the product or the total cost of ownership or other service ability factors that can translate into a value into the customer that's not something that you see a cost for, you see a margin pricing opportunity.

That's the kind of thing that we actually want to make sure that we are doing good job understanding that as we launch the product. So there are two different thoughts that both show up in the pricing column..

Our next question comes from the line of David Raso with Evercore ISI, your line is open..

I just want to make sure that I want to give Steven a crack to make sure that we got is questions so if you could just make sure Steve if you could tell us we got it, I will give you one more crack out if we didn’t if not we will go on..

Steve if you can press star then one on your touch tone telephone. Alright. And our next question comes from the line of David Raso with Evercore ISI, your line is open..

Hi good morning. My question is on Thermo King for 2015. You mentioned mid single digit growth in North America is a target.

Is there a notable slow down that you are looking for in the out quarters I am just trying to understand the initiative seems to be far stronger than that so I am just trying to understand how to read that guidance?.

We are coming off a peak Dave, and I think that as we look at even some of the changes that have made in terms of driver stops and the ability to create additional driver capacity through decent number of inventory stops helps create and unlock a little bit of capacity to our customers.

With that being said you are coming really off the peak and so again lapping the new product lapping the old product is not that big sort of revenue price differential that we are going to get lapping out this year to last year we will get something but not much.

But early in the year and again this is an early read on the full year, you tend to lock in orders really early lock in customer intend and there is a lot of sensitivity to market and capacity for these customers so throughout the years those intangible rates may change.

So that in particular David is a good reason for us to update the guidance in April and July because that number can move around. But right now that really is our best guide. .

But just unclear, is your current backlog or order trends up that modestly?.

Backlog is up a little higher than that. The order trends are okay year at the slow. So it's a forecast that we have got..

Okay, just the clarification when we spoke to 40% leverage on organic that was pre investment just on clear, is that correct, pre investments?.

40% organic on industrial..

I think that was the total company comments, making sure I understand their organic leverage comment..

David this is Janet, it's just basically taking Cameron out of, kind of legacy parts of Ingersoll Rand..

But it includes the incremental investment for this year..

What?.

But it includes the incremental investment figure for this year..

Yes. Yes..

It does. Okay. Thank you very much..

You know actually this morning you are correct I mean you are bringing all of Cameron in this year at the beginning of the year so the math is little bit different. The true incremental of the company is closer to 40 and then Cameron is a start to that okay in the one year..

Well I guess I will have it then.

The currency drag what are you assuming on detrimental to be fair if you are looking for the whole company to have about 145 million of EBIT growth, if you put 40% on organic I’m already up at 230 million so how much is the currency drag? I mean I run the numbers on how you imply $0.17 and I looked it but the drag is only $60 million?.

David, this is Janet. I think you are misunderstanding how we use, legacy is the right word, it's the legacy company. So that’s -.

So it must be ex-investment then, is that what you are saying?.

No, it's all in..

Okay, we will do the math offline I’m just saying, you have got 230 million of EBIT growth just from organic growth out of 40% incremental and the EPS comment and currency would suggest currency drag again the currency detrimental must be rather significant..

David why don't you give Joe a call and locate it..

Exactly. Thank you very much. I appreciate it..

Our next question comes from the line of Jeffrey Sprague with Vertical Research. Your line is open..

Thank you. Good morning. Just two quick ones. Just back to Cameron, it looks like your guide would imply Cameron revenues something like 360 million for 2015 kind of 12% off to your industrial base so that's down 10% or so from what the 2013 revenues were described as.

I don't know if that was just some kind of round numbers in the mix there but are you actually looking for the business to be down that much and maybe just I mean your industrial orders actually look pretty good right up three in Q3 and up six in Q4.

What is that about their business that their orders would have been soft in the second half?.

Jeff, when we looked about evaluating the business as we acquired it we had given at 10%, 15% year cut from where it was just based on what we knew that I am glad we did based on what we are seeing. So, your math isn’t too far off. We are somewhere between 350 and 360 and probably how we see that..

Yes, and I think Jeff, when again as Mike said your math is right and when you think about the business being down and we went through all of the different pieces one of the areas where my assessment is that they meet on the booking side in the back half of last year was on the normal booking bill that goes on in the business.

Now what causes that I don't know because we weren’t in control but that's something that our team and the Cameron team now part of Ingersoll Rand need to look at for 2015 and really focus on getting that book and bill back in to it. I think the issue is it's not a fundamental issue with the business.

It's getting into our operating system and our management team and focusing on the business and just operating..

Yes, I think the good news Jeff is that we have been really able to kind of go back and look at the EBITDA and EBIT numbers and confirm that we have got line of sight to how to do it based on business case we put together which to your point already was year cut 10%, 15%, as we did the valuation for it..

I am just wondering on investment spending and coming around to that the comment that it levels out was that just the ITP, I think it was – can you just give us a view holistically on investment spent when it might kind of I don't know normalize the sales growth or something that is not a meaningful P&L headwind?.

I will correct on the IT span Jeff, that’s the only one that flattens out. And relative to the business investments it really depends on the pipeline of ideas and there is an innovation review that we are conducting all the time.

There are multi generation road maps that we are looking at for the product and we think we have got a pretty good equation here. And again if we could continue to get the same incremental margin in growth in the business we would have no reason to tell you that we are going to ever change the investment profile what we are doing.

Now having said that we don't know beyond about 18 months because it really does depend on what that multi generation product plan might look like or what acquisition like in terms of footprint that we are bringing on board to serve channel footprint which is another big part of the investment.

So, we are going to give it a year time but what you will see, kind of hear is that we are investing in growth of the company and in the FX performance of the company at about the same rate albeit larger absolute dollar year to year to year..

Our next question comes from the line of Steven Winoker with Bernstein, your line is open..

Thanks. Good morning. You spent $200 million for shares, $3 million to $4 million in the fourth quarter but you are holing share count flat I guess at 270 million through 2015, maybe just and what generating about $1 billion you mentioned free cash flow.

Just give us sense for why you’re guiding in that way for the rest of the year and what are you thinking about capital deployment more broadly then?.

Steve, I think the way that that we thought about it and just modeled it for you was if you take that $950 million to a $1 billion maybe a third of it goes to our dividend.

We said that we would follow our long term guidance which is to add a minimum key the delusion from occurring from option exercises and from programs that things are maturing and so we gave it to you in those two pieces and then send the remaining say third of the cash flow that we would toggle between M&A and share repurchases and it’s we just broke it up that way so that you would say okay here is the minimum that they’re going to do and then the piece if we have good M&A candidates that follow along with our strategy for that we would do it and if not we would look to return the cash for shareholders..

Steve, I think your question about share count, I will bring in the expert too if I get off track we will be issuing shares in the first part of the year at the programs and buying back shares in last part of the year so you are going to see delusion in the first couple of quarters and then you are going to see us coming back to neutral on the back half of the year just the way that it averages share count for the full year.

So, average share count it just not beginning, I’m sorry beginning and ending but it certainly yes, extremes of issuing in the first quarter and doing a lot of buybacks towards the fourth quarter..

Okay and then Mike you talked about risks and opportunities R&Os before in the fourth quarter and how I think you used the words perfect that was for their performance, maybe just give us a bigger idea of how they Rs versus Os, look like they’re balancing out and what you have to believe when you think when you most excited about that list and what you are maybe most concerned about as you think about 2015 results?.

Steve, our philosophy in giving guidance has always sort of net R&O that we see for guidance and for quarter.

One of the things that you don’t see in our numbers now as we haven’t put anything in for Venezuela, it’s just noisy for us to forecast that didn’t know what’s going happen at some point probably will happen and we can just update you when something like that actually happens.

You also noticed that we didn’t spend much really in restructuring last year rather than putting noise around that if we see something that we need to be doing, we are going to do that and update you on that but probably can manage that within the base that we have got.

The rest of the items that show up in here are typically commercial puts and takes when something lose something, it’s all based on pipelines that have typically four levels of commitment everything from we’ve pretty much got at the back to pretty much of the competition got at the back, a case when you get a swinger, [indiscernible] lose one that we were we should have got, as we net those things out, the operational performance of the company is becoming much more predictable in terms of how executing against that and again this is big kudos for the bench strength around the company operationally forgetting the time, quarter-over-quarter, quarter for long time now and managing through that because they’ve their own unique set of R&Os between suppliers that are having floods and fires and suppliers that we are switching out changing, line moves, plant moves and running the day to day so that’s the kind of thing to look at on at least monthly basis..

And now I’d like to turn the call back over to management for closing remarks..

Thank you. Thank you very much and everybody have a good day. Joe and I will be around for questions..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a good day..