Ingersoll Rand (IR) FY2025 Earnings Quality Report

Grade: F — Goodwill Impairment Year Exposes the M&A Strategy

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-17, FY ended December 31, 2025) + Yahoo Finance

Auditor: Deloitte & Touche LLP — Unqualified opinion (1 critical audit matter: goodwill impairment assessment)

One-line verdict: 2025 was the year the goodwill chickens came home to roost at Ingersoll Rand. The company recorded a $229.7M non-cash goodwill impairment in Q2 2025 on the Biopharma and Aerospace & Defense reporting units inside the Precision and Science Technologies segment, plus $43.7M of intangible asset impairments, plus a $127.1M loss on an equity method investment. Net income fell 30.7% from $846.3M to $588.8M. Revenue rose 5.7% to $7,650.9M — but organic revenues were down $96.0M (approximately -1.3%). The 5.7% reported growth was entirely from "acquisitions of $419.9 million and the favorable impact of foreign currencies of $92.0 million, partially offset by lower organic revenues of $96.0 million." This is a roll-up industrial where the M&A machinery stopped delivering growth in 2025 and started producing impairment charges. Goodwill plus intangibles of $12.7B are 126% of stockholders' equity (D1 fail), the largest goodwill ratio among the screening set. Cash $1.2B covers only 26% of debt $4.8B (C4 fail). AR has outpaced revenue for 2 consecutive years (A2 fail). M-Score -2.56 is clean but the underlying trajectory of organic decline plus impairments is troubling.

A Serial Acquirer with a Reporting Unit Impairment Problem

Ingersoll Rand operates two segments: Industrial Technologies & Services (IT&S, the larger compressor/fluid handling franchise) and Precision & Science Technologies (P&ST, which includes Biopharma, Aerospace & Defense, and other niche precision businesses built through acquisition).

The 2025 10-K discloses three impairment events:

Three impairments totaling roughly $400M in a single year — all concentrated in the P&ST segment and equity investments related to recent deals.

Financial Performance: Growth Is Illusory, Profitability Is Real Declining

From the MD&A Results of Operations:

The 300bp decline in operating margin is severe — from 18.0% to 15.0%. Net margin fell 400bp from 11.7% to 7.7%.

The Organic Decline Is the Hidden Story

From the MD&A: "Revenues for 2025 were $7,650.9 million, an increase of $415.9 million, or 5.7%, compared to $7,235.0 million in 2024. The increase in revenues was primarily due to acquisitions of $419.9 million and the favorable impact of foreign currencies of $92.0 million, partially offset by lower organic revenues of $96.0 million."

Organic revenue fell $96.0M — roughly 1.3%. Adjusting for acquisitions and FX, the underlying business shrunk. This is the first time in several years that Ingersoll Rand's core business contracted.

Gross Margin Walk

From the MD&A: "The decrease in gross profit as a percentage of revenues is primarily due to unfavorable cost leverage on lower organic volumes and tariff related pricing targeted to offset tariff cost increases one for one."

Tariff pricing was set to be a "one-for-one" pass-through — meaning it doesn't generate margin improvement. And the MD&A explicitly acknowledges the operating de-leverage from volume declines. This is the classic mid-cycle industrial pattern where price offsets cost but volume deterioration exposes fixed-cost absorption issues.

Cash Flow: Still Strong

Cash flow remains the franchise's strength. CFFO was down only 3% while net income fell 30%. The difference is the $400M+ of non-cash impairments flowing through the P&L. Free cash flow of $1,220M funds the dividend, buybacks, and acquisition pipeline.

Adjusted EBITDA of $2,093.8M was up from $2,018.1M — a 3.8% increase, also excluding the impairments. Adjusted net income was essentially flat at $1,348M.

Balance Sheet

C4 Cash vs Debt: FAIL. Cash $1.2B covers 26% of debt $4.8B. Despite strong CFFO, IR's debt has grown through M&A financing — total debt is $4.8B, up dramatically from $2.8B at end of 2023.

D1 Goodwill + Intangibles: FAIL. $12.7B = 126% of equity — the largest ratio among the screening set. The Ingersoll Rand that trades today is the product of three decades of M&A culminating in the 2020 Gardner Denver/Ingersoll Rand Industrial merger and many bolt-on deals since then. The 2025 goodwill impairment of $229.7M means about 1.8% of the goodwill balance was written off in a single year.

D2 Leverage: PASS. Debt/EBITDA of 2.9x is within investment grade parameters.

The 18-Point Screening

Revenue Quality

A2 is concerning. AR growth has exceeded revenue growth two years running. In a year with organic revenue decline and the reporting unit already facing impairments, extended receivables terms can indicate customers being given more generous payment terms to preserve nominal revenue, or weaker collection on stressed customer accounts.

Expense Quality

Clean operating quality. Capex down 9% during a year when revenue growth was 5.7% (reported) but organic was -1.3% — capital discipline is appropriate.

Cash Flow Quality

Balance Sheet

Note: D4 is "N/A" in the screening engine because the framework does not have a specific write-off-related metric, but the MD&A disclosures make clear that 2025 did include material asset impairments. If D4 were computed, it would fail.

Acquisition Risk

Manipulation Score

Key Risks from the 10-K

1. Goodwill Impairment — The Critical Audit Matter

Deloitte identified goodwill impairment assessment as the CAM: "During the second quarter of 2025, certain organizational changes occurred that impacted the composition of all reporting units within the Precision and Science Technologies segment. As a result of these changes, the Company performed interim goodwill impairment tests for reporting units in this segment and recognized a non-cash impairment of $170.3 million to reduce the carrying value of goodwill for the BioPharma reporting unit. The Company's evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using a combination of a discounted cash flow model (75%) and the market approach (25%). The determination of the fair value using the discounted cash flow model requires management to make significant estimates and assumptions related to estimated future revenues, estimated future EBITDA, and discount rates."

The critical point: the impairment was triggered by "organizational changes" that caused the company to re-examine reporting units, not necessarily by a discrete operational event. This matters because the underlying Biopharma business may have been showing declining expected cash flows for some time before the reorganization forced recognition. The audit identifies the $229.7M impairment as a subjective judgment area — the company could have chosen higher growth assumptions and avoided the write-down.

2. Cyclicality and Customer Capex Dependency

Item 1A: "We have exposure to the risks associated with instability in the global economy, financial markets and our end markets, which may negatively impact our revenues, liquidity, suppliers and customers. Our financial performance depends, in large part, on conditions in the markets we serve and on the general condition of the global economy, which impacts these markets. Any sustained weakness in demand for our products and services resulting from a contraction or uncertainty in the global economy could adversely impact our revenues and profitability."

3. International Operations — 58% of Sales Outside U.S.

Item 1A: "More than half of our sales and operations are in non-U.S. jurisdictions and we are subject to the economic, political, regulatory and other risks of international operations. For the year ended December 31, 2025, 58% of our revenues were from customers in countries outside of the United States. We have manufacturing facilities in Germany, the United Kingdom, China, Italy, India and other countries."

The risk factor explicitly calls out: "changes in and uncertainties with respect to tariffs and import/export trade restrictions, as well as other changes in political policy in the United States, China, the U.K. and certain European countries." Tariff exposure is a 2026 risk.

4. China Concentration

Item 1A: "currency fluctuations, in particular, changes in currency exchange rates between the U.S. dollar, Euro, British Pound and the Chinese Renminbi... nationalization of private enterprises, especially in China where we have material operations, supply chain dependencies and hold material cash balances."

The call-out of "material cash balances" in China is specific — Ingersoll Rand's ability to repatriate cash from its Chinese subsidiaries is exposed to both regulatory and political risk.

5. Acquisition Strategy Execution

While Ingersoll Rand did not quote an acquisition-related risk factor prominently, the 2025 impairments are themselves evidence that the M&A engine is producing write-downs. Biopharma and Aerospace & Defense were sold to investors as high-growth adjacencies; the $229.7M impairment says those growth assumptions need to be reset downward.

6. Interest Expense Pressure

Interest expense rose $40.7M or 19% to $253.9M. The MD&A: "The increase was primarily due to an increase in long term debt, partially offset by the interest rate derivative contracts." With debt at $4.8B (up from ~$2.8B two years ago), interest expense will remain elevated even if rates fall.

Summary

Grade: F. The headline sales growth is entirely M&A and FX. Organic revenue is shrinking. Goodwill impairments arrived, and the M&A strategy that powered the stock is under pressure.

Ingersoll Rand's 2025 is the most problematic story in the screening set from a trend-line perspective. Reported revenue +5.7% looks fine until you decompose it: +$419.9M from acquisitions, +$92.0M from FX, -$96.0M organic. The underlying business shrunk 1.3%. Operating income fell 12% and net income fell 30.7% — with a third of the decline from cash impairments and two-thirds from operating deleverage.

The goodwill impairment of $229.7M in Biopharma and Aerospace & Defense is the critical signal. IR's acquisition-driven growth strategy added ~$12.7B in goodwill+intangibles (126% of equity). When the acquired businesses don't grow as expected, impairments recognize the gap. Q2 2025 was the year that gap became too large to defer.

Three things deserve watch in 2026:

The M-Score and Z-Score are clean, CFFO remains strong at $1.36B, and the franchise has genuine moat in compressors and industrial fluid handling. But the F grade is actually warranted this year — the balance sheet and operating trajectory both raise legitimate concerns, and the impairment itself is a red flag about the roll-up strategy.

**Disclaimer**: This report is based on Ingersoll Rand's FY2025 10-K filed with SEC EDGAR on February 17, 2026. This is NOT investment advice.

Data: SEC EDGAR 10-K (Accession 0001628280-26-008617) + Yahoo Finance

Auditor: Deloitte & Touche LLP (Unqualified opinion, 1 critical audit matter — goodwill impairment assessment for Biopharma reporting unit)

Fiscal year ended: December 31, 2025