FLIR Systems Inc. (FLIR) released its second quarter fiscal 2011 earnings results before the market opened today, reporting earnings from continuing operations of 39 cents, beating the Zacks Consensus Estimate of 38 cents. The company continues to deliver a strong operating performance.
Revenue
Total revenue in the quarter increased by 16% year over year to $332.5 million, below the Zacks Consensus Estimate of $348 million.
The company’s revenue increased in all the segments, except for the Government Systems division, which recorded a flat year-over-year revenue of $163.2 million. However, backlog in the division increased by $10 million to $386 million, despite an unclear political environment. The division received strong U.S. government orders.
Revenues in the Commercial Systems division, excluding Raymarine, amounted to $132.4 million, an increase of 8%. Revenue from Raymarine acquisition was $36.9 million in the quarter and contributed $1.0 million of operating income.
Within Commercial Systems division, Commercial Vision Systems generated $61.4 million revenue, up 17% led by strong growth in transportation, cores and personal vision systems. Profitability in the Commercial Systems division increased during the quarter. Backlog at the division was $116 million, up $12 million.
Thermography revenue was $71.0 million, reflecting an increase of 2% led by growth in gas imaging and test and measurement markets. However, the division’s revenue was partially offset by weak European sales. Backlog at the division was $23 million, up $1 million.
Income & Expenses
Operating income was $85.8 million compared with $89.3 million in the prior-year quarter. Net income in the quarter was $63.0 million compared with $60.0 million.
The company incurred R&D expense of $28.5 million compared with $21.3 million in the prior-year quarter. SG&A expenses were $67.8 million compared with $52.2 million.
Balance Sheet & Cash Flow
During the quarter, the company generated cash flow from operations of $85.1 million. Cash and cash equivalents was $379.9 million with shareowner’s equity of about $1.4 billion. The company has no long-term debt.
Outlook
For 2010, FLIR Systems increased its revenue outlook to a range of $1.375 billion to $1.4 billion and earning per share outlook to a range of $1.53 to $1.56. The increased guidance was led by the company’s impressive results in the first three quarters of the year, as well as its Raymarine and ICx acquisition.
The company is quite confident to deliver continued strong growth ahead with its operations in diversified end-markets, cost reduction efforts, innovations, and strong financial position.
Over the period of time, FLIR has developed extensive competencies in the design and integration of numerous capabilities and payloads into integrated systems or sub-systems. Competencies such as stabilization, packaging and systems integration allow it to effectively combine a wide variety of technologies and payloads to design and manufacture complex systems to suit its customers’ needs.
However, the company derives significant revenue from contracts or subcontracts with U.S. government agencies. A significant reduction in the purchase of its products by these agencies would have an adverse impact on its business.
The funding of contracts awarded to the company depends on the overall U.S. government budget and appropriation process, which is beyond its control. Competition for FLIR’s products is also very intense. Major competitors of the company are L-3 Communications Holdings Inc. (LLL) and Lockheed Martin Corporation (LMT).
Flir Systems Inc. is a leader in design, manufacture and marketing of thermal imaging systems. Its products are used in a wide variety of applications in commercial, industrial and government markets, internationally as well as domestically. It offers a variety of system configurations to suit specific customer requirements.
We currently maintain our Neutral rating for the long term on FLIR Systems, with a Zacks #3 Rank (short-term Hold recommendation) over the next one-to-three months.
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