FLIR Beats, Raises Revenue Outlook - Analyst Blog

FLIR Systems Inc. (FLIR) reported a 5.7% increase in its earnings of 37 cents per share for the second quarter of 2010, beating the Zacks Consensus Estimate of 35 cents per share.

Revenue

Total revenue for the quarter increased 19% year over year to $331.1 million. About $27 million of revenue was derived from Raymarine acquisition, excluding which total revenue increased 9%.

FLIR Systems experienced revenue growth in all its segments. The company’s Commercial Systems division recorded highest year-over-year revenue growth of 16% to $136.0 million followed by a growth of 7% at the Thermography division to $71.4 million. Government Systems division revenues increased 5% to $167.9 million during the quarter.

Backlog

At the end of the quarter, total backlog of the company, which will expire in next twelve months, decreased sequentially by $25 million to $518 million, with $17 million added through Raymarine acquisition. Segment wise, backlog at Government Systems division decreased by $43 million sequentially to $375 million, backlog at Commercial Vision Systems increased by $3 million to $104 million, while at Thermography division backlog decreased by $2 million to $22 million.

Income and Expenses

The company earned an operating income of $89.8 million during the quarter, representing a year-over-year increase of 6%. Raymarine acquisition contributed about $3.4 million to the company’s operating income. The acquisition-related costs and expenses associated with post acquisition restructuring totaled $4.6 million in the quarter.

Net income in the quarter increased to $59.5 million from $55.7 million in the prior-year quarter. Tax rate increased 2.6 percentage points to 34.6%, primarily due to non-deductible acquisition expenses and a lack of R&D tax credits, which benefited the prior quarters.

Cash Flow/Balance Sheet

The company generated cash flow from operations of $42.7 million during the quarter. Cash and cash equivalents were $284.5 million and shareowner’s equity of $1,322.6 million.

Outlook

In order to show the effect of Raymarine acquisition, FLIR Systems has increased its revenue guidance for 2010, while reiterated its earnings per share expectation. The company expects total revenue to be in the range of $1.3 billion to $1.4 billion and net earnings per diluted share to be in the range of $1.48 to $1.53.

FLIR Systems’ invisible infrared cameras and night vision technology are used at all American airports. Its equipment is also used to protect nuclear facilities and US bases in Afghanistan. FLIR is a pure play on thermal imaging and infrared technology, an area with lots of growth potential. The rising orders for the company’s products make it an attractive opportunity for investment. Further, the Raymarine acquisition significantly expands the company’s distribution in the maritime market.

However, as a significant portion of the company’s revenue is derived from contracts or subcontracts with the US government agencies, it is highly dependent on the US government’s budgetary allocation for defense. Its business may also be impacted by government contracting risks. The company also faces intense competition from companies with greater financial, technical, research and development and marketing resources. Major competitors of FLIR Systems are L-3 Communications Holdings Inc. (LLL) and Lockheed Martin Corporation (LMT).

Conducting business in more than 100 countries worldwide, FLIR Systems is the global leader in Infrared cameras, night vision and thermal imaging systems. We currently maintain our Neutral rating on FLIR Systems, with a Zacks #3 Rank over the next one to three months.