Roper Industries Inc. (ROP) reported second quarter 2010 results before the market opened. Earnings for the second quarter were 74 cents per share, in-line with the Zacks Consensus Estimate.
Earnings were up 15.6% year over year from 64 cents and in-line with management’s guidance last quarter in the range of 71 cents to 75 cents. Results for the quarter include a $1.9 million pre-tax loss due to foreign exchange re-measurement.
The company reported higher sales, increased order growth, impressive cash flow and improved margins. Roper Industries also lifted its 2010 guidance for the second time this year, based on better-than-expected results.
Revenue
Second quarter revenues of $567.1 million were up 12.3% year over year, of which 7.2% of the growth came from Acquisitions/Divestitures and 5.1% from organic growth. The company did not face any foreign currency impact in the quarter. Revenues beat the Zacks Consensus Estimate of $559.0 million.
By segment, Scientific & Industrial Imaging, Industrial Technology and Energy Systems & Controls segments performed well in the quarter as sales escalated 69.4%, 6.5% and 13.3%, respectively. However, this was partially offset by segment sales at RF Technology, which fell 7.2% year over year.
Revenues increased primarily due to better-than-expected customer orders, which increased 27% over the prior-year quarter to a record $619 million Order flow represented a 1.09 book-to-bill ratio. Roper Industries witnessed an increase in orders in majority of its segments, driven by an 82% increase in Scientific Imaging/Medical, a 32% growth in Energy Systems & Controls and a 31% rise in Industrial Technology.
Margins
Gross margins increased to 53.2% in the quarter from 50.5% in the year-ago period, reflecting strong execution and a higher margin business mix. Margins improved in all the four segments, leading to overall higher margins for the company.
The gross profit margin for the Industrial Technology segment improved to 50.8% from 48.1% in the year-ago period. The Scientific & Industrial Imaging margin expanded to 60.9% from 56.0% in the year-ago period and RF Technology improved to 48.9% from 48.4% in the year-ago quarter. The Energy Systems & Controls segment margin of 54.3% increased from 53.4% in the year-ago quarter.
Operating income of $130.3 million was up 21.2% from the year-ago quarter based on improved sales. Although the selling and administrative costs increased 14.9% year over year, the operating margin came in at 23.0% in the quarter, an improvement of 90 basis points year over year.
Balance Sheet & Cash Flow
Roper Industries ended the quarter with $290.7 million in cash and equivalents and $1.13 billion in long-term debt (including the current portion). This compares with $191.3 million in cash and equivalents and $1.12 billion in long-term debt (including the current portion) in the previous quarter. Operating cash flow was $110 million in the quarter, versus $95.1 million reported in the previous quarter. Year to date, the company reported an operating cash flow of a record $205 million.
During the quarter, EBITDA increased to $145 million, or 25.7% of sales. Free cash flow of $102.6 million was 18% of sales and 144% of net earnings.
Guidance Raised
As a result of its strong first half performance and improving order trends, Roper Industries again lifted its full-year 2010 earnings per share guidance in the range of $3.05 to $3.15 from the previously expected range of $2.95 to $3.10. The company also raised its guidance for operating cash flow, and now expects to generate between $425 million to $455 million, up from $400 million to $425 million previously projected.
With a record backlog, the company expects strong organic sales growth in the second half of 2010. The guidance includes iTradeNetwork, but excludes any future acquisitions and the first quarter impact of acquisition-related inventory charges.
Acquisition
Roper Industries also announced the acquisition of iTradeNetwork Inc. from private equity firm Accel-KKR for $525 million in an all-cash transaction. iTradeNetwork provides subscription-based hosted software solutions to the food industry that facilitate transactions between retail grocers, restaurant chain operators, foodservice distributors and their respective customers. Roper expects iTradeNetwork to generate more than $55 million of EBITDA in 2011. The acquisition will provide a boost to Roper’s software-as-a-service (SaaS) business.
We maintain a Neutral rating on Roper Industries on a long-term basis. However, Roper Industries has a Zacks Rank #2, which implies a short-term Buy rating on the stock.
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