Roper Industries Inc. (ROP) posted robust first quarter 2012 results. The company reported earnings of $1.09 per share, up 19.8% year over year and surpassed the Zacks Consensus Estimate of $1.04 per share by 5 cents.
Earnings per share (EPS) also beat management’s guided range of $1.01 to $1.05. The strong results were primarily driven by solid revenue growth and margin expansion in the quarter.
Revenue
Roper’s total revenue increased 10.2% year over year to $711.1 million in the quarter. Reported revenue beat the Zacks Consensus Estimate of $704.0 million. Acquisitions/Divestitures contributed 3.0% to the revenue growth in the quarter, while 8.0% came from organic growth, which more than offset the negative 1.0% of foreign currency fluctuations.
The strong year-over-year growth was driven by better-than-expected sales growth across the four segments. Net orders were $729.4 million in the reported quarter, up from $702.3 million in the previous-year quarter.
Segment wise, revenue from Industrial Technology (27.4% of sales) increased 14.8% year over year to $195.1 million. Medical & Scientific Imaging revenue (22.9% of sales) were $162.8 million, up 12.0% year over year, while Energy Systems & Controls revenue (20.9% of sales) climbed 14.7% year over year to $148.6 million. Revenue from RF Technology (28.8% of sales) was $204.5 million, up 2.0% year over year.
Operating Performance
Gross profit rose 11.7% year over year to $391.2 million. Gross margin in the reported quarter increased to 55.0% from 54.3% in the year-ago quarter, driven by strong revenue growth across all the segments.
Gross profit margin in the Industrial Technology segment stood at 50.6% versus 50.4% in the year-ago quarter. The Medical & Scientific Imaging margin expanded to 65.2% from 62.8% in the year-ago quarter. Gross margins from Energy Systems & Controls remained flat on a year-over-year basis at 54.1%. RF Technology margin was 51.8% versus 51.4% in the year-ago quarter.
In the reported quarter, income from operations increased 19.9% year over year to $170.3 million. The significant upside in operating income was based on improved sales and better execution. Operating margin improved 190 bps to 23.9% from 22.0% in the year-ago quarter.
Net income increased 21.8% year over year to $108.3 million in the quarter, with net margin climbing 140 bps year over year to 15.2%.
Balance Sheet & Cash Flow
Roper Industries ended the quarter with $451.7 million in cash and equivalents and $1.08 billion in total debt (including the current portion) compared with $338.1 million in cash and equivalents and $1.09 billion in total debt (including the current portion) in the previous quarter. Operating cash flow was $141.5 million in the quarter versus $192.5 million in the previous quarter.
Guidance
Roper Industries upped its fiscal 2012 earnings per share guidance to the range of $4.75 – $4.95 from $4.67 – $4.87. Currently, the Zacks Consensus Estimate for fiscal 2012 is pegged at $4.78, hovering around the low end of company’s guidance.
Recommendation
We believe strong backlog and upside across all the segments will drive revenue growth going forward. Moreover, Roper’s substantial cash flow generating abilities will help the company pursue its acquisition strategy going forward.
However, Roper faces tough competition from Agilent Technologies Inc. (A) and Halliburton Company (HAL), which may hurt profitability going forward.
We maintain a Neutral recommendation for Roper over the long term (6-12 months). Currently, Roper has a Zacks #3 Rank, which implies a short-term Hold rating on the stock.
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