On May 8, 2014, we issued an updated research report on FLIR Systems (FLIR). The company had earlier reported modest first-quarter 2014 results. The quarterly results were primarily impacted by a sluggish government-funded business.
The company reported negative earnings surprises in the last four quarters, with an average beat of -5.64%. The first-quarter earnings were down 28.6% year over year and came in at a penny below the Zacks Consensus Estimate.
The company reported decline in both earnings and revenues in first-quarter 2014. The top line was affected by a dismal performance by its mining and metals business and the prevailing sluggishness in the company’s government segment. Furthermore, political uncertainties in key regions like Russia are also impacting FLIR's financials.
On the other hand, the company is likely to benefit from its ongoing restructuring activities of streamlining its business by integrating facilities and reducing costs. Also, FLIR continues to develop new products in order to gain market traction. Moreover, having successfully incorporated the Lorex business into its structure, FLIR is now capitalizing on the gains from the integration.
FLIR is in an advantageous and profitable position relative to its peers due to its cost effective strategy. The company remains focused on realigning its business by closing its non-profitable facilities and integrating the functional ones, including its optics and laser manufacturing businesses, to reduce overhead costs significantly.
Further, FLIR is focused on building a strong global order backlog and has also shifted selling efforts from Europe to the Far East. The company's backlog stood at about $514 million as of Mar 31, 2014, marking an increase of $24 million in the quarter. Apart from this, the company has managed to receive several contracts from the U.S. Department of Defense which is expected to boost revenues going forward.
On the flip side, FLIR’s government division revenues declined to 39% in 2013 from 45% in 2012 due to a significant drop in volume and unfavourable product mix. In the reported quarter, the company’s revenues from the U.S. government deteriorated 8% owing to the persistent slump in the government-funded business.
FLIR Systems currently holds a Zacks Rank #2 (Buy). Some other well-performing stocks in the sector include Alliant Techsystems Inc. (ATK), Hexcel Corp.(HXL) and Illinois Tool Works Inc. (ITW) all of which carry the same Zacks Rank as FLIR Systems.