Roper Q3 Earnings Miss Estimates

Zacks

Roper Industries Inc. (ROP) reported third-quarter 2013 non-GAAP earnings of $1.42 per share, missing the Zacks Consensus Estimate of $1.45 per share.

Quarter Details

Roper’s non-GAAP total revenue (excluding a fair value adjustment to acquire deferred revenues and adjustments related to the MHA acquisition) increased 15.5% year over year to $863.7 million in the quarter. Revenues beat the Zacks Consensus Estimate of $861.0 million.

On a GAAP basis, Roper reported revenues of $827.8 million, up 10.7% from the year-ago quarter. Acquisitions and divestitures accounted for 11.0% of the revenue growth in the quarter. Organic revenues increased 3.0% and the company reported a backlog of $1.04 billion.

Growth across most of its business segments also contributed to the year-over-year increase in revenues. Revenues from Medical & Scientific Imaging and RF Technology increased 37.6% and 7.7%, respectively. The strength in these segments more than offset the 2.0% decline in revenues from Energy Systems. Industrial Technology moved up 0.8% compared with the year-ago quarter.

Adjusted gross profit increased 18.0% year over year to $491.5 million. Gross margin in the reported quarter increased to 56.9% from 55.7% in the year-ago quarter, primarily driven by better mix and higher revenues.

Adjusted income from operations increased 4.1% year over year to $228.2 million. The upside in operating income was attributable to improved sales. Operating margin improved from 26.4% to 29.3% on a year-over-year basis. Adjusted net earnings increased 4.2% from the year-ago quarter to $142.1 million or $1.42 per share in the quarter.

Roper exited the quarter with $459.9 million in cash and cash equivalents and total debt of $2.60 billion (including the current portion) compared with $374.6 million in cash and cash equivalents and total debt of $2.76 billion (including the current portion) in the previous quarter. Roper reported free cash flow of $244.3 million at the end of the third quarter.

Guidance

The company expects fourth quarter revenues to increase 7% - 9% on a year-over-year basis. This includes organic growth of 3% - 4%. Fourth quarter adjusted earnings per share are expected to be $1.57 - $1.63.

Roper also expects adjusted earnings per share for the full year to be in the range of $5.57 - $5.63 compared to the company’s previous guidance of $5.72 - $5.86.

Recommendation

Roper reported mixed third quarter results. We believe that a strong backlog coupled with robust organic growth will drive earnings growth. Moreover, accretive acquisitions will expand the company’s product portfolio, providing a significant competitive edge over its peers.

However, macroeconomic concerns, integration issues due to acquisitions and competition from Danaher Corp. (DHR), Dover Corp (DOV) and Ingersoll-Rand Plc (IR) are possible headwinds for the company.

Currently, Roper has a Zacks Rank #3 (Hold).

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