Roper's 1Q Earnings Beat

Zacks

Roper Industries Inc. (ROP) reported first quarter 2013 non-GAAP earnings of $1.27 per share, up 16.5% from the year-ago quarter and ahead of the Zacks Consensus Estimate of $1.22.

Quarter Details

Roper’s non-GAAP total revenue (excluding a fair value adjustment to acquired deferred revenue) increased 4.2% year over year to $740.7 million in the quarter. The Zacks Consensus Estimate was pegged at $781.0 million.

On a GAAP basis, Roper reported revenues of $737.1 million, up 3.7% from the year-ago quarter. Acquisitions and divestitures accounted for 7.0% of the revenue growth in the quarter. Organic revenues declined 3.0% and the company reported a backlog of $1 billion.

Growth across most its business segments also contributed to the year-over-year increase in revenues. Revenues from Medical & Scientific Imaging and RF Technologies increased 23.1% and 2.1%, respectively. The strength in these segments more than offset the 2.0% decline in revenues from Energy Systems & Controls and a 6.6% drop in revenues from the Industrial Technology segment.

Non-GAAP gross profit increased 8.7% year over year to $425.2 million. Gross margin in the reported quarter increased to 57.4% from 55.0% in the year-ago quarter, primarily driven by better mix and higher volumes.

Non-GAAP income from operations increased 10.8% year over year to $188.8 million. The upside in operating income was based on improved sales. Operating margin improved from 24.0% to 25.5% on a year-over-year basis. Net earnings on a non-GAAP basis increased 17.5% from the year-ago quarter to $127.2 million.

Roper exited the quarter with $430.0 million in cash and cash equivalents and $1.92 billion of total debt (including the current portion) compared with $370.6 million in cash and cash equivalents and $2.02 billion of total debt (including the current portion) in the previous quarter. Roper reported free cash flow of $160.1 million at the end of the first quarter.

Guidance

Roper also increased its fiscal 2013 earnings outlook from $5.60-$5.82 to $5.76-$5.94 per share. Currently, the Zacks Consensus for fiscal 2013 earnings estimate is pegged at $5.75 per share.

Recommendation

We believe that strong backlog coupled with robust organic growth will drive earnings growth going forward. Moreover, accretive acquisitions will expand its product portfolio, providing a significant competitive edge against peers.

However, macroeconomic concerns, integration issues due to acquisitions and competition from Agilent Technologies Inc. (A), Halliburton Company (HAL) and IDEX Corp (IEX) are possible headwinds for the company.

Currently, Roper has a Zacks Rank #2 (Buy).

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