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Roper (ROP) Q4 Earnings Beat Estimates, Up on Sales & Margins

Zacks Equity Research

Roper Technologies, Inc. ROP has kept its earnings streak alive in the fourth quarter of 2018, pulling off a positive earnings surprise of 2.9%.

Adjusted earnings in the quarter under review were $3.22 per share, surpassing the Zacks Consensus Estimate of $3.13. Also, quarterly earnings increased 19.3% from the year-ago quarter number of $2.70 on the back of solid revenue growth and margin improvement.

In 2018, Roper’s adjusted earnings were $11.81 per share, surpassing the Zacks Consensus Estimate of $11.72 by 0.8%. On a year-over-year basis, the bottom line increased 25.4% from $9.42 in 2017.

Organic Growth and Acquired Assets Drive Revenues

Roper’s adjusted revenues in the quarter under review were $1,378 million, reflecting growth of 11.6% year over year. This improvement was primarily driven by 9% organic growth and 4% gain from acquired assets, partially offset by 1% adverse impact of unfavorable movements in foreign currencies. Further, the top line surpassed the Zacks Consensus Estimate of $1.35 billion.

Revenues, including purchase accounting adjustment to acquired deferred revenues, were $1,376.3 million, up from the year-ago figure of $1,226.6 million.

The company reports revenues under four segments. A brief discussion of the quarterly results is provided below:

Industrial Technology’s revenues totaled $222.8 million, representing 16.2% of the reported quarter’s revenues. On a year-over-year basis, the segment’s revenues grew 7.6% on the back of 8% gain from organic sales, partially offset by 1% adverse impact of unfavorable movements in foreign currencies.

The Energy Systems and Controls segment generated revenues of $162.1 million, accounting for roughly 11.8% of the reported quarter’s revenues. Sales grew 1.1% year over year, primarily driven by 2% growth in organic sales, offset by 1% adverse impact of forex woes.

The Medical and Scientific Imaging segment generated revenues of $402.4 million, accounting for roughly 29.2% of the reported quarter’s revenues. Sales grew 9.4% year over year, primarily driven by 10% growth in organic sales, partially offset by 1% adverse impact of forex woes.

The RF Technology segment generated revenues of $589 million, accounting for roughly 42.7% of the reported quarter’s revenues. Sales grew 19.9% year over year, including organic sales growth of 10%.

For 2018, the company’s adjusted revenues were $5,199 million, up 11.4% year over year. The top line also surpassed the Zacks Consensus Estimate of $5.17 billion.

Margin Improves Y/Y

In the reported quarter, Roper’s cost of sales increased 9% year over year to $503.2 million. Cost of sales was 36.6% of the quarter’s revenues versus 37.6% in the year-ago quarter. Adjusted gross profit in the quarter increased 13.1% year over year to $874 million, with margin at 63.5%, reflecting year-over-year growth of 90 basis points (bps).

Selling, general and administrative expenses increased 21.6% year over year to $508.7 million. It represented 37% of revenues in the reported quarter versus 34.1% in the year-ago quarter. Operating profit grew 16% year over year to $439.9 million, with year-over-year growth of 110 bps in the margin to 32%.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Roper had cash and cash equivalents of $364.4 million, up 0.3% from $363.4 million recorded in the last reported quarter. Long-term debt increased 11.9% sequentially to $4,940.2 million.

In the fourth quarter, the company generated net cash of $464 million from operating activities, roughly 25.7% higher than the year-ago tally. Capital expenditure (including capitalized software expenditure) totaled $17 million, above the year-ago figure of $16 million. Free cash flow in the quarter grew 26.6% year over year to $447 million.

During 2018, the company distributed $170.1 million as dividends as well as repaid $1,300 million senior notes and $405 million of revolving line of credit. However, funds worth 1,500 million were raised through senior debts.

Outlook

For 2019, Roper anticipates gaining from healthy revenue generation opportunities, solid balance sheet and gains from acquired assets. Adjusted earnings per share in the year are anticipated to be $12-$12.40. Organic sales are anticipated to increase 3-5%. Tax rate will be roughly 22%.

On a segmental basis, organic sales are predicted to grow 4-6% for RF Technology, 4-6% for Medical & Scientific Imaging and in a low-single digit for Industrial Technology. However, organic sales for the Energy Systems and Controls segment are predicted to decline in low-single digit to remain flat year over year.

For the first quarter of 2019, earnings are likely to be $2.74-$2.80 per share.

Roper Technologies, Inc. Price, Consensus and EPS Surprise

 

Roper Technologies, Inc. Price, Consensus and EPS Surprise | Roper Technologies, Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of roughly $29.7 billion, Roper currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the industry are DXP Enterprises, Inc. DXPE, Twin Disc, Incorporated TWIN and Colfax Corporation CFX. While DXP Enterprises currently sports a Zacks Rank #1 (Strong Buy), Twin Disc and Colfax carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings estimates for DXP Enterprises and Colfax for 2019, and that for Twin Disc for fiscal 2019 (ending June 2019) improved over the past 60 days. Positive earnings surprise for the last four quarters was 112.62% for DXP Enterprises, 220.64% for Twin Disc and 8.88% for Colfax.

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