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Roper Technologies (ROP) Down 6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Roper Technologies (ROP). Shares have lost about 6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Roper Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Roper Q2 Earnings Surpass Estimates, Revenues Miss

Roper delivered second-quarter 2019 positive earnings surprise of about 1%.

Adjusted earnings were $3.07 per share, surpassing the Zacks Consensus Estimate of $3.04. Also, the bottom line increased 6.2% from the year-ago quarter number of $2.89 backed by solid revenue growth.

Inside the Headlines

Roper’s adjusted revenues came in at $1,332 million, up 3% year over year. The rise was primarily driven by 2% organic growth and 2% gain from acquired assets, partially offset by 1% adverse impact of unfavorable movements in foreign currencies. However, the top line missed the Zacks Consensus Estimate of $1,351 million.

Notably, GAAP revenues came in at $1,330 million, up from the year-ago reported figure of $1,294 million.

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

Application Software’s revenues totaled $390.6 million, representing 29.4% of the reported quarter’s revenues. On a year-over-year basis, the segment’s revenues grew 9%.

Network Software & Systems segment generated revenues of $366.8 million, accounting for roughly 27.6% of second-quarter revenues. Sales grew 9.9% year over year.

Measurement & Analytical Solutions segment generated revenues of $408.4 million, accounting for roughly 30.7% of the quarter’s top line. Sales declined 4.1% year over year.

Process Technologies segment generated revenues of $164.5 million, accounting for roughly 12.3% of the June-ended quarter’s revenues. Sales edged down 6.4% year over year.

Margin Details

In the April-June quarter, Roper’s cost of sales increased 0.5% year over year to $480.3 million. Cost of sales was 36.1% of the quarter’s revenues compared with 36.9% a year ago. Adjusted gross profit in the quarter increased 4% to $852 million, with margin at 64%, reflecting expansion of 90 basis points (bps).

Selling, general and administrative expenses jumped 4.3% year over year to $481.6 million. It represented 36.2% of total revenues compared with 35.7% in the year-ago quarter. Operating profit jumped 4% to $415.1 million with margin of 31.2%, up 30 bps.

Balance Sheet & Cash Flow

Exiting the second quarter, Roper had cash and cash equivalents of $320.8 million compared with $364.4 million recorded on Dec 31, 2018. Long-term debt decreased 4.5% to $4,718.9 million from the end of 2018.

In first six months of 2019, the company generated net cash of $591.1 million from operating activities, roughly 7.9% higher from the year-ago period.

Capital expenditure during the second quarter totaled $12 million, lower than the year-ago figure of $13 million. Free cash flow in the quarter was up 14% to $286 million.

Outlook

For 2019, adjusted earnings per share are anticipated to be $12.94-$13.06, higher than the range of $12.70-$13.00 guided earlier.

For the third quarter of 2019, earnings are projected to be $3.16-$3.20 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Roper Technologies has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Roper Technologies has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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