FLIR Systems Inc.(FLIR) reported third-quarter 2014 adjusted earnings of 39 cents, surpassing the Zacks Consensus Estimate of 35 cents by 11.4%. The company’s GAAP earnings increased 15.6% year over year to 37 cents from 32 cents reported in the year-ago quarter. Earnings include a 2 cents after-tax impact due to restructuring charges, which was absent in the prior year. Following the news on Oct 24, the company shares have gained about 6.4% so far.
Quarterly results benefited from the ongoing restructuring activities which drove a cost-savings of about $6 million in the quarter. The company has also been streamlining its business by divesting non-performing assets. Recently, FLIR divested parts of its Optical Components Group for about $12 million which added to its gain in the quarter.
Revenues
Total revenue came in at $375.4 million, an increase of 4.8% year over year. Revenues also surpassed the Zacks Consensus Estimate of $367 million. Strong growth across all the segments, excepting Surveillance, fueled the company’s revenue growth. However, weakness in government-funded businesses partially offset the gains.
FLIR's backlog stood at about $579 million as of Jun 30, 2014, marking an increase of $31 million over the prior-year quarter.
Operational Update
The Surveillance segment consists of the company’s Surveillance business and the Integrated System segment. Revenues declined 5.6% year over year to $119.1 million.
The Instruments segment comprises the Thermography and Test and Measurement business, which finds use in commercial and industrial markets. Segmental revenues came in at $82.6 million, marking an increase of 6.9% over the third quarter of 2013.
The Original Equipment Manufacturer (OEM) and Emerging Markets segment includes OEM Personal Vision Systems, mobile accessories and intelligent traffic solutions lines of business. Revenues increased to $56.1 million, up 2.4% year over year.
The Maritime segment, encompassing Raymarine and FLIR-branded maritime thermal imaging products, reported revenues of $44.7 million. This marks an increase of 8.3% compared with the third-quarter 2013.
The Security segment includes Lorex consumer security cameras and the FLIR-branded professional thermal and visible security products. The segment’s revenues grew a robust 37.4% to $48.6 million.
The Detection segment includes the company’s Detection business as well as detection-oriented programs of the Integrated Systems business. Reported revenues of $24.2 million increased 5.8% compared to the prior-year quarter.
Income and Expenses
Operating income came in at $70 million compared with $63.5 million in the prior-year quarter. Pre-tax restructuring related charges worth $4.1 million weighed down on the operating income in the quarter. Selling and general expenses declined marginally to $76.3 million from last year’s figure of $76.4 million. Research and development expenses climbed 3.1% to $34 million year over year.
Balance Sheet & Cash Flow
The company's cash and cash equivalents improved to $565.5 million from $542.5 million at 2013-end. Long-term debt stood at $361.6 million, down from $372.5 million as on Dec 31, 2013.
Cash flow from operations declined to $33 million from nearly $52.5 million in the comparable year-ago quarter.
Business Outlook
FLIR Systems seems positive about the long-term benefits of its restructuring activities. Also, the company plans to boost its business by aggressively marketing its products. Moreover, it is positive about the scope of its recent Lepton micro thermal camera core-enabled products that are also low in costs.
The company provided an updated guidance for 2014 results. FLIR expects revenues for 2014 in the range of $1.48–$1.53 billion compared with the earlier projection of $1.45–$1.55 billion and earnings (excluding restructuring charges associated with business realignment) in the band of $1.43–$1.48 a share compared with the earlier estimation of $1.40–$1.50 per share.
Zacks Rank
FLIR Systems currently has a Zacks Rank #4 (Sell). Some better-ranked companies in the sector include Arotech Corporation (ARTX), Teledyne Technologies Inc. (TDY) and CLARCOR Inc. (CLC). All three carry a Zacks Rank #2 (Buy).
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