Roper Industries Inc. (ROP) posted strong first quarter 2011 earnings per share (EPS) of 91 cents, up 46.8% year over year and surpassing the Zacks Consensus Estimate of 87 cents.
The reported EPS also beat management’s guided range of 83 to 87 cents. The strong results were primarily driven by solid revenue growth and margin expansion in the quarter.
Operating Performance
Net income increased 49.0% year over year to $89.0 million in the quarter, with net margin climbing 260 basis points (bps) from the prior-year quarter to 13.8%.
Gross profit rose 25.2% year over year to $350.1 million. Gross margin increased to 54.3% in the quarter from 52.3% in the year-ago quarter, driven by margin expansion across all segments.
Gross profit margin for the Industrial Technology segment improved to 50.4% from 49.9% in the year-ago quarter. The Medical & Scientific Imaging margin expanded to 62.8% from 55.5% in the year-ago quarter.
The Energy Systems & Controls segment reported margin of 54.1%, which was up from 50.6% in the year-ago quarter. RF Technology margin was 51.4% compared with 49.7% reported in the prior-year quarter.
In the reported quarter, operating income was $142.0 million, up 41.0% from the year-ago quarter, based on improved sales.
Although the selling and administrative costs jumped 16.4% year over year, the operating margin came in at 22.0% in the quarter, an improvement of 120 bps year over year.
During the quarter, EBITDA increased to $177.0 million or 27.4% of total sales compared with $129.7 million or 24.3% of total sales in the year-ago quarter.
Revenue
Roper delivered total revenue of $645.3 million, up 21.0% year over year. Acquisitions/Divestitures contributed 4.0% to the revenue growth in the quarter, while 16.0% came from organic growth. Foreign exchange had a positive impact of 1% on revenues.
All the segments performed well in the quarter. On a year-over-year basis, Industrial Technology increased 25.6%, Medical & Scientific Imaging increased 11.5%, Energy Systems & Controls rose 22.7%, while RF Technology climbed 22.7% in the quarter.
Balance Sheet & Cash Flow
Roper Industries ended the quarter with $261.4 million in cash and equivalents and $1.24 billion in total debt (including the current portion) compared with $270.4 million in cash and equivalents and $1.34 billion in total debt (including the current portion) in the previous quarter.
Operating cash flow was $86.6 million in the quarter versus $95.1 million reported in the previous quarter.
Guidance
Roper Industries expects fiscal 2011 earnings per share in the range of $3.97 to $4.12, up from its previous guidance of $3.82 to $4.02. Currently, the Zacks Consensus Estimate for fiscal 2011 is pegged at $3.97, within the guided range.
For the second quarter, management anticipates EPS in the range of 95 cents to $1.00. The Zacks Consensus Estimate for the second quarter of 2011 is currently pegged at 95 cents, at the low end of the guided range.
Recommendation
With a record backlog of $851.0 million, Roper expects strong sales growth in 2011. Moreover the company remains focused on reducing debt ($100.0 million in the first quarter), which will boost liquidity, thereby helping the company to carry on with its acquisition strategy going forward.
However, Roper faces tough competition from Agilent Technologies Inc. (A) and Halliburton Company (HAL), which may hurt its profitability going forward.
We maintain our Neutral recommendation over the long term (6-12 months). Currently, Roper has a Zacks #2 Rank, which implies a short-term Buy rating on the stock.
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