FLIR Systems Inc.’s (FLIR) fourth-quarter 2013 earnings (excluding one-time items) came in at 35 cents, down 32.7% from 52 cents in the year-ago-quarter. Quarterly earnings also missed the Zacks Consensus Estimate by 10.3% or 4 cents.
The quarterly results were primarily impacted by the weakness in order flow from U.S. Government-funded customers.
Revenues
Total revenue was $400.3 million in the reported quarter, up 3.6% year over year. The increase was primarily driven by higher sales in the Commercial Systems division, was partially offset by decline in the Government system’s division.
FLIR's backlog was approximately $490 million as of Dec 31, 2013, marking a decrease of $33 million during the quarter.
Segment Revenues
The Commercial Systems division’s revenues increased 15% to $244.6 million. Within the division, revenue from the Thermal Vision and Measurement segment grew 16% to $208.5 million, while the Raymarine segment contributed $36.1 million to the top line during the fourth quarter, which was up 10% from the prior year.
Backlog in the Commercial Systems division was $196 million, up $8 million during the fourth quarter.
The Government Systems division’s revenues came in at $155.7 million, declining 10% year over year. The decline was mainly attributable to Surveillance segment which declined 9% year over year and the Integrated Systems segment which reported a 27% decline. However, the Detection System segment reported a 3% year-over-year increase to $13.2 million.
Backlog for the Government Systems division at the end of the quarter was $294 million, declining $41 million from the prior year.
Income and Expenses
Operating income in the reported quarter was $37.8 million compared with $100.1 million in fourth-quarter of 2012. Selling and general expenses increased 24.9% to $88.0 million. Research and development expenses rose 14% to $38.4 million from $33.7 million in the comparable year-ago quarter.
Balance Sheet & Cash Flow
Exiting the year, the company's cash and cash equivalents improved significantly to $542.5 million from $321.7 at year-end 2012. Long-term debt was $372.5 million, compared with $248.3 million at the end of 2012.
Cash flow from operations declined 7% to $105.2 million from $112.8 million in the comparable year-ago quarter. However, cash flow from operations for fiscal 2013 was at an all-time high of $355 million, reflecting a 24% increase from 2012. This increase was primarily attributable to lower working capital requirements.
Dividend and Share Repurchase
Following the earnings release, the board of directors approved a quarterly cash dividend of 10 cents per share, reflecting an increase of 11% over the previous payout of 9 cents. The new dividend will be paid on Mar 7, 2014, to shareholders of record as of close of business on Feb 19, 2014.
During the fourth quarter, FLIR repurchased 1 million shares of its common stock at an average price of $28.95 per share.
Restructuring Changes
Just before the earnings release, the company announced changes in its management structure and also restructured its reporting segments.
The company has appointed Tom Surran as FLIR's Senior Vice President and Chief Operating Officer. Following, this change, the company will eliminate its commercial and government divisional structure.
The company has modified its reporting segments to reflect the changing dynamics of the market and to better align its strategy with its customer base. Beginning first quarter of 2014, the company will report results in 6 segments which will include:
Surveillance: This will include the current Surveillance business and also the Integrated System segment.
Detection: This will include the current Detection business and the detection-oriented programs of the Integrated Systems business.
Instruments: This will comprise the thermography and test and measurement business, targeted primarily at commercial and industrial markets.
Security: This will include the Lorex consumer security cameras and the FLIR-branded professional thermal and visible security products.
Maritime: this will encompass Raymarine and FLIR-branded maritime thermal imaging products previously part of TVM.
OEM and Emerging: this segment will include OEM Personal Vision Systems, mobile accessories and intelligent traffic solutions lines of business.
FLIR Systems believes that by streamlining its organization, it can further strengthen company-wide communication, collaboration and cooperation, while creating a logical structure that will further leverage its vertical integration and focuses on core markets.
Outlook
Along with the earnings release, management provided its guidance for 2014. FLIR expects revenues in 2014 to be in the range of $1.45 billion to $1.55 billion and earnings (excluding restructuring charges associated with the business realignment) to be in the range of $1.40 to $1.50 per share.
FLIR Systems currently carries a Zacks Rank #3 (Hold). Some better ranked companies in the industry that are worth a look include Alliant Techsystems Inc. (ATK), BAE Systems plc (BAESY) and Orbital Sciences Corp. (ORB). All three sport a Zacks Rank # 1 (Strong Buy).
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