Roper Industries Inc. (ROP) reported second-quarter 2014 non-GAAP earnings of $1.56 per share, convincingly beating the Zacks Consensus Estimate of $1.50 per share. Earnings increased 40.4% on a year-over-year basis. This year-over-year surge was driven by robust revenue growth.
Quarter Details
Roper’s total revenue increased 12.9% year over year to $885.2 million in the reported quarter. Revenues beat the Zacks Consensus Estimate of $874.0 million. Acquisitions and divestitures accounted for 2.0% of the revenue growth in the quarter. Organic revenues increased 8.0% on a year-over-year basis.
Growth across most of its business segments contributed to the year-over-year increase in revenues. Revenues from Medical & Scientific Imaging and RF Technology increased 29.3% and 10.0% year over year to $268.9 million and $245.6 million, respectively. Industrial Technology and Energy Systems & Controls moved up 2.1% and 9.6% to $104.0 million and $95.9 million, respectively, compared with the year-ago quarter.
Gross profit increased 17.4% year over year to $523.3 million. Gross margin in the reported quarter increased to 59.1% from 56.8% in the year-ago quarter, primarily driven by a better mix and higher revenues.
Income from operations increased 37.2% year over year to $246.7 million. The upside in operating income was attributable to improved sales. Operating margin improved from 22.9% to 27.9% on a year-over-year basis.
Orders increased 5.0% year over year to $874.0 million.
Net income was $157.4 million or $1.56 per share compared with $111.4 million or $1.11 per share in the year-ago quarter.
Roper exited the quarter with $565.3 million in cash and cash equivalents and total debt of $2.23 billion (including the current portion) compared with $502.9 million in cash and cash equivalents and total debt of $2.30 billion (including the current portion) in the previous quarter. Roper reported operating cash flow of $141.0 million and free cash flow of $202.2 million in the second quarter.
During the quarter, Roper acquired FoodLink, which in turn provides traceability and commerce solutions to the fresh food industry.
Guidance
Roper expects third quarter adjusted earnings to be between $1.49 and $1.53 per share For the full year, the company expects adjusted earnings to be in the range of $6.27 – $6.37 per share, which is up from the previous guidance of $6.22 – $6.36. The Zacks Consensus Estimate for the same is pegged at $6.30 per share.
Recommendation
Roper reported encouraging second quarter results. Also, management provided an upbeat guidance for the third quarter of 2014 as well as for the full year 2014.
We believe that a strong backlog coupled with robust organic growth will drive earnings going forward. Moreover, accretive acquisitions will expand the company’s product portfolio, providing it a significant competitive edge over its peers.
However, macroeconomic concerns, integration issues due to acquisitions and competition from Danaher Corp. (DHR), Dover Corp (DOV) and Ingersoll-Rand Plc (IR) are possible headwinds for the company.
Currently, Roper has a Zacks Rank #3 (Hold).
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