Mixed 4Q for Roper

Roper Industries Inc. (ROP - Snapshot Report) posted mixed fourth quarter 2011 results. The company reported earnings of $1.23 per share, up 11.8% year over year and surpassed the Zacks Consensus Estimate by a couple of cents.

Earnings per share (EPS) also beat the high end of management’s guided range of $1.18 to $1.22. The strong results were primarily driven by solid revenue growth and margin expansion in the quarter.

Revenue

Roper’s total revenue increased 8.8% year over year of $739.2 million in the reported quarter. Acquisitions/Divestitures contributed 2.0% to the revenue growth in the quarter, while 7.0% came from organic growth. However, reported revenue missed the Zacks Consensus Estimate of $761.0 million.

The strong year-over-year growth was driven by better-than-expected sales growth across all the four segments. Net orders, however, decreased slightly on an annualized basis to $694.7 million during the quarter.

Revenues from Industrial Technology (26.9% of sales) increased 20.0% year over year to $198.7 million. Medical & Scientific Imaging revenues (21.3% of sales) were $157.8 million, up 1.5% year over year, while Energy Systems & Controls revenues (23.3% of sales) climbed 10.7% year over year to $172.0 million. Revenues from RF Technology (28.5% of sales) were $210.7 million, up 3.8% year over year.

Operating Performance

Gross profit rose 9.1% year over year to $405.8 million. Gross margin in the reported quarter increased to 54.9% from 54.7% in the year-ago quarter, driven by strong revenue growth across all the segments.

Gross profit margin in the Industrial Technology segment stood at 49.3% versus 51.9% in the year-ago quarter. The Medical & Scientific Imaging margin expanded to 64.0% from 62.8% in the year-ago quarter.

The Energy Systems & Controls segment reported gross margin of 57.8%, up from 55.8% in the year-ago quarter. RF Technology margin was 51.1% versus 50.1% in the year-ago quarter.

In the reported quarter, operating income increased 12.9% year over year to $202.4 million. The significant upside in operating income was based on improved sales. Operating margin improved 100 bps to 27.4% from 26.4% in the year-ago quarter.

Operating margins for the Industrial Technology segment, Energy Systems & Controls and RF Technology increased 110 bps, 230 bps and 190 bps and 380 bps on a year-over-year basis, respectively. However, this was partially offset by a 220 bps margin contraction in the Medical & Scientific Imaging segment.            

Net income increased 13.4% year over year to $121.7 million in the quarter, with net margin climbing 70 bps year over year to 16.5%.

Balance Sheet & Cash Flow

Roper Industries ended the quarter with $338.1 million in cash and equivalents and $1.09 billion in total debt (including the current portion) compared with $246.5 million in cash and equivalents and $1.17 billion in total debt (including the current portion) in the previous quarter. Operating cash flow was $192.5 million in the quarter versus $166.6 million in the previous quarter.

Guidance

For the first quarter of 2012, management anticipates EPS in the range of $1.01 to $1.05. The Zacks Consensus Estimate for the first quarter is currently pegged at $1.03, mid point of the guided range.

Roper Industries expects earnings per share in the range of $4.67 to $4.87 for fiscal 2012. Currently, the Zacks Consensus Estimate for fiscal 2012 is pegged at $4.72, hovering around the low end of company’s guidance.

Recommendation

We believe strong backlog and upside across all the segments will drive revenue growth going forward. Moreover, Roper’s substantial cash flow generating abilities will help the company pursue its acquisition strategy going forward.

However, Roper faces tough competition from Agilent Technologies Inc. (A - Analyst Report) and Halliburton Company (HAL - Analyst Report), which may hurt profitability going forward.

We maintain our Outperform recommendation over the long term (6-12 months). Currently, Roper has a Zacks #1 Rank, which implies a short-term Strong Buy rating on the stock.

Read the full analyst report on A

Read the full analyst report on ROP

Read the full analyst report on HAL