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Roper Technologies (ROP) Beats on Q1 Earnings, Sales Miss

Roper Technologies, Inc.ROP reported first-quarter 2016 adjusted earnings per share of $1.50, surpassing the Zacks Consensus Estimate of $1.46. Earnings however decreased 3.2% year over year.

Revenues of $902.4 million were up 4.3% year over year but fell short of the Zacks Consensus Estimate of $908 million. Net orders increased 9% year over year to $927 million in the quarter.

Segment Revenue Details

Revenues from Medical & Scientific Imaging increased 13.9% year over year to $332.2 million.

Revenues from RF Technology went up 15.3% from the year-ago quarter to $280.2 million.

Revenues from Industrial Technology however decreased 10.2% year over year to $171.2 million.

Also, revenues from Energy Systems & Controls declined 15.1% year over year to $118.8 million.

Margins

Adjusted gross margin increased 210 basis points (bps) to 62.1%. The company reported operating margin of 30.4%, which declined 80 bps year over year.

Balance Sheet and Cash Flow

Roper Technologies ended the quarter with approximately $523 million in cash and equivalents compared with $778.5 million as on Dec 31, 2015. Long-term debt was $3.1 billion compared with $3.3 billion at the end of 2015.

In the quarter, the company’s cash flow was $207.1 million. However, excluding the tax payments with regard to its Abel Pump divestiture, Roper’s adjusted cash flow came in at $245 million while adjusted free cash flow was $235 million.

Guidance

For the second quarter of 2016, Roper Technologies expects adjusted earnings per share in the range of $1.56 - $1.61.

For 2016, the company continues to expect adjusted earnings in the range of $6.85-$7.15 per share.

Our Take

Roper is benefiting from its strategic asset-light business model combined with a healthy product mix. Furthermore, the company pursues strategic acquisitions, which are expected to drive growth in the long run. The company expects to spend $1 billion in acquiring strategic companies in the current year.

Also, the company has an optimum mix of highly engineered, niche-oriented products, which help it to gain market share. We believe that Roper’s innovative product pipeline will boost growth going forward.

However, macroeconomic concerns, integration issues due to acquisitions and competition are significant headwinds. Also, for the last few quarters, weakness in Energy and Industrial technology businesses is proving to be drag on RF and Medical & Scientific Imaging businesses. Roper’s high debt level is also a concern.

Currently, Roper has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader tech space include LivePerson Inc. LPSN, Facebook Inc FB and 21Vianet Group, Inc. VNET.  All three stocks carry a Zacks Rank #2 (Buy).

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