FLIR Systems (FLIR) Q3 Earnings Miss By A Penny, Sales Up

FLIR Systems Inc. (NASDAQ:FLIR) continued its recent trend of missing estimates, as its third-quarter 2016 earnings per share of 43 cents lagged the Zacks Consensus Estimate by a penny. A rise in the interest outlay resulted in the bottom-line miss.

Net income in the quarter came in at $58.6 million compared with $73.1 million in the year-ago quarter. Fall in net income was largely attributable to a huge discrete tax benefit in the prior-year quarter.

Inside the Headlines

The company’s top line grew a robust 6% year over year to $405.2 million. Also, revenues beat the Zacks Consensus Estimate of $402 million by a whisker. Strong growth in five of the company’s segments drove the overall top line, and more than offset the decline in sales experienced in the Security segment.

As for the segments, Surveillance revenues recorded growth of 3.6% year over year to $136.4 million, while OEM & Emerging Markets revenues rose an impressive 21.9% over the prior-year quarter to $62.7 million.

Detection segment revenues grew 2.3% year over year to $26.4 million. Also, Instruments revenues returned to the growth track, with a rise of 10.5% year over year to $82.7 million, after dismal performance in the recent past. Maritime segment revenues were also up 4.3% year over year to $40.6 million.

However, revenues from the Security segment were a dampener, declining 4.9% over the prior-year quarter to $56.4 million, due to intensifying competition in retail channels.

FLIR Systems' order backlog for the coming 12 months is pegged at around $ 644 million as of Sep 30, 2016, reflecting a solid year-over-year increase of 13%.

Operating income came in at $80.8 million, compared with $76 million in the prior-year quarter. Sturdy top-line growth drove the rise in income.

Liquidity & Cash Flow

As of Sep 30, 2016, the company's cash and cash equivalents were $677.7 million, compared with $525.4 million as of Sep 30, 2015. Long-term debt was $501.6 million, up from $93.8 million at Dec 31, 2015.

Cash flow generated from operating activities in the quarter came in at $88.6 million, significantly up from $73.6 million in the prior-year quarter. This is the company’s highest cash flow since 2013 and can be largely attributed to sustained reductions in working capital.

FLIR SYSTEMS Price, Consensus and EPS Surprise

Guidance

FLIR Systems reiterated its outlook for 2016 and projects adjusted net earnings to lie between $1.60 to $1.65, on revenues ranging from $1.6–$1.65 billion (representing growth of about 3–6% over 2015).

Going Forward

FLIR Systems is enthusiastic about its solid bookings and backlog during the third quarter and believes it will fuel future growth. Also, the company’s improved working capital utilization is resulting in robust cash flow that adds to its strength. The company is particularly optimistic about the product portfolios of all its segments and is bullish on their growth prospects.

However, the company’s Security segment’s operations are currently under pressure. The unit has been grappling with stiff competition in its retail channels and that will most likely hurt its growth prospects. Also, profitability of this Zacks Rank #3 (Hold) company depends on its ability to check the rise in costs during the second half of the year.

Stocks to Consider

Some better-ranked stocks in the broader sector include CAE Inc. (TO:CAE) , B/E Aerospace Inc. (NASDAQ:BEAV) and HEICO Corporation (NYSE:HEI) .

Defense equipment provider, CAE has a robust earnings beat history, having surpassed estimates thrice over the four trailing quarters, with an average positive surprise of 10.6%. CAE sports a Zacks rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

B/E Aerospace has registered a positive average surprise of 2.5% over the four trailing quarters, beating estimates all through.

HEICO also has a striking earnings history, having consistently beaten estimates each time in the four trailing quarters for an average positive surprise of 5.6%.

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