FLIR Systems: Q3 Results In Line

FLIR Systems (FLIR) announced Q3 results in line with expectations, along with the acquisition of Lorex Technology. This gives FLIR the opportunity to broaden its exposure to the consumer security market, in line with its strategy to bring higher-volume, lowercost thermal products to the group’s mix. With strong US sales offset by weakness in international markets, particularly in EMEA, the business has right-sized operations to ensure improved efficiency in these markets and has continued to focus on providing a lower-cost, commercial approach to government markets, which is yielding benefits in this cost-conscious environment.

Q3 results – improving backlog
FLIR announced Q3 sales, down by 11% to $332m, driven primarily by weakness in Europe and uncertainty in government markets that have affected short-term performance. Despite this, order intake improved in Q3 to leave the backlog standing at $565m, the highest level for three years, supporting management’s view that the group is moving into Q4 and FY13 in a better shape than last year.

Strategy to deliver increasing integrated detection
FLIR’s strategy is consistent across the group, driving the cost of systems down to address larger-volume consumer markets and reduce the cost of ownership for government customers. In addition, it is seeking to use a global distribution network to increase sales channels for all its products. The announced acquisition of Lorex Technology for C$56m supports this strategy, initially through selling Lorex’s security cameras to FLIR’s professional integrator network and subsequently through developing FLIRs low-cost thermal systems into Lorex’s product range, while using its skills in e-commerce to increase routes to market.

Valuation: Rating recognises longer-term growth prospects
Despite the current negative revenue growth, the current rating of 12.4x CY13 EPS suggests the market is pricing in longer-term growth opportunities for the group. This rating is also supported by the operational improvements and efficiency gains, which are the permanent focus of FLIR.

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