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Roper Industries Inc. (ROP - Snapshot Report) reported second-quarter 2013 non-GAAP earnings of $1.31 per share, up 13.9% from the year-ago quarter and beat the Zacks Consensus Estimate by a penny.

Quarter Details

Roper’s non-GAAP total revenue (excluding a fair value adjustment to acquired deferred revenues and adjustments related to the MHA acquisition) increased 11.0% year over year to $804.9 million in the quarter. Revenues missed the Zacks Consensus Estimate of $812.0 million.

On a GAAP basis, Roper reported revenues of $784.0 million, up 8.2% from the year-ago quarter. Acquisitions and divestitures accounted for 11.0% of the revenue growth in the quarter. Organic revenues increased 1.0% and the company reported a backlog of $1.03 billion.

Growth across most of its business segments also contributed to the year-over-year increase in revenues. Revenues from Medical & Scientific Imaging and RF Technology increased 37.8% and 3.7%, respectively. The strength in these segments more than offset the 3.1% decline in revenues from Industrial Technology. Energy Systems & Controls segment reported a modest 0.4% growth on a year-over-year basis.

Adjusted gross profit increased 17.3% year over year to $466.5 million. Gross margin in the reported quarter increased to 58.0% from 54.9% in the year-ago quarter, primarily driven by better mix and higher revenues.

Adjusted income from operations increased 17.3% year over year to $209.8 million. The upside in operating income was based on improved sales. Operating margin improved from 24.7% to 26.1% on a year-over-year basis. Adjusted net earnings increased 14.0% from the year-ago quarter to $130.9 million.

Roper exited the quarter with $374.6 million in cash and cash equivalents and total debt of $2.76 billion (including the current portion) compared with $430.0 million in cash and cash equivalents and total debt of $1.92 billion (including the current portion) in the previous quarter. Roper reported free cash flow of $129.1 million at the end of the second quarter.

Guidance

Roper revised its fiscal 2013 earnings outlook from $5.76-$5.94 per share to $5.72-$5.86 per share. The company also projected that its sales will increase in the range of 12%-14%, including organic growth of 6% to 8%, for the rest of 2013. Roper expects operating cash flow to exceed $800 million in fiscal 2013.

Recommendation

We believe that strong backlog coupled with robust organic growth will drive earnings growth. Moreover, accretive acquisitions will expand its product portfolio, providing a significant competitive edge over its peers.

However, macroeconomic concerns, integration issues due to acquisitions and competition from Danaher Corp. (DHR - Analyst Report), Dover Corp (DOV - Analyst Report) and Ingersoll-Rand Plc (IR - Analyst Report) are possible headwinds for the company.

Currently, Roper has a Zacks Rank #3 (Hold).

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