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After a dismal third quarter, Roper Industries Inc. (ROP - Snapshot Report) bounced back strongly in the fourth quarter of 2013. Earnings jumped 14.5% year over year to $1.65 per share and also beat the Zacks Consensus Estimate by a nickel.

Quarter Details

Revenues increased 9.8% year over year of $889.2 million, which was slightly better than the Zacks Consensus Estimate of $882.0 million. Net orders surged 15.5% year over year to $900.0 million.

The strong year-over-year growth in revenues was driven by better-than-expected sales growth in Medical & Scientific Imaging and RF Technology.

Revenues from Medical & Scientific Imaging (28.9% of revenues) soared 17.9% year over year to $256.5 million, while RF Technology revenues (26.7% of revenues) jumped 12.9% from the year-ago quarter to $237.6 million.

Energy Systems & Controls revenues (22.0% of total revenue) increased 6.1% year over year to $195.9 million. Revenues from Industrial Technology (22.4% of total revenue) increased a modest 1.0% from the year-ago quarter to $199.1 million.

Gross margin increased 240 basis points (bps) from the year-ago quarter to 60.0%, driven by a higher revenue base.

Segment-wise, Medical & Scientific Imaging margin expanded 790 bps to 71.8%, while RF Technology margin increased 130 bps to 54.4%. Energy Systems & Controls segment margin increased 90 bps in the quarter. However, this growth was partially offset by 270 bps decline in Industrial Technology margin.

Selling, general & administrative (SG&A) expense increased 110 bps from the year-ago quarter to 30.9%. Higher revenues and gross margin expansion drove operating margin in the quarter.

Segment operating margin improved 160 bps on a year-over-year basis to 31.8%. Medical & Scientific Imaging margin expanded 610 bps to 34.6%, while RF Technology margin increased 230 bps to 29.3%. Energy Systems & Controls segment margin increased 20 bps, but Industrial Technology margin declined 320 bps in the quarter.

Net income margin expanded 90 bps from the year-ago quarter to 18.6% in the reported quarter.

Roper ended the fourth quarter with $459.7 million in cash and equivalents and $2.45 billion in total debt. Free cash flow in the quarter was $227.0 million.

Guidance

For fiscal 2014, Roper expects earnings in the range of $6.05 to $6.25 per share. Currently, the Zacks Consensus Estimate for fiscal 2014 is pegged at $6.25, which is in line with the higher-end of the company’s guided range.

Recommendation

We believe that a strong backlog coupled with robust organic growth will drive earnings growth. Moreover, accretive acquisitions will expand the company’s 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 significant headwinds. Moreover, higher debt level is a major concern, going forward.

Currently, Roper has a Zacks Rank #4 (Sell).

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