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FLIR Systems Inc. (FLIR - Analyst Report) reported first-quarter 2014 adjusted earnings (excluding one-time items) of 25 cents, missing the Zacks Consensus Estimate by a penny.

The company reported GAAP earnings of 21 cents, which fell significantly short of last year’s earnings of 35 cents.

The quarterly results were primarily impacted by the sluggish Government-funded business. Results were also impacted by the short-run effects of the ongoing restructuring activities. This restructuring plan is strategic for the company as it likely to strengthen company-wide communication, collaboration and co-operation, while creating a logical structure that will further leverage its vertical integration and focus on core markets.

Revenues

Total revenue was $351.5 million in the reported quarter, up 1% year over year. The increase was primarily driven by higher sales in the commercial business, slightly offset by decline in the government-funded businesses. Revenues surpassed the Zacks Consensus Estimate of $350 million.

FLIR's backlog was about $514 million as of Mar 31, 2014, marking an increase of $24 million during the quarter.

Operational Update

The company has modified its reporting segments to reflect the changing dynamics of the market and to better align its business with its customer base. This quarter onwards, the company is reporting results in 6 segments that include:

The Surveillance segment includes the company’s Surveillance business and also the Integrated System segment. The revenues from the segment declined marginally to $117.2 million from $118.0 million in the prior-year quarter.

The Instruments segment comprises of the Thermography and Test and Measurement business, which finds use in commercial and industrial markets. The segment revenuescame in at $84.0 million, an increase from $78.5 million in the first quarter 2013.

The Original Equipment Manufacturer (OEM) and Emerging Markets segment includes OEM Personal Vision Systems, mobile accessories and intelligent traffic solutions lines of business. Revenues increased to $53.8 million from $50.3 million in the prior-year quarter.

The Maritime segment, encompassing Raymarine and FLIR-branded maritime thermal imaging products, reported revenues of $52.6 million, an increase from $50.5 million in first-quarter 2013.

The Security segment includes the Lorex consumer security cameras and the FLIR-branded professional thermal and visible security products. The segment’srevenues declined marginally to $29.3 million from $29.5 million in the prior-year quarter.

The Detection segment consists of the company’s Detection business as well as detection-oriented programs of the Integrated Systems business. The reported revenues of $14.6 million declined from $21.8 million in the prior-year quarter.

Income and Expenses

Operating income in the reported quarter was $42.5 million compared with $69.1 million in the prior-year quarter. Selling and general expenses increased to $81.9 million from last year’s figure of $78.2 million. Research and development expenses declined nearly 1% to $36.3 million year over year.

Balance Sheet & Cash Flow

Exiting the quarter, the company's cash and cash equivalents improved significantly to $584.1 million from $542.5 million at the 2013 end. Long-term debt was $368.9 million, compared with $372.5 million at the end of 2013.

Cash flow from operations declined to $59.8 million from nearly $62 million in the comparable year-ago quarter.

Dividend

In the quarter, the board of directors declared a quarterly cash dividend of 10 cents per share. The new dividend will be paid on Jun 6, 2014, to shareholders of record as of close of business on May 20, 2014.

Business Outlook

FLIR Systems is positive about the long-term benefits of its restructuring activities. Also, it plans to boost its business by increasing investments in marketing of its products. The company is also positive about the scope of its upcoming Lepton micro thermal camera core-enabled products that are also lower in costs.

Along with the earnings release, management reaffirmed its guidance for 2014. FLIR expects revenues in 2014 to be in the range of $1.45 billion to $1.55 billion and earnings (excluding restructuring charges associated with the business realignment) to be in the range of $1.40–$1.50 per share.

FLIR Systems currently carries a Zacks Rank #4 (Sell). Some better-ranked companies in the industry that are worth a look include Alliant Techsystems Inc. (ATK - Analyst Report), L-3 Communications Holdings Inc. (LLL - Analyst Report) and Hexcel Corp. (HXL - Snapshot Report). All three carry a Zacks Rank #2 (Buy).

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