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FLIR Systems Inc. (FLIR - Analyst Report) released its second-quarter 2011 earnings results before the market opened today, reporting earnings from continuing operations of 18 cents, below the Zacks Consensus Estimate of 36 cents and prior-year earnings of 37 cents. 

Earnings in the quarter was affected by net after tax impact of the litigation settlement and related expenses, excluding which earnings per share in the quarter was 35 cents

Total Revenue

Total revenue was $390.0 million, an increase of 18% year over year. FLIR’s revenue increased in both its division, adding to total revenue growth.

Total backlog at the end of June 30, 2011 was $486 million, down $42 million year over year.

Divisional Revenue 

Commercial Systems division was $215.0 million, up 32% year over year. Within the Commercial Systems division, the Thermal Vision and Measurement segment revenue (consisting of former Thermography and Commercial Vision Systems ["CVS"] businesses) increased by 21% to $164.8 million. Commercial Systems' Raymarine segment revenue was $50.2 million.

Government Systems division was $174.9 million in the quarter, up 4% year over year. Within the division, the Surveillance segment revenue declined by 16% to $141.5 million. Detection segment revenue was $17.2 million and Integrated Systems segment revenue was $16.2 million. Detection and Integrated Systems segments were formed from the acquisition of ICx.

Income and Expenses

Operating earnings, for the quarter, was $41.7 million compared with $89.8 million in the prior-year period. Selling and general expense was $123.7 million compared with $65.2 million and research and development expense was $39.2 million compared with $28.3 million.

Balance Sheet

Cash and cash equivalents was $235.6 million at the end of the quarter with shareholders equity of $1.6 billion.

The company's board of directors declared a quarterly cash dividend of 6 cents per share on FLIR common stock, payable on September 9, 2011, to shareholders of record as of the close of business on August 22, 2011.

Outlook

FLIR Systems lowered its revenue and earnings per share outlook for 2011 based on its result for the first half of 2011. The company expects 2011 revenue to be in the range of $1.6 billion to $1.65 billion and net earnings to be in the range of $1.33 to $1.38 per diluted share.

Excluding the net after-tax impact of the litigation settlement and related expenses, earnings per share is expected to be in the range of $1.50 to $1.55.

The company has developed extensive competencies in the design and integration of numerous capabilities and payloads into integrated systems or sub-systems. Competencies such as stabilization, packaging and systems integration allow it to effectively combine a wide variety of technologies and payloads to design and manufacture complex systems to suit its customers’ needs.

However, FLIR derives significant revenue from contracts or subcontracts with the U.S. government agencies. A significant reduction in the purchase of its products by these agencies would have an adverse impact on its business.

The funding of contracts awarded to the company depends on the overall budget of the United States government and appropriation process, which is beyond its control. Major competitors of FLIR Systems are L-3 Communications Holdings Inc. (LLL - Analyst Report) and Lockheed Martin Corporation (LMT - Analyst Report).

FLIR Systems Inc. is a leader in design, manufacture and marketing of thermal imaging systems. Its products are used in a wide variety of applications in commercial, industrial and government markets, internationally as well as domestically.

It offers a wide variety of system configurations to suit specific customer requirements. The company’s business is organized into three divisions: Government Systems, Commercial Vision Systems and Thermography Products.

We continue to maintain a Neutral rating on FLIR Systems for the long term. The company has a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.

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