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FLIR Misses on Earnings, Guides Down

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FLIR Systems Inc.’s (FLIR - Free Report) shares dropped 0.4% to $28.54 on Oct 25 after the company reported a year-on-year decline in third-quarter 2013 earnings per share (EPS). On Oct 24, the company announced third quarter EPS of 32 cents, down 13.5% from 37 cents in the year-ago-quarter. Quarterly earnings also missed the Zacks Consensus Estimate by 17.9% or 7 cents.

Third quarter results were primarily impacted by the weakness in order flow from the U.S. Government-funded customers, which affected the company’s book-and-ship business.


Total revenue was $358.1 million in the reported quarter, up 7.8% year over year. The increase was driven by higher sales in both its divisions.

Total backlog at the end of the quarter was approximately $523 million, which reflected a year-over-year decline of $42 million and a quarter-over-quarter increase of $5 million. 

Segment Revenues

The Commercial Systems division’s revenues were $212.9 million, up 17% year over year. Within the Commercial Systems division, the Thermal Vision and Measurement segment (TVM) revenues increased 18% to $177.1 million. This increase was driven by the Lorex and Traficon business acquisitions. In Commercial Systems, the Raymarine segment’s revenues were $35.8 million, up 13% year over year, aided by successful new product introductions.

Backlog in the Commercial Systems division was $189 million, up $16 million sequentially and down $1 million from the year-ago quarter.

The Government Systems division’s revenues came in at $145.2 million, declining 4% year over year. The decline was mainly attributable to Surveillance and Detection System segments. Surveillance revenues dropped 11% year on year to $103 million, while Detection System recorded a 15% decline to $13.1 million, respectively. The declines were mainly attributable to weak book-and-ship order flow from the U.S. Government for the Surveillance segment and lower R&D activity in the Detection segment.

However, the strong performance in Integrated Systems partially offset the weak results of the Surveillance and Detection segments. Revenues for the Integrated Systems grew 48% to $29.2 million.

Backlog for the Government Systems division at the end of the quarter was $334 million, rising $58 million from the prior year and $5 million sequentially.

Income and Expenses

Operating income in the reported quarter was $63.5 million compared with $74.2 million in the third- quarter of 2012. Selling and general expenses increased 9.8% to $76.3 million. Research and development expense was $32.9 million compared with $29.6 million in the comparable year-ago quarter.

Balance Sheet & Cash Flow

Cash and cash equivalents improved significantly to $492.2 million at the end of the third quarter compared with $321.7 million at year-end 2012. Long-term debt was $376.1 million, compared with $248.3 million at the end of 2012.

Cash flow from operations in the quarter was $52.5 million, compared with $46.4 million in the comparable year-ago quarter.


The company declared a quarterly cash dividend of 9 cents per share, payable on Dec 6, 2013, to shareholders of record as of Nov 18, 2013.


Along with the earnings release, management lowered its 2013 guidance. FLIR Systems expects earnings per share for 2013 to be in the range of $1.38 to 1.43 a share compared with the previous guidance of $1.56–$1.66. Total revenue is expected to be in the range of $1.45 billion to $1.5 billion versus $1.5 billion–$1.6 billion mentioned earlier.

FLIR Systems currently carries a Zacks Rank #5 (Strong Sell). However, investors keen on the industry may consider stocks such as HEICO Corporation (HEI - Free Report) , Hexcel Corp. (HXL - Free Report) and Kratos Defense & Security Solutions, Inc. (KTOS - Free Report) . All three carry a Zacks Rank # 2 (Buy).

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