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Roper Industries, Inc. (ROP)

Q2 2012 Earnings Conference Call

July 30, 2012 08:30 ET


Brian Jellison – Chairman, President and Chief Executive Officer

John Humphrey – Chief Financial Officer

Paul Soni – Vice President and Controller


Matt Summerville – KeyBanc

Mark Douglass – Longbow Research

Deane Dray – Citi Research

Terry Darling – Goldman Sachs

Christopher Glynn – Oppenheimer

Richard Eastman – Robert W. Baird

Jeff Sprague – Vertical Research Partners

Alex Blanton – Clear Harbor Asset Management



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Good day, everyone and welcome to the Roper Industries’ Second Quarter 2012 Financial Earnings Conference Call. Today’s conference is being recorded. I would now like to turn the conference over to John Humphrey, Chief Financial Officer. Please go ahead, sir.

John Humphrey

Thank you and thank you all for joining us this morning as we discuss the results of our second quarter. Joining me this morning is Brian Jellison, Chairman, President and Chief Executive Officer; and Paul Soni, Vice President and Controller; Jason Conley, Head of Planning and Investor Relations for us.

Earlier this morning, we issued a press release announcing our financial results. The press release also includes replay information for today’s call. We prepared slides to accompany today’s call, which are available through the webcast and also available on our website at

Now, if you turn to slide two, we begin with our updated Safe Harbor statement. During the course of today’s call, we will be making forward-looking statements, which are subject to the risks and uncertainties as described on this page and as further detailed in our filings with the Securities and Exchange Commission. You should listen to today’s call in the context of that information.

Now, if you please turn to slide three, I’ll turn the call over to Brian Jellison, Chairman, President and Chief Executive Officer. And after his prepared remarks, we’ll take questions from our telephone participants. Brian?

Brian Jellison

Well, good morning everybody. Today, we’ll go through the enterprise financial results for the quarter, talk a little bit about specific segment detail on the outlook for each of the segments, give you an overview of the Sunquest acquisition, and then established our third quarter and full year guidance and take your questions. I think we had indicated in our first quarter call that we expected going into the second quarter would be our most difficult challenge for the year.

We had really an outstanding quarter compared to what we expected, because we had quite a few headwinds this quarter. I’ve certainly had the uncertain economy and we’re able to blow through that. We had very difficult comps going into Q2, because of the Gaz de France. Revenue last year and outsized performance in toll tag shipments last year in our Gatan technology business that we knew wouldn’t be repeated. And then of course, we had currency which became a bigger surprise and we expect it cost us about a $0.01 a share versus our guidance and about $0.02 a share versus the prior year. That said let’s look at what we did in Q2, next slide.

We had record results in the second quarter, pretty well across the board, the highest level of orders in our history, highest level of sales in our history in the second quarter, biggest backlog that we’ve entered the second quarter with record net earnings and record EBITDA performance for the quarter. Our orders were up 8% and revenue was up 4% despite those headwinds and the effect of currency.

Our book-to-bill ratio was actually quite high at 1.05%. Our gross margins reached 54.9% in the quarter and our operating margin was really quite spectacular, it came up 130 basis points to 24.7%. If you look at the incremental OP and the incremental sales, our operating leverage in the quarter was 59%. And there is no smoke and mirrors in that, it’s just 59%.

Our EBITDA was up $214 million – sorry, was $214 million and our EBITDA margin reached 29.5%. Operating cash flow in the quarter was $119 million, slightly lower than we would expect in the second quarter, but we had a higher cash tax rate and that would happen again in the rest of the year. Our first half operating cash flow was $261 million and we’ll project what we believe will be for the full year later this morning. Our diluted earnings per share were $1.15 versus a $1.03 last year, that $1.15 would have been $0.01 higher based on our guidance if it weren’t for the currency scenario, and the $1.03 is the number that we use with the re-measurement gain last year, you might remember, was about $0.05 a share, so on GAAP, it would have been $1.08, but was really adjusted at $1.03.

Net earnings were up 13%. We’re very happy with the performance, because we had about a $30 million headwind between our scientific camera business and Gaz de France and some European activity coming into the quarter and we were able to really blow through that, very solid revenue throughout the world with the exception in Europe, which was down about 18%. Record performance really in an uncertain economic environment.

Next slide, in the Q2 income statement, you’ll see orders over $763 million, up 7% organically. Revenue, book-to-bill came in at 1.05%, gross profit was up 100 basis points to 54.9% from 53.9% a year ago and our operating income was an amazing 24.7%, up 130 basis points for a year ago. Our interest expense about flat, tax rate was consistent with the guidance we established for the quarter came in at 29.6%. And net earnings were $115 million versus $102 last year, up 13%.

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