Teledyne Technologies Incorporated (NYSE:TDY):
- Record quarterly sales of $782.0 million, an increase of
6.8% compared to last year
- Record quarterly GAAP earnings per diluted share of $2.80,
an increase of 20.7% compared to last year
- Record operating margin
- Raising full year 2019 GAAP earnings outlook to $9.86 to
$9.96 per diluted share, an increase from the prior outlook of
$9.45 to $9.55
- Announced pending acquisition of the Gas and Flame Detection
business of 3M for $230.0 million in cash
Teledyne today reported second quarter 2019 net sales of $782.0
million, compared with net sales of $732.5 million for the second
quarter of 2018, an increase of 6.8%. Net income was $104.6 million
($2.80 per diluted share) for the second quarter of 2019, compared
with $85.9 million ($2.32 per diluted share) for the second quarter
of 2018, an increase of 21.8%. The second quarter of 2019 reflected
net discrete income tax benefits of $4.3 million compared with net
discrete income tax benefits of $3.4 million for the second quarter
of 2018.
“We achieved all-time record sales and earnings per share for
any quarterly period,” said Robert Mehrabian, Executive Chairman.
“Operating margin was also a record, increasing 165 basis points
over last year. We have increased our emphasis on margin
improvement, while at the same time continuing our proven strategy
of disciplined capital deployment for compound growth in earnings.
As an example, we were pleased to announce the Gas and Flame
Detection acquisition, which will expand our portfolio of
environmental instrumentation businesses.” Al Pichelli, President
and Chief Executive Officer, added, “Each business segment reported
organic sales growth as Teledyne continues to benefit from our
balanced portfolio of common technologies serving different,
complementary markets. Strong sales of advanced detectors for
medical imaging and defense electronics generated growth for our
digital imaging and aerospace and defense segments. Instrumentation
sales were led by continued growth of electronic test and
measurement systems. Finally, marine instrumentation received
outstanding orders and ended the quarter with its largest backlog
in nearly four years.”
Review of Operations
Comparisons are with the second quarter of 2018, unless noted
otherwise.
Instrumentation
The Instrumentation segment’s second quarter 2019 net sales were
$264.1 million, compared with $262.6 million, an increase of 0.6%.
Operating income was $49.0 million for the second quarter of 2019,
compared with $40.9 million, an increase of 19.8%.
The second quarter 2019 net sales increase resulted from higher
sales of test and measurement instrumentation, environmental
instrumentation, partially offset by lower marine instrumentation
sales. Sales of test and measurement instrumentation increased $7.1
million while sales of environmental instrumentation increased $1.7
million and sales of marine instrumentation decreased $7.3 million.
The increase in operating income reflected the impact of higher
margins across most product lines.
Digital Imaging
The Digital Imaging segment’s second quarter 2019 net sales were
$251.3 million, compared with $225.3 million, an increase of 11.5%.
Operating income was $52.5 million for the second quarter of 2019,
compared with $43.3 million, an increase of 21.2%.
The second quarter 2019 net sales primarily reflected higher
sales of X-ray detectors for life sciences applications and
aerospace, defense and MEMS products as well as $23.3 million in
sales from the acquisition of the scientific imaging businesses of
Roper Technologies, Inc. The increase in operating income in the
second quarter of 2019 primarily reflected the impact of higher
sales and favorable product mix, partially offset by higher
research and development expense.
Aerospace and Defense Electronics
The Aerospace and Defense Electronics segment’s second quarter
2019 net sales were $191.0 million, compared with $173.5 million,
an increase of 10.1%. Operating income was $39.4 million for the
second quarter of 2019, compared with $33.7 million, an increase of
16.9%.
The second quarter 2019 net sales reflected $17.8 million of
higher sales of defense electronics, partially offset by $0.3
million of lower sales of aerospace electronics. The increase in
operating income in the second quarter of 2019 reflected the impact
of higher sales and improved margins.
Engineered Systems
The Engineered Systems segment’s second quarter 2019 net sales
were $75.6 million compared with $71.1 million, an increase of
6.3%. Operating income was $7.3 million for the second quarter of
2019, compared with $7.4 million, a decrease of 1.4%.
The second quarter 2019 net sales reflected higher sales of $5.2
million of engineered products and services, partially offset by
lower sales of $0.7 million of turbine engines. The higher sales of
engineered products and services, primarily reflected increased
sales for nuclear manufacturing and space programs. Operating
income in the second quarter of 2019 decreased primarily due to
product mix.
Additional Financial Information
Cash Flow
Cash provided by operating activities was $83.2 million for the
second quarter of 2019, compared with $107.9 million. The lower
cash provided by operating activities in the second quarter of 2019
reflected higher working capital requirements including the timing
of accounts receivable collections, partially offset by the impact
of higher operating income and lower income tax payments. At June
30, 2019, cash totaled $108.1 million compared with $142.2 million
at December 30, 2018. At June 30, 2019, total debt was $791.7
million, compared with $747.5 million at December 30, 2018. At June
30, 2019, $76.5 million was outstanding under the $750.0 million
credit facility. The company received $10.5 million from the
exercise of stock options in the second quarter of 2019, compared
with $11.5 million. Capital expenditures for the second quarter of
2019 were $18.1 million, compared with $27.4 million. Depreciation
and amortization expense for the second quarter of 2019 was $27.1
million, compared with $27.6 million. In June 2019, Teledyne
announced the pending acquisition of the Gas and Flame Detection
business of 3M Company for $230.0 million in cash. The transaction
is expected to close in the third quarter of 2019.
Free Cash Flow (a)
Second Quarter
(in millions, brackets indicate use of
funds)
2019
2018
Cash provided by operating activities
$
83.2
$
107.9
Capital expenditures for property, plant
and equipment
(18.1
)
(27.4
)
Free cash flow
$
65.1
$
80.5
(a)
The company defines free cash flow as cash
provided by operating activities (a measure prescribed by generally
accepted accounting principles) less capital expenditures for
property, plant and equipment. The company believes that this
supplemental non-GAAP information is useful to assist management
and the investment community in analyzing the company’s ability to
generate cash flow.
Income Taxes
The effective tax rate for the second quarter of 2019 was 18.2%
compared with 17.7%. The second quarter of 2019 reflected net
discrete income tax benefits of $4.3 million, which included a $4.8
million income tax benefit related to share-based accounting. The
second quarter of 2018 reflected net discrete income tax benefits
of $3.4 million, which included a $4.7 million income tax benefit
related to share-based accounting. Excluding the net discrete
income tax benefits in both periods, the effective tax rates would
have been 21.6% for the second quarter of 2019 and 21.0% for the
second quarter of 2018.
Other
Stock option expense was $5.8 million for the second quarter of
2019, compared with $5.4 million. Stock option expense for fiscal
year 2019 is currently expected to be $26.5 million, compared with
$19.8 million for fiscal year 2018. Non-service retirement benefit
income was $2.0 million for the second quarter of 2019, compared
with $3.3 million. Interest expense, net of interest income,
decreased to $5.4 million for the second quarter of 2019 compared
with $6.7 million and primarily reflected lower debt levels in the
second quarter of 2019. Corporate expense was $16.3 million for the
second quarter of 2019, compared with $13.8 million and primarily
reflected higher professional fees expense.
Recent Accounting Pronouncements
Effective December 31, 2018, the beginning of our 2019 fiscal
year, Teledyne adopted the requirements of Accounting Standards
Update (“ASU”) No. 2016-02, “Leases (Topic 842)” using the modified
retrospective transition option of applying the new guidance at the
adoption date. In addition, we elected the package of practical
expedients permitted under the transition guidance within the new
standard, which among other things, allowed us to carry forward the
historical lease classification. Adoption of the new guidance
resulted in the recording of right-of-use assets and a lease
liability for 2019. Prior period comparative information was not
adjusted. At June 30, 2019, Teledyne has right-of-use assets of
$129.6 million included in long-term other assets and a total lease
liability for operating leases of $139.8 million of which $121.9
million is included in other long-term liabilities and $17.9
million is included in accrued liabilities.
Outlook
Based on its current outlook, the company’s management believes
that third quarter 2019 GAAP earnings per diluted share will be in
the range of $2.50 to $2.55 and full year 2019 GAAP earnings per
diluted share will be in the range of $9.86 to $9.96, an increase
from the prior outlook of $9.45 to $9.55. The company’s annual
estimated tax rate for 2019 is 21.9%, before discrete items.
Forward-Looking Statements Cautionary Notice
This press release contains forward-looking statements, as
defined in the Private Securities Litigation Reform Act of 1995,
relating to sales, earnings, operating margin, growth
opportunities, acquisitions, product sales, capital expenditures,
pension matters, stock option compensation expense, interest
expense, taxes, exchange rate fluctuations, cost reductions,
facility consolidation costs, severance expenses and strategic
plans. Forward-looking statements are generally accompanied by
words such as “estimate”, “project”, “predict”, “believes” or
“expect”, that convey the uncertainty of future events or outcomes.
All statements made in this press release that are not historical
in nature should be considered forward-looking.
Actual results could differ materially from these
forward-looking statements. Many factors could change the
anticipated results, including: disruptions in the global economy;
changes in demand for products sold to the defense electronics,
instrumentation, digital imaging, energy exploration and
production, commercial aviation, semiconductor and communications
markets; funding, continuation and award of government programs;
cuts to defense spending resulting from existing and future deficit
reduction measures; impacts from the United Kingdom’s pending exit
from the European Union; uncertainties related to the policies of
the U.S. Presidential Administration; the imposition and expansion
of, and responses to, trade sanctions and tariffs; and threats to
the security of our confidential and proprietary information,
including cyber security threats. Lower oil and natural gas prices,
as well as instability in the Middle East or other oil producing
regions, and regulations or restrictions relating to energy
production, including with respect to hydraulic fracturing, could
further negatively affect the company’s businesses that supply the
oil and gas industry. Increasing fuel costs and disruptions from
the grounding of Boeing's 737 Max aircraft could negatively affect
the markets of our commercial aviation businesses. In addition,
financial market fluctuations affect the value of the company’s
pension assets.
Changes in the policies of U.S. and foreign governments, could
result, over time, in reductions or realignment in defense or other
government spending and further changes in programs in which the
company participates.
While the company’s growth strategy includes possible
acquisitions, we cannot provide any assurance as to when, if or on
what terms any acquisitions will be made. Acquisitions involve
various inherent risks, such as, among others, our ability to
integrate acquired businesses, retain customers and achieve
identified financial and operating synergies. There are additional
risks associated with acquiring, owning and operating businesses
internationally, including those arising from U.S. and foreign
policy changes and exchange rate fluctuations.
While the company believes its internal and disclosure control
systems are effective, there are inherent limitations in all
control systems, and misstatements due to error or fraud may occur
and may not be detected.
Readers are urged to read the company’s periodic reports filed
with the Securities and Exchange Commission (“SEC”) for a more
complete description of the company, its businesses, its strategies
and the various risks that the company faces. Various risks are
identified in Teledyne’s 2018 Annual Report on Form 10-K and
subsequent Quarterly Reports on Form 10-Q. The company assumes no
duty to publicly update or revise any forward-looking statements,
whether as a result of new information or otherwise.
A live webcast of Teledyne’s second quarter earnings conference
call will be held at 11:00 a.m. (Eastern) on Wednesday, July 24,
2019. To access the call, go to www.teledyne.com approximately ten
minutes before the scheduled start time. A replay will also be
available for one month starting at 12:00 p.m. (Eastern) on
Wednesday, July 24, 2019.
TELEDYNE TECHNOLOGIES
INCORPORATED
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
FOR THE SECOND QUARTER AND SIX
MONTHS ENDED
JUNE 30, 2019 AND JULY 1,
2018
(Unaudited - in millions, except
per share amounts)
Second Quarter
Second Quarter
Six Months
Six Months
2019
2018
2019
2018
Net sales
$
782.0
$
732.5
$
1,527.2
$
1,428.1
Costs and expenses:
Costs of sales
463.6
447.0
927.5
885.2
Selling, general and administrative
expenses
186.5
174.0
370.5
343.0
Total costs and expenses
650.1
621.0
1,298.0
1,228.2
Operating income
131.9
111.5
229.2
199.9
Interest and debt expense, net
(5.4
)
(6.7
)
(10.8
)
(13.8
)
Non-service retirement benefit income
2.0
3.3
4.2
6.7
Other expense, net
(0.6
)
(3.7
)
(1.8
)
(6.2
)
Income before income taxes
127.9
104.4
220.8
186.6
Provision for income taxes
23.3
18.5
40.9
34.2
Net income
$
104.6
$
85.9
$
179.9
$
152.4
Diluted earnings per common share
$
2.80
$
2.32
$
4.82
$
4.13
Weighted average diluted common shares
outstanding
37.4
37.0
37.3
36.9
TELEDYNE TECHNOLOGIES
INCORPORATED
SUMMARY OF SEGMENT NET SALES
AND OPERATING INCOME
FOR THE SECOND QUARTER AND SIX
MONTHS ENDED
JUNE 30, 2019 AND JULY 1,
2018
(Unaudited - in millions)
Second Quarter
Second Quarter
% Change
Six Months
Six Months
% Change
2019
2018
2019
2018
Net sales:
Instrumentation
$
264.1
$
262.6
0.6
%
$
520.6
$
501.6
3.8
%
Digital Imaging
251.3
225.3
11.5
%
486.6
436.3
11.5
%
Aerospace and Defense Electronics
191.0
173.5
10.1
%
371.4
347.1
7.0
%
Engineered Systems
75.6
71.1
6.3
%
148.6
143.1
3.8
%
Total net sales
$
782.0
$
732.5
6.8
%
$
1,527.2
$
1,428.1
6.9
%
Operating income:
Instrumentation
$
49.0
$
40.9
19.8
%
$
88.9
$
68.7
29.4
%
Digital Imaging
52.5
43.3
21.2
%
89.5
77.9
14.9
%
Aerospace and Defense Electronics
39.4
33.7
16.9
%
73.2
65.4
11.9
%
Engineered Systems
7.3
7.4
(1.4
)%
12.0
14.6
(17.8
)%
Corporate expense
(16.3
)
(13.8
)
18.1
%
(34.4
)
(26.7
)
28.8
%
Operating income
131.9
111.5
18.3
%
229.2
199.9
14.7
%
Interest and debt expense, net
(5.4
)
(6.7
)
(19.4
)%
(10.8
)
(13.8
)
(21.7
)%
Non-service retirement benefit income
2.0
3.3
(39.4
)%
4.2
6.7
(37.3
)%
Other expense, net
(0.6
)
(3.7
)
(83.8
)%
(1.8
)
(6.2
)
(71.0
)%
Income before income taxes
127.9
104.4
22.5
%
220.8
186.6
18.3
%
Provision for income taxes
23.3
18.5
25.9
%
40.9
34.2
19.6
%
Net income
$
104.6
$
85.9
21.8
%
$
179.9
$
152.4
18.0
%
TELEDYNE TECHNOLOGIES
INCORPORATED
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited – in millions)
June 30, 2019
December 30, 2018
ASSETS
Cash
$
108.1
$
142.5
Accounts receivable, net
608.8
561.8
Inventories, net
390.4
364.3
Prepaid expenses and other current
assets
53.7
45.8
Total current assets
1,161.0
1,114.4
Property, plant and equipment, net
450.9
442.6
Goodwill and acquired intangible assets,
net
2,267.9
2,079.5
Prepaid pension asset
101.4
88.2
Other assets, net (a)
219.0
84.6
Total assets
$
4,200.2
$
3,809.3
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
221.7
$
227.8
Accrued liabilities (a)
353.8
355.6
Current portion of long-term debt and
other debt
135.5
137.4
Total current liabilities
711.0
720.8
Long-term debt
656.2
610.1
Other long-term liabilities (a)
360.0
248.7
Total liabilities
1,727.2
1,579.6
Total stockholders’ equity
2,473.0
2,229.7
Total liabilities and stockholders’
equity
$
4,200.2
$
3,809.3
a)
Effective December 31, 2018, Teledyne
adopted the requirements of Accounting Standards Update (“ASU”) No.
2016-02, “Leases (Topic 842)” using the modified retrospective
transition option of applying the new guidance at the adoption
date. Prior periods were not changed. At June 30, 2019, Teledyne
has right-of-use assets of $129.6 million included in long-term
other assets, net and a total lease liability of $139.8 million for
operating leases of which long-term liabilities includes $121.9
million and accrued liabilities includes $17.9 million.
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Jason VanWees (805) 373-4542
Teledyne Technologies (NYSE:TDY)
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