Q3 2019 Earnings Call

Good morning, and thank you everyone. This is Jason Vanwees executive Vice President and I'd like to welcome everyone to Teledyne's third quarter 2019 earnings release Conference call. We released our earnings earlier this morning before the market open.

Joining me today are teledyne's executive Chairman, Robert Mehrabian, President and CEO Alpha Chelsie Senior Vice President and CFO Sue main.

And SVP General Counsel, Chief compliance Officer, and Secretary Melanie Civic after remarks by Robert Ellen Soon we will last for your questions. However, before we get started our attorneys have reminded me to tell you that all forward looking statements made this morning are subject to various risks and assumptions and caveats in our earnings release on periodic SEC filings and of course actual risk.

Ultimately differ materially.

In order to avoid potential selective disclosures. This call is simultaneously being webcast and the replay both via webcast and island.

Be available for approximately one month.

Here is Robert.

Thank you Jane and good morning, everyone and.

Thank you for joining the earnings calls.

Today.

Once again.

We reported the strongest quarters to Intel at 93.

Sam.

Earnings per share and free cash flow, where fall time records operating margin increased 110, 50 basis points compared to last year.

An operating margin was also that anchored for any mark to period.

In the quarter.

Sales increased 10.6% and exceeded 800 million towards the first time.

Including approximately 1% of currency headwind.

Yes, I think loads was 5%.

Given the strong organic growth as well as acquisitions sales in each business segment increased by double digit trades for the first timing over 12 years.

Record earnings per share of $2.84 increased 16.9% compared to last year.

Lastly, we increased our emphasis on margin improvement.

We're continuing our proven strategy of disciplined capital deployment for compound growth in earnings and cash flow.

We were pleased to complete the acquisition our jams gas on plan detection business on August 1st in addition, with acquisition our monitor line on August Thirtyth, we immediately increased our mitral electromechanical systems or mens manufacturing capacity.

While also adding.

Adding unique micro threed printing technology for Mitek applications.

Teledyne continues to benefit from our balanced portfolio of common technologies, serving different complimentary markets.

Our 2019 outlook.

Tenuous to reflect strong growth in our life Sciences, and defense imaging businesses more than offsetting declines in some industrial machine vision markets.

Our defense and space electronics businesses, we're more than offset some lower sales of avionics to certain commercial OEM has transferred platforms. In addition.

The early stage recovery of Marine instrumentation continued.

We achieved strong growth in orders and sales and ended the quarter with the largest backlog in over four years.

Finally.

Despite closing two acquisitions in the quarter, our balance sheet remains exceptionally strong widows quarter end leverage ratio of 1.6.

Before turning the call to out I want to note that we slightly.

We realigned the financial reporting of our segments.

This was solely done to match, our current management reporting structure and East Africa results have been restated to conform to the new structure.

Furthermore.

I want to emphasize that all of our financial results. This morning are reported on a GAAP basis, we have no adjustments for amortization stock compensation acquisition charges purchase accounting restructuring or any.

There's charges.

I will comment on the performance of our floor business segments.

Thank you Robert.

And our instrumentation segment overall third quarter sales increased 10.4% from last year.

Sales of electronic test and measurement systems increased sequentially to the highest level in 2019, but grew 2.2% year over year, given a tough comparison.

Gross of industrial test and measurement products and services as well as specialty digitized, there's more than offset some tough comp comparisons in sales of protocol analyzers and oscilloscopes.

In the environmental domain sales increased 20% largely as a result of our recent acquisition as a gas and flame detection business, but also greater organic sales of process gas analyzers, and certain laboratory instrumentation offset by lower sales of pollution.

Can control of instrumentation to customers in Asia.

Sales of marine instruments increased 7.7% organically in the quarter and orders exceeded sales for the fifth consecutive quarter.

In addition profit margins improved significantly as we benefited from prior aggressive cost reductions and current business simplification initiatives.

Overall instrumentation segment operating profit increased 45.7% and margin increased 445 basis points with margins, increasing for test and measurement and marine instrumentation.

Excluding the Ghassan flame detection acquisitions and related purchase accounting margin also increased within environmental instrumentation.

Turning to to digital imaging segment.

Crusts and the majority of our defense electronic businesses.

But in particular sales of microarray devices and Interconnects for a radar electronic warfare and satellite communications.

Segment operating margin increased 172 basis points to 20.

In 2.3% a record for this segment.

The strong operating margin resulted from greater sales, but.

It was also due to margin improvement across the majority of our aerospace and defense businesses.

India engineered systems segment third quarter revenue increased 11.5%.

With strong sales related to marine manufacturing.

Missile defense and space programs.

Partially offset by lower sales of energy systems.

Segment operating profit increased.

But marginally declined.

Slightly just 10 basis points year over year.

Before returning to sue along with their offer some additional commentary regarding our increased 2019 outlook.

We continue to believe that organic revenue in the full year 2019 will approximate 4%.

Inclusive of roughly a 100 basis points of currency headwind in the full year 2019.

A long list a contribution from the scientific camera.

Gaston flame detection, and Mike or line acquisitions that translates to revenues.

3.15 billion for the full year 2019.

The increase in our earnings.

Outlook, primarily reflects greater anticipated full year margin improvement.

As well as a more favorable tax rate than previously forecasted.

That said.

We expect our full year 2019 effective tax rate to be higher than 2018 by over 200 basis points.

I'll now turn to call over to suit.

Thank you all good morning, everyone I'll first discuss the additional financings for the quarter nonpublic by Rob any now and then I will discuss our fourth quarter full year 2019 outlet.

And third quarter record cash flow from operating activities was $150.9 million.

There are good cash flow of a $141.9 million funding.

Full period of 2014.

Cash provided by operating activities.

In 2019 reflected the impact of higher operating income.

Cash flow from recent.

And when those small partially offset by higher income tax payments.

Free cash flow that is cash from operating activities length capital expenditure was $125.8 million or third quarter of 2019 will come back and just $121 million.

Hey.

Capital expenditures were $25.1 million into third quarter compared to $20.9 million for the same gain of 2018.

Depreciation and amortization expense was $27.9 million center third quarter.

There did $27.3 million for the same candidate as 2018.

Turning to our outlook management, we believe that GAAP earnings per share over first quarter 2009 pool will be in the range of $2.71 to $2 on 76 cents per share.

And for the full year 2019, our GAAP earnings per share outlet is $10.37 to 10 Dollarsseven point continues to add an increase from the prior outlook of $9.86.

$9 a 96.

The 2019 full year estimated taxable eight excluding discrete items is expected to be 21 point I respond a 60 basis point increase compared to full year 2018.

In addition, we currently Fred less discrete tax items in 2019 compared with 2018.

Which as Al mentioned would increase our effective tax rate in 2019 over 200 basis points.

I'll now pass the call back to another.

Thank you so I would not known to take care require assistance.

Operating earnings if you're ready to produce easily the questions and answers. Please go ahead.

Ladies and gentlemen, if you'd like to ask a question press star one.

Here Tony Please thank you and you may remember yourself from Q at any time by pressing lapel on key.

Once again for questions Press Star one at this time.

We will begin with Cowen or Greg Conrad with Jefferies. Please go ahead.

Good morning, and Green corridor.

Thanks, Greg.

I just wanted to start with or.