Press release

Teledyne Technologies Reports First Quarter Results

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Teledyne Technologies Incorporated (NYSE:TDY):

  • Record first quarter sales of $745.2 million, an increase of 7.1%
    compared to last year
  • Record first quarter GAAP earnings per diluted share of $2.02, an
    increase of 11.6% compared to last year
  • Record first quarter operating margin and cash flow
  • Raising full year 2019 GAAP earnings outlook to $9.45 to $9.55 per
    diluted share, an increase from the prior outlook of $9.25 to $9.35
  • Acquired the Scientific Imaging businesses of Roper Technologies
    for $225.0 million in cash

Teledyne today reported first quarter 2019 net sales of $745.2 million,
compared with net sales of $695.6 million for the first quarter of 2018,
an increase of 7.1%. Net income was $75.3 million ($2.02 per diluted
share) for the first quarter of 2019, compared with $66.5 million ($1.81
per diluted share) for the first quarter of 2018, an increase of 13.2%.
The first quarter of 2019 reflected net discrete income tax benefits of
$3.1 million compared with net discrete income tax benefits of $2.1
million for the first quarter of 2018. The first quarter of 2019 also
included $1.4 million in severance and facility consolidation costs and
$1.0 million in acquisition-related expense. The first quarter of 2018
included $0.8 million in severance and facility consolidation cost and
$2.0 million in asset impairment costs.

“We began 2019 with the strongest first quarter in the company’s
history,” said Robert Mehrabian, Executive Chairman. “I am very pleased
with the breadth of our performance across both our shorter-cycle and
longer-cycle businesses. Our strong results and continuing margin
improvement efforts add confidence to our increased 2019 outlook.” Al
Pichelli, President and Chief Executive Officer, added, “Sales,
earnings, operating margin and cash flow were all records for any first
quarter. Sales also increased in every business segment and major
product category. Backlog continued to grow, as orders exceeded sales
for the fifth consecutive quarter. Finally, we closed the Scientific
Imaging acquisition in February, and these businesses contributed nicely
in their first two months with Teledyne.”

Review of Operations

Comparisons are with the first quarter of 2018, unless noted otherwise.

Instrumentation

The Instrumentation segment’s first quarter 2019 net sales were $256.5
million, compared with $239.0 million, an increase of 7.3%. Operating
income was $39.9 million for the first quarter of 2019, compared with
$27.8 million, an increase of 43.5%.

The first quarter 2019 net sales increase resulted from higher sales of
test and measurement instrumentation, environmental instrumentation, and
marine instrumentation. Sales of test and measurement instrumentation
increased $11.3 million while sales of environmental instrumentation
increased $5.2 million and sales of marine instrumentation increased
$1.0 million. The increase in operating income reflected the impact of
higher sales and higher margins across most product lines.

Digital Imaging

The Digital Imaging segment’s first quarter 2019 net sales were $235.3
million, compared with $211.0 million, an increase of 11.5%. Operating
income was $37.0 million for the first quarter of 2019, compared with
$34.6 million, an increase of 6.9%.

The first 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 $14.1 million in sales from the acquisition
of the Scientific Imaging businesses of Roper Technologies. The increase
in operating income in the first quarter of 2019 reflected the impact of
higher sales, partially offset by higher research and development
expense and acquisition-related costs.

Aerospace and Defense Electronics

The Aerospace and Defense Electronics segment’s first quarter 2019 net
sales were $180.4 million, compared with $173.6 million, an increase of
3.9%. Operating income was $33.8 million for the first quarter of 2019,
compared with $31.7 million, an increase of 6.6%.

The first quarter 2019 net sales reflected $5.7 million of higher sales
of defense electronics and $1.1 million of higher sales of aerospace
electronics. The increase in operating income in the first quarter of
2019 reflected the impact of higher sales and improved margins.

Engineered Systems

The Engineered Systems segment’s first quarter 2019 net sales were $73.0
million, compared with $72.0 million, an increase of 1.4%. Operating
income was $4.7 million for the first quarter of 2019, compared with
$7.2 million, a decrease of 34.7%.

The first quarter 2019 net sales reflected higher sales of $6.5 million
of engineered products and services, partially offset by lower sales of
$4.8 million of turbine engines and lower sales of $0.7 million of
energy systems products. The higher sales of engineered products and
services primarily reflected increased nuclear manufacturing programs
and increased sales related to missile defense. Operating income in the
first quarter of 2019 decreased primarily due to lower sales of turbine
engines.

Additional Financial Information

Cash Flow

Cash provided by operating activities was $80.1 million for the first
quarter of 2019, compared with $71.6 million. The cash provided by
operating activities in the first quarter of 2019 reflected the impact
of higher operating income, partially offset by higher income tax
payments, primarily due to the payment of repatriation taxes under the
Tax Cuts and Jobs Act of 2017. At March 31, 2019, cash totaled $106.2
million and total debt was $856.4 million, compared with $747.5 million
at December 30, 2018. At March 31, 2019, $149.0 million was outstanding
under the $750.0 million credit facility. On March 15, 2019, Teledyne
amended its $750.0 million credit agreement to extend the maturity date
from December 2020 to March 2024. While the borrowing capacity remains
at $750.0 million, the amendment permits Teledyne to increase the
aggregate amount of the borrowing capacity by up to $250.0 million
subject to certain conditions. The company received $10.2 million from
the exercise of stock options in the first quarter of 2019, compared
with $12.3 million. Capital expenditures for the first quarter of 2019
were $21.3 million, compared with $19.8 million. Depreciation and
amortization expense for the first quarter of 2019 was $27.6 million,
compared with $28.8 million. On February 5, 2019, the company acquired
the Scientific Imaging businesses of Roper Technologies, Inc. for $225.0
million in cash, subject to a working capital purchase price adjustment.

Free Cash Flow (a)               First Quarter
(in millions, brackets indicate use of funds) 2019           2018
Cash provided by operating activities $     80.1 $     71.6
Capital expenditures for property, plant and equipment (21.3 ) (19.8 )
Free cash flow $     58.8   $     51.8  

 

(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 first quarter of 2019 was 18.9%, compared
with 19.1%. The first quarter of 2019 reflected net discrete income tax
benefits of $3.1 million. This amount included a $2.9 million income tax
benefit related to share-based accounting. The first quarter of 2018
reflected net discrete income tax benefits of $2.1 million, which
included a $3.0 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 22.3% for the first
quarter of 2019 and 21.7% for the first quarter of 2018.

Other

Stock option expense was $8.9 million for the first quarter of 2019,
compared with $4.9 million. The higher amount in 2019 reflects the
expense related to certain stock options that were granted in 2019 to
Teledyne’s Chief Executive Officer and Executive Chairman, which were
required to be expensed immediately. Stock option expense for fiscal
year 2019 is currently expected to be $26.6 million. Non-service
retirement benefit income was $2.2 million for the first quarter of
2019, compared with $3.4 million. Interest expense, net of interest
income, decreased to $5.4 million for the first quarter of 2019,
compared with $7.1 million and primarily reflected lower debt levels in
the first quarter of 2019 compared with the first quarter of 2018.
Corporate expense was $18.1 million for the first quarter of 2019,
compared with $12.9 million and primarily reflected higher stock option
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 standard 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 standard resulted in the recording of a right-of-use
asset and a lease liability for 2019. Prior period comparative
information was not adjusted. At March 31, 2019, Teledyne has a
right-of-use asset of $134.3 million included in long-term other assets
and a total lease liability for operating leases of $144.0 million of
which $126.0 million is included in other long-term liabilities and
$18.0 million is included in accrued liabilities.

Outlook

Based on its current outlook, the company’s management believes that
second quarter 2019 GAAP earnings per diluted share will be in the range
of $2.38 to $2.43 and full year 2019 GAAP earnings per diluted share
will be in the range of $9.45 to $9.55, an increase from the prior
outlook of $9.25 to $9.35. The company’s annual estimated tax rate for
2019 is 22.3%, 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 and
divestitures, 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. 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 first quarter earnings conference call will
be held at 11:00 a.m. (Eastern) on Wednesday, April 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, April 24, 2019.

                       

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED

MARCH 31, 2019 AND APRIL 1, 2018

(Unaudited – in millions, except per share amounts)

 

First

Quarter

First

Quarter

2019 2018
Net sales $ 745.2 $ 695.6
Costs and expenses:
Costs of sales 463.9 438.2
Selling, general and administrative expenses 184.0   169.0  
Total costs and expenses 647.9   607.2  
Operating income 97.3 88.4
Interest and debt expense, net (5.4 ) (7.1 )
Non-service retirement benefit income 2.2 3.4
Other expense, net (1.2 ) (2.5 )
Income before income taxes 92.9 82.2
Provision for income taxes 17.6   15.7  
Net income $ 75.3   $ 66.5  
   
Diluted earnings per common share $ 2.02   $ 1.81  
 
Weighted average diluted common shares outstanding 37.2   36.8  
 
 
                                 

TELEDYNE TECHNOLOGIES INCORPORATED

SUMMARY OF SEGMENT NET SALES AND OPERATING INCOME

FOR THE THREE MONTHS ENDED

MARCH 31, 2019 AND APRIL 1, 2018

(Unaudited – in millions)

 

First

Quarter

First

Quarter

% Change
2019 2018
Net sales:
Instrumentation $ 256.5 $ 239.0 7.3 %
Digital Imaging 235.3 211.0 11.5 %
Aerospace and Defense Electronics 180.4 173.6 3.9 %
Engineered Systems 73.0   72.0   1.4 %
Total net sales $ 745.2   $ 695.6   7.1 %
Operating income:
Instrumentation $ 39.9 $ 27.8 43.5 %
Digital Imaging 37.0 34.6 6.9 %
Aerospace and Defense Electronics 33.8 31.7 6.6 %
Engineered Systems 4.7 7.2 (34.7

)

%

Corporate expense (18.1 ) (12.9 ) 40.3 %
Operating income 97.3 88.4 10.1 %
Interest and debt expense, net (5.4 ) (7.1 ) (23.9

)

%

Non-service retirement benefit income 2.2 3.4 (35.3

)

%

Other expense, net (1.2 ) (2.5 ) (52.0

)

%

Income before income taxes 92.9 82.2 13.0 %
Provision for income taxes 17.6   15.7   12.1 %
Net income $ 75.3   $ 66.5   13.2 %
 
 
                       

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited – in millions)

 
March 31, 2019 December 30, 2018
ASSETS
Cash $ 106.2 $ 142.5
Accounts receivable, net 564.4 561.8
Inventories, net 393.0 364.3
Prepaid expenses and other current assets 53.9   45.8
Total current assets 1,117.5 1,114.4
Property, plant and equipment, net 450.7 442.6
Goodwill and acquired intangible assets, net 2,274.1 2,079.5
Prepaid pension asset 94.8 88.2
Other assets, net (a) 224.6   84.6
Total assets $ 4,161.7   $ 3,809.3
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable $ 227.3 $ 227.8
Accrued liabilities (a) 364.6 355.6
Current portion of long-term debt and other debt 131.8   137.4
Total current liabilities 723.7 720.8
Long-term debt 724.6 610.1
Other long-term liabilities (a) 363.9   248.7
Total liabilities 1,812.2 1,579.6
Total stockholders’ equity 2,349.5   2,229.7
Total liabilities and stockholders’ equity $ 4,161.7   $ 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 standard at the adoption date. Prior periods were not
changed. At March 31, 2019, Teledyne has a right-of-use asset of
$134.3 million included in long-term other assets, net and a total
lease liability for operating leases of $144.0 million of which
$126.0 million is included in other long-term liabilities and $18.0
million is included in accrued liabilities.