THOUSAND OAK, CA—Teledyne Technologies Incorporated reported first quarter 2014 sales of $573.5 million, compared with sales of $569.4 million for the first quarter of 2013, an increase of 0.7%. Net income attributable to Teledyne was $45.8 million ($1.20 per diluted share) for the first quarter of 2014, compared with $40.4 million ($1.07 per diluted share) for the first quarter of 2013, an increase of 13.4%.
“Teledyne started 2014 with record first quarter sales and earnings per share. With the significant cost reduction actions taken in 2013, a higher margin commercial sales mix and a well-funded pension, we were also able to generate meaningful margin improvement,” said Robert Mehrabian, chairman, president and chief executive officer. “Operating margin increased 116 basis points and earnings per share increased 12.1% compared to last year. Furthermore, orders exceeded sales by approximately 7% in the quarter, largely due to robust orders across our marine oil and gas instrumentation businesses. Despite the anticipated year-over-year reduction in sales within our aerospace and defense electronics segment, greater sales of commercial avionics and communication equipment improved margins and helped offset the decline in sales. Finally, cash flow was strong, especially for a first quarter, providing continued flexibility for acquisitions.”
Instrumentation
The Instrumentation segment’s first quarter 2014 sales were $258.9 million, compared with $232.7 million, an increase of 11.3%. First quarter 2014 operating profit was $37.5 million, compared with $36.6 million, an increase of 2.5%.
The first quarter 2014 sales increase resulted from higher sales in all three product lines. The higher sales of $23.5 million for marine instrumentation reflected increased sales of interconnect systems used in offshore energy production, and also included a total of $13.8 million in incremental revenue from recent acquisitions including the March 2013 acquisition of RESON A/S and the October 2013 acquisition of C.D. Limited. Sales for environmental instrumentation increased $1.2 million and included $6.5 million in sales from the August 2013 acquisition of assets of CETAC Technologies, primarily offset by reduced sales of laboratory and field instrumentation. Sales of electronic test and measurement instrumentation increased $1.5 million. The increase in operating profit reflected the impact of higher sales, partially offset by higher intangible asset amortization of $0.4 million and an increase of $0.9 million in the allowance for doubtful accounts.
Digital Imaging
The Digital Imaging segment’s first quarter 2014 sales were $101.9 million, compared with $102.4 million, a decrease of 0.5%. Operating profit was $9.7 million for the first quarter of 2014, compared with $5.2 million, an increase of 86.5%.
First quarter 2014 sales primarily reflected increased sales of sensors and cameras for commercial machine vision applications, offset by lower sales of infrared imaging sensors for government applications. Operating profit in 2014 reflected improved margins across most product lines, a greater mix of higher margin commercial sales, and lower costs as a result of cost reduction actions taken in 2013, as well as lower research and development and bid and proposal expense.
Aerospace and Defense Electronics
The Aerospace and Defense Electronics segment’s first quarter 2014 sales were $153.3 million, compared with $163.1 million, a decrease of 6.0%. Operating profit was $23.8 million for the first quarter of 2014, compared with $20.2 million, an increase of 17.8%.
The first quarter 2014 sales decrease reflected lower sales of $14.0 million from microwave and interconnect systems due to the completion of a program with a foreign government, which impacted the first and second quarters of 2013. The first quarter of 2014 sales also reflected increased sales of $6.1 million from avionics products and electronic relays and lower sales of $1.9 million from electronic manufacturing services products. Increased operating profit in the first quarter of 2014 primarily reflected lower operating expenses given cost reduction actions in 2013, partially offset by lower sales. Operating profit in the first quarter of 2014 also reflected gross pension income of $0.4 million compared with $2.0 million of gross pension expense, and 2013 included $2.0 million in severance and facility consolidation costs.
Engineered Systems
The Engineered Systems segment’s first quarter 2014 sales were $59.4 million, compared with $71.2 million, a decrease of 16.6%. Operating profit was $6.1 million for the first quarter of 2014, compared with $6.4 million, a decrease of 4.7%.
The first quarter 2014 sales decrease primarily reflected lower sales of engineered products and services of $11.0 million, which reflected lower sales of missile defense systems. Energy systems sales decreased $0.9 million while sales of turbine engines increased slightly. Operating profit in the first quarter of 2014 primarily reflected the impact of lower sales, partially offset by gross pension income of $0.4 million compared with $1.7 million of gross pension expense.
Cash Flow
Cash provided by operating activities was $26.4 million for the first quarter of 2014, compared with cash used of $56.7 million. The higher cash provided by operating activities in the first quarter of 2014 reflected the absence of pension contributions in the first quarter of 2014 compared with a voluntary pretax $83.0 million cash contribution in the first quarter of 2013, partially offset by higher income tax payments. Free cash flow (cash provided by operating activities less capital expenditures) was $14.7 million for the first quarter of 2014, compared with a use of $73.0 million, and reflected higher cash provided by operating activities. At March 30, 2014, total debt was $559.9 million, which included $81.1 million drawn on the $750.0 million credit facility. Cash and cash equivalents were $73.7 million at March 30, 2014. The company received $6.7 million from the exercise of stock options in the first quarter of 2014, compared with $4.8 million. Capital expenditures for the first quarter of 2014 were $11.7 million, compared with $16.3 million. Depreciation and amortization expense for the first quarter of 2014 was $23.2 million, compared with $21.9 million. In the first quarter of 2014, the company used $23.6 million to repurchase 243,492 shares of its common stock under its stock repurchase program authorized in October 2011.
In the second quarter of 2014, a subsidiary of Teledyne acquired Photon Machines, Inc., a supplier of laser-based sample introduction equipment, for an initial payment of $3.3 million.
Outlook
Based on its current outlook, the company’s management believes that second quarter 2014 earnings per diluted share will be in the range of approximately $1.24 to $1.28 and the full year 2014 earnings per diluted share outlook is expected to be in the range of approximately $5.10 to $5.14, an increase from the prior outlook of $5.06 to $5.12. The company’s effective tax rate for 2014 is expected to be 29.5%, before discrete items.