Market Overview

Teledyne Technologies Reports Second Quarter Results

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Teledyne Technologies Incorporated (NYSE:TDY):

  • Record sales of $732.5 million, an increase of 9.1% compared to
    last year
  • Record GAAP earnings per diluted share of $2.32
  • Record operating margin
  • Raising full year 2018 GAAP earnings outlook to $8.18 to $8.28, an
    increase from the prior outlook of $7.67 to $7.77

Teledyne today reported second quarter 2018 net sales of $732.5 million,
compared with net sales of $671.1 million for the second quarter of
2017, an increase of 9.1%. Net income was $85.9 million ($2.32 per
diluted share) for the second quarter of 2018, compared with $60.1
million ($1.66 per diluted share) for the second quarter of 2017, an
increase of 42.9%. The second quarter of 2017 includes $4.0 million
($0.08 per diluted share) in acquisition costs related to the e2v
technologies plc ("e2v") acquisition.

"Teledyne's second quarter results were the best in our history. We
achieved all-time record sales, earnings, and operating margin," said
Robert Mehrabian, Chairman and Chief Executive Officer. "Organic growth
of 8.3% was driven by broad-based growth across our imaging and
instrumentation businesses. Orders also remained healthy with an overall
book to bill greater than 1.1 times due in part to strong defense and
space-related contract awards. Finally, margins increased in every
segment as a result of greater sales, favorable product mix and cost
control, as well as stronger business integration and simplification
efforts across the company."

Review of Operations

Comparisons are with the second quarter of 2017, unless noted otherwise.
In the second quarter of 2018, we realigned the reporting structure for
certain of our microwave product groupings. These products, acquired
with the acquisition of e2v, were formerly reported as part of the
Aerospace and Defense Electronics segment and are now reported as part
of the Digital Imaging segment. Previously reported segment data has
been adjusted to reflect this change. Total sales for these products
were $24.2 million for fiscal year 2017.

Instrumentation

The Instrumentation segment's second quarter 2018 net sales were $262.6
million, compared with $233.8 million, an increase of 12.3%. Second
quarter 2018 operating income was $40.9 million, compared with $30.5
million, an increase of 34.1%.

The second quarter 2018 net sales increase resulted from higher sales of
marine instrumentation, test and measurement instrumentation and
environmental instrumentation, as well as the contribution from recent
acquisitions. Sales of marine instrumentation increased $11.7 million
and primarily reflected higher sales of sonar systems and interconnect
products, partially offset by lower sales of sensors for energy
exploration. Sales of test and measurement instrumentation increased
$8.4 million. Sales of environmental instrumentation increased $8.7
million and included $5.3 million in incremental sales from a recent
acquisition. The increase in operating income primarily reflected the
impact of higher sales and favorable product mix.

Digital Imaging

The Digital Imaging segment's second quarter 2018 net sales were $225.3
million, compared with $200.2 million, an increase of 12.5%. Operating
income was $43.3 million for the second quarter of 2018, compared with
$28.0 million, an increase of 54.6%.

The second quarter 2018 net sales primarily reflected higher sales of
X-ray detectors for life sciences applications, machine vision sensors
and cameras for industrial applications, and laser-based mapping
systems. The increase in operating income in the second quarter of 2018
reflected the impact of higher sales and favorable product mix.
Operating income in 2017 included $3.7 million in acquisition-related
costs related to the e2v acquisition.

Aerospace and Defense Electronics

The Aerospace and Defense Electronics segment's second quarter 2018 net
sales were $173.5 million, compared with $161.1 million, an increase of
7.7%. Operating income was $33.7 million for the second quarter of 2018,
compared with $29.2 million, an increase of 15.4%.

The second quarter 2018 net sales reflected $12.6 million of higher
sales of defense electronics, partially offset by $0.2 million of lower
sales of aerospace electronics. The higher sales of defense electronics
reflected greater sales in most product categories. The increase in
operating income in the second quarter of 2018 primarily reflected the
impact of higher sales.

Engineered Systems

The Engineered Systems segment's second quarter 2018 net sales were
$71.1 million, compared with $76.0 million, a decrease of 6.4%.
Operating income was $7.4 million for the second quarter of 2018,
compared with $7.7 million, a decrease of 3.9%.

The second quarter 2018 net sales reflected lower sales of $1.6 million
of engineered products and services, $1.1 million of energy systems
products and $2.2 million of turbine engines. The lower sales of
engineered products and services primarily reflected decreased marine
manufacturing programs partially offset by increased sales related to
missile defense. Operating income in the second quarter of 2018
decreased slightly, due to lower sales.

Additional Financial Information

Cash Flow

Cash provided by operating activities was $107.9 million for the second
quarter of 2018, compared with $87.0 million. The higher cash provided
by operating activities in the second quarter of 2018 primarily
reflected the impact of higher operating income, partially offset by
higher income tax payments. The second quarter of 2017 reflected the
impact of transaction related payments for the e2v acquisition. At
July 1, 2018, cash totaled $101.4 million and total debt, including
capital lease obligations, was $952.0 million. At July 1, 2018, $50.0
million was outstanding under the $750.0 million credit facility. The
company received $11.5 million from the exercise of stock options in the
second quarter of 2018, compared with $5.4 million. Capital expenditures
for the second quarter of 2018 were $27.4 million, compared with $12.3
million. Depreciation and amortization expense for the second quarter of
2018 was $27.6 million, compared with $33.2 million.

Free Cash Flow (a)               Second Quarter
(in millions, brackets indicate use of funds) 2018           2017
Cash provided by operating activities $ 107.9 $ 87.0
Capital expenditures for property, plant and equipment (27.4 ) (12.3 )
Free cash flow $ 80.5   $ 74.7  
(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.
 

Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 ("Tax Act") was
enacted. The Tax Act significantly revised the U.S. corporate income tax
by, among other things, lowering corporate income tax rates,
implementing the territorial tax system and imposing a repatriation tax
on deemed repatriated earnings of foreign subsidiaries. As a result of
the Tax Act, Teledyne incurred provisional charges of $4.7 million in
the fourth quarter of 2017 primarily due to the repatriation tax and the
remeasurement of U.S. deferred tax assets and liabilities. The impacts
of the Tax Act may differ from this estimate, possibly materially (and
the amount of the provisional charge may accordingly be adjusted over
the course of 2018), due to changes in interpretations and assumptions
Teledyne has made, guidance that may be issued, and actions Teledyne may
take as a result of the Tax Act. In 2018, the provisional charge was
adjusted by an additional $0.6 million the first quarter.

Income Taxes

The effective tax rate for the second quarter of 2018 was 17.7%,
compared with 21.3%. The second quarter of 2018 reflected net discrete
income tax benefits of $3.4 million. This amount included a $4.7 million
income tax benefit related to share-based accounting. The second quarter
of 2017 included net discrete tax benefits of $4.6 million. This amount
included a $1.2 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 21.0% for the second
quarter of 2018 and 27.4% for the second quarter of 2017. The decrease
in the effective tax rate in 2018 primarily reflects the lower corporate
income tax rates as part of the Tax Act.

Other

Stock option expense was $5.4 million for the second quarter of 2018,
compared with $3.7 million. Non-service retirement benefit income was
$3.3 million for the second quarter of 2018, compared with $3.4 million.
Interest expense, net of interest income, was $6.7 million for the
second quarter of 2018, compared with $9.1 million. The lower amount for
the second quarter of 2018 primarily reflected lower debt levels in the
second quarter of 2018, compared with the second quarter of 2017.
Corporate expense increased to $13.8 million for the second quarter of
2018, compared with $12.6 million. Other income and expense was expense
of $3.7 million for the second quarter of 2018 compared with expense of
$0.7 million and reflected higher foreign currency impacts in the second
quarter of 2018, compared with the second quarter of 2017.

Recent Accounting Pronouncements

Effective January 1, 2018, Teledyne adopted the requirements of
Accounting Standards Update ("ASU") No. 2017-07, "Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost." This ASU requires the service cost
component of net benefit costs to be reported in the same line item or
items within operating income as other compensation costs, with the
other components of net benefit cost to be presented outside of
operating income. The 2017 period has been adjusted to be consistent
with the 2018 presentation. In addition, effective January 1, 2018,
Teledyne adopted ASU No. 2014-09 (Topic 606), "Revenue from Contracts
with Customers," using the modified retrospective transition method.
Prior period comparative information is not adjusted and is reported
under the accounting standards in effect for that period. The cumulative
effect of adopting the new standard resulted in an immaterial increase
to retained earnings as of January 1, 2018.

Outlook

Based on its current outlook, the company's management believes that
third quarter 2018 GAAP earnings per diluted share will be in the range
of $2.01 to $2.06 and full year 2018 GAAP earnings per diluted share
will be in the range of $8.18 to $8.28, an increase from the prior
outlook of $7.67 to $7.77. The company's annual estimated tax rate for
2018 is 21.3%, before discrete items which are currently expected to be
lower in 2018 than in prior periods.

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; changes in the estimated impact of the Tax
Act; cuts to defense spending resulting from existing and future deficit
reduction measures; impacts from the United Kingdom's planned 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 could negatively affect the markets of our
commercial aviation businesses. In addition, financial market
fluctuations affect the value of the company's pension assets.

Information regarding the impact of the Tax Act consists of preliminary
estimates which are forward-looking statements and are subject to
change, possibly materially, over the course of 2018. Information
regarding the impact of the Tax Act is based on our current
calculations, as well as our current interpretations, assumptions and
expectations relating to the Tax Act, which are subject to change.

Changes in the policies of U.S. and foreign governments, including
economic sanctions, 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 2017 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 Thursday, August 2, 2018. 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
Thursday, August 2, 2018.

                       

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE SECOND QUARTER AND SIX MONTHS ENDED

JULY 1, 2018 AND JULY 2, 2017

(Unaudited – in millions, except per share amounts)

 

Second

Quarter

Second

Quarter

Six

Months

Six

Months

2018 2017(a) 2018 2017(a)
Net sales $ 732.5 $ 671.1 $ 1,428.1 $ 1,237.2
Costs and expenses:
Costs of sales (b) 447.0 421.2 885.2 778.2
Selling, general and administrative expenses (b) 174.0   167.1   343.0   321.4  
Total costs and expenses 621.0   588.3   1,228.2   1,099.6  
Operating income 111.5 82.8 199.9 137.6
Interest and debt expense, net (b) (6.7 ) (9.1 ) (13.8 ) (17.3 )
Non-service retirement benefit income 3.3 3.4 6.7 6.7
Other expense, net (b) (3.7 ) (0.7 ) (6.2 ) (10.0 )
Income before income taxes 104.4 76.4 186.6 117.0
Provision for income taxes 18.5   16.3   34.2   26.4  
Net income $ 85.9   $ 60.1   $ 152.4   $ 90.6  
       
Diluted earnings per common share $ 2.32   $ 1.66   $ 4.13   $ 2.50  
 
Weighted average diluted common shares outstanding 37.0   36.2   36.9   36.2  
 
(a)     The 2017 periods have been adjusted to reflect the adoption of ASU
No. 2017-07, "Improving the Presentation of Net Periodic Pension
Cost and Net Periodic Postretirement Benefit Cost."
 
(b) The second quarter of 2017 includes pretax charges of $4.0 million
related to the acquisition of e2v technologies plc, of which, $2.7
million was recorded to cost of sales and $1.3 million was recorded
to selling, general and administrative expenses. The first six
months of 2017 includes pretax charges of $25.2 million related to
the acquisition of e2v technologies plc, of which, $4.1 million was
recorded to cost of sales, $12.8 million was recorded to selling,
general and administrative expenses, $2.3 million was recorded to
interest expense and $6.0 million was recorded as other expense.
 
 
                                   

TELEDYNE TECHNOLOGIES INCORPORATED

SUMMARY OF SEGMENT NET SALES AND OPERATING INCOME

FOR THE SECOND QUARTER AND SIX MONTHS ENDED

JULY 1, 2018 AND JULY 2, 2017

(Unaudited – in millions)

 

Second

Quarter

Second

Quarter

%

Change

Six

Months

Six

Months

%

Change

2018 2017(a) 2018 2017(a)
Net sales:
Instrumentation $ 262.6 $ 233.8 12.3 % $ 501.6 $ 466.6 7.5 %
Digital Imaging 225.3 200.2 12.5 % 436.3 314.0 38.9 %
Aerospace and Defense Electronics 173.5 161.1 7.7 % 347.1 313.0 10.9 %
Engineered Systems 71.1   76.0   (6.4 )% 143.1   143.6   (0.3 )%
Total net sales $ 732.5   $ 671.1   9.1 % $ 1,428.1   $ 1,237.2   15.4 %
Operating income:
Instrumentation $ 40.9 $ 30.5 34.1 % $ 68.7 $ 60.7 13.2 %
Digital Imaging (b) 43.3 28.0 54.6 % 77.9 43.1 80.7 %
Aerospace and Defense Electronics (b) 33.7 29.2 15.4 % 65.4 54.0 21.1 %
Engineered Systems 7.4 7.7 (3.9 )% 14.6 15.1 (3.3 )%
Corporate expense (b) (13.8 ) (12.6 ) 9.5 % (26.7 ) (35.3 ) (24.4 )%
Operating income 111.5 82.8 34.7 % 199.9 137.6 45.3 %
Interest and debt expense, net (b) (6.7 ) (9.1 ) (26.4 )% (13.8 ) (17.3 ) (20.2 )%
Non-service retirement benefit income 3.3 3.4 (2.9 )% 6.7 6.7 %
Other expense, net (b) (3.7 ) (0.7 ) 428.6 % (6.2 ) (10.0 ) (38.0 )%
Income before income taxes 104.4 76.4 36.6 % 186.6 117.0 59.5 %
Provision for income taxes 18.5   16.3   13.5 % 34.2   26.4   29.5 %
Net income $ 85.9   $ 60.1   42.9 % $ 152.4   $ 90.6   68.2 %
 
(a)     The 2017 periods have been adjusted to reflect the adoption of ASU
No. 2017-07, "Improving the Presentation of Net Periodic Pension
Cost and Net Periodic Postretirement Benefit Cost."
 
(b) The second quarter of 2017 includes pretax charges of $4.0 million
related to the acquisition of e2v technologies plc, of which, $3.7
million was recorded in the Digital Imaging segment and $0.3 million
was recorded in the Aerospace and Defense Electronics segment. The
first six months of 2017 includes pretax charges of $25.2 million
related to the acquisition of e2v technologies plc ("e2v"), of
which, $6.2 million was recorded in the Digital Imaging segment,
$0.3 million in the Aerospace and Defense Electronics segment, $10.4
million was recorded to corporate expense, $2.3 million was recorded
to interest expense and $6.0 million was recorded as other expense.
These products acquired with the acquisition of e2v were formerly
reported as part of the Aerospace and Defense Electronics segment
and are now reported as part of the Digital Imaging segment.
Previously reported segment data has been adjusted to reflect this
change. Total sales for these products were $24.2 million for fiscal
year 2017.
 
 
                       

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited – in millions)

 
July 1, 2018 December 31, 2017
ASSETS
Cash $ 101.4 $ 70.9
Accounts receivable, net 539.1 478.1
Inventories, net 380.0 400.2
Prepaid expenses and other current assets 57.0 62.7
Total current assets 1,077.5 1,011.9
Property, plant and equipment, net 446.1 442.8
Goodwill and acquired intangible assets, net 2,127.5 2,175.6
Prepaid pension asset 147.8 127.2
Other assets, net 84.0 88.9
Total assets $ 3,882.9 $ 3,846.4
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 213.0 $ 191.7
Accrued liabilities 323.8 345.3
Current portion of long-term debt and capital leases and other debt 12.2 3.6
Total current liabilities 549.0 540.6
Long-term debt and capital lease obligations 939.8 1,069.3
Other long-term liabilities 291.4 289.2
Total liabilities 1,780.2 1,899.1
Total stockholders' equity 2,102.7 1,947.3
Total liabilities and stockholders' equity $ 3,882.9 $ 3,846.4
 

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