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Acquisitions Show Teledyne’s ‘High-End Vision’

A pair of acquisitions has helped lift shares of Teledyne Technologies Inc. more than 26 percent so far this year. Earlier this month, the Thousand Oaks manufacturing business specializing in aerospace, marine and digital imaging products acquired the gas and flame detection unit of 3M Co. for $230 million; in February the company closed on the purchase of imaging company Roper Technologies for $225 million, both in cash. About 500 employees from 3M will join Teledyne after the transaction is complete. Executive Chairman Robert Mehrabian said that the 3M gas and flame detection business uses similar technology and serves related markets to Teledyne’s environmental instrumentation business but that the two companies do not compete against each other. “This business will become a long-term core business of Teledyne,” Mehrabian said in a statement. For the first quarter, analysts noted a “very strong start” to 2019 for Teledyne Technologies Inc., with $2.02 earnings per share – 15 cents better than what was expected, according to an April report from Cowen Inc. In fact, the company enjoyed the strongest first quarter in its 20-year history. It increased revenue of 7.1 percent from the previous quarter, with 5.1 percent of that change being organic. Joseph Giordano and Robert Jamieson, analysts with Cowen, attribute the company’s success to a “high-end vision, precision instrumentation and modern warfare.” The company also benefitted from a favorable tax rate of 18.9 percent versus the expected 22.3 percent. During a conference call following the announcement for first-quarter financials, Mehrabian outlined a strategy of synergies with acquisitions using similar technologies and serving overlapping markets. “Teledyne is not a complex company, but rather a portfolio of related companies and products with common underlying technologies that serve different customers and markets,” Mehrabian said during the conference call. The 3M unit marks the company’s 61st acquisition. Its brand names include Oldham, Simtronics, Gas Measurement Instruments and Detcon. A global recession or prolonged slowdown in the Chinese economy could negatively impact Teledyne’s performance, the Cowen analysts said, as well as reduced U.S. government sales exposure and fixed-price contracts. “Fixed-price contracts accounted for 67 percent of U.S. government sales contracts in 2018 – under these types of contracts, (Teledyne) bears the risk that the actual cost to fulfill the contract may exceed the fixed contract price,” explained Giordano and Jamieson. “Further, there is no guarantee business will be re-won as contracts expire.” High-profile technology Teledyne is also getting attention for its imaging hardware and software, with its Optech technology used in productions such as HBO’s “Game of Thrones.” Teledyne’s lidar, or light detection and ranging technology, turned the old city of Dubrovnik, Croatia into the fictional representation of King’s Landing in the show. The tech has been used in the past for mapping and in construction, civil engineering, mining and transportation. Lidar generated 3D “point clouds” in Dubrovnik, scanning buildings using static, mobile and compact airborne imaging systems which could then be manipulated by the series’ production teams. “We are most proud when our technology contributes to new scientific knowledge, such as revealing an extensive, undiscovered Maya civilization in Guatemala,” Mehrabian said in a statement released June 10. “We are equally delighted when our high-technology equipment supports art and entertainment.” The company’s digital imaging segment increased sales 4.8 percent to $245 million in the first quarter, but Cowen attributes the rise to higher sales of X-ray detectors for life science applications and aerospace, defense and micro-electro-mechanical system products, rather than name recognition from a hit television show. Instrumentation segment sales, which includes environmental instrumentation, had nearly $257 million in sales in the first quarter, a 7.3 percent organic increase. Environmental subgroup sales were nearly double what Cowen anticipated – 6.4 percent compared to 3.7 percent. Reported investment risks included a decline in industrial production and a global decrease in automation spending, according to Cowen. “Sustained pressure in emerging markets (especially countries with lower labor wages) could cause delays in automation implementation in several sectors, including general industrial, automotive, logistics, medical, and aerospace as factory upgrades are delayed,” added the Cowen analysts. Shares of Teledyne closed June 19 at $261.47 on the New York Stock Exchange.

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