Will Roper (ROP) Disappoint Q3 Earnings on Cost Issues? – October 19, 2022

Roper Technologies, Inc. (ORP Free Report) is expected to release third quarter 2022 results on October 26, before the market opens.

The Zacks consensus estimate for third-quarter ROP earnings has been revised down 13.2% over the past 90 days. However, the company has an impressive track record of earnings surprises, having exceeded the Zacks consensus estimate in each of the past four quarters, averaging 2.2%.

Let’s see how things go for Roper this earnings season.

Factors to note

Performance in Roper’s applications software segment should have benefited from the strength of its Deltek, Vertafore, Aderant, CliniSys and Data Innovations businesses. The strength of the recurring revenue stream, driven by strong customer retention and the continued migration to SaaS delivery models, is likely to have boosted the performance of the application software segment.

Our third quarter application software revenue estimate indicates a 9.7% increase over the figure recorded a year ago. Our application software segment gross margin estimate for the third quarter indicates an increase of 8.7% over the figure reported a year ago. The Zacks consensus estimate for the same points to an 8.1% increase from the figure a year ago.

In the third quarter, the network software segment should have benefited from the strong performance of the US and Canadian freight matching activities and the strength of the Foundry activity thanks to a strong capacity for innovation.

Our third quarter Network Software segment revenue estimate shows an 11.7% increase over the figure reported a year ago. For the third quarter, we expect gross profit for the Network Software segment to increase 12.7% year-over-year. The consensus rating for the Network Software segment’s gross profit in the third quarter suggests a 6% increase over the figure published a year ago.

The company’s Neptune business is fueling growth in its Technology Enabled Products segment. Roper’s Technology Enabled Products segment should have benefited from strong order activity in the medical products sector, including Verathon and Northern Digital.

Our Technology Enabled Products segment revenue estimate for the quarter to report indicates a 9.9% increase over the figure reported a year ago. We expect Technology Enabled Products gross margin to grow 3.8% year-over-year.

However, higher cost of sales (due to raw material cost inflation) and selling, general and administrative expenses may have hurt Roper’s bottom line in the third quarter. Supply chain constraints could also have had a negative impact on its performance.

A strong US dollar could have depressed Roper’s business performance overseas, given his international presence.

What does the Zacks model say?

Our proven model does not conclusively predict an earnings beat for Roper this time around. The combination of a positive earnings ESP and a Zacks rank #1 (strong buy), 2 (buy), or 3 (hold) increases the odds of beating estimates, which is not the case here, as explained below. You can see the full list of today’s Zacks #1 Rank stocks here.

ESP Earnings: Roper has an ESP on earnings of +0.00% as Zacks’ most accurate estimate and consensus estimate are pegged at $3.45. You can uncover the top stocks with our earnings ESP filter.

Zack’s Ranking: Roper wears a No. 3 Zacks rank.

Highlights of Q2 results

Roper’s second-quarter 2022 adjusted earnings (excluding $1.43 of one-time items) of $3.95 per share beat Zacks’ consensus estimate of $3.82. Year-over-year profits rose 5.1% despite high costs.

Roper’s net income of $1,310.8 million missed Zacks’ consensus estimate of $1,537 million. Revenue decreased 17.4% year-over-year. Organic sales for the quarter increased 11%, driven by 12% growth in recurring software revenue. Acquisitions/disposals boosted sales by 1%. However, the change in foreign currency translation had a negative impact of 1%.

Actions to consider

Here are a few other companies that, according to our model, have the right combination of elements to beat on earnings this reporting cycle.

Sonoco Product Company (SON Free Report) has a +4.20% Earnings ESP and Zacks Rank #3 at present. SON is expected to release its third quarter 2022 results on October 31.

Sonoco’s earnings have exceeded the Zacks consensus estimate in each of the previous four quarters, averaging 4.1%.

Emerson Electric Co. (EMR Free Report) currently has an earnings ESP of +1.08% and a Zacks ranking of 3. EMR is expected to report results for the fourth quarter of fiscal 2022 (ended September 30, 2022) on November 2.

Emerson’s earnings have exceeded the Zacks consensus estimate in each of the past four quarters, averaging 6%.

Stay on top of upcoming earnings announcements with Zacks Earnings Calendar.

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