FLIR delivered solid quarterly results, with revenue well above our and Street estimates but EPS $0.02 below our estimate. All of the company’s segments grew except for the surveillance business, which declined by 5.9% year-over-year. The highlight of the quarter was the security business, which posted 37.4% yearover- year growth, led by both the company’s Lorex and FLIR-branded daylight and IR cameras.
Backlog showed another solid step up, growing by $31 million sequentially, to $579 million, thus providing greater visibility for future quarters. FLIR also demonstrated continued progress on its restructuring plan, delivering nearly $6 million in savings. This led operating margin to be 200 basis points higher on a year-over-year basis. The initial release of the FLIR One, a smartphone with a thermal imaging attachment, has thus far met its goal as a marketing tool to broaden awareness of infrared technology and to introduce FLIR to a broader group of consumers.
We were encouraged by the 50%- plus unit volume growth the company has generated this year in uncooled core detectors and believe the company is on track relative to its growth plans. We are still waiting for the company’s surveillance business to stabilize and for the company’s high-end commercial uncooled systems to serve as less of a drag on growth. FLIR’s third-quarter revenue of $375.4 million (up 4.8% year-over-year) was well above our forecast (of $367.8 million) and Street consensus (of $368.3 million), driven by outperformance in the security and detection segments, partly offset by underperformance in the OEM and emerging, instruments, and surveillance segments.
Results for each of the company’s segments were as follows: surveillance fell 5.9% to $119.1 million; detection increased 5.8% to $24.2 million; instruments grew 6.9% to $82.6 million; security accelerated to 37.4% (from 29.9% in the prior quarter) to $48.6 million; maritime grew 8.3% to $44.7 million; and OEM/emerging grew 2.4% to $56.1 million. Management tightened prior full-year guidance with a slight upward bias.
The stock closed trading about 18.5 times our revised 2015 earnings per share estimate of $1.72. We were encouraged by the company’s improved results during the third quarter and continued build-up of backlog. Furthermore, we believe the company has done an excellent job of improving operating margins and scaling businesses to the appropriate cost structure for its current environment.
As new consumer-oriented products and a refresh of high-end, commercial-oriented products are introduced over the next few quarters, we are incrementally more positive on the fundamental prospects. Still, we would like to see a more consistent track record for execution, as FLIR exits what we continue to view as a transition year, toward resumption of growth in 2015 and beyond.