Digital imaging and instrumentation provider Teledyne (NYSE:TDY) reported revenue ahead of Wall Street’s expectations in Q3 CY2024, with sales up 2.9% year on year to $1.44 billion. Its non-GAAP profit of $5.10 per share was also 2.6% above analysts’ consensus estimates.

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“Teledyne achieved all-time record orders and sales in the third quarter,” said Robert Mehrabian, Executive Chairman.

Company Overview

Playing a role in mapping the ocean floor as we know it today, Teledyne (NYSE:TDY) offers digital imaging and instrumentation products for various industries.

Inspection Instruments

Measurement and inspection instrument companies may enjoy more steady demand because products such as water meters are non-discretionary and mandated for replacement at predictable intervals. In the last decade, digitization and data collection have driven innovation in the space, leading to incremental sales. But like the broader industrials sector, measurement and inspection instrument companies are at the whim of economic cycles. Interest rates, for example, can greatly impact civil, commercial, and residential construction projects that drive demand.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Teledyne’s 12.7% annualized revenue growth over the last five years was excellent. This shows it expanded quickly, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Teledyne’s recent history shows its demand slowed significantly as its annualized revenue growth of 1.6% over the last two years is well below its five-year trend. We also note many other Inspection Instruments businesses have faced declining sales because of cyclical headwinds. While Teledyne grew slower than we’d like, it did perform better than its peers.

This quarter, Teledyne reported modest year-on-year revenue growth of 2.9% but beat Wall Street’s estimates by 1.9%.

Looking ahead, sell-side analysts expect revenue to grow 4.3% over the next 12 months, an acceleration versus the last two years. Although this projection illustrates the market thinks its newer products and services will spur better performance, it is still below the sector average.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Analyzing the trend in its profitability, Teledyne’s annual operating margin rose by 3.2 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, Teledyne generated an operating profit margin of 18.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.

Teledyne’s EPS grew at a remarkable 14.2% compounded annual growth rate over the last five years, higher than its 12.7% annualized revenue growth. This tells us the company became more profitable as it expanded.

We can take a deeper look into Teledyne’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Teledyne’s operating margin was flat this quarter but expanded by 3.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Teledyne, its two-year annual EPS growth of 5.1% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Teledyne reported EPS at $5.10, up from $5.05 in the same quarter last year. This print beat analysts’ estimates by 2.6%. Over the next 12 months, Wall Street expects Teledyne’s full-year EPS of $19.66 to grow by 6.2%.

Key Takeaways from Teledyne’s Q3 Results

We enjoyed seeing Teledyne exceed analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. While the company slightly raised its full year EPS guidance, its EPS forecast for next quarter missed. Overall, this quarter had some key positives. The stock remained flat at $445 immediately following the results.

So should you invest in Teledyne right now?We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy.We cover that in our actionable full research report which you can read here, it’s free.