Teledyne Technologies Incorporated (NYSE:TDY) Q2 2023 Earnings Call Transcript

Robert Mehrabian: Yes. As you mentioned, there has been a change in the budget for a long time. The budgets look healthy but money wasn’t coming through and it started to come through more recently. Overall, I would say we are fairly comfortable with our Defense businesses, probably across everything, mid-single and single digits growth year-over-year. We are enjoying actually pretty good margins and orders in our legacy Defense businesses. And as I mentioned, our fleece defense businesses are turning around and had a good book-to-bill in Q2. It’s not just the U.S. Defense. If you look at Defense also in NATO countries, that expenditures are increasing and we have a significant amount of sales overseas, in both our Defense as well as Defense, including things like traveling wave tubes for missile defense products in places like South Korea. So it’s a pretty healthy environment right now.

Operator: [Operator Instructions] And let’s go to the line of Jordan Manosh with BOA [ph].

Unidentified Analyst: This is [indiscernible] Bank of America. So I just had a quick question on the backlog for Defense. Are you guys seeing any specific constraints that could put the deliveries at risk? And also, too, for those wins, should we expect the majority of them to come through for ’23 or extend that into the out years?

Robert Mehrabian: Some will come to in ’23 and some will come through in — starting in Q4. For example, let me just give you one example or two. We do have some counter drone products that are going to Europe, probably about $25 million, $26 million. Most of that would come in ’23. On the other hand, the Black Hornet 3 that we just announced for the U.S. Army is $94 million, only about 10% of it will come this year, the rest will come in future years. So it’s a balance. I think we’ll get some of it this year and a lot of it in future years.

Operator: And we’ll go to the line of Guy Hardwick with Credit Suisse.

Guy Hardwick: Robert, I think you said in your prepared remarks that digital imaging margins should grow considerably over time. Could you a little bit flesh that out a little bit for us, what is over time? And could this mean that digital imaging margins exceed the sort of 24% levels I think that delivered in 2021?

Robert Mehrabian: Yes. The answer is, yes. And the reason I say that is the margins in our legacy businesses are already around that and even higher than that. And I think FLIR margins will increase as we — especially as we take the cost out that I just mentioned. And overall margins for Digital Imaging this year, we’re projecting to be 22.3%. So to go to ’24, 170 basis point expansion. Yes, we can do that.

Guy Hardwick: I think last quarter, you had pointed out negative mix, lag of price increases, I think, in the Medical business. So was there any other mix effects other than Defense that you talked about in Q2? Is there anything else that we should be aware of, which may have held back margins? Because I think 3 months ago, you did expect sequential improvement and 30 basis points up for the full year?

Robert Mehrabian: Yes. I think in the health care business, things are really good for us. We’ve had significant expansion, both in our X-ray products, that is our panels as well as components that we put out for X-ray systems. And as I said before, there is some slowdown in China. If you look at China as a whole, they have had some contraction even though you don’t hear about it, there has been some contraction there. On the other hand, less than 10% of our portfolio is sold to China. So again, our balanced portfolio helps us. The flip side also is that we’ve gotten some really good higher-margin products development programs that are helping overall Digital Imaging. Shipments have been a little slower but I think bookings are okay.