Roper Technologies, Inc. (NYSE:ROP) is one of the best run companies in the U.S., and its latest fourth-quarter results contained most of the hallmarks it's known for. Its collection of high-margin and asset-light businesses continues to generate prodigious amounts of cash flow, while its industrial and energy businesses benefited from the cyclical upturn in their end markets. Here's a look at a strong set of results.

a driver arriving at a toll road booth

Roper Technologies has a diverse collection of businesses, including toll road and traffic management systems. Image source: Getty Images.

Roper Technologies' fourth quarter: The raw numbers

The headline numbers from the fourth quarter:

  • Acquisition-fueled revenue growth of 21% ($1.24 billion) was supported by organic revenue growth of 5%.
  • Earnings before interest, tax, depreciation, and amortization (EBITDA)  increased 21% to $441 million.
  • Adjusted diluted EPS of $2.70 compared favorably with the guidance range of $2.56-$2.62. 

Earnings were ahead of guidance, and a combination of organic and acquisition-led growth helped the company to another strong year of growth. Consequently, the full-year numbers were equally impressive:

  • Revenue up 23% to $4.7 billion, with 5% organic growth.
  • EBITDA of $1.6 billion, a 22% increase.
  • Adjusted diluted EPS of $9.42, ahead of the guidance range of $9.27-$9.33.
  • Free cash flow (FCF) of $1.18 billion, another 22% increase.

Underlying performance good, too

It's worth highlighting FCF, as management follows it closely. In a nutshell, Roper Technologies is a highly acquisitive company that tends to buy high-margin and asset-light businesses operating in relatively niche end markets. If there's a clear trend in its acquisition strategy, it's that management seems to be favoring a shift toward more software-based revenue streams. 

The approach appears to be working, as Roper's motley collection of diverse businesses continues to improve its FCF generation properties while generating growth for investors. For example, working capital is now a net contributor to cash flow rather than subtracting from it. In other words, Roper is very good at avoiding having cash tied up in the ongoing running of the business.

Bar chart showing Roper Technologies' net working capital from 2015 to 2017

Data source: Roper Technologies presentations.

The strong FCF generation of $1.18 billion in 2017 allowed Roper to cut its net debt by a $1 billion to $4.48 and the net debt-to-EBITDA ratio from 4.1 to 2.8. Consequently, "You can be assured we're going to be doing deals," CEO Brian Jellison said on the earnings call.

What happened in the fourth quarter

Roper's smaller segments -- industrial technology, and energy systems and controls -- did the heavy lifting in the fourth quarter and full year. The cyclical recovery in industrial and oil and gas capital spending in 2017 helped Roper significantly increase organic growth and profit for the two segments.

Meanwhile, RF technology and software benefited from acquisition-led growth, as organic revenue growth fell in the quarter. Here's a look at the Q4 numbers by segment.

Segment

Organic Revenue Growth

Revenue Growth

Operating Profit

Operating Profit Growth

RF technology and software

(1%)

45%

$531 million

 38%

Medical and scientific imaging

3%

4%

$487 million

1%

Industrial technology

14%

16%

$235 million

16%

Energy systems and controls

9%

12%

$151 million

17%

Data source: Roper Technologies presentations.

The question now is whether the all the segments can grow in 2018.

Guidance and outlook

Management's segment and overall outlook promises another year of good growth. Industrial technology and energy systems and controls are both expected to grow 5%-7% organically in 2018 with "continued strong leverage" -- meaning revenue growth will lead to a strong increase in profits.

However, the two largest segments are expected to grow strongly, too, with guidance for RF technology and software's organic revenue to increase 5%-6% and medical and scientific imaging to increase 4%-6% -- all of which leads to overall organic revenue growth of 4%-5% and full-year adjusted diluted EPS in the range of $10.88-$11.20, representing a 15%-19% increase.

All told, Roper looks well set for 2018.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Roper Technologies. The Motley Fool has a disclosure policy.