Robert Mehrabian
Executive Chairman, Teledyne Technologies Incorporated at Teledyne Technologies
Thank you, Jason, and good morning, and thank you for joining our earnings call. For over two decades now, we've continuously improved our portfolio of businesses, our operations and our financial performance, and along the way, significantly compounded earnings, cash flow and shareholder returns. It is worth noting that just over 10 years ago, a major milestone occurred when we divested our aviation piston engine business and all of its associated liabilities. While initiated earlier, immediately following that divestiture, we accelerated our pace of change by making increasingly significant and successful acquisitions within our Digital Imaging and Instrumentation businesses. Our recent acquisition of FLIR accelerates Teledyne's evolution into a more attractive, higher-margin industrial technology company, while at the same time, maintaining our balanced portfolio, primarily focused on commercial markets, but with a resilient and predictable backbone of government businesses. For example, in the second quarter of 2021, 75% of total company sales were derived from U.S. commercial and international customers and 25% of sales from the U.S. government. In the past several weeks, we've made rapid progress integrating FLIR by implementing Teledyne processes such as acceleration of financial forecasting and reporting, increasing visibility of sales and costs across the organization, while continuing to enhance FLIR's compliance standards.
Furthermore, we've eliminated significant corporate overhead, consultants and other third-party service providers. And as a result, we now expect to achieve our annualized cost savings target of $80 million before the end of 2022 as opposed to 2024, as described in our final merger proxy. Turning to the second quarter results. The second quarter was truly a record for Teledyne with sales, operating margin and earnings, that's excluding acquisition-related costs, all of these increased significantly from prior period. We achieved double-digit organic growth for the total company, with sales from Digital Imaging, Environmental and Electronic Test and Measurement, Instrumentation increasing from 17% to nearly 25% year-over-year. The operating margin of our legacy businesses collectively was an all-time record. And with FLIR, our non-GAAP operating margin of 22.8% was an all-time record in the second quarter. I should note that very strong non-GAAP margin and earnings performance in Q2 resulted partially from a disproportionate amount of sales from FLIR relative to costs. That is, given FLIR's current lack of linearity shipments, we essentially benefited from 8.5 weeks equivalent of sales volume and contribution margin relative to only six weeks of fixed cost.
In the second half, FLIR's quarterly sales relative to costs were normalized, resulting in somewhat lower margins in all cases, excluding transaction-related expenses. In addition, the average share count in the second quarter only partially reflected the stock issued in connection with the FLIR transaction, which will impact EPS in the second half. On a full year basis and after a strong first half, we now think it's reasonable outlook for legacy Teledyne businesses' organic growth in 2021 to be approximately 6.5%, led by forecasted growth of nearly 12% in Digital Imaging, excluding FLIR. With normalized sales for Q3 and Q4, we expect FLIR to contribute sales of just under $1.3 billion in 2021. Collectively, therefore, we now expect reported sales for the year of approximately $4.580 billion. Our new outlook, which excludes acquisition-related transactions, transaction and purchase accounting expenses, can be summarized as follows. In April, we provided a GAAP earnings outlook for legacy Teledyne businesses of about $12.10. On a comparable basis, our current outlook is approximately $12.40, which is $0.30 above the earlier outlook.
Given the 50 basis points increase in organic growth from 6% to 6.5% today versus April and 40 basis points additional margin improvement, that's resulted in the overall $0.30 increase in our guidance. Intangible asset amortization from prior to FLIR transactions divided by the pre-FLIR share count would add around $0.80 to our earnings, resulting in a pre-FLIR outlook of $13.20. Now incorporating FLIR, including its unusually strong partial period performance in Q2 and excluding transaction costs, results in full year 2021 accretion of over $2 per share. And thus, our current non-GAAP outlook is $15.25 to $15.50.
I will now turn the call over to Al who will comment on the performance of our business segments.