Sigma-Aldrich Corporation (SIAL) delivered third-quarter earnings of 96 cents per share, surpassing the Zacks Consensus Estimate of 91 cents per share and an increase of 16% year over year.
The company incurred restructuring costs of 1 cent per share, including which earnings came in at 95 cents per share versus the prior-year earnings of 76 cents per share.
Revenue
Reported sales in the third quarter of 2011 were $626 million, increasing 11% year over year, but missing the Zacks Consensus Estimate of $631 million. Excluding 5% impact from currency exchange rates and 2% from acquisitions, third-quarter organic sales growth came in at 4%.
Third-quarter sales for the company's Research business grew 4% on an organic basis driven by research initiatives in analytical chemistry, biology, and materials science, coupled with the company’s achievements in the emerging markets.
Revenues in Research business surged $446 million versus $396 million in the year-ago quarter, driven primarily by growth in the Asia Pacific-Latin American markets.
SAFC posted revenues of $180 million, an increase of $13 million over the prior year, reflecting an organic growth of 9%. SAFC sales were led by growth in Bioscience and Hitech products and the company expects to continue investing in theses markets so that it can take advantage of the growth in these markets.
The company also collectively grew by 25% in India, China and Brazil. Currency adjusted growth for these key markets including its May 2011 acquisition of Vetec Quimica Fina Ltda in Brazil was a combined 41% in the reported quarter.
The operating income margin in the third quarter was 26.0% versus 25.4% in the prior-year quarter.
Financial Position
Net cash provided by operating activities at the end of September 30, 2011 was $373 million versus $397 million at the end of September 30, 2010. The contributions from higher net income and non-cash charges in the first nine months of 2011 compared to the same period in 2010 were exceeded by increases in working capital due to planned inventory increases to enhance service levels while supporting higher sales growth in the Asia Pacific-Latin America region.
Capital expenditures at the end of September 30, 2011 were $73 million compared with $65 million in the same period in 2010.
Free cash flow of $300 million for the first nine months of 2011 was used primarily to pay $65 million to shareholders in the form of dividends and return another $134 million through share repurchases and $75 million to fund acquisitions.
The company's debt-to-capital ratio was 21% as of September 30, 2011 and December 31, 2010.
Outlook
For full-year 2011, the company reiterated its expectation of organic sales to grow in the mid-single digit range. At current exchange rates, currency is expected to increase reportable sales for full year by approximately 4%. Acquisitions are expected to increase sales by another 1-2%.
The company revised its diluted adjusted EPS forecast for 2011 (excluding restructuring charges) in the range of $3.73 to $3.81 to reflect strong operating results through the first nine months and a lower effective tax rate. This represents an increase of 13% to 15% compared to 2010's adjusted diluted EPS of $3.31. The company expects its fourth-quarter diluted adjusted EPS to be in the range of $0.85 to $0.93.
Net cash provided by operating activities and free cash flow are expected to be approximately $520 million and $400 million, respectively, for 2011, unchanged from its prior expectations.
The recent acquisitions of Vetec, Resource Technology Corporation and Cerilliant Corporation are expected to contribute 1-2% to reported sales growth.
The effective tax rate for full-year 2011 is now expected to be 28% to 29%, down from 29% to 30% in its previous outlook.
Our Take
St. Louis, Missouri-based Sigma-Aldrich Corporation is a leading life sciences and high technology company. It develops, manufactures and distributes various biochemicals and organic chemicals.
Apart from acquisitions, in order to boost its growth, Sigma-Aldrich plans to increase its focus on marketing, business development, R&D while continuing with its efforts to improve process and operations management.
Rising costs remain a key concern. Moreover, we are concerned regarding higher SG&A expenses, which are rising due to a pick-up in sales force, additions and continued marketing programs.
We believe operating expenses will advance as the company increases discretionary spending on items, such as advertising, which would hamper Sigma’s operating margin. We currently maintain a Zacks #3 Rank (short-term Hold recommendation) on Sigma and a long-term Neutral recommendation.
Sigma-Aldrich faces stiff competition from Bayer AG (BAYRY) and privately held companies Brenntag AG and VWR International, LLC.
SIGMA ALDRICH (SIAL): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment