The announcement of Life Technologies’ (LIFE) third quarter fiscal 2011 results as on October 25, 2011, has led analysts to revise their estimates lower for the fourth quarter of fiscal 2011.
Third Quarter Highlights
Life Technologies reported an EPS of 94 cents in the third quarter of fiscal 2011, beating both the Zacks Consensus Estimate of 88 cents and the year-ago quarter’s adjusted EPS of 87 cents.
Revenues increased 7% year over year to $929 million, surpassing the Zacks Consensus Estimate of $916 million. Excluding the impact of foreign exchange movement, revenue growth for the quarter was 4%. On a geographical basis, revenue growth was witnessed across Europe – 5%, Asia-Pacific – 14% and the Americas – 2%. However, revenues derived from Japan declined 2%.
Life Technologies has witnessed improvement in the Greater China business along with robust performance of Ion Torrent products. Though the company saw a temporary slack in its business in China in the second quarter, it expected the situation to improve in the second half. Funding pressures for academic and government funded projects are expected to continue in the US and Europe.
For a full coverage on the earnings, read: Life Technologies Beats on Robust Top Line
Agreement of Analysts
Although the company maintained its guidance for fiscal 2011 (revenue growth of 2–4% resulting in an adjusted EPS of $3.70–$3.80), it indicated that both metrics are likely to remain on the lower end of the range. Consequently, the majority of analysts have reduced their estimates for the current quarter.
Over the last 30 days, 12 of the 14 analysts covering the stock have lowered their estimates for the fourth quarter of fiscal 2011, with no revisions in the opposite direction. For fiscal 2011, 4 analysts have increased their estimates over the past 30 days with 5 negative revisions.
Life Technologies’ performance is thwarted by a sustained slowdown in government and academic research funding. Although the company does not expect the scenario to worsen in the near future, it is repositioning itself for a slower growth environment by lowering its cost structure and increasing its focus on R&D initiatives.
Moreover, the company experienced attractive growth opportunities in several end markets that include government-funded research in emerging markets and applied markets such as food and animal safety and molecular diagnostics.
Although revenues from China witnessed some slackness during the second quarter, the company undertook certain changes. Consequently, China is back on the historical growth rate of 16%, a trend that is expected to improve going forward based on its immense potential and the recent approval of 3500 Genetic Analyzer. The company is working on some partnerships in that region to make the launch of this instrument a success.
Sales of the Ion PGM were strong at $20 million during the reported quarter, up 50% on a sequential basis. The company is satisfied with the progress made so far with Ion Torrent technologies. Recently, eight new research products for the system were launched and work is going on to launch the 318 chip by December.
With this chip, throughput is expected to increase 100 fold within one year. With the launch of new products on this platform, contribution of the PGM is expected to increase over the next few quarters.
Magnitude of Estimate Revisions
The magnitude of estimate revisions has been bearish for the fourth quarter, in the past 30 days. Overall, the consensus estimate for the current quarter has gone down by 6 cents to $1.04 while the first-quarter estimate for fiscal 2012 declined by two cents to 93 cents. The estimate for fiscal 2011, however, remained unchanged at $3.71 over the last 30 days.
Our Take
Life Technologies enjoys a strong position in the life sciences market.Although the company witnessed several issues in the second quarter of the fiscal year, it took some proactive measures that yielded results in the reported quarter. Challenges, nevertheless, remain in the form of tighter budgets for academic and government funded research in both the US and Europe, a trend that is expected to continue.
A similar macro scenario resulted in disappointing performance at Life Technologies’ peer Thermo Fisher Scientific (TMO) and forced it to lower its outlook for fiscal 2011. Besides, Illumina (ILMN) was also affected by uncertain government budgets and the current global economic environment.
Although Life Technologies does not expect the scenario to worsen in the near future, it is repositioning itself for a slower growth environment by lowering its cost structure and focusing on R&D initiatives. The cost saving initiatives should result in margin expansion based on which Life expects to record mid-single-digit revenue growth and double-digit earnings growth in 2012.
We are also impressed by the performance of the Ion PGM, contribution from which should increase going ahead on the back of product launches over the recent past and the anticipated launch of the 318 chip in December.
We have a Neutral recommendation on Life Technologies, which corresponds to the short-term Zacks #3 Rank (Hold).
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