Sigma-Aldrich Corporation (SIAL) delivered first quarter earnings of 97 cents, which surpassed both the Zacks Consensus Estimate of 89 cents and prior-year earnings per share (EPS) of 81 cents.
The company incurred a tax benefit of $0.04, partially offset by restructuring costs of $0.01 leading to adjusted earnings of $0.94 per share, an increase of 12% year over year.
Revenue
Reported sales in the first quarter of 2011 were $632 million, increasing 10% year over year and outperforming the Zacks Consensus Estimate of $607 million. Excluding a 2% impact from currency exchange rates and 1% from acquisitions first- quarter organic sales growth was 7%.
First-quarter sales for the company's Research business grew 6% on a currency-adjusted basis, driven by research initiatives in analytical chemistry, biology, traditional chemistry and materials science, coupled with a 2% acquisition benefit to expand its analytical chemistry offering.
Revenues in the Research business surged to $452 million versus $420 million in the year ago quarter and shot up 4% on an organic basis driven primarily by growth in the Asia Pacific-Latin American markets.
First-quarter sales for the company's Specialty Fine Chemicals (SAFC) business grew 2% on a currency-adjusted basis, as sales of Supply Solutions, Bioscience and Hitech products reflected stronger demand. SAFC posted revenues of $180 million — an increase of $28 million over the prior year and reflecting an organic growth of 16%.
The operating income margin in the first quarter was 26.4%. Gross margin of 53.2% was up 70 basis points over the 2010 level.
Financial Position
In the first quarter of 2011, net cash provided by operating activities was $151 million flat versus the prior year quarter. Free cash flow was $131 million comparable to the first quarter of 2010. Capital expenditure was $18 million flat versus the prior year quarter.
The company repaid $50 million of its debt and returned $43 million to shareholders through share repurchases and dividends and utilized $20 million to fund acquisitions. The company's debt-to-capital ratio plunged to 19% at the end of the first quarter of 2011 from 21% at the end of December 2010.
Outlook
For full-year 2011, the company reiterated its organic sales to grow in the mid-single digit range. The company anticipates that this organic growth, along with benefits from currency and acquisitions are expected to drive overall growth to low double digits.
The company is on route to execute its strategic initiatives to drive sales of its Research business and to deliver high single digit organic growth in SAFC for the full year and enhance the e-commerce and Asia Pacific-Latin American market sales.
The company’s recently completed acquisitions of Cerilliant Corporation and Resource Technology Corporation are expected to contribute approximately 1% to overall sales growth.
Based on the strong operating performance in the first quarter of 2011 and more favorable foreign currency exchange rates, Sigma increased its diluted adjusted EPS outlook for 2011 to a new range of $3.60 to $3.75 (excluding the impact of restructuring and other extraordinary special charges) higher than the previous expectation of $3.45 to $3.60.
The effective tax rate is anticipated to be approximately 29% to 30%, including a benefit from the U.S. R&D tax credit comparable to that realized in 2010. Net cash provided by operating activities is expected to exceed $520 million. Capital expenditures are expected to be approximately $120 million. Free cash flow is expected to exceed $400 million.
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 enhance its growth, Sigma-Aldrich plans to increase its focus on marketing, business development, R&D, full leverage of its sales force and continuing with its efforts to improve process and operations management.
Sigma-Aldrich faces stiff competition from Bayer AG (BAYRY) and privately held companies Brenntag AG and VWR International, LLC.
We currently maintain a Zacks #3 Rank (short-term Hold recommendation) on Sigma and a long-term Neutral recommendation.
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