Global lab chemical and life sciences company
Sigma-Aldrich Corporation
(
SIAL
) posted adjusted earnings (excluding restructuring charges) of
94 cents per share in the third quarter of 2012, below the
year-ago earnings of 96 cents. The results were in line with the
Zacks Consensus Estimate.
Profit, as reported, fell roughly 4% year over year to $112
million (or 92 cents per share) in the quarter from $117 million
(or 95 cents per share) a year ago. The bottom line was impacted
by currency headwinds which reduced earnings per share by 11
cents.
Revenues and margins
Revenues inched up 2% year over year to $639 million in the
quarter, but trailed the Zacks Consensus Estimate of $661
million. Acquisitions added 6% to the growth while foreign
exchange swings had a negative impact of 6%.
Adjusted operating margin (excluding restructuring costs) for
the third quarter was 25% compared with 26% recorded a year ago.
Segment Analysis
Research Chemicals revenues increased 1% on an organic basis
to $428 million. Healthy analytical products sales were masked by
lower sales of chemistry products. Demand in the company's
research business was weak while end markets remained relatively
stable in the quarter. On a reported basis, sales from this
division clipped 4% in the quarter.
The segment witnessed continued growth in Asia Pacific and
Latin America. But weakness was observed across the U.S. and
European markets. Management is optimistic about improved
performance going forward driven by new product launches and
expansion into emerging markets.
Revenues from the Fine Chemicals (SAFC) business jumped 5%
organically and 17% on a reported basis to $211 million in the
quarter driven by a double-digit growth in the Custom Pharma
manufacturing business. The results were, however, impacted by
delay of a few large orders. While the company witnessed strong
growth in its LED chemical precursors from its new Hitech
facility in Taiwan, it experienced lower pricing in the
quarter.
Financial Condition
Sigma-Aldrich ended the third quarter with cash and cash
equivalents of $589 million, a roughly 8% year over year decline.
The company repurchased 0.7 million shares during the quarter for
$49 million. Long-term debt remained flat year over year at $300
million. Debt to capital ratio was 22% as of September 30, 2012,
compared with 21% as of September 30, 2011.
Guidance
Sigma-Aldrich expects organic growth to be 3% in 2012, within
its earlier low-to-mid single digits growth expectation. The
acquisitions of BioReliance and Research Organics are expected to
boost sales by 6%. However, unfavorable currency impact is
expected to reduce sales by 3%.
Sigma-Aldrich expects sales from its Research Chemicals unit
to grow in the low single-digit clip organically in the fourth
quarter. Revenues from the SAFC business is expected to grow in
the mid-to-high single digits in the fourth quarter. The company
expects higher volume growth sequentially in the Hitech
facility.
The company has reiterated its adjusted earnings guidance of
$3.80 to $3.90 per share for 2012. The adjusted earnings forecast
includes the amortization of intangibles related to acquisitions
which is expected to reduce earnings for 2012 by 15 cents a
share. Free cash flow forecast for the full year remain in excess
of $400 million.
Our Take
Sigma-Aldrich's BioReliance acquisition and expansion
initiatives in Asia Pacific and other high growth markets are
expected to add to its growth in 2012. However, the company's
research business is expected to continue facing economic
challenges due to uncertainties in the U.S. and Europe.
Sigma-Aldrich, a close peer of
Bayer AG
(
BAYRY
), maintains a Zacks #2 Rank, which translates into a short-term
(1 to 3 months) Buy rating. We currently have a long-term Neutral
recommendation on the stock.
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