Life Beats, FX Headwind Continues - Analyst Blog

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Life Technologies Corporation ( LIFE ) reported earnings per share ("EPS") of 55 cents in the third quarter of fiscal 2012 compared with 52 cents in the year-ago period. However, after taking into account certain one-time items adjusted EPS came in at 92 cents, ahead of the Zacks Consensus Estimate of 89 cents, but was 2 cents below the year-ago quarter's adjusted EPS.

Revenues declined 1.9% year over year (up 1.4% at constant exchange rates or CER) to $911 million, but surpassed the Zacks Consensus Estimate of $908 million. On a regional basis, Europe witnessed revenue growth of 2%, Asia-Pacific witnessed revenue growth of 10% and Japan witnessed revenue growth of 4%, while the Americas recorded a decline of 1%.

At CER, year-over-year revenue growth came on the back of a significant increase in Ion Torrent instrument sales with the launch of the Ion Proton System in September and continued strong demand for the company's research consumables and forensics businesses. Moreover, in the quarter, the company successfully expanded its international footprint, especially focusing on high growth and emerging markets.

Segments

Life Technologies now books revenues under Research Consumables, Genetic Analysis and Applied Sciences. These three divisions recorded revenues of $384 million (down 3% year over year; up 1% at CER), $353 million (down 1%; up 2% at CER) and $174 million (flat year over year; up 3% at CER), respectively, during the quarter.

Research Consumables witnessed growth in cell culture products, benchtop instruments and sample prep products while Genetic Analysis experienced growth in Ion Torrent franchise including the Ion Proton System and the Ion PGM benchtop instruments, offset by a decline in SOLiD instrument and CE instruments sales, primarily due to some one-time orders and timing of sales in the year-ago quarter. At Applied Sciences, sales bounced back owing to the strong uptake of Forensics and qPCR applied sciences instruments, offset by lower CE instrument and BioProduction sales.

Margin Trends  

Adjusted gross margin during the reported quarter contracted 40 basis points (bps) to 65.6% primarily due to unfavorable foreign exchange headwind, an increase in low-margin Ion Torrent instruments and lower SOLiD 5500 instrument sales.

The company recorded operating expenses of $355.4 million, almost flat year over year with a 7.4% rise in selling, general and administrative expenses resulting from expenses related to continued investments in Greater China and medical science. This was, however, partially offset by an 18.3% decline in research and development expenses. Life Technologies during the quarter, recorded a 109 bps contraction in adjusted operating margin to 26.6%.

Balance Sheet

Life Technologies exited the quarter with $299.3 million in the form of cash and short-term investments, down from $882 million at the end of fiscal 2011.

Free cash flow for the quarter was $177 million ($186.9 million at the end of the prior quarter), while cash flow from operating activities were $197 million and capital expenditure was $20 million. The company's debt burden declined to $2.5 billion (including senior notes of $2.3 billion plus some short-term debt) from $2.75 billion at the end of fiscal 2011. 

Guidance

Life Technologies now expects organic revenue growth for 2012 to be approximately 2% over 2011 revenues of $3.7 billion (earlier guidance was at the low end of the 2−4% range) due to macroeconomic pressures through continued reductions in discretionary spending. The company also tightened the 2012 adjusted EPS guidance by increasing the low end of the previous guidance by 5 cents to $3.95−$4.00. It expects operating margin to expand in a range of 25-50 bps for 2012.

A continuous share buyback program will also benefit it by lowering the outstanding share count. Year-to-date, 12 million shares were repurchased for approximately $535 million and now the company has $612 million remaining under its current share repurchase authorization. As a result, the company expects its full year outstanding share count to be in the range of 179-180 million, down from the earlier provided band of 180-182 million.

Our Take

Economic uncertainties lowering discretionary spending and currency were the major headwinds for Life Technologies during the reported quarter. These issues adversely impacted performance of many players.

Life Technologies enjoys a strong position in the life sciences market and we are impressed with the strong momentum of its Ion Torrent franchise. Besides, the company is working on expanding its portfolio with product launches including the Ion Proton System, the PI Chip and the Pervenio lung cancer test I during the quarter. The company is also focusing on expansion in high-growth markets through partnerships, acquisitions and internal development.

However, the competitive landscape is tough with the presence of players such as Illumina ( ILMN ), and Thermo Fisher Scientific ( TMO ) among others.

Over the long term, we have a 'Neutral' recommendation on Life Technologies. The stock retains a Zacks #2 Rank (Buy) in the short term.



ILLUMINA INC (ILMN): Free Stock Analysis Report

LIFE TECHNOLOGS (LIFE): Free Stock Analysis Report

THERMO FISHER (TMO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ILMN , LIFE , TMO

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