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
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LIFE TECHNOLOGS (LIFE): Free Stock Analysis
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THERMO FISHER (TMO): Free Stock Analysis
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