Life Technologies Corporation
(
LIFE
) reported earnings per share ("EPS") of 67 cents in the second
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 96 cents, missing the Zacks Consensus
Estimate by a penny, but were ahead of the year-ago quarter's
adjusted EPS of 89 cents.
Revenues increased 1% year over year (same at constant exchange
rates or CER) to $950 million, beating the Zacks Consensus Estimate
of $944 million. On a regional basis, Europe and Asia-Pacific
witnessed revenue growth of 1% and 17%, respectively, while
Americas and Japan recorded respective declines of 2% and 6%.
Management expected revenues to remain flat year over year.
However, reported revenues were slightly ahead of the company's
guidance due to strength in BioProduction and Ion Torrent
businesses. The company witnessed some headwinds during the
quarter, which though envisioned earlier, adversely impacted
revenues due to decline in sales of SOLiD 5500 products ($30
million) and qPCR royalties ($8 million). Excluding these, revenues
growth came in at 5%.
Segments
Life Technologies now books revenues under Research Consumables,
Genetic Analysis and Applied Sciences. These three divisions
recorded revenues of $403 million (up 1% year over year), $353
million (down 6%) and $194 million (up 15%), respectively, during
the quarter.
Research Consumables witnessed growth in cell culture products,
benchtop instruments and molecular biology consumables while
Genetic Analysis experienced lower qPCR royalties and lower sales
of SOLiD products, partially offset by the robust growth of Ion
Torrent franchise. At Applied Sciences, sales bounced on the back
of strong uptake of BioProduction and Forensics.
Margin Trends
Adjusted gross margin during the reported quarter expanded 120
basis points (bps) to 65.4% due to the rollout of currency hedges,
lower SOLiD instrument sales, partially offset by lower royalty
revenue. On a sequential basis, however, gross margin decreased by
120 bps resulting from increased sales of Ion Torrent and
BioProduction products that carry a lower margin than the corporate
average.
The company recorded operating expenses of $350 million, up 1.5%
year over year due to a 4.4% rise in selling, general and
administrative expenses resulting from expenses related to
employee's promotion and merit (effective April) and
continued investments in Greater China and Ion Torrent business.
This was, however, partially offset by a 7% decline in research and
development expenses. Despite the rise in operating expenses, Life
Technologies recorded an 80 bps increase in adjusted operating
margin to 28.6% due to a better gross margin.
Balance Sheet
Life Technologies exited the quarter with $303.4 million in the
form of cash and short-term investments, up from $264 million at
the end of the first quarter.
Free cash flow during the quarter was $232 million ($79 million
at the end of the prior quarter) with $256 million of cash flow
from operating activities and $24 million of capital expenditure.
The company's debt burden declined to $2.4 billion (including
$100,000 short term debt) from $2.75 billion at the end of fiscal
2011. With return on invested capital of 9% at the end of the
quarter, Life Technologies is targeting the 10% level by the end of
2012.
Guidance
Life Technologies now expects organic revenue growth for 2012 to
be at the low end of the previously guided range of 2−4% due to
slower growth in Europe. The company also lowered the top end of
the original adjusted EPS guidance by 5 cents to $3.90−$4.00.
Factors such as currency headwinds (3 cents per share), dilution
from recently announced acquisitions of Navigenics and Pinpoint
Genomics, and lower organic growth led to the lowering of the EPS
outlook.
The company, however, plans to offset a portion of these factors
through lower discretionary spending and marginally lower tax rate.
A continuous share buyback program will also benefit it by lowering
the outstanding share count. Year-to-date 7.6 million shares were
repurchased for approximately $335 million. The Board of Directors
also announced a $750 million share repurchase program which
augments the remaining authorization of $62 million under the
current program.
Our Take
Economic uncertainties in Europe 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 and launched Ion AmpliSeq clinical research products for
cancer and inherited diseaseduring the quarter. The recent
acquisitions of Navigenics and Pinpoint Genomics would enable the
company strengthen its diagnostics franchise.
However, the competitive landscape is tough with the presence of
players such as
Illumina
(
ILMN
),
Thermo Fisher Scientific
(
TMO
) among others.
Over the long term, we have a Neutral recommendation on Life
Technologies. The stock retains a Zacks #3 Rank (Hold) 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
To read this article on Zacks.com click here.
Zacks Investment
Research