) posted adjusted earnings per share of 46 cents in the first
quarter of 2014, surpassing the Zacks Consensus Estimate by 3
cents as well as the year-ago level of 36 cents by 27.8%. On a
reported basis, PKI posted earnings per share of 30 cents for the
quarter, edging past the year-ago reported earnings of 28 cents
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Revenues in the quarter went up 5.2% to $531.9 million and were
almost in line with the Zacks Consensus Estimate of $531.0
million. Including purchase accounting adjustments, total
revenues increased 5.1% to $533.4 million in the quarter.
Revenues from the
segment went up 6.5% to $299.5 million from $281.3 million a year
ago. Organic revenues grew 6% year over year. Adjusted operating
income rose 25.2% to $63.0 million compared with $50.3 million in
the same quarter a year ago. Adjusted operating margin improved
320 bps to 21.0% in the quarter.
Within Human Health, diagnostics business contributed
significantly to organic revenues growth, primarily driven by
demand for the company's newborn screening and infectious disease
solutions and strength in emerging markets.
increased 3.8% to $232.4 million from $224.0 million in the same
quarter a year ago. Organic revenues posted a 4% rise during the
quarter. Adjusted operating income rose 11.6% to $26.0 million
from $23.3 million in the first quarter of 2013 while adjusted
operating margin expanded 80 bps to 11.2% in the quarter.
Within Environmental Health, organic growth was driven by
continued strength in the services offering which moved up in low
double digits during the quarter.
Adjusted gross profit rose 4.1% to $249.6 million from $239.8
million in the prior-year quarter. However, adjusted gross margin
declined 50 basis points (bps) to 46.8% in the quarter. Gross
margin was negatively impacted by higher service revenue mix,
initial OneSource startup cost related to a number of new
contracts and foreign exchange headwinds in the quarter.
Adjusted operating earnings increased 23.1% to $78.4 million in
the quarter from $63.7 million in the first quarter of 2013.
Adjusted operating margin expanded 210 bps to 14.7% from 12.6% a
Adjusted selling, general and administrative (SG&A) expenses
remained flat at $142 million in the reported quarter. Adjusted
research and development (R&D) expenses declined 14.1% to
$29.3 million in the quarter. SG&A expenses and R&D
expenses, as a percentage of sales, declined 140 bps and 120 bps
respectively, thus contributing to operating margin improvement.
PKI had cash and cash equivalents of $224.1 million as of Mar 30,
2014, a significant increase of 78.0% from $125.9 million as of
Mar 30, 2013. Long-term debt (including current portion) declined
approximately 9.5% to $929.5 million as of Mar 30, 2014 from
$1,026.6 million as of Mar 30, 2013. Consequently,
debt-to-capitalization ratio decreased 450 bps to 31.4% from
35.9% a year ago.
In the first quarter of 2014, cash flow from operating activities
increased more than six-fold (511.7%) to $67.9 million from $11.1
million in the prior-year quarter. Capital expenditures almost
halved (49.1%) to $6.0 million from $11.8 million in the first
quarter of 2013.
For the second quarter of 2014, PKI expects adjusted earnings per
share in the range of 57 to 59 cents, which represents growth of
12 to 16% from prior-year quarter. The current Zacks Consensus
Estimate of 61 cents lies above the guided range. Adjusted
revenues are expected in the range of $565 to $575 million. The
current Zacks Consensus Estimate of $572 million lies within the
For 2014, PKI expects reported earnings per share in the range of
$1.91 to $1.95. On an adjusted basis, PKI raised its forecast for
earnings per share to the range of $2.42 to $2.46 from $2.40 to
$2.45. The current Zacks Consensus Estimate of $2.44 lies within
the guided range.
We are impressed with PKI's earnings beat for the first quarter
of 2014 as well as its improved earnings guidance for 2014.
PKI reported strong operating results for the first quarter and
continues to execute well across several product lines aided by
rebounding markets and cost containment efforts. The company
ended the quarter with a healthy financial position as reflected
by an improved cash balance as well as decreasing
Though emerging markets like China represent immense
opportunities, PKI faces flat growth in the European market. It
continues to face a higher tax rate as well as incremental
foreign currency headwinds. Nevertheless, with an increased focus
on product innovations and improving end market trends, PKI has a
potential upside going forward.
Currently PKI carries a Zacks Rank #3 (Hold). Other players in
the scientific instruments industry that look attractive at
current levels are
Mettler-Toledo International Inc.
). All the three stocks carry a Zacks Rank #2 (Buy).