Pall Corporation (PLL)
F2Q10 (Qtr End 01/31/10) Earnings Call
March 12, 2010 8:30 am ET
Eric Krasnoff – Chairman and CEO
Lisa McDermott – CFO and Treasurer
Dan Leonard – First Analysis
Brian Drab – William Blair
Jon Wood – Jefferies
Richard Eastman – Robert Baird
Adam Brooks – Sidoti
Christopher Parkinson – Credit Suisse
Previous Statements by PLL
» Pall Corporation F1Q10 (Qtr End 10/31/09) Earnings Call Transcript
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We would like to remind you that the company's second quarter press release is available at www.pall.com. Management's remarks this morning will include forward-looking statements. Please refer to slide two or request a copy of the specific wording of this qualification for the company's remarks. Management also uses certain non-GAAP measures to assess the company's performance. Reconciliations of these measures to their GAAP counterparts are included in slides at the end of the presentation.
At this time, I will turn the call over to Mr. Eric Krasnoff, Pall Corporation's Chairman and CEO. Please go ahead, sir.
Thank you and good morning. We appreciate you joining us today to review the second quarter. I'm sitting here with Lisa McDermott, our Chief Financial Officer and Frank Moschella, Corporate Controller. We'll provide some color on the business results and trends and Lisa will review Pall's financial performance. Following that, we'll open up the lines for questions.
Second quarter sales were $560 million, up about 3% on an as reported basis and down about the same in local currency. Earnings increased almost 28%, very positive sales mix augmented by ongoing cost reduction and pricing improvement programs propelled gross margins. Gross margin improvement in both the quarter and the half was lead by Life Sciences with gross margins exceeding 56%. Lisa will cover this in more detail in a few moments.
Pall's second quarter sales make it abundantly clear that the economy is still challenging and the pace of recovery uneven. Life Sciences is performing well lead biopharmaceuticals, which is particularly strong. The recovery in Industrial is slower, but we believe we are seeing positive trends that are indicative of growth for our second half. The most notable green chute in this past quarter is microelectronics, one of our most profitable industrial sectors. Power generation was also strong. We continue to get price increases in both business segments and the markets that were hardest hit throughout 2009 each improved sharply on a sequential basis.
The Asian economy outside of Japan has rebounded quite nicely. Total Asian sales increased over 7% with all but the small A&T markets contributing. This return to good health follows four down quarters.
Orders grew for the first time in more than a year with strong order growth in microelectronics, municipal water, industrial manufacturing and food and beverage. Orders continued to be strong for Life Sciences. Our book-to-bill in the quarter was 1.1 to 1, supporting a growing backlog.
Capital spending, which mostly affects our energy, water and process technology markets is throttling up in many areas. System orders were particularly strong in muni water, pharmaceuticals and food and beverage, the latter two being sub markets where the time between order and shipment is shorter, as is the time until annuities kick in. Quoting activity is increasing across most of the business. We're expecting a strong finish for the year.
Now, let's look at the markets in a little bit more detail. Sales in Life Sciences increased 4% in local currency driven by biopharm, which posted 8% growth. Sales in Life Sciences were up in all regions with sales in the Western Hemisphere and Asia each growing over 7.5%.
Life Sciences orders were up about 10% in the quarter. Major drivers in Life Sciences remain the same, increased production of filtration dependent biotech drugs and vaccines along with a growing demand for our single use processing technology. We saw the benefits of these trends with a 15% increase in base business on top of a 16% increase in the base business in the prior quarter, a key driver of the surge in margins in the quarter.
Conversely, system sales were down 54%, reflecting an industry-wide slowdown in capital spending last year. This is now abating and we expect higher system sales in the second half of this year based on the current backlog.
The Asian pharma markets propelled primarily by China and India, while still relatively small, are steadily growing by double digits. An important trend is emerging. Chinese drug producers are increasingly adopting FDA manufacturing standards which require drug companies to insure the safety, purity and efficacy of their products. Any country that wants to export to the U.S., still the largest and most lucrative drug market must adhere to them. This is resulting in an opportunity for global leaders like Pall Corporation. Now, our expectation for biopharm sales growth is in the high-single digits for the year as the growth rate moderates due to the timing of demand within the biotechnology market.
Medical sales were down slightly in the quarter, while filter sales were up overall driven by increased adoption of leukocyte reduction in Asia and by modest growth in the large U.S. blood market. Western Hemisphere blood filter sales were up slightly despite what the blood centers are reporting as decreased demand for blood attributable to declines in areas such as elective surgery.