Pall Corporation (PLL)

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Pall Corporation (PLL)

F4Q2010 Earnings Call Transcript

September 15, 2010 8:30 am ET

Executives

Eric Krasnoff – Chairman, President and CEO

Lisa McDermott – CFO and Treasurer

Frank Moschella – Corporate Controller

Analysts

Tracy Marshbanks – First Analysis

Jon Groberg – Macquarie

Tony Butler – Barclays Capital

Rob Mason – Robert W. Baird

Tim Mulrooney –William Blair

David Rose – Wedbush

Dan Leonard – Leerink Swann

Presentation

Operator

Welcome to Pall Corporation's conference call and webcast for the fourth quarter and year end for fiscal 2010. Today's call is being recorded and simultaneously webcast. Instructions for the question-and-answer session will be provided at the end of management's prepared remarks. Right now, all lines are in a listen-only mode.

We would like to remind you that the company's fourth quarter and year end 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 of 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 the 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.

Eric Krasnoff

Thank you very much. Good morning. We appreciate you joining us today as we report our fiscal 2010 fourth quarter and full year results. Joining me this morning are Lisa McDermott, our Chief Financial Officer and Frank Moschella, Corporate Controller.

In addition to reviewing the fourth quarter's performance and recapping the year, we will also be providing guidance for fiscal year 2011. We look forward to your questions at the end of our prepared remarks.

As reported last evening, Pall posted a solid fourth quarter and saw an upturn in momentum for the second half of the fiscal year. Through judicious cost management, we position Pall to benefit as business conditions improved and we continued to invest and focus on our growth strategies, new products, markets, applications and regions.

Pall announced ambitious performance goals for fiscal '10 last December. Lisa will discuss key drivers in detail a little later. The bottom line, pro forma EPS of $2.12 was within our original guidance of $2.02 to $2.19 and it was the high end excluding foreign exchange.

Given better than expected performance in the fourth quarter, principally in BioPharmaceuticals, Microelectronics and Machinery and Equipment, EPS exceeded the high end of the guidance we provided after the second quarter. Operating cash flows came in at $378 million compared to our high end estimate of $365 million.

Life Sciences performed well all year, particularly in the key BioPharmaceuticals market which grew over 10% in local currency. Our Industrial business finished the year with sales down 3%. The global recession and consequent drop in Industrial Manufacturing activity slowly abated as our year progressed.

The effect of capital spending is still being felt in our systems business where the order to shipment cycle can be as long as two years. At mid-year, Microelectronics rebounded and Other sectors began to stir. Industrial turned positive again beginning in the third quarter on the strength of a handful of markets and the remaining markets are now also setting up to grow again.

Total orders grew 19% in the fourth quarter. Focusing in on Pall Industrial, their orders grew 26% over last year's Q4 with all Industrial markets contributing. This follows a 54% increase in orders for Industrial in the third quarter. Now, staying with Industrial, orders for consumables grew 38%, following on 42% increase in Q3. This reflects increasing customer capacity utilization, some inventory restocking and a revival of customer appetite for capital expenditure.

Positive for the year was the improvement in gross margin. It came in at just above 50%. Those of you who have following us know that we’ve been shipping away at cost of sales.

We were gratified to see this heavy lifting of reducing our manufacturing footprint and showing a lean culture, improving margins on systems and implementing our pricing excellence program, not just to offset the effects of the weak economy as they did in 2009 but enabled us to leverage in improving top line in the second half of fiscal '10.

Before I hand off to Lisa, I'll run down Q4 results by market and give an indication of what we're seeing as we enter our new year. As you saw in the press release last evening, we’ve made several organizational changes to better manage the business. These changes are illustrated on slide six.

Pall year-over-year comparisons are on a restated basis and the discussion on sales and orders is in local currency unless otherwise stated. Fourth quarter sales came in at $679 million and this is up 4% over last year on an as reported basis. Currency turned from favorable for much of the year to a headwind.

Sales grew 6% overall with Life Science up over 7.5% and Industrial positive for the second quarter in a row, growing 4%. Sales in the Western hemisphere increased 14% with Industrial markets leading at a 20% growth. Europe was down close to 3% on weakness of several Industrial markets and Asia overall grew 10%.

Let's look at the details starting with Life Sciences. BioPharmaceuticals now represents a quarter of Pall's total sales. It's been a steady contributor. In the fourth quarter, we saw a 10% increase in both consumables and system sales as all regions grew. Some of the key drivers, increased production of filtration intensive biotech drugs, the vaccine market is remaining strong, the market for single use technologies is expanding and emerging markets are beginning to move the needle.

Read the rest of this transcript for free on seekingalpha.com