Pall Corporation (PLL)

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Pall Corporation (PLL)

F1Q2011 Earnings Call Transcript

December 10, 2010 8:30 am ET

Executives

Eric Krasnoff – Chairman, CEO and President

Lisa McDermott – CFO and Treasurer

Analysts

Tracy Marshbanks - First Analysis

Dane [ph] - Macquarie Capital

Chris Parkins - Credit Suisse

Jon Wood - Jefferies

Brian Drab - William Blair

David Rose - Wedbush Morgan

Robert Mason - Robert W. Baird

Presentation

Operator

Welcome to Pall Corporation's conference call and webcast for the first quarter for fiscal 2011. Today's call is being recorded and simultaneously webcast and 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 first 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 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, CEO and President. Please go ahead, sir.

Eric Krasnoff

Good morning. It's a pleasure to be here to review Pall's first quarter results with you. Thanks for joining us. I am here this morning with Lisa McDermott, our Chief Financial Officer and Frank Moschella, Corporate Controller. Lisa and I will review some of the details and drivers of the quarter and following that we look forward to your questions.

The first quarter provided a good start to the year. Sales were $605 million, a 12% increase in local currency. Negative exchange rates reduced this by 1.5%. Revenues increased by double digits in both businesses with sales growth broad-based by market and geography. Overall orders increased 7% with consumables growing just over 8% and the backlog is up over 20% in both consumables and systems.

Life Sciences continued to perform well. The top line grew over 10% and margins improved. The lead story this quarter was the reemergence of Industrial, sales grew 14% with healthy contributions from just about every sector. Industrial's gross margins jumped 300 basis points to 47.2%. Operating profit almost doubled from a year ago. On a geographic basis, sales grew in both Industrial and Life Sciences in all regions.

The Western Hemisphere grew over 25% led by Industrial, where sales increased 39%. Europe and Asia grew 5% and 8% respectively. The emerging regions we have been focusing on including Latin America, MENA, China, India and Southeast Asia, which represent about 20% of total sales, grew over 20% as well. The strong top line coupled with Pall’s steeply growing [ph] productivity improvement culture drove gross margins up to 51% and operating margins over 17%, which was a significant achievement.

With that, let’s look at the details starting with Life Sciences. BioPharmaceuticals, which represents about 25% of Pall’s total sales, had another strong quarter. Revenues increased about 15% with pharmaceuticals and laboratory growing at similar rates. Consumable sales were up almost 14% and system sales increased 30%. The biotech and plasma markets remained strong while the vaccine market was flat even without a separate vaccine for H1N1 this year.

Demand for Pall’s single-use technologies also continues to drive growth. All regions advanced with the Western Hemisphere and Asia particularly robust at about 25% growth each. Sales in Europe grew 5%. Sales in the emerging regions while small are growing quickly driven by increasing demand and higher local standards from medical care.

Orders remained strong in BioPharmaceuticals with booking for Pharma consumables up over 25%. Medical also had a good quarter with sales up 5% and all regions contributing. Blood Filtration sales grew slightly despite modest reductions in blood collections in the Western Hemisphere.

The OEM sub-market grew 19%. This reflects increased medical device production and new business for our proprietary materials. The hospital critical care market also grew slightly. Self therapy, a small revenue base today but exciting for the future continued to grow by double digits.

Sales in Food & Beverage grew almost 9%. Let's note, however, the comparison of Q1 is to the lowest point in fiscal 2010 where Food & Beverage sales dropped 18%. All regions have now returned to positive territory led by the Western Hemisphere at 25% and Asia at 14%.

Europe, the largest part of the food and beverage market for Pall grew at 4% as the region continues to recover. Consumable sales grew over 11% reflecting increased production and the success of Pall Systems strategy.

There are now about 800 Pall Systems for (inaudible) diafiltration and wine clarification in the field and we're currently working on the biggest pipeline of Systems projects in several years.

Pending legislation currently awaiting House approval could provide an additional boost to Pall's Food & Beverage business over time. The U.S. Senate recently approved the biggest overhaul to the nation's food safety laws since the 1930s. The bill places greater responsibility on manufacturers and farmers to prevent contamination during production. The bill also gives vast new powers to the FDA, which recognize that developed filtration and protecting or preventing contamination and the benefit of process monitoring to ensure quality before final QC.

Now, let's move on to Industrial, which had quite a good quarter. Sales overall increased 14%. Aeropower came back strong at 24% growth, and two of the three Energy and Water submarkets grew double digits. We still saw a weakness in capital spending in the larger fields in chemical submarket. Microelectronics grew over 29%.

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