Pall Corporation (PLL)

PLL 
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Pall (PLL)

Q2 2011 Earnings Call

March 11, 2011 8:30 am ET

Executives

Kenneth Frank - President of BioPharm

Eric Krasnoff - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Lisa McDermott - Chief Financial Officer and Treasurer

Analysts

Hamzah Mazari - Crédit Suisse AG

Richard Eastman - Robert W. Baird & Co. Incorporated

Jonathan Groberg - Macquarie Research

Kevin Maczka - BB&T Capital Markets

David Rose - Wedbush Securities Inc.

Brian Drab - William Blair & Company L.L.C.

Tracy Marshbanks

Presentation

Operator

Welcome to Pall Corporation's Conference Call and Webcast for the Second Quarter for Fiscal 2011. [Operator Instructions] We'd 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 2 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 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

Yes, thank you very much. Good morning. Before we begin, I'd like to extend my concern and our condolences to the citizens of Japan after the horrific earthquake and tsunami. And we wish them the best, and we'll be helping however we can.

Now I'm pleased to be here today to review Pall's second quarter results. Thank you for joining us. Joining me are Lisa McDermott, our Chief Financial Officer; and Frank Moschella, Corporate Controller. Also joining us today is Ken Frank, who leads the BioPharmaceuticals, Food and Beverage and Laboratory Groups under the Life Sciences umbrella. Ken is the lead architect of Pall's expanding presence in the BioPharmaceutical markets. He'll share with us his perspective on how Pall is steadily becoming the supplier of choice for a broadening range of total fluid management requirements.

Lisa and I will review some of the details and drivers of the quarter and update you on our outlook for the balance of the year. And following that we, of course, look forward to your questions.

Pall's execution of its strategic growth initiatives continues to yield positive results. The strong top line, coupled with Pall's deeply ingrained productivity improvement culture, drove consolidated gross margins up to 51 1/2%.

Operating margins continued their upward trend, reaching almost 18% in the quarter. And with the global economy now improving, we see significant opportunities for sustainable revenue and profit growth to further drive value creation for our shareholders. And so we are pleased with our overall progress this year and confident on capitalizing on the opportunities ahead.

First quarter -- first half results demonstrate Pall's market and geographic strength and the power of our productivity initiatives. We were strong out of the gate in the first quarter, and the second quarter results are even better.

Second quarter sales of $645 million is about a 15% local currency increase over last year and follows on Q1's 12% performance. Exchange rates were slightly negative on the top line in the quarter. Revenues increased by double digits in Life Sciences and Industrial. Growth was broad based by market and geography.

The BioPharmaceuticals and Microelectronics market, in particular, outperformed our expectations in the quarter. So did Industrial in the Western Hemisphere, where every market was strong collectively, growing by more than 40%.

Life Sciences continued to perform well. The top line grew 14%, following up on a 10% increase in Q1. Operating margins also improved.

In the first quarter, Pall Industrial grew 14% on the incoming tide of economic recovery. Second quarter sales increased almost 18%. Industrial's gross margins jumped 280 basis points, reaching 47 1/2%. Operating profit more than doubled from a year ago.

Now on a geographic basis, both Pall Industrial and Life Sciences grew in all regions. The Western Hemisphere was strongest, increasing 27%, and that was led by the 42 1/2% growth in Industrial.

We're gratified to see Europe return to double-digit growth after its string of economic woes. It grew almost 11% on broad market strength. Sales in Asia were also up double digits, about 10%.

Overall orders kept pace with sales, increasing 15%. Every major market but Municipal Water was solidly positive. Orders for consumables are the leading indicator for Pall's business, and they grew almost 13%. You could look at them as an analogy to the retail market where same-store sales are an important indicator. For us, it's consumables. The backlog of consumables and systems is up 23%. Now bear in mind, this includes orders for both consumables and systems that won't ship this year.

The emerging regions that we have been focusing on, that's Latin America, Eastern Europe, MENA, China, India and the Southeast Asian areas, now represent about 20% of total Pall sales. With the current Middle East situation, it's important to note that Pall's sales for the countries in turmoil are not significant. We do see considerable long-term opportunity in the region, particularly in the energy and water markets. By their very nature, these markets transcend politics, and so we remain optimistic about Pall's prospects.

With that, let's look at the sales details, starting with Industrial. Sales overall, as I said, increased about 18%. Aeropower grew close to 12% in Q2. Energy and Water were up 21%, with growth in all markets. And MicroE grew over 21%. That's its fifth straight quarter of double-digit growth.

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