Pall Corporation (PLL)

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Pall (PLL)

Q1 2012 Earnings Call

December 09, 2011 8:30 am ET

Executives

Lawrence D. Kingsley - Chief Executive Officer, President and Director

Lisa McDermott - Chief Financial Officer and Treasurer

Analysts

Jonathan P. Groberg - Macquarie Research

Brian Drab - William Blair & Company L.L.C., Research Division

David L. Rose - Wedbush Securities Inc., Research Division

Nandita Koshal - Barclays Capital, Research Division

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Christopher S. Parkinson - Crédit Suisse AG, Research Division

Presentation

Operator

Welcome to Pall Corporation's Conference Call and Webcast for the First Quarter for Fiscal 2012. Today's call is being recorded and simultaneously webcast. [Operator Instructions] We'd 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 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. Larry Kingsley, Pall Corporation's CEO and President. Please go ahead, sir.

Lawrence D. Kingsley

Good morning, and thank you for joining us. So this is my first conference call as Pall's CEO, and I'm delighted to be with the company. I'm here today with Lisa McDermott, our CFO; and Frank Moschella, Corporate Controller.

We'll review the quarter and our outlook in a moment, but before that, I want to answer some questions that I've received in recurring form since I joined the company in October.

First, why did I come to Pall? Second, what should you expect from me or us in the short and long term? And where do I stand in our externally stated goals for 2013?

So first, what drew me to Pall? The answer is simple: It's a unique prospect. I left IDEX, a great company in really good shape, for the opportunity to build Pall into the company that I believe it can be. I see Pall as a huge long-term value creation opportunity, and I'd like you to think about it that way as well. Clearly, we have work to do. Some of it's foundational in nature, and it's going to take some time. But Pall is already a good company with the potential to be one of the best global technology enterprises.

Opportunities to lead a company that serve great markets with differentiated technology, with strong global reach and a dedicated team, well, those just don't come along every day. As shown on our Slide 5, our business model includes high barriers to entry. More than 2/3 of our sales are consumable purchases that are largely nondiscretionary decisions.

Beyond the business model, add our technology, brand leadership, strong customer relationships and applications expertise and a global sales channel that's arguably the best of any company in our space, these characteristics combined deliver a great profile. And the company has the girth, and that's the presence and the fixed cost structure to grow.

We're going to be working to develop our Pall Enterprise System to drive improved process and operational execution. We should be able to drive significantly more volume through our manufacturing plants, more products through our sales organization and new technology to our customers. And last but not least, we have a terrific balance sheet that provides tremendous flexibility and can be deployed for growth. We also have a substantial amount of cash tied up in working capital.

We will move to a more aggressive capital allocation strategy in the future. But the operative word is strategy. It's not a desire to just become highly acquisitive. Our investments will be thoughtful and disciplined to enhance our offering and to accelerate growth.

So that's why I'm here, and now what are we going to do? And I'm on to Slide 6 on your deck. Focus is one of the other very key and operative words for us. We have some fundamental issues that we need to either address or drive to completion. They all center around people, process and technology. All of our efforts are designed to drive improvements in consistency and operating performance.

First, we're evaluating our organization’s structure, have already reworked our executive incentive plans. Executive compensation with the recent change is now based on multiple metrics to better align our leadership with growing the company, executing our focused agenda and driving shareholder return.

Second, we're building our corporate business development team to establish core acquisition capability, but also to augment Pall's organic strategies in the most attractive end markets. We'll be investing in the skills necessary to integrate these new acquisitions as well. In the short term, you can expect that we'll only acquire opportunistically where we intend to operate the new business with pre-existing leadership. And given that, we'll continue to accumulate cash and execute our repurchase program as previously announced. We'll also be enhancing our capabilities to tap into the faster growing regions. We're currently shifting resources from mature to expanding economies.

So those are the key initiatives around people. Now in terms of process, we've spoken externally about our global ERP system project. Europe and Asia are up and running now. We'll be bringing the Americas online by the end of the fiscal year. However, we need to develop the architecture of a business system that the ERP system is the enabler for. Our business system, or what we again will now refer to as the Pall Enterprise System, will be the means for how we drive process improvement, customer relationship improvement and shareholder return.

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