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Earnings Preview: Sigma-Aldrich - Analyst Blog

Sigma-Aldrich Corporation ( SIAL ) is slated to report its second-quarter 2012 results before the market opens on Tuesday, July 24. The Zacks Consensus Estimate for the quarter is 97 cents a share, representing an estimated year-over-year increase of 4.30%.

With respect to earnings surprises, Sigma-Aldrich has outperformed the Zacks Consensus Estimate in three of the trailing four quarters and was in line in one. This translated into an average earnings surprise of 2.94% over the past four quarters, implying that it has beaten the Zacks Consensus Estimate by the same measure.

First Quarter Highlights

Sigma-Aldrich posted first-quarter 2012 earnings of 99 cents a share, which was in line with the Zacks Consensus Estimate and outpaced the year-ago earnings of 94 cents per share. The adjusted earnings exclude expenses related to the company's acquisitions of BioReliance Holdings and Research Organics.

Including this cost, earnings came in at 96 cents a share, marginally down from 97 cents in the year-ago quarter. Profit, as reported, fell 1.7% year over year to $117 million.

Revenues rose 5% to $665 million in the reported quarter, ahead of the Zacks Consensus Estimate of $658 million. Acquisitions added 4% to the growth while foreign exchange swings had an unfavorable impact of 2%. The company witnessed growth across its Research Chemicals and Fine Chemicals divisions.

Sigma-Aldrich continues to expect organic growth to be in mid-single-digits in 2012. The acquisitions of BioReliance and Research Organics are expected to boost sales by 6%.

Estimate Revisions Trend

There has not been a significant movement in estimates over the past 90 days. In the past 30 days the analysts have mostly lowered their estimates.

Agreement

In the past 30 days, six out of 14 analysts covering the stock have lowered their estimates for the second quarter while none moved in the opposite direction. Over the last seven days, one analyst has cut estimates for the second quarter with no upward revisions.

Estimates for fiscal 2012 portray a similar trend. Of the 15 analysts covering the stock, six analysts lowered their estimates for the year over the last 30 days while none moved in the opposite direction. There was only one downward revision over the last week for the year with no upward movements.

Magnitude

The Zacks Consensus Estimate for the second quarter has been the same in the last 7 days at 97 cents per share but reduced from 98 cents in the last 30 days. The Zacks Consensus Estimate for fiscal 2012 is $3.98, representing an estimated year-over-year increase of 6.70%.

Our View

Sigma-Aldrich Corporation is a leading life sciences and high technology company. The company develops, manufactures and distributes various biochemicals and organic chemicals.

Sigma's significant investments in sales, marketing and research and development activities are creating demand for its products. The company plans to continue increasing its marketing, business development and R&D focus to fully leverage its sales force. We believe that there will be a ramp-up in future health care R&D spending, which should bode well for the the company's Research segment.

Sigma remains committed to offer healthy returns to its shareholders through cash dividends and share repurchases. Furthermore, Sigma has an attractive return on equity and free cash flow profile.

However, rising costs remain a key concern. We are concerned with higher selling, general and administrative expenses, which are rising due to a pick-up in sales force additions and continued marketing programs. We believe operating expenses will advance as the company increases discretionary spending on items, such as advertising, hampering Sigma's operating margin.

Although Sigma Aldrich foresees improvement in operating margin, driven by internal efficiency programs that the company plans to execute through 2014, we believe more of it would be offset by a higher investment in R&D, geographical expansion and e-commerce.

The company also faces stiff competition from Bayer AG ( BAYRY ) and privately held companies, such as Brenntag AG and VWR Funding Inc. Currently, the shares of Sigma Aldrich maintain a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating.

BAYER A G -ADR (BAYRY): Free Stock Analysis Report

SIGMA ALDRICH (SIAL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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