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Pall Corporation (PLL - Analyst Report) reported fiscal second-quarter 2014 (ended Jan 31, 2014) pro forma earnings of 82 cents a share, 2.5% above the Zacks Consensus Estimate of 80 cents. Earnings for the quarter also beat the prior-year quarter's earnings of 73 cents a share by 12%. The reported earnings per share (EPS) include a 4 cents negative impact of foreign currency translation.

Despite economic headwinds in some of Pall's industrial end markets, the company reported profits attributable primarily to improved operational execution and favorable impact of structural cost actions.

Revenues

Total revenue in the quarter increased 2.2% year over year to $677.0 million, primarily attributable to the modest Life Sciences sales and an improvement in the Industrial business. However, it marginally fell short of the Zacks Consensus Estimate of $678 million. 

Segment Revenues

The Life Sciences segment revenues climbed 8% in local currency to $353 million in the reported quarter. This increase was driven by a 9% rise in Biopharmaceuticals, which in turn was aided by developments in the single-use systems business and a 7% improvement in Medical, driven by strong sales to original equipment manufacturers (OEM), especially in its Medistad division which was acquired recently. Also, the demand for the company’s water solutions for hospitals remained strong in the quarter. Sales in the Food & Beverage division remained flat year over year.

Revenues for the quarter in the Industrial segment remained flat year over year in local currency at $324 million. The revenues were impacted by lower sales in one of its three sub-divisions. Aerospace sales were down 12% in local currency due to unfavorable comparisons in the last year.

However, this decline was partially offset by a 19% increase in the Microelectronics division driven by new business awards and strong performance across regions. The company’s Process Technologies business remained flat at local currency.

Margins        

Gross margin in the quarter contracted 70 basis points to 50.9% of sales. However, the operating margin increased to 18.2% in the quarter from 17.0% in the prior-year quarter. Increase in operating margin was attributable to lower selling, general and administrative expenses.     

Cash Flow and Balance Sheet

Exiting the quarter, cash and cash equivalents were $951.8 million down from $970.2 million at the end of Jan 31, 2013.

Net cash from operating activities for the 6 months period ended on Jan 31, 2014 was $205.6 million, up significantly by 130% from $89.4 million as on Jan 31, 2013. The increase primarily reflects benefits from the company’s efficient working capital management in the quarter and one-time tax payments in the prior year.

Capital expenditure for the 6 months period was $34.7 million, while the company paid $58.4 million in dividends.

Pall’s free cash flow for the six months period stood at $170.9 million compared to $47.0 million on Jan 31, 2013.

Outlook

Pall narrowed its guidance for fiscal 2014 to include the acquisition cost of ATMI LifeSciences and the negative impact of foreign currency translation. It now expects the pro forma EPS to lie in the range of $3.35 and $3.45.  Earlier, the company had expected fiscal 2014 EPS to grow about 9%-15% over $3.04 EPS reported for fiscal 2013.

Zacks Rank

Pall has a Zacks Rank #3 (Hold).

Performance of some other stocks in the Pollution Control industry

Donaldson Company, Inc. (DCI - Snapshot Report) reported fiscal second-quarter 2014 (ended Jan 31, 2013) earnings of 39 cents per share, beating the Zacks Consensus Estimate of 36 cents.

Calgon Carbon Corporation (CCC - Analyst Report) reported fourth-quarter 2013 earnings of 20 cents per share compared with 16 cents per share in the year-ago quarter. The quarterly results beat the Zacks Consensus Estimate by a penny.

Tetra Tech Inc (TTEK - Analyst Report) reported fiscal first-quarter 2014 (ended Dec 29, 2013) earnings of 42 cents per share, beating the Zacks Consensus Estimate of 38 cents.

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