Life Beats, Boosts Outlook

Life Technologies Corporation (LIFE - Analyst Report) reported third quarter earnings of 73 cents per share, well above the Zacks Consensus Estimate of 61 cents. The company reported earnings of 63 cents in the year-ago period.

Strong growth in Europe, Asia-Pacific and Japan helped revenues increase 3% to $805 million. Excluding the impact of currency and the divested LIMS business, revenues grew 5%.

Apart from the Cell Systems division, all other revenue segments at Life recorded an increase in sales. The Molecular Biology Systems division recorded a 5% increase in revenues, which came in at $394 million. Revenues were driven by demand across the portfolio, including continued strong orders for the company’s Influenza A (H1N1)-related products.

Double-digit growth for consumable kits and capillary electrophoresis instruments sold into applied markets like forensics, continued growth of next-generation sequencing systems, as well as low single-digit growth in capillary electrophoresis sold into the life science research market helped boost Genetic Systems revenues, which increased 5% to $216 million.

Cell Systems division revenue declined 3% to $189 million in the third quarter due to declines in media sold to pharmaceutical and biotechnology customers. However, the segment reported significant growth in other product areas such as stem cell-related products and cellular analysis solutions.

The Mass Spectrometry division, which is Life’s joint venture with MDS Analytical Technologies (MDS), contributed $6 million in other income, increasing 2% from the year-ago period. Life entered into an agreement in Sept. 2009 under which it will be selling its share in this joint venture to Danaher Corporation (DHR - Analyst Report) for $450 million. In our view, the sale of this business will allow Life to focus on the high growth molecular and genomics markets.

Gross margin improved 20 basis points (bps) 67%, mainly due to the favorable impact of positive price realization across the portfolio, lower royalty expense and reduced costs as a result of merger synergies, which were partially offset by the negative impact of currency and lower royalty revenues.

Improved gross margins, lower operating expenses as result of synergy realization and other cost reductions helped increase operating margins by 290 bps to 27.3%. The company exited the quarter with $580 million in cash and short-term investments, including $52 million held as restricted cash.

Following the release of strong third-quarter results, the company revised its financial outlook for the year. Life now expects revenues to grow in the high-single-digit range, up from its earlier expectation of mid-single-digit growth. Meanwhile, the company expects earnings in the range of $2.90 - $2.95, up from the earlier guidance of $2.70 - $2.80. The company’s revised guidance exceeds current expectations.

We believe strong performance of the core business and new product launches will help drive revenues going forward. Meanwhile, lower expenses and cost cutting along with increased revenues should help drive the bottom-line.

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