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PerkinElmer Inc.’s (PKI - Analyst Report) fiscal first quarter 2010 earnings of 31 cents per share (excluding special items) surpassed the Zacks Consensus Estimate by 2 cents and the year-ago earnings (excluding special items) by 5 cents. On a reported basis, the company earned 22 cents per share (from continuing operations) against 13 cents in the year-ago quarter.

Revenues in the reported quarter climbed 7% year over year to $465.1 million. Revenues were favorably impacted by foreign exchange and acquisitions to the tune of 4% and 1%, respectively.

Segment Information

PerkinElmer, which provides scientific instruments, consumables, and services to pharmaceutical, biomedical, environmental testing, chemical, and general industrial markets worldwide, operates in two business segments: Human Health and Environmental Health.

The Human Health segment focuses on developing diagnostics, tools and applications, which help detect diseases earlier and more accurately coupled with the acceleration of the discovery and development of critical new therapies. The Environmental Health segment provides technologies and applications to facilitate the creation of safer products, ensure more secure surroundings and make energy usage more efficient.

In the reported quarter, sales in the Environmental Health segment increased 7% year-over-year to $276.5 million. The segment’s operating profit (excluding special items) came in at $31.9 million, against $28 million in the first quarter of 2009. The Environmental Health business accounted for 59% of the total revenues in the reported quarter.

Within the Environmental Health segment, the company serves the laboratory services, environmental, safety and security, and industrial end-markets. They accounted for 20%, 17%, 15% and 7%, respectively, of total revenues in the reported quarter.

Quarterly sales in the Human Health division climbed 6% year-over-year to $188.6 million. The division’s operating profit (excluding special items) came in at $33 million, as opposed to $27.6 million the year-ago quarter. The Human Health business accounted for 41% of total revenues in the first quarter of fiscal 2010. Within Human Health, PerkinElmer serves the diagnostics and the research end-markets. The former accounted for 24% of total revenues for the quarter while the latter accounted for the balance.

Research and development expenses (excluding special items) climbed 3% year-over-year to $26.6 million. The increase was attributable to the continued investments by the company for developing innovative new products, applications and solutions for customers. Selling, general and administrative expenses (excluding special items) climbed approximately 2% year-over-year to $126.6 million in the reported quarter.

The operating profit (excluding special items) at PerkinElmer climbed 15.8% year-over-year to $55.6 million in the reported quarter.

The company exited the quarter with approximately $347 million of net debt (short and long-term debt less cash). PerkinElmer ended the quarter with approximately $182 million of cash and cash equivalents. Operating cash flow from continuing operations for the first quarter of fiscal 2010 stood at $52.1 million, against $18 million in the year-ago quarter. The increase was mainly on account of a strong working capital performance coupled with the timing of tax payments.

Earnings Outlook

For the full-year fiscal 2010, PerkinElmer lifted its projection for earnings per share from continuing operations (excluding special items). The company now projects earnings in the range of $1.43-$1.48, against the prior forecast of $1.35 to $1.42 per share. The Zacks Consensus Estimate for 2010 is $1.41 per share.

Our Take

Currently we have a Neutral outlook on PerkinElmer. While we are pleased with the company’s strong international presence, which contributes the majority of its revenues, we remain concerned about the competition in the industry, characterized by rapid technological changes and evolving industry standards. Furthermore, even though the company relies on growth by acquisition and has completed several acquisitions over the past few years that have contributed to growth, such a strategy has inherent risks.

Our long-term Neutral stance on PerkinElmer indicates that the stock is expected to perform in line with the overall U.S. equity market over the next 6−12 months. Consequently, we advise investors to retain the stock over the time period.

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