PerkinElmer Beats on Lower Profit

PerkinElmer (PKI - Analyst Report) reported first-quarter 2012 adjusted (excluding one-time expenses) earnings per share of 43 cents exceeding the corresponding Zacks Consensus Estimate of 41 cents as well as the year-ago earnings per share of 35 cents.

Net income from continuing operations was $22.1 million, or 19 cents per share, in the first quarter versus net income of $27.3 million, or 24 per share in the prior-year quarter. The results for the reported quarter include non-cash expenses pertaining to takeovers in 2011.

Revenues

Revenues from continuing operations stood at $510.9 million in the reported quarter, up 14% year over year, beating the Zacks Consensus Estimate of $509 million.

Segment-wise Revenue

Sales from the Human Health segment stood at $254 million, up 26% (up 9% on an organic basis) year over year. Revenues from the Environmental Health segment amounted to $256.9 million, up 5% (up 3% on an organic basis).

Margins

Adjusted gross margin was 49.7% in the first quarter, higher than 47.4% in the prior-year quarter. Adjusted operating margin was 15.3%, up 160 basis points on a year-over-year basis.

Adjusted operating margin at the Human Health segment was 20.4%, up 200 basis points year over year. Adjusted operating margin at the Environmental Health segment was 14.4%, up 30 bps from the year-ago quarter.

Balance Sheet

Cash and cash equivalents amounted to $144.7 million as of April 1, 2012, down 65.2% year over year. Long-term debt was $934 million, up 81.7%.

Outlook

PerkinElmer projects reported earnings per share in a band of $1.27 to $1.32 (earlier $1.22 to $1.28). The company expects adjusted earnings per share of about $2 to $2.05 (earlier $1.98 to $2.04). PerkinElmer reiterated its guidance for organic revenue to increase in the mid-single digits.

PerkinElmer has established itself as a market leader, particularly in the genetic screening segment, and holds one of top two market share positions in several important subsets of the life sciences technology and genetic screening businesses.

The company continues to execute well across all its product lines aided by rebounding markets and cost containment efforts. PerkinElmer’s transfer of select manufacturing to China has expanded its operating margins. The company has increased its productivity and improved product mix in favor of higher value added products, resulting in higher operating margins.

PerkinElmer, however, operates in a highly competitive industry characterized by rapid technological change and evolving industry standards. As a result, the company must make large investments in R&D in order to retain a competitive pipeline. PerkinElmer competes with Thermo Fisher Scientific (TMO - Analyst Report) among others.

PerkinElmer's exposure to poor end market visibility might result in a relatively unattractive risk-reward trade-off for the stock. Our Neutral recommendation is supported by a short-term Zacks #3 Rank (Hold).