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Pall Outpaces Estimates in 4Q

PLL

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Pall Corporation (PLL - Analyst Report) reported fourth-quarter fiscal 2012 earnings per share from continuing operations of 99 cents, up 28.6% from the Zacks Consensus Estimate of 77 cents. Reported earnings were also ahead of the prior-year level of 76 cents a share.

Revenue

Total revenue in the quarter inched up 0.4% year over year to $783.7 million, including a negative impact from foreign currency translation of 5 cents. Sales from continuing operation were $722.4 million, up 6.4% in local currency. Sales in the quarter were affected by weakness in Euro zone and ERP transition issues, which affected shipment of consumables.

Segment Revenue

Segment wise, the company’s revenue in the Life Sciences segment climbed 7.8% in local currency to $334 million while Industrial segment was up 5.2% in local currency to $387.7 million.

Within Life Sciences, Biopharmaceuticals sales were up 16.1%, Food & Beverage sales declined 9.1% while Medical sales grew 1.9% year over year in local currency. Within the Industrial segment, Process Technologies sales increased 3.8%, Aerospace sales surged 20.8% while sales of Microelectronics dipped 1.5%.

Margin

Gross margin in the quarter was 51.5% compared with 49.2% in the fourth quarter of fiscal 2011.

Life Sciences operating margin was 25.7% compared with 23.8% in the prior-year quarter. While Industrial segment operating margin was 17.4% versus 12.5% in the fourth quarter of 2011.

Balance Sheet and Cash Flow

Cash and cash equivalents were $500.2 million with long-term debt of $490.7 million and shareowner’s equity of $1,510.0 million.

Net cash flow from operations was $474.8 million compared with $430 million in the prior-year quarter.

Outlook

The weak macroeconomic condition, especially in Europe, is a matter of concern. Further, the company also expects slower global semiconductor end markets and moderating growth in some of the emerging markets. Based on this concern, the company reduced its lower end of the guidance. Earnings are now expected to be in the range of $5.05 to $5.25 for fiscal 2013.

Pall’s Aeropower business derives significant benefits from the emerging markets, particularly in Asia.  Key drivers include increasing passenger air miles flown, ramp up in US military budgets, new military and commercial aircraft, and demand for new aircraft and mobile construction equipment. In the long run, Pall will likely benefit from several secular trends, such as global infrastructure growth, increasing demand for water filtration systems and continued steady growth in the medical and pharmaceutical markets.

However, change in product mix and product pricing may impact the company’s operating results, particularly with the expansion of the systems business. The company experiences significantly longer sales cycles in systems business with less predictable revenue and no certainty of future revenue streams from related consumable product offerings and services.

Pall currently has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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