PerkinElmer Beats; Revises Outlook

PerkinElmer ( PKI - Analyst Report ) reported third quarter 2012 adjusted (excluding one-time expenses) earnings per share of 45 cents, beating the corresponding Zacks Consensus Estimate by a penny.

Net income from continuing operations was approximately $29 million in the quarter (or 25 cents per share), up 3.5% year over year. Net income was $29.6 million, down 19.1% on a year-over-year basis.

Revenues

Revenues improved 12.5% year over year to $509.6 million in the reported quarter and surpassed the Zacks Consensus Estimate of $505 million.

Revenues grew 6% year over year on an organic basis after adjustment for acquisitions which contributed 8% to the growth in revenues in the quarter and a 3% drop accounting for negative impact of foreign currency fluctuation.

Segment Analysis

Human Health segment revenues were $257.2 million, up 24.5% (up 10% on an organic basis) year over year. Revenues from the Environmental Health segment amounted to $252.4 million in the quarter, up 2.5% (up 3% on an organic basis).

Margins

Adjusted gross margin was 48.3% in the third quarter, up marginally 10 basis points year over year. Adjusted operating margin was 15.2%, up 60 basis points on a year-over-year basis.

Adjusted operating margin at the Human Health segment was 21.8% in the quarter, up 180 basis points year over year. Adjusted operating margin at the Environmental Health segment was 12.3%, down 30 basis points from the year-ago quarter.

Adjusted selling, general and administrative expenditure (as a percentage of revenues) came in at 26.8% compared with 27.2% in the prior year quarter while adjusted research and development expenses were 6.3% compared with 6.5% in the year-ago quarter.

Balance Sheet

PerkinElmer exited the third quarter with cash and cash equivalents of $170.8 million, down 31.1 % year over year. Long-term debt increased six fold to $930.9 million. Cash flow from continuing operations declined almost 25% year over year to $113.8 million.

Outlook

PerkinElmer reaffirmed its guidance for organic revenue growth in mid-single digits for 2012. The company increased its forecast for adjusted earnings per share in the range of $2.05 to $2.07 compared with the prior guidance of $2 to $2.05 for 2012. PerkinElmer narrowed its forecast for reported earnings per share in a range of $1.22 to $1.24 compared with the prior guidance in the band of $1.21 to $1.26.

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 would have to 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. However, the company’s operations, both sales and manufacturing, are diversified on a geographic basis. It has emerged as a higher-growth, higher-margin company vis-à-vis its peers. The stock carries a short-term Zacks #2 Rank (Buy).