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Pall Corporation (PLL - Analyst Report) reported its second quarter 2013 results, with earnings of 73 cents, missing Zacks Estimate of 75 cents by 2.37%. The results, however, surpassed the prior year level of 67 cents by 9% and also the prior quarter’s EPS of 68 cents. The reported EPS bears a negative impact from foreign currency translation amounting 4 cents.

Revenue

Total revenue in the quarter inched up 3.5% year over year to $662.5 million including sales in local currency, that were up by 3.9% year over year. Revenue was above the Zacks Consensus Estimate of $636 million.

Segment Revenue

Segment wise, the company’s revenue in the Life Sciences segment climbed 10.6% in local currency to $329.2 million while Industrial segment was down 1.9 % year over year in local currency to $333.3 million.

Within the Life Sciences segment, Biopharmaceuticals sales were up 9%. Continued strength in the biotech market and a strong contribution from ForteBio, drove sales growth.

Food & Beverage sales rose 7.6% reflecting strong sales growth in the Americas, due to Latin America, accompanied by robust growth in Asia. However, Europe continued to be affected by lower beer and wine production levels. Overall systems sales grew approximately 20%, attributable to contributions from all regions.  

Medical sales recorded the highest growth of 21.4% year over year in local currency. Revenue in the segment was driven by strong sales in the OEM market and blood media. In addition, Hospital Critical Care also contributed to the top line growth.  

Within the Industrial segment, process technologies and micro electronics markets showed a poor performance. Sales in the segment were mainly affected by weakness in the European markets. Discouraging global semiconductor end markets and moderating or low growth in some of the markets of Asia and America also affected the company’s performance.

Process Technologies sales were also down 5.1% and sales of Microelectronics dipped 1.5%. However, this was partially offset by Pall’s Aerospace business which derived significant benefits from the emerging markets and last quarter’s backlogs. Aerospace showed a 16.5% growth in sales year over year.

Margins

Gross margin in the quarter was 51.6% of sales, compared with 52.8% of sales in the second quarter of fiscal 2012. The decline was attributable to unfavorable foreign currency translations.  

Life Sciences operating margin was 25.1% of sales compared with 26.1% of sales in the prior-year quarter, while Industrial segment operating margin was 14.4% of sales versus 14.1% of sales in the second quarter of 2012.

Balance Sheet and Cash Flow

Cash and cash equivalents were $870.2 million with long-term debt of $474.5 million and shareowner’s equity of $1.7 billion.

Net cash flow from operations for six months ended January 31, 2013 was $89.4 million compared with $204 million in the six months of the prior-year. The decline in cash flow was primarily attributable to the divestiture of the Blood product line business to Haemonetics.  

Outlook

The weak macroeconomic condition, especially in Europe and some of the markets in America is a matter of concern. Further, the company also expects slow or moderate overall growth for the year.

Based on this concern, the company has taken some cost reduction initiatives with a focus on the Industrial segment to improve the segment’s performance. Earnings are now expected to be in the range of $2.95 to $3.15 for full fiscal 2013.

Pall currently has a Zacks Rank #3 (Hold) and its immediate competitiors such as Danaher Corp. (DHR - Analyst Report) and Parker Hannifin (PH - Analyst Report) also carry a Zacks Rank #3 (Hold).

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