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Sigma-Aldrich EPS Meets, Cuts View

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Global lab chemical and life sciences company Sigma-Aldrich Corporation posted adjusted earnings of 97 cents per share in the second quarter of 2012, matching the Zacks Consensus Estimate while exceeding the year-ago earnings of 93 cents.

Profit, as reported, inched slightly higher to $115 million (or 94 cents per share) in the quarter from $113 million (or 91 cents per share) a year ago.

Revenues came in at $664 million in the quarter, up 4% year over year, but below the Zacks Consensus Estimate of $673 million. Acquisitions added 6% to the growth while foreign exchange translation had an unfavorable impact of 5%. The company saw growth across its Research Chemicals and Fine Chemicals (“SAFC”) divisions.

Segment-wise Performance

Research Chemical revenues increased 1% on an organic basis to $441 million, coming in at the lower end of the company’s guidance. The segment witnessed strong growth in Asia Pacific and Latin America, but sluggishness in the U.S. and European markets, especially in pharma and academic research, impacted the top-line negatively.

Moreover, management is of the opinion that macroeconomic uncertainties will be seen in the second half of the year as well. Sigma-Aldrich is implementing additional cost control measures to combat the downturn and keep margins intact as Research sales are now expected slowdown.

The company now expects revenues from this segment to exhibit low single-digit organic growth as against the earlier expectation of low-to-mid single-digit growth.

The SAFC business clocked record revenues of $223 million in the quarter, exhibiting an organic growth of 8% from last year. The jump was driven by solid demand in custom pharma and Hitech, which was aided by the opening of a new facility in Taiwan. The company expects this momentum to continue into the second half of the year and reaffirmed its guidance for low double digit organic growth in SAFC.

Financial Position

Sigma-Aldrich exited the quarter with cash and cash equivalents of $572 million, a roughly 14% year over year decline. The company repurchased 0.3 million shares during the quarter at an average price of $71.10. Long-term debt remained flat year over year at $300 million.


Moving ahead, Sigma-Aldrich expects organic growth to be in low-to-mid single digits in 2012, down from the earlier expectation of mid single-digits. Macroeconomic uncertainties might hinder its Research Chemicals business whereas growth in Bioscience and Hitech is expected to drive SAFC sales for the remainder of the year. The acquisitions of BioReliance and Research Organics are expected to boost sales by 6%.

However, since Sigma-Aldrich expects sales from the Research Chemicals business (which constitutes two-third of its revenue) to slowdown in the latter half, it has reduced its earnings guidance for the year. The company now expects adjusted earnings of $3.80 to $3.90 per share in 2012, down from the earlier range of $3.90 to $4.05. BioReliance and Research Organics acquisitions are expected to add roughly 5 cents to 7 cents a share to earnings in 2012.

Our Take

We currently have a long-term Neutral recommendation on Sigma-Aldrich. The company, which competes with Bayer AG (BAYRY - Free Report) and other privately held companies, such as Brenntag AG and VWR Funding Inc., maintains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.

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