Life Tops, Maintains Guidance – Analyst Blog

Life Technologies Corporation (LIFC) reported first quarter earnings of 87 cents per share, well above the Zacks Consensus Estimate of 80 cents. The company reported earnings of 72 cents in the year-ago period.

 

Strong growth in instruments and consumables helped first quarter revenues increase 13% to $887 million. Excluding the impact of currency, acquisitions, and divestitures, revenues grew 10%.

 

 

All revenue segments at Life recorded an increase in sales during the first quarter. The Molecular Biology Systems division recorded a 13% increase in first quarter revenues, which came in at $432 million. Revenues were driven by growth in the PCR business, robust demand for instruments in the Americas, Asia-Pacific and Japan, and strong sales of reagents across all territories.

 

Double-digit growth in the next generation sequencing and human identification businesses, along with strong sales of capillary electrophoresis instruments and reagents to research and clinical labs, and continued innovation of the SOLiD platform helped boost Genetic Systems revenues, which increased 14% to $238 million during the reported quarter.

 

Meanwhile, we were pleased to see a continued improvement in Cell Systems division revenues, which increased 11% to $214 million in the first quarter. A pick-up in sales to pharmaceutical and biotechnology customers, new product launches, and the timing of large customer orders helped drive performance. Life reported a double-digit growth in bio-production, primary and stem cell systems and the beads based separation unit.

 

On a geographical basis, revenue growth was witnessed across all regions: Europe – 5%, Asia-Pacific – 25%, the Americas – 8% and Japan – 23%.

 

First quarter gross margin improved 160 basis points (bps) to 68.3%, mainly due to the favorable impact of price gains across the portfolio, positive currency impact, manufacturing productivity and reduced costs as a result of merger synergies.

 

Improved gross margins, lower operating expenses as result of synergy realization and other cost reductions helped increase first quarter operating margins by 330 bps to 29.5%.

 

Life exited the quarter with $642 million in cash and short-term investments, including $20 million held as restricted cash.

 

 

Following the release of first-quarter results, Life reiterated its guidance for fiscal 2010. Life expects earnings per share in the range of $3.30−$3.50 on mid-to-high-single digit organic revenue growth. The company said that it is on track to achieve merger-related synergies of $70 million by year end.

 

Life also provided an update on the impact of stimulus funding on revenues. Most of the funds from the National Institutes of Health (NIH) stimulus package are now expected in 2011 instead of the second half of 2010. The revenue opportunity provided by the NIH stimulus funding could be well above $100 million. The company saw about $50 million from stimulus funding in the last half of 2009 and $10 million in the first quarter of 2010.

 

 

We currently have a Neutral recommendation on Life. We believe a strong performance of the core business and new product launches will help drive revenues going forward. Meanwhile, lower expenses and cost cutting along with increased revenues should help drive the bottom line.

 

While we are pleased with Life’s strong performance, the company could face challenges such as integration risks and a further delay in stimulus funding. We also remain concerned about the company’s high level of indebtedness.