Pall Corporation (PLL) reported third-quarter fiscal 2011 earnings per share from continuing operations of 60 cents, below the Zacks Consensus Estimate of 71 cents but above the prior-year earnings per share of 58 cents.
Revenue
Total revenue in the quarter increased by 15.2% year over year to $709.8 million, including positive impact from foreign currency translation of 4.5%. Orders increased over 10%, with Europe witnessing double-digit growth in order. At quarter’s end, total backlog for Pall Corporation was up by 25%.
Segment Revenue
Segment wise, the company’s revenue in Life Sciences segment climbed 11.8% in local currency to $368.7 million and in Industrial segment was up 9.5% in local currency to $341.1 million.
Within Life Sciences, Biopharmaceuticals sales were up 16.0%, benefiting primarily from growth in the biotech, vaccine and plasma industries. Pharmaceutical, consumables and laboratory sales increased substantially during the quarter. Medical sales were up 5%, driven primarily by increased sales of hospital critical care, OEM and blood filtration products. Food & Beverage were up 11.8% due to the adoption of new products and applications.
Within Industrial segment, Aeropower revenue jumped 10.8%, led by strong machinery and equipment demand in mining and automotive in-plant. The company witnessed a 12.5% increase in commercial Aerospace sales, while sales of military Aerospace declined by 16% during the quarter leading to a 3.1% fall in overall Aerospace sales. Energy & Water revenue climbed 10.1% due to an increase in fuels & chemicals, power generation and municipal water sales. Microelectronics revenue in the quarter increased by 6.7%, driven by strong performance in semiconductor market. Demand for consumer electronics, including tablets and smart phones, was strong during the quarter.
Gross margin in the quarter was 49.9% compared with 50.9% in the third quarter of fiscal 2010.
Life Sciences operating margin increased by 100 bps year over year, driven by increased sales and supported by cost control activities. Industrial segment operating margin was 14.8%, down 90 bps year over year.
Balance Sheet and Cash Flow
Cash and cash equivalents was $491.5 million with long-term debt of $486.6 million and shareowner’s equity of $1,474.7 million.
Netcash flow from operations was $281 million compared with $257.0 million in prior-year quarter.
Outlook
Strong performance in the third quarter leads the company to believe that it will achieve the higher end of its fiscal 2011 pro forma EPS guidance of $2.80 to $2.90.
With well laid off growth plans and increasing demand for its technologies, Pall Corporation is well positioned to derive significant benefit as the economic conditions continue to strengthen. The company enjoys above-average financial returns and reasonable growth prospects as it leverages its highly engineered technology, reliable global distribution, high share in market niches, long and close working histories with customers, few competitors and solid product quality supplemented by technical service.
Pall’s Aeropower business is significantly benefited from the emerging markets, particularly in Asia. Key drivers include increasing passenger air miles flown, a 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, changes 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.
Based in New York, Pall Corporation was incorporated in July 1946. Along with its subsidiaries, Pall Corporation is a leading supplier of filtration, separation and purification technologies, and uses its engineering capability and fluid management expertise.
We currently maintain our Neutral rating on Pall Corporation for the long term, with a Zacks #2 Rank (short-term Buy recommendation) over the next one-to-three months.
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