Life Technologies Corporation (LIFE) reported earnings per share (“EPS”) of 72 cents in the first quarter of fiscal 2012 compared with 50 cents in the year-ago period. However, after taking into account certain one-time items, adjusted EPS came in at 99 cents, ahead of both the Zacks Consensus Estimate of 93 cents and the year-ago quarter’s adjusted EPS of 85 cents.
Revenues increased 5% year over year (2% at constant exchange rates or CER) to $939 million, surpassing the Zacks Consensus Estimate of $921 million. The performance was marked by strong growth in the Ion Torrent franchise.
On a regional basis, revenue growth of 2% was witnessed across Europe, Asia-Pacific clocked 8% and Japan 7% while the Americas remained flat. Life Technologies is successfully pushing sales from the eCommerce platform, through which more than 50% of the transactions are processed. During the reported quarter revenue from orders transacted through this channel climbed 6%.
Segments
Life Technologies has modified its reporting and now books revenues under Research Consumables, Genetic Analysis and Applied Sciences. These three divisions recorded revenues of $420 million (up 4% year over year or up 1% at CER), $356 million (up 7% or 4% at CER) and $162 million (up 4% or 3% at CER), respectively, during the quarter.
Research Consumables witnessed growth in cell culture workflow products, endpoint PCR products and molecular and cell biology consumables. Genetic Analysis sales were driven by robust growth of Ion Torrent and CE products, partially offset by lower qPCR royalties and lower sales of SOLiD products. At Applied Sciences, sales bounded on the back of strong uptake of bioproduction, forensics, animal health and food safety products.
Margin Trends
Adjusted gross margin during the reported quarter expanded 30 basis points (bps) to 66.6% due to the rollout of currency hedges, realized prices and increased manufacturing productivity, partially offset by higher Ion Torrent instrument sales and lower royalty revenue.
To prepare itself for the challenging scenario, Life Technologies over the past few quarters has been targeting reduction in operating expenses. Accordingly, adjusted operating margin expanded 200 bps to reach 30.2% in the reported quarter.
Balance Sheet
Life Technologies exited the quarter with $263.6 million in the form of cash and short-term investments, lower than $881.9 million at the end of December 2011 due to one-time payments such as the Ion milestone payment of $193 million, the retirement of a final convertible bond of $450 million, $185 million of share repurchases and annual employee bonus payment.
Free cash flow during the quarter was $79 million ($98.4 million at the end of the previous quarter) with $104 million of cash flow from operating activities and $25 million of capital expenditure. The company’s debt burden declined to $2.3 billion from $2.75 billion at the end of fiscal 2011. With return on invested capital of 9% at the end of the quarter, Life Technologies is targeting the 10% level by the end of 2012.
Guidance
Life Technologies reiterated its outlook for 2012. The company still expects organic revenue growth of 2-4%, resulting in adjusted EPS of $3.90-$4.05.
Our Take
We are encouraged by the company’s performance in the reported quarter amidst macroeconomic challenges and constrained budgets from customers. Life enjoys a strong position in the life sciences market. The company prefers to maintain a cautious but optimistic outlook for the remainder of the year. The impact of the economic conditions on Life Technologies’ peer Thermo Fisher Scientific (TMO) will be reflected in its earnings, scheduled to be released today before the market opens.
Life Technologies experienced strong growth in its Ion Torrent franchise, which drove Genetic Analysis sales. The company is also progressing on its next-generation sequencing technology. We are also impressed with the cost control initiatives undertaken by the company that led to margin expansion during the quarter.
Over the long term, we have a Neutral recommendation on Life Technologies. The stock retains a Zacks #3 Rank (Hold) in the short term.
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