Life Technologies Corporation (LIFE) reported an EPS of 37 cents in the fourth quarter of 2010 compared to 26 cents in the year-ago period. However, after adjusting for certain one-time items, the EPS was 90 cents, surpassing the Zacks Consensus Estimate of 86 cents and 13% higher than 80 cents in the year-ago quarter. For fiscal 2010, adjusted EPS came in at $3.55, beating the Zacks Consensus Estimate of $3.51 and the previous year’s $3.04.
Growth in all the divisions of Life Technologies helped adjusted revenues for the quarter increase 7% year over year to $934 million, ahead of the Zacks Consensus Estimate of $928 million. Excluding the impact of currency, acquisitions and divestitures, revenues grew 5%. For the full year, the company reported a 9% growth in adjusted revenue to $3.6 billion, in line with the Zacks Consensus Estimate.
On a geographical basis, barring Japan where revenues declined 4% compared to the fourth quarter of fiscal 2010, revenue growth was witnessed across all other regions: Europe – 3%, Asia-Pacific – 12% and the Americas – 7%.
Although revenues increased 7% during the quarter, EPS growth was higher by 13% due to an improvement in operating margin (up 50 basis points to 26.3%), lower interest expense (23.7%), a 58% rise in interest income, lower effective tax rate (21% versus 26.2%), partially offset by a 2.1% rise in the share count. While gross margin declined marginally by 40 basis points due to a minor impact from mix, improvement in operating margin was driven by acquisition-related synergies.
Life Technologies was able to reach the targeted $175 million in annualized synergies resulting from the Applied Biosystems integration one year ahead of schedule. Moreover, the company is undertaking necessary steps to achieve another $20 million in synergies. For fiscal 2011, operating margin came in at 28.7%, up 210 basis points from the previous year. Life Technologies plans to implement better manufacturing and supply-chain efficiencies, and fixed-cost leverage with the target to achieve operating margin of over 31% by the end of 2013.
Life Technologies exited the quarter with $854.8 million in the form of cash and short-term investments, 31.9% higher than $648.1 million at the end of December 2009.
Segments
Life Technologies earns revenues primarily from three divisions – Molecular Biology Systems, Genetic Systems and Cell Systems, which recorded adjusted revenues of $445 million (annualized growth of 2%), $246 million (up 11%) and $238 million (up 11%), respectively. Organic revenue growth in the Molecular Biology Systems, the largest segment at Life Technologies, declined 1% on account of difficult comparisons due to the previous year’s H1N1 related sales. Excluding this impact, there was an organic growth of 4%.
Double-digit growth in the next generation sequencing and forensics along with mid-single digit growth of capillary electrophoresis sequencing boost Genetic Systems revenues. Cell Systems witnessed strong demand across the portfolio, including double digit growth in bioproduction and the Dynal beads business.
Guidance
Life Technologies provided its outlook for 2011. The company expects its organic revenues to grow in mid-single digits resulting in adjusted EPS of $3.80–$3.95. The Zacks Consensus Estimate of $3.86 is within this range.
Recommendation
Life Technologies enjoys a strong position in the life sciences market and we believe robust performance from its core business along with new product launches will help drive revenues going forward. However, challenges remain in the form of integration risks, increased competition and fall in demand in an economic slump.
We are currently ‘Neutral’ on the stock.
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