Pall Corporation (PLL) recorded a strong second-quarter fiscal 2011 results, reporting earnings per share from continuing operations of 64 cents, above the Zacks Consensus Estimate of 57 cents. On a year-over-year basis, earnings per share were up 52%.
Revenue
Total revenue in the quarter increased by 15.1% year over year to $645.2 million, including negative impact from foreign currency translation of 0.6%. The revenue reported by the company was above the Zacks Consensus Estimate of $607 million.
Segment wise, the company’s revenue in Life Sciences segment climbed by 14.0% in local currency to $334.2 million and in Industrial segment was up 17.7% in local currency to $311.0 million.
Within Life Sciences, Biopharmaceuticals sales were up 23.6%, benefiting primarily from growth in the biotech, vaccine and plasma industries. Consumables, systems and laboratory sales also increased substantially during the quarter. Medical sales were up 3.3%, driven primarily by increased hospital critical care sales and sales of OEM. Food & Beverage were up 7.5%, led by adoption of new products and geographic expansion.
Within Industrial segment, Aeropower revenue jumped by 11.6%, led by strong machinery and equipment demand in mining and primary metals industries. The company saw increased sales in commercial, while sales of military Aerospace remained flat during the quarter. Energy & Water revenue increased by 21.0% due to an increase in fuels & chemicals, power generation and municipal water sales. Microelectronics revenue in the quarter increased by 21.4%, driven by increased utilization rates by chip producers and growth in demand for electronics.
Gross margin in the quarter was 51.5% compared with 50.7% in the second quarter of fiscal 2010.
Life Sciences operating margin increased by 200 bps year over year, driven by increased sales and supported by cost control activities. Industrial segment operating margin was 15.4%, up 650 bps year over year.
Balance Sheet and Cash Flow
Cash and cash equivalents was $435.3 million with long-term debt of $485.6 million and shareowner’s equity of $1,355.4 million.
Net cash flow from operations was $155.5 million and capital expenditures were $59.9 million during the quarter.
Outlook
For fiscal 2011, the company expects pro forma EPS to be in the range of $2.80 to $2.90, including benefit from foreign currency translation of $0.09.
With a well laid off growth plans and increasing demand for its technologies, Pall Corporation is well positioned to derive significant benefit as the economic conditions continues 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 derives significant benefit 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. In which 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.
Pall Corporation, based in New York, 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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