Sigma-Aldrich Corp. (SIAL) delivered fourth quarter earnings of 83 cents, which surpassed both the Zacks Consensus Estimate of 80 cents and prior-year earnings per share (EPS) of 80 cents.

The company incurred restructuring costs of 7 cents in the reported quarter leading to reported EPS of 76 cents compared with 75 cents in the year-ago quarter.

In the fiscal year 2010, reported EPS was $3.12. Excluding $0.19 of restructuring and impairment costs, fiscal 2010 adjusted diluted EPS was $3.31, up 16% year over year.  

Revenue

Reported sales in the fourth quarter of 2010 were $582 million, increasing 2% year over year. Excluding a 1% impact from unfavorable currency rates, fourth- quarter organic sales growth was 3%.  The Zacks Consensus Estimate for revenue was $588 million. In fiscal year 2010, revenue was $2.3 billion versus $2.1 billion in fiscal 2009.

Fourth-quarter sales for the company’s Research business grew 3% on a currency-adjusted basis, driven primarily by growth in the Asia Pacific-Latin American markets. Fourth-quarter sales for the company’s SAFC business grew 4% on a currency-adjusted basis, as sales of Supply Solutions, Bioscience and Hitech products reflected stronger demand.

The operating income margin in the fourth quarter was 22.3%. Gross margin of 51.7% was up 160 basis points over the 2009 level.

Specialty Fine Chemicals (“SAFC”) led to revenue growth, resulting in an increase of $171 million. On an organic basis, sales grew 4%.

Revenues in the Research business surged to $411 million and shot up 3% on an organic basis due to an increase in unit volumes.

In the fourth quarter of 2010, each of SIAL’s research business units drove organic sales growth that either exceeded or was equivalent to the growth achieved in the first half of fiscal 2010. This was due to the company’s strong presence in the non-European international markets.

Financial Position

In fiscal year 2010, net cash provided by operating activities was $523 million and freecash flow was $424 million versus $516 million and $396 million, respectively, in fiscal 2009. Capital expenditure was $99 million compared with $120 million in the prior year.

The company repaid $40 million of its debt and returned $177 million to shareholders through share repurchases and an increase of 10% in the quarterly dividend rate. The company’s debt-to-capital ratio climbed 21% at the end of the fourth quarter of 2010 from 25% at the end of the prior year.

Dividend

The board of directors increased the company’s quarterly cash dividend by 12.5% to $0.18 per share.  The dividend is payable on March 15, 2011 to shareholders of record as of March 1, 2011.  

Outlook

For the full-year 2011, the company expects sales to increase in a mid-single digit range, with market conditions similar to 2010. Sales growth is not likely to be significantly impacted if currency exchange rates remain near current levels.

Diluted adjusted EPS forecast (excluding restructuring or other extraordinary special charges) is expected to be $3.45 to $3.60, a 4% to 9% increase over 2010’s adjusted EPS.  Net cash provided by operating activities is expected to exceed $500 million. Free cash flow is expected to exceed $375 million.

The effective tax rate is anticipated to be approximately 30%, including a benefit from the U.S. R&D tax credit comparable to that realized in 2010. Net cash provided by operating activities is expected to exceed $500 million. Capital expenditures are expected to be approximately $125 million.  

We currently maintain a Zacks #3 Rank (short-term Hold recommendation) on Sigma and a long-term Neutral recommendation.

 
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