Pall Corporation Reports First Quarter Results

Wed Nov 28, 2012 5:52pm EST

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Pall Corporation Reports First Quarter Results

Pall Corporation (NYSE:PLL) today reported financial results for the first quarter of fiscal year 2013 which ended on October 31, 2012.

First Quarter Sales and Earnings Overview

Continuing Operations:(1)

First quarter sales were $627.6 million compared to $651.3 million last year, a decrease of 3.6%. Sales in local currency (“LC”) were flat year over year. Diluted EPS were $0.77 in the quarter, compared to $0.51 last year. Pro forma diluted EPS(2) were $0.68 compared to $0.66 last year, an increase of 3.0%. Foreign currency translation negatively impacted first quarter EPS by $0.03.

Total Company:

Diluted EPS were $2.92 in the quarter, compared to $0.59 last year. This includes a gain on the sale of certain assets of the Company’s blood product line.

Larry Kingsley, Pall President and CEO, said, “The first quarter proved to be challenging due to order cancellations and a reduction in customer volume commitment, particularly in three of our industrial global end markets. The emerging country markets are taking a more cautious approach to industrial capital commitment. Our more resilient Life Sciences business held up well driven by 8% growth in the BioPharmaceuticals markets. The team responded well to the situation and is managing to achieve reasonable profitability given the soft industrial segment demand. Structural cost improvement and product rationalization is enabling us to improve margin in the down sales environment.”

Life Sciences – First Quarter Highlights

(Dollar Amounts in Thousands and Discussion of Sales Changes are in Local Currency)
             

Sales:

OCT. 31, 2012 OCT. 31, 2011

%
CHANGE

% CHANGE IN
LC

BioPharmaceuticals $ 202,577 $ 196,012 3.3 7.9
Food & Beverage 49,586 56,019 (11.5 ) (6.8 )
Medical   47,788   49,723 (3.9 ) (0.1 )
Total Life Sciences segment $ 299,951 $ 301,754 (0.6 ) 3.8
 
 
Gross profit $ 175,954 $ 178,213
% of sales 58.7 59.1
Segment profit $ 69,842 $ 79,717
% of sales 23.3 26.4
 

BioPharmaceuticals: Within BioPharmaceuticals, our Pharmaceuticals sales increased nearly 10%. Consumables sales to Pharmaceuticals customers grew about 9%, on strength in the Americas and Asia, while systems sales grew 20%. Continued strength in the biotech market, as well as a 4% contribution from ForteBio, drove consumables sales growth. Laboratory sales were down 2% overall. This reflects the residual impact of supply chain issues in the Americas, partly mitigated by growth in Europe of 17%.

Food and Beverage: Consumables sales were down 3.1%. Excluding the impact of a divestiture in Italy, consumables sales were up slightly. This reflects strong consumables sales growth in the Americas, due in part to Latin America, largely offset by weakness in Europe related to lower beer and wine production levels. Overall systems sales declined 22.5%, reflective of weak capital commitment for systems in the Americas.

Medical: Medical sales were flat on weakness in the OEM market.

Industrial – First Quarter Highlights

(Dollar Amounts in Thousands and Discussion of Sales Changes are in Local Currency)
             

Sales:

OCT. 31, 2012 OCT. 31, 2011

%
CHANGE

% CHANGE IN
LC

Process Technologies $ 198,534 $ 214,285 (7.4 ) (4.0 )
Aerospace 58,435 56,633 3.2 5.0
Microelectronics   70,680   78,590 (10.1 ) (8.3 )
Total Industrial segment $ 327,649 $ 349,508 (6.3 ) (3.5 )
 
 
Gross profit $ 151,129 $ 157,139
% of sales 46.1 45.0
Segment profit $ 52,766 $ 43,635
% of sales 16.1 12.5
 

Process Technologies: Machinery & Equipment sales decreased 9%, reflecting reduced demand. Europe experienced broad-based slowing in this end market. Asian sales performance is off expectations due to slow end market demand in the primary metals and construction sectors, particularly in China. The Americas was also impacted by fulfillment challenges.

Sales in Fuels & Chemicals increased 9% driven by growth in Europe and in Asia. Growth in the Americas was hampered by weakness in the refinery sector.

Power Generation sales decreased 4%. Systems sales declined 40% on lower capital spending in all regions; however, consumables sales grew about 8% with all regions contributing.

Municipal Water sales declined 26% on weakness in the Americas and Asia. In the Americas, projects delays and pressure on capital spending continue to impact results. The decline in Asia was reflective of a large wastewater project in the comparative quarter of fiscal year 2012 that did not repeat this year.

Aerospace: Military Aerospace grew 4% in the quarter driven by helicopter program sales in the Americas. Commercial Aerospace sales increased about 7% driven by increased aftermarket sales in the Americas and Europe.

Microelectronics: The year over year result reflects continuing weakness in our customer end markets and low utilization rates at chip producers.

Conclusion/Outlook

Kingsley concluded, “As we factor in Q1 performance and our current order pattern, we expect Life Sciences to continue to perform well, while Industrial will have a difficult year. We believe we are taking a realistic approach to our sales forecast that could improve if emerging market demand returns. However, our customers remain very cautious and are allocating more of the current softening to end market requirements and not to de-stocking within the supply chain. Based on the order pattern and implied sales trend, we now expect pro forma EPS from continuing operations to be in the range of $2.95-$3.15(2).”

Conference Call

On Thursday, November 29, 2012, at 8:30 am ET, Pall Corporation will host a conference call to review these results. The call can be accessed at www.pall.com/investor. The webcast will be archived for 30 days.

About Pall Corporation

Pall Corporation (NYSE:PLL) is a filtration, separation and purification leader providing solutions to meet the critical fluid management needs of customers across the broad spectrum of life sciences and industry. Pall works with customers to advance health, safety and environmentally responsible technologies. The Company’s engineered products enable process and product innovation and minimize emissions and waste. Pall Corporation is an S&P 500 company serving customers worldwide. Pall has been named a “top green company” by Newsweek magazine. To see how Pall is helping enable a greener, safer, more sustainable future, follow us on Twitter @PallCorporation or visit www.pall.com/green.

Forward-Looking Statements

The matters discussed in this release contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Results for the first quarter of fiscal year 2013 are preliminary until the Company's Form 10-Q is filed with the Securities and Exchange Commission on or before December 10, 2012.

Forward-looking statements are those that address activities, events or developments that the Company or management intends, expects, projects, believes or anticipates will or may occur in the future. All statements regarding future performance, earnings projections, earnings guidance, management’s expectations about its future cash needs, dilution from the disposition or future allocation of capital and effective tax rate, and other future events or developments are forward-looking statements. Forward-looking statements are those that use terms such as “may,” “will,” “expect,” “believe,” “intend,” “should,” “could,” “anticipate,” “estimate,” “forecast,” “project,” “plan,” “predict,” “potential,” and similar expressions. Forward-looking statements contained in this and other written and oral reports are based on management’s assumptions and assessments in light of past experience and trends, current conditions, expected future developments and other relevant factors.

The Company’s forward-looking statements are subject to risks and uncertainties and are not guarantees of future performance, and actual results, developments and business decisions may differ materially from those envisaged by the Company’s forward-looking statements. Such risks and uncertainties include, but are not limited to, those discussed in Part I–Item 1A.–Risk Factors in the 2012 Form 10-K, and other reports the Company files with the Securities and Exchange Commission, including: the impact of legislative, regulatory and political developments globally; the impact of the uncertain global economic environment; the extent to which adverse economic conditions may affect the Company's sales volume and results; demand for our products and business relationships with key customers and suppliers, which may be impacted by their cash flow and payment practices; delays or cancellations in shipments; the Company's ability to develop and commercialize new technologies or obtain regulatory approval or market acceptance of new technologies; increase in costs of manufacturing and operating costs; the Company's ability to achieve and sustain the savings anticipated from its structural cost initiatives; the Company’s ability to meet its regulatory obligations; changes in product mix, market mix and product pricing, particularly relating to the expansion of the systems business; the Company's ability to successfully complete the Company's business improvement initiatives, which include supply chain enhancements and integrating and upgrading the Company's information systems; the effect of a serious disruption in the Company's information systems; fluctuations in the Company's effective tax rate; the Company’s ability to enforce patents and protect proprietary products and manufacturing techniques; the Company's ability to successfully complete or integrate any acquisitions; volatility in foreign currency exchange rates, interest rates and energy costs and other macroeconomic challenges currently affecting the Company; the impact of pricing and other actions by competitors; the effect of litigation and regulatory inquiries associated with the restatement of the Company's prior period financial statements; the Company's ability to attract and retain management talent or the loss of members of its senior management team; and the effect of the restrictive covenants in the Company's debt facilities. Factors or events that could cause the Company's actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company makes these statements as of the date of this disclosure and undertakes no obligation to update them, whether as a result of new information, future developments or otherwise.

Management uses certain non-GAAP measurements to assess the Company’s current and future financial performance. The non-GAAP measurements do not replace the presentation of the Company’s GAAP financial results. These measurements provide supplemental information to assist management in analyzing the Company’s financial position and results of operations. The Company has chosen to provide this information to facilitate meaningful comparisons of past, present and future operating results and as a means to emphasize the results of ongoing operations.

Notes to Release:

(1)   As discussed in our news release dated August 1, 2012, the Company completed the sale of certain assets of its Blood product line to Haemonetics Corporation (NYSE:HAE). Accordingly, discussion of results from continuing operations excludes the Blood product line. Tables appended to this release are presented on a continuing operations basis (with reconciliation to include the discontinued Blood product line). Further, Life Sciences and Industrial segment profit for fiscal year 2012 have been restated to reflect a change in the allocation of certain shared expenses on a continuing operations basis.
 
(2)

Pro forma diluted EPS are defined as Reported diluted EPS on a continuing operations basis adjusted for “Discrete Items”. Discrete items are defined as ROTC and other items that are deemed to be non-recurring in nature and/or not considered by management to be indicative of underlying operating performance. A reconciliation of Reported to Pro forma amounts can be found in the Reconciliation of Pro forma Earnings table accompanying this release.

 
(3) Reflects assets disposed of related to the sale of the Blood product line.
 
(4) Cash flows are inclusive of discontinued operations.
 
 
PALL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
         
OCT. 31, 2012 JUL. 31, 2012
 
Assets:
 
Cash and cash equivalents $ 909,680 $ 500,274
Accounts receivable 603,771 655,436
Inventories 398,641 364,766
Other current assets 184,740 195,464
Assets held for sale - 136,517 (3)
Total current assets 2,096,832 1,852,457
 
Property, plant and equipment 771,242 750,993
Other assets 652,354 744,442
Total assets $ 3,520,428 $ 3,347,892
 
Liabilities and Stockholders' Equity:
 
Short-term debt $ 130,474 $ 205,393
Accounts payable, income taxes and other current liabilities 579,636 646,735
Total current liabilities 710,110 852,128
 
Long-term debt, net of current portion 488,683 490,706
Deferred taxes and other non-current liabilities 518,826 495,023
Total liabilities 1,717,619 1,837,857
 
Stockholders' equity 1,802,809 1,510,035
Total liabilities and stockholders' equity $ 3,520,428 $ 3,347,892
 
 
PALL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
       
 
FIRST QUARTER ENDED
OCT. 31, 2012 OCT. 31, 2011
 
Net sales $ 627,600 $ 651,262
Cost of sales   300,517     315,910  
Gross profit   327,083     335,352  
% of sales 52.1 % 51.5 %
Selling, general and administrative expenses 195,965 208,180

% of sales

31.2 % 32.0 %
Research and development   22,575     19,521  
Operating profit 108,543 107,651
% of sales 17.3 % 16.5 %
Restructuring and other charges ("ROTC") (a) 4,274 22,984
Interest expense, net (c)   (568 )   5,945  
Earnings from continuing operations before income taxes 104,837 78,722
Provision for income taxes (b)   15,672     19,070  
Net earnings from continuing operations $ 89,165 $ 59,652
Earnings from discontinued operations, net of income taxes   250,307     9,803  
Net Earnings $ 339,472   $ 69,455  
 
Average shares outstanding:
Basic 114,589 115,824
Diluted 116,097 117,224
 

Earnings per share:

From continuing operations:
Basic $ 0.78 $ 0.52
Diluted $ 0.77 $ 0.51
 
From discontinued operations:
Basic $ 2.18 $ 0.08
Diluted $ 2.15   $ 0.08  
 
Total
Basic $ 2.96 $ 0.60
Diluted $ 2.92   $ 0.59  
 

Pro forma diluted earnings per share:

From continuing operations $ 0.68   $ 0.66  
 
 
PALL CORPORATION
RECONCILIATION OF PRO FORMA EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
         
 
FIRST QUARTER ENDED
OCT. 31, 2012 OCT. 31, 2011
 

Pro forma earnings reconciliation from Continuing Operations

Net earnings from continuing operations as reported $ 89,165 $ 59,652
Discrete items:
ROTC, after pro forma tax effect (a) 3,840 17,756
Tax adjustments (b) (10,193 ) -

Interest adjustments, after pro forma tax effect (c)

  (4,268 )   -
Total discrete items   (10,621 )   17,756
Pro forma earnings from continuing operations $ 78,544   $ 77,408
 
FISCAL YEAR
FIRST QUARTER ENDED 2013 (ESTIMATE
OCT. 31, 2012 OCT. 31, 2011 AT MIDPOINT)
 
Diluted earnings per share from continuing operations as reported $ 0.77 $ 0.51 $ 3.14
Discrete items:
ROTC, after pro forma tax effect (a) 0.03 0.15 0.03
Tax adjustments (b) (0.09 ) - (0.09 )

Interest adjustments, after pro forma tax effect (c)

  (0.03 )   -   (0.03 )
Total discrete items   (0.09 )   0.15   (0.09 )
Pro forma diluted earnings per share from continuing operations $ 0.68   $ 0.66 $ 3.05  
 

Pro forma earnings measures exclude the items described below as they are deemed to be non-recurring in nature and/or not considered by management to be indicative of underlying operating performance. The pro forma tax effects disclosed were calculated using applicable entity-specific U.S. federal and/or foreign tax rates.

(a) ROTC in the quarter ended October 31, 2012 of $4,274 ($3,840 after pro forma tax effect of $434) primarily includes severance costs related to the Company's structural cost improvement initiatives.

ROTC in the quarter ended Oct. 31, 2011 of $22,984 ($17,756 after pro forma tax effect of $5,228) includes expenses related to the Company's cost reduction initiatives, primarily in the Industrial segment and certain employment contract obligations, aggregating $32,592 ($23,905 after pro forma tax effect of $8,687) partly offset by a gain on sale of an investment.

(b) Provision for income taxes in the quarter ended October 31, 2012 includes a net benefit of $10,193 related to the resolution of a U.S. tax audit partially offset by the tax cost of repatriation of foreign earnings.

(c) Interest expense, net, in the quarter ended October 31, 2012 includes the reversal of accrued interest of $6,704 ($4,268 after pro forma tax effect of $2,436) related to the resolution of a U.S. tax audit as described in (b) above.

 
PALL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
 
 
  FIRST QUARTER ENDED
OCT. 31, 2012

(4)

    OCT. 31, 2011

(4)

 
Net cash provided by operating activities $ 38,958   $ 78,356  
 
Investing activities:
 
Acquisitions of businesses - (28,000 )
Capital expenditures (23,477 ) (56,649 )
Proceeds from sale of assets 535,680 19,837
Other   (1,144 )   (4,364 )
Net cash provided/(used) by investing activities   511,059     (69,176 )
 
Financing activities:
 
Dividends paid (23,979 ) (20,125 )
Repayments of notes payable and long-term borrowings (75,034 ) (70,097 )
Purchase of treasury stock (75,000 ) -
Other   18,307     10,291  
Net cash used by financing activities   (155,706 )   (79,931 )
 
Cash flow for period 394,311 (70,751 )
Cash and cash equivalents at beginning of year 500,274 557,766
Effect of exchange rate changes on cash   15,095     (11,621 )
Cash and cash equivalents at end of period $ 909,680   $ 475,394  
 
 

Free cash flow:

Net cash provided by operating activities $ 38,958 $ 78,356
Less capital expenditures   23,477     56,649  
Free cash flow $ 15,481   $ 21,707  
 
 
PALL CORPORATION
SUMMARY SEGMENT PROFIT BY SEGMENT FROM CONTINUING OPERATIONS
(Unaudited)
(Dollar Amounts in Thousands)
       
 
FIRST QUARTER ENDED
OCT. 31, 2012 OCT. 31, 2011
 

Life Sciences

Sales $ 299,951 $ 301,754
Cost of sales   123,997     123,541  
Gross profit 175,954 178,213
% of sales 58.7 % 59.1 %
 
Selling, general and administrative expenses 90,905 87,066
% of sales 30.3 % 28.9 %
Research and development   15,207     11,430  
Segment profit $ 69,842   $ 79,717  
% of sales 23.3 % 26.4 %
 

Industrial

Sales $ 327,649 $ 349,508
Cost of sales   176,520     192,369  
Gross profit 151,129 157,139
% of sales 46.1 % 45.0 %
 
Selling, general and administrative expenses 90,995 105,413
% of sales 27.8 % 30.2 %
Research and development   7,368     8,091  
Segment profit $ 52,766   $ 43,635  
% of sales 16.1 % 12.5 %
 

Consolidated:

Segment profit $ 122,608 $ 123,352
Corporate services group   14,065     15,701  
Operating profit 108,543 107,651
% of sales 17.3 % 16.5 %
ROTC 4,274 22,984
Interest expense, net   (568 )   5,945  
Earnings from continuing operations before income taxes $ 104,837   $ 78,722  
 
 
PALL CORPORATION
SUPPLEMENTAL SEGMENT SALES INFORMATION BY MARKET AND REGION
FROM CONTINUING OPERATIONS
(Unaudited)
(Dollar Amounts in Thousands)
         
EXCHANGE % CHANGE
RATE IN LOCAL

FIRST QUARTER ENDED

OCT. 31, 2012 OCT. 31, 2011 % CHANGE IMPACT CURRENCY
 

Life Sciences

|-------------- Increase/(Decrease) -------------|
By Market:
BioPharmaceuticals $ 202,577 $ 196,012 3.3 $ (8,916 ) 7.9
Food & Beverage 49,586 56,019 (11.5 ) (2,602 ) (6.8 )
Medical   47,788   49,723 (3.9 )   (1,871 ) (0.1 )
Total Life Sciences $ 299,951 $ 301,754 (0.6 ) $ (13,389 ) 3.8
 
By Region:
Americas $ 97,798 $ 90,724 7.8 $ (736 ) 8.6
Europe 143,665 153,878 (6.6 ) (11,459 ) 0.8
Asia   58,488   57,152 2.3   (1,194 ) 4.4
Total Life Sciences $ 299,951 $ 301,754 (0.6 ) $ (13,389 ) 3.8
 
 

Industrial

By Market:
Process Technologies $ 198,534 $ 214,285 (7.4 ) $ (7,074 ) (4.0 )
Aerospace 58,435 56,633 3.2 (1,051 ) 5.0
Microelectronics   70,680   78,590 (10.1 )   (1,361 ) (8.3 )
Total Industrial $ 327,649 $ 349,508 (6.3 ) $ (9,486 ) (3.5 )
 
By Region:
Americas $ 104,673 $ 109,065 (4.0 ) $ (737 ) (3.4 )
Europe 98,677 99,113 (0.4 ) (7,730 ) 7.4
Asia   124,299   141,330 (12.1 )   (1,019 ) (11.3 )
Total Industrial $ 327,649 $ 349,508 (6.3 ) $ (9,486 ) (3.5 )

Pall Corporation
Brent Jones
Vice President – Finance
Telephone: 516-801-9848
Email: investor_relations@pall.com

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