Pall Corporation Reports Third Quarter Results

Thu May 30, 2013 5:00pm EDT

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Pall Corporation Reports Third Quarter Results

Pall Corporation (NYSE:PLL) today reported financial results for the third quarter of fiscal year 2013 which ended on April 30, 2013.

Third Quarter and Nine Months Continuing Operations Sales and Earnings Overview (1)

Third quarter sales were $641.2 million compared to $658.0 million last year, a decrease of 3%. Sales in local currency (“LC”) were flat year over year. Diluted EPS were $0.65 in the quarter, compared to $0.60 last year. Pro forma diluted EPS(2) were $0.74, a 21% increase compared to $0.61 a year earlier, including a negative impact of approximately $0.03 from foreign currency translation.

For the nine months, sales decreased 1% year over year. Sales in LC increased 1%. Diluted EPS were $2.13 in the nine months, compared to $1.74 for the same period last year. Pro forma EPS(2) were $2.15, an 11% increase compared to $1.94 a year earlier, including a negative impact of approximately $0.07 from foreign currency translation.

Larry Kingsley, Pall President and CEO, said, “The best way to summarize our performance for the quarter and nine months is that, in the face of continued economic challenges, we are delivering pretty solid returns. This is largely due to improved operational execution and the effect of our structural cost actions.”

 

Life Sciences – Third Quarter Highlights

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

 

Sales:

          APR. 30, 2013       APR. 30, 2012      

%

CHANGE

     

% CHANGE IN

LC

BioPharmaceuticals $ 219 $ 202 9 11
Food & Beverage 53 66 (21 ) (19 )
Medical   54   50 8 10
Total Life Sciences segment $ 326 $ 318 3 5
 
 
Gross profit $ 188 $ 180
% of sales 57.5 56.7
Segment profit $ 81 $ 75
% of sales 24.9 23.7
 

BioPharmaceuticals: Consumables sales grew 15% compared to last year, with growth in all regions and 5% sequentially on continued strength in the biotech sector. The year-over-year sales comparison reflects weakness in the third quarter of fiscal year 2012, due to the effect of our global ERP go-live. Systems sales were down 33% in the quarter, primarily due to large projects in the third quarter of last year.

Food and Beverage: Overall sales were down due to weak capital spending and timing of projects in the Americas and Asia. Consumables sales were up 2% due to geographic expansion.

Medical: Consumables sales increased 10% over last year, with growth in all regions, and were up 2% sequentially. This reflects strong sales year over year in the Hospital Critical Care market and blood media.

 

Industrial – Third Quarter Highlights

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

Sales:

          APR. 30, 2013       APR. 30, 2012      

%

CHANGE

     

% CHANGE IN

LC

Process Technologies $ 187 $ 214 (13 ) (11 )
Aerospace 63 51 25 26
Microelectronics   65   75 (14 ) (10 )
Total Industrial segment $ 315 $ 340 (7 ) (5 )
 
 
Gross profit $ 146 $ 154
% of sales 46.5 45.4
Segment profit $ 46 $ 39
% of sales 14.6 11.6
 

Process Technologies: Consumables sales were down almost 6%, reflecting softness across most end-markets, particularly in Europe and Asia. Systems sales were down 24% on weakness in capital spend and timing of projects.

Aerospace: Aerospace results were driven by particularly strong Commercial performance, with sales up about 40%. Military Aerospace sales were up 14% year over year. The year-over-year sales comparison also reflects the effect of our global ERP go-live last year.

Microelectronics: Sales were down 10% largely due to the continuing weakness in display and data storage end-markets.

Conclusion/Outlook

Kingsley concluded, “While the company is executing well, we’re mindful of the slower global environment that many of our customers are experiencing and now expect full year sales to be flat year over year, excluding impact from foreign currency translation. Full-year pro forma EPS is now expected to be in the range of $2.95 to $3.05(2), and within our previously discussed range, but narrowed to the bottom half. If consumables sales are more robust than currently anticipated for the remainder of the fiscal year, we should convert to earnings quite well.”

Conference Call

On Friday, May 31, 2013, 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 presentation contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Results for the third 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 June 10, 2013. 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 the Company’s 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; the Company’s ability to enforce patents and protect proprietary products and manufacturing techniques; increase in costs of manufacturing and operating costs; the Company’s ability to achieve and sustain the savings anticipated from its structural cost improvement initiatives; volatility in foreign currency exchange rates, interest rates and energy costs and other macroeconomic challenges currently affecting the Company; the Company’s ability to meet its regulatory obligations; costs and outcome of pending or future claims or litigation; the Company’s ability to comply with environmental, health and safety laws and regulations; changes in product mix, market mix and product pricing, particularly relating to the expansion of the systems business; 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 successfully complete or integrate any acquisitions; competition, including the impact of pricing and other actions by the Company’s 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; the effect of the restrictive covenants in the Company’s debt facilities; and the effect of product defects and recalls. 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. 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).
 
(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 held for sale related to the Blood product line.
 
(4) Cash flows are inclusive of discontinued operations.
 
 
PALL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
 
          APR. 30, 2013     JUL. 31, 2012
 
Assets:
 
Cash and cash equivalents $ 903,967 $ 500,274
Accounts receivable 554,125 655,436
Inventories 406,123 364,766
Other current assets 187,515 195,464
Assets held for sale   -   136,517 (3 )
Total current assets   2,051,730   1,852,457
 
Property, plant and equipment 757,339 750,993
Other assets   638,172   744,442
Total assets $ 3,447,241 $ 3,347,892
 
Liabilities and Stockholders' Equity:
 
Short-term debt $ 215,387 $ 205,393
Accounts payable, income taxes and other current liabilities   552,896   646,735
Total current liabilities 768,283 852,128
 
Long-term debt, net of current portion 467,616 490,706
Deferred taxes and other non-current liabilities   476,358   495,023
Total liabilities 1,712,257 1,837,857
 
Stockholders' equity   1,734,984   1,510,035
Total liabilities and stockholders' equity $ 3,447,241 $ 3,347,892
 
 
PALL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
 
 
          THIRD QUARTER ENDED     NINE MONTHS ENDED
APR. 30, 2013     APR. 30, 2012 APR. 30, 2013     APR. 30, 2012
 
Net sales $ 641,190 $ 657,976 $ 1,931,245 $ 1,949,285
Cost of sales   307,111     323,550     928,120     941,342  
Gross profit   334,079     334,426     1,003,125     1,007,943  
% of sales 52.1 % 50.8 % 51.9 % 51.7 %
Selling, general and administrative expenses 199,595 215,226 601,569 632,982
% of sales 31.1 % 32.7 % 31.1 % 32.5 %
Research and development   22,608     20,780     68,582     60,351  
Operating profit 111,876 98,420 332,974 314,610
% of sales 17.4 % 15.0 % 17.2 % 16.1 %
Restructuring and other charges ("ROTC") (a) 12,824 2,861 21,497 31,001
Interest expense, net (c)   5,298     6,351     10,747     17,682  
Earnings from continuing operations before income taxes 93,754 89,208 300,730 265,927
Provision for income taxes (b)   19,483     18,270     56,975     60,691  
Net earnings from continuing operations $ 74,271 $ 70,938 $ 243,755 $ 205,236
Earnings/(loss) from discontinued operations, net of income taxes   (1,206 )   7,980     245,552     27,866  
Net Earnings $ 73,065   $ 78,918   $ 489,307   $ 233,102  
 
Average shares outstanding:
Basic 111,964 116,567 112,979 116,190
Diluted 113,311 118,358 114,415 117,817
 

Earnings/(loss) per share:

From continuing operations:
Basic $ 0.66 $ 0.61 $ 2.16 $ 1.77
Diluted $ 0.65 $ 0.60 $ 2.13 $ 1.74
 
From discontinued operations:
Basic $ (0.01 ) $ 0.07 $ 2.17 $ 0.24
Diluted $ (0.01 ) $ 0.07   $ 2.15   $ 0.24  
 
Total
Basic $ 0.65 $ 0.68 $ 4.33 $ 2.01
Diluted $ 0.64   $ 0.67   $ 4.28   $ 1.98  
 

Pro forma diluted earnings per share:

From continuing operations $ 0.74   $ 0.61   $ 2.15   $ 1.94  
 
 
PALL CORPORATION
RECONCILIATION OF PRO FORMA EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
 
 
      THIRD QUARTER ENDED     NINE MONTHS ENDED    
APR. 30, 2013     APR. 30, 2012 APR. 30, 2013     APR. 30, 2012
 
Pro forma earnings reconciliation from Continuing Operations  
Net earnings from continuing operations as reported $ 74,271 $ 70,938 $ 243,755 $ 205,236
Discrete items:
ROTC, after pro forma tax effect (a) 9,283 1,772 16,245 23,493
Tax adjustments (b) - - (10,193 ) -

Interest adjustments, after pro forma

 tax effect (c)

  -   -   (4,268 )   -
Total discrete items   9,283   1,772   1,784     23,493
Pro forma earnings from continuing operations $ 83,554 $ 72,710   245,539     228,729
 
FISCAL YEAR
THIRD QUARTER ENDED NINE MONTHS ENDED 2013 (ESTIMATE
APR. 30, 2013 APR. 30, 2012 APR. 30, 2013   APR. 30, 2012 AT MIDPOINT)
 
Diluted earnings per share from continuing operations as reported $ 0.65 $ 0.60 $ 2.13 $ 1.74 $ 2.98
Discrete items:
ROTC, after pro forma tax effect (a) 0.09 0.01 0.15 0.20 0.15
Tax adjustments (b) - - (0.09 ) - (0.09 )

Interest adjustments, after pro forma

 tax effect (c)

  -   -   (0.04 )   -   (0.04 )
Total discrete items   0.09   0.01   0.02     0.20   0.02  
Pro forma diluted earnings per share from continuing operations $ 0.74 $ 0.61 $ 2.15   $ 1.94 $ 3.00  
 
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 and nine months ended April 30, 2013 of $12,824 ($9,283 after pro forma tax effect of $3,541) and $21,497 ($16,245 after pro forma tax effect of $5,252), respectively primarily includes severance costs related to the Company's structural cost improvement initiatives, certain employment contract obligations and an adjustment to environmental reserves.
 
ROTC in the quarter and nine months ended April 30, 2012 of $2,861 ($1,772 after pro forma tax effect of $1,089) and $31,001 ($23,493 after pro forma tax effect of $7,508), respectively, includes expenses related to the Company's cost reduction initiatives, primarily in the Industrial segment and certain employment contract obligations. ROTC in the nine months was partly offset by a gain on the sale of assets.
 
(b) Provision for income taxes in the nine months ended April 30, 2013 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 nine months ended April 30, 2013 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)
 
 
          NINE MONTHS ENDED
APR. 30, 2013

(4)

APR. 30, 2012

(4)

   
Net cash provided by operating activities $ 206,890   $ 326,417  
 
Investing activities:
 
Acquisitions of businesses - (167,638 )
Capital expenditures (66,387 ) (126,923 )
Proceeds from sale of assets 537,284 25,604
Other   (676 )   (10,049 )
Net cash provided/(used) by investing activities   470,221     (279,006 )
 
Financing activities:
 
Dividends paid (80,197 ) (64,554 )

Borrowings/(repayments) of notes payable and long-

term borrowings

9,682 (15,290 )
Purchase of treasury stock (250,000 ) -
Other   39,785     39,022  
Net cash used by financing activities   (280,730 )   (40,822 )
 
Cash flow for period 396,381 6,589
Cash and cash equivalents at beginning of year 500,274 557,766
Effect of exchange rate changes on cash   7,312     (28,464 )
Cash and cash equivalents at end of period $ 903,967   $ 535,891  
 
 

Free cash flow:

Net cash provided by operating activities $ 206,890 $ 326,417
Less capital expenditures   66,387     126,923  
Free cash flow $ 140,503   $ 199,494  
 
 
PALL CORPORATION
SUMMARY SEGMENT PROFIT BY SEGMENT FROM CONTINUING OPERATIONS
(Unaudited)
(Dollar Amounts in Thousands)
 
 
        THIRD QUARTER ENDED       NINE MONTHS ENDED
APR. 30, 2013       APR. 30, 2012 APR. 30, 2013       APR. 30, 2012
 

Life Sciences

Sales $ 326,097 $ 317,969 $ 955,230 $ 918,954
Cost of sales   138,473     137,782     399,516     382,871  
Gross profit 187,624 180,187 555,714 536,083
% of sales 57.5 % 56.7 % 58.2 % 58.3 %
 
Selling, general and administrative expenses 91,897 91,289 277,216 265,696
% of sales 28.2 % 28.7 % 29.0 % 28.9 %
Research and development   14,532     13,512     44,984     37,196  
Segment profit $ 81,195   $ 75,386   $ 233,514   $ 233,191  
% of sales 24.9 % 23.7 % 24.4 % 25.4 %
 

Industrial

Sales $ 315,093 $ 340,007 $ 976,015 $ 1,030,331
Cost of sales   168,638     185,768     528,604     558,471  
Gross profit 146,455 154,239 447,411 471,860
% of sales 46.5 % 45.4 % 45.8 % 45.8 %
 
Selling, general and administrative expenses 92,526 107,540 277,090 317,510
% of sales 29.4 % 31.6 % 28.4 % 30.8 %
Research and development   8,076     7,268     23,598     23,155  
Segment profit $ 45,853   $ 39,431   $ 146,723   $ 131,195  
% of sales 14.6 % 11.6 % 15.0 % 12.7 %
 

Consolidated:

Segment profit $ 127,048 $ 114,817 $ 380,237 $ 364,386
Corporate services group   15,172     16,397     47,263     49,776  
Operating profit 111,876 98,420 332,974 314,610
% of sales 17.4 % 15.0 % 17.2 % 16.1 %
ROTC 12,824 2,861 21,497 31,001
Interest expense, net   5,298     6,351     10,747     17,682  

Earnings from continuing operations before

income taxes

$ 93,754   $ 89,208   $ 300,730   $ 265,927  
 
 
PALL CORPORATION
SUPPLEMENTAL SEGMENT SALES INFORMATION BY MARKET AND REGION
FROM CONTINUING OPERATIONS
(Unaudited)
(Dollar Amounts in Thousands)
 
                            EXCHANGE       % CHANGE
RATE IN LOCAL
THIRD QUARTER ENDED APR. 30, 2013 APR. 30, 2012 % CHANGE IMPACT CURRENCY
 

Life Sciences

|-------------- Increase/(Decrease) -------------|
By Market:
BioPharmaceuticals $ 219,558 $ 201,670 8.9 $ (4,521 ) 11.1
Food & Beverage 52,831 66,568 (20.6 ) (1,250 ) (18.8 )
Medical   53,708   49,731 8.0   (1,009 ) 10.0
Total Life Sciences $ 326,097 $ 317,969 2.6 $ (6,780 ) 4.7
 
By Region:
Americas $ 101,994 $ 95,505 6.8 $ (798 ) 7.6
Europe 162,284 154,527 5.0 (2,249 ) 6.5
Asia   61,819   67,937 (9.0 )   (3,733 ) (3.5 )
Total Life Sciences $ 326,097 $ 317,969 2.6 $ (6,780 ) 4.7
 
 

Industrial

By Market:
Process Technologies $ 187,013 $ 213,804 (12.5 ) $ (3,539 ) (10.9 )
Aerospace 63,192 50,706 24.6 (737 ) 26.1
Microelectronics   64,888   75,497 (14.1 )   (3,003 ) (10.1 )
Total Industrial $ 315,093 $ 340,007 (7.3 ) $ (7,279 ) (5.2 )
 
By Region:
Americas $ 107,390 $ 100,210 7.2 $ (1,093 ) 8.3
Europe 96,764 103,637 (6.6 ) (1,700 ) (5.0 )
Asia   110,939   136,160 (18.5 )   (4,486 ) (15.2 )
Total Industrial $ 315,093 $ 340,007 (7.3 ) $ (7,279 ) (5.2 )
 
 
PALL CORPORATION
SUPPLEMENTAL SEGMENT SALES INFORMATION BY MARKET AND REGION
FROM CONTINUING OPERATIONS
(Unaudited)
(Dollar Amounts in Thousands)
                                 
EXCHANGE % CHANGE
RATE IN LOCAL
NINE MONTHS ENDED APR. 30, 2013 APR. 30, 2012 % CHANGE IMPACT CURRENCY
 

Life Sciences

|-------------- Increase/(Decrease) -------------|
By Market:
BioPharmaceuticals $ 640,910 $ 599,329 6.9 $ (14,371 ) 9.3
Food & Beverage 159,365 175,953 (9.4 ) (4,347 ) (7.0 )
Medical   154,955   143,672 7.9   (3,091 ) 10.0
Total Life Sciences $ 955,230 $ 918,954 3.9 $ (21,809 ) 6.3
 
By Region:
Americas $ 303,810 $ 270,243 12.4 $ (2,323 ) 13.3
Europe 465,309 460,432 1.1 (13,105 ) 3.9
Asia   186,111   188,279 (1.2 )   (6,381 ) 2.2
Total Life Sciences $ 955,230 $ 918,954 3.9 $ (21,809 ) 6.3
 
 

Industrial

By Market:
Process Technologies $ 585,982 $ 639,743 (8.4 ) $ (11,136 ) (6.7 )
Aerospace 185,914 162,298 14.6 (1,543 ) 15.5
Microelectronics   204,119   228,290 (10.6 )   (5,171 ) (8.3 )
Total Industrial $ 976,015 $ 1,030,331 (5.3 ) $ (17,850 ) (3.5 )
 
By Region:
Americas $ 317,699 $ 314,001 1.2 $ (2,562 ) 2.0
Europe 300,943 309,124 (2.6 ) (8,502 ) 0.1
Asia   357,373   407,206 (12.2 )   (6,786 ) (10.6 )
Total Industrial $ 976,015 $ 1,030,331 (5.3 ) $ (17,850 ) (3.5 )
 

Pall Corporation
R. Brent Jones
Vice President of Finance & Treasurer
Telephone: 516-801-9848
Email: investor_relations@pall.com

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